Obligations and Contracts Cases

ATTY. DJUMEIL GERARD P.
TINAMPAY
1970 and the latter's other heirs had

waived their rights thereto; and (c) he
and his predecessor-in-interest had
been in possession of the property in
the concept of an owner for more than
thirty (30) years.
BOOK IV
TITLE V
Chapter 1
GENERAL PROVISIONS
Espinosa submitted the blueprint of

Advanced Survey Plan 07-000893 4 to
prove the identity of the land. As proof
that the property is alienable and
disposable, he marked as evidence the
annotation on the advance survey plan
made by Cynthia L. Ibaez, Chief of the
Map Projection Section, stating that
"CONFORMED
PER
L.C.
MAP
NOTATION L.C. Map No. 2545 Project
No. 28 certified on June 25, 1963,
verified to be within Alienable &
Disposable Area". 5 Espinosa also
presented two (2) tax declarations for
the years 1965 and 1974 in Isabel's
name Tax Declaration Nos. 013516
and 06137 to prove that she had
been in possession of the property since
1965. To support his claim that he had
been religiously paying the taxes due on
the property, Espinosa presented a
Certification 6 dated December 1, 1998
issued by the Office of the Treasurer of
Consolacion, Cebu and three (3) tax
declarations for the years 1978, 1980
and 1985 Tax Declaration Nos.
14010, 17681 and 01071. 7 . 8
ART. 1113 All things which are

within the commerce of men are
susceptible of prescription, unless
otherwise provided. Property of the
State or any of its subdivisions not
patrimonial in character shall not be
the object of prescription.
1. REPUBIC VS. ESPINOSA
SECOND DIVISION
[G.R. No. 171514. July 18, 2012.]
REPUBLIC OF THE PHILIPPINES,
petitioner, vs. DOMINGO ESPINOSA,
respondent.
DECISION
REYES, J p:
This is a petition for review on certiorari
from the Decision 1 dated November 11,
2004 and Resolution 2 dated February
13, 2006 of the Court of Appeals in CAG.R. CV No. 72456. ITHADC
Petitioner
opposed
Espinosa's
application, claiming that: (a) Section 48
(b) of Commonwealth Act No. 141
otherwise known as the "Public Land
Act" (PLA) had not been complied with
as Espinosa's predecessor-in-interest
possessed the property only after June
12, 1945; and (b) the tax declarations do
not prove that his possession and that of
his predecessor-in-interest are in the
character and for the length of time
required by law. CDHAcI
On March 3, 1999, respondent Domingo

Espinosa (Espinosa) filed with the
Municipal Trial Court (MTC) of
Consolacion, Cebu an application 3 for
land registration covering a parcel of
land with an area of 5,525 square
meters and situated in Barangay
Cabangahan, Consolacion, Cebu. In
support of his application, which was
docketed as LRC Case No. N-81,
Espinosa alleged that: (a) the property,
which is more particularly known as Lot
No. 8499 of Cad. 545-D (New), is
alienable and disposable; (b) he
purchased the property from his mother,
Isabel Espinosa (Isabel), on July 4,
On August 18, 2000, the MTC rendered

a Judgment 9 granting Espinosa's
petition for registration, the dispositive
portion of which states:
1
ATTY. DJUMEIL GERARD P. TINAMPAY
WHEREFORE, and in view of all the

foregoing, judgment is hereby rendered
ordering for the registration and the
confirmation of title of [Espinosa] over
Lot No. 8499, Cad 545-D (New),
situated at [B]arangay Cabangahan,
Consolacion,
Cebu,
Philippines,
containing an area of 5,525 square
meters and that upon the finality of this
decision, let a corresponding decree of
registration be issued in favor of the
herein applicant in accordance with
Section 39, P.D. 1529.
possession of the property only in 1970

following the sale that transpired
between him and his mother and the
earliest tax declaration in his name was
for the year 1978. According to
petitioner, that Espinosa and his
predecessor-in-interest
were
supposedly in possession for more than
thirty (30) years is inconsequential
absent proof that such possession
began on June 12, 1945 or earlier. 12
Petitioner also claimed that Espinosa's
failure to present the original tracing
cloth of the survey plan or a sepia copy
thereof is fatal to his application. Citing
Del Rosario v. Republic of the
Philippines 13 and Director of Lands v.
Judge Reyes, 14 petitioner argued that
the submission of the original tracing
cloth is mandatory in establishing the
identity of the land subject of the
application. 15
SO ORDERED. 10
According to the MTC, Espinosa was
able to prove that the property is
alienable and disposable and that he
complied with the requirements of
Section 14 (1) of Presidential Decree
(P.D.) No. 1529. Specifically:
After a careful consideration of the
evidence presented in the aboveentitled case, the Court is convinced,
and so holds, that [Espinosa] was able
to establish his ownership and
possession over the subject lot which is
within the area considered by the
Department of Environment and Natural
Resources (DENR) as alienable and
disposable land of the public domain.
Further, petitioner claimed that the

annotation on the advance survey plan
is not the evidence admissible to prove
that the subject land is alienable and
disposable. 16 SDTIHA
By way of the assailed decision, the CA
dismissed petitioner's appeal and
affirmed the MTC Decision dated August
18, 2000. The CA ruled that possession
for at least thirty (30) years, despite the
fact that it commenced after June 12,
1945, sufficed to convert the property to
private. Thus:
The Court is likewise convinced that the

applicant and that of [predecessor]-ininterest have been in open, actual,
public, continuous, adverse and under
claim of title thereto within the time
prescribed by law (Sec. 14, sub-par. 1,
P.D. 1529) and/or in accordance with the
Land Registration Act. 11
The contention of [petitioner] is not

meritorious on the following grounds:
a)The record of the case will show that
[Espinosa] has successfully established
valid title over the subject land and that
he and his predecessor-in-interest have
been in continuous, adverse, public and
undisturbed possession of said land in
the concept of an owner for more than
30 years before the filing of the
application. Established jurisprudence
has consistently pronounced that "open,
continuous and exclusive possession for
at least 30 years of alienable public land
Petitioner appealed to the CA and

pointed Espinosa's failure to prove that
his possession and that of his
predecessor-in-interest were for the
period required by law. As shown by Tax
Declaration No. 013516, Isabel's
possession commenced only in 1965
and not on June 12, 1945 or earlier as
required by Section 48 (b) of the PLA.
On the other hand, Espinosa came into
2
ipso jure converts the same into private

property (Director of Lands vs.
Intermediate Appellate Court, 214 SCRA
604). This means that occupation and
cultivation for more than 30 years by
applicant and his predecessor-ininterest vests title on such applicant so
as to segregate the land from the mass
of public land (National Power
Corporation vs. Court of Appeals, 218
SCRA 41); and
"The fact that the lower court finds the

evidence of the applicant sufficient to
justify the registration and confirmation
of her titles and did not find it necessary
to avail of the original tracing cloth plan
from the Land Registration Commission
for purposes of comparison, should not
militate against the rights of the
applicant. Such is especially true in this
case where no clear, strong, convincing
and more preponderant proof has been
shown by the oppositor to overcome the
correctness of said plans which were
found both by the lower court and the
Court of Appeals as conclusive proofs of
the description and identities of the
parcels of land contained therein."
b)It is true that the requirement of

possession since June 12, 1945 is the
latest amendment of Section 48(b) of
the Public Land Act (C.A. No. 141), but
a strict implementation of the law would
in certain cases result in inequity and
unfairness to [Espinosa]. As wisely
stated by the Supreme Court in the case
of Republic vs. Court of Appeals, 235
SCRA 567:
There is no dispute that, in case of Del

Rosario vs. Republic, supra, the
Supreme Court pronounced that the
submission in evidence of the original
tracing cloth plan, duly approved by the
Bureau of Lands, in cases for
application of original registration of land
is a mandatory requirement, and that
failure to comply with such requirement
is fatal to one's application for
registration.
However,
such
pronouncement need not be taken as an
iron clad rule nor to be applied strictly in
all cases without due regard to the
rationale behind the submission of the
tracing cloth plan. . . .:
"Following the logic of the petitioner, any

transferee is thus foreclosed to apply for
registration of title over a parcel of land
notwithstanding the fact that the
transferor, or his predecessor-in-interest
has been in open, notorious and
exclusive possession thereof for thirty
(30) years or more." 17
The CA also ruled that registration can
be based on other documentary
evidence, not necessarily the original
tracing cloth plan, as the identity and
location of the property can be
established
by
other
competent
evidence.
xxx xxx xxx

As long as the identity of and location of
the lot can be established by other
competent evidence like a duly
approved blueprint copy of the advance
survey plan of Lot 8499 and technical
description of Lot 8499, containing and
identifying the boundaries, actual area
and location of the lot, the presentation
of the original tracing cloth plan may be
excused. 18
Again, the aforesaid contention of [the

petitioner] is without merit. While the
best evidence to identify a piece of land
for registration purposes may be the
original tracing cloth plan from the Land
Registration Commission, the court may
sufficiently order the issuance of a
decree of registration on the basis of the
blue print copies and other evidence
(Republic of the Philippines vs.
Intermediate Appellate Court, G.R. No.
L-70594, October 10, 1986). The said
case provides further: ETDaIC
Moreover, the CA ruled that Espinosa

had duly proven that the property is
alienable and disposable:
3
[Espinosa] has established that Lot

8499 is alienable and disposable. In the
duly approved Advance Survey Plan As07-0000893 (sic) duly approved by the
Land Management Services, DENR,
Region
7,
Cebu
City,
it
is
certified/verified that the subject lot is
inside the alienable and disposable area
of the disposable and alienable land of
the public domain. 19
sufficed to prove that the land applied

for is alienable and disposable.
Our Ruling
The lower courts were unanimous in
holding that Espinosa's application is
anchored on Section 14 (1) of P.D. No.
1529 in relation to Section 48 (b) of the
PLA and the grant thereof is warranted
in view of evidence supposedly showing
his compliance with the requirements
thereof.
Petitioner moved for reconsideration but

this was denied by the CA in its
Resolution 20 dated February 13, 2006.
This Court is of a different view.
Petitioner's Case
Petitioner entreats this Court to reverse
and set aside the CA's assailed decision
and attributes the following errors: (a)
Espinosa failed to prove by competent
evidence that the subject property is
alienable
and
disposable;
(b)
jurisprudence dictates that a survey plan
identifies the property in preparation for
a judicial proceeding but does not
convert the property into alienable,
much less, private; (c) under Section 17
of P.D. No. 1529, the submission of the
original tracing cloth plan is mandatory
to determine the exact metes and
bounds of the property; and (d) a
blueprint copy of the survey plan may be
admitted as evidence of the identity and
location of the property only if it bears
the approval of the Director of Lands.
Based on Espinosa's allegations and his

supporting documents, it is patent that
his claim of an imperfect title over the
property in question is based on Section
14 (2) and not Section 14 (1) of P.D. No.
1529 in relation to Section 48 (b) of the
PLA. Espinosa did not allege that his
possession and that of his predecessorin-interest commenced on June 12,
1945 or earlier as prescribed under the
two (2) latter provisions. On the contrary,
Espinosa repeatedly alleged that he
acquired title thru his possession and
that of his predecessor-in-interest,
Isabel, of the subject property for thirty
(30) years, or through prescription.
Therefore, the rule that should have
been applied is Section 14 (2) of P.D.
No. 1529, which states:
Sec. 14. Who may apply. The
following persons may file in the proper
Court of First Instance an application for
registration of title to land, whether
personally or through their duly
authorized representatives:
Issues
The resolution of the primordial question
of whether Espinosa has acquired an
imperfect title over the subject property
that is worthy of confirmation and
registration
is
hinged
on
the
determination of the following issues:
xxx xxx xxx
a.whether the blueprint of the advanced

survey plan substantially complies with
Section 17 of P.D. No. 1529; and
AICHaS
(2)Those who have acquired ownership

of private lands by prescription under
the provision of existing laws.
Obviously, the confusion that attended
the lower courts' disposition of this case
stemmed from their failure to apprise
themselves of the changes that Section
48 (b) of the PLA underwent over the
b.whether the notation on the blueprint

copy of the plan made by the geodetic
engineer who conducted the survey
4
years. Section 48 (b) of the PLA

originally states:
application for confirmation of title

except when prevented by war or force
majeure. These shall be conclusively
presumed to have performed all the
conditions essential to a Government
grant and shall be entitled to a certificate
of title under the provisions of this
chapter. cCSDaI
Sec. 48.The following described citizens

of the Philippines, occupying lands of
the public domain or claiming to own
any such lands or an interest therein,
but whose titles have not been perfected
or completed, may apply to the Court of
First Instance of the province where the
land is located for confirmation of their
claims and the issuance of a certificate
of title therefor, under the Land
Registration Act, to wit:
On January 25, 1977, P.D. No. 1073

was issued, changing the requirement
for possession and occupation for a
period of thirty (30) years to possession
and occupation since June 12, 1945 or
earlier. Section 4 of P.D. No. 1073
states:
xxx xxx xxx

(b)Those who by themselves or through
their predecessors-in-interest have been
in the open, continuous, exclusive and
notorious possession and occupation of
agricultural lands of the public domain,
under a bona fide claim of acquisition or
ownership, except as against the
Government, since July twenty-sixth,
eighteen hundred and ninety-four,
except when prevented by war or force
majeure. These shall be conclusively
presumed to have performed all the
conditions essential to a Government
grant and shall be entitled to a certificate
of title under the provisions of this
chapter.
Sec. 4. The provisions of Section 48(b)

and Section 48(c), Chapter VIII of the
Public Land Act are hereby amended in
the sense that these provisions shall
apply only to alienable and disposable
lands of the public domain which have
been in open, continuous, exclusive and
notorious possession and occupation by
the applicant himself or thru his
predecessor-in-interest, under a bona
fide claim of acquisition of ownership,
since June 12, 1945.
On June 11, 1978, P.D. No. 1529 was
enacted. Notably, the requirement for
possession and occupation since June
12, 1945 or earlier was adopted under
Section 14 (1) thereof.
Thus, the required possession and

occupation for judicial confirmation of
imperfect title was since July 26, 1894
or earlier.
P.D. No. 1073, in effect, repealed R.A.

No. 1942 such that applications under
Section 48 (b) of the PLA filed after the
promulgation of P.D. No. 1073 should
allege and prove possession and
occupation that dated back to June 12,
1945 or earlier. However, vested rights
may have been acquired under Section
48 (b) prior to its amendment by P.D.
No. 1073. That is, should petitions for
registration filed by those who had
already been in possession of alienable
and disposable lands of the public
domain for thirty (30) years at the time
P.D. No. 1073 was promulgated be
denied because their possession
commenced after June 12, 1945? In
On June 22, 1957, Republic Act (R.A.)

No. 1942 amended Section 48 (b) of the
PLA by providing a thirty (30)-year
prescriptive
period
for
judicial
confirmation of imperfect title. Thus:
(b)Those who by themselves or through
their predecessors-in-interest have been
in the open, continuous, exclusive and
notorious possession and occupation of
under a bona fide claim of acquisition or
ownership, for at least thirty years
immediately preceding the filing of the
5
Abejaron v. Nabasa, 21 this Court

resolved this legal predicament as
follows:
that there is an option between

possession and occupation for thirty
(30) years and possession and
occupation since June 12, 1945 or
earlier. It is neither contemplated under
Section 48 (b) that if possession and
occupation of an alienable and
disposable public land started after June
12, 1945, it is still possible to acquire an
imperfect title if such possession and
occupation spanned for thirty (30) years
at the time of the filing of the application.
cDSaEH
However, as petitioner Abejaron's 30year period of possession and

occupation required by the Public Land
Act, as amended by R.A. 1942 ran from
1945 to 1975, prior to the effectivity of
P.D. No. 1073 in 1977, the requirement
of said P.D. that occupation and
possession should have started on June
12, 1945 or earlier, does not apply to
him. As the Susi doctrine holds that the
grant of title by virtue of Sec. 48(b) takes
place by operation of law, then upon
Abejaron's
satisfaction
of
the
requirements of this law, he would have
already gained title over the disputed
land in 1975. This follows the doctrine
laid down in Director of Lands v.
Intermediate Appellate Court, et al., that
the law cannot impair vested rights such
as a land grant. More clearly stated,
"Filipino citizens who by themselves or
their
predecessors-in-interest
have
been, prior to the effectivity of P.D. 1073
on January 25, 1977, in open,
continuous, exclusive and notorious
possession
and
occupation
of
under a bona fide claim of acquisition of
ownership, for at least 30 years, or at
least since January 24, 1947" may apply
for judicial confirmation of their imperfect
or incomplete title under Sec. 48(b) of
the Public Land Act. 22 (Citations
omitted)
In this case, the lower courts concluded

that Espinosa complied with the
requirements of Section 48 (b) of the
PLA in relation to Section 14 (1) of P.D.
No. 1529 based on supposed evidence
that he and his predecessor-in-interest
had been in possession of the property
for at least thirty (30) years prior to the
time he filed his application. However,
there is nothing on record showing that
as of January 25, 1977 or prior to the
effectivity of P.D. No. 1073, he or Isabel
had already acquired title by means of
possession and occupation of the
property for thirty (30) years. On the
contrary, the earliest tax declaration in
Isabel's name was for the year 1965
indicating that as of January 25, 1977,
only twelve (12) years had lapsed from
the time she first came supposedly into
possession.
The CA's reliance on Director of Lands
v. Intermediate Appellate Court 23 is
misplaced
considering
that
the
application therein was filed on October
20, 1975 or before the effectivity of P.D.
No. 1073. The same can be said with
respect to National Power Corporation v.
Court of Appeals. 24 The petition for
registration therein was filed on August
21, 1968 and at that time, the prevailing
rule was that provided under Section 48
(b) as amended by R.A. No. 1942.
Consequently, for one to invoke Section

48 (b) and claim an imperfect title over
an alienable and disposable land of the
public domain on the basis of a thirty
(30)-year possession and occupation, it
must be demonstrated that such
possession and occupation commenced
on January 24, 1947 and the thirty (30)year period was completed prior to the
effectivity of P.D. No. 1073.
In Republic v. Court of Appeals, 25 the

applicants
therein
entered
into
possession of the property on June 17,
1978 and filed their application on
There is nothing in Section 48 (b) that

would suggest that it provides for two (2)
modes of acquisition. It is not the case
6
February 5, 1987. Nonetheless, there is

evidence that the individuals from whom
the applicant purchased the property, or
their predecessors-in-interest, had been
in possession since 1937. Thus, during
the effectivity of Section 48 (b) as
amended by R.A. No. 1942, or while the
prevailing rule was possession and
occupation for thirty (30) years, or prior
to the issuance of P.D. No. 1073, the
thirty (30)-year prescriptive period was
already completed.
property may be rendered susceptible to

prescription:
Nonetheless, Article 422 of the Civil
Code states that "[p]roperty of public
dominion, when no longer intended for
public use or for public service, shall
form part of the patrimonial property of
the State." It is this provision that
controls how public dominion property
may be converted into patrimonial
property susceptible to acquisition by
prescription. After all, Article 420(2)
makes clear that those property "which
belong to the State, without being for
public use, and are intended for some
public service or for the development of
the national wealth" are public dominion
property. For as long as the property
belongs to the State, although already
classified as alienable or disposable, it
remains property of the public dominion
if when it is "intended for some public
service or for the development of the
national wealth." (Emphasis supplied)
EcHAaS
Thus, assuming that it is Section 48 (b)

of the PLA in relation to Section 14 (1) of
P.D. No. 1529 that should apply in this
case, as the lower courts held, it was
incumbent upon Espinosa to prove,
among other things, that Isabel's
possession of the property dated back
at least to June 12, 1945. That in view of
the established fact that Isabel's alleged
possession and occupation started
much later, the lower courts should have
dismissed
Espinosa's
application
outright.
In sum, the CA, as well as the MTC,
erred in not applying the present text of
Section 48 (b) of the PLA. That there
were instances wherein applications
were granted on the basis of possession
and occupation for thirty (30) years was
for the sole reason discussed above.
Regrettably, such reason does not
obtain in this case.
Accordingly, there must be an express

declaration by the State that the public
dominion property is no longer intended
for public service or the development of
the national wealth or that the property
has been converted into patrimonial.
Without such express declaration, the
property, even if classified as alienable
or disposable, remains property of the
public dominion, pursuant to Article
420(2), and thus incapable of acquisition
by prescription. It is only when such
alienable and disposable lands are
expressly declared by the State to be no
longer intended for public service or for
the development of the national wealth
that the period of acquisitive prescription
can begin to run. Such declaration shall
be in the form of a law duly enacted by
Congress or a Presidential Proclamation
in cases where the President is duly
authorized by law. 27
Being clear that it is Section 14 (2) of

P.D. No. 1529 that should apply, it
follows that the subject property being
supposedly alienable and disposable
will not suffice. As Section 14 (2)
categorically provides, only private
properties may be acquired thru
prescription and under Articles 420 and
421 of the Civil Code,only those
properties, which are not for public use,
public service or intended for the
development of national wealth, are
considered private. In Heirs of Mario
Malabanan v. Republic, 26 this Court
held that there must be an official
declaration to that effect before the
Thus, granting that Isabel and, later,

Espinosa possessed and occupied the
property for an aggregate period of thirty
7
(30) years, this does not operate to

divest the State of its ownership. The
property, albeit allegedly alienable and
disposable, is not patrimonial. As the
property is not held by the State in its
private capacity, acquisition of title
thereto necessitates observance of the
provisions of Section 48 (b) of the PLA
in relation to Section 14 (1) of P.D. No.
1529 or possession and occupation
since June 12, 1945. For prescription to
run against the State, there must be
proof that there was an official
declaration that the subject property is
no longer earmarked for public service
or the development of national wealth.
Moreover, such official declaration
should have been issued at least ten
(10) or thirty (30) years, as the case
may be, prior to the filing of the
application for registration. The period of
possession and occupation prior to the
conversion of the property to private or
patrimonial shall not be considered in
determining
completion
of
the
prescriptive period. Indeed, while a
piece of land is still reserved for public
service or the development of national
wealth, even if the same is alienable
and
disposable,
possession
and
occupation no matter how lengthy will
not ripen to ownership or give rise to
any title that would defeat that of the
State's if such did not commence on
June 12, 1945 or earlier.
of the inalienable public domain. The

burden of proof in overcoming the
presumption of State ownership of the
lands of the public domain is on the
person applying for registration (or
claiming ownership), who must prove
that the land subject of the application is
alienable or disposable. To overcome
this
presumption,
incontrovertible
evidence must be established that the
land subject of the application (or claim)
is alienable or disposable. 28
At any rate, as petitioner correctly

pointed out, the notation on the survey
plan does not constitute incontrovertible
evidence that would overcome the
presumption that the property belongs to
the inalienable public domain.
Menguito v. Republic teaches, however,

that reliance on such a notation to prove
that the lot is alienable is insufficient and
does not constitute incontrovertible
evidence to overcome the presumption
that it remains part of the inalienable
public domain. TaISDA
In Republic v. Sarmiento, 29 this Court

reiterated the earlier ruling in Menguito
v. Republic 30 that the notation made by
a surveyor-geodetic engineer that the
property surveyed is alienable and
disposable
is
not
the
positive
government act that would remove the
property from the inalienable domain.
Neither it is the evidence accepted as
sufficient to controvert the presumption
that the property is inalienable:
To discharge the onus, respondent
relies on the blue print copy of the
conversion
and
subdivision
plan
approved by the DENR Center which
bears the notation of the surveyorgeodetic engineer that "this survey is
inside the alienable and disposable
area, Project No. 27-B. L.C. Map No.
2623, certified on January 3, 1968 by
the Bureau of Forestry."
All lands of the public domain belong to

the State, which is the source of any
asserted right to any ownership of land.
All lands not appearing to be clearly
within private ownership are presumed
to belong to the State. Accordingly,
public lands not shown to have been
reclassified or released as alienable
agricultural land, or alienated to a
private person by the State, remain part
"To prove that the land in question

formed part of the alienable and
disposable lands of the public domain,
petitioners relied on the printed words
which read: "This survey plan is inside
Alienable and Disposable Land Area,
Project No. 27-B as per L.C. Map No.
2623, certified by the Bureau of Forestry
on January 3, 1968," appearing on
8
Exhibit "E" (Survey Plan No. Swo-13000227).
be admitted as evidence of the identity

and location of the subject property if:
(a) it was duly executed by a licensed
geodetic engineer; (b) it proceeded
officially from the Land Management
Services (LMS) of the DENR; and (c) it
is accompanied by a technical
description of the property which is
certified as correct by the geodetic
surveyor who conducted the survey and
the LMS of the DENR. As ruled in
Republic v. Guinto-Aldana, 32 the
identity of the land, its boundaries and
location can be established by other
competent evidence apart from the
original tracing cloth such as a duly
executed blueprint of the survey plan
and technical description:
This proof is not sufficient. Section 2,

Article XII of the 1987 Constitution,
provides: "All lands of the public domain,
waters, minerals, coal, petroleum, and
other mineral oils, all forces of potential
energy, fisheries, forests or timber,
wildlife, flora and fauna, and other
natural resources are owned by the
State. . . ."
For the original registration of title, the
applicant (petitioners in this case) must
overcome the presumption that the land
sought to be registered forms part of the
public domain. Unless public land is
shown to have been reclassified or
alienated to a private person by the
State, it remains part of the inalienable
public domain. Indeed, "occupation
thereof in the concept of owner, no
matter how long, cannot ripen into
ownership and be registered as a title."
To
overcome
such
presumption,
incontrovertible evidence must be
shown by the applicant. Absent such
evidence, the land sought to be
registered remains inalienable.
Yet if the reason for requiring an

applicant to adduce in evidence the
original tracing cloth plan is merely to
provide a convenient and necessary
means to afford certainty as to the exact
identity of the property applied for
registration and to ensure that the same
does not overlap with the boundaries of
the adjoining lots, there stands to be no
reason why a registration application
must be denied for failure to present the
original tracing cloth plan, especially
where it is accompanied by pieces of
evidence such as a duly executed
blueprint of the survey plan and a duly
executed technical description of the
property which may likewise
substantially and with as much certainty
prove the limits and extent of the
property sought to be registered. 33
In the present case, petitioners cite a

surveyor geodetic engineer's notation in
Exhibit "E" indicating that the survey
was inside alienable and disposable
land. Such notation does not constitute
a positive government act validly
changing the classification of the land in
question. Verily, a mere surveyor has no
authority to reclassify lands of the public
domain. By relying solely on the said
surveyor's assertion, petitioners have
not sufficiently proven that the land in
question has been declared alienable."
31 (Citations omitted and underscoring
supplied)
However, while such blueprint copy of

the survey plan may be offered as
evidence of the identity, location and the
boundaries of the property applied for,
the notation therein may not be admitted
as evidence of alienability and
disposability. In Republic v. Heirs of
Juan Fabio, 34 this Court enumerated
the documents that are deemed relevant
and sufficient to prove that the property
is already outside the inalienable public
domain as follows:
Therefore, even if Espinosa's application

may not be dismissed due to his failure
to present the original tracing cloth of
the survey plan, there are numerous
grounds for its denial. The blueprint
copy of the advanced survey plan may
9
In Republic v. T.A.N. Properties, Inc., we

ruled that it is not enough for the
Provincial Environment and Natural
Resources Office (PENRO) or CENRO
to certify that a land is alienable and
disposable. The applicant for land
registration must prove that the DENR
Secretary had approved the land
classification and released the land of
the public domain as alienable and
disposable, and that the land subject of
the application for registration falls
within the approved area per verification
through survey by the PENRO or
CENRO. In addition, the applicant must
present a copy of the original
classification of the land into alienable
and disposable, as declared by the
DENR Secretary, or as proclaimed by
the President. Such copy of the DENR
Secretary's
declaration
or
the
President's proclamation must be
certified as a true copy by the legal
custodian of such official record. These
facts must be established to prove that
the land is alienable and disposable. 35
(Citation omitted) EScAHT
November 11, 2004 and Resolution

dated February 13, 2006 of the Court of
Appeals in CA-G.R. CV No. 72456 are
REVERSED and SET ASIDE and
Domingo Espinosa's application for
registration of title over Lot No. 8499 of
Cad. 545-D (New) located at Barangay
Cabangahan, Consolacion, Cebu is
hereby DENIED for lack of merit. No
pronouncement as to costs.
SO ORDERED.
Carpio, Brion, Perez and Sereno, JJ.,
concur.
||| (Republic v. Espinosa, G.R. No.

171514, [July 18, 2012], 691 PHIL 314335)
ART. 1126 Against a title recorded
in the Registry of Property, ordinary
prescription of ownership or real
rights shall not take place to the
prejudice of a third person, except in
virtue of another title also recorded;
and the time shall begin to run from
the recording of the latter.
Based on the foregoing, it appears that

Espinosa cannot avail the benefits of
either Section 14 (1) of P.D. No. 1529 in
relation to Section 48 (b) of the PLA or
Section 14 (2) of P.D. No. 1529.
Applying Section 14 (1) of P.D. No. 1529
and Section 48 (b) of the PLA, albeit
improper, Espinosa failed to prove that:
(a) Isabel's possession of the property
dated back to June 12, 1945 or earlier;
and (b) the property is alienable and
disposable. On the other hand, applying
Section 14 (2) of P.D. No. 1529,
Espinosa failed to prove that the
property is patrimonial. As to whether
Espinosa was able to prove that his
possession and occupation and that of
Isabel were of the character prescribed
by law, the resolution of this issue has
been rendered unnecessary by the
foregoing considerations.
2. SUPAPO VS. DE JESUS

SECOND DIVISION
[G.R. No. 198356. April 20, 2015].
ESPERANZA SUPAPO and the HEIRS
OF
ROMEO
SUPAPO,
namely:
ESPERANZA,
REX
EDWARD,
RONALD TROY, ROMEO, JR., SHEILA
LORENCE, all surnamed SUPAPO, and
SHERYL
FORTUNE
SUPAPOSANDIGAN, petitioners, vs. SPOUSES
ROBERTO and SUSAN DE JESUS,
MACARIO BERNARDO, and THOSE
PERSONS CLAIMING RIGHTS UNDER
THEM, respondents.
DECISION
BRION, J p:
We resolve the petition for review on
certiorari
1
filed
by petitioners
WHEREFORE, premises considered,

the petition is GIVEN DUE COURSE
and GRANTED. The Decision dated
10
Esperanza Supapo and Romeo Supapo

2 (Spouses Supapo) to assail the
February 25, 2011 decision 3 and
August 25, 2011 resolution 4 of the
Court of Appeals (CA) in CA-G.R. SP
No. 111674.
Factual Antecedents
The Spouses Supapo filed a complaint 5
for accion publiciana against Roberto
and Susan de Jesus (Spouses de
Jesus), Macario Bernardo (Macario),
and persons claiming rights under them
(collectively, the respondents), with the
Metropolitan Trial Court (MeTC) of
Caloocan City.
The complaint sought to compel the
respondents to vacate a piece of land
located in Novaliches, Quezon City,
described as Lot 40, Block 5 (subject
lot). The subject lot is covered by
Transfer Certificate of Title (TCT) No. C28441 6 registered and titled under the
Spouses Supapo's names. The land has
an assessed value of thirty-nine
thousand nine hundred eighty pesos
(P39,980.00)
as
shown
in
the
Declaration of Real Property Value (tax
declaration) issued by the Office of the
City Assessor of Caloocan. 7
The Spouses Supapo did not reside on
the subject lot. They also did not employ
an overseer but they made sure to visit
at least twice a year. 8 During one of
their visits in 1992, they saw two (2)
houses built on the subject lot. The
houses were built without their
knowledge and permission. They later
learned that the Spouses de Jesus
occupied one house while Macario
occupied the other one. 9
The Spouses Supapo demanded from
the
respondents
the
immediate
surrender of the subject lot by bringing
the dispute before the appropriate
Lupong Tagapamayapa. The Lupon
issued a Katibayan Upang Makadulog
sa Hukuman (certificate to file action) for
failure of the parties to settle amicably.
10
The Spouses Supapo then filed a
criminal
case
11
against
the
respondents for violation of Presidential
Decree No. 772 or the Anti-Squatting
Law. 12 The trial court convicted the

respondents. The dispositive portion of
the decision reads:
WHEREFORE, in view of all the
foregoing, this Court finds accused
ROBERTO DE JESUS, SUSAN DE
JESUS and MACARIO BERNARDO,
GUILTY beyond reasonable doubt for
Violation of Presidential Decree No. 772,
and each accused is hereby ordered to
pay a fine of ONE THOUSAND PESOS
(P1,000.00), and to vacate the subject
premises.
SO
ORDERED.
13
(Emphasis
supplied.)
The
respondents
appealed
their
conviction to the CA. 14 While the
appeal was pending, Congress enacted
Republic Act (RA) No. 8368, otherwise
known
as
"An
Act
Repealing
Presidential Decree No. 772," which
resulted to the dismissal of the criminal
case. 15
On April 30, 1999, the CA's dismissal of
the criminal case became final. 16
Notwithstanding the dismissal, the
Spouses Supapo moved for the
execution of the respondents' civil
liability, praying that the latter vacate the
subject lot. The Regional Trial Court
(RTC) granted the motion and issued
the writ of execution. The respondents
moved for the quashal of the writ but the
RTC denied the same. The RTC also
denied the respondents' motion for
reconsideration.
The respondents thus filed with the CA a
petition for certiorari to challenge the
RTC's orders denying the quashal of the
writ and the respondent's motion for
reconsideration. 17 The CA granted the
petition and held that with the repeal of
the Anti-Squatting Law, the respondents'
criminal and civil liabilities were
extinguished. 18 The dispositive portion
of the decision reads:
the petition for certiorari with prayer for
injunction is GRANTED. The orders
dated June 5, 2003 and July 24, 2003 of
Branch 131 of the Regional Trial Court
of Caloocan City in Criminal Case No.
C-45610 are REVERSED and SET
11
ASIDE.
Said
court
is
hereby
permanently ENJOINED from further
executing or implementing its decision
dated March 18, 1996.
SO ORDERED.
The CA, however, underscored that the
repeal of the Anti-Squatting Law does
not mean that people now have
unbridled license to illegally occupy
lands they do not own, and that it was
not intended to compromise the property
rights of legitimate landowners. 19 In
cases of violation of their property rights,
the CA noted that recourse may be had
in court by filing the proper action for
recovery of possession.
The Spouses Supapo thus filed the
complaint for accion publiciana. 20
After filing their Answer, 21 the
respondents moved to set their
affirmative defenses for preliminary
hearing 22 and argued that: (1) there is
another action pending between the
same parties; (2) the complaint for
accion publiciana is barred by statute of
limitations; and (3) the Spouses
Supapo's cause of action is barred by
prior judgment.
The MeTC Ruling 23
The MeTC denied the motion to set the
affirmative defenses for preliminary
hearing. It ruled that the arguments
advanced by the respondents are
evidentiary in nature, which at best can
be utilized in the course of the trial. The
MeTC likewise denied the respondents'
motion for reconsideration.
From
the
MeTC's
ruling,
the
respondents filed a petition for certiorari
with the RTC. 24
The RTC Ruling 25
The RTC granted the petition for
certiorari on two grounds, viz.: (i) the
action has prescribed; and (ii) accion
publiciana falls within the exclusive
jurisdiction of the RTC.
It held that in cases where the only
issue involved is possession, the MeTC
has jurisdiction if the action for forcible
entry or unlawful detainer is filed within
one (1) year from the time to demand to
vacate was made. Otherwise, the
complaint for recovery of possession

should be filed before the RTC.
The dispositive portion of the RTC
decision reads:
the instant petition is hereby GRANTED.
The Orders dated October 24, 2008 and
February 23, 2009 are hereby declared
NULL and VOID.
The Public Respondent is hereby
directed to DISMISS Civil Case No. 0829245 for lack of jurisdiction.
SO ORDERED. 26
In their motion for reconsideration, 27
the Spouses Supapo emphasized that
the court's jurisdiction over an action
involving title to or possession of land is
determined by its assessed value; that
the RTC does not have an exclusive
jurisdiction on all complaints for accion
publiciana; and that the assessed value
of the subject lot falls within MeTC's
jurisdiction.
The RTC denied the petitioners' motion
for reconsideration.
It held that although the MeTC had
jurisdiction based on the assessed value
of the subject lot, the Spouses Supapos'
cause of action had already prescribed,
the action having been filed beyond the
ten (10)-year prescriptive period under
Article 555 of the Civil Code.28 As it was
not proven when the actual demand to
vacate was made, the RTC ruled that
the reckoning period by which the
ejectment suit should have been filed is
counted from the time the certificate to
file action was issued. The certificate to
file action was issued on November 25,
1992, while the complaint for accion
publiciana was filed only on March 7,
2008, or more than ten (10) years
thereafter.
Dissatisfied with the RTC ruling, the
Spouses Supapo appealed to the CA.
29
The CA Ruling 30
The CA dismissed the appeal and held
that the complaint for accion publiciana
should have been lodged before the
RTC and that the period to file the action
had prescribed.
12
The dispositive portion of the CA

decision reads:
WHEREFORE, the appeal is DENIED.
The Decision dated June 30, 2009 and
Order dated October 19, 2009 are
AFFIRMED.
SO ORDERED.
The Spouses Supapo moved 31 but
failed 32 to secure a reconsideration of
the CA decision; hence, they came to us
through the present petition.
The Petition
In seeking reversal of the CA's ruling,
the Spouses Supapo essentially argue
that:
(1) the MeTC exercises exclusive
original
jurisdiction
over
accion
publiciana where the assessed value of
the
property
does
not
exceed
P20,000.00, or P50,000.00 if the
property is located in Metro Manila; and
that
(2) prescription had not yet set in
because their cause of action is
imprescriptible under the Torrens
system.
The Respondents' Case 33
The respondents argue that the
complaint for accion publiciana was (1)
filed in the wrong court; (2) barred by
prescription; and (3) barred by res
judicata.
Issues
The issues for resolution are:
I. Whether the MeTC properly acquired
jurisdiction;
II. Whether the cause of action has
prescribed; and
III. Whether the complaint for accion
publiciana is barred by res judicata.
Our Ruling
The petition is meritorious.
We hold that: (1) the MeTC properly
acquired jurisdiction; (2) the cause of
action has not prescribed; and (3) the
complaint is not barred by res judicata.
Accion Publiciana and
the Jurisdiction of the
MeTC
Accion publiciana is an ordinary civil
proceeding to determine the better right
of possession of realty independent of
title. It refers to an ejectment suit filed
after the expiration of one year from the

accrual of the cause of action or from
the unlawful withholding of possession
of the realty. 34
In the present case, the Spouses
Supapo filed an action for the recovery
of possession of the subject lot but they
based their better right of possession on
a claim of ownership.
This Court has held that the objective of
the plaintiffs in accion publiciana is to
recover possession only, not ownership.
However, where the parties raise the
issue of ownership, the courts may pass
upon the issue to determine who
between the parties has the right to
possess the property. 35
This adjudication is not a final
determination of the issue of ownership;
it is only for the purpose of resolving the
issue of possession, where the issue of
ownership is inseparably linked to the
issue of possession. The adjudication of
the
issue
of
ownership,
being
provisional, is not a bar to an action
between the same parties involving title
to the property. The adjudication, in
short, is not conclusive on the issue of
ownership. 36
Thus, while we will dissect the Spouses
Supapo's claim of ownership over the
subject property, we will only do so to
determine if they or the respondents
should have the right of possession.
Having thus determined that the dispute
involves possession over a real
property, we now resolve which court
has the jurisdiction to hear the case.
Under Batas Pambansa Bilang 129, 37
the jurisdiction of the RTC over actions
involving title to or possession of real
property is plenary. 38
RA No. 7691, 39 however, divested the
RTC of a portion of its jurisdiction and
granted the Metropolitan Trial Courts,
Municipal Trial Courts and Municipal
Circuit Trial Courts the exclusive and
original jurisdiction to hear actions
where the assessed value of the
property does not exceed Twenty
Thousand Pesos (P20, 000.00), or Fifty
Thousand Pesos (P50,000.00), if the
property is located in Metro Manila.
13
Section 1 of RA No. 7691 states:

Section 1. Section 19 of Batas
Pambansa Blg. 129, otherwise known
as the "Judiciary Reorganization Act of
1980," is hereby amended to read as
follows:
Section 19. Jurisdiction in civil cases.
Regional Trial Courts shall exercise
exclusive original jurisdiction:
(2) In all civil actions which involve the
title to, or possession of, real property,
or any interest therein, where the
assessed value of the property involved
exceeds Twenty thousand pesos
(P20,000.00) or, for civil actions in Metro
Manila, where such value exceeds Fifty
thousand pesos (P50,000.00) . . . .
(Emphasis supplied.)
Section 3 of the same law provides:
Section 3. Section 33 of the same law is
hereby amended to read as follows:
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
(3) Exclusive original jurisdiction in all
civil actions which involve title to, or
possession of, real property, or any
interest therein where the assessed
value of the property or interest therein
does not exceed Twenty thousand
pesos (P20,000.00) or, in civil actions in
Metro Manila, where such assessed
value does not exceed Fifty thousand
pesos
(P50,000.00)
exclusive
of
interest, damages of whatever kind,
attorney's fees, litigation expenses and
costs . . . . (Emphasis supplied.)
In view of these amendments,
jurisdiction over actions involving title to
or possession of real property is now
determined by its assessed value. 40
The assessed value of real property is
its fair market value multiplied by the
assessment level. It is synonymous to
taxable value. 41
In Quinagoran v. Court of Appeals, 42
we explained:
[D]oes the RTC have jurisdiction over all
cases of recovery of possession
regardless of the value of the property

involved?
The answer is no. The doctrine on which
the RTC anchored its denial of
petitioner's Motion to Dismiss, as
affirmed by the CA that all cases of
recovery of possession or accion
publiciana lies with the regional trial
courts regardless of the value of the
property no longer holds true. As
things now stand, a distinction must be
made between those properties the
assessed value of which is below
P20,000.00, if outside Metro Manila; and
P50,000.00, if within. 43 (Emphasis
supplied.)
In this regard, the complaint must allege
the assessed value of the real property
subject of the complaint or the interest
thereon to determine which court has
jurisdiction over the action. This is
required because the nature of the
action and the court with original and
exclusive jurisdiction over the same is
determined by the material allegations
of the complaint, the type of relief
prayed for by the plaintiff, and the law in
effect when the action is filed,
irrespective of whether the plaintiffs are
entitled to some or all of the claims
asserted therein. 44
In the present case, the Spouses
Supapo alleged that the assessed value
of the subject lot, located in Metro
Manila, is P39,980.00. This is proven by
the tax declaration 45 issued by the
Office of the City Assessor of Caloocan.
The respondents do not deny the
genuineness and authenticity of this tax
declaration.
Given that the Spouses Supapo duly
complied
with
the
jurisdictional
requirements, we hold that the MeTC of
Caloocan properly acquired jurisdiction
over the complaint for accion publiciana.
The cause of action has
not prescribed
The respondents argue that the
complaint for accion publiciana is
dismissible for being filed out of time.
They invoke Article 555 of the Civil
Code,which states:
14
Art. 555. A possessor may lose his

possession:
xxx xxx xxx
(4) By the possession of another,
subject to the provisions of Article 537, if
the new possession has lasted longer
than one year. But the real right of
possession is not lost till after the lapse
of ten years. (Emphasis supplied.)
The respondents point out that the
Spouses Supapo filed the complaint for
accion publiciana on March 7, 2008 or
more than ten (10) years after the
certificate to file action was issued on
November 25, 1992. The respondents
contend that the Spouses Supapo may
no longer recover possession of the
subject property, the complaint having
been filed beyond the period provided
by law.
Further, while the respondents concede
that the Spouses Supapo hold a TCT
over the subject property, and assuming
a Torrens title is imprescriptible and
indefeasible, they posit that the latter
have lost their right to recover
possession because of laches.
On their part, the Spouses Supapo
admit that they filed the complaint for
accion publiciana more than ten (10)
years after the certificate to file action
was issued. Nonetheless, they argue
that their cause
of action
is
imprescriptible
since
the
subject
property is registered and titled under
the Torrens system.
We rule that the Spouses Supapo's
position is legally correct.
At the core of this controversy is a
parcel of land registered under the
Torrens system. The Spouses Supapo
acquired the TCT on the subject lot in
1979. 46 Interestingly, the respondents
do not challenge the existence,
authenticity and genuineness of the
Supapo's TCT. 47
In defense, the respondents rest their
entire case on the fact that they have
allegedly been in actual, public, peaceful
and uninterrupted possession of the
subject property in the concept of an
owner since 1992. The respondents
contend that they built their houses on
the subject lot in good faith. Having

possessed the subject lot for more than
ten (10) years, they claim that they can
no longer be disturbed in their
possession. 48
Under the undisputed facts of this case,
we
find
that
the
respondents'
contentions have no legal basis.
In a long line of cases, we have
consistently ruled that lands covered by
a title cannot be acquired by prescription
or adverse possession. We have also
held that a claim of acquisitive
prescription is baseless when the land
involved is a registered land because of
Article 1126 49 of the Civil Code in
relation to Act 496 [now, Section 47 of
Presidential Decree (PD) No. 1529 50 ].
51
The Spouses Supapo (as holders of the
TCT) enjoy a panoply of benefits under
the Torrens system. The most essential
insofar as the present case is concerned
is Section 47 of PD No. 1529 which
states:
Section 47. Registered land not subject
to prescriptions. No title to registered
land in derogation of the title of the
registered owner shall be acquired by
prescription or adverse possession.
In addition to the imprescriptibility, the
person who holds a Torrens Title over a
land is also entitled to the possession
thereof. 52 The right to possess and
occupy the land is an attribute and a
logical consequence of ownership. 53
Corollary to this rule is the right of the
holder of the Torrens Title to eject any
person illegally occupying their property.
Again, this right is imprescriptible. 54
In Bishop v. CA, 55 we held that even if
it be supposed that the holders of the
Torrens Title were aware of the other
persons' occupation of the property,
regardless of the length of that
possession, the lawful owners have a
right to demand the return of their
property at any time as long as the
possession was unauthorized or merely
tolerated, if at all. 56
Even if the defendant attacks the
Torrens Title because of a purported
sale or transfer of the property, we still
15
rule in favor of the holder of the Torrens

Title if the defendant cannot adduce, in
addition to the deed of sale, a dulyregistered certificate of title proving the
alleged transfer or sale.
A case in point is Umpoc v. Mercado 57
in which we gave greater probative
weight to the plaintiff's TCT vis--vis the
contested unregistered deed of sale of
the defendants. Unlike the defendants in
Umpoc, however, the respondents did
not adduce a single evidence to refute
the Spouses Supapo's TCT. With more
reason therefore that we uphold the
indefeasibility and imprescriptibility of
the Spouses Supapo's title.
By respecting the imprescriptibility and
indefeasibility of the Spouses Supapo's
TCT, this Court merely recognizes the
value of the Torrens System in ensuring
the stability of real estate transactions
and integrity of land registration.
We reiterate for the record the policy
behind the Torrens System, viz.:
The Government has adopted the
Torrens system due to its being the most
effective measure to guarantee the
integrity of land titles and to protect their
indefeasibility once the claim of
ownership
is
established
and
recognized. If a person purchases a
piece of land on the assurance that the
seller's title thereto is valid, he should
not run the risk of being told later that
his acquisition was ineffectual after all,
which will not only be unfair to him as
the purchaser, but will also erode public
confidence in the system and will force
land transactions to be attended by
complicated
and
not
necessarily
conclusive investigations and proof of
ownership. The further consequence will
be that land conflicts can be even more
abrasive, if not even violent. 58
With respect to the respondents'
defense 59 of laches, suffice it to say
that the same is evidentiary in nature
and cannot be established by mere
allegations in the pleadings. 60 In other
words, the party alleging laches must
adduce in court evidence proving such
allegation. This Court not being a trier of
facts cannot rule on this issue;
especially so since the lower courts did

not pass upon the same.
Thus, without solid evidentiary basis,
laches cannot be a valid ground to deny
the Spouses Supapo's petition. 61 On
the contrary, the facts as culled from the
records show the clear intent of the
Spouses Supapo to exercise their right
over and recover possession of the
subject lot, viz.: (1) they brought the
dispute to the appropriate Lupon; (2)
they initiated the criminal complaint for
squatting; and (3) finally, they filed the
accion publiciana. To our mind, these
acts negate the allegation of laches.
With these as premises, we cannot but
rule that the Spouses Supapo's right to
recover possession of the subject lot is
not barred by prescription.
The action is not barred
by prior judgment
As a last-ditch effort to save their case,
the respondents invoke res judicata.
They contend that the decision of the
CA in CA-G.R. SP No. 78649 barred the
filing of the accion publiciana.
To recall, CA-G.R. SP No. 78649 is the
petition for certiorari filed by the
respondents to challenge the RTC's
issuance of the writ enforcing their civil
liability (i.e., to vacate the subject
property) arising from their conviction
under the Anti-Squatting Law. The CA
granted the petition and permanently
enjoined
the
execution
of
the
respondents' conviction because their
criminal liability had been extinguished
by the repeal of the law under which
they were tried and convicted. It follows
that their civil liability arising from the
crime had also been erased.
The respondents' reliance on the
principle of res judicata is misplaced.
Res judicata embraces two concepts:
(1) bar by prior judgment as enunciated
in Rule 39, Section 47 (b) of the Rules
of
Civil
Procedure;
and
(2)
conclusiveness of judgment in Rule 39,
Section 47 (c). 62
"Bar by prior judgment" means that
when a right or fact had already been
judicially tried on the merits and
determined by a court of competent
16
jurisdiction, the final judgment or order

shall be conclusive upon the parties and
those in privity with them and constitutes
an absolute bar to subsequent actions
involving the same claim, demand or
cause of action. 63
The requisites 64 for res judicata under
the concept of bar by prior judgment
are:
(1) The former judgment or order must
be final;
(2) It must be a judgment on the merits;
(3) It must have been rendered by a
court having jurisdiction over the subject
matter and the parties; and
(4) There must be between the first and
second actions, identity of parties,
subject matter, and cause of action.
Res judicata is not present in this case.
While requisites one to three may be
present, it is obvious that the n there is
no identity of subject matter, parties and
causes of action between the criminal
case prosecuted under the AntiSquatting Law and the civil action for the
recovery of the subject property.
First, there is no identity of parties. The
criminal complaint, although initiated by
the Spouses Supapo, was prosecuted in
the name of the people of the
Philippines. The accion publiciana, on
the other hand, was filed by and in the
name of the Spouses Supapo.
Second, there is no identity of subject
matter. The criminal case involves the
prosecution of a crime under the AntiSquatting Law while the accion
publiciana is an action to recover
possession of the subject property.
And third, there is no identity of causes
of action. The people of the Philippines
filed the criminal case to protect and
preserve governmental interests by
prosecuting persons who violated the
statute. The Spouses Supapo filed the
accion publiciana to protect their
proprietary interests over the subject
property and recover its possession.
Even casting aside the requirement of
identity of causes of action, the defense
of res judicata has still no basis.
The concept of "conclusiveness of
judgment" does not require that there is
identity of causes of action provided that

there is identity of issues and identity of
parties. 65
Under this particular concept of res
judicata, any right, fact, or matter in
issue directly adjudicated or necessarily
involved in the determination of an
action before a competent court in which
judgment is rendered on the merits is
conclusively settled by the judgment
therein and cannot again be litigated
between the parties and their privies,
whether or not the claim, demand,
purpose, or subject matter of the two
actions is the same. 66
As already explained, there is no identity
of parties between the criminal
complaint under the Anti-Squatting law
and the civil action for accion publiciana.
For this reason alone, "conclusiveness
of judgment" does not apply.
Even if we assume, for the sake of
argument, that there is identity of
parties, "conclusiveness of judgment"
still does not apply because there is no
identity of issues. The issue in the
criminal
case
is
whether
the
respondents
(accused
therein)
committed the crime alleged in the
information, while the only issue in
accion publiciana is whether the
Spouses Supapo have a better right
than the respondents to possess and
occupy the subject property.
For all these reasons, the defense of res
judicata is baseless.
Final Note
As a final note, we stress that our ruling
in this case is limited only to the issue of
determining who between the parties
has a better right to possession. This
adjudication is not a final and binding
determination of the issue of ownership.
As such, this is not a bar for the parties
or even third persons to file an action for
the determination of the issue of
ownership.
we
GRANT
the
petition,
and
consequently REVERSE and SET
ASIDE the February 25, 2011 decision
and August 25, 2011 resolution of the
17
Court of Appeals in CA-G.R. SP No.

111674.
SO ORDERED.
Carpio, Del Castillo, Mendoza and
Leonen, JJ., concur.
||| (Supapo v. Spouses De Jesus, G.R.
No. 198356, [April 20, 2015])
Rodrigo subsequently defaulted on his

loan.
The petitioners and respondents, with
the exception of Mauricia and Rosita,
are all grandchildren of Alejandro Tugot.
Alejandro had possessed Lot No. 557
since September 13, 1915, after it was
assigned to him by Martin Antonio.
Lot No. 557 formed part of the Banilad
Friar Estate Lands, which had been
bought by the government through Act
No. 1120 for distribution to its
occupants. Antonio had initially been Lot
No. 557's beneficiary, but subsequently
assigned his rights over Lot No. 557 to
Alejandro.
Since then, Alejandro possessed Lot
No. 557 until his death; thereafter, his
children and grandchildren continued to
reside in the lot. The present
controversy
arose
when
the
respondents, claiming to be its
registered owners, attempted to eject
the petitioners from Lot No. 557.
On January 1993, Mauricia filed before
the RTC of Cebu City Branch 17 a
petition for the issuance of a new
owner's duplicate of TCT No. 571, which
purportedly covers Lot No. 557.
Mauricia claimed to own TCT No. 571,
but lost her owner's duplicate during a
strong typhoon sometime in 1946. The
RTC, after due hearing, granted
Quilaton's petition and directed the
issuance of a new owner's duplicate of
TCT No. 571. CAIHTE
On September 27, 1994, Mauricia
donated Lot No. 557 to her children
Rodrigo, Purificacion, Teofra and
Estrellita. Thus, TCT No. 571 was
cancelled, and re-issued as TCT Nos.
130517, 130518, 130519, 130520 and
130521 in the names of Mauricia's
children. 1
Mauricia's
children
subsequently
performed several acts of ownership
over Lot 571: first, Rodrigo, on March
23, 1995, mortgaged TCT No. 130517 to
Lopez as security for a loan he obtained
from the latter. Rodrigo subsequently
defaulted on his loan, prompting the
foreclosure of TCT No. 130517. The
land covered by TCT No. 130517 was
3. LAUSA VS. QUILATON

SECOND DIVISION
[G.R. No. 170671. August 19, 2015.]
FILADELFA T. LAUSA, LORETA T.
TORRES, PRIMITIVO TUGOT and
ANACLETO T. CADUHAY, petitioners,
vs. MAURICIA QUILATON, RODRIGO
Q.
TUGOT,
PURIFICACION
T.
CODILLA, TEOFRA T. SADAYA,
ESTRELLITA T. GALEOS and ROSITA
T. LOPEZ, respondents.
DECISION
BRION, J p:
Before us is a Petition for review on
certiorari assailing the Court of Appeals
(CA) Decision in CA-G.R. CV No.
63248. The CA reversed the decision of
the Regional Trial Court (RTC) of Cebu
City, Branch 15 in Civil Case No. CEB17857, and upheld the validity of
Transfer Certificate Title (TCT) No. 571.
Factual Antecedents
The main issue in the present case
involves the title to Lot No. 557, a parcel
of land situated in V. Ranudo and D.
Jakosalem Streets, Cogon Central,
Cebu City.
The petitioners and the respondents are
relatives residing in Lot No. 557.
Petitioners Filadelfa T. Lausa, Loreta T.
Torres, Primitivo Tugot, and Anacleto T.
Caduhay are the cousins of respondents
Rodrigo Tugot, Purificacion Codilla,
Teofra Sadaya, and Estrellita Galeos;
while
Mauricia
Quilaton
is
the
respondents' mother and the petitioners'
aunt-in-law.
The respondent Rosita T. Lopez, on the
other hand, acquired the rights of
Rodrigo when he mortgaged Lot No.
557-A, a portion of Lot No. 557, to her.
18
thereafter sold by public auction to

Lopez, for which she was issued TCT
No. 143511 on March 31, 1997.
Second, Mauricia's children filed a
complaint for ejectment against the
petitioners, docketed as Civil Case No.
R-35137, on August 4, 1995.
In response, the petitioners filed Civil
Case No. CEB-17857 for the annulment
of TCT No. 571 and the subsequent
titles that originate from TCT No. 571, as
well as criminal complaints 2 for
falsification and perjury against the
respondents.
The Regional Trial Court's ruling
The RTC found TCT No. 571 to be a
forgery, and declared it and all titles
originating from it to be null and void ab
initio. The RTC gave the following
reasons as basis for this conclusion:
First,
the
RTC
noted
several
discrepancies in TCT No. 571 indicating
that it is a forgery, viz.:
(i) The TCTs issued before and after
TCT No. 571, that is, TCT No. 570 and
TCT No. 572, both use a different and
more recent form than TCT No. 571.
TCT Nos. 570 and 572 use Judicial
Form No. 109, which was issued in June
1945, while TCT No. 571 uses Judicial
Form No. 140-D, which was issued in
April 1936.
(ii) TCT Nos. 570 and 572 was signed
by Martina L. Arnoco as Register of
Deeds, while TCT No. 571 was signed
by Gervasio Lavilles as Acting Register
of Deeds.
(iii) There are distinct differences in
Lavilles' signature as it appears in TCT
No. 571 from his signatures in other
TCTs, such as TCT Nos. 525 and 526.
Second, Mauricia's previous acts show
that she acknowledged Alejandro's
ownership over Lot No. 557. Prior to
instituting a petition for issuance of a
new owner's duplicate in 1993, Mauricia
had been paying Alejandro (and
subsequently Aurea) contributions for
the real estate taxes due on Lot No.
557.
Third, Mauricia exercised acts of full
ownership over Lot No. 557 only in
1994, after she had filed a petition for
the issuance of a new owner's duplicate,

even as she claimed to have owned the
lot since 1946. DETACa
Fourth, Mauricia failed to present
evidence showing how she acquired title
to Lot No. 557. If indeed the land was
purchased from Martin Antonio, she
could have secured a copy of its
document of sale from the Archives
Office, Manila.
Additionally, the RTC held that the
petitioners had better title to Lot No. 557
than the respondents. The RTC found
that Lot No. 557 had been in the
possession
of
Alejandro
since
September 13, 1915, when the lot's
owner, Martin Antonio, executed a Deed
of Assignment in favor of Alejandro. This
conveyance, together with Alejandro
and his heirs' continuous payment of Lot
No. 557's real estate taxes since 1928,
amounts to more than thirty years of
adverse possession, so that ownership
over the lot vested in him.
As Alejandro's heirs, both the petitioners
and respondents are entitled to a share
in Lot No. 557.
Lastly, the RTC declared Lopez's TCT
No. 143511, which she acquired when
she purchased TCT No. 130517, to be
null and void. TCT No. 130517 covers
Lot No. 557-A, and had been annotated
with a Notice of Lis Pendens at the time
Lopez purchased it. Thus, Lopez had
knowledge of the dispute over the
ownership of the lot she bought, and
could not claim the defense of a
purchaser in good faith. She acquired
no greater title to the lot than Rodrigo,
who mortgaged TCT No. 130517.
The respondents filed a motion for
reconsideration contesting the RTC's
decision. After the RTC denial of the
motion, the respondents appealed to the
CA.
The Court of Appeals' ruling
The CA reversed the RTC's decision,
and upheld the validity of TCT No. 571
and all the titles originating from it.
In upholding the validity of TCT No. 571
(and all the titles originating from it), the
CA emphasized the existence of a copy
of TCT No. 571 in the custody of the
19
Office of the Register of Deeds of Cebu

City, and noted that it is presumed by
law to have been issued in a regular
manner. The application of this
presumption is called for by the purpose
of the Torrens system, which is to
promote the stability and integrity of land
titles.
According to the CA, the petitioners
have failed to disprove this presumption
of regularity. The pieces of evidence that
the petitioners presented (i.e., the tax
receipts and Antonio's Deed of
Assignment of Lot No. 557 to Alejandro)
do not prove with clear, positive, and
convincing, evidence that TCT No. 571
had been fraudulently issued. The
payment of real estate taxes over Lot
No. 557 does not prove ownership. The
Deed of Assignment, on the other hand,
had been subsequently cancelled, as
shown by the Friar Lands Sale
Certificate Register on file with the
DENR. It proves that the lot had been
earlier assigned to Alejandro, but
because the assignment was canceled,
the ownership of Lot No. 557 remained
with Antonio. aDSIHc
The CA also noted that the lot that
Alejandro appears to have owned was
not Lot No. 557 but Lot No. 357. The
description of Lot No. 557 as set forth
by the petitioners in their original
complaint substantially varies from
the actual and precise technical
description of Lot No. 557. Additionally,
some of the documentary evidence in
the case (such as tax declarations, tax
receipts and notices of tax delinquency)
show that what Alejandro owned was
Lot No. 357, not Lot No. 557.
The CA also pointed out that Alejandro
could not have acquired Lot 557 through
acquisitive prescription for two reasons:
first, Mauricia had been in possession of
the property since 1946; and second, a
lot registered under the Torrens system
cannot be acquired through acquisitive
prescription. Records show that the
lands comprising the Banilad Friar
Lands Estate, of which Lot No. 557 was
a part, had been brought under the
operation of the Torrens system on

September 23, 1913.
The CA found Lopez to be an innocent
purchaser for value. Applying the Court's
ruling in Bank of the Philippine Islands v.
Noblejas, the CA held that Lopez's good
faith as a mortgagee extends to her
eventual purchase of the lot during its
foreclosure. Since TCT No. 130517 had
no notice of any adverse claim at the
time it was mortgaged to Lopez, then
the subsequent annotation of Notice of
Lis Pendens prior to TCT No. 130517's
foreclosure should not affect her status
as a mortgagee-in-good-faith. The clean
title presented to Lopez at the time TCT
No. 130517 was mortgaged to her
maintains this status at the time of its
foreclosure, and cannot be prejudiced
by the subsequent annotation of a claim
to it before the lot is foreclosed.
Lastly, the CA found that the RTC erred
when it did not immediately dismiss the
petitioners' complaint, as their cause of
action had been barred by prescription
and laches. An action for the annulment
of title to land prescribes in ten years.
The petitioners filed their complaint only
on September 20, 1995, almost fifty
years after Mauricia had been issued
TCT No. 571 on July 16, 1946. Thus,
the petitioners had slept on their claimed
right over Lot 557; consequently, they
are now barred by laches from seeking
redress before the courts.
The petitioners filed a motion for
reconsideration assailing the CA's
decision, which motion the CA denied.
The denial opened the way for the
present petition for review on certiorari
before this Court.
The present petition
In their present petition, the petitioners
seek the reversal of the CA's decision
through their assertion that they have
acquired ownership over Lot No. 557 by
acquisitive prescription.
The petitioners claim that the CA
committed the following errors:
First, the CA erred in upholding the
validity of TCT No. 571, which is a fake
and fabricated title; ETHIDa
20
Second, the CA erred in finding that

Mauricia owned and possessed Lot No.
557, as it was Alejandro who exercised
acts of exclusive ownership and
possession over the lot since it was
assigned to him in 1915. The lot Antonio
assigned to Alejandro covered Lot No.
557, although earlier tax declarations
indicated the areas of the lot to be Lot
No. 357. This error was corrected in
subsequent tax declarations by the City
of Cebu Assessor's Office in 1997.
Third, the CA erred in holding that Lopez
is an innocent purchaser in good faith,
as she knew that the portion of Lot No.
557 being mortgaged to her was in the
possession of Filadelfa, and not
Rodrigo. She knew of this possession
before she executed the real estate
mortgage contract over the property with
Rodrigo.
Fourth, the CA erred in finding the
petitioners' cause of action barred by
prescription and laches, as they
discovered the existence of TCT No.
571 only in August 1995, when Mauricia
and her children instituted ejectment
proceedings against them.
In response, the respondents argue that
the petitioners have no cause of action
against them because Alejandro's tax
declarations cover Lot No. 357, and not
Lot No. 557, which is covered by their
TCTs. They also cited the CA's decision,
and argued that the CA committed no
error of law in upholding the validity of
their TCTs.
Lopez, on the other hand, asserted that
her status as an innocent purchaser or
mortgagor in good faith had not been
included in the petitioners' amended
complaint
including
her
as
an
indispensible party, and should thus not
have been considered as an issue in the
case. In any case, Lopez asserts that
her title to Lot No. 557-A is valid
because she is an innocent purchaser in
good faith.
Issues:
The issues, having been properly joined,
present to us the following questions:
(1) Whether the CA erred in finding that
the lot that the petitioners claim to own
covers Lot No. 357, and not Lot No.

557;
(2) Whether the CA erred in finding that
the respondents, and not the petitioners,
are the owners and possessors of Lot
No. 557;
(3) Whether the CA erred in finding
Lopez an innocent purchaser in good
faith; and
(4) Whether the CA erred in finding the
petitioners' cause of action to have been
barred by prescription and laches.
cSEDTC
The Court's Ruling
We find the petition meritorious.
We note at the outset that the Court is
not a trier of facts, and our jurisdiction in
cases brought before us from the
appellate court is limited to the review of
errors of law.
We have, however, recognized several
exceptional situations that call for a reevaluation
of
the
CA's
factual
conclusions, among them, the situation
when the CA's findings are contrary to
that of the trial court, and when the CA
manifestly overlooks relevant facts not
disputed by the parties and which, if
properly considered, would lead to a
different conclusion. 3
We find these circumstances in the
present case, prompting us to reexamine the records of the case and to
reverse the CA's decision after due
consideration of the records.
The CA erred in finding that the lot that
the petitioners claim to own is Lot No.
357, and not Lot No. 557
The CA, in upholding the validity of
Mauricia's title and ownership over Lot
No. 557, pointed out that the lot that
Alejandro claimed to own was not Lot
No. 557, but Lot No. 357.
The CA based this conclusion on
several tax documents in the name of
Alejandro Tugot, which indicate that the
lot covered is Lot No. 357, and not Lot
No. 557.
In so doing, the CA overlooked several
key pieces of evidence presented before
the RTC, which had led the latter to
conclude that the designation of Lot No.
357 in Alejandro's tax declarations
21
actually pertained to Lot No. 557. These

pieces of evidence are as follows:
First, the testimony of Mr. Antonio
Abellana of the City of Cebu Assessor's
Office established that he issued a
Certification of Correction to change
Alejandro's tax declarations, which
initially covered Lot No. 357, to Lot No.
557.
According to Abellana, Lot No. 357 is
located in a barangay different from the
address found in Alejandro's tax
declaration. The base map of Cebu
locates Lot No. 357 to be in Barangay
Day-as, almost five meters from
Sikatuna Street, while the address in
Alejandro's erroneous tax declaration
indicates that Lot No. 357 is located in
Jakosalem Street.
Second, records of the Cebu City
Assessor's Office show that Lot No. 357
is covered by another tax declaration
with an address corresponding to the
city's base map. In this tax declaration,
Lot No. 357 is owned by a certain
Antonio Yap. SDAaTC
Third, the deed of donation 4 of Lot No.
558, which adjoins Lot Nos. 557 and
559, recognized Alejandro Tugot as the
owner of Lot No. 557.
We find that these pieces of evidence
sufficiently explain that the lot in
Alejandro and Aurea's tax declarations
actually covered Lot No. 557, and its
initial designation as Lot No. 357 was an
error. The Assessor's Office of Cebu
City, which had the responsibility of
classifying, appraising, and assessing
real
property
in
Cebu,
had
acknowledged this designation to be
erroneous, and subsequently made
rectification. This acknowledgment is not
only entitled to the presumption of
regularity; it is also corroborated by the
Deed of Donation of an adjoining lot.
Additionally, we also found other pieces
of evidence supporting the conclusion of
the Cebu City Assessor's Office. The tax
declarations
in
Alejandro
and
(subsequently) Aurea's names indicate
that they covered the same address as
the Lot No. 557 described in the Deed of
Assignment that Antonio executed in
Alejandro's favor in 1915. The identity of

the addresses in these two documents
show that what the petitioners intended
to pay real property tax for, was the lot
covered in the Deed of Assignment,
which was Lot No. 557. Thus, the tax
declarations that placed Lot No. 357
under
Alejandro's
name
actually
pertained to the lot covered by Lot No.
557; its designation as covered by Lot
No. 357 was an error that the Cebu City
Assessor's Office eventually discovered
and corrected.
In the same vein, the court-approved
subdivision plan for Lot No. 557
indicated it to be found along Jakosalem
Street, the address of the lot covered by
Alejandro and Aurea's tax declarations.
The plan was commissioned for
Alejandro and his children, including
Romualdo (Mauricia's husband and the
father of her children), in 1960. That the
address of Lot No. 557 in the
subdivision plan is identical to the
address in Alejandro and Aurea's tax
declarations establishes that what they
actually claim to own is Lot No. 557, and
not Lot No. 357.
With this foundation established, we
now resolve the issue of who among
them have the better right over Lot No.
557.
The CA erred in finding that the
petitioners failed to prove that TCT No.
571 is a fabricated title
In upholding the validity of Mauricia's
TCT No. 571, the CA held that the
petitioners failed to overcome the
presumption of regularity that attended
its issuance. The CA emphasized that a
copy of TCT No. 571 is currently with
the Register of Deeds, and that the
documents
that
the
petitioners
presented do not prove their ownership
over the lot.
The
CA's
conclusion,
however,
overlooked the evidence that the
petitioners presented before the RTC to
prove that TCT No. 571 is a fabricated
title. These pieces of evidence include
the TCTs issued immediately before and
after TCT No. 571; TCT No. 16534 (the
TCT from which TCT No. 571 allegedly
22
originated); and several TCTs that

contain the signature of the Acting
Register of Deeds who signed TCT No.
571. Taken together, all these pieces of
evidence
sufficiently
prove,
by
preponderance of evidence, that TCT
No. 571 is a fabricated title. acEHCD
We cite with approval the RTC's factual
observations and conclusions, viz.:
First, the text of TCT No. 571 contains
glaring discrepancies with TCT No.
16534, the title indicated in TCT No. 571
as its precursor.
TCT No. 16534 covered a different area
from TCT No. 571. TCT No. 16534
covered Lot 7005-E-2, which has an
area of 3,311 square meters, while TCT
No. 571 covers Lot No. 557 with an area
of 525 square meters. Too, TCT No.
16534 was issued in September 1957,
or almost ten years after the title it
supposedly gave rise to was issued in
1946.
Second, TCT No. 571 contains
discrepancies when compared with TCT
Nos. 570 and 572, the TCTs that were
supposedly issued before and after TCT
No. 571. These discrepancies are as
follows:
(i) TCT Nos. 570 and 572 had both been
issued on February 26, 1947, almost a
year after TCT No. 571 was issued on
July 16, 1946. Since TCT No. 571 was
an intervening title between TCT No.
570 and 572, then it should have also
been issued on February 26, 1947.
(ii) TCT No. 571 used an old form,
Judicial Form No. 140-D, which was
revised in June 1945 by Judicial Form
No. 109. Since TCT No. 571 shows that
it was issued in 1946, then it should
have used Judicial Form No. 109.
Notably, both TCT Nos. 570 and 572
used the updated Judicial Form No.
109, as they were issued in 1947.
(iv) n TCT Nos. 570 and 572 were
signed by Martina L. Arnoco as Register
of Deeds, while TCT No. 571 was
signed by Gervasio Lavilles as Acting
Register of Deeds.
(v) There are distinct differences in
Lavilles' signature as it appears in TCT
No. 571, compared with his signatures
in other TCTs, such as TCT Nos. 525

and 526.
Additionally, we note that Mauricia's
claim that she bought Lot No. 557 from
Antonio is contradicted by the contents
of TCT No. 16534.
For a new TCT to be issued, the owner's
duplicate of the seller should have been
surrendered to the Registry of Deeds,
along with a copy of the TCT's Deed of
Sale. Thus, the seller's TCT would be
cancelled, and the new TCT of the buyer
would indicate the seller's TCT as its
TCT of origin.
The text of TCT No. 571 shows that it
originated from TCT No. 16534. If
indeed TCT No. 571 was issued to
Mauricia because the latter bought Lot
No. 557 from Antonio, then TCT No.
16534 should have reflected this
transaction. SDHTEC
However, instead of reflecting Antonio's
title to Lot No. 557, TCT No. 16534
shows that it pertained to a different lot,
and had been issued ten years after the
issuance of TCT No. 571 to a certain
Crispina Lopez.
The original certificate of title from which
TCT No. 571 and TCT No. 16534
originated are also different: TCT No.
571 originated from Original Certificate
of Title (OCT) No. 251-253, while TCT
No. 16534 originated from OCT No.
11375.
These discrepancies, taken together
with its variations from the other titles
issued around the same time and
Mauricia's failure to present proof of how
she acquired the lot from Antonio,
reasonably establish that TCT No. 571
is a fabricated title.
We now proceed to determine whether
Alejandro was Lot No. 557's rightful
owner.
The CA erred in relying on a fabricated
title as basis to deny Alejandro's claim
to acquisitive prescription
The CA, in reversing the RTC's decision
recognizing Alejandro's ownership over
Lot No. 571, held that Lot No. 557 could
no longer be acquired through
prescription because it had already
23
been brought under the Torrens system,

in Registry Book No. A-3.
Registry Book No. A-3 refers to the
registry book where OCT No. 251-253 is
registered, as indicated in TCT No. 571.
Thus, the CA concluded that Lot No.
557 has been brought under the Torrens
system because TCT No. 571 is already
covered by the system. But as TCT No.
571 is a fabricated title, the CA erred in
relying on its contents to conclude that
Lot No. 557 has already been brought
under the Torrens system.
Alejandro Tugot did not acquire Lot No.
557 through acquisitive prescription
We agree with the CA's conclusion that
Lot No. 557 cannot be acquired through
prescription, but for a different reason.
In the present case, the Deed of
Assignment between Antonio and
Alejandro was cancelled three months
after it was executed. The Deed,
executed on September 13, 1915, was
inscribed with the phrase: "Cancelled
December 21, 1915. See letter #
12332."
Both the trial court and the CA found this
inscription to be sufficient proof that the
Deed of Assignment had been cancelled
three months after its execution. As a
consequence, the Deed of Assignment
could not have vested Antonio's rights
over Lot No. 557 to Alejandro. AScHCD
Thus, Lot No. 557 reverted to its original
status after the Deed of Assignment was
cancelled. It remained subject to the
conditional sale 5 between the
government and Antonio; under the
Certificate of Sale between the Bureau
of Lands and Antonio, the government
should transfer title to Lot No. 557 to
Antonio upon full payment of the lot's
purchase price.
The nature of the contract of sale
between Antonio and the government is
in line with Section 15 of Act No. 1120,
which provides for the administration,
temporary lease, and sale of friar lands
that the government bought through
sections 63 to 65 of "An Act temporarily
to provide for the administration of the
affairs of civil government in the
Philippine Islands, and for other
purposes." These friar lands included

the Banilad Estate Friar Lands, from
where Lot No. 557 originated.
Section 15 of Act No. 1120 that applied
to Lot No. 557 provides:
Sec. 15. The Government hereby
reserves the title to each and every
parcel of land sold under the provisions
of this Act until the full payment of all
installments or purchase money and
interest by the purchaser has been
made, and any sale or encumbrance
made by him shall be invalid as against
the Government of the Philippine
Islands and shall be in all respects
subordinate to its prior claim.
xxx xxx xxx
According to jurisprudence, Section 15
of Act No. 1120 reserves to the
government the naked title to the friar
lands, until its beneficiaries have fully
paid their purchase price. Since the
intent of Act No. 1120 was to transfer
ownership of the friar lands to its actual
occupants, the equitable and beneficial
title to the land passes to them the
moment the first installment is paid and
a certificate of sale is issued. This right
is subject to the resolutory condition that
the sale may be rescinded if the agreed
price shall not be paid in full.
When the Certificate of Sale was
executed, Antonio obligated himself to
pay P9.00 as the final installment to
purchase Lot No. 557. His previous
lease payments to the lot were applied
as initial installments for the payment of
the lot's purchase price of P15.16. Upon
full payment of the installment and its
annual 4% interest, the government was
bound to transfer full ownership of Lot
No. 557 to Antonio under Section 122 of
Act No. 496.
While the records of the case do not
show any documents or paper trail
showing the actions of the parties to the
Certificate of Sale after the Deed of
Assignment was cancelled, we can, with
certainty, rule out the possibility that
Alejandro acquired title to it through
prescription.
Three scenarios could have happened
after the Deed of Assignment was
24
cancelled all of which forego the

possibility of acquisitive prescription.
First, Antonio could have completed
payment of the purchase price of Lot
No. 557. Upon full payment, the lot
would have then been registered in
Antonio's name.
The Certificate of Sale between Antonio
and
the
government
requires
registration under Section 122 of Act No.
496, or the Land Registration Act of
1902, for the ownership over Lot No.
557 to be transferred to Antonio. Section
122 of Act No. 496 provides: AcICHD
Section 122. Whenever public lands in
the Philippine Islands belonging to the
Government of the United States or to
the Government of the Philippine
Islands are alienated, granted, or
conveyed to persons or to public or
private corporations, the same shall be
brought forthwith under the operation of
this Act and shall become registered
lands. It shall be the duty of the official
issuing the instrument of alienation,
grant, or conveyance in behalf of the
Government to cause such instrument,
before its delivery to the grantee, to be
filed with the register of deeds for the
province where the land lies and to be
there registered like other deeds and
conveyances, whereupon a certificate
shall be entered as in other cases of
registered land, and an owner's
duplicate certificate issued to the
grantee. The deed, grant, or instrument
of conveyance from the Government to
the grantee shall not take effect as a
conveyance or bind the land, but shall
operate as a contract between the
Government and the grantee and as
evidence of authority to the clerk or
register of deeds to make registration.
The act of registration shall be the
operative act to convey and affect the
lands, and in all cases under this Act
registration shall be made in the office of
the register of deeds for the province
where the land lies. The fees for
registration shall be paid by the grantee.
After due registration and issue of the
certificate and owner's duplicate such
land shall be registered land for all

purposes under this Act.
Thus, the government could have
registered the title to Lot No. 557 in
Antonio's name only after he had paid
the purchase price in full. Had Antonio
eventually completed the payment of Lot
No. 557's purchase price, it would have
been registered under the Torrens
system, through Section 122 of Act No.
496.
Land registered under the Torrens
system cannot be acquired through
prescription. As early as 1902, Section
46 of Act No. 496 categorically declared
that lands registered under the Torrens
system cannot be acquired by
prescription, viz.:
Section 46. No title to registered land in
derogation to that of the registered
owner shall be acquired by prescription
or adverse possession.
Second, Antonio could have failed to
complete payment of Lot No. 557's
purchase price; thus, the naked title to
Lot No. 557 remains with the
government.
Under Act No. 1120, the Chief of the
Bureau of Public Lands is required to
register title to the friar lands acquired
by the government through Act No. 496.
Section 6 of Act No. 1120, in particular,
provides:
SECTION 6. The title, deeds and
instruments of conveyance pertaining to
the lands in each province, when
executed and delivered by said grantors
to the Government and placed in the
keeping of the Chief of the Bureau of
Public Lands, as above provided, shall
be by him transmitted to the register of
deeds of each province in which any
part of said lands lies, for registration in
accordance with law. But before
transmitting the title, deeds, and
instruments of conveyance in this
section mentioned to the register of
deeds of each province for registration,
the Chief of the Bureau of Public Lands
shall record all such deeds and
instruments at length in one or more
books to be provided by him for that
purpose and retained in the Bureau of
25
Public Lands, when duly certified by him

shall be received in all courts of the
Philippine Islands as sufficient evidence
of the contents of the instrument so
recorded whenever it is not practicable
to produce the originals in court.
The law on land registration at that time
was Act No. 496, which established the
Torrens system in the Philippines. As
earlier pointed out, a piece of land, once
registered under the Torrens system,
can no longer be the subject of
acquisitive prescription. TAIaHE
No certificate of title pertaining to the
government's transfer of ownership of
Lot No. 557 was ever presented in
evidence. Assuming, however, that the
Chief of the Bureau of Public Lands
failed to register Lot No. 557, the lot
could not have been acquired by
Alejandro through prescription, under
the rule that prescription does not lie
against the government.
Third, Antonio could have sold his rights
to Lot No. 557 to another person.
Assuming he did, only that person could
have stepped into his shoes, and could
have either completed payment of the
purchase price of Lot No. 557 and had it
registered in his name; or, he could
have failed to pay the purchase price in
full, in which case the naked title to the
lot remains government property.
In all three scenarios, Alejandro could
not have acquired ownership over Lot
No. 557 through prescription.
Republic Act No. 9443 and the friar
lands
The Court is not unaware of the
enactment of Republic Act No. 9443,
which confirms the validity of titles
covering any portion of the Banilad Friar
Lands with Certificates of Sale and
Assignment of Sale that do not contain
the signature of the then Secretary of
the Interior and/or Chief of the Bureau of
Public Lands. It does not apply to TCTs
that have been fraudulently issued and
registered.
Republic Act No. 9443, however, does
not validate any of the parties' claims of
ownership over Lot No. 557.
Mauricia's title, as earlier established, is

fabricated; thus, her situation falls within
the exception expressed under Section
1 of RA No. 9443, viz.:
This confirmation and declaration of
validity shall in all respects be entitled to
like effect and credit as a decree of
registration, binding the land and
quieting the title thereto and shall be'
conclusive upon and against all
persons,
including
the
national
government and all branches thereof;
except when, in a given case involving a
certificate of title or a reconstituted
certificate of title, there is a clear
evidence that such certificate of title or
reconstituted certificate of title was
obtained through fraud, in which case
the solicitor general or his duly
designated representative shall institute
the necessary judicial proceeding to
cancel the certificate of title or
reconstituted certificate of title as the
case may be, obtained through such
fraud.
With respect to Alejandro, his claim to
Lot No. 557 rests on the Deed of
Assignment executed between him and
Antonio, which had been cancelled;
hence, it cannot be confirmed through
Republic Act No. 9443.
Effects of the nullity of TCT No. 571
After establishing that neither Mauricia
nor Alejandro has title over Lot No. 557,
we now resolve the validity of the TCTs
that originated from TCT No. 571.
cDHAES
As a general rule, a person transmits
only the rights that he possesses. When
innocent third persons, however,
purchase or acquire rights over the
property relying on the correctness of its
certificate of title, courts cannot
disregard the rights they acquired and
order the cancellation of the certificate.
As the third paragraph of section 53 of
Presidential Decree No. 1529, otherwise
known as the Property Registration
Decree, provides:
Section 53. . . .
xxx xxx xxx
In all cases of registration procured by
fraud, the owner may pursue all his legal
26
and equitable remedies against the

parties to such fraud without prejudice,
however, to the rights of any innocent
holder for value of a certificate of title.
After the entry of the decree of
registration on the original petition or
application, any subsequent registration
procured by the presentation of a forged
duplicate certificate of title, or a forged
deed or other instrument, shall be null
and void.
Thus, innocent purchasers in good faith
may safely rely on the correctness of the
certificate of title issued therefor, and
neither the law nor the courts can oblige
them to go behind the certificate and
investigate again the true condition of
the property. They are only charged with
notice of the liens and encumbrances on
the property that are noted on the
certificate.
Jurisprudence
defines
innocent
purchaser for value as "one who buys
the property of another, without notice
that some other person has a right or
interest in such property and pays a full
price for the same, at the time of such
purchase or before he has notice of the
claims or interest of some other person
in the property."
PD 1529 has expanded the definition of
an innocent purchaser for value to
include an innocent lessee, mortgagee,
or other encumbrancer for value.
Neither PD 1529 nor jurisprudence,
however, has included an innocent
donee to the definition, and for good
reason. An innocent purchaser for value
pays for the full price of the property,
while a donee receives the property out
of the donor's liberality. Additionally,
what the law does not include, it
excludes, and a donee is not included in
the expansion of the term innocent
purchaser for value.
Applying these principles of law in the
case at hand, we hold that the Deed of
Donation Mauricia issued in favor of her
children immediately after getting a copy
of TCT No. 571 could not have
transferred ownership over Lot No. 557
to her children. Since TCT No. 571 is a
fabricated title, it does not indicate
ownership over Lot No. 557; thus, the

Deed of Donation involving TCT No. 571
could not have conveyed the ownership
of Lot No. 557 to Mauricia's children.
Neither could her children claim the
status of an innocent purchaser in good
faith, as they received the property
through donation. ASEcHI
The TCTs issued to Mauricia's children
pursuant to the donation should thus be
cancelled, as they do not signify
ownership over Lot No. 557.
We also note several circumstances that
cast doubt over the ignorance of
Mauricia's children regarding the
fabricated nature of TCT No. 571, viz.:
(1) the petitioners are their close
relatives, who have been residing in Lot
No. 557 as early as 1928; (2) their
father,
Romualdo,
signed
and
recognized a subdivision plan of Lot No.
557 that would divide the lot among all
of Alejandro's heirs, including the
petitioners; (3) their mother executed
the deed of donation as soon as she
acquired a copy of TCT No. 571; (4)
their mother's nonpayment of taxes due
Lot No. 557 since 1946; and (5) the
payment of real property taxes only to
facilitate the subdivision of Lot No. 557
among them.
Lopez is not an innocent purchaser for
value of Lot 557-A
We now determine Lopez's claim that
she is an innocent purchaser for value
of Lot No. 557-A, and should thus be
allowed to keep her title over it.
The CA, in affirming Lopez's title over
Lot No. 557-A, held that she was an
innocent mortgagee for value. According
to the CA, TCT No. 130517 had no
encumbrances and liens at the time it
was mortgaged to Lopez, and this status
extended to the time that TCT No.
130517 was foreclosed to answer for
Rodrigo's loan.
We cannot agree with the CA's
conclusion.
As a general rule, a person dealing with
registered land has a right to rely on the
Torrens certificate of title and to
dispense with the need of further
inquiring over the status of the lot.
27
Jurisprudence
has
established
exceptions to the protection granted to
an innocent purchaser for value, such
as when the purchaser has actual
knowledge of facts and circumstances
that would compel a reasonably
cautious man to inquire into the status of
the lot; or of a defect or the lack of title
in his vendor; or of sufficient facts to
induce a reasonably prudent man to
inquire into the status of the title of the
property in litigation.
The presence of anything that excites or
arouses suspicion should then prompt
the vendee to look beyond the certificate
and investigate the title of the vendor
appearing on the face of the certificate.
One who falls within the exception can
neither be denominated as innocent
purchaser for value nor a purchaser in
good faith, and hence does not merit the
protection of the law.
In particular, the Court has consistently
held that that a buyer of a piece of land
that is in the actual possession of
persons other than the seller must be
wary and should investigate the rights of
those in possession. Without such
inquiry, the buyer can hardly be
regarded as a buyer in good faith.
ITAaHc
We find that Lopez knew of
circumstances that should have prodded
her to further investigate the Lot No.
557-A's status before she executed a
mortgage contract over it with Rodrigo.
In the pre-trial brief she submitted
before the trial court, Lopez made the
following admissions:
. . . Only after these checking did an
actual inspection of the properties took
(sic) place, but on this occasion,
unfortunately, none of the plaintiffs,
especially plaintiff Filadelfa T. Lausa,
who is found lately to be residing
nearby, furnished her the information of
the present claims.
She likewise made the same admission
in an affidavit, viz.:
6. The properties which were mortgaged
were checked and no one at that time,
even plaintiff Filadelfa T. Lausa who is
just residing nearby, disputed that the
absolute owners thereof were the

spouses Rodrigo and Ligaya Tugot.
While these admissions pertain to the
petitioners' act of not telling Lopez of the
status of Lot No. 557-A, it implies that
she had inspected the property, and
accordingly found that Rodrigo did not
reside in Lot No. 557-A.
Records of the case show that Filadelfa
resided in Lot No. 557-A at the time
Lopez executed the real estate
mortgage with Rodrigo. In August 1995,
Rodrigo and his siblings filed an
ejectment case against the petitioners
Filadelfa Lausa and Anacleto Caduhay
Filadelfa resides in Lot No. 557-A
while Anacleto's in Lot 557-B. Notably,
this ejectment case was filed five
months after Lopez had entered into the
real estate mortgage contract. Thus, at
the time Lopez inspected Lot No. 557,
she would have found Filadelfa residing
in it, and not Rodrigo.
That Filadelfa and not Rodrigo
resided in Lot No. 557-A should have
prompted Lopez to make further
inquiries over its status. Further inquiries
with the lot owners of surrounding
property could have informed her of its
actual status. Instead, she contented
herself with checking the copy of the title
to Lot No. 557-A against the copy in the
Registry of Deeds of Cebu, which she
had done prior to the actual inspection
of Lot No. 557-A. The law cannot protect
Lopez's rights to Lot 557-A given her
complacency.
Further, the status of an innocentpurchaser for value or innocent
mortgagor for value is established by
the person claiming it, an onus probandi
that Lopez failed to meet.
In her memorandum, Lopez urged the
Court to acknowledge her rights over
Lot No. 557-A, arguing that the
declaration of her status as an innocentpurchaser and innocent mortgagor is a
non-issue because it was never pleaded
in
her
co-respondents'
amended
complaint. She also pointed out that a
valid title can emerge from a fabricated
title, and essentially invoked the
28
innocent purchaser for value doctrine.

CHTAIc
The amended complaint alleges that
Lopez's status as current owner of Lot
557-A prejudices the rights of the
petitioners, who are its true owners. The
circumstances regarding how Lopez
acquired ownership over Lot No. 557-A
had also been pleaded therein.
Verily, the amended complaint does not
need to allege Lopez's status as an
innocent purchaser or mortgagor in
good faith precisely because it was
incumbent upon her to allege and prove
this to defend her title to Lot No. 557-A.
It merely needed to allege a cause of
action against Lopez, (which it did by
alleging the circumstances surrounding
Lopez's ownership of Lot No. 557-A)
and that it prejudices the petitioners'
rights as its true owners.
Further, Lopez chose to ignore in her
Memorandum the petitioners' contention
that she knew that Filadelfa Lausa, and
not Rodrigo, resided in Lot No. 557-A.
To reiterate, Lopez has the burden of
proving her status as an innocent
purchaser for value in order to invoke its
application. Failing in this, she cannot
avail of the protection the law grants to
innocent purchasers for value.
The CA erred in finding that the
petitioners' claim of ownership over Lot
No. 557 had been barred by prescription
and laches
The outcome of the present case
dispenses with the need for a discussion
regarding extinctive prescription and
laches.
We note, however, that the CA erred in
applying the principle of prescription and
laches to the petitioners' cause of action
involving Lot No. 557.
An action for annulment of title or
reconveyance based on fraud is
imprescriptible where the plaintiff is in
possession of the property subject of the
fraudulent acts. One who is in actual
possession of a piece of land on a claim
of ownership thereof may wait until his
possession is disturbed or his title is
attacked before taking steps to vindicate
his right.
The records of the case show that the

petitioners resided in the property at the
time they learned about TCT No. 571.
Being in possession of Lot No. 557, their
claim for annulment of title had not
expired. Their ownership of Lot No. 571,
however, is a different matter.
Effects of the Court's decision
Our decision in the present case does
not settle the ownership of Lot No. 557.
To recapitulate, our examination of the
records and the evidence presented by
the petitioners and the respondents lead
us to conclude that neither of them own
Lot No. 557.
Despite the intent of Act No. 1120 and
Republic Act No. 9443 to transfer
ownership of the Banilad Friar Estate
Lands to its occupants, we cannot settle
the ownership of Lot No. 557 in the
present case. EATCcI
Indeed, the petitioners and the
respondents are the actual occupants of
Lot No. 557, and they and their families
(with the exception of Rosita Lopez)
have resided in the lot since 1915.
However, as we have discussed above,
neither party had been able to establish
their right of ownership, much less
possession, of Lot No. 557. The
petitioners anchor their claim on
acquisitive prescription, which does not
lie against registered land or the
government. The respondents, on the
other hand, presented spurious TCTs.
Thus, no amount of liberal interpretation
of Act No. 1120 or Republic Act No.
9443 could give either party the right
over the lot.
Neither can we ignore the evidence
showing that none of them could
rightfully own Lot No. 557. The
petitioners'
cancelled
deed
of
assignment and tax declarations cannot
establish their ownership over Lot No.
557; especially since the operation of
pertinent laws prevented the possibility
of
acquisitive
prescription.
The
respondents' TCT No. 571, on the other
hand, had
several
discrepancies
indicating that it was a fake.
The exercise of the Court's judicial
power settles actual controversies
29
between parties, through which the

Court
establishes
their
legally
enforceable and demandable rights. We
determine the parties' rights based on
the application of the law to the facts
established through the pieces of
evidence submitted by the parties. The
application of the law on the facts of the
present case establishes that neither
party has a legally enforceable right
over Lot No. 557.
Given this situation, we direct that the
records of the case be transmitted to the
Land Management Bureau 6 for further
investigation and appropriate action
over Lot No. 557 of the Banilad Friar
Estate Lands.
Additionally, we direct that a copy of the
records of the case be transmitted to the
Ombudsman, for further investigation
regarding how the fake TCTs covering
Lot No. 557 ended up in the Registry of
Deeds of Cebu City, and for the criminal
and administrative investigation of
government officials liable for them.
the instant Petition for Review on
Certiorari is PARTIALLY GRANTED.
The Court of Appeals Decision in CAG.R. CV No., 63248 is MODIFIED, and
the following titles are declared null and
void: (1) TCT No. 571 issued to Mauricia
Quilaton; (2) TCT No. 130517 issued to
Rodrigo Tugot; (3) TCT No. 130518
issued to Purificacion Codilla; (4) TCT
No. 130519 issued to Teofra Sadaya; (5)
TCT No. 130520 issued to Estrellita
Galeos; (5) TCT No. 130521 issued to
Rodrigo Tugot; and (6) TCT No. 143511
issued to Rosita Lopez.
The claim of the petitioners Filadelfa T.
Lausa, Loreta T. Torres, Primitivo Tugot
and Anacleto T. Caduhay for recognition
of their ownership over Lot No. 557 is
DENIED.
We DIRECT that a copy of the records
of the case be transmitted to the Land
Management
Bureau
and
the
Ombudsman for further investigation
and appropriate action. DHITCc
SO ORDERED.
Carpio, Del Castillo, Mendoza and
||| (Lausa v. Quilaton, G.R. No. 170671,

[August 19, 2015])
ART. 1135 In case the adverse
claimant possesses by mistake an
area greater, or less, than that
expressed in his title, prescription
shall be based on the possession.
4. REPUBLIC
APPEALS
VS.
COURT
OF
THIRD DIVISION
[G.R. No. 116111. January 21, 1999.]
(Represented
by
the
Acting
Commissioner of Land Registration),
petitioner, vs. COURT OF APPEALS,
Spouses CATALINO SANTOS and
THELMA BARRERO SANTOS, ST.
JUDE'S ENTERPRISES, INC., Spouses
DOMINGO
CALAGUIAN
and
FELICIDAD CALAGUIAN, VIRGINIA
DELA FUENTE and LUCY MADAYA,
respondents.
The Solicitor General for petitioner.
Simeon D. Canlas for Catalino and
Thelma Santos.
Cabrera &
respondent.
Associates
for
private
SYNOPSIS
Private
respondent
St.
Jude's
Enterprises, Inc. is the registered owner
of a parcel of land known as Lot 865-B-1
of the subdivision plan (LRC) PSD52368 and TCT No. 22660. Sometime in
1966, private respondent subdivided the
said lot under subdivision plan (LRC)
PSD-55643 and as a result thereof the
Register of Deeds of Caloocan City
cancelled TCT. No. 22660 and in lieu
thereof issued Certificates of Title Nos.
23967 up to 24068. The subdivision of
Lot 865-B-1 was later found to have
expanded from its original area of
40,523 square meters to 42,044 square
30
meters or an increase of 1,421 square

meters. The expansion in area was
confirmed by the Land Registration
Commission.
Thereafter,
private
respondent sold the subdivided lots to
different buyers including herein private
respondents Sps. Catalino Santos and
Thelma Barreto Santos, Sps. Domingo
Calaguian and Felicidad de Jesus,
Virginia Dela Fuente, and Lucy Madaya.
On January 29, 1985, then, Solicitor
General Estelito Mendoza filed an action
seeking the annulment of Transfer
Certificates of Title of herein private
respondents on the ground that said
Certificates of Title were issued on the
strength of a null and void subdivision
plan (LRC) PSD 55643 which expanded
the original area of TCT No. 22660 in
the name of St. Jude's Enterprises Inc.
The trial court dismissed the complaint.
The trial court concluded that the
government was already in estoppel to
question the approved subdivision plan
because the said plan was presumed to
have been subjected to investigation,
study and verification by the LRC and
there was no one to blame for the
increase in the area but the Republic of
the Philippines, for having allowed and
approved the subdivision plan. The
Solicitor General appealed the trial
court's decision to the Court of Appeals.
The appellate court affirmed the
decision of the trial court. Hence, the
present petition. The issues to be
resolved by the court are: (1) the
applicability of estoppel against the state
and (2) the Torrens system.
principle of estoppel by laches against

the government to avoid an injustice to
the innocent purchasers for value. The
Court also observed that petitioner's
action derogates the very integrity of the
Torrens System and contrary to the
time-honored principle that a Torrens
certificate is evidence of an indefeasible
title to property in favor of the person
whose name appears thereon. IASCTD
SYLLABUS
1. CIVIL LAW; CONTRACTS; SALES;
GENERAL PRINCIPLES OF LAW;
EQUITABLE
PRINCIPLE
OF
ESTOPPEL; IT IS ONLY FAIR AND
REASONABLE TO APPLY SAID
PRINCIPLE IN CASE AT BAR AGAINST
THE GOVERNMENT IN ORDER TO
AVOID AN INJUSTICE TO THE
INNOCENT
PURCHASERS
FOR
VALUE. In the case at bar, for nearly
twenty years (starting from the issuance
of St. Jude's titles in 1966 up to the filing
of the Complaint in 1985), petitioner
failed to correct and recover the alleged
increase in the land area of St. Jude. Its
prolonged inaction strongly militates
against its cause, as it is tantamount to
laches, which means "the failure or
neglect, for an unreasonable and
unexplained length of time, to do that
which by exercising due diligence could
or should have been done earlier; it is
negligence or omission to assert a right
within a reasonable time, warranting a
presumption that the party entitled to
assert it either has abandoned it or
declined to assert it." The Court notes
private respondents' argument that, prior
to the subdivision, the surveyors erred in
the original survey of the whole tract of
land covered by TCT No. 22660, so that
less than the actual land area was
indicated on the title. Otherwise, the
adjoining
owners
would
have
complained upon the partition of the
land in accordance with the LRCapproved subdivision plan. As it is,
Florencio Quintos, the owner of the
9,146 square-meter Quintos Village
adjoining the northern portion of St.
The Supreme Court affirmed the

decision of the Court of Appeals. The
Court ruled that the Republic of the
Philippines' prolonged inaction strongly
militates against its cause as it is
tantamount to laches. And since the
private respondents-purchasers bought
such "expanded lots" in good faith,
relying on the clean certificates of
private
respondent
St.
Jude's
Enterprises Inc., which had no notice of
any flaw in them either. It is only fair and
reasonable to apply the equitable
31
Jude's property (the portion allegedly

"expanded"), even attested on August
16, 1973 that "there [was] no
overlapping of boundaries as per my
approved plan (LRC) PSD 147766
dated September 8, 1971." None of the
other
neighboring
owners
ever
complained against St. Jude or the
purchasers of its property. It is clear,
therefore, that there was no actual
damage to third persons caused by the
resurvey
and
the
subdivision.
Significantly,
the
other
private
respondents Spouses Santos,
Spouses Calaguian, Dela Fuente and
Madaya bought such "expanded" lots
in good faith, relying on the clean
certificates of St. Jude, which had no
notice of any flaw in them either. It is
only fair and reasonable to apply the
equitable principle of estoppel by laches
against the government to avoid an
injustice to the innocent purchasers for
value.
correctness of the certificate of title

issued therefor, and the law or the
courts do not oblige them to go behind
the certificate in order to investigate
again the true condition of the property.
They are only charged with notice of the
liens and encumbrances on the property
that are noted on the certificate. When
private respondents-purchasers bought
their lots from St. Jude, they did not
have to go behind the titles thereto to
verify their contents or search for hidden
defects or inchoate rights that could
defeat their rights to said lots. Although
they were bound by liens and
encumbrances annotated on the titles,
private respondents-purchasers could
not have had notice of defects that only
an inquiry beyond the face of the titles
could have satisfied.
3. ID.; ID.; TORRENS SYSTEM;
TORRENS CERTIFICATE OF TITLE IS
EVIDENCE OF AN INDEFEASIBLE
TITLE TO PROPERTY IN FAVOR OF
THE
PERSON
WHOSE
NAME
APPEARS THEREON; PETITIONER'S
ACTION DEROGATES THE VERY
INTEGRITY OF THE SYSTEM. True,
the Torrens system is not a means of
acquiring titles to lands; it is merely a
system of registration of titles to lands.
Consequently, land erroneously included
in a Torrens certificate of title is not
necessarily acquired by the holder of
such certificate. But in the interest of
justice and equity, neither may the
titleholder be made to bear the
unfavorable effect of the mistake or
negligence of the State's agents, in the
absence of proof of his complicity in a
fraud or of manifest damage to third
persons. First, the real purpose of the
Torrens system is to quiet title to land to
put a stop forever to any question as to
the legality of the title, except claims that
were noted in the certificate at the time
of the registration or that may arise
subsequent thereto. Second, as we
discussed earlier, estoppel by laches
now bars petitioner from questioning
private respondents' titles to the
subdivision lots. Third, it was never
2.
ID.;
LAND
REGISTRATION;
TORRENS CERTIFICATE OF TITLE;
ALL PERSONS DEALING WITH
REGISTERED LAND MAY SAFELY
RELY ON THE CORRECTNESS OF
THE CERTIFICATE OF TITLE ISSUED
THEREFOR, AND THE LAW OR THE
COURTS DO NOT OBLIGE THEM TO
GO BEHIND THE CERTIFICATE IN
ORDER TO INVESTIGATE AGAIN THE
TRUE
CONDITION
OF
THE
PROPERTY. Likewise, time-settled is
the doctrine that where innocent third
persons, relying on the correctness of
the certificate of title, acquire rights over
the property, courts cannot disregard
such rights and order the cancellation of
the certificate. Such cancellation would
impair public confidence in the
certificate of title, for everyone dealing
with property registered under the
Torrens system would have to inquire in
every instance whether the title has
been regularly issued or not. This would
be contrary to the very purpose of the
law, which is to stabilize land titles.
Verily, all persons dealing with
registered land may safely rely on the
32
proven that Private Respondent St.

Jude was a party to the fraud that led to
the increase in the area of the property
after its subdivision. Finally, because
petitioner even failed to give sufficient
proof of any error that might have been
committed by its agents who had
surveyed the property, the presumption
of regularity in the performance of their
functions must be respected. Otherwise,
the integrity of the Torrens system,
which petitioner purportedly aims to
protect by filing this case, shall forever
be sullied by the ineptitude and
inefficiency of land registration officials,
who are ordinarily presumed to have
regularly performed their duties. We
cannot, adhere to the petitioner's
submission that, in filing this suit, it
seeks to preserve the integrity of the
Torrens system. To the contrary, it is
rather evident from our foregoing
discussion that petitioner's action
derogates the very integrity of the
system. Time and again, we have said
that a Torrens certificate is evidence of
an indefeasible title to property in favor
of the person whose name appears
thereon. IaEScC
here announced would not apply to a

situation where the enlargement or
expansion in area would result in an
encroachment on or reduction of any
area covered by a certificate of title
previously issued. To rule otherwise
would itself be to downgrade the
integrity of the Torrens System. DcTaEH
DECISION
PANGANIBAN, J p:
Is the immunity of the government from
laches and estoppel absolute? May it
still recover the ownership of lots sold in
good faith by a private developer to
innocent
purchasers
for
value,
notwithstanding its approval of the
subdivision plan and its issuance of
separate individual certificates of title
thereto?
The Case
These are the main questions raised in
the Petition for Review before us,
seeking to set aside the November 29,
1993 Decision 1 of the Court of Appeals
2 in CA-GR CV No. 34647. The assailed
Decision affirmed the ruling 3 of the
Regional Trial Court of Caloocan City,
Branch 125, in Civil Case No. C-111708,
which dismissed petitioner's Complaint
for the cancellation of Transfer
Certificates of Title (TCTs) to several lots
in Caloocan City, issued in the name of
private respondents. cdasia
VITUG, J., concurring opinion:

CIVIL LAW; LAND REGISTRATION;
TORRENS SYSTEM; TO ALLOW THE
CANCELLATION OF THE TITLES OF
HEREIN PRIVATE RESPONDENTS
WOULD DEFEAT RATHER THAN
ENHANCE THE PURPOSE AND
SCHEME OF THE TORRENS SYSTEM.
The rule has been to the effect that a
purchaser of registered land is not
ordinarily required to explore further
than what the record in the Registry
indicates on its face in quest of any
hidden defect or inchoate right which
might adversely affect the buyer's right
over the property. Undoubtedly, to allow
in the instant case the cancellation of
the titles of herein private respondents
would defeat rather than enhance the
purpose and scheme of the Torrens
System. It is my understanding,
however, that the rule that the Court has
In a Resolution 4 dated July 7, 1994, the

Court of Appeals denied the Republic's
The Facts
The facts of the case are not disputed.
The trial court's summary, which was
adopted by the Court of Appeals, is
reproduced below:
"Defendant St. Jude's Enterprises, Inc.
is the registered owner of a parcel of
land known as Lot 865-B-1 of the
33
subdivision plan (LRC) PSD-52368,

being a portion of Lot 865-B located in
Caloocan City containing an area of
40,623 square meters. For Lot 865-B-1
defendant St. Jude's Enterprises, Inc.
was issued TCT No. 22660 on July 25,
1966.
Madaya with an area of 350 square

meters." 5
"[On January 29, 1985, then Solicitor
General Estelito Mendoza filed] an
action seeking . . . the annulment and
cancellation of Transfer Certificates of
Title (TCT) Nos. 24015, 24017, 24018,
24020, 24021, 24024, 24025 and 24068
issued in the name of defendant St.
Jude's Enterprises, Inc.[;] Transfer
Certificates of Title Nos. 13309 and C43319 both registered in the name of
Sps. Catalino Santos and Thelma B.
Santos[;] TCT No. 55513 registered in
the name of Sps. Domingo Calaguian
and Felicidad de Jesus[;] TCT No.
24069 registered in the name of Virginia
dela Fuente[;] and TCT No. C-46648
registered in the name of Lucy Madaya,
principally on the ground that said
Certificates of Title were issued on the
strength of [a] null and void subdivision
plan (LRC) PSD-55643 which expanded
the original area of TCT No. 22660 in
the name of St. Jude's Enterprises, Inc.
from 40,623 square meters to 42,044
square meters upon its subdivision.
"Sometime in March 1966 defendant St.

Jude's Enterprises, Inc. subdivided Lot
No. 865-B-1 under subdivision plan
(LRC) PSD-55643 and as a result
thereof the Register of Deeds of
Caloocan City cancelled TCT No. 22660
and in lieu thereof issued Certificates of
Title Nos. 23967 up to 24068 inclusive,
all in the name of defendant St. Jude's
Enterprises, Inc. The subdivision of lot
865-B-1 [which was] covered [by] TCT
No. 22660 was later found to have
expanded and enlarged from its original
area of 40,523 square meters to 42,044
square meters or an increase of 1,421
square meters. This expansion or
increase in area was confirmed by the
Land Registration Commission [to have
been made] on the northern portion of
Lot 865-B-1.
"Subsequently, defendant St. Jude's
Enterprises, Inc. sold the lots covered
by TCT Nos. 24013 and 24014 to
defendant Sps. Catalino Santos and
Thelma Barreto Santos[;] TCT No.
24019 to defendant Sps. Domingo
Calaguian and Felicidad de Jesus[;]
TCT No. 24022 to defendant Virginia
dela Fuente[;] and TCT No. 2402[3] to
defendant Lucy Madaya. Accordingly,
these titles were cancelled and said
defendants were issued the following:
TCT No. C-43319 issued in the name of
Sps. Santos containing an area of 344
square meters[;] TCT No. 55513 issued
in the name of defendants Sps.
Calaguian containing an area of 344
square meters[;] TCT No. 13309 issued
in the name of Sps. Santos[;] TCT No.
24069 issued in the name of Virginia
dela Fuente containing an area of 350
square meters[;] and TCT No. C-46648
issued in the name of defendant Lucy
"Defendants Virginia dela Fuente and

Lucy Madaya were declared in default
for failure to file their respective answers
within the reglementary period.
"Defendants Sps. Catalino Santos and
Thelma Barreto Santos, St. Jude's
Enterprises, Inc. and Sps. Domingo
Calaguian and Felicidad Calaguian filed
separate answers to the complaint.
Defendants Sps. Domingo Calaguian
and Sps. Catalino Santos interposed
defenses, among others, that they
acquired the lots in question in good
faith from their former owner, defendant
St. Judes Enterprises, Inc. and for value
and that the titles issued to the said
defendants
were
rendered
incontrovertible,
conclusive
and
indefeasible after one year from the date
of the issuance of the titles by the
Register of Deeds of Caloocan City.
cdtai
34
"On the other hand, defendant St.

Jude's Enterprises, Inc. interposed
defenses, among others, that the cause
of action of plaintiff is barred by prior
judgment; that the subdivision plan
submitted having been approved by the
LRC, the government is now in estoppel
to question the approved subdivision
plan; and the plaintiff's allegation that
the area of the subdivision increased by
1,421 square meters is without any
basis in fact and in law." 6
". . . [S]ustaining the position taken by

the government would certainly lead to
disastrous consequences. Buyers in
good faith would lose their titles.
Adjoining owners who were deprived of
a portion of their lot would be forced to
accept the portion of the property
allegedly encroached upon. Actions for
recovery will be filed right and left[;] thus
instead of preserving the integrity of the
Torrens System it would certainly cause
chaos rather than stability. Finally, if only
to strengthen the Torrens System and in
the interest of justice, the boundaries of
the affected properties of the defendants
should not be disturbed and the status
quo should be maintained." 8
Ruling of the Trial Court

On April 30, 1991, the trial court
dismissed the Complaint. 7 While the
plaintiff
sufficiently
proved
the
enlargement or expansion of the area of
the disputed property, it presented no
proof that Respondent St. Jude
Enterprises, Inc. ("St. Jude") had
committed fraud when it submitted the
subdivision
plan
to
the
Land
Registration Commission (LRC) for
approval. Because the plan was
presumed to have been subjected to
investigation, study and verification by
the LRC, there was no one to blame for
the increase in the area "but the
plaintiff[,] for having allowed and
approved the subdivision plan." Thus,
the court concluded, the government
was already "in estoppel to question the
approved subdivision plan."
The solicitor general appealed the trial

court's Decision to the Court of Appeals.
Ruling of the Appellate Court
Citing several cases 9 upholding the
indefeasibility of titles issued under the
Torrens system, the appellate court
affirmed the trial court. It berated
petitioner for bringing the suit only after
nineteen (19) years had passed since
the issuance of St. Jude's title and the
approval of the subdivision plan. The
pertinent portion of the assailed
Decision reads: 10
". . . Rather than make the Torrens
system reliable and stable, [its] act of
filing the instant suit rocks the system,
as it gives the impression to Torrens title
holders, like appellees, that their titles to
properties can be questioned by the
same authority who had approved the
same even after a long period of time. In
that case, no Torrens title holder shall be
at peace with the ownership and
possession of his land, for the
Commission of Land Registration can
question his title any time it makes a
finding unfavorable to said Torrens title
holder."
The trial court also took into account the

"absence of complaints from adjoining
owners whose supposed lost [were]
encroached upon by the defendants,'' as
well as the fact that an adjoining owner
had categorically stated that there was
no such encroachment. Finding that
Spouses Santos, Spouses Calaguian,
Dela Fuente and Madaya had bought
their respective lots from St. Jude for
value and in good faith, the court held
that their titles could no longer be
questioned, because under the Torrens
system, such titles had become
absolute and irrevocable. As regards the
Republic's allegation that it had filed the
case to protect the integrity of the said
system, the court said:
Undaunted, petitioner seeks a review by

this Court. 11
35
The Issues
In this petition, the Republic raises the
following issues for our resolution: 12
limitations . . ., the doctrine of equitable

estoppel may be invoked against public
authorities as well as against private
individuals."
"1. Whether or not the government is

estopped from questioning the approved
subdivision plan which expanded the
areas
covered
by
the
transfer
certificates of title in question;
In Republic v. Sandiganbayan, 15 the

government, in its effort to recover illgotten wealth, tried to skirt the
application of estoppel against it by
invoking
a
specific
constitutional
provision. 16 The Court countered: 17
"2. Whether or not the Court of Appeals

erred when it did not consider the
Torrens System as merely a means of
registering title to land;
"We agree with the statement that the

State is immune from estoppel, but this
concept is understood to refer to acts
and mistakes of its officials especially
those which are irregular (Sharp
International Marketing vs. Court of
Appeals, 201 SCRA 299; 306 [1991];
Republic v. Aquino, 120 SCRA 186
[1983]), which peculiar circumstances
are absent in the case at bar. Although
the State's right of action to recover illgotten wealth is not vulnerable to
estoppel[;] it is non sequitur to suggest
that a contract, freely and in good faith
executed between the parties thereto is
susceptible to disturbance ad infinitum.
A different interpretation will lead to the
absurd scenario of permitting a party to
unilaterally jettison a compromise
agreement which is supposed to have
the authority of res judicata (Article
2037, New Civil Code), and like any
other contract, has the force of law
between parties thereto (Article 1159,
New Civil Code; Hernaez vs. Kao, 17
SCRA 296 [1966]; 6 Padilla, Civil Code
Annotated, 7th ed., 1987, p. 711; 3
Aquino, Civil Code, 1990 ed., p.
463) . . ."
"3. Whether or not the Court of Appeals

erred when it failed to consider that
petitioner's complaint before the lower
court was filed to preserve the integrity
of the Torrens System."
We shall discuss the second and third
questions together. Hence, the issues
shall be (1) the applicability of estoppel
against the State and (2) the Torrens
system. cdasia
The Court's Ruling
The petition is bereft of merit.
First Issue:
Estoppel Against the Government
The general rule is that the State cannot
be put in estoppel by the mistakes or
errors of its officials or agents. 13
However, like all general rules, this is
also subject to exceptions, viz.: 14
"Estoppel against the public are little
favored. They should not be invoked
except
in
rare
and
unusual
circumstances and may not be invoked
where they would operate to defeat the
effective operation of a policy adopted to
protect the public. They must be applied
with circumspection and should be
applied only in those special cases
where the interests of justice clearly
require it. Nevertheless, the government
must not be allowed to deal
dishonorably or capriciously with its
citizens, and must not play an ignoble
part or do a shabby thing; and subject to
The Court further declared that "(t)he

real office of the equitable norm of
estoppel is limited to supply[ing]
deficiency in the law, but it should not
supplant positive law." 18
In the case at bar, for nearly twenty
years (starting from the issuance of St.
Jude's titles in 1966 up to the filing of
36
the Complaint in 1985), petitioner failed

to correct and recover the alleged
increase in the land area of St. Jude. Its
prolonged inaction strongly militates
against its cause, as it is tantamount to
laches, which means "the failure or
neglect, for an unreasonable and
unexplained length of time, to do that
which by exercising due diligence could
or should have been done earlier; it is
negligence or omission to assert a right
within a reasonable time, warranting a
presumption that the party entitled to
assert it either has abandoned it or
declined to assert it." 19
injustice 21 to the innocent purchasers

for value.
Likewise time-settled is the doctrine that
where innocent third persons, relying on
the correctness of the certificate of title,
acquire rights over the property, courts
cannot disregard such rights and order
the cancellation of the certificate. Such
cancellation
would
impair
public
confidence in the certificate of title, for
everyone
dealing
with
property
registered under the Torrens system
would have to inquire in every instance
whether the title has been regularly
issued or not. This would be contrary to
the very purpose of the law, which is to
stabilize land titles. Verily, all persons
dealing with registered land may safely
rely on the correctness of the certificate
of title issued therefor, and the law or
the courts do not oblige them to go
behind the certificate in order to
investigate again the true condition of
the property. They are only charged with
notice of the liens and encumbrances on
the property that are noted on the
certificate. 22
The Court notes private respondents'

argument that, prior to the subdivision,
the surveyors erred in the original
survey of the whole tract of land covered
by TCT No. 22660, so that less than the
actual land area was indicated on the
title. Otherwise, the adjoining owners
would have complained upon the
partition of the land in accordance with
the LRC-approved subdivision plan. As
it is, Florencio Quintos, the owner of the
9,146 square-meter Quintos Village
adjoining the northern portion of St.
Jude's property (the portion allegedly
"expanded"), even attested on August
16, 1973 that "there [was] no
overlapping of boundaries as per my
approved plan (LRC) PSD 147766
dated September 8, 1971." 20 None of
the other neighboring owners ever
complained against St. Jude or the
purchasers of its property. It is clear,
therefore, that there was no actual
damage to third persons caused by the
resurvey and the subdivision. cdlex
When private respondents-purchasers

bought their lots from St. Jude, they did
not have to go behind the titles thereto
to verify their contents or search for
hidden defects or inchoate rights that
could defeat their rights to said lots.
Although they were bound by liens and
encumbrances annotated on the titles,
private respondents-purchasers could
not have had notice of defects that only
an inquiry beyond the face of the titles
could have satisfied. 23 The rationale for
this presumption has been stated thus:
24
Significantly,
the
other
private
respondents Spouses Santos,
Spouses Calaguian, Dela Fuente and
Madaya bought such "expanded" lots
in good faith, relying on the clean
certificates of St. Jude, which had no
notice of any flaw in them either. It is
only fair and reasonable to apply the
equitable principle of estoppel by laches
against the government to avoid an
"The main purpose of the Torrens

System is to avoid possible conflicts of
title to real estate and to facilitate
transactions relative thereto by giving
the public the right to rely upon the face
of a Torrens Certificate of Title and to
dispense with the need of inquiring
further, except when the party
concerned had actual knowledge of
37
facts and circumstances that should

impel a reasonably cautious man to
make such further inquiry (Pascua v.
Capuyoc, 77 SCRA 78). Thus, where
innocent third persons relying on the
correctness of the certificate thus
issued, acquire rights over the property,
the court cannot disregard such rights
(Director of Land v. Abache, et al., 73
Phil. 606)."
she has notice of the claims or interest

of some other person. 26 Good faith is
the honest intention to abstain from
taking any unconscientious advantage
of another. 27
Furthermore, it should be stressed that
the total area of forty thousand six
hundred twenty-three (40,623) square
meters indicated on St. Jude's original
title (TCT No. 22660) was not an exact
area. Such figure was followed by the
phrase "more or less." This plainly
means that the land area indicated was
not precise. Atty. Antonio H. Noblejas,
who became the counsel of St. Jude
subsequent to his tenure as Land
Registration Commissioner, offers a
sensible explanation. In his letter 28 to
the LRC dated November 8, 1982, he
gave the following information:
In another case, 25 this Court further

said:
"The Torrens System was adopted in
this country because it was believed to
be the most effective measure to
guarantee the integrity of land titles and
to protect their indefeasibility once the
claim of ownership is established and
recognized. If a person purchases a
piece of land on the assurance that the
seller's title thereto is valid, he should
not run the risk of being told later that
his acquisition was ineffectual after all.
This would not only be unfair to him.
What is worse is that if this were
permitted, public confidence in the
system would be eroded and land
transactions would have to be attended
by complicated and not necessarily
conclusive investigations and proof of
ownership. The further consequence
would be that land conflicts could be
even more abrasive, if not even violent.
The Government, recognizing the
worthy purposes of the Torrens System,
should be the first to accept the validity
of titles issued thereunder once the
conditions laid down by the law are
satisfied." [Italics supplied.]
"a. Records show that our client owned

a large tract of land situated in an area
cutting the boundary of Quezon City and
Caloocan City, then known as Lot 865B, Psd-60608, and described in T.C.T.
No. 100412, containing an area of
96,931 sq. meters, more or less.
b. It will be noted that on the northern
portion of this Lot 865-B, Psd-60608, is .
. . Lot 865-A, Psd-60608, which means
that at a previous point of time, these 2
lots composed one whole tract of land.
c. On December 23, 1965, Lot 865-B,
Psd-60608, was subdivided into 2 lots,
denominated as Lot 865-B-1, with an
area of 40,622 sq. meters, more or less,
on the Caloocan side, and Lot 865-B-2,
with an area of 56,308 sq. meters, more
or less, on the Quezon City side, under
Plan (LRC) Psd-52368.
Petitioner never presented proof that the

private respondents who had bought
their lots from St. Jude were buyers in
bad faith. Consequently, their claim of
good faith prevails. A purchaser in good
faith and for value is one who buys the
property of another without notice that
some other person has a right to or an
interest in such property; and who pays
a full and fair price for the same at the
time of such purchase or before he or
d. On March 1-10, 1966, Lot 865-B-1,

Psd-52368, then covered by T.C.T. No.
N-22660, was subdivided into residential
lots under Plan (LRC) Psd-55643, with a
total area of 42,044 sq. meters, more or
less.
38
e. It will be noted that Lot 865-B, Psd60608, covered by T.C.T. No. 100412,
contained an area of 96,931 sq. meters,
more or less, but when subdivided
under Plan (LRC) Psd-52368, into 2
lots, its total area shrank by 1 sq. meter,
to wit:
approximation as indicated in the 'more

or less' phrase placed after the number
of square meters.
i. There is thus no unauthorized
expansion of the survey occasioned by
the subdivision of Lot 865-B-1 under
Plan (LRC) Psd-55643; consequently,
LRC Circular No. 167, Series of 1967,
finds no application thereto, as to bar
the processing and registration in due
course of transactions involving the
subdivision lots of our client, subject
hereof. This is apart from the fact that
LRC Circular No. 167 has not been
implemented by the Register of Deeds
of Caloocan City or any proper
government authority since its issuance
in 1967, and that, in the interest of
justice and equity, its restrictive and
oppressive effect on transactions over
certificates of titles of subdivisions that
allegedly expanded on re-surveys,
cannot be allowed to continue
indefinitely." (Italics supplied.)
Lot 865-B-1, Psd-52368 40,622 sq.

meters
Lot 865-B-2, Psd-52368 56,308 "
96,930 sq. meters
f. There is no allegation whatever in the

Perez report that there was error in
laying out the metes and bounds of Lot
865-B-1 in Plan (LRC) Psd-55643, as
specified in the Technical Description of
the said lot set forth in T.C.T. No. N22660 covering the same. There is
likewise no allegation, on the contrary
there is confirmation from the boundary
owner on the northern side, Mr.
Florencio Quintos, that there is no
overlapping of boundaries on the
northern side of Lot 865-B-1, Psd55643. cdtai
The discrepancy in the figures could

have been caused by the inadvertence
or the negligence of the surveyors.
There is no proof, though, that the land
area indicated was intentionally and
fraudulently increased. The property
originally registered was the same
property that was subdivided. It is wellsettled that what defines a piece of titled
property is not the numerical data
indicated as the area of the land, but the
boundaries or "metes and bounds" of
the property specified in its technical
description as enclosing it and showing
its limits. 29
g. We respectfully submit that the area

of 42,044 sq. meters stated in Plan
(LRC) Psd-55643 as the size of Lot 865B-a, is the more accurate area,
confirmed by the Perez report 'as per
surveyor[']s findings on the ground',
which rectifies previous surveyor's error
in computing its area as 40,622 sq.
meters in Plan (LRC) Psd-52368, which
is about 3.5% tolerable error (1,422
divided by 40,622 = .035).
Petitioner miserably failed to prove any

fraud, either on the part of Private
Respondent St. Jude or on the part of
land registration officials who had
approved the subdivision plan and
issued the questioned TCTs. Other than
its peremptory statement in the
Complaint that the "expansion" of the
area was "motivated by bad faith with
intent to defraud, to the damage and
prejudice of the government and of
[h.] It is well settled that in the

identification of a parcel of land covered
by a certificate of title, what is controlling
are the metes and bounds as set forth in
its Technical Description and not the
area stated therein, which is merely an
39
public interest," petitioner did not allege

specifically how fraud was perpetrated
to cause an increase in the actual land
size indicated. Nor was any evidence
proffered to substantiate the allegation.
That the land registration authorities
supposedly erred or committed an
irregularity was merely a conclusion
drawn from the "table survey" showing
that the aggregate area of the
subdivision lots exceeded the area
indicated on the title of the property
before its subdivision. Fraud cannot be
presumed, and the failure of petitioner to
prove it defeats its own cause. llibris
respected. Otherwise, the integrity of the

Torrens
system,
which
petitioner
purportedly aims to protect by filing this
case, shall forever be sullied by the
ineptitude and inefficiency of land
registration officials, who are ordinarily
presumed to have regularly performed
their duties. 33
We cannot, therefore, adhere to the
petitioner's submission that, in filing this
suit, it seeks to preserve the integrity of
the Torrens system. To the contrary, it is
rather evident from our foregoing
discussion that petitioner's action
derogates the very integrity of the
system. Time and again, we have said
that a Torrens certificate is evidence of
an indefeasible title to property in favor
of the person whose name appears
thereon.
Second Issue:
The Torrens System
True, the Torrens system is not a means
of acquiring titles to lands; it is merely a
system of registration of titles to lands.
30 Consequently, land erroneously
included in a Torrens certificate of title is
not necessarily acquired by the holder of
such certificate. 31
WHEREFORE, the petition is hereby

DENIED and the assailed Decision is
AFFIRMED. dctai
But in the interest of justice and equity,

neither may the titleholder be made to
bear the unfavorable effect of the
mistake or negligence of the State's
agents, in the absence of proof of his
complicity in a fraud or of manifest
damage to third persons. First, the real
purpose of the Torrens system is to quiet
title to land to put a stop forever to any
question as to the legality of the title,
except claims that were noted in the
certificate at the time of the registration
or that may arise subsequent thereto. 32
Second, as we discussed earlier,
estoppel by laches now bars petitioner
from questioning private respondents'
titles to the subdivision lots. Third, it was
never proven that Private Respondent
St. Jude was a party to the fraud that led
to the increase in the area of the
property after its subdivision. Finally,
because petitioner even failed to give
sufficient proof of any error that might
have been committed by its agents who
had surveyed the property, the
presumption of regularity in the
performance of their functions must be
SO ORDERED.
Romero, Purisima and Gonzaga-Reyes,
JJ.,concur.
Vitug, J., please see concurring opinion.
||| (Republic v. Court of Appeals, G.R.
No. 116111, [January 21, 1999], 361
PHIL 319-338)
ART. 1137 Ownership and other real
rights over immovables also prescribe
through
uninterrupted
adverse
possession thereof for thirty years,
without need of title or of good faith.
5. ANDRES
REALTY
VS.
STA.
LUCIA
SECOND DIVISION
[G.R. No. 201405. August 24, 2015.]
LIWAYWAY
ANDRES,
RONNIE
ANDRES, and PABLO B. FRANCISCO,
petitioners, vs. STA. LUCIA REALTY &
40
DEVELOPMENT,
respondent.
INCORPORATED,
them to have access to Col. Guido

Street, a public road.
In its Answer, 5 respondent denied
knowledge of any property adjoining its
subdivision owned by petitioners and
Liza. At any rate, it pointed out that
petitioners and Liza failed to sufficiently
allege in their complaint the existence of
the requisites for the grant of an
easement of right-of-way.
During trial, Pablo testified that he
bought a 4,000-square meter-portion of
the subject property from Carlos Andres
(Carlos), the husband of Liwayway and
father of Ronnie and Liza. 6 According
to Pablo, he and his co-plaintiffs are still
in possession of the subject property as
evidenced by an April 13, 1998
Certification 7 issued by the Barangay
Chairman of Pag-asa. 8 Further, Pablo
clarified that the easement of right-ofway that they are asking from
respondent would traverse the latter's
subdivision for about 50 meters from the
subject property all the way to another
subdivision that he co-owns, Victoria
Village, which in turn, leads to Col.
Guido Street. 9 He claimed that the
prevailing market value of lands in the
area is about P600.00 per square meter.
Pablo also explained that the subject
property is still not registered under the
Land Registration Act since no tax
declaration over the same has been
issued to them despite application with
the Municipal Assessor of Binangonan.
10 When required by the court to submit
documents
regarding
the
said
application, 11 Pablo attached in his
Compliance, 12 among others, Carlos'
letter 13 of May 18, 1998 to the
Municipal Assessor of Binangonan
requesting for the issuance of a tax
declaration and the reply thereto dated
August 5, 1998 14 of the Provincial
Assessor of Rizal. In the aforesaid reply,
the Provincial Assessor denied the
request on the ground that the subject
property was already declared for
taxation purposes under the name of
Juan Diaz and later, in the name of
Juanito 15 Blanco, et al. (the Blancos).
DECISION
DEL CASTILLO, J p:
Not all may demand for an easement of
right-of-way. Under the law, an
easement of right-of-way may only be
demanded by the owner of an
immovable property or by any person
who by virtue of a real right may
cultivate or use the same.
This Petition for Review on Certiorari
assails the November 17, 2011 Decision
1 of the Court of Appeals in CA-G.R. CV
No. 87715, which reversed and set
aside the May 22, 2006 Decision 2 of
the Regional Trial Court (RTC),
Binangonan, Rizal, Branch 68 granting
petitioners Pablo B. Francisco (Pablo),
Liwayway Andres (Liwayway), Ronnie
Andres (Ronnie) and their co-plaintiff
Liza Andres (Liza) a 50-square meter
right-of-way within the subdivision of
respondent Sta. Lucia Realty and
Development,
Incorporated
(respondent). Likewise assailed is the
March 27, 2012 CA Resolution 3 which
denied petitioners and Liza's Motion for
Reconsideration thereto.
Factual Antecedents
Petitioners and Liza filed a Complaint 4
for Easement of Right-of-Way against
respondent before the RTC on
November 28, 2000. They alleged that
they are co-owners and possessors for
more than 50 years of three parcels of
unregistered agricultural land in Pagasa, Binangonan, Rizal with a total area
of more or less 10,500 square meters
(subject property). A few years back,
however, respondent acquired the lands
surrounding the subject property,
developed the same into a residential
subdivision known as the Binangonan
Metropolis East, and built a concrete
perimeter fence around it such that
petitioners and Liza were denied access
from subject property to the nearest
public road and vice versa. They thus
prayed for a right-of-way within
Binangonan Metropolis East in order for
41
Liwayway testified next. According to

her, she and her children Ronnie and
Liza are the surviving heirs of the late
Carlos who owned the subject property.
16 Carlos acquired ownership over the
same after he had been in continuous,
public and peaceful possession thereof
for 50 years, 17 the circumstances of
which he narrated in a Sinumpaang
Salaysay 18 that he executed while he
was still alive. Carlos stated therein that
even before he was born in 1939, his
father was already in possession and
working on the subject property; that in
1948, he started to help his father in
tilling the land; that when his father
became weak and eventually died, he
took over the land; and, that he already
sought to register his ownership of the
property with the Department of
Environment and Natural Resources
(DENR) and to declare the same for
taxation purposes.
For its part, respondent presented as a
lone witness the then Municipal
Assessor of Binangonan, Virgilio
Flordeliza
(Flordeliza).
Flordeliza
confirmed that Carlos wrote him a letterrequest for the issuance of a tax
declaration. 19 He, however, referred
the matter to the Provincial Assessor of
Rizal since the property for which the
tax declaration was being applied for
was already declared for taxation
purposes in the name of one Juan Diaz.
20 Later, the tax declaration of Juan
Diaz was cancelled and in lieu thereof, a
tax declaration in the name of the
Blancos was issued. 21 For this reason,
the Provincial Assessor of Rizal denied
Carlos' application for issuance of tax
declaration. 22
Ruling of the Regional Trial Court
The RTC rendered its Decision 23 on
May 22, 2006. It observed that
petitioners and Liza's allegation in their
Complaint that they were in possession
of the subject property for more than 50
years was not denied by respondent in
its Answer. Thus, the same is deemed to
have been impliedly admitted by the
latter. It then ratiocinated that based on
Article
1137
24
of
the
Civil
Code,petitioners
and
Liza
are
considered owners of the subject
property
through
extraordinary
prescription. Having real right over the
same, therefore, they are entitled to
demand an easement of right-of-way
under Article 649 25 of the Civil Code.
The RTC further held that Pablo's
testimony sufficiently established: (1)
that
the
subject
property
was
surrounded by respondent's property;
(2) the area and location of the right-ofway sought; (3) the value of the land on
which the right-of-way is to be
constituted which was P600.00 per
square meter; and (4) petitioners and
Liza's possession of the subject property
up to the present time.
In the ultimate, said court concluded that
petitioners and Liza are entitled to an
easement of right-of-way, thus:
WHEREFORE, judgment is hereby
rendered giving the plaintiffs a right of
way of 50 square meters to reach
Victoria Village towards Col. Guido
Street. Defendant Sta. Lucia is hereby
ordered to grant the right of way to the
plaintiffs as previously described upon
payment of an indemnity equivalent to
the market value of the [50-square
meter right of way].
SO ORDERED. 26
Respondent filed a Notice of Appeal 27
which was given due course by the RTC
in an Order 28 dated June 27, 2006.
Ruling of the Court of Appeals
On appeal, respondent argued that
petitioners and Liza were neither able to
prove that they were owners nor that
they have any real right over the subject
property intended to be the dominant
estate. Hence, they are not entitled to
demand an easement of right-of-way. At
any rate, they likewise failed to establish
that the only route available from their
property to Col. Guido Street is through
respondent's subdivision.
In a Decision 29 dated November 17,
2011, the CA held that the evidence
adduced by petitioners and Liza failed to
sufficiently establish their asserted
ownership and possession of the
subject property. Moreover, it held that
42
contrary to the RTC's observation,

respondent in fact denied in its Answer
the allegation of petitioners and Liza that
they have been in possession of subject
property for more than 50 years. In view
of these, the CA concluded that
petitioners and Liza have no right to
from respondent, thus:
WHEREFORE, in view of the foregoing,
the appeal is hereby GRANTED.
Accordingly, the May 22, 2006 Decision
of the Regional Trial Court of
Binangonan, Rizal, Branch 68 is
REVERSED and SET ASIDE. Civil Case
No. 00-037-B is ordered DISMISSED.
SO ORDERED. 30
Petitioners and Liza's Motion for
Reconsideration 31 was denied in the
CA Resolution 32 dated March 27,
2012.
Hence, petitioners seek recourse to this
Court through this Petition for Review on
Certiorari.
Issue
Whether petitioners are entitled to
from respondent.
Our Ruling
The Petition has no merit.
Under Article 649 of the Civil Code,an
easement of right-of-way may be
demanded by the owner of an
immovable or by any person who by
virtue of a real right may cultivate or use
the same.
Here, petitioners argue that they are
entitled to demand an easement of rightof-way from respondent because they
are the owners of the subject property
intended to be the dominant estate.
They contend that they have already
acquired ownership of the subject
property through ordinary acquisitive
prescription. 33 This is considering that
their possession became adverse as
against the Blancos (under whose
names the subject property is declared
for taxation) when Carlos formally
registered his claim of ownership with
the DENR and sought to declare the
subject property for taxation purposes in
1998. And since more than 10 years 34
had lapsed from that time without the

Blancos doing anything to contest their
continued possession of the subject
property, petitioners aver that ordinary
acquisitive prescription had already set
in their favor and against the Blancos.
In the alternative, petitioners assert that
they have already become owners of
the
subject
property
through
extraordinary acquisitive prescription
since (1) they have been in open,
continuous and peaceful possession
thereof for more than 50 years; (2) the
subject property, as depicted in the
Survey Plan they caused to be prepared
is alienable and disposable; (3) Carlos
filed a claim of ownership over the
property with the DENR, the agency
charged with the administration of
alienable public land; and (4) Carlos'
manifestation of willingness to declare
the property for taxation purposes not
only had the effect of giving notice of his
adverse claim on the property but also
strengthened his bona fide claim of
ownership over the same.
It must be stressed at the outset that
contrary to petitioners' allegations, there
is no showing that Carlos filed a claim of
ownership over the subject property with
the DENR. His April 13, 1998 letter 35 to
the said office which petitioners assert to
be an application for the registration of
such claim is actually just a request for
the issuance of certain documents and
nothing more. Moreover, while Carlos
indeed attempted to declare the subject
property for taxation purposes, his
application, as previously mentioned,
was denied because a tax declaration
was already issued to the Blancos.
Anent petitioners' invocation of ordinary
acquisitive prescription, the Court notes
that the same was raised for the first
time on appeal. Before the RTC,
petitioners based their claim of
ownership on extraordinary acquisitive
prescription under Article 1137 of the
Civil Code 36 such that the said court
declared them owners of the subject
property by virtue thereof in its May 22,
2006 Decision. 37 Also with the CA,
petitioners initially asserted ownership
43
through
extraordinary
acquisitive
prescription. 38 It was only later in their
Motion for Reconsideration 39 therein
that they averred that their ownership
could also be based on ordinary
acquisitive prescription. 40 "Settled is
the rule that points of law, theories,
issues and arguments not brought to the
attention of the lower court need not be
considered by a reviewing court, as they
cannot be raised for the first time at that
late stage. Basic considerations of
fairness and due process impel this
rule." 41
Even if timely raised, such argument of
petitioners, as well as with respect to
extraordinary acquisitive prescription,
fails. "Prescription is one of the modes
of acquiring ownership under the Civil
Code." 42 There are two modes of
prescription through which immovables
may be acquired ordinary acquisitive
prescription which requires possession
in good faith and just title for 10 years
and, extraordinary prescription wherein
ownership and other real rights over
immovable property are acquired
through
uninterrupted
adverse
possession for 30 years without need of
title or of good faith. 43 However, it was
clarified in the Heirs of Mario Malabanan
v. Republic of the Philippines, 44 that
only lands of the public domain
subsequently classified or declared as
no longer intended for public use or for
the development of national wealth, or
removed from the sphere of public
dominion and are considered converted
into patrimonial lands or lands of private
ownership, may be alienated or
disposed through any of the modes of
acquiring ownership under the Civil
Code. 45 And if the mode of acquisition
is prescription, whether ordinary or
extraordinary, it must first be shown that
the land has already been converted to
private ownership prior to the requisite
acquisitive
prescriptive
period.
Otherwise, Article 1113 of the Civil
Code,which provides that property of the
State not patrimonial in character shall
not be the subject of prescription,
applies. 46
Sifting through petitioners' allegations, it

appears that the subject property is an
unregistered public agricultural land.
Thus, being a land of the public domain,
petitioners, in order to validly claim
acquisition thereof through prescription,
must first be able to show that the State
has
expressly declared through either a law
enacted by Congress or a proclamation
issued by the President that the subject
[property] is no longer retained for public
service or the development of the
national wealth or that the property has
been
converted
into
patrimonial.
Consequently, without an express
declaration by the State, the land
remains to be a property of public
dominion and hence, not susceptible to
acquisition by virtue of prescription. 47
In the absence of such proof of
declaration in this case, petitioners'
claim of ownership over the subject
property
based
on
prescription
necessarily crumbles. Conversely, they
cannot demand an easement of right-ofway from respondent for lack of
personality.
All told, the Court finds no error on the
part of the CA in reversing and setting
aside the May 22, 2006 Decision of the
RTC and in ordering the dismissal of
petitioners' Complaint for Easement of
Right-of-Way against respondent.
WHEREFORE, the Petition is DENIED.
The November 17, 2011 Decision and
March 27, 2014 Resolution of the Court
of Appeals in CA-G.R. CV No. 87715
are AFFIRMED.
SO ORDERED.
Carpio, Mendoza and Jardeleza, * JJ.,
concur.
Leonen, J., see separate concurring
opinion.
||| (Andres v. Sta. Lucia Realty &
Development, Inc., G.R. No. 201405 ,
[August 24, 2015])
ART. 1142 A mortgage action
prescribes after ten years.
6. MAYBANK
TARROSA
44
PHILIPPINES
VS.
penalty charges. 13 They offered to pay

a lesser amount, which Maybank
refused. 14 Thereafter, or on June 25,
1998,
Maybank
commenced
extrajudicial foreclosure proceedings 15
before the office of Ex-Officio Provincial
Sheriff Ildefonso Villanueva, Jr. (Sheriff
Villanueva). The subject property was
eventually sold in a public auction sale
held on July 29, 1998 16 for a total bid
price of P600,000.00, to the highest
bidder, Philmay Property, Inc. (PPI),
which was thereafter issued a Certificate
of Sale 17 dated July 30, 1998. 18
On September 7, 1998, Sps. Tarrosa
filed a complaint 19 for declaration of
nullity and invalidity of the foreclosure of
real estate and of public auction sale
proceedings and damages with prayer
for preliminary injunction
against
Maybank, PPI, Sheriff Villanueva, and
the Registry of Deeds of San Carlos
City, Negros Occidental (RD-San
Carlos), before the RTC, docketed as
Civil Case No. 98-10451. They averred,
inter alia, that: (a) the second loan was
a clean or unsecured loan; (b) after
receiving the final demand letter, they
tried to pay the second loan, including
the agreed interests and charges, but
Maybank unjustly refused their offers of
payment; and (c) Maybank's right to
foreclose had prescribed or is barred by
laches. 20
On the other hand, Maybank and PPI
countered 21 that: (a) the second loan
was secured by the same real estate
mortgage under a continuing security
provision therein; (b) when the loan
became past due, Sps. Tarrosa
promised to pay and negotiated for a
restructuring of their loan, but failed to
pay despite demands; and (c) Sps.
Tarrosa's positive acknowledgment and
admission
of
their
indebtedness
controverts the defense of prescription.
22
The RTC Ruling
In a Decision 23 dated June 16, 2005,
the RTC held that the second loan was
subject to the continuing security
provision in the real estate mortgage. 24
However, it ruled that Maybank's right to
FIRST DIVISION
[G.R. No. 213014. October 14, 2015.]
MAYBANK
PHILIPPINES,
INC.
(Formerly PNB-Republic Bank), 1
petitioner, vs. SPOUSES OSCAR and
NENITA TARROSA, respondents.
DECISION
PERLAS-BERNABE, J p:
Assailed in this petition for review on
certiorari 2 are the Decision 3 dated
November 29, 2013 and the Resolution
4 dated May 13, 2014 of the Court of
Appeals (CA) in CA-G.R. CV No. 02211,
which affirmed the Decision 5 dated
June 16, 2005 of the Regional Trial
Court of Bacolod City, Branch 41 (RTC)
in Civil Case No. 98-10451 declaring the
extrajudicial foreclosure sale of the
property covered by Transfer Certificate
of Title (TCT) No. T-5649 as null and
void for being barred by prescription.
The Facts
On December 15, 1980, respondentsspouses Oscar and Nenita Tarrosa (Sps.
Tarrosa) obtained from then PNBRepublic Bank, now petitioner Maybank
Philippines, Inc. (Maybank), a loan in
the amount of P91,000.00. The loan was
secured by a Real Estate Mortgage 6
dated January 5, 1981 (real estate
mortgage) over a 500-square meter
parcel of land situated in San Carlos
City,
Negros
Occidental
(subject
property), covered by TCT No. T-5649, 7
and the improvements thereon. 8
After paying the said loan, or sometime
in March 1983, Sps. Tarrosa obtained
another loan from Maybank in the
amount of P60,000.00 (second loan), 9
payable on March 11, 1984. 10
However, Sps. Tarrosa failed to settle
the second loan upon maturity. 11
Sometime in April 1998, Sps. Tarrosa
received a Final Demand Letter 12
dated March 4, 1998 (final demand
letter) from Maybank requiring them to
settle their outstanding loan in the
aggregate amount of P564,579.91,
inclusive of principal, interests, and
45
foreclose, reckoned from the time the

mortgage indebtedness became due
and payable on March 11, 1984, had
already prescribed, considering the lack
of any timely judicial action, written
extrajudicial
demand
or
written
acknowledgment by the debtor of his
debt that could interrupt the prescriptive
period. 25 Accordingly, it declared the
extrajudicial foreclosure proceedings
affecting the subject property as null and
void, and ordered Maybank to pay Sps.
Tarrosa moral and exemplary damages,
as well as attorney's fees and litigation
expenses. 26
Maybank
filed
a
motion
for
reconsideration 27 which was, however,
denied in an Order 28 dated December
9, 2005, prompting it to appeal 29 to the
CA.
The CA Ruling
2013, the CA affirmed the RTC ruling
that Maybank's right to foreclose the real
estate mortgage over the subject
property
is
already
barred
by
prescription. It held that the prescriptive
period should be reckoned from March
11, 1984 when the second loan had
become past due and remained unpaid
since demand was not a condition sine
qua non for the accrual of the latter's
right to foreclose under paragraph 5 of
the real estate mortgage. It observed
that Maybank failed to present evidence
of any timely written extrajudicial
demand or written acknowledgment by
the debtors of their debt that could have
effectively interrupted the running of the
prescriptive period. 31
Undaunted,
Maybank
moved
for
reconsideration, 32 which was denied in
a Resolution 33 dated May 13, 2014;
hence this petition.
The Issues Before the Court
The essential issue for the Court's
resolution is whether or not the CA
committed reversible error in finding that
Maybank's right to foreclose the real
property was barred by prescription.
The Court's Ruling
The petition is meritorious.
An action to enforce a right arising from

a mortgage should be enforced within
ten (10) years from the time the right of
action accrues, i.e., when the mortgagor
defaults in the payment of his obligation
to the mortgagee; otherwise, it will be
barred by prescription and the
mortgagee will lose his rights under the
mortgage.
34
However,
mere
delinquency in payment does not
necessarily mean delay in the legal
concept. To be in default is different from
mere delay in the grammatical sense,
because it involves the beginning of a
special condition or status which has its
own peculiar effects or results. 35
In order that the debtor may be in
default, it is necessary that: (a) the
obligation be demandable and already
liquidated; (b) the debtor delays
performance; and (c) the creditor
requires the performance judicially or
extrajudicially, 36 unless demand is not
necessary i.e., when there is an
express stipulation to that effect; where
the law so provides; when the period is
the controlling motive or the principal
inducement for the creation of the
obligation; and where demand would be
useless. Moreover, it is not sufficient that
the law or obligation fixes a date for
performance; it must further state
expressly that after the period lapses,
default will commence. 37 Thus, it is
only when demand to pay is
unnecessary
in
case
of
the
aforementioned circumstances, or when
required, such demand is made and
subsequently refused that the mortgagor
can be considered in default and the
mortgagee obtains the right to file an
action to collect the debt or foreclose the
mortgage. 38
In the present case, both the CA and the
RTC reckoned the accrual of Maybank's
cause of action to foreclose the real
property from the maturity of the second
loan on May 11, 1984. The CA further
held that demand was unnecessary for
the accrual of the cause of action in light
of paragraph 5 of the real estate
mortgage, which pertinently provides:
46
5. In the event that the Mortgagor herein

should fail or refuse to pay any of the
sums of money secured by this
mortgage, or any part thereof, in
accordance with the terms and
conditions herein set forth, or should
he/it fail to perform any of the conditions
stipulated herein, then and in any such
case, the Mortgagee shall have the
right, at its election to foreclose this
mortgage, [. . .]. 39
However,
this
provision
merely
articulated Maybank's right to elect
foreclosure upon Sps. Tarrosa's failure
or refusal to comply with the obligation
secured, which is one of the rights duly
accorded to mortgagees in a similar
situation. 40 In no way did it affect the
general
parameters
of
default,
particularly the need of prior demand
under Article 1169 41 of the Civil
Code,considering that it did not
expressly declare: (a) that demand shall
not be necessary in order that the
mortgagor may be in default; or (b) that
default shall commence upon mere
failure to pay on the maturity date of the
loan. Hence, the CA erred in construing
the above provision as one through
which the parties had dispensed with
demand as a condition sine qua non for
the accrual of Maybank's right to
foreclose the real estate mortgage over
the subject property, and thereby,
mistakenly reckoned such right from the
maturity date of the loan on March 11,
1984. In the absence of showing that
demand is unnecessary for the loan
obligation to
become due and
demandable,
Maybank's
right
to
foreclose the real estate mortgage
accrued only after the lapse of the
period indicated in its final demand letter
for Sps. Tarrosa to pay, i.e., after the
lapse of five (5) days from receipt of the
final demand letter dated March 4, 1998.
42 Consequently, both the CA and the
RTC committed reversible error in
declaring that Maybank's right to
foreclose the real estate mortgage had
already prescribed.
Thus, considering that the existence of
the loan had been admitted, the default
on the part of the debtors-mortgagors

had been duly established, and the
foreclosure proceedings had been
initiated within the prescriptive period as
afore-discussed, the Court finds no
reason to nullify the extrajudicial
foreclosure sale of the subject property.
WHEREFORE,
the
petition
is
GRANTED.
The
Decision
dated
November 29, 2013 and the Resolution
dated May 13, 2014 of the Court of
Appeals in CA-G.R. CV No. 02211 are
hereby REVERSED AND SET ASIDE.
The complaint in Civil Case No. 9810451 is DISMISSED.
SO ORDERED.
Sereno, C.J., Leonardo-de Castro,
Bersamin and Perez, JJ., concur.
||| (Maybank Philippines., Inc. v.
Spouses Tarrosa, G.R. No. 213014,
[October 14, 2015])
ART 1144 The following actions
must be brought within ten years
from the time the right of action
accrues:
(1) Upon a written contract;
(2) Upon an obligation created by
law;
(3) Upon a judgment;
7. REPUBLIC VS. BANEZ

FIRST DIVISION
[G.R. No. 169442. October 14, 2015.]
represented by the PRIVATIZATION
AND MANAGEMENT OFFICE (PMO),
petitioner, vs. ANTONIO V. BAEZ,
LUISITA BAEZ VALERA, NENA
BAEZ HOJILLA, and EDGARDO B.
HOJILLA, JR., respondents.
DECISION
PEREZ, J p:
Assailed and sought to be annulled in
this Petition for Review on Certiorari
under Rule 45 of the 1997 Rules of Civil
Procedure is the Decision 1 of the Court
of Appeals dated 23 August 2005 in CA47
G.R. CV No. 70137, entitled "Cellophil

Resources Corporation v. Antonio V.
Baez, Luisita Baez Valera, Nena
Baez Hojilla and Edgardo B. Hojilla,
Jr.," which affirmed the Order 2 of the
Regional Trial Court (RTC), Branch 1,
Bangued, Abra, dated 16 August 2000,
that dismissed the complaint of
petitioner Republic of the Philippines,
represented by Privatization and
Management Office (PMO), for specific
performance, recovery of possession,
and damages against respondents
Antonio V. Baez, Luisita Baez Valera,
Nena Baez Hojilla and Edgardo B.
Hojilla, Jr., docketed as Civil Case No.
1853.
The facts as culled from the records are
as follows:
In 1976, Antonio V. Baez, Luisita
Baez Valera, and Nena Baez Hojilla
(collectively, respondents) offered for
sale a parcel of land (subject property),
with an area of 20,000 sq m in Barangay
Calaba, Bangued, Abra to Cellophil
Resources Corporation (CRC). Pursuant
to the offer to sell on 7 December 1981,
respondents
executed
a
Letter
Agreement irrevocably giving CRC the
option to purchase the subject property,
which CRC accepted. The pertinent
portion of the Letter Agreement
(hereinafter referred to as Contract), to
wit:
1. The purchase price shall be Twenty
Pesos . . . per square meter or a total
amount of Four Hundred Thousand
Pesos (P400,000.00).
2. The co-owners shall take all
necessary steps to cause the CRC
Portion to be brought under the
operation of Republic Act No. 496, as
amended, and to cause the issuance in
their name of the corresponding original
certificate of title, all of the foregoing to
be accomplished within a reasonable
time from date hereof. . . .
xxx xxx xxx
7. The co-owners hereby confirm their
agreement and permission to CRC's
entry into, construction of building[s] and
improvements, and occupancy of, any
portion of the Property, and . . . waive
any right of action they may have

against CRC respecting such entry,
construction, or occupancy by the latter
of any Portion of the Property. AScHCD
8. An absolute deed of sale containing
the above provisions and standard
warranties on conveyances of real
property shall be executed by the coowners in favor of CRC or its assignee/s
and the same delivered to the latter
together with the original certificate of
title upon payment of the purchase price
less the advances made by CRC in
accordance with Paragraphs 2 and 3
above; provided, that payment shall be
made by CRC only upon presentation
by the co-owners to CRC of certificate/s
and/or clearances, with corresponding
receipts, issued by the appropriate
government office/s or agency/ies to the
effect that capital gains tax, real estate
taxes on the Property and local transfer
tax and other taxes, fees or charges due
on the transaction and/or on the
Property have been paid.
9. This option shall be effective from
[the] date of your acceptance as
indicated by your conformity below and
for a period of one (1) month from and
after CRC shall have been notified in
writing by the co-owners that an original
certificate of title has been issued in
their names and that they are ready to
execute the . . . deed of sale. 3
Respondents asked for several cash
advances which reached the total
amount of, more or less, Two Hundred
Seventeen
Thousand
Pesos
(P217,000.00), to be deducted from the
purchase price of Four Hundred
Thousand Pesos (P400,000.00). After
paying cash advances to respondents,
CRC constructed staff houses and
introduced improvements on the subject
property. As respondents would be
staying abroad for a time, they executed
a Special Power of Attorney (SPA) in
favor of Edgardo B. Hojilla (Hojilla). The
SPA authorized Hojilla to perform the
following:
1. To take all steps necessary to cause a
portion of the lot covered by Tax
Declaration No. 40185 in the name of
48
Urbano Baez which is the subject of

our "Offer to Sell" to Cellophil Resources
Corporation containing an area . . . to be
brought under the operation of Republic
Act No. 496, as amended, and to cause
the issuance in our name of the
corresponding original certificate of title.
2. To do all acts and things and to
execute all papers and documents of
whatever nature or kind required for the
accomplishments of the aforesaid
purpose.
HEREBY GRANTING AND GIVING unto
our said attorney full power and
authority whatsoever requisite or
necessary or proper to be done in or
about the premises as fully to all intents
and purposes as we might or could
lawfully do if personally present (with
power of substitution and revocation),
and hereby ratifying and confirming all
that our said attorney shall do or cause
to be done under and by virtue of these
presents. 4
However, CRC stopped its operation.
The Development Bank of the
Philippines and National Development
Company took over CRC's operation
and turned over CRC's equity to Asset
Privatization Trust (APT), which is a
government agency created by virtue of
Proclamation No. 50, as amended. The
APT's function is to take title to and
possession of, provisionally manage
and dispose of nonperforming assets of
government financial institutions. Upon
the expiration of APT's term on 31
December 2000, the government issued
Executive Order (E.O.) No. 323, which
created
the
Privatization
and
Management Office (PMO). By virtue of
E.O. No. 323, the powers, functions,
and duties of APT were transferred to
the PMO. Thus, the original party, CRC,
is now represented by the Republic of
the Philippines through the PMO
(hereinafter referred to as petitioner),
the successor of the defunct APT.
As alleged by petitioner, respondents
declared afterwards the subject property
as Urbano Baez property, rented out to
third parties the staff houses petitioner
constructed, and ordered its guards to
prohibit the petitioner from entering the

compound, which impelled petitioner to
file a complaint for specific performance,
recovery of possession, and damages
against respondents, including Hojilla,
on 10 April 2000. Among others, the
complaint prayed for respondents to
surrender and deliver the title of the
subject property, and execute a deed of
absolute sale in favor of petitioner upon
full payment. It mentioned three letters
sent to respondents on 29 May 1991, 24
October 1991, and 6 July 1999.
In the Complaint, it was alleged that:
"[t]here is no justification, legal or
otherwise for the [respondents] to
dispossess (sic) the [petitioner] from the
subject property. [Petitioner] is more
than willing and able to pay the
[respondents] the balance of the
purchase price of the subject parcel of
land but its inability to do so was due to
the [respondents'] failure to produce the
original certificate of title of the subject
parcel of land and to execute the
pertinent deed of sale, as well as the
unjustified
occupation
by
the
[respondents] of the property and [of]
the staff houses built by [petitioner and
that] such actions of the [respondents]
are contrary to their undertaking under
condition no. 7 of the subject letter
agreement, that is, for [respondents] to
permit [petitioner's] entry into and
occupancy of any portion of the subject
property and their waiver of any right of
action they may have against [petitioner]
respecting such entry and occupancy of
any portion of the property. And despite
repeated demands made by [petitioner]
upon the [respondents] for them to
vacate and turnover the subject parcel
of land and the staff houses to
[petitioner], the last of which was in a
letter dated July 6, 1999, the said
[respondents] have failed and neglected
and still fail and neglect to do so up to
the present time." 5 AcICHD
Ruling of the RTC
On 23 June 2000, Hojilla filed a Motion
to Dismiss on the grounds that he was
not a real party-in-interest and that the
action was barred by the Statute of
49
Limitations, which Motion the RTC

granted in an Order dated 16 August
2000 based on Article 1144 (1) of the
Civil Code,which bars actions filed
beyond ten (10) years upon the
execution of the written contract.
According to the RTC, the letters
petitioner sent to respondents were not
demands for respondents to comply with
their obligation to deliver the title as to
interrupt the running of the prescriptive
period. The pertinent portion of the RTC
Order reads:
In the instant case, the defendants were
given [enough] time from December 7,
1981 to comply with their obligation,
hence, after a reasonable period of time,
the plaintiff should have demanded
compliance of defendants' undertakings
or initiated any other action to protect its
interest without waiting for the statute of
limitations to bar their claim. 6
The RTC resolved that because the
written contract was executed on 7
December 1981, then the complaint that
was filed more than eighteen (18) years
since the contract was executed was
beyond the 10-year prescriptive period.
Within that 18-year period, there was no
act on the part of petitioner, whether
judicial or extrajudicial, to interrupt
prescription.
While petitioner paid cash advances to
respondents for the processing of the
registration of the title, "which totaled to
more or less P217,000.00 as of
September 7, 1984 . . . to the filing of
this suit, [petitioner] has not demanded
compliance by [respondents] of their
obligation, that is, the execution of the
absolute deed of sale and the delivery of
the Original Certificate of Title to the
property to [petitioner] upon payment of
the purchase price stipulated. There
were letters addressed to [respondents]
but these were not demands for
compliance of [respondents'] obligation
and which is not sufficient under the law
to interrupt the prescriptive period." 7
"[t]he
parties
could
not
have
contemplated that the delivery of the
property and the payment thereof could
be made indefinitely and render
uncertain the status of the land. The
failure of either [of the] parties to
demand performance of the obligation of
the other for an unreasonable length of
time renders the contract ineffective." 8
The motion for reconsideration was
likewise denied in an Order dated 5
January 2001.
On appeal, petitioner argued that the
RTC erred when it dismissed the
complaint. Petitioner averred that: (1) its
claim was not yet barred by prescription;
(2) the period of prescription had been
interrupted by extrajudicial demand; (3)
the Statute of Limitation did not run
against the State; (4) petitioner's claim
not having prescribed, laches could not
have set in; (5) the laches of one
nullified the laches of the other; and (6)
laches cannot be used to defeat justice
or to perpetuate fraud and injustice.
Ruling of the Court of Appeals
The Court of Appeals affirmed the ruling
of the RTC in a Decision dated 23
August 2005 on the ground that the
complaint was barred by the Statute of
Limitations. Contrary to petitioner's
arguments, the Court of Appeals found
that the extrajudicial demand to
respondents did not serve to toll the
running of the prescriptive period. The
Court of Appeals ruled that the record is
bereft of evidence that would attest that
written extrajudicial demands were sent
to respondents. While petitioner sent
demand letters dated 29 May 1991 and
24 October 1991, these demand letters
were not considered as demand letters
because the letters simply called the
attention of Hojilla to return the
properties and unlock the gates. As
regards the letter dated 6 July 1999, the
Court of Appeals ruled that because the
letter was addressed to Hojilla, who was
only an attorney-in-fact authorized to
register the property, it was not binding
upon the respondents. The Court of
Appeals also gave no probative value to
The RTC further stated that:

50
the 6 July 1999 letter for having no proof

of service.
With regard to the issue of running of
prescriptive period against the State, the
Court of Appeals opined that because
the subject property is a patrimonial
property of the State when APT became
the controlling stockholder of CRC,
prescription may run against the State.
Thus, the reasonable period within
which to register the property is three (3)
years. According to the Court of
Appeals, the cause of action of
petitioner accrued three (3) years from
the time the Contract was executed on 7
December 1981 or, to say the least, on
15 August 1984 when Hojilla sent the
acknowledgment letter dated 15 August
1984, at which time it became clear that
respondents could no longer fulfill their
obligation.
Hence, petitioner is before us raising the
following arguments:
A. The Court of Appeals erred in ruling
that the running of the prescriptive
period was not interrupted when
respondents acknowledged their still
unfulfilled
obligation
to
initiate
proceedings for the registration of title of
the subject property and at the same
time committed that they will only claim
the full payment of the property upon
presentation of a clean title and
execution of a Deed of Sale signed by
the heirs as stated in the letter dated
August 15, 1984.
B. The Court of Appeals erred in
affirming the outright dismissal of
petitioner's suit for specific performance,
recovery of possession and damages on
the basis of prescription even as it is
evident that there is a need to fix a
period considering that the performance
of the condition or obligation is
dependent upon the will of respondents.
C. The Court of Appeals erred in
ignoring certain manifest equitable
considerations which militate against a
resort to a purely mathematical
computation of the prescriptive period
and in disregarding the provision of the
irrevocable offer that the option remains
effective for a period of one month from
and after notice that a certificate of title

has been issued. 9 TAIaHE
The main issue is whether or not the
complaint for specific performance was
filed beyond the prescriptive period.
Petitioner's Arguments
The petitioner argues that although
there is a 10-year limitation within which
to file a case based on a written
contract, the period was interrupted due
to a written acknowledgment of
respondents' obligation and demand by
petitioner. The argument is based on
Article 1155 of the Civil Code,which
provides that the running of the
prescriptive period is interrupted when
there is a written extrajudicial demand
by the creditors, and when there is any
written acknowledgment of the debt by
the debtor.
The petitioner referred to the letter sent
by Hojilla to the former dated 15 August
1984, and letters given by petitioner to
Hojilla dated 29 May 1991, 24 October
1991, and 6 July 1999. In the letter
dated 15 August 1984, respondents
affirmed their undertaking that they will
claim full payment of the property upon
presentation of a clean title and the
execution of the Absolute Deed of Sale,
which reads, "[t]he Baez heirs will only
claim for the full payment of the property
upon presentation of a clean title and
the heirs." 10
Based on Hojilla's representation as
stated in the letter dated 15 August
1984, petitioner argues that Hojilla is
estopped by his own acts and for
misleading
petitioner
because
"respondents not only failed to comply
with their commitment to deliver a
certificate of title but where [sic] they
also [misled] petitioner into believing
that they were working on the title of
subject property even as they had[,] at
the back of their mind[s], the running of
the statute of limitations as an arsenal
once petitioner demands the fulfillment
of their obligation." 11
The petitioner further added that
because there was no period fixed for
the fulfillment or performance of the
51
obligation to deliver the title, the least

the court should have done was to fix
the period pursuant to Article 1197 of the
Civil Code.
Finally, the petitioner posits that
pursuant to paragraph 9 of the Contract,
its obligation is conditioned upon
respondents' obligation, which is to
deliver the title. Thus, because the
respondents failed to deliver such, the
obligation of petitioner never ripened.
Respondents' Arguments
The arguments of respondents, which
are aligned with the reasons of the lower
courts, rely on Article 1144 of the Civil
Code,which provides that actions upon
a written contract must be brought within
ten (10) years from execution. Because
the complaint was filed beyond the 10year prescriptive period, the action was
already barred by the Statute of
Limitations. Further, during such period,
petitioner failed to act either judicially or
extrajudicially to effectively interrupt the
running of the prescriptive period. Thus,
the complaint must be dismissed for
having been extinguished by the Statute
of Limitations.
Our Ruling
We rule in favor of the petitioner.
We deem material, for the resolution of
the issues in this case, the letters that
were exchanged by the parties.
We shall discuss each letter in seriatim.
Hojilla's letter dated 15 August 1984
In Hojilla's letter to petitioner dated 15
August 1984, Hojilla updated petitioner
of the status of the subject property's
title, in this wise:
The preparation of the advance survey
plan,
technical
description
and
Engineer's Certificate pursuant to Land
Administrative Order No. 10-4 has been
submitted to the Regional Land Office,
and approved by the Regional Director.
Atty. Valera is now in the process of
preparing the petition papers of the
Calaba property for submission to the
local court. 12
There is no other logical conclusion but
that the 15 August 1984 letter is an
acknowledgment
of
respondents'
commitment under the Contract. The
letter served to update petitioner of the

status of the subject property's title, an
obligation agreed upon by the parties in
the Contract. It would be specious to
argue that respondents did not
acknowledge the existence of the
Contract and yet, send correspondence
to petitioner updating it of the status of
the application for title on the subject
property. Therefore, the letter dated 15
August 1984 served as a written
acknowledgment of debt or obligation of
respondents.
In Philippine National Railways v. NLRC,
13 it was stated that a written
acknowledgment of debt or obligation
effectively interrupts the running of the
prescriptive period and sets the same
running anew. 14 Hence, because
Hojilla's letter dated 15 August 1984
served as a written acknowledgement of
the respondents' debt or obligation, it
interrupted
the
running
of
the
prescriptive period and set the same
running anew with a new expiry period
of 15 August 1994.
Petitioner's letters dated 29 May
1991 and 24 October 1991
With regard to the letters petitioner sent
to Hojilla dated 29 May 1991 and 24
October 1991, the RTC ruled that these
letters were insufficient under the law to
interrupt the prescriptive period because
these were not demand letters. We lift
the pertinent portion from the letter
dated 29 May 1991, which demanded
respondents to return the properties and
to unlock the gates: cDHAES
Under the agreement to purchase the
lot, APT-CRC shall pay the whole of the
purchase price thereof when the
certificate of title and other documents
enumerated therein are presented to it.
Clearly, the consummation of the sale is
within your control. . . .
In view of the foregoing, demand is
hereby made upon you and your
principals, the heirs of Urbano Baez, to
return the properties withdrawn and to
unlock the gates leading to the
staffhouses (sic), within fifteen (15) days
from receipt thereof, otherwise we will
be constrained to institute the necessary
52
action to protect the interest of APTCRC. 15 (Emphasis and underscoring

ours)
In the same vein, the letter dated 24
October 1991 demanded respondents to
discontinue the construction, repair,
demolition, and occupancy of several
staff houses. A pertinent portion of the
24 October 1991 letter reads:
Compared to the letters dated 29 May

and 24 October 1991, which demanded
Hojilla to surrender possession of the
subject property, this time, in petitioner's
letter to Hojilla dated 6 July 1999,
petitioner demanded Hojilla to produce
the title of the subject property.
However, despite the fact that the letter
was a clear demand of the nature
contemplated by law that would interrupt
the prescriptive period, the Court of
Appeals found that (1) the letter did not
effectively interrupt the prescriptive
period because the complaint had long
prescribed; (2) the letter was addressed
to the wrong party; and, finally, (3) the
letter did not bear any proof of service or
receipt.
We do not agree.
Hojilla's SPA
We refer to the SPA, which granted the
authority of Hojilla.
When
respondents
went
abroad
pending the performance of their
obligations in the Contract, they
authorized Hojilla to register the subject
property a single obligation in the
whole range of obligations in the
Contract. The SPA appeared to have left
no representative to fulfill respondents'
obligations in the Contract on their
behalf except for Hojilla's authority to
register the subject property. The
pertinent portion of the SPA reads:
1. To take all steps necessary to cause a
portion of the lot covered by Tax
Declaration No. 40185 in the name of
Urbano Baez which is the subject of
our "Offer to Sell" to Cellophil Resources
Corporation containing an area . . . to be
brought under the operation of Republic
Act No. 496, as amended, and to cause
the issuance in our name of the
corresponding original certificate of title.
2. To do all acts and things and to
execute all papers and documents of
whatever nature or kind required for the
accomplishments of the aforesaid
purpose.
HEREBY GRANTING AND GIVING unto
our said attorney full power and
authority whatsoever requisite or
necessary or proper to be done in or
Considering that these action (sic) are

unauthorized, they constitute violations
of the irrevocable option to purchase
dated December 7, 1981, which remains
valid, binding and effective to this day.
Demand is hereby made upon you to
discontinue such unauthorized acts and
vacate the premises within fifteen (15)
days from receipt hereof. 16 . . .
(Emphasis and underscoring ours)
We do not agree with the lower courts.
Clearly, the 29 May 1991 and 24
October
1991
letters
demanded
respondents to return the properties,
discontinue the construction, repair,
demolition and occupancy of several
staff houses, and unlock the gates,
which is to enforce respondents'
obligations pursuant to paragraph 7 of
the Contract which reads:
7. The co-owners hereby confirm their
agreement and permission to CRC's
entry into, construction of building and
improvements, and occupancy of, any
portion of the Property, and hereby
accordingly waive any right of action
they may have against CRC respecting
such entry, construction, or occupancy
by the latter of any Portion of the
Property. 17
The letters dated 29 May 1991 and 24
October 1991 are deemed demand
letters as contemplated under Article
1155. They are demand letters to
enforce respondents' obligation under
the Contract, which is to cede
possession to petitioner. The letters
interrupted
the
running
of
the
prescriptive period which commenced to
run anew.
Petitioner's letter dated 6 July 1999
53
about the premises as fully to all intents

and purposes as we might or could
lawfully do if personally present (with
power of substitution and revocation),
and hereby ratifying and confirming all
that our said attorney shall do or cause
to be done under and by virtue of these
presents.
18
(Emphasis
and
underscoring ours)
This was read simply by the lower
courts as limiting Hojilla's authority to
the registration of the subject property
under the name of his principal, and all
the necessary acts for such purpose. It
observed that nowhere in the SPA was
Hojilla authorized as administrator or
agent of respondents with respect to the
execution of the Contract.
In the case at bar, the reliefs prayed for
by petitioner include the execution of the
Contract such as delivery of the subject
title, recovery of possession of the
subject property, execution of the deed
of sale or transfer of absolute ownership
upon full payment of the balance, and
damages for alleged violation of
respondents of the Contract for nondelivery of the title and refusal to vacate
the subject property. Indeed, following
the reading of the lower courts of the
scope of Hojilla's authority, Hojilla is
neither the proper party to execute the
Contract nor the proper party to receive
the demand letters on behalf of
respondents. ASEcHI
This strict construction of the tenor of
the SPA will render the obligatory force
of the Contract ineffective. Construction
is not a tool to prejudice or commit fraud
or to obstruct, but to attain justice. Ea
Est Accipienda Interpretatio Quae Vitio
Caret. To favor the lower court's
interpretation of the scope of Hojilla's
power is to defeat the juridical tie of the
Contract the vinculum juris of the
parties. As no one was authorized to
represent respondents in the Contract,
then petitioner cannot enforce the
Contract, as it were. This is an absurd
interpretation of the SPA. It renders the
Contract ineffective for lack of a party to
execute the Contract.
Contrary to the findings of the lower

court, the present case is a case of an
express agency, where, Hojilla, the
agent, binds himself to represent
another, the principal, who are herein
respondents, with the latter's express
consent or authority. 19 In a contract of
agency, the agent acts for and in behalf
of the principal on matters within the
scope of the authority conferred upon
him, such that, the acts of the agent
have the same legal effect as if they
were personally done by the principal.
20 Because there is an express
authority granted upon Hojilla to
represent the respondents as evidenced
by the SPA, Hojilla's actions bind the
respondents.
As agent, the representations and
guarantees of Hojilla are considered
representations and guarantees of the
principal. This is the principle of agency
by promissory estoppel. We refer to the
evidence on record. It was Hojilla who
administered and/or managed the
subject property. 21 Based on Hojilla's
letter dated 15 August 1984 to petitioner,
Hojilla made the representation that
besides being the attorney-in-fact of the
respondents with limited authority to
register the property, he was also their
agent with regard to respondents' other
obligations related to the Contract. The
pertinent portion of the 15 August 1984
letter of Hojilla to petitioner reads:
Regarding our loan with the National
Electrification Administration (NEA),
Hon. Mel Mathay who is helping the
Baez heirs has initiated negotiations
with NEA for Abreco to purchase our lot
in front of the Provincial Jail to offset our
loan with NEA. 22
Also, one glaring fact that cannot
escape us is Hojilla's representation and
guarantee that petitioner's obligation will
only arise upon presentation of a clean
title and execution of a Deed of Sale
signed by the respondents' heirs, which
reads, "[t]he Baez heirs will only claim
for the full payment of the property upon
the heirs." 23
54
If Hojilla knew that he had no authority

to execute the Contract and receive the
letters on behalf of respondents, he
should have opposed petitioner's
demand letters. However, having
received the several demand letters
from petitioner, Hojilla continuously
represented himself as the duly
authorized agent of respondents,
authorized not only to administer and/or
manage the subject property, but also
authorized to register the subject
property and represent the respondents
with regard to the latter's obligations in
the Contract. Hojilla also assured
petitioner that petitioner's obligation to
pay will arise only upon presentation of
the title.
Clearly, the respondents are estopped
by the acts and representations of their
agent. Falling squarely in the case at
bar is our pronouncement in Philippine
National Bank v. IAC (First Civil Cases
Div.), 24 "[h]aving given that assurance,
[Hojilla] may not turn around and do the
exact opposite of what [he] said [he]
would do. One may not take
inconsistent positions. A party may not
go back on his own acts and
representations to the prejudice of the
other party who relied upon them." 25
Assuming further that Hojilla exceeded
his authority, the respondents are still
solidarily liable because they allowed
Hojilla to act as though he had full
powers by impliedly ratifying Hojilla's
actions through action by omission.
26 This is the import of the principle of
agency by estoppel or the doctrine of
apparent authority.
In an agency by estoppel or apparent
authority, "[t]he principal is bound by the
acts of his agent with the apparent
authority which he knowingly permits the
agent to assume, or which he holds the
agent out to the public as possessing."
27
The respondents' acquiescence of
Hojilla's acts was made when they failed
to repudiate the latter's acts. They
knowingly permitted Hojilla to represent
them and petitioners were clearly misled
into believing Hojilla's authority. Thus,
the respondents are now estopped from

repudiating Hojilla's authority, and
Hojilla's actions are binding upon the
respondents.
Receipt of the Letters
Time and time again, this Court has
reiterated it is not a trier of facts and
parties may raise only questions of law.
The jurisdiction of the Court is limited to
reviewing errors of law and findings of
fact of the Court of Appeals are
conclusive because it is not the Court's
function to review, examine, and
evaluate or weigh the evidence all over
again. 28 The rule, however, is not
without exceptions, viz.:
(1) [W]hen the [conclusion is a finding]
grounded entirely on speculations,
surmises [and] conjectures;
(2) [W]hen the inference made is
manifestly
mistaken,
absurd
or
impossible;
(3) [W]hen there is grave abuse of
discretion;
(4) [W]hen the judgment is based on a

misapprehension of facts;
(5) [W]hen the findings of fact are
conflicting;
(6) [W]hen . . . the Court of Appeals[, in
making its findings,] went beyond the
issues of the case [and the same is]
contrary to the admissions of both the
appellant and the appellee; ITAaHc
(7) [W]hen the findings are contrary to
[those] of the trial court;
(8) [W]hen the findings [of fact] are
conclusions without citation of specific
evidence on which they are based;
(9) [W]hen the facts set forth in the
petition as well as in the petitioner's
main and reply briefs are not disputed
by the respondents;
(10) [W]hen the findings of fact [of the
Court of Appeals] are premised on the
supposed absence of evidence and
contradicted by the evidence on record
and
(11) [When] the Court of Appeals
manifestly overlooked certain irrelevant
facts not disputed by the parties, which,
55
if properly considered, would justify a

different conclusion. 29
In the case at bar, the findings of the
RTC and the Court of Appeals are
contradictory: the RTC did not make any
finding on the receipt of the demand
letters by Hojilla, while the Court of
Appeals
resolved
that
assuming
arguendo that the letters were demand
letters contemplated under Article 1155
of the Civil Code,the same are
unavailing because the letters do not
bear any proof of service of receipt by
respondents.
A perusal of the records reveals that
only the 24 October 1991 letter has no
proof of receipt. 30 The demand letters
dated 29 May 1991 31 and 6 July 1999
32 contain proofs of receipt.
Thus, the core issue of whether or not
the action has prescribed.
An action based on a written contract
must be brought within ten (10) years
from the time the right of action accrued.
Accordingly, a cause of action on a
written contract accrues only when an
actual breach or violation thereof
occurs. 33 A cause of action has three
elements, to wit: (1) a right in favor of
the plaintiff by whatever means and
under whatever law it arises or is
created; (2) an obligation on the part of
the named defendant to respect or not
to violate such right; and (3) an act or
omission on the part of such defendant
violative of the right of the plaintiff or
constituting a breach of the obligation of
the defendant to the plaintiff. 34
By the contract between the herein
parties, the cause of action accrued at
the point when the reasonable time
within which to present the title lapsed.
The parties did not determine the date
when the respondents must present the
title and other documents to the
petitioner. The parties only agreed that
the respondents must present the same
within a "reasonable time." Reasonable
time means "so much time as is
necessary under the circumstances for
a reasonably prudent and diligent man
to do, conveniently, what the contract or
duty requires that should be done,
having a regard for the rights and

possibility of loss, if any, to the other
party." 35 Such reasonable time was
determined by the respondents through
the letter dated 15 August 1984. The
respondents
acknowledged
their
obligation to deliver the title and asked
for a new period to do so. It states:
The preparation of the advance survey
plan,
technical
description
and
Engineer's Certificate pursuant to Land
Administrative Order No. 10-4 has been
submitted to the Regional Land Office,
and approved by the Regional Director.
Atty. Valera is now in the process of
preparing the petition papers of the
Calaba property for submission to the
local court.
xxx xxx xxx
The Baez heirs will only claim for the
full payment of the property upon
the heirs. 36
The accrual of the cause of action to
demand the titling of the land cannot be
earlier than 15 August 1984. So that, the
petitioner can sue on the contract until
15 August 1994. Prior to the expiration
of the aforesaid period, the petitioner
sent a demand letter to Hojilla dated 29
May 1991. A few months thereafter,
petitioner sent another demand letter to
Hojilla dated 24 October 1991. 37 The
prescriptive period was interrupted on
29 May 1991.
The consequence is stated in Article
1155 of the Civil Code.It states, "[t]he
prescription of actions is interrupted
when they are filed before the court,
when there is a written extrajudicial
demand by the creditors, and when
there is any written acknowledgment of
the debt by the debtor."
Following the law, the new ten-year
period for the filing of a case by the
petitioner should be counted from 29
May 1991, ending on 29 May 2001. The
complaint at bar was filed on 10 April
2000, well within the required period.
Notably, before the expiration of the new
prescriptive period, the petitioner again
sent a new demand letter on 6 July
56
1999, which again caused the same to

run anew, which will expire on 6 July
2009. The complaint filed on 10 April
2000 was timely.
The Contract and True Intent of the
Parties
Based on the stipulation in the Contract,
the parties agreed that payment shall be
made only upon presentation of the title
and other documents of the subject
property to petitioner. Paragraph 8 of the
Contract reads:
8. An absolute deed of sale containing
the above provisions and standard
warranties on conveyances of real
property shall be executed by the coowners in favor of CRC or its assignee/s
and the same delivered to the latter
together with the original certificate of
title upon payment of the purchase price
less the advances made by CRC in
accordance with Paragraphs 2 and 3
above; provided, that payment shall be
made by CRC only upon presentation
by the co-owners to CRC of certificate/s
and/or clearances, with corresponding
receipts, issued by the appropriate
government office/s or agency/ies to the
effect that capital gains tax, real estate
taxes on the Property and local transfer
tax and other taxes, fees or charges due
on the transaction and/or on the
Property have been paid. 38 (Emphasis
and underscoring ours) CHTAIc
The true intent of the parties is further
enunciated in Hojilla's letter to petitioner
dated 15 August 1984, which stated,
"[t]he Baez heirs will only claim for the
full payment of the property upon
the heirs." 39
To rule in favor of respondents despite
their failure to perform their obligations
is the height of injustice. Respondents
cannot benefit from their own inaction
and failure to comply with their
obligations in the Contract and let the
petitioner suffer from respondents' own
default.
WHEREFORE,
the
petition
is
GRANTED. The Decision of the Court of
Appeals dated 23 August 2005 in CA-
G.R. CV No. 70137, affirming the Order

of the Regional Trial Court, which ruled
that the action has prescribed, is
reversed and set aside. Let the records
of this case be REMANDED to the court
of origin, which is DIRECTED to admit
the Answer with Counterclaim of the
petitioner for further trial on the merits.
The respondents are further ordered to
return possession of the subject
property
to
petitioner.
No
pronouncement as to costs.
SO ORDERED.
Sereno, C.J., Velasco, Jr., * Leonardode Castro and Perlas-Bernabe, JJ.,
concur.
||| (Republic v. Baez, G.R. No. 169442,
[October 14, 2015])
ART 1146 The following actions
must be instituted within four years:
(1) Upon an injury to the rights of
the plaintiff;
(2) Upon a quasi-delict.
8. MONTERO
VS.
TRANSPORTATION
TIMES
THIRD DIVISION
[G.R. No. 190828. March 16, 2015.]
ONOFRE V. MONTERO, EDGARDO N.
ESTRAERO, RENING P. PADRE,
GABRIEL A. MADERA, HERMINIO T.
TACLA,
NELSON
C.
VILORIA,
DEMETRIO Q. PAJARILLO, ALFREDO
R. AGANON, REYNALDO AVILA,
ALBERT T. RUIZ, NESTOR Y. YAGO,
HARTY M. TUPASI, AGUSTIN R.
AVILA, JR. or MARCOS R. AVILA,
BONIFACIO B. GAANO, JOSELITO D.
CUENTA, JONAS P. ESTILONG,
DOMINADOR C. CANARIA, GENARO
C. RONDARIS, HERARDO M. DULAY,
FRANKLIN A. RAVINA, JR., and
RUBEN C. CABELLO, petitioners, vs.
TIMES TRANSPORTATION CO., INC.,
and
SANTIAGO
RONDARIS,
MENCORP TRANSPORT SYSTEMS,
INC., VIRGINIA R. MENDOZA and
REYNALDO MENDOZA, respondents.
57
Sometime in 1995, the rank-and-file

employees of TTCI formed a union
named as Times Employees Union
(TEU) which was later certified as the
sole and exclusive bargaining unit within
TTCI. 8
DECISION
REYES, J p:
This appeal by petition for review 1
seeks to annul and set aside the
Decision 2 dated August 28, 2009 and
Resolution 3 dated December 11, 2009
of the Court of Appeals (CA) in CA-G.R.
SP No. 106260, which affirmed the
Decision 4 dated March 31, 2008 of the
National Labor Relations Commission
(NLRC) in NLRC CA No. 046325-05
(08), and its Resolution 5 dated
September 5, 2008, denying the
petitioner's Motion for Reconsideration.
The NLRC decision vacated and set
aside the Decision 6 dated June 29,
2005 of the Labor Arbiter (LA) on the
ground that the consolidated complaints
for illegal dismissal, unfair labor practice
and money claims have already
prescribed.
In March 1997, members of TEU went

on strike; but when former Labor
Secretary Leonardo A. Quisumbing
assumed jurisdiction over the labor
dispute and certified the same for
compulsory arbitration, a return-to-work
Order dated March 10, 1997 was issued
which ended the strike and enjoined the
parties from committing any other act
that may intensify the situation. 9
On August 23, 1997, TTCI Board of
Directors
approved
a
resolution
confirming the authority given to
respondent
Santiago
Rondaris
(Santiago),
TTCI
President
and
Chairman of the Board of Directors, to
gradually dispose the assets of the TTCI
as a result of its unabated increase of
the cost of operations and losses for the
last two years. TTCI also adopted a
company-wide retrenchment program,
which will take effect on October 1,
1997, where Santiago was given the
authority to determine the number of
excess employees who would be the
subject of retrenchment. 10 DAEaTS
The Facts
Respondent Times Transportation Co.,
Inc., (TTCI) is a company engaged in
the business of land transportation for
passengers and goods serving the
Ilocos Region to Metro Manila route.
TTCI employed the herein 21 petitioners
as bus drivers, conductors, mechanics,
welders, security guards and utility
personnel, namely: Onofre V. Montero
(Montero), Edgardo N. Estraero
(Estraero), Rening P. Padre (Padre),
Gabriel A. Madera (Madera), Herminio T.
Tacla, Nelson C. Viloria, Demetrio Q.
Pajarillo (Pajarillo), Alfredo R. Aganon
(Aganon), Reynaldo Avila (Avila), Albert
T. Ruiz, Nestor Y. Yago (Yago), Harty M.
Tupasi (Tupasi), Agustin R. Avila, Jr.
(Avila, Jr.), Bonifacio B. Gaano (Gaano),
Joselito D. Cuenta (Cuenta), Jonas P.
Estilong (Estilong), Dominador C.
Canaria (Canaria), Genaro C. Rondaris
(Genaro), Herardo M. Dulay (Dulay),
Franklin A. Ravina, Jr. (Ravina), and
Ruben
C.
Cabello
(Cabello)
(petitioners). 7
The sale of 25 buses of TTCI, as well as

the Certificates of Public Convenience
for the operation of the buses, were
likewise approved and subsequently
transferred to respondent Mencorp
Transport Systems, Inc., (MENCORP)
by virtue of a Deed of Sale dated
December 12, 1997. Thereafter, several
union members received notices that
they were being retrenched effective 30
days from September 16, 1997. 11
For a second time, on October 17, 1997,
TEU declared a strike against TTCI, but
the latter merely reiterated the earlier
return-to-work order of the Labor
Secretary. For disregarding the said
return-to-work order, Santiago issued
58
two notices of termination dated October

26, 1997 12 terminating some 106
workers and a revised list dated
November 24, 1997 13 increasing the
number of dismissed employees to 119,
for participating in the illegal strike. 14
On June 9, 2005, the LA rendered a

Decision dismissing the petitioners'
claim for unfair labor practice and
money claims on the ground of
prescription. However, with regard to the
issue of illegal dismissal, only the
complaints of Montero, Ravina, Cabello,
Genaro, Madera, Gaano, Arsenio
Donato and Estilong were dismissed for
having been barred by prescription. 20
On December 4, 1997, Santiago served

to the Department of Labor and
Employment Regional Office I a notice
that TTCI would be closing its
operations due to heavy business
losses. 15
The LA found that petitioners Estraero,

Pajarillo, Aganon, Padre, Dulay, Cuenta,
Canaria, Yago, Avila and Avila, Jr. were
illegally dismissed and were awarded
their separation pay and backwages.
According to the LA, the complaints of
these 10 petitioners were timely filed in
June 2002 because the eight-month
period during which their cases were
pending should be excluded from the
four-year prescriptive period. 21
On May 14, 1998, petitioners Estraero,

Pajarillo, Padre, Avila, Avila, Jr., Tupasi,
Cuenta, Dulay, Yago, and Aganon filed
several complaints against TTCI and
MENCORP before the NLRC. The
complaints were thereafter consolidated
under the case entitled "Malana v. TTCI"
docketed as NLRC RAB-I-01-1007. 16
However, this case was withdrawn on
March 4, 1999 upon motion by the
TEU's counsel which was given due
course on March 22, 1999. 17
Disagreeing with the LA decision, all

parties interposed an appeal before the
NLRC. However, said appeals have
both been denied for non-perfection,
particularly for failure of the petitioners
to verify their appeal, and for failure of
the respondent to post the required cash
or surety bond. In a Decision 22 dated
March 31, 2008, the NLRC vacated and
set aside the findings of the LA, upon
finding that the petitioners' complaints
had already been barred by prescription.
The dispositive part of which reads:
Four years later, several complaints for

unfair labor practice, illegal dismissal
with money claims, damages and
attorney's fees were filed against TTCI,
Santiago, MENCORP and its General
Manager Virginia Mendoza, including
the latter's husband Reynaldo Mendoza
(collectively called the respondents),
before the LA from June to July 2002.
18 Accordingly, these complaints were
consolidated.
WHEREFORE, IN VIEW OF THE

FOREGOING, the decision appealed
from is hereby VACATED and SET
ASIDE, and the complaints dismissed
on ground of prescription. CITDES
In response, TTCI asserted that the

petitioners' cause of action had already
been barred by prescription because the
complaints were filed only in June 2002
or after almost five years from the date
of their dismissal. MENCORP, on the
other hand, raised the defense of lack of
employer-employee relationship since it
never engaged the services of the
petitioners when TTCI sold to them its
buses and the Certificates of Public
Convenience. 19
SO ORDERED. 23
The NLRC observed that the LA had
ignored the rule on prescription, and
chose to be selective in awarding relief
to the 10 complainants by stating in his
decision that the period during which the
labor cases were pending should be
deducted from the period of prescription.
According to the NLRC:
59
Broadcasting
Corporation
vs.
Panganiban, where the Supreme Court
held that although the commencement
of an action stops the running of the
statute of prescription or limitations, its
dismissal or voluntary abandonment by
plaintiff leaves the parties in exactly the
same position as though no action had
been commenced at all. . . . . 30
We have thoroughly examined the

records and find no justification for the
[LA] to rule that the pendency of the
cases has worked in favor of the
complainants to whom he awarded
separation pay and backwages. The
[LA] has not at all indicated in his
decision when the eight (8)[-]month
period of pendency he alluded to
commenced and when it ended. As a
matter of fact, these cases took almost
three (3) years from filing of the
complaints to the rendition of the
appealed decision. 24
Aggrieved by the foregoing disquisition,

the
petitioners
moved
for
reconsideration 31 but it was denied by
the CA. 32 Hence, the present petition
for review on certiorari. 33
The NLRC added that the application of

the principle of prescription should not
be done on a selective basis, especially
when the dates of accrual of the causes
of action and the filing of the complaints
readily show that prescription has set in.
25
The Issue
The main issue in this case is whether
or not the petitioners' complaints for
illegal
dismissal
have
already
prescribed.
Ruling of the Court
The petitioners filed a motion for

reconsideration 26 dated May 16, 2008,
but it was denied. 27 Hence, they filed a
petition for certiorari 28 before the CA.
"It should be emphasized at the outset

that as a rule, this Court is not a trier of
facts and this applies with greater force
in labor cases. Hence, factual findings of
quasi-judicial bodies like the NLRC,
particularly when they coincide with
those of the [LA] and if supported by
substantial evidence, are accorded
respect and even finality by this Court.
But where the findings of the NLRC and
the [LA] are contradictory, as in the
present case, this Court may delve into
the records and examine for itself the
questioned findings." 34 cSHIaA
On August 28, 2009, the CA Decision

dismissed the petition. 29 In sustaining
the NLRC decision, the appellate court
ratiocinated:
Here, the illegal dismissal case was filed
only in June 2002 or for more than four
(4) years and seven (7) months from the
time petitioners received the notices of
their dismissal in November and
October 1997. Clearly, the four-year
prescriptive period has already elapsed.
Nevertheless, the Court has thoroughly

reviewed the records in this case and
finds that the NLRC did not commit any
grave abuse of its discretion amounting
to lack or in excess of jurisdiction in
rendering its decision in favor of the
respondents. The CA acted in accord
with the evidence on record and case
law when it dismissed the petition and
affirmed the assailed decision and
resolution of the NLRC.
Moreover, there is likewise no merit in

petitioners' contention that the period
when they filed a complaint on May 14,
1998 but withdrawn on March 30, 1998
should
be
excluded
from
the
computation of the four-year prescriptive
[period] for illegal dismissal cases. The
prescriptive period continues even after
the withdrawal of the case as though no
action has been filed at all. This was
clarified in the case of Intercontinental
60
In the case at bar, October 26, 1997 and

November 24, 1997 appear on record to
be the dates when the petitioners'
employment were terminated by TTCI.
The antecedent facts that gave rise to
the
petitioners'
dismissal
from
employment are not disputed in this
case. There is no question about the
fact that the petitioners' complaints for
unfair labor practice and money claims
have already prescribed. The petitioners
however argue that their complaints for
illegal dismissal were duly filed within
the four-year prescriptive period since
the period during which their cases were
pending should be deducted from the
period of prescription. On the other
hand, the respondents insist that said
complaints have already prescribed.
Hence, the pivotal question in resolving
the issues hinges on the resolution of
whether the period during which the
petitioners' cases were pending should
be excluded from the period of
prescription.
stops the running of the statute of

prescription or limitations, its dismissal
or voluntary abandonment by plaintiff
leaves the parties in exactly the same
position as though no action had been
commenced at all." 39 TaDSHC
In like manner, while the filing of the
complaint for illegal dismissal before the
LA interrupted the running of the
prescriptive
period,
its
voluntary
withdrawal left the petitioners in exactly
the same position as though no
complaint had been filed at all. The
withdrawal of their complaint effectively
erased the tolling of the reglementary
period.
A prudent review of the antecedents of
the claim reveals that it has in fact
prescribed due to the petitioners'
withdrawal of their labor case docketed
as NLRC RAB-I-01-1007. 40 Hence,
while the filing of the said case could
have interrupted the running of the fouryear prescriptive period, the voluntary
withdrawal of the petitioners effectively
cancelled the tolling of the prescriptive
period within which to file their illegal
dismissal case, leaving them in exactly
the same position as though no labor
case had been filed at all. The running
of the four-year prescriptive period not
having been interrupted by the filing of
NLRC RAB-I-01-1007, the petitioners'
cause of action had already prescribed
in four years after their cessation of
employment on October 26, 1997 and
November 24, 1997. Consequently,
when the petitioners filed their complaint
for illegal dismissal, separation pay,
retirement benefits, and damages in
2002, their claim, clearly, had already
been barred by prescription. 41
Settled is the rule that when one is

arbitrarily and unjustly deprived of his
job or means of livelihood, the action
instituted to contest the legality of one's
dismissal from employment constitutes,
in essence, an action predicated upon
an injury to the rights of the plaintiff, as
contemplated under Article 1146 35 of
the New Civil Code, which must be
brought within four years. 36
The petitioners contend that the period
when they filed a labor case on May 14,
1998 but withdrawn on March 22, 1999
should
be
excluded
from
the
computation of the four-year prescriptive
period for illegal dismissal cases.
However, the Court had already ruled
that the prescriptive period continues
even after the withdrawal of the case as
though no action has been filed at all.
The applicability of Article 1155 37 of the
Civil Code in labor cases was upheld in
the
case
of
Intercontinental
Broadcasting Corporation v. Panganiban
38 where the Court held that "although
the commencement of a civil action
Sadly, the petitioners have no one but

themselves to blame for their own
predicament. By their own allegations in
their respective complaints, they have
barred their remedy and extinguished
their right of action. Although the
Constitution is committed to the policy of
social justice and the protection of the
61
working class, it does not necessary

follow that every labor dispute will be
automatically decided in favor of labor.
The management also has its own
rights. Out of concern for the less
privileged in life, this Court, has more
often than not inclined, to uphold the
cause of the worker in his conflict with
the employer. Such leaning, however,
does not blind the Court to the rule that
justice is in every case for the
deserving, to be dispensed in the light of
the established facts and applicable law
and doctrine. 42
2009 of the Court of Appeals rendered

in CA-G.R. CV No. 70423-MIN.
The case involves the issue of
ownership of the subject real property.
The facts follow.
Azur Pastrano and his wife Profitiza
Ebaning (Spouses Pastrano) were the
original owners of Lot No. 19986
(subject property), located at Tablon,
Cagayan de Oro City. Its Original
Certificate of Title (OCT) No. P-2035,
consisting of 1,015 sq. m. was issued on
November 18, 1980. 1 The OCT was in
the name of Azur Pastrano. 2
Before the issuance of the OCT,
however, the Spouses Pastrano, on
November 18, 1968, sold the lot to
Eustaquio P. Ledesma, Jr. (Ledesma),
as evidenced by a Deed of Definite Sale
of
Unregistered
Coconut
and
Residential Land. 3
The petitioners, the spouses Magdalino
and Cleofe Badilla (Spouses Badilla)
claimed that in 1970, Ledesma sold to
them, "on installment" basis, a portion
amounting to 200 sq. m. of Lot No.
19986 (subject property). The sale was
not reduced in writing, however,
possession of the portion sold was
transferred to the Badillas, which portion
the Badillas claim was designated as
Lot No. 19986-B. 4 DaIAcC
On April 18, 1978, the spouses Florito
Bragat and Fe Bragat (Spouses Bragat)
bought 991 sq. m. of the property from
Ledesma and his wife, via a Deed of
Absolute Sale of a Residential Lot. 5
Two (2) tax declarations were allegedly
issued as a result of the sale: one
designated a lot as Lot No. 19986-A with
an area of 642 sq. m., 6 while another
designated the other lot as Lot No.
19986-B with an area of 349 sq. m. 7
On May 5, 1984, the Spouses Pastrano
executed another Deed of Absolute Sale
of Registered Land in favor of herein
petitioner Fe Bragat (Bragat), covered
by OCT No. P-2035 and with an area of
1,015 sq. m. 8 On the same date, Azur
Pastrano executed an Affidavit of Loss
reporting the loss of the owner's
duplicate copy of OCT No. P-2035. 9
WHEREFORE, the Decision dated

August 28, 2009 and Resolution dated
December 11, 2009 of the Court of
Appeals in CA-G.R. SP No. 106260 are
AFFIRMED.
SO ORDERED.
||| (Montero v. Times Transportation Co.,
Inc., G.R. No. 190828, [March 16,
2015])
OBLIGATIONS
ART 1164 The creditor has a right to
the fruits of the thing from the time
the obligation to deliver it arises.
However, he shall acquire no real
right over it until the same has been
delivered to him.
9. MAGDALINO VS. BRAGAT
THIRD DIVISION
[G.R. No. 187013. April 22, 2015.]
SPOUSES MAGDALINO AND CLEOFE
BADILLA, petitioners, vs. FE BRAGAT,
respondent.
DECISION
PERALTA, J p:
This is a petition for review on certiorari,
under Rule 45 of the Rules of Court,
assailing the Decision dated October 9,
2008 and Resolution dated February 12,
62
It was Bragat, however, who petitioned

the court for the issuance of a new
owner's duplicate copy of OCT No. P2035. Thus, on July 24, 1987, the RTC
ordered the issuance of a new owner's
copy of OCT No. P-2035. 10
On October 2, 1987, the Spouses
Pastrano executed yet another Deed of
Sale of Registered Land in favor of
Bragat, which land is again covered by
OCT No. P-2035 with an area of 1,015
sq. m. 11 As a result, OCT No. P-2035
was canceled and TCT No. T-47759
was issued in the name of Bragat. 12
On March 7, 1991, Bragat, through her
counsel, made a written demand to
vacate against the Spouses Badilla. In
response, the Spouses Badilla, also
through their counsel's letter, refused
the demand and raised the earlier sale
made by the Spouses Pastrano to
Ledesma and the subsequent sale by
Ledesma to the Badillas. 13
Hence, the parties filed their respective
complaints within days of each other.
Bragat filed her Complaint for Recovery
of Posession and Damages against the
spouses Magdalino and Cleofe Badilla
on June 5, 1992, alleging therein that
she is the absolute owner of Lot No.
19986, covered by TCT No. T-47759.
She claimed to have purchased the
property, first, from Eustaquio Ledesma,
Jr., but later, when she found out that
Ledesma was "unauthorized" to sell, she
again allegedly made another purchase
of the same property from Azur
Pastrano, on May 5, 1984. This led to
the cancellation of Pastrano's OCT No.
P-2035 and the issuance of Bragat's
TCT No. T-47759. Thus, she prays for
the Spouses Badilla to be ordered to
vacate the around 149-square-meter
portion that they occupy in the property.
14
Just six days later, on June 11, 1992,
the Spouses Badilla filed their own
Complaint for Quieting of Title,
Declaration of Nullity of TCT No. T47759 and Damages against Bragat,
claiming that the Spouses Badilla are
the lawful owners and possessors of Lot
No. 19986-B (a portion of Lot No.
19986), having acquired it in 1970 from

Ledesma. The latter, on his part,
allegedly bought the bigger Lot No.
19986 from Pastrano earlier on
November 18, 1968. The Spouses
Badilla
alleged
that
they
took
possession of and built a house on the
property upon their purchase thereof
from Ledesma and has since remained
in possession. However, they claimed
that Pastrano was subsequently able to
obtain a free patent and a title, OCT No.
P-2035, over Lot No. 19986. According
to the Badillas, Pastrano made a sale to
Bragat on October 2, 1987, but such
sale is not valid since Pastrano was no
longer the owner of the property on that
date. Consequently, the Spouses Badilla
prayed that TCT No. T-47759 issued to
Bragat pursuant to that sale be declared
null and void. 15 TAacHE
After Answers were filed for both
complaints, the two cases were
consolidated and heard by one court,
Branch 25 of the RTC of Cagayan de
Oro City, as they involved exactly the
same parties and subject lot.
After trial, the RTC found for Bragat,
noting that the sketch map shows the
152-square-meter portion occupied by
the Spouses Badilla is within the titled
property of Bragat. 16 It also found
Bragat's title as valid for what it saw as
the result of a purchase in good faith
and for value. 17 In contrast, the trial
court observed a lack of evidence of the
Spouses Badilla. The latter allegedly
presented handwritten and typewritten
receipts which were purportedly signed
by Ledesma, dated March 5, 1989,
March 1, 1991 and March 23, 1991
acknowledging Ledesma's receipt of
certain amounts, but the court claimed
that it found no evidence of (Ledesma's)
absolute ownership on these dates. The
court noted that Ledesma had sold
previously to the Spouses Bragat via a
Deed of Absolute Sale of Residential
Land dated April 18, 1978. Hence, in the
trial court's view, on March 5, 1989,
March 1, 1991 and March 23, 1991,
Ledesma no longer owned the land and
transferred nothing to the Badillas. 18
63
The dispositive portion of the RTC

decision states:
IN THE LIGHT OF THE FOREGOING,
by
preponderance
of
evidence,
judgment is hereby rendered in favor of
Spouses Fe Bragat and Florito Bragat
and against Spouses Magdalino and
Cleofe Badilla and dismissing Civil Case
No. 92-287 for failure of Spouses
Magdalino and Cleofe Badilla to
substantiate their complaint and for lack
of merit and ordering defendants Cleofe
Badilla and Magdalino Badilla in Civil
Case No. 92-273:
a) to vacate immediately the 152square-meter
property
they
are
occupying as shown in Exh. N-2-A, P;
b) to pay Twenty Thousand Pesos
(P20,000.00) by way of moral damages;
c) to pay a reasonable rental of One
Hundred Pesos (P100.00) a month from
March 1, 1991 at 6% legal interest until
they vacate the premises;
d) to reimburse Ten Thousand Pesos
(P10,000.00) attorney's fees and Five
Thousand
Pesos (P5,000.00) as
expenses for litigation as part of
consequential damages; and
e) pay the costs.
SO ORDERED. 19
Upon appeal to the CA, the appellate
court affirmed the RTC's decision but
modified the same on a finding that
Ledesma sold only 991 sq. m. of the
property to Bragat in 1978; hence, it
held that the remaining 24 sq. m. of the
1,015-sq.-m. property was validly sold to
the Badillas in 1991 and, therefore, must
be reconveyed to the latter. 20 It also
removed the award of damages. The
dispositive portion of the CA's decision
is as follows:
WHEREFORE, the instant appeal is
PARTIALLY GRANTED. The January
14, 2001 Judgment (of the RTC) is
MODIFIED in that:
a) appellants are ordered to VACATE
128 square meters of the disputed lot
and appellee is ordered to RECONVEY
24 square meters of the disputed lot to
appellants, and
b) the reimbursement of attorney's fees

and expenses of litigation and the
payment of costs are DELETED.
This case is REMANDED to the court of
origin for the purpose of determining the
24-square-meter lot to be reconveyed to
appellants. HDICSa
SO ORDERED. 21
Hence, this petition.
Petitioners Spouses Badilla contend that
ownership of the 200-sq.-m. portion was
transferred to them when they
purchased the same and possession
was delivered to them by Ledesma in
1970. 22 They also contend that when
OCT No. P-2035 was actually issued in
1980, it was first delivered by Pastrano
to Ledesma and the latter delivered the
same to them (the Badillas). 23 Thus,
Bragat allegedly falsely claimed the
"loss" of the title when she petitioned the
court for a new duplicate original,
because such title was not lost but had
been with the Badillas all along. 24
Another fraud that Bragat allegedly
committed was the Deed of Sale dated
October 2, 1987, in which Profitiza
Pastrano signed (in marital consent)
although she had been dead since
March 30, 1985. 25
In her Comment, Bragat claims that the
sale of October 2, 1987 was only a "reexecution" of the sale of May 5, 1984, in
order to avoid tax surcharges. 26
Further, she alleges that the Badillas'
documentary
evidence
were
all
executed only after she had the property
titled to her name. 27
The Court resolves to GRANT the
petition.
The issue is one of ownership of the
subject property.
This Court notes that the arguments
raised call for a re-examination of the
factual findings of the trial court and the
appellate court. It must be stressed that
it is a time-honored rule that in a petition
for review on certiorari under Rule 45,
only questions of law may be raised. 28
Certainly, it is equally observed that
factual findings of the Court of Appeals,
affirming those of the trial court, are
binding on this Court. 29
64
However, these rules admit of certain

exceptions, such as when the judgment
of the Court of Appeals is premised on a
misapprehension of facts, or is belied by
the evidence on record, or fails to notice
certain relevant facts which, if properly
considered, will justify a different
conclusion. 30 After a thorough
examination of the findings of the trial
court and Court of Appeals, this Court
concludes that the case falls under
these exceptional situations. Such
findings must be reversed.
The error of the courts below is in
misapprehending
the
fact
that
ownership passed to the Spouses
Badilla upon their purchase of the
subject
property
from
Eustaquio
Ledesma.
It is not disputed that the spouses Azur
and Profitiza Pastrano had previously
sold on November 18, 1968, via a Deed
of Definite Sale of Unregistered Coconut
and Residential Land, the property to
Eustaquio Ledesma. 31 Therefore, as
early as such date, it is established that
the Pastranos no longer had ownership
over the property.
Then, as Ledesma subsequently sold, in
1970, a portion of the property to the
petitioner
Spouses
Badilla,
who
immediately
took
delivery
and
possession, ownership of this portion
had also been transferred to the said
spouses. Although that sale appears to
be merely verbal, and payment therefor
was to be made on installment, it is a
partially consummated sale, with the
Badillas paying the initial purchase price
and Ledesma surrendering possession.
32 That the parties intended for
ownership to be transferred may be
inferred from their lack of any
agreement stipulating that ownership of
the property is reserved by the seller
and shall not pass to the buyer until the
latter has fully paid the purchase price.
33 The fact is, Ledesma even delivered
to the Badillas the owner's duplicate
copy of OCT No. P-2035. 34 The Civil
Code states that ownership of the thing
sold is transferred to the vendee upon
the actual or constructive delivery of the
same. 35 And the thing is understood as

delivered when it is placed in the control
and possession of the vendee. 36
Payment of the purchase price is not
essential to the transfer of ownership as
long as the property sold has been
delivered; and such delivery (traditio)
operated to divest the vendor of title to
the property which may not be regained
or recovered until and unless the
contract is resolved or rescinded in
accordance with law. 37
The same is true even if the sale is a
verbal one, because it is held that when
a verbal contract has been completed,
executed or partially consummated, its
enforceability will not be barred by the
Statute of Frauds, which applies only to
an executory agreement. 38 Thus,
where a party has performed his
obligation, oral evidence will be admitted
to prove the agreement. And, where it
was proven that one party had delivered
the thing sold to another, then the
contract was partially executed and the
Statute of Frauds does not apply. 39
Therefore, with the Spouses Badilla
owning and occupying the said 152square-meter portion since 1970, it may
be concluded that TCT No. T-47759
(which canceled OCT No. P-2035)
covering the said portion has been
wrongfully issued. 40 IDaEHC
In addition, TCT No. T-47759 was
issued to Fe Bragat on the strength of a
Deed of Sale of Registered Land dated
October 2, 1987. 41 This deed of sale,
however, is void for being simulated,
since both the vendor (Pastrano) and
the vendee (Bragat) knew at the time of
its execution of the vendor's lack of
ownership over Lot No. 19986, the
property being sold. At that time, it was
not Pastrano but Ledesma who was
absolute owner of the property by virtue
of the latter's earlier purchase of Lot No.
19986 from the Spouses Pastrano on
November 18, 1968, via a Deed of
Definite Sale of Unregistered Coconut
and Residential Land. 42 Bragat herself
knew this, as she and her husband
themselves first bought the property
from Ledesma through a Deed of
65
Absolute Sale of Residential Land dated

April 18, 1978. 43
In fact, it is from this sale in 1978 that Fe
Bragat derives title on the property and
not from the Deeds of Sale dated May 5,
1984 and October 2, 1987 executed
between her as vendee and Pastrano as
vendor. Pastrano could no longer sell
any part of the property to Bragat on
such later dates since he had already
sold the same as early as November 18,
1968 to Ledesma. Well-settled is the
rule that no one can give what one does
not have nemodat quod non habet
and, accordingly, one can sell only what
one owns or is authorized to sell, and
the buyer acquires no better title than
the seller. 44 Thus, the sales made on
the dates May 5, 1984 and October 2,
1987 are void for being simulated and
for lack of a subject matter. On these
sales, Bragat cannot claim good faith as
she herself knew of Pastrano's lack of
ownership.
It needs emphasis, however, that
Bragat's property bought from Ledesma
in 1978 does not include the 152-sq.-m.
portion that was already bought by the
Badillas.
Therefore, Fe Bragat is entitled to a new
transfer certificate of title issued in her
name, but on the basis of the Deed of
Absolute Sale dated April 18, 1978, and
excluding the 152 sq. m. in area that the
Spouses Badilla have already bought
and have been occupying since 1970,
but which are currently covered by
Bragat's existing title, TCT No. T-47759.
Hence, Bragat's TCT No. T-47759
(which canceled OCT No. P-2035),
covering 1,015 sq. m., should be
declared void and cancelled and, in its
place, two (2) new ones should be
issued: (1) in the name of the spouses
Magdalino and Cleofe Badilla, covering
the 152 sq. m. that they are occupying,
and (2) in the name of Fe Bragat,
covering the remaining 863 sq. m. The
metes and bounds of these two lots are
to be based on the survey plans already
submitted by appointed commissioners
to the lower court during trial, which are:
the Commissioner's Relocation Survey
Report (Exhibit "N") 45 signed by Engr.

Benigno B. Manlangit, et al., as well as
the accompanying Relocation Sketch
Plan (Exhibit "N-2") 46 prepared by the
same commissioner.
This ruling is compelled by the
involvement in this case of not just one
instance of double sales but a series of
such sales made by two different
vendors. First, it is admitted that
Pastrano sold the property to Ledesma
in 1968; then, Pastrano sold it again to
Bragat in 1984 and 1987. But Ledesma,
too, sold part of the property to the
Spouses Badilla in 1970 and then the
entire lot to the Spouses Bragat in 1978.
In such a situation of multiple sales,
Article 1544 of the Civil Code relates
that ownership shall belong to the
person acquiring the property who, in
good faith, first recorded such
acquisition. 47 Presently, however, it
cannot be said that Bragat's recording of
her 1987 purchase was in good faith
because that sale was simulated and
Bragat was aware of other persons who
have an interest on the property. That
the 1987 sale is void is further revealed
by evidence to show that one of its
signatories, Profitiza Pastrano was
already dead when it was executed. 48
Bragat herself also admitted that she
knew of the Spouses Badillas'
occupation prior to her purchase. 49 In
that case, the same Article 1544 of the
Civil Code provides that when neither
buyer registered, in good faith, the sale
of the properties with the register of
deeds, the one who took prior
possession of the properties shall be the
lawful owner thereof. 50 Such prior
possessors, at least with respect to the
152-sq.-m. portion, are indisputably the
Spouses Badilla.
the petition is GRANTED. The assailed
Decision dated October 9, 2008 and
Resolution dated February 12, 2009 of
the Court of Appeals in CA-G.R. CV No.
70423-MIN are hereby REVERSED and
SET ASIDE. Transfer Certificate of Title
No. T-47759 is DECLARED VOID, and,
in its place, two (2) new transfer
66
certificates of titles are ORDERED

ISSUED, namely: (1) in the name of the
Spouses Magdalino and Cleofe Badilla,
covering the 152 sq. m. that they are
occupying, and (2) in the name of Fe
Bragat, covering the remaining 863 sq.
m. of the property, of which
measurements are to be based on
Exhibit "N" 51 and Exhibit "N-2". 52
SO ORDERED.
Velasco, Jr., Villarama, Jr., Reyes and
Jardeleza, JJ., concur.
||| (Spouses Badilla v. Bragat, G.R. No.
187013 , [April 22, 2015])
CARMELITA LEAO, assisted by her

husband
GREGORIO
CUACHON,
petitioner, vs. COURT OF APPEALS
and
HERMOGENES
FERNANDO,
respondents.
Eduardo R. Santos for petitioner.
Geronimo Veneracion, Jr. for private
respondent.
SYNOPSIS
Private
respondent
Hermogenes
Fernando, as vendor, and petitioner
Carmelita Leao, as vendee, executed a
contract to sell involving a piece of land,
Lot No. 876-B, with an area of 431
square meters, located at Sto. Cristo,
Baliuag, Bulacan. In the contract,
Carmelita Leao bound herself to pay
Hermogenes Fernando the sum of one
hundred seven thousand seven hundred
and fifty pesos (P107,750.00) as the
total purchase price of the lot. After the
execution of the contract, Carmelita
Leao made several payments in lump
sum. Thereafter, she constructed a
house on the lot valued at P800,000.00.
The trial court, however, rendered a
decision in an ejectment case earlier
filed by respondent Fernando ordering
petitioner Leao to vacate the premises
and to pay P250.00 per month by way of
compensation for the use and
occupation of the property from May 27,
1991 until she vacated the premises.
Petitioner Leao filed with the Regional
Trial Court of Malolos, Bulacan, a
complaint for specific performance with
preliminary injunction. The trial court
rendered a decision ordering petitioner
to pay to the defendant the sum of
P103,090.70 corresponding to her
outstanding obligations under the
contract to sell consisting of the principal
of said obligation together with the
interest and surcharges due thereon as
of February 28, 1994, plus interest
thereon at the rate of 18% per annum.
Respondent Fernando filed a motion for
reconsideration.
The
trial
court
ART 1169 - Those obliged to deliver

or to do something incur in delay
from the time the obligee judicially or
extrajudicially demands from them
the fulfillment of their obligation.
However, the demand by the creditor
shall not be necessary in order that
delay may exist:
(1) When the obligation or the law
expressly so declare; or
(2) (2) When from the nature and
the circumstances of the
obligation it appears that the
designation of the time when
the thing is to be delivered or
the service is to be rendered
was a controlling motive for
the establishment of the
contract; or
(3) (3) When demand would be
useless, as when the obligor
has rendered it beyond his
power to perform.
In reciprocal obligations, neither
party incurs in delay if the other does
not comply or is not ready to comply
in a proper manner with
what is incumbent upon him. From
the moment one of the parties fulfills
his obligation, delay by the other
begins. (1100a)
10. LEANO
VS.
APPEALS
COURT
OF
FIRST DIVISION
[G.R. No. 129018. November 15, 2001.]
67
increased the amount of P103,090.70 to

P183,687.00. According to the trial
court, the transaction between the
parties was an absolute sale, making
petitioner Leao the owner of the lot
upon actual and constructive delivery
thereof. Respondent Fernando, the
seller, was divested of ownership and
cannot recover the same unless the
contract is rescinded pursuant to Article
1592 of the Civil Code which requires a
judicial or notarial demand. Since there
had been no rescission, petitioner
Leao, as the owner in possession of
the property, cannot be evicted. In time,
petitioner Leao appealed the decision
to the Court of Appeals. The Court of
Appeals
promulgated
a
decision
affirming that of the Regional Trial Court
in toto. Petitioner Leao filed a motion
for reconsideration. The Court of
Appeals denied the motion. Hence, the
present petition.
petitioner Leao to continue in

possession and use of the property.
Clearly, when petitioner Leao did not
pay the monthly amortizations in
accordance with the terms of the
contract, she was in delay and liable for
damages. The Court, however, upheld
the trial court in holding that the default
committed by petitioner Leao in
respect of the obligation could be
compensated by the interest and
surcharges imposed upon her under the
contract in question.
SYLLABUS
1. CIVIL LAW; SPECIAL CONTRACTS;
SALES;
THE
TRANSACTION
BETWEEN THE PARTIES WAS A
CONDITIONAL
SALE
NOT
AN
ABSOLUTE SALE. Contrary to the
findings of the trial court, the transaction
between the parties was a conditional
sale not an absolute sale. The intention
of the parties was to reserve the
ownership of the land in the seller until
the buyer has paid the total purchase
price. Consider the following: First, the
contract to sell makes the sale, cession
and conveyance "subject to conditions"
set forth in the contract to sell. Second,
what
was
transferred
was
the
possession of the property, not
ownership. The possession is even
limited by the following: (1) that the
vendee may continue therewith "as long
as the VENDEE complies with all the
terms and conditions mentioned," and
(2) that the buyer may not sell, cede,
assign, transfer or mortgage or in any
way encumber any right, interest or
equity that she may have or acquire in
and to the said parcel of land nor to
lease or to sublease it or give
possession to another person without
the written consent of the seller. Finally,
the ownership of the lot was not
transferred to Carmelita Leao. As the
land is covered by a torrens title, the act
of registration of the deed of sale was
the operative act that could transfer
ownership over the lot. There is not
even a deed that could be registered
The Supreme Court dismissed the

petition. The transaction between the
parties was a conditional sale, not an
absolute sale. The intention of the
parties was to reserve the ownership of
the land in the seller until the buyer has
paid the total purchase price. The
ownership of the lot was not transferred
to Carmelita Leao. As the land is
covered by a torrens title, the act of
registration of the deed of sale was the
operative act that could transfer
ownership over the lot. There is not
since the contract provides that the
seller will execute such a deed "upon
complete payment by the vendee of the
total purchase price of the property" with
the stipulated interest. The Court also
ruled that Article 1169 of the Civil Code
provides that in reciprocal obligations,
neither party incurs in delay if the other
does not comply or is not ready to
comply in a proper manner with what is
incumbent upon him. From the moment
one of the parties fulfills his obligation,
delay by the other begins. In the case at
bar, respondent Fernando performed his
part of the obligation by allowing
68

complete payment by the VENDEE of
the total purchase price of the property"
with the stipulated interest. In a contract
to sell real property on installments, the
full payment of the purchase price is a
positive suspensive condition, the failure
of which is not considered a breach,
casual or serious, but simply an event
that prevented the obligation of the
vendor to convey title from acquiring any
obligatory force. The transfer of
ownership and title would occur after full
payment of the price. In the case at bar,
petitioner Leao's non-payment of the
installments after April 1, 1989,
prevented the obligation of respondent
Fernando to convey the property from
arising. In fact, it brought into effect the
provision of the contract on cancellation.
petitioner Leao to continue in

damages. However, we agree with the
trial court that the default committed by
petitioner Leao in respect of the
obligation could be compensated by the
interest and surcharges imposed upon
her under the contract in question.
DECISION
PARDO, J p:
The Case
The case is a petition for review on
certiorari of the decision 1 of the Court
of Appeals affirming that of the Regional
Trial Court, Malolos, Branch 7 2 ordering
petitioner Leao to pay respondent
Hermogenes Fernando the sum of
P183,687.70 corresponding to her
outstanding obligations under the
contract to sell, with interest and
surcharges due thereon, attorney's fees
and costs.
2. ID.; OBLIGATIONS; EFFECT OF

DELAY
IN
RECIPROCAL
OBLIGATIONS; WHEN PETITIONER
DID NOT PAY THE MONTHLY
AMORTIZATIONS IN ACCORDANCE
WITH
THE
TERMS
OF
THE
CONTRACT, SHE WAS IN DELAY AND
LIABLE FOR DAMAGES. On the
issue of whether petitioner Leao was in
delay in paying the amortizations, we
rule that while the contract provided that
the total purchase price was payable
within a ten-year period, the same
contract specified that the purchase
price shall be paid in monthly
installments for which the corresponding
penalty shall be imposed in case of
default. Petitioner Leao cannot ignore
the provision on the payment of monthly
installments by claiming that the tenyear period within which to pay has not
elapsed. Article 1169 of the Civil Code
provides that in reciprocal obligations,
incumbent upon him. From the moment
one of the parties fulfills his obligation,
delay by the other begins. In the case at
bar, respondent Fernando performed his
part of the obligation by allowing
The Facts
On November 13, 1985, Hermogenes
Fernando, as vendor and Carmelita
Leao, as vendee executed a contract
to sell involving a piece of land, Lot No.
876-B, with an area of 431 square
meters, located at Sto. Cristo, Baliuag,
Bulacan. 3
In the contract, Carmelita Leao bound
herself to pay Hermogenes Fernando
the sum of one hundred seven thousand
and seven hundred and fifty pesos
(P107,750.00) as the total purchase
price of the lot. The manner of paying
the total purchase price was as follows:
"The sum of TEN THOUSAND SEVEN
HUNDRED
SEVENTY
FIVE
(P10,775.00) PESOS, shall be paid at
the signing of this contract as DOWN
PAYMENT, the balance of NINETY SIX
THOUSAND
NINE
HUNDRED
69
SEVENTY FIVE PESOS (P96,975.00)

shall be paid within a period of TEN (10)
years at a monthly amortization of
P1,747.30 to begin from December 7,
1985 with interest at eighteen per cent
(18%) per annum based on balances." 4
court issued a writ of execution which

was duly served on petitioner Leao.
On September 27, 1993, petitioner
Leao filed with the Regional Trial Court
of Malolos, Bulacan a complaint for
specific performance with preliminary
injunction. 11 Petitioner Leao assailed
the validity of the judgment of the
municipal trial court 12 for being
violative of her right to due process and
for being contrary to the avowed
intentions of Republic Act No. 6552
regarding protection to buyers of lots on
installments. Petitioner Leao deposited
P18,000.00 with the clerk of court,
Regional Trial Court, Bulacan, to cover
the balance of the total cost of Lot 876B. 13
The contract also provided for a grace

period of one month within which to
make payments, together with the one
corresponding to the month of grace.
Should the month of grace expire
without the installments for both months
having been satisfied, an interest of
18% per annumwill be charged on the
unpaid installments. 5
Should a period of ninety (90) days
elapse from the expiration of the grace
period without the overdue and unpaid
installments having been paid with the
corresponding interests up to that date,
respondent Fernando, as vendor, was
authorized to declare the contract
cancelled and to dispose of the parcel of
land, as if the contract had not been
entered into. The payments made,
together with all the improvements
made on the premises, shall be
considered as rents paid for the use and
occupation of the premises and as
liquidated damages. 6
On November 4, 1993, after petitioner

Leao posted a cash bond of
P50,000.00, 14 the trial court issued a
writ of preliminary injunction 15 to stay
the enforcement of the decision of the
municipal trial court. 16
On February 6, 1995, the trial court
rendered a decision, the dispositive
portion of which reads:
"WHEREFORE, judgment is hereby
rendered as follows:
"1. The preliminary injunction issued by
this court per its order dated November
4, 1993 is hereby made permanent;
After the execution of the contract,

Carmelita
Leao
made
several
payments in lump sum. 7 Thereafter,
she constructed a house on the lot
valued at P800,000.00. 8 The last
payment that she made was on April 1,
1989.
"2. Ordering the plaintiff to pay to the

defendant the sum of P103,090.70
corresponding to her outstanding
obligations under the contract to sell
(Exhibit "A" Exhibit "B") consisting of
the principal of said obligation together
with the interest and surcharges due
thereon as of February 28, 1994, plus
interest thereon at the rate of 18% per
annum in accordance with the provision
of said contract to be computed from
March 1, 1994, until the same becomes
fully paid;
On September 16, 1991, the trial court

rendered a decision in an ejectment
case 9 earlier filed by respondent
Fernando ordering petitioner Leao to
vacate the premises and to pay P250.00
per month by way of compensation for
the use and occupation of the property
from May 27, 1991 until she vacated the
premises, attorney's fees and costs of
the suit. 10 On August 24, 1993, the trial
70
"3. Ordering the defendant to pay to

plaintiff the amount of P10,000 as and
by way of attorney's fees;
purchase price has not yet lapsed. In

other words, the plaintiff has clearly
defaulted in the payment of the
amortizations due under the contract as
recited in the statement of account
(Exhibit "2") and she should be liable for
the payment of interest and penalties in
accordance with the stipulations in the
contract pertaining thereto." 21
"4. Ordering the defendant to pay to

plaintiff the costs of the suit in Civil Case
No. 1680 aforementioned.
"SO ORDERED.
"Malolos, Bulacan, February 6, 1995.
The trial court disregarded petitioner

Leao's claim that she made a
downpayment of P10,000.00, at the time
of the execution of the contract.
"(sgd.) DANILO A. MANALASTAS

Judge" 17
The trial court relied on the statement of

account 22 and the summary 23
prepared by respondent Fernando to
determine petitioner Leao's liability for
the payment of interests and penalties.
On February 21, 1995, respondent

Fernando
filed
a
motion
for
reconsideration 18 and the supplement
19 thereto. The trial court increased the
amount of P103,090.70 to P183,687.00
and ordered petitioner Leao to pay
attorney's fees. 20
The trial court held that the consignation

made by petitioner Leao in the amount
of P18,000.00 did not produce any legal
effect as the same was not done in
accordance with Articles 1176, 1177 and
1178 of the Civil Code.
According to the trial court, the

transaction between the parties was an
absolute sale, making petitioner Leao
the owner of the lot upon actual and
constructive
delivery
thereof.
Respondent Fernando, the seller, was
divested of ownership and cannot
recover the same unless the contract is
rescinded pursuant to Article 1592 of the
Civil Code which requires a judicial or
notarial demand. Since there had been
no rescission, petitioner Leao, as the
owner in possession of the property,
cannot be evicted.
In time, petitioner Leao appealed the

decision to the Court of Appeals. 24 On
January 22, 1997, Court of Appeals
promulgated a decision affirming that of
the Regional Trial Court in toto. 25 On
February 11, 1997, petitioner Leao filed
a motion for reconsideration. 26 On April
17, 1997, the Court of Appeals denied
the motion. 27
Hence, this petition. 28
On the issue of delay, the trial court

held:
The Issues
The issues to be resolved in this petition
for review are (1) whether the
transaction between the parties is an
absolute sale or a conditional sale; (2)
whether there was a proper cancellation
of the contract to sell; and (3) whether
petitioner was in delay in the payment of
the monthly amortizations.
"While the said contract provides that

the whole purchase price is payable
within a ten-year period, yet the same
contract clearly specifies that the
purchase price shall be payable in
monthly installments for which the
corresponding penalty shall be imposed
in case of default. The plaintiff certainly
cannot ignore the binding effect of such
stipulation by merely asserting that the
ten-year period for payment of the whole
The Court's Ruling

Contrary to the findings of the trial court,
the transaction between the parties was
71
a conditional sale not an absolute sale.

The intention of the parties was to
reserve the ownership of the land in the
seller until the buyer has paid the total
purchase price.
In the case at bar, petitioner Leao's

non-payment of the installments after
April 1, 1989, prevented the obligation of
respondent Fernando to convey the
property from arising. In fact, it brought
into effect the provision of the contract
on cancellation.
Consider the following:

First, the contract to sell makes the sale,
cession and conveyance "subject to
conditions" set forth in the contract to
sell. 29
Contrary to the findings of the trial court,

Article 1592 of the Civil Code is
inapplicable to the case at bar. 35
However, any attempt to cancel the
contract to sell would have to comply
with the provisions of Republic Act No.
6552, the "Realty Installment Buyer
Protection Act."
Second, what was transferred was the

possession of the property, not
ownership. The possession is even
limited by the following: (1) that the
vendee may continue therewith "as long
as the VENDEE complies with all the
terms and conditions mentioned," and
(2) that the buyer may not sell, cede,
assign, transfer or mortgage or in any
way encumber any right, interest or
equity that she may have or acquire in
and to the said parcel of land nor to
lease or to sublease it or give
possession to another person without
the written consent of the seller. 30
R.A. No. 6552 recognizes in conditional

sales of all kinds of real estate
(industrial, commercial, residential) the
right of the seller to cancel the contract
upon non-payment of an installment by
the buyer, which is simply an event that
prevents the obligation of the vendor to
convey title from acquiring binding force.
36 The law also provides for the rights of
the buyer in case of cancellation. Thus,
Sec. 3 (b) of the law provides that:
Finally, the ownership of the lot was not

transferred to Carmelita Leao. As the
land is covered by a torrens title, the act
of registration of the deed of sale was
the operative act that could transfer
ownership over the lot. 31 There is not
complete payment by the VENDEE of
the total purchase price of the property"
with the stipulated interest. 32
"If the contract is cancelled, the seller

shall refund to the buyer the cash
surrender value of the payments on the
property equivalent to fifty percent of the
total payments made and, after five
years of installments, an additional five
percent every year but not to exceed
ninety percent of the total payments
made: Provided, That the actual
cancellation of the contract shall take
place after thirty days from receipt by
the buyer of the notice of cancellation or
the demand for rescission of the
contract by a notarial act and upon full
payment of the cash surrender value to
the buyer." [Emphasis supplied]
In a contract to sell real property on

installments, the full payment of the
purchase price is a positive suspensive
condition, the failure of which is not
considered a breach, casual or serious,
but simply an event that prevented the
obligation of the vendor to convey title
from acquiring any obligatory force. 33
The transfer of ownership and title
would occur after full payment of the
price. 34
The decision in the ejectment case 37

operated as the notice of cancellation
required by Sec. 3(b). As petitioner
Leao was not given the cash surrender
value of the payments that she made,
there was still no actual cancellation of
72
the contract. Consequently, petitioner

Leao may still reinstate the contract by
updating the account during the grace
period and before actual cancellation.
38
interest and surcharges imposed upon

her under the contract in question. 42
It is a cardinal rule in the interpretation
of contracts that if the terms of a
contract are clear and leave no doubt
upon the intention of the contracting
parties, the literal meaning of its
stipulation shall control. 43 Thus, as
there is no ambiguity in the language of
the contract, there is no room for
construction, only compliance.
Should petitioner Leao wish to

reinstate the contract, she would have to
update her accounts with respondent
Fernando in accordance with the
statement of account 39 which amount
was P183,687.00. 40
On the issue of whether petitioner
Leao was in delay in paying the
amortizations, we rule that while the
contract provided that the total purchase
price was payable within a ten-year
period, the same contract specified that
the purchase price shall be paid in
monthly installments for which the
corresponding penalty shall be imposed
in case of default. Petitioner Leao
cannot ignore the provision on the
payment of monthly installments by
claiming that the ten-year period within
which to pay has not elapsed.
The Fallo
IN VIEW WHEREOF, we DENY the
petition and AFFIRM the decision of the
Court of Appeals 44 in toto.
No costs.
SO ORDERED.
Davide, Jr., C.J., Puno, Kapunan and
Ynares-Santiago, JJ., concur.
||| (Leao v. Court of Appeals, G.R. No.
129018, [November 15, 2001], 420 PHIL
836-848)
11. HEIRS OF BACUS VS. COURT
OF APPEALS
Article 1169 of the Civil Code provides

that in reciprocal obligations, neither
party incurs in delay if the other does
not comply or is not ready to comply in a
proper manner with what is incumbent
upon him. From the moment one of the
parties fulfills his obligation, delay by the
other begins.
SECOND DIVISION
[G.R. No. 127695. December 3, 2001.]
HEIRS OF LUIS BACUS, namely:
CLARA RESMA BACUS, ROQUE R.
BACUS, SR., SATURNINO R. BACUS,
PRISCILA VDA. DE CABANERO,
CARMELITA B. SUQUIB, BERNARDITA
B. CARDENAS, RAUL R. BACUS,
MEDARDO R. BACUS, ANSELMA B.
ALBAN,
RICARDO
R.
BACUS,
FELICISIMA
B.
JUDICO,
and
DOMINICIANA B. TANGAL, petitioners,
vs. HON. COURT OF APPEALS and
SPOUSES FAUSTINO DURAY and
VICTORIANA DURAY, respondents.
In the case at bar, respondent Fernando

performed his part of the obligation by
allowing petitioner Leao to continue in
damages. 41 However, we agree with
the trial court that the default committed
by petitioner Leao in respect of the
obligation could be compensated by the
Corsino B. Soco for petitioners.
73
Conchito E.
respondents.
Geronimo
for
private
UPON
THE
EXECUTION
AND
DELIVERY OF THE DEED OF SALE.
Obligations under an option to buy are
reciprocal obligations. The performance
of one obligation is conditioned on the
simultaneous fulfillment of the other
obligation. In other words, in an option
to buy, the payment of the purchase
price by the creditor is contingent upon
the execution and delivery of deed of
sale by the debtor. In this case, when
private respondents opted to buy the
property, their obligation was to advise
petitioners of their decision and their
readiness to pay the price. They were
not yet obliged to make actual payment.
Only upon petitioners' actual execution
and delivery of the deed of sale were
they required to pay. The latter was
contingent upon the former.
SYNOPSIS
In the contract of lease of agricultural
land executed between Luis Bacus and
Faustino Duray, an option to buy clause
was included. Later, Luis died and the
Duray spouses informed the heirs of
Luis their willingness to exercise their
option to buy the property under the
option to buy clause. Petitioners refused
to sell the property, prompting Duray to
file a complaint for specific performance.
The heirs of Luis, however, asserted
that the Durays had failed to pay the
purchase price of the land before the
expiration of the contract. Hence, with
the expiration of the contract, the option
to buy had also expired.
3. ID.; ID.; ID.; ID.; ID.; CONSIGNATION

IN COURT NOT PROPER WHEN THE
OBLIGATION NOT YET DUE. In
Nietes vs. Court of Appeals, 46 SCRA
654 (1972), we held that notice of the
creditor's decision to exercise his option
to buy need not be coupled with actual
payment of the price, so long as this is
delivered to the owner of the property
upon performance of his part of the
agreement. Consequently, since the
obligation was not yet due, consignation
in court of the purchase price was not
yet required. Consignation is the act of
depositing the thing due with the court
or judicial authorities whenever the
creditor cannot accept or refuses to
accept payment and it generally
requires a prior tender of payment. In
instances, where no debt is due and
owing, consignation is not proper.
Therefore, petitioners' contention that
private respondents failed to comply
with their obligation under the option to
buy because they failed to actually
deliver the purchase price or consign it
in court before the contract expired and
before they execute a deed, has no leg
to stand on.
The Court ruled for the respondents

Duray spouses. Obligations under an
option to buy are reciprocal obligations.
The performance of one obligation is
conditioned
on the
simultaneous
fulfillment of the other obligation. Here,
when private respondents opted to buy
the property, their obligation was to
advise petitioners of their decision and
their readiness to pay the price. They
were not yet obliged to make actual
payment. Only upon petitioners' actual
execution and delivery of the deed of
sale were they required to pay. Neither
was there any delay incurred on the part
of private respondents as only from the
moment one of the parties fulfills his
obligation does delay by the other begin.
SYLLABUS
1.
REMEDIAL
LAW;
CIVIL
PROCEDURE; APPEAL; ONLY LEGAL
ISSUES MAY BE RAISED. In a
petition for review under Rule 45, only
questions of law may be raised.
2.
CIVIL
LAW;
OBLIGATIONS;
RECIPROCAL OBLIGATIONS; OPTION
TO BUY REAL PROPERTY; PAYMENT
OF PURCHASE PRICE CONTINGENT
4. ID.; ID.; ID.; DELAY; ONLY UPON

COMPLIANCE OF OBLIGATION BY
74
ONE PARTY DOES DELAY BY THE

OTHER BEGIN; CASE AT BAR.
Private respondents did not incur in
delay when they did not yet deliver
payment nor make a consignation
before the expiration of the contract. In
reciprocal obligations, neither party
incurs in delay if the other does not
comply or is not ready to comply in a
upon him. Only from the moment one of
the parties fulfills his obligation, does
delay by the other begin. In this case,
private respondents, communicated to
petitioners their intention to buy the
property and they were at that time
undertaking to meet their obligation
before the expiration of the contract.
However, petitioners refused to execute
the deed of sale and it was their
demand to private respondents to first
deliver the money before they would
execute the same which prompted
private respondents to institute a case
for specific performance. Later, after the
case had been submitted for decision
but before the trial court rendered its
decision, private respondents issued a
cashier's check in petitioners' favor
purportedly to bolster their claim that
they were ready to pay the purchase
price. The trial court considered this in
private respondents' favor and we
believe that it rightly did so, because at
the time the check was issued,
petitioners had not yet executed a deed
of sale nor expressed readiness to do
so. Accordingly, as there was no
compliance yet with what was
incumbent upon petitioners under the
option to buy, private respondents had
not incurred in delay when the cashier's
check was issued even after the
contract expired. DAHEaT
1991, of the Regional Trial Court of

Cebu City, Branch 6, in Civil Case No.
CEB-8935.
The facts, as culled from the records,
are as follows:
On June 1, 1984, Luis Bacus leased to
private respondent Faustino Duray a
parcel of agricultural land in Bulacao,
Talisay, Cebu. Designated as Lot No.
3661-A-3-B-2, it had an area of 3,002
square meters, covered by Transfer
Certificate of Title No. 48866. The lease
was for six years, ending May 31, 1990.
The contract contained an option to buy
clause. Under said option, the lessee
had the exclusive and irrevocable right
to buy 2,000 square meters of the
property within five years from a year
after the effectivity of the contract, at
P200 per square meter. That rate shall
be proportionately adjusted depending
on the peso rate against the US dollar,
which at the time of the execution of the
contract was fourteen pesos. 1
Close to the expiration of the contract,
Luis Bacus died on October 10, 1989.
Thereafter, on March 15, 1990, the
Duray spouses informed Roque Bacus,
one of the heirs of Luis Bacus, that they
were willing and ready to purchase the
property under the option to buy clause.
They requested Roque Bacus to
prepare the necessary documents, such
as a Special Power of Attorney
authorizing him to enter into a contract
of sale, 2 on behalf of his sisters who
were then abroad.
QUISUMBING, J p:
On March 30, 1990, due to the refusal of

petitioners to sell the property, Faustino
Duray's adverse claim was annotated by
the Register of Deeds of Cebu, at the
back of TCT No. 63269, covering the
segregated 2,000 square meter portion
of Lot No. 3661-A-3-B-2-A. 3
This petition assails the decision dated

November 29, 1996, of the Court of
Appeals in CA-G.R. CV No. 37566,
affirming the decision dated August 3,
Subsequently, on April 5, 1990, Duray

filed
a
complaint
for
specific
performance against the heirs of Luis
Bacus with the Lupon Tagapamayapa of
DECISION
75
Barangay Bulacao, asking that he be

allowed to purchase the lot specifically
referred to in the lease contract with
option to buy. At the hearing, Duray
presented a certification 4 from the
manager of Standard Chartered Bank,
Cebu City, addressed to Luis Bacus,
stating that at the request of Mr.
Lawrence Glauber, a bank client,
arrangements were being made to allow
Faustino Duray to borrow funds of
approximately P700,000 to enable him
to meet his obligations under the
contract with Luis Bacus. 5
Premises considered, the court finds for

the plaintiffs and orders the defendants
to specifically perform their obligation in
the option to buy and to execute a
document of sale over the property
covered by Transfer Certificate of Title #
T-63269 upon payment by the plaintiffs
to them in the amount of Six Hundred
Seventy-Five Thousand Six Hundred
Seventy-Five
(P675,675.00)
Pesos
within a period of thirty (30) days from
the date this decision becomes final.
ITESAc
SO ORDERED. 7
Having failed to reach an agreement

before the Lupon, on April 27, 1990,
private respondents filed a complaint for
specific performance with damages
against petitioners before the Regional
Trial Court, praying that the latter, (a)
execute a deed of sale over the subject
property in favor of private respondents;
(b) receive the payment of the purchase
price; and (c) pay the damages.
Unsatisfied, petitioners appealed to the

respondent Court of Appeals which
denied the appeal on November 29,
1996, on the ground that the private
respondents exercised their option to
buy the leased property before the
expiration of the contract of lease. It
held:
On the other hand, petitioners alleged

that before Luis Bacus' death, private
respondents conveyed to them the
former's lack of interest to exercise their
option because of insufficiency of funds,
but they were surprised to learn of
private respondents' demand. In turn,
they requested private respondents to
pay the purchase price in full but the
latter refused. They further alleged that
private respondents did not deposit the
money as required by the Lupon and
instead presented a bank certification
which cannot be deemed legal tender.
. . . After a careful review of the entire

records of this case, we are convinced
that the plaintiffs-appellees validly and
effectively exercised their option to buy
the subject property. As opined by the
lower court, "the readiness and
preparedness of the plaintiff on his part,
is manifested by his cautionary letters,
the prepared bank certification long
before the date of May 31, 1990, the
final day of the option, and his filing of
this suit before said date. If the plaintiffappellee Francisco Duray had no
intention to purchase the property, he
would not have bothered to write those
letters to the defendant-appellants
(which were all received by them) and
neither would he be interested in having
his adverse claim annotated at the back
of the T.C.T. of the subject property, two
(2) months before the expiration of the
lease. Moreover, he even went to the
extent of seeking the help of the Lupon
Tagapamayapa
to
compel
the
defendants-appellants to recognize his
right to purchase the property and for
On
October
30,
1990,
private
respondents manifested in court that
they caused the issuance of a cashier's
check in the amount of P650,000 6
payable to petitioners at anytime upon
demand.
On August 3, 1991, the Regional Trial
Court ruled in favor of private
respondents, the dispositive portion of
which reads:
76
them to perform their corresponding

obligation. 8
RESTED THEIR CASE, WAS STILL

VALID
COMPLIANCE
OF
THE
CONDITION FOR THE PRIVATE
RESPONDENTS'
(PLAINTIFFS
THEREIN) EXERCISE OF RIGHT OF
OPTION TO BUY AND HAD A FORCE
OF VALID AND FULL TENDER OF
PAYMENT WITHIN THE AGREED
PERIOD. 10
xxx xxx xxx

We therefore find no merit in this appeal.
WHEREFORE, the decision appealed
from is hereby AFFIRMED. 9
Hence, this petition where petitioners
aver that the Court of Appeals gravely
erred and abused its discretion in:
Petitioners insist that they cannot be

compelled to sell the disputed property
by virtue of the nonfulfillment of the
obligation under the option contract of
the private respondents.
I. . . . UPHOLDING THE TRIAL

COURT'S RULING IN THE SPECIFIC
PERFORMANCE
CASE
BY
ORDERING
PETITIONERS
(DEFENDANTS
THEREIN)
TO
EXECUTE A DOCUMENT OF SALE
OVER THE PROPERTY IN QUESTION
(WITH TCT NO. T-63269) TO THEM IN
THE AMOUNT OF P675,675.00 WITHIN
THIRTY (30) DAYS FROM THE DATE
THE DECISION BECOMES FINAL;
Private respondents first aver that

petitioners are unclear if Rule 65 or Rule
45 of the Rules of Court govern their
petition, and that petitioners only raised
questions of facts which this Court
cannot properly entertain in a petition for
review. They claim that even assuming
that the instant petition is one under
Rule 45, the same must be denied for
the Court of Appeals has correctly
determined that they had validly
exercised their option to buy the leased
property before the contract expired.
II. . . . DISREGARDING LEGAL

PRINCIPLES, SPECIFIC PROVISIONS
OF LAW AND JURISPRUDENCE IN
UPHOLDING THE DECISION OF THE
TRIAL COURT TO THE EFFECT THAT
PRIVATE
RESPONDENTS
HAD
EXERCISED
THEIR
RIGHT
OF
OPTION TO BUY ON TIME; THUS THE
PRESENTATION
OF
THE
CERTIFICATION OF THE BANK
MANAGER OF A BANK DEPOSIT IN
THE NAME OF ANOTHER PERSON
FOR LOAN TO RESPONDENTS WAS
EQUIVALENT TO A VALID TENDER OF
PAYMENT
AND
A
SUFFICIENT
COMPLAINCE (SIC) OF A CONDITION
FOR THE EXERCISE OF THE OPTION
TO BUY; AND
In response, petitioners state that

private respondents erred in initially
classifying the instant petition as one
under Rule 65 of the Rules of Court.
They argue that the petition is one under
Rule 45 where errors of the Court of
Appeals, whether evidentiary or legal in
nature, may be reviewed.
We agree with private respondents that
in a petition for review under Rule 45,
only questions of law may be raised. 11
However, a close reading of petitioners'
arguments reveal the following legal
issues which
may properly be
entertained in the instant petition:
III. . . . UPHOLDING THE TRIAL

COURT'S
RULING
THAT
THE
PRESENTATION OF A CASHER'S
(SIC) CHECK BY THE RESPONDENTS
IN THE AMOUNT OF P625,000.00
EVEN AFTER THE TERMINATION OF
THE TRIAL ON THE MERITS WITH
BOTH PARTIES ALREADY HAVING
a) When private respondents opted to

buy the property covered by the lease
contract with option to buy, were they
already required to deliver the money or
consign it in court before petitioner
executes a deed of transfer?
77
Consignation is the act of depositing the

thing due with the court or judicial
authorities whenever the creditor cannot
accept or refuses to accept payment
and it generally requires a prior tender
of payment. In instances, where no debt
is due and owing, consignation is not
proper. 14 Therefore, petitioners'
contention that private respondents
failed to comply with their obligation
under the option to buy because they
failed to actually deliver the purchase
price or consign it in court before the
contract expired and before they
execute a deed, has no leg to stand on.
b) Did private respondents incur in delay

when they did not deliver the purchase
price or consign it in court on or before
the expiration of the contract?
On the first issue, petitioners contend
that private respondents failed to comply
with their obligation because there was
neither actual delivery to them nor
consignation in court or with the
Municipal, City or Provincial Treasurer of
the purchase price before the contract
expired. Private respondents' bank
certificate stating that arrangements
were being made by the bank to release
P700,000 as a loan to private
respondents cannot be considered as
legal tender that may substitute for
delivery of payment to petitioners nor
was it a consignation.
Corollary, private respondents did not

incur in delay when they did not yet
deliver
payment
nor
make
a
consignation before the expiration of the
contract. In reciprocal obligations,
incumbent upon him. Only from the
moment one of the parties fulfills his
obligation, does delay by the other
begin. 15
Obligations under an option to buy are

reciprocal
obligations.
12
The
performance of one obligation is
conditioned
on the
simultaneous
fulfillment of the other obligation. 13 In
other words, in an option to buy, the
payment of the purchase price by the
creditor is contingent upon the execution
and delivery of a deed of sale by the
debtor. In this case, when private
respondents opted to buy the property,
their obligation was to advise petitioners
of their decision and their readiness to
pay the price. They were not yet obliged
to make actual payment. Only upon
petitioners' actual execution and delivery
of the deed of sale were they required to
pay. As earlier stated, the latter was
contingent upon the former. In Nietes vs.
Court of Appeals, 46 SCRA 654 (1972),
we held that notice of the creditor's
decision to exercise his option to buy
need not be coupled with actual
payment of the price, so long as this is
delivered to the owner of the property
upon performance of his part of the
agreement. Consequently, since the
obligation was not yet due, consignation
in court of the purchase price was not
yet required.
In this case, private respondents, as

early as March 15, 1990, communicated
to petitioners their intention to buy the
property and they were at that time
undertaking to meet their obligation
before the expiration of the contract on
May 31, 1990. However, petitioners
refused to execute the deed of sale and
it was their demand to private
respondents to first deliver the money
before they would execute the same
which prompted private respondents to
institute a case for specific performance
in the Lupong Tagapamayapa and then
in the RTC. On October 30, 1990, after
the case had been submitted for
decision but before the trial court
rendered
its
decision,
private
respondents issued a cashier's check in
petitioners' favor purportedly to bolster
their claim that they were ready to pay
the purchase price. The trial court
considered this in private respondents'
favor and we believe that it rightly did
78
so, because at the time the check was

issued, petitioners had not yet executed
a deed of sale nor expressed readiness
to do so. Accordingly, as there was no
compliance yet with what was
incumbent upon petitioners under the
option to buy, private respondents had
not incurred in delay when the cashier's
check was issued even after the
contract expired. HAICET
The
purchase
price
was
P16,802,037.32, to be paid as follows:
(1) 30% less the reservation fee of
P100,000,
or
P4,940,611.19,
by
postdated check payable on July 14,
1995; (2) P9,241,120.50 through 30
equal
monthly
installments
of
P308,037.35 from August 14, 1995 to
January 14, 1998; and (3) the balance
of P2,520,305.63 on October 31, 1998,
the stipulated delivery date of the unit;
provided that if the construction is
completed earlier, Tanseco would pay
the balance within seven days from
receipt of a notice of turnover.
Section 4 of the Contract to Buy and
Sell provided for the construction
schedule as follows:
4. CONSTRUCTION SCHEDULE
The construction of the Project and the
unit/s herein purchased shall be
completed and delivered not later than
October 31, 1998 with additional grace
period of six (6) months within which to
complete the Project and the unit/s,
barring delays due to fire, earthquakes,
the elements, acts of God, war, civil
disturbances, strikes or other labor
disturbances,
government
and
economic controls making it, among
others, impossible or difficult to obtain
the necessary materials, acts of third
person, or any other cause or conditions
beyond the control of the SELLER. In
this event, the completion and delivery
of the unit are deemed extended
accordingly without liability on the part of
the
SELLER.
The
foregoing
notwithstanding, the SELLER reserves
the right to withdraw from this
transaction and refund to the BUYER
without interest the amounts received
from him under this contract if for any
reason not attributable to SELLER, such
as but not limited to fire, storms, floods,
earthquakes, rebellion, insurrection,
wars, coup de etat, civil disturbances or
for other reasons beyond its control, the
Project may not be completed or it can
only be completed at a financial loss to
the SELLER. In any event, all
construction on or of the Project shall
WHEREFORE, the instant petition is

DENIED. The decision dated November
29, 1996 of the Court of Appeals is
hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.
Bellosillo, Mendoza and De Leon, Jr.,
JJ., concur.
Buena, J., is on official leave.
||| (Heirs of Bacus v. Court of Appeals,
G.R. No. 127695, [December 3, 2001],
422 PHIL 630-639)
12. MEGAWORLD VS. TANSECO
SECOND DIVISION
[G.R. No. 181206. October 9, 2009.]
MEGAWORLD GLOBUS ASIA, INC.,
petitioner, vs. MILA S. TANSECO,
respondent.
DECISION
CARPIO MORALES, ** J p:
On July 7, 1995, petitioner Megaworld
Globus Asia, Inc. (Megaworld) and
respondent Mila S. Tanseco (Tanseco)
entered into a Contract to Buy and Sell
1 a 224 square-meter (more or less)
condominium unit at a pre-selling
project, "The Salcedo Park," located
along Senator Gil Puyat Avenue, Makati
City.
79
remain the property of the SELLER.

(Underscoring supplied) ICHAaT
On appeal by Tanseco, the HLURB

Board of Commissioners, by Decision of
November 28, 2003, 8 sustained the
HLURB Arbiter's Decision on the ground
of laches for failure to demand
rescission when the right thereto
accrued. It deleted the award of
damages, however. Tanseco's Motion
for Reconsideration having been denied,
9 she appealed to the Office of the
President which dismissed the appeal
by Decision of April 28, 2006 10 for
failure to show that the findings of the
HLURB were tainted with grave abuse
of
discretion.
Her
Motion
for
Reconsideration having been denied by
Resolution dated August 30, 2006, 11
Tanseco filed a Petition for Review
under Rule 43 with the Court of Appeals.
12
By Decision of September 28, 2007, 13
the appellate court granted Tanseco's
petition, disposing thus:
petition is hereby GRANTED and the
assailed May 28, 2003 decision of the
HLURB Field Office, the November 28,
2003 decision of the HLURB Board of
Commissioners in HLURB Case No.
REM-A-030711-0162, the April 28, 2006
Decision and August 30, 2006
Resolution of the Office of the President
in O.P. Case No. 05-I-318, are hereby
REVERSED and SET ASIDE and a new
one entered: (1) RESCINDING, as
prayed for by TANSECO, the aggrieved
party, the contract to buy and sell; (2)
DIRECTING MEGAWORLD TO PAY
TANSECO the amount she had paid
totaling P14,281,731.70 with Twelve
(12%) Percent interest per annum from
October 31, 1998; (3) ORDERING
MEGAWORLD TO PAY TANSECO
P200,000.00 by way of exemplary
damages;
(4)
ORDERING
MEGAWORLD TO PAY TANSECO
P200,000.00 as attorney's fees; and (5)
ORDERING MEGAWORLD TO PAY
TANSECO the cost of suit. (Emphasis in
the original; underscoring supplied)
acSECT
Tanseco paid all installments due up to

January, 1998, leaving unpaid the
balance of P2,520,305.63 pending
delivery of the unit. 2 Megaworld,
however, failed to deliver the unit within
the stipulated period on October 31,
1998 or April 30, 1999, the last day of
the six-month grace period.
A few days shy of three years later,
Megaworld, by notice dated April 23,
2002 (notice of turnover), informed
Tanseco that the unit was ready for
inspection preparatory to delivery. 3
Tanseco replied through counsel, by
letter of May 6, 2002, that in view of
Megaworld's failure to deliver the unit on
time, she was demanding the return of
P14,281,731.70 representing the total
installment payment she had made, with
interest at 12% per annum from April 30,
1999, the expiration of the six-month
grace period. Tanseco pointed out that
none of the excepted causes of delay
existed. 4
Her demand having been unheeded,
Tanseco filed on June 5, 2002 with the
Housing and Land Use Regulatory
Board's (HLURB) Expanded National
Capital Region Field Office a complaint
against Megaworld for rescission of
contract, refund of payment, and
damages. 5
In its Answer, Megaworld attributed the
delay to the 1997 Asian financial crisis
which was beyond its control; and
argued that default had not set in,
Tanseco not having made any judicial or
extrajudicial demand for delivery before
receipt of the notice of turnover. 6
By Decision of May 28, 2003, 7 the
HLURB Arbiter dismissed Tanseco's
complaint for lack of cause of action,
finding that Megaworld had effected
delivery by the notice of turnover before
Tanseco made a demand. Tanseco was
thereupon ordered to pay Megaworld
the balance of the purchase price, plus
P25,000 as moral damages, P25,000 as
exemplary damages, and P25,000 as
attorney's fees.
80
The appellate court held that under

Article 1169 of the Civil Code, no judicial
or extrajudicial demand is needed to put
the obligor in default if the contract, as in
the herein parties' contract, states the
date when the obligation should be
performed; that time was of the essence
because Tanseco relied on Megaworld's
promise of timely delivery when she
agreed to part with her money; that the
delay should be reckoned from October
31, 1998, there being no force majeure
to warrant the application of the April 30,
1999 alternative date; and that specific
performance could not be ordered in lieu
of rescission as the right to choose the
remedy belongs to the aggrieved party.
The appellate court awarded Tanseco
exemplary damages on a finding of bad
faith on the part of Megaworld in forcing
her to accept its long-delayed delivery;
and attorney's fees, she having been
compelled to sue to protect her rights.
Its Motion for Reconsideration having
been denied by Resolution of January 8,
2008, 14 Megaworld filed the present
Petition for Review on Certiorari,
echoing its position before the HLURB,
adding that Tanseco had not shown any
basis for the award of damages and
attorney's fees. 15
Tanseco, on the other hand, maintained
her position too, and citing Megaworld's
bad faith which became evident when it
insisted on making the delivery despite
the long delay, 16 insisted that she
deserved the award of damages and
attorney's fees.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to
do something incur in delay from the
time
the
obligee
judicially
or
extrajudicially demands from them the
fulfillment of their obligation.
(2) When from the nature and the

circumstances of the obligation it
appears that the designation of the time
when the thing is to be delivered or the
service is to be rendered was a
controlling motive for the establishment
of the contract; or
(3) When demand would be useless, as
when the obligor has rendered it beyond
his power to perform.
In reciprocal obligations, neither party
other begins. (Underscoring supplied)
The Contract to Buy and Sell of the
parties contains reciprocal obligations,
i.e., to complete and deliver the
condominium unit on October 31, 1998
or six months thereafter on the part of
Megaworld, and to pay the balance of
the purchase price at or about the time
of delivery on the part of Tanseco.
Compliance by Megaworld with its
obligation
is
determinative
of
compliance by Tanseco with her
obligation to pay the balance of the
purchase price. Megaworld having failed
to comply with its obligation under the
contract, it is liable therefor. 17 cAIDEa
That Megaworld's sending of a notice of
turnover preceded Tanseco's demand
for refund does not abate her cause. For
demand would have been useless,
Megaworld admittedly having failed in its
obligation to deliver the unit on the
agreed date.
Art. 1174. Except in cases expressly
specified by the law, or when it is
otherwise declared by stipulation, or
when the nature of the obligation
requires the assumption of risk, no
person shall be responsible for those
events which could not be foreseen, or
which, though foreseen, were inevitable.
18

delay may exist:
expressly so declares; or
81
The Court cannot generalize the 1997

Asian
financial
crisis
to
be
unforeseeable and beyond the control of
a business corporation. A real estate
enterprise engaged in the pre-selling of
condominium units is concededly a
master in projections on commodities
and currency movements, as well as
business
risks.
The
fluctuating
movement of the Philippine peso in the
foreign exchange market is an everyday
occurrence, hence, not an instance of
caso fortuito. 19 Megaworld's excuse for
its delay does not thus lie.
As for Megaworld's argument that
Tanseco's claim is considered barred by
laches on account of her belated
demand, it does not lie too. Laches is a
creation of equity and its application is
controlled by equitable considerations.
20 It bears noting that Tanseco
religiously paid all the installments due
up
to
January, 1998,
whereas
Megaworld reneged on its obligation to
deliver within the stipulated period. A
circumspect weighing of equitable
considerations thus tilts the scale of
justice in favor of Tanseco.
Pursuant to Section 23 of Presidential
Decree No. 957 21 which reads:
Sec. 23. Non-Forfeiture of Payments.
No installment payment made by a
buyer in a subdivision or condominium
project for the lot or unit he contracted to
buy shall be forfeited in favor of the
owner or developer when the buyer,
after due notice to the owner or
developer, desists from further payment
due to the failure of the owner or
developer to develop the subdivision or
condominium project according to the
approved plans and within the time limit
for complying with the same. Such
buyer may, at his option, be reimbursed
the total amount paid including
amortization interests but excluding
delinquency interests, with interest
thereon at the legal rate. (Emphasis and
underscoring supplied),
While the appellate court correctly

awarded P14,281,731.70 then, the
interest rate should, however, be 6% per
annum accruing from the date of
demand on May 6, 2002, and then 12%
per annum from the time this judgment
becomes
final
and
executory,
conformably with Eastern Shipping
Lines, Inc. v. Court of Appeals. 22
The award of P200,000 attorney's fees
and of costs of suit is in order too, the
parties having stipulated in the Contract
to Buy and Sell that these shall be borne
by the losing party in a suit based
thereon, 23 not to mention that Tanseco
was compelled to retain the services of
counsel to protect her interest. And so is
the award of exemplary damages. With
pre-selling ventures mushrooming in the
metropolis, there is an increasing need
to correct the insidious practice of real
estate companies of proffering all sorts
of empty promises to entice innocent
buyers and ensure the profitability of
their projects. aCSEcA
The Court finds the appellate court's
award of P200,000 as exemplary
damages
excessive,
however.
Exemplary damages are imposed not to
enrich one party or impoverish another
but to serve as a deterrent against or as
a negative incentive to curb socially
deleterious actions. 24 The Court finds
that P100,000 is reasonable in this
case.
Finally, since Article 1191 25 of the Civil
Code does not apply to a contract to buy
and sell, the suspensive condition of full
payment of the purchase price not
having occurred to trigger the obligation
to convey title, cancellation, not
rescission, of the contract is thus the
correct remedy in the premises. 26
WHEREFORE, the challenged Decision
of the Court of Appeals is, in light of the
foregoing,
AFFIRMED
with
MODIFICATION.
As modified, the dispositive portion of
the Decision reads:
The July 7, 1995 Contract to Buy and
Sell between the parties is cancelled.
Petitioner, Megaworld Globus Asia, Inc.,
is directed to pay respondent, Mila S.
Tanseco is, as thus prayed for, entitled

to be reimbursed the total amount she
paid Megaworld.
82
Tanseco,
the
amount
of
P14,281,731.70, to bear 6% interest per
annum starting May 6, 2002 and 12%
interest per annum from the time the
judgment becomes final and executory;
and to pay P200,000 attorney's fees,
P100,000 exemplary damages, and
costs of suit.
Ramos). Under the contract, GMC was

to supply broiler chickens for the
spouses to raise on their land in
Barangay Banaybanay, Lipa City,
Batangas.
1
To guarantee
full
compliance, the Growers Contract was
accompanied by a Deed of Real Estate
Mortgage over a piece of real property
upon which their conjugal home was
built. The spouses further agreed to put
up a surety bond at the rate of
PhP20,000 per 1,000 chicks delivered
by GMC. The Deed of Real Estate
Mortgage extended to Spouses Ramos
a maximum credit line of PhP215,000
payable within an indefinite period with
an interest of twelve percent (12%) per
annum. 2
The Deed of Real Estate Mortgage
contained the following provision:
WHEREAS,
the
MORTGAGOR/S
has/have agreed to guarantee and
secure the full and faithful compliance of
[MORTGAGORS'] obligation/s with the
MORTGAGEE by a First Real Estate
Mortgage in favor of the MORTGAGEE,
over a 1 parcel of land and the
improvements existing thereon, situated
in the Barrio/s of Banaybanay,
Municipality of Lipa City, Province of
Batangas,
Philippines,
his/her/their
title/s thereto being evidenced by
Transfer Certificate/s No./s T-9214 of
the Registry of Deeds for the Province
of Batangas in the amount of TWO
HUNDRED
FIFTEEN
THOUSAND
(P215,000.00), Philippine Currency,
which the maximum credit line payable
within a . . . day term and to secure the
payment of the same plus interest of
twelve percent (12%) per annum.
DCASEc
Costs against petitioner.

SO ORDERED.
Corona, * Nachura, *** Brion and Abad,
JJ., concur.
||| (Megaworld Globus Asia, Inc. v.
Tanseco, G.R. No. 181206, [October 9,
2009], 618 PHIL 261-272)
13. GENERAL
RAMOS
MILLING
VS.
THIRD DIVISION
[G.R. No. 193723. July 20, 2011.]
GENERAL MILLING CORPORATION,
petitioner, vs. SPS. LIBRADO RAMOS
and REMEDIOS RAMOS, respondents.
DECISION
VELASCO, JR., J p:
The Case
This is a petition for review of the April
15, 2010 Decision of the Court of
Appeals (CA) in CA-G.R. CR-H.C. No.
85400 entitled Spouses Librado Ramos
& Remedios Ramos v. General Milling
Corporation, et al., which affirmed the
May 31, 2005 Decision of the Regional
Trial Court (RTC), Branch 12 in Lipa
City, in Civil Case No. 00-0129 for
Annulment and/or Declaration of Nullity
of Extrajudicial Foreclosure Sale with
Damages.
The Facts
On August 24, 1989, General Milling
Corporation (GMC) entered into a
Growers Contract with spouses Librado
and Remedios Ramos (Spouses
Spouses Ramos eventually were unable

to settle their account with GMC. They
alleged that they suffered business
losses because of the negligence of
GMC and its violation of the Growers
Contract. 3
On March 31, 1997, the counsel for
GMC notified Spouses Ramos that
GMC
would
institute
foreclosure
83
proceedings
on
their
mortgaged
property. 4
On May 7, 1997, GMC filed a Petition
for
Extrajudicial
Foreclosure
of
Mortgage. On June 10, 1997, the
property subject of the foreclosure was
subsequently sold by public auction to
GMC after the required posting and
publication. 5 It was foreclosed for
PhP935,882,075,
an
amount
representing the losses on chicks and
feeds exclusive of interest at 12% per
annum and attorney's fees. 6 To
complicate matters, on October 27,
1997, GMC informed the spouses that
its Agribusiness Division had closed its
business and poultry operations. 7
On March 3, 2000, Spouses Ramos
filed a Complaint for Annulment and/or
Declaration of Nullity of the Extrajudicial
Foreclosure Sale with Damages. They
contended
that
the
extrajudicial
foreclosure sale on June 10, 1997 was
null and void, since there was no
compliance with the requirements of
posting and publication of notices under
Act No. 3135, as amended, or An Act to
Regulate the Sale of Property under
Special Powers Inserted in or Annexed
to Real Estate Mortgages. They likewise
claimed that there was no sheriff's
affidavit to prove compliance with the
requirements on posting and publication
of notices. It was further alleged that the
Deed of Real Estate Mortgage had no
fixed term. A prayer for moral and
exemplary damages and attorney's fees
was also included in the complaint. 8
Librado Ramos alleged that, when the
property was foreclosed, GMC did not
notify him at all of the foreclosure. 9
During the trial, the parties agreed to
limit the issues to the following: (1) the
validity of the Deed of Real Estate
Mortgage; (2) the validity of the
extrajudicial foreclosure; and (3) the
party liable for damages. 10
In its Answer, GMC argued that it
repeatedly reminded Spouses Ramos of
their liabilities under the Growers
Contract. It argued that it was compelled
to foreclose the mortgage because of
Spouses Ramos' failure to pay their
obligation. GMC insisted that it had

observed all the requirements of posting
and publication of notices under Act No.
3135. 11
The Ruling of the Trial Court
Holding in favor of Spouses Ramos, the
trial court ruled that the Deed of Real
Estate Mortgage was valid even if its
term was not fixed. Since the duration of
the term was made to depend
exclusively upon the will of the debtorsspouses,
the
trial
court
cited
jurisprudence and said that "the
obligation is not due and payable until
an action is commenced by the
mortgagee against the mortgagor for the
purpose of having the court fix the date
on and after which the instrument is
payable and the date of maturity is fixed
in pursuance thereto." 12
The trial court held that the action of
GMC in moving for the foreclosure of
the spouses' properties was premature,
because the latter's obligation under
their contract was not yet due.
The trial court awarded attorney's fees
because of the premature action taken
by GMC in filing extrajudicial foreclosure
proceedings before the obligation of the
spouses became due.
The RTC ruled, thus:
judgment is rendered as follows:
1. The Extra-Judicial Foreclosure
Proceedings under docket no. 0107-97
is hereby declared null and void;
SIcEHC
2. The Deed of Real Estate Mortgage is
hereby declared valid and legal for all
intents and purposes;
3.
Defendant-corporation
General
Milling Corporation is ordered to pay
Spouses Librado and Remedios Ramos
attorney's fees in the total amount of
P57,000.00 representing acceptance
fee of P30,000.00 and P3,000.00
appearance fee for nine (9) trial dates or
a total appearance fee of P27,000.00;
84
4. The claims for moral and exemplary

damages are denied for lack of merit.
Branch 12, dated May 21, 2005 is

hereby AFFIRMED with MODIFICATION
by deleting the award of attorney's fees
to plaintiffs-appellees spouses Librado
Ramos and Remedios Ramos. 16
IT IS SO ORDERED. 13
The Ruling of the Appellate Court
On appeal, GMC argued that the trial
court erred in: (1) declaring the
extrajudicial foreclosure proceedings
null and void; (2) ordering GMC to pay
Spouses Ramos attorney's fees; and (3)
not awarding damages in favor of GMC.
TaCDAH
The CA sustained the decision of the
trial court but anchored its ruling on a
different ground. Contrary to the findings
of the trial court, the CA ruled that the
requirements of posting and publication
of notices under Act No. 3135 were
complied with. The CA, however, still
found that GMC's action against
Spouses Ramos was premature, as
they were not in default when the action
was filed on May 7, 1997. 14
The CA ruled:
In this case, a careful scrutiny of the
evidence on record shows that
defendant-appellant GMC made no
demand to spouses Ramos for the full
payment of their obligation. While it was
alleged in the Answer as well as in the
Affidavit constituting the direct testimony
of Joseph Dominise, the principal
witness of defendant-appellant GMC,
that demands were sent to spouses
Ramos, the documentary evidence
proves otherwise. A perusal of the
letters presented and offered as
evidence by defendant-appellant GMC
did not "demand" but only request
spouses Ramos to go to the office of
GMC to "discuss" the settlement of their
account. 15
Hence, We have this appeal.

The Issues
A. WHETHER [THE CA] MAY
CONSIDER ISSUES NOT ALLEGED
AND DISCUSSED IN THE LOWER
COURT AND LIKEWISE NOT RAISED
BY THE PARTIES ON APPEAL,
THEREFORE HAD DECIDED THE
CASE NOT IN ACCORD WITH LAW
AND APPLICABLE DECISIONS OF
THE SUPREME COURT. HcTEaA
B. WHETHER [THE CA] ERRED IN
RULING THAT PETITIONER GMC
MADE
NO
DEMAND
TO
RESPONDENT SPOUSES FOR THE
FULL
PAYMENT
OF
THEIR
OBLIGATION CONSIDERING THAT
THE LETTER DATED MARCH 31, 1997
OF
PETITIONER
GMC
TO
RESPONDENT
SPOUSES
IS
TANTAMOUNT TO A FINAL DEMAND
TO PAY, THEREFORE IT DEPARTED
FROM THE ACCEPTED AND USUAL
COURSE
OF
JUDICIAL
PROCEEDINGS. 17
The Ruling of this Court
Can the CA consider matters not
alleged?
GMC asserts that since the issue on the
existence of the demand letter was not
raised in the trial court, the CA, by
considering such issue, violated the
basic requirements of fair play, justice,
and due process. 18
In their Comment, 19 respondentsspouses aver that the CA has ample
authority to rule on matters not assigned
as errors on appeal if these are
indispensable or necessary to the just
resolution of the pleaded issues.
In Diamonon v. Department of Labor
and Employment, 20 We explained that
an appellate court has a broad
discretionary power in waiving the lack
According to the CA, however, the RTC

erroneously awarded attorney's fees to
Spouses Ramos, since the presumption
of good faith on the part of GMC was
not overturned.
The CA disposed of the case as follows:
WHEREFORE, and in view of the
foregoing considerations, the Decision
of the Regional Trial Court of Lipa City,
85
of assignment of errors in the following

instances:
(a) Grounds not assigned as errors but
affecting the jurisdiction of the court over
the subject matter; SEcAIC
extrajudicially requires the debtor's

performance. 21
According to the CA, GMC did not make
a demand on Spouses Ramos but
merely requested them to go to GMC's
office to discuss the settlement of their
account. In spite of the lack of demand
made on the spouses, however, GMC
proceeded
with
the
foreclosure
proceedings. Neither was there any
provision in the Deed of Real Estate
Mortgage
allowing
GMC
to
extrajudicially foreclose the mortgage
without need of demand.
Indeed, Article 1169 of the Civil Code on
delay requires the following:
Those obliged to deliver or to do
something incur in delay from the time
the obligee judicially or extrajudicially
demands from them the fulfilment of
their obligation. SaHIEA
(b) Matters not assigned as errors on

appeal but are evidently plain or clerical
errors within contemplation of law;
(c) Matters not assigned as errors on
appeal but consideration of which is
necessary in arriving at a just decision
and complete resolution of the case or
to serve the interests of a justice or to
avoid dispensing piecemeal justice;
(d) Matters not specifically assigned as
errors on appeal but raised in the trial
court and are matters of record having
some bearing on the issue submitted
which the parties failed to raise or which
the lower court ignored;

delay may exist:
(e) Matters not assigned as errors on

appeal but closely related to an error
assigned; HCSDca

expressly so declares; . . .
(f) Matters not assigned as errors on

appeal
but
upon
which
the
determination of a question properly
assigned, is dependent.
As the contract in the instant case

carries no such provision on demand
not being necessary for delay to exist,
We agree with the appellate court that
GMC should have first made a demand
on the spouses before proceeding to
foreclose the real estate mortgage.
Development Bank of the Philippines v.
Licuanan finds application to the instant
case:
The issue of whether demand was
made before the foreclosure was
effected is essential. If demand was
made and duly received by the
respondents and the latter still did not
pay, then they were already in default
and foreclosure was proper. However, if
demand was not made, then the loans
had not yet become due and
demandable.
This
meant
that
respondents had not defaulted in their
payments and the foreclosure by
petitioner was premature. Foreclosure is
Paragraph (c) above applies to the

instant case, for there would be a just
and complete resolution of the appeal if
there is a ruling on whether the Spouses
Ramos were actually in default of their
obligation to GMC.
Was there sufficient demand?
We now go to the second issue raised
by GMC. GMC asserts error on the part
of the CA in finding that no demand was
made on Spouses Ramos to pay their
obligation. On the contrary, it claims that
its March 31, 1997 letter is akin to a
demand. CAaSED
We disagree.
There are three requisites necessary for
a finding of default. First, the obligation
is
demandable
and
liquidated;
second,the debtor delays performance;
and third, the creditor judicially or
86
valid only when the debtor is in default

in the payment of his obligation. 22
decision 2 dated July 30, 2009 and the

resolution 3 dated February 19, 2010 of
the Court of Appeals (CA) in CA-G.R.
CV No. 86083. The CA rulings affirmed
with modification the decision dated
September 27, 2004 of the Regional
Trial Court (RTC) of Bacoor, Cavite,
Branch 19, in Civil Case No. BCV-99146 which granted respondent Atty.
Delfin Gruspe's claim for payment of
sum of money against petitioners
Rodolfo G. Cruz and Esperanza Ibias. 4
CAcDTI
In turn, whether or not demand was

made is a question of fact. 23 This
petition filed under Rule 45 of the Rules
of Court shall raise only questions of
law. For a question to be one of law, it
must not involve an examination of the
probative value of the evidence
presented by the litigants or any of
them. The resolution of the issue must
rest solely on what the law provides on
the given set of circumstances. Once it
is clear that the issue invites a review of
the evidence presented, the question
posed is one of fact. 24 It need not be
reiterated that this Court is not a trier of
facts. 25 We will defer to the factual
findings of the trial court, because
petitioner GMC has not shown any
circumstances making this case an
exception to the rule. IcSHTA
WHEREFORE, the petition is DENIED.
The CA Decision in CA-G.R. CR-H.C.
No. 85400 is AFFIRMED.
THE FACTUAL BACKGROUND

The claim arose from an accident that
occurred on October 24, 1999, when the
mini bus owned and operated by Cruz
and driven by one Arturo Davin collided
with the Toyota Corolla car of Gruspe;
Gruspe's car was a total wreck. The
next day, on October 25, 1999, Cruz,
along with Leonardo Q. Ibias went to
Gruspe's office, apologized for the
incident, and executed a Joint Affidavit
of Undertaking promising jointly and
severally to replace the Gruspe's
damaged car in 20 days, or until
November 15, 1999, of the same model
and of at least the same quality; or,
alternatively, they would pay the cost of
Gruspe's car amounting to P350,000.00,
with interest at 12% per month for any
delayed payment after November 15,
1999, until fully paid. 5 When Cruz and
Leonardo failed to comply with their
undertaking, Gruspe filed a complaint
for collection of sum of money against
them on November 19, 1999 before the
RTC.
SO ORDERED.
Carpio, * Leonardo-de Castro, ** Abad
and Mendoza, JJ., concur.
||| (General Milling Corp. v. Spouses
Ramos, G.R. No. 193723, [July 20,
2011], 669 PHIL 525-536)
14. CRUZ VS. GRUSPE
SECOND DIVISION
[G.R. No. 191431. March 13, 2013.]
In their answer, Cruz and Leonardo

denied Gruspe's allegation, claiming that
Gruspe, a lawyer, prepared the Joint
Affidavit of Undertaking and forced them
to affix their signatures thereon, without
explaining and informing them of its
contents; Cruz affixed his signature so
that his mini bus could be released as it
was his only means of income;
Leonardo,
a
barangay
official,
accompanied Cruz to Gruspe's office for
the release of the mini bus, but was also
RODOLFO G. CRUZ and ESPERANZA

IBIAS, petitioners, vs. ATTY. DELFIN
GRUSPE, respondent.
DECISION
BRION, J p:
Before the Court is the petition for
review on certiorari 1 filed under Rule 45
of the Rules of Court, assailing the
87
deceived into signing the Joint Affidavit

of Undertaking.
thereto was vitiated; the contract was

prepared by Gruspe who is a lawyer,
and its contents were never explained to
them. Moreover, Cruz and Leonardo
were simply forced to affix their
signatures, otherwise, the mini van
would not be released.
Leonardo died during the pendency of

the case and was substituted by his
widow, Esperanza. Meanwhile, Gruspe
sold the wrecked car for P130,000.00.
In a decision dated September 27,
2004, the RTC ruled in favor of Gruspe
and ordered Cruz and Leonardo to pay
P220,000.00, 6 plus 15% per annum
from November 15, 1999 until fully paid,
and the cost of suit.
Also, they claim that prior to the filing of

the complaint for sum of money, Gruspe
did not make any demand upon them.
Hence, pursuant to Article 1169 of the
Civil Code,they could not be considered
in default. Without this demand, Cruz
and Esperanza contend that Gruspe
could not yet take any action.
On appeal, the CA affirmed the RTC

decision, but reduced the interest rate to
12% per annum pursuant to the Joint
Affidavit of Undertaking. 7 It declared
that despite its title, the Joint Affidavit of
Undertaking is a contract, as it has all
the essential elements of consent,
object certain, and consideration
required under Article 1318 of the Civil
Code.The CA further said that Cruz and
Leonardo failed to present evidence to
support their contention of vitiated
consent. By signing the Joint Affidavit of
Undertaking, they voluntarily assumed
the obligation for the damage they
caused to Gruspe's car; Leonardo, who
was not a party to the incident, could
have refused to sign the affidavit, but he
did not. SacTAC
THE COURT'S RULING

The Court finds the petition partly
meritorious and accordingly modifies the
judgment of the CA.
Contracts are obligatory no matter what
their forms may be, whenever the
essential requisites for their validity are
present. In determining whether a
document is an affidavit or a contract,
the Court looks beyond the title of the
document, since the denomination or
title given by the parties in their
document is not conclusive of the nature
of its contents. 8 In the construction or
interpretation of an instrument, the
intention of the parties is primordial and
is to be pursued. If the terms of the
document are clear and leave no doubt
on the intention of the contracting
parties, the literal meaning of its
stipulations shall control. If the words
appear to be contrary to the parties'
evident intention, the latter shall prevail
over the former. 9
THE PETITION
In their appeal by certiorari with the
Court, Cruz and Esperanza assail the
CA ruling, contending that the Joint
Affidavit of Undertaking is not a contract
that can be the basis of an obligation to
pay a sum of money in favor of Gruspe.
They consider an affidavit as different
from a contract: an affidavit's purpose is
simply to attest to facts that are within
his knowledge, while a contract requires
that there be a meeting of the minds
between the two contracting parties.
A simple reading of the terms of the

Joint Affidavit of Undertaking readily
discloses that it contains stipulations
characteristic of a contract. As quoted in
the CA decision, 10 the Joint Affidavit of
Undertaking contained a stipulation
where Cruz and Leonardo promised to
replace the damaged car of Gruspe, 20
days from October 25, 1999 or up to
November 15, 1999, of the same model
Even if the Joint Affidavit of Undertaking

was considered as a contract, Cruz and
Esperanza claim that it is invalid
because Cruz and Leonardo's consent
88
and of at least the same quality. In the

event that they cannot replace the car
within the same period, they would pay
the cost of Gruspe's car in the total
amount of P350,000.00, with interest at
12% per month for any delayed
payment after November 15, 1999, until
fully paid. These, as read by the CA, are
very simple terms that both Cruz and
Leonardo could easily understand.
IDcAHT
"In order that the debtor may be in

default[,] it is necessary that the
following requisites be present: (1) that
the obligation be demandable and
already liquidated; (2) that the debtor
delays performance; and (3) that the
creditor requires the performance
judicially and extrajudicially." 13 Default
generally begins from the moment the
creditor demands the performance of
the obligation. In this case, demand
could be considered to have been made
upon the filing of the complaint on
November 19, 1999, and it is only from
this date that the interest should be
computed.
There is also no merit to the argument

of vitiated consent. An allegation of
vitiated consent must be proven by
preponderance of evidence; Cruz and
Leonardo failed to support their
allegation. Although the undertaking in
the affidavit appears to be onerous and
lopsided, this does not necessarily
prove the alleged vitiation of consent.
They, in fact, admitted the genuineness
and due execution of the Joint Affidavit
and Undertaking when they said that
they signed the same to secure
possession of their vehicle. If they truly
believed that the vehicle had been
illegally impounded, they could have
refused to sign the Joint Affidavit of
Undertaking and filed a complaint, but
they did not. That the release of their
mini bus was conditioned on their
signing the Joint Affidavit of Undertaking
does not, by itself, indicate that their
consent was forced they may have
given it grudgingly, but it is not indicative
of a vitiated consent that is a ground for
the annulment of a contract.
Although the CA upheld the Joint

Affidavit of Undertaking, we note that it
imposed interest rate on a per annum
basis, instead of the per month basis
that was stated in the Joint Affidavit of
Undertaking without explaining its
reason for doing so. 14 Neither party,
however, questioned the change.
Nonetheless, the Court affirms the
change in the interest rate from 12% per
month to 12% per annum, as we find the
interest rate agreed upon in the Joint
Affidavit of Undertaking excessive. 15
WHEREFORE, we AFFIRM the decision
dated July 30, 2009 and the resolution
dated February 19, 2010 of the Court of
Appeals in CA-G.R. CV No. 86083,
subject to the MODIFICATION that the
twelve percent (12%) per annum
interest imposed on the amount due
shall accrue only from November 19,
1999, when judicial demand was made.
Thus, on the issue of the validity and

enforceability of the Joint Affidavit of
Undertaking, the CA did not commit any
legal error that merits the reversal of the
assailed decision.
SO ORDERED. IHcSCA
Carpio, Del Castillo, Villarama, Jr. * and
Perlas-Bernabe, JJ., concur.
Nevertheless, the CA glossed over the

issue of demand which is material in the
computation of interest on the amount
due. The RTC ordered Cruz and
Leonardo to pay Gruspe "P350,000.00
as cost of the car . . . plus fifteen
percent (15%) per annum from
November 15, 1999 until fully paid[.]" 12
||| (Cruz v. Gruspe, G.R. No. 191431,

[March 13, 2013], 706 PHIL 406-413)
ART 1174 Except in cases
expressly specified by the law, or
89
when it is otherwise declared by

stipulation, or when the nature of the
obligation requires the assumption of
risk, no person shall be responsible
for those events which could not be
foreseen, or which, though foreseen,
were inevitable. (1105a)
of care it exhibited towards its

passengers, PAL cannot now turn
around and feign surprise at the
outcome of the case. When issues not
raised by the pleadings are tried by
express or implied consent of the
parties, they shall be treated in all
respects as if they had been raised in
the pleadings. (Sec. 5, Rule 10, Rules of
Court)
15. PAL VS. COURT OF APPEALS

FIRST DIVISION
3. CIVIL LAW; COMMON CARRIER;

OBLIGATION
TO
OBSERVE
EXTRAORDINARY DILIGENCE OVER
ITS PASSENGERS; EXTENT. The
contract of air carriage is a peculiar one.
Being imbued with public interest, the
law requires common carriers to carry
the passengers safely as far as human
care and foresight can provide, using
the utmost diligence of very cautious
persons, with due regard for all the
circumstances. In Air France v.
Carrascoso, we held that "A contract
to transport passengers is quite different
in kind and degree from any other
contractual relation. And this, because
of the relation which an air carrier
sustains with the public. Its business is
mainly with the travelling public. It
invites people to avail of the comforts
and advantages it offers. The contract of
air carriage, therefore, generates a
relation attended with a public duty . . ."
The position taken by PAL in this case
clearly illustrates its failure to grasp the
exacting standard required by law.
Undisputably, PAL's diversion of its flight
due to inclement weather was a
fortuitous event. Nonetheless, such
occurrence did not terminate PAL's
contract with its passengers. Being in
the business of air carriage and the sole
one to operate in the country, PAL is
deemed equipped to deal with situations
as in the case at bar. What we said in
one case once again must be stressed,
i.e., the relation of carrier and passenger
continues until the latter has been
landed at the port of destination and has
left the carrier's premises. Hence, PAL
necessarily would still have to exercise
extraordinary diligence in safeguarding
[G.R. No. 82619. September 15, 1993.]

PHILIPPINE AIRLINES, INC., petitioner,
vs. COURT OF APPEALS AND PEDRO
ZAPATOS, respondents.
Leighton R. Liazon for petitioner.
Balmes L.
respondent.
Ocampo
for
private
SYLLABUS
1. REMEDIAL LAW; EVIDENCE;
ADMISSION OF EVIDENCE; PROTEST
OR OBJECTION THERETO; RULE.
Significantly, PAL did not seem to mind
the introduction of evidence which
focused on its alleged negligence in
caring for its stranded passengers. Wellsettled is the rule in evidence that the
protest or objection against the
admission of evidence should be
presented at the time the evidence is
offered, and that the proper time to
make protest or objection to the
admissibility of evidence is when the
question is presented to the witness or
at the time the answer thereto is given.
There being no objection, such evidence
becomes property of the case and all
the parties are amenable to any
favorable
or
unfavorable
effects
resulting from the evidence.
2.
ID.;
CIVIL
PROCEDURE;
PLEADINGS; ISSUES NOT RAISED
THEREIN BUT ARE TRIED BY
EXPRESS OR IMPLIED CONSENT OF
THE PARTIES; EFFECT. Having
joined in the issue over the alleged lack
90
the comfort, convenience and safety of

its stranded passengers until they have
reached their final destination. On this
score, PAL grossly failed considering the
then
ongoing
battle
between
government forces and Muslim rebels in
Cotabato City and the fact that the
private respondent was a stranger to the
place.
decision of the then Intermediate

Appellate Court, 1 now Court of
Appeals, dated 28 February 1985, in
AC-G.R. CV No. 69327 ("Pedro Zapatos
v. Philippine Airlines, Inc.") affirming the
decision of the then Court of First
Instance, now Regional Trial Court,
declaring Philippine Airlines, Inc., liable
in damages for breach of contract.
4. ID.; MORAL DAMAGES; AWARD

THEREOF; PURPOSE. Moral
damages are not intended to enrich the
private respondent. They are awarded
only to enable the injured party to obtain
means, diversion or amusements that
will serve to alleviate the moral suffering
he has undergone by reason of the
defendant's culpable action.
On 25 November 1976, private

respondent filed a complaint for
damages for breach of contract of
carriage 2 against Philippine Airlines,
Inc. (PAL), before the then Court of First
Instance, now Regional Trial Court, of
Misamis Occidental, at Ozamiz City.
According to him, on 2 August 1976, he
was among the twenty-one (21)
passengers of PAL Flight 477 that took
off from Cebu bound for Ozamiz City.
The routing of this flight was CebuOzamiz-Cotabato. While on flight and
just about fifteen (15) minutes before
landing at Ozamiz City, the pilot
received a radio message that the
airport was closed due to heavy rains
and inclement weather and that he
should proceed to Cotabato City
instead.
5. ID.; ACTUAL DAMAGES; MUST BE

DULY PROVED WITH REASONABLE
DEGREE OF CERTAINTY. With
regard to the award of actual damages
in the amount of P5,000.00 representing
private respondent's alleged business
losses occasioned by his stay at
Cotabato City, we find the same
unwarranted.
Private
respondent's
testimony that he had a scheduled
business "transaction of shark liver oil
supposedly to have been consummated
on August 3, 1975 in the morning" and
that "since (private respondent) was out
for nearly two weeks I missed to buy
about 10 barrels of shark liver oil," are
purely
speculative.
Actual
or
compensatory damages cannot be
presumed but must be duly proved with
reasonable degree of certainty. A court
cannot rely on speculation, conjecture or
guesswork as to the fact and amount of
damages, but must depend upon
competent proof that they have suffered
and on evidence of the actual amount
thereof.
Upon arrival at Cotabato City, the PAL

Station Agent informed the passengers
of their options to return to Cebu on
Flight 560 of the same day and thence
to Ozamiz City on 4 August 1975, or
take the next flight to Cebu the following
day, or remain at Cotabato and take the
next available flight to Ozamiz City on 5
August 1975. 3 The Station Agent
likewise informed them that Flight 560
bound for Manila would make a stopover at Cebu to bring some of the
diverted passengers; that there were
only six (6) seats available as there
were already confirmed passengers for
Manila; and, that the basis for priority
would be the check-in sequence at
Cebu.
DECISION
BELLOSILLO, J p:
Private respondent chose to return to

Cebu but was not accommodated
because he checked-in as passenger
This petition for review on certiorari

seeks to annul and set aside the
91
No. 9 on Flight 477. He insisted on

being given priority over the confirmed
passengers in the accommodation, but
the Station Agent refused private
respondent's demand explaining that the
latter's predicament was not due to
PAL's own doing but to a force majeure.
4
manner to all passengers the reason for

PAL's inability to transport all of them
back to Cebu; that the stranded
passengers agreed to avail of the
options and had their respective tickets
exchanged for their onward trips; that it
was only the private respondent who
insisted on being given priority in the
accommodation; that pieces of checkedin baggage and hand-carried items of
the Ozamiz City passengers were
removed from the aircraft; that the
reason for the pilot's inability to land at
Ozamiz City airport was because the
runway was wet due to rains thus
posing a threat to the safety of both
passengers and aircraft; and, that such
reason of force majeure was a valid
justification for the pilot to bypass
Ozamiz City and proceed directly to
Cotabato City.
Private respondent tried to stop the

departure of Flight 560 as his personal
belongings,
including
a
package
containing a camera which a certain
Miwa from Japan asked him to deliver to
Mrs. Fe Obid of Gingoog City, were still
on board. His plea fell on deaf ears. PAL
then issued to private respondent a free
ticket to Iligan City, which the latter
received under protest. 5 Private
respondent was left at the airport and
could not even hitch a ride in the Ford
Fiera loaded with PAL personnel. 6 PAL
neither provided private respondent with
transportation from the airport to the city
proper nor food and accommodation for
his stay in Cotabato City.
On 4 June 1981, the trial court rendered

its decision 10 the dispositive portion of
which states:
"WHEREFORE, judgment is hereby
rendered in favor of the plaintiff and
against the defendant Philippine Air
Lines, Inc. ordering the latter to pay:
The following day, private respondent

purchased a PAL ticket to Iligan City. He
informed PAL personnel that he would
not use the free ticket because he was
filing a case against PAL. 7 In Iligan City,
private respondent hired a car from the
airport to Kolambugan, Lanao del Norte,
reaching Ozamiz City by crossing the
bay in a launch. 8 His personal effects
including the camera, which were
valued at P2,000.00, were no longer
recovered.
(1) As actual damages, the sum of Two

Hundred Pesos (P200.00) representing
plaintiff's expenses for transportation,
food and accommodation during his
stranded stay at Cotabato City; the sum
of
Forty-Eight
Pesos
(P48.00)
representing his flight fare from
Cotabato City to Iligan City; the sum of
Five
Hundred
Pesos
(P500.00)
representing plaintiff's transportation
expenses from Iligan City to Ozamiz
City; and the sum of Five Thousand
Pesos (P5,000.00) as loss of business
opportunities during his stranded stay in
Cotabato City;
On 13 January 1977, PAL filed its

answer denying that it unjustifiably
refused
to
accommodate
private
respondent. 9 It alleged that there was
simply no more seat for private
respondent on Flight 560 since there
were only six (6) seats available and the
priority of accommodation on Flight 560
was based on the check-in sequence in
Cebu; that the first six (6) priority
passengers on Flight 477 chose to take
Flight 560; that its Station Agent
explained in a courteous and polite
(2) As moral damages, the sum of Fifty

Thousand Pesos (P50,000.00) for
plaintiff's hurt feelings, serious anxiety,
mental anguish and unkind and
discourteous treatment perpetrated by
92
defendant's employees during his stay

as stranded passenger in Cotabato City;
never put in issue by the pleadings or

proved at the trial.
Contrary to the above arguments,
private respondent's amended complaint
touched on PAL's indifference and
inattention to his predicament. The
pertinent portion of the amended
complaint 14 reads:
(3) As exemplary damages, the sum of

Ten Thousand Pesos (P10,000.00) to
set a precedent to the defendant airline
that it shall provide means to give
comfort and convenience to stranded
passengers;
"10. That by virtue of the refusal of the

defendant through its agent in Cotabato
to accommodate (sic) and allow the
plaintiff to take and board the plane back
to Cebu, and by accommodating (sic)
and allowing passengers from Cotabato
for Cebu in his stead and place, thus
forcing the plaintiff against his will, to be
left and stranded in Cotabato, exposed
to the peril and danger of muslim rebels
plundering at the time, the plaintiff, as a
consequence, (have) suffered mental
anguish,
mental
torture,
social
humiliation, bismirched reputation and
wounded feeling, all amounting to a
conservative amount of thirty thousand
(P30,000.00) Pesos."
(4) The sum of Three Thousand Pesos

(P3,000.00) as attorney's fees;
(5) To pay the costs of this suit."
PAL appealed to the Court of Appeals
which on 28 February 1985, finding no
reversible error, affirmed the judgment of
the court a quo. 11
PAL then sought recourse to this Court
by way of a petition for review on
certiorari 12 upon the following issues:
(1) Can the Court of Appeals render a
decision
finding
petitioner
(then
defendant-appellant in the court below)
negligent and, consequently, liable for
damages on a question of substance
which was neither raised in the
complaint nor proved at the trial? (2)
Can the Court of Appeals award actual
and moral damages contrary to the
evidence
and
established
jurisprudence? 13
To substantiate this aspect of apathy,

private respondent testified 15
"A. I did not even notice that I was I
think the last passenger or the last
person out of the PAL employees and
army personnel that were left there. I did
not notice that when I was already
outside of the building after our
conversation.
An assiduous examination of the

records yields no valid reason for
reversal of the judgment on appeal; only
a modification of its disposition.
Q. What did you do next?

A. I banished (sic) because it seems
that there was a war not far from the
airport. The sound of guns and the
soldiers were plenty.
In its petition, PAL vigorously maintains

that private respondent's principal cause
of action was its alleged denial of private
respondent's demand for priority over
the confirmed passengers on Flight 560.
Likewise, PAL points out that the
complaint did not impute to PAL neglect
in failing to attend to the needs of the
diverted passengers; and, that the
question of negligence was not and
Q. After that what did you do?

A. I tried to look for a transportation that
could bring me down to the City of
Cotabato.
Q. Were you able to go there?
93
failed to substantiate its counter

allegation for want of concrete proof 18
A. I was at about 7:00 o'clock in the

evening more or less and it was a
private jeep that I boarded. I was even
questioned why I and who am (sic) I
then. Then I explained my side that I am
(sic) stranded passenger. Then they
brought me downtown at Cotabato.
"Atty. Rubin O. Rivera PAL's counsel:

Q. You said PAL refused to help you
when you were in Cotabato, is that
right?
Q. During your conversation with the

Manager were you not offered any
vehicle or transportation to Cotabato
airport downtown?
Private respondent:
A. Yes.
A. In fact I told him (Manager) now I am

by-passed passenger here which is not
my destination what can you offer me.
Then they answered, "it is not my fault.
Let us forget that.
Q. Did you ask them to help you

regarding any offer of transportation or
of any other matter asked of them?
A. Yes, he (PAL PERSONNEL) said
what is? It is not our fault.
Q. In other words when the Manager

told you that offer was there a vehicle
ready?
Q. Are you not aware that one fellow

passenger even claimed that he was
given Hotel accommodation because
they have no money?
A. Not yet. Not long after that the Ford

Fiera loaded with PAL personnel was
passing by going to the City of Cotabato
and I stopped it to take me a ride
because there was no more available
transportation
but
I
was
not
accommodated."
xxx xxx xxx

A. No, sir, that was never offered to me.
I said, I tried to stop them but they were
already riding that PAL pick-up jeep, and
I was not accommodated."
Significantly, PAL did not seem to mind

the introduction of evidence which
focused on its alleged negligence in
caring for its stranded passengers. Wellsettled is the rule in evidence that the
protest or objection against the
admission of evidence should be
presented at the time the evidence is
offered, and that the proper time to
make protest or objection to the
admissibility of evidence is when the
question is presented to the witness or
at the time the answer thereto is given.
16 There being no objection, such
evidence becomes property of the case
and all the parties are amenable to any
favorable
or
unfavorable
effects
resulting from the evidence. 17
Having joined in the issue over the

alleged lack of care it exhibited towards
its passengers, PAL cannot now turn
around and feign surprise at the
outcome of the case. When issues not
raised by the pleadings are tried by
express or implied consent of the
parties, they shall be treated in all
respects as if they had been raised in
the pleadings. 19
With regard to the award of damages
affirmed by the appellate court, PAL
argues that the same is unfounded. It
asserts that it should not be charged
with the task of looking after the
passengers' comfort and convenience
because the diversion of the flight was
due to a fortuitous event, and that if
made liable, an added burden is given
PAL instead attempted to rebut the

aforequoted testimony. In the process, it
94
to PAL which is over and beyond its

duties under the contract of carriage. It
submits that granting arguendo that
negligence exists, PAL cannot be liable
in damages in the absence of fraud or
bad faith; that private respondent failed
to apprise PAL of the nature of his trip
and possible business losses; and, that
private respondent himself is to be
blamed for unreasonably refusing to use
the free ticket which PAL issued.
safeguarding the comfort, convenience

and safety of its stranded passengers
until they have reached their final
destination. On this score, PAL grossly
failed considering the then ongoing
battle between government forces and
Muslim rebels in Cotabato City and the
fact that the private respondent was a
stranger to the place. As the appellate
court correctly ruled
"While the failure of plaintiff in the first
instance to reach his destination at
Ozamis City in accordance with the
contract of carriage was due to the
closure of the airport on account of rain
and inclement weather which was
radioed to defendant 15 minutes before
landing, it has not been disputed by
defendant airline that Ozamis City has
no all-weather airport and has to cancel
its flight to Ozamis City or by-pass it in
the event of inclement weather. Knowing
this fact, it becomes the duty of
defendant to provide all means of
comfort and convenience to its
passengers when they would have to be
left in a strange place in case of such
by-passing. The steps taken by
defendant airline company towards this
end has not been put in evidence,
especially for those 7 others who were
not accommodated in the return trip to
Cebu, only 6 of the 21 having been so
accommodated. It appears that plaintiff
had to leave on the next flight 2 days
later. If the cause of non-fulfillment of
the contract is due to a fortuitous event,
it has to be the sole and only cause (Art.
1755 C.C., Art. 1733 C.C.) Since part of
the failure to comply with the obligation
of common carrier to deliver its
passengers safely to their destination
lay in the defendant's failure to provide
comfort and convenience to its stranded
passengers
using
extra-ordinary
diligence, the cause of non-fulfillment is
not solely and exclusively due to
fortuitous event, but due to something
which defendant airline could have
prevented, defendant becomes liable to
plaintiff." 23
The contract of air carriage is a peculiar

one. Being imbued with public interest,
the law requires common carriers to
carry the passengers safely as far as
human care and foresight can provide,
using the utmost diligence of very
cautious persons, with due regard for all
the circumstances. 20 In Air France v.
Carrascoso, 21 we held that
"A contract to transport passengers is
quite different in kind and degree from
any other contractual relation. And this,
because of the relation which an air
carrier sustains with the public. Its
business is mainly with the travelling
public. It invites people to avail of the
comforts and advantages it offers. The
contract of air carriage, therefore,
generates a relation attended with a
public duty . . ." (emphasis supplied).
The position taken by PAL in this case
clearly illustrates its failure to grasp the
exacting standard required by law.
Undisputably, PAL's diversion of its flight
due to inclement weather was a
fortuitous event. Nonetheless, such
occurrence did not terminate PAL's
contract with its passengers. Being in
the business of air carriage and the sole
one to operate in the country, PAL is
deemed equipped to deal with situations
as in the case at bar. What we said in
one case once again must be stressed,
i.e., the relation of carrier and passenger
continues until the latter has been
landed at the port of destination and has
left the carrier's premises. 22 Hence,
PAL necessarily would still have to
exercise extraordinary diligence in
95
While we find PAL remiss in its duty of

extending utmost care to private
respondent while being stranded in
Cotabato City, there is no sufficient
basis to conclude that PAL failed to
inform
him
about
his
nonaccommodation on Flight 560, or that it
was inattentive to his queries relative
thereto.
been deluged with complaints. But, only

private respondent complained
On 3 August 1975, the Station Agent

reported to his Branch Manager in
Cotabato City that
A. Yes.
"3. Of the fifteen stranded passengers

two pax elected to take F478 on August
05, three pax opted to take F442 August
03. The remaining ten (10) including
subject requested that they be instead
accommodated (sic) on F446 CBO-IGN
the following day where they intended to
take the surface transportation to OZC.
Mr. Pedro Zapatos had by then been
very vocal and boiceterous (sic) at the
counter and we tactfully managed to
steer him inside the Station Agent's
office. Mr. Pedro Zapatos then
adamantly insisted that all the diverted
passengers should have been given
priority over the originating passengers
of F560 whether confirmed or otherwise.
We explained our policies and after
awhile he seemed pacified and
thereafter took his ticket (in-lieued (sic)
to CBO-IGN, COCON basis) at the
counter in the presence of five other
passengers who were waiting for their
tickets too. The rest of the diverted pax
had left earlier after being assured that
their ticket will be ready the following
day." 24
Q. What do you mean by "yes"? You

meant you were not informed?
"Atty. Rivera (for PAL)

Q. I understand from you Mr. Zapatos
that at the time you were waiting at
Cotabato Airport for the decision of PAL,
you were not informed of that decision
until after the airplane left is that
correct?
COURT:
A. Yes, I was not informed of their

decision,
that
they
will
only
accommodate few passengers.
Q. Aside from you there were many
other stranded passengers?
A. I believed, yes.
Q. And you want us to
did not explain (to)
passengers
about
regarding those who
aircraft back to Cebu?
believe that PAL

any of these
the
decision
will board the
A. No, Sir.
Q. Despite these facts Mr. Zapatos did
any of the other passengers complained
(sic) regarding that incident?
xxx xxx xxx
A. There were plenty of arguments and I
was one of those talking about my case.
Aforesaid Report being an entry in the

course of business is prima facie
evidence of the facts therein stated.
Private respondent, apart from his
testimony, did not offer any controverting
evidence. If indeed PAL omitted to give
information about the options available
to its diverted passengers, it would have
Q. Did you hear anybody complained

(sic) that he has not been informed of
the decision before the plane left for
Cebu?
A. No." 25
96
Admittedly,
private
respondent's
insistence on being given priority in
accommodation
was
unreasonable
considering the fortuitous event and that
there was a sequence to be observed in
the booking, i.e., in the order the
passengers checked-in at their port of
origin. His intransigence in fact was the
main cause for his having to stay at the
airport longer than was necessary
only to enable the injured party to obtain

means, diversion or amusements that
will serve to alleviate the moral suffering
he has undergone by reason of the
defendant's culpable action. 29
With regard to the award of actual
damages in the amount of P5,000.00
representing
private
respondent's
alleged business losses occasioned by
his stay at Cotabato City, we find the
same unwarranted. Private respondent's
testimony that he had a scheduled
business "transaction of shark liver oil
supposedly to have been consummated
on August 3, 1975 in the morning" and
that "since (private respondent) was out
for nearly two weeks I missed to buy
about 10 barrels of shark liver oil," 30
are purely speculative. Actual or
compensatory damages cannot be
presumed but must be duly proved with
reasonable degree of certainty. A court
cannot rely on speculation, conjecture or
guesswork as to the fact and amount of
damages, but must depend upon
competent proof that they have suffered
and on evidence of the actual amount
thereof. 31
"Atty. Rivera:
Q. And, you were saying that despite the
fact that according to your testimony
there were at least 16 passengers who
were stranded there in Cotabato airport
according to your testimony, and later
you said that there were no other people
left there at that time, is that correct?
A. Yes, I did not see anyone there
around. I think I was the only civilian
who was left there.
Q. Why is it that it took you long time to
leave that place?
A. Because I was arguing with the PAL
personnel." 26
WHEREFORE the decision appealed

from is AFFIRMED with modification
however that the award of moral
damages of Fifty Thousand Pesos
(P50,000.00) is reduced to Ten
Thousand Pesos (P10,000.00) while the
exemplary damages of Ten Thousand
Pesos (P10,000.00) is also reduced to
Five Thousand Pesos (P5,000.00). The
award of actual damages in the amount
Five Thousand Pesos (P5,000.00)
representing
business
losses
occasioned by private respondent's
being stranded in Cotabato City is
deleted.
Anent the plaint that PAL employees

were disrespectful and inattentive
toward private respondent, the records
are bereft of evidence to support the
same. Thus, the ruling of respondent
Court of Appeals in this regard is without
basis. 27 On the contrary, private
respondent was attended to not only by
the personnel of PAL but also by its
Manager. 28
In the light of these findings, we find the
award of moral damages of Fifty
Thousand
Pesos
(P50,000.00)
unreasonably excessive; hence, we
reduce the same to Ten Thousand
Pesos
(P10,000.00).
Conformably
herewith, the award of exemplary
damages is also reduced to Five
Thousand Pesos (P5,000.00). Moral
damages are not intended to enrich the
private respondent. They are awarded
SO ORDERED.
Cruz, Grio-Aquino, Davide, Jr. and
Quiason, JJ ., concur.
97
||| (Philippine Airlines, Inc. v. Court of

Appeals, G.R. No. 82619, [September
15, 1993])
Petitioner moved for reconsideration but

to no avail. Hence, the instant petition.
The Supreme Court finds the petition
meritorious. The Court finds no clear
and convincing evidence to sustain the
judgment of the appellate court. In this
case, other than the said ocular
inspection,
no
investigation
was
conducted to determine the real cause
of the partial unroofing of petitioner's
school building. Private respondents did
not even show that the plans,
specifications and design of said
building were deficient and defective.
Neither did they prove any substantial
deviation from the approved plans and
specifications. Nor did they conclusively
establish that the construction of such
building was basically flawed. In sum,
the Court holds that petitioner has not
been shown negligent or at fault
regarding
the
construction
and
maintenance of its school building in
question and that typhoon Saling was
the proximate cause of the damage
suffered by private respondents' house.
In view thereof, the petition is granted
and the challenged decision is reversed.
16. SOUTHEASTERN
COLLEGE
VS. COURT OF APPEALS
THIRD DIVISION
[G.R. No. 126389. July 10, 1998.]
SOUTHEASTERN COLLEGE, INC.,
JUANITA DE JESUS VDA. DE
DIMAANO,
EMERITA
DIMAANO,
REMEDIOS
DIMAANO,
CONSOLACION
DIMAANO
and
MILAGROS DIMAANO, respondents.
Eladio B Samson for petitioner.
Galileo P. Brion for private respondents.
SYNOPSIS
Private respondents filed a complaint for
damages before the RTC of Pasay City
against the petitioner for the damages.
They alleged that on October 11, 1989,
at about 6:30 in the morning, a powerful
typhoon "Saling" hit Metro Manila.
Buffeted by very strong winds, the roof
of petitioner's building was partly ripped
off and blown away, landing on and
destroying portions of the roofing of
private respondents' house. After trial on
the merits, the court a quo rendered a
decision in favor of the private
respondents and ordering petitioner to
pay the amount of P117,116.00 as
actual damages, P1,000,000.00 as
moral damages, P100,000.00 as
attorney's fees and costs of suit. In its
decision, the trial court gave credence to
the ocular inspection report conducted
by Pasay City building officials to the
effect that subject school building owned
by petitioner had a defective roofing
structure. On appeal, the Court of
Appeals affirmed the RTC decision, but
reduced the award of moral damages
from P1,000,000.00 to P200,000.00.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND
CONTRACTS; FORTUITOUS EVENT;
DEFINITION. The antecedent of
fortuitous event or caso fortuito is found
in the Partidas which defines it as "an
event which takes place by accident and
could not have been foreseen." Escriche
elaborates it as "an unexpected event or
act of God which could neither be
foreseen nor resisted." Civilist Arturo M.
Tolentino adds that "[f]ortuitous events
may be produced by two general
causes: (1) by nature, such as
earthquakes, storms, floods, epidemics,
fires, etc. and (2) by the act of man,
such as an armed invasion, attack by
bandits
governmental
prohibitions,
robbery, etc."
2. ID.; ID.; ID.; AN ACT OF GOD
CANNOT BE INVOKED FOR THE
98
PROTECTION OF A PERSON WHO

HAS BEEN GUILTY OF GROSS
NEGLIGENCE IN NOT TRYING TO
FORESTALL ITS POSSIBLE ADVERSE
CONSEQUENCE. In order that a
fortuitous event may exempt a person
from liability, it is necessary that he be
free from any previous negligence or
misconduct by reason of which the loss
may have been occasioned. An act of
God cannot be invoked for the
protection of a person who has been
guilty of gross negligence in not trying to
forestall
its
possible
adverse
consequences. When a person's
negligence concurs with an act of God
in producing damage or injury to
another, such person is not exempt from
liability by showing that the immediate or
proximate cause of the damage or injury
was a fortuitous event. When the effect
is found to be partly the result of the
participation of man whether it be
from active intervention, or neglect, or
failure to act the whole occurrence is
hereby humanized, and removed from
the rules applicable to acts of God.
shot the victim. It could have been selfinflicted or caused accidentally by a

stray bullet. The relationship of cause
and effect must be clearly shown. In the
present case, other than the said ocular
inspection,
no
investigation
was
specifications and design of said school
building were deficient and defective.
building was basically flawed. . . . In light
of the foregoing, we find no clear and
convincing evidence to sustain the
judgment of the appellate court. We thus
hold that petitioner has not been shown
negligent or at fault regarding the
construction and maintenance of its
school building in question and that
typhoon "Saling" was the proximate
cause of the damage suffered by private
respondents house. With this disposition
on the pivotal issue, private respondents
claim for actual and moral damages as
well as attorney's fees must fail.
Petitioner cannot be made to answer for
a purely fortuitous event. More so
because no bad faith or willful act to
cause damage was alleged and proven
to warrant moral damages.
3. ID.; ID.; ID.; A PERSON CANNOT BE

MADE TO ANSWER FOR A PURELY
FORTUITOUS EVENT; CASE AT BAR.
It bears emphasizing that a person
claiming damages for the negligence of
another has the burden of proving the
existence of fault or negligence
causative of his injury or loss. The facts
constitutive of negligence must be
affirmatively established by competent
evidence, not merely by presumptions
and conclusions without the basis in
fact. Private respondents, in establishing
the culpability of petitioner, merely relied
on the aforementioned report submitted
by a team which made an ocular
inspection of petitioner's school building
after the typhoon. As the term imparts,
an ocular inspection is one by means of
actual sight or viewing. What is visual to
the eye though, is not always reflective
of the real cause behind. For instance,
one who hears a gunshot and then sees
a wounded person, cannot always
definitely conclude that a third person
4. ID.; ACTUAL DAMAGES; IT IS NOT

ENOUGH THAT THE DAMAGE BE
CAPABLE OF PROOF BUT MUST BE
ACTUALLY
PROVED
WITH
REASONABLE
DEGREE
OF
CERTAINTY; CASE AT BAR. Private
respondents failed to adduce adequate
and competent proof of the pecuniary
loss they actually incurred. It is not
enough that the damage be capable of
proof but must be actually proved with a
reasonable degree of certainty, pointing
out specific facts that afford a basis for
measuring whatever compensatory
damages
are
borne.
Private
respondents merely submitted an
estimated amount needed for the repair
99
of the roof of their subject building. What

is more, whether the necessary repairs
were caused ONLY by petitioner's
alleged negligence in the maintenance
of its school building, or included the
ordinary wear and tear of the house
itself, is an essential question that
remains indeterminable.
formation of 4-storey building. Thus, with

the strong winds having a westerly
direction, the general formation of the
buildings becomes a big funnel-like
structure, the one situated along College
Road, receiving the heaviest impact of
the strong winds. Hence, there are
portions of the roofing, those located on
both ends of the building, which
remained intact after the storm.
DECISION
PURISIMA, J p:
6. Another factor and perhaps the most

likely reason for the dislodging of the
roofings structural trusses is the
improper anchorage of the said trusses
to the roof beams. The " diameter
steel bars embedded on the concrete
roof beams which serve as truss
anchorage are not bolted nor nailed to
the trusses. Still, there are other steel
bars which were not even bent to the
trusses, thus, those trusses are not
anchored at all to the roof beams."
Petition for review under Rule 45 of the

Rules of Court seeking to set aside the
Decision 1 promulgated on July 31,
1996,
and
Resolution
2
dated
September 12, 1996 of the Court of
Appeals 3 in CA-G.R. No. 41422,
entitled "Juanita de Jesus vda. de
Dimaano, et al. vs. Southeastern
College, Inc.", which reduced the moral
damages
awarded
below
from
P1,000,000.00 to P200,000.00. 4 The
Resolution
under
attack
denied
petitioner's motion for reconsideration.
cdtai
It then recommended that "to avoid any

further loss and damage to lives, limbs
and property of persons living in the
vicinity," the fourth floor of subject
school building be declared as a
"structural hazard."
In their Complaint 6 before the Regional
Trial Court of Pasay City, Branch 117,
for damages based on culpa aquiliana,
private respondents alleged that the
damage to their house rendered the
same uninhabitable, forcing them to stay
temporarily in others' houses. And so
they sought to recover from petitioner
P117,116.00, as actual damages,
P1,000,000.00, as moral damages,
P300,000.00, as exemplary damages
and, P100,000.00, for and as attorney's
fees; plus costs.
Private respondents are owners of a

house at 326 College Road, Pasay City,
while petitioner owns a four-storey
school building along the same College
Road. On October 11, 1989, at about
6:30 in the morning, a powerful typhoon
"Saling" hit Metro Manila. Buffeted by
very strong winds, the roof of petitioner's
building was partly ripped off and blown
away, landing on and destroying
portions of the roofing of private
respondents' house. After the typhoon
had passed, an ocular inspection of the
destroyed buildings was conducted by a
team of engineers headed by the city
building official, Engr. Jesus L. Reyna.
Pertinent aspects of the latter's Report 5
dated October 18, 1989 stated, as
follows:
In its Answer, petitioner averred that

subject school building had withstood
several devastating typhoons and other
calamities in the past, without its roofing
or any portion thereof giving way; that it
has not been remiss in its responsibility
to see to it that said school building,
"5. One of the factors that may have led

to this calamitous event is the formation
of the buildings in the area and the
general direction of the wind. Situated in
the peripheral lot is an almost U-shaped
100
which houses school children, faculty

members, and employees, is "in tip-top
condition", and furthermore, typhoon
"Saling" was "an act of God and
therefore beyond human control" such
that petitioner cannot be answerable for
the damages wrought thereby, absent
any negligence on its part.
PORTION OF THE ROOF

SOUTHEASTERN'S
FOUR
STOREY SCHOOL BUILDING.
OF
(4)
II
THE TRIAL COURT ERRED IN
HOLDING
THAT
"THE
CONSTRUCTION OF THE ROOF OF
DEFENDANT'S SCHOOL BUILDING
WAS FAULTY" NOTWITHSTANDING
THE ADMISSION THAT THERE WERE
TYPHOONS BEFORE BUT NOT AS
GRAVE AS TYPHOON "SALING"
WHICH IS THE DIRECT AND
PROXIMATE
CAUSE
OF
THE
INCIDENT.
The trial court, giving credence to the

ocular inspection report to the effect that
subject school building had a "defective
roofing structure," found that, while
typhoon "Saling" was accompanied by
strong winds, the damage to private
respondents' house "could have been
avoided if the construction of the roof of
[petitioner's] building was not faulty."
The dispositive portion of the lower
court's decision 7 reads, thus:
III
AWARDING ACTUAL AND MORAL
DAMAGES AS WELL AS ATTORNEY'S
FEES AND LITIGATION EXPENSES
AND COSTS OF SUIT TO DIMAANOS
WHEN THEY HAVE NOT INCURRED
ACTUAL DAMAGES AT ALL AS
DIMAANOS HAVE ALREADY SOLD
THEIR PROPERTY, AN INTERVENING
EVENT THAT RENDERS THIS CASE
MOOT AND ACADEMIC.
"WHEREFORE, in view of the foregoing,

the Court renders judgment (sic) in favor
of the plaintiff (sic) and against the
defendants, (sic) ordering the latter to
pay jointly and severally the former as
follows:
a) P117,116.00, as actual damages,
plus litigation expenses;
b) P1,000,000.00 as moral damages;
IV
c) P100,000.00 as attorney's fees;
ORDERING THE ISSUANCE OF THE
WRIT OF EXECUTION INSPITE OF
THE
PERFECTION
OF
SOUTHEASTERN'S APPEAL WHEN
THERE IS NO COMPELLING REASON
FOR THE ISSUANCE THERETO.
d) Costs of the instant suit.

The claim for exemplary damages is
denied for the reason that the
defendants (sic) did not act in a wanton
fraudulent, reckless, oppressive or
malevolent manner."
As mentioned earlier, respondent Court

of Appeals affirmed with modification the
trial court's disposition by reducing the
award of moral damages from
P1,000,000.00 to P200,000.00. Hence,
petitioner's resort to this Court, raising
for resolution the issues of:
In its appeal to the Court of Appeals,

petitioner assigned as errors, 8 that:
I
HOLDING THAT TYPHOON "SALING",
AS AN ACT OF GOD, IS NOT "THE
SOLE AND ABSOLUTE REASON" FOR
THE RIPPING-OFF OF THE SMALL
"1. Whether or not the award of actual

damage [sic] to respondent Dimaanos
on the basis of speculation or
101
conjecture, without proof or receipts of

actual damage, [sic] legally feasible or
justified.
which,
though
inevitable."
foreseen,
were
The antecedent of fortuitous event or

caso fortuito is found in the Partidas
which defines it as "an event which
takes place by accident and could not
have been foreseen." 9 Escriche
elaborates it as "an unexpected event or
act of God which could neither be
foreseen nor resisted." 10 Civilist Arturo
M. Tolentino adds that "[f]ortuitous
events may be produced by two general
causes: (1) by nature, such as
earthquakes, storms, floods, epidemics,
fires, etc. and (2) by the act of man,
such as an armed invasion, attack by
bandits,
governmental
prohibitions,
robbery, etc." 11
2. Whether or not the award of moral

damages to respondent Dimaanos,
without the latter having suffered, actual
damage has legal basis.
3. Whether or not respondent Dimaanos
who are no longer the owner of the
property, subject matter of the case,
during its pendency, has the right to
pursue their complaint against petitioner
when the case was already rendered
moot and academic by the sale of the
property to third party.
4. Whether or not the award of
attorney's fees when the case was
already moot and academic [sic] legally
justified.
In order that a fortuitous event may

exempt a person from liability, it is
necessary that he be free from any
previous negligence or misconduct by
reason of which the loss may have been
occasioned. 12 An act of God cannot be
invoked for the protection of a person
who has been guilty of gross negligence
in not trying to forestall its possible
adverse
consequences.
When
a
person's negligence concurs with an act
of God in producing damage or injury to
another, such person is not exempt from
liability by showing that the immediate or
proximate cause of the damage or injury
was a fortuitous event. When the effect
is found to be partly the result of the
participation of man whether it be
from active intervention, or neglect, or
failure to act the whole occurrence is
hereby humanized, and removed from
the rules applicable to acts of God. 13
5. Whether or not petitioner is liable for

damage caused to others by typhoon
"Saling" being an act of God.
6. Whether or not the issuance of a writ
of execution pending appeal, ex-parte or
without hearing, has support in law."
The pivot of inquiry here, determinative
of the other issues, is whether the
damage on the roof of the building of
private respondents resulting from the
impact of the falling portions of the
school building's roof ripped off by the
strong winds of typhoon "Saling", was,
within legal contemplation, due to
fortuitous event? If so, petitioner cannot
be held liable for the damages suffered
by the private respondents. This
conclusion finds support in Article 1174
of the Civil Code, which provides:
In the case under consideration, the

lower court accorded full credence to
the finding of the investigating team that
subject school building's roofing had "no
sufficient anchorage to hold it in position
especially when battered by strong
winds." Based on such finding, the trial
court imputed negligence to petitioner
and adjudged it liable for damages to
private respondents.
"Art 1174. Except in cases expressly

events which could not be foreseen, or
102
establishing the culpability of petitioner,

merely relied on the aforementioned
report submitted by a team which made
an ocular inspection of petitioner's
school building after the typhoon. As the
term imparts, an ocular inspection is one
by means of actual sight or viewing. 20
What is visual to the eye though, is not
always reflective of the real cause
behind. For instance, one who hears a
gunshot and then sees a wounded
person,
cannot
always
definitely
conclude that a third person shot the
victim. It could have been self-inflicted
or caused accidentally by a stray bullet.
The relationship of cause and effect
must be clearly shown.
After a thorough study and evaluation of

the evidence on record, this Court
believes otherwise, notwithstanding the
general rule that factual findings by the
trial court, especially when affirmed by
the appellate court, are binding and
conclusive upon this Court. 14 After a
careful scrutiny of the records and the
pleadings submitted by the parties, we
find exception to this rule and hold that
the lower courts misappreciated the
evidence proffered. prcd
There is no question that a typhoon or
storm is a fortuitous event, a natural
occurrence which may be foreseen but
is unavoidable despite any amount of
foresight, diligence or care. 15 In order
to be exempt from liability arising from
any adverse consequence engendered
thereby, there should have been no
human participation amounting to a
negligent act. 16 In other words, the
person seeking exoneration from liability
must not be guilty of negligence.
Negligence, as commonly understood,
is conduct which naturally or reasonably
creates undue risk or harm to others. It
may be the failure to observe that
degree of care, precaution, and
vigilance which the circumstances justly
demand, 17 or the omission to do
something which a prudent and
reasonable
man,
guided
by
considerations which ordinarily regulate
the conduct of human affairs, would do.
18 From these premises, we proceed to
determine whether petitioner was
negligent, such that if it were not, the
damage caused to private respondents'
house could have been avoided?
In the present case, other than the said

ocular inspection, no investigation was
specifications and design of said school
building, were deficient and defective.
building was basically flawed. 21
On the other hand, petitioner elicited
from one of the witnesses of private
respondents, city building official Jesus
Reyna, that the original plans and
design of petitioner's school building
were approved prior to its construction.
Engr. Reyna admitted that it was a legal
requirement before the construction of
any building to obtain a permit from the
city building official (city engineer, prior
to the passage of the Building Act of
1977). In like manner, after construction
of the building, a certification must be
secured from the same official attesting
to the readiness for occupancy of the
edifice. Having obtained both building
permit and certificate of occupancy,
these are, at the very least, prima facie
evidence of the regular and proper
construction of subject school building.
22
At the outset, it bears emphasizing that

a person claiming damages for the
negligence of another has the burden of
proving the existence of fault or
negligence causative of his injury or
loss. The facts constitutive of negligence
must be affirmatively established by
competent evidence, 19 not merely by
presumptions and conclusions without
basis in fact. Private respondents, in
103
negligent or at fault regarding the

construction and maintenance of its
school building in question and that
typhoon "Saling" was the proximate
cause of the damage suffered by private
respondents' house.
Furthermore, when part of its roof

needed repairs of the damage inflicted
by typhoon "Saling", the same city
official gave the go-signal for such
repairs without any deviation from the
original design and subsequently,
authorized the use of the entire fourth
floor of the same building. These only
prove that subject building suffers from
no structural defect, contrary to the
report that its "U-shaped" form was
"structurally defective." Having given his
unqualified imprimatur, the city building
official is presumed to have properly
performed his duties 23 in connection
therewith.
With this disposition on the pivotal issue,

private respondents' claim for actual and
moral damages as well as attorney's
fees must fail. 24 Petitioner cannot be
made to answer for a purely fortuitous
event. 25 More so because no bad faith
or willful act to cause damage was
alleged and proven to warrant moral
damages.
Private respondents failed to adduce
adequate and competent proof of the
pecuniary loss they actually incurred. 26
It is not enough that the damage be
capable of proof but must be actually
proved with a reasonable degree of
certainty, pointing out specific facts that
afford a basis for measuring whatever
compensatory damages are borne. 27
Private respondents merely submitted
an estimated amount needed for the
repair of the roof of their subject
building. What is more, whether the
"necessary repairs" were caused ONLY
by petitioner's alleged negligence in the
maintenance of its school building, or
included the ordinary wear and tear of
the house itself, is an essential question
that remains indeterminable.
In addition, petitioner presented its vice

president for finance and administration
who
testified
that
an
annual
maintenance inspection and repair of
subject school building were regularly
undertaken. Petitioner was even willing
to present its maintenance supervisor to
attest to the extent of such regular
inspection but private respondents
agreed to dispense with his testimony
and simply stipulated that it would be
corroborative of the vice president's
narration.
Moreover, the city building official, who
has been in the city government service
since 1974, admitted in open court that
no complaint regarding any defect on
the same structure has ever been
lodged before his office prior to the
institution of the case at bench. It is a
matter of judicial notice that typhoons
are common occurrences in this country.
If subject school building's roofing was
not firmly anchored to its trusses,
obviously, it could not have withstood
long years and several typhoons even
stronger than "Saling."
The Court deems unnecessary to

resolve the other issues posed by
petitioner.
As regards the sixth issue, however, the
writ of execution issued on April 1, 1993
by the trial court is hereby nullified and
set aside. Private respondents are
ordered to reimburse any amount or
return to petitioner any property which
they may have received by virtue of the
enforcement of said writ.
In light of the foregoing, we find no clear

and convincing evidence to sustain the
judgment of the appellate court. We thus
hold that petitioner has not been shown
WHEREFORE,
the
petition
is
GRANTED and the challenged Decision
is REVERSED. The complaint of private
104
respondents in Civil Case No. 7314

before the trial court a quo is ordered
DISMISSED and the writ of execution
issued on April 1, 1993 in said case is
SET ASIDE. Accordingly, private
respondents are ORDERED to return to
petitioner any amount or property
received by them by virtue of said writ.
Costs against the private respondents.
been engaged in the coordination of the

provision of various communication
facilities for the military bases of the
United States of America (US) in Clark
Air Base, Angeles, Pampanga and
Subic Naval Base in Cubi Point,
Zambales. The said communication
facilities were installed and configured
for the exclusive use of the US Defense
Communications Agency (USDCA), and
for security reasons, were operated only
by its personnel or those of American
companies contracted by it to operate
said facilities. The USDCA contracted
with said American companies, and the
latter, in turn, contracted with Globe for
the use of the communication facilities.
Globe, on the other hand, contracted
with local service providers such as the
Philippine Communications Satellite
Corporation
(Philcomsat)
for
the
provision of the communication facilities.
SO ORDERED. prcd
Narvasa, C .J ., Romero and Kapunan,
JJ ., concur.
||| (Southeasthern College, Inc. v. Court
of Appeals, G.R. No. 126389, [July 10,
1998], 354 PHIL 434-447)
17. PHILCOMSAT
TELECOM
VS.
GLOBE
SECOND DIVISION
On 07 May 1991, Philcomsat and Globe
entered into an Agreement whereby
Philcomsat obligated itself to establish,
operate and provide an IBS Standard B
earth station (earth station) within Cubi
Point for the exclusive use of the
USDCA. 2 The term of the contract was
for 60 months, or five (5) years. 3 In
turn, Globe promised to pay Philcomsat
monthly rentals for each leased circuit
involved. 4
[G.R. No. 147324. May 25, 2004.]

PHILIPPINE
COMMUNICATIONS
SATELLITE CORPORATION, petitioner,
vs. GLOBE TELECOM, INC. (formerly
and Globe Mckay Cable and Radio
Corporation), respondents.
[G.R. No. 147334. May 25, 2004.]
GLOBE TELECOM, INC., petitioner, vs.
PHILIPPINE
COMMUNICATION
SATELLITE
CORPORATION,
respondent.
At the time of the execution of the

Agreement, both parties knew that the
Military Bases Agreement between the
Republic of the Philippines and the US
(RP-US Military Bases Agreement),
which was the basis for the occupancy
of the Clark Air Base and Subic Naval
Base in Cubi Point, was to expire in
1991. Under Section 25, Article XVIII of
the 1987 Constitution, foreign military
bases, troops or facilities, which include
those located at the US Naval Facility in
Cubi Point, shall not be allowed in the
Philippines unless a new treaty is duly
concurred in by the Senate and ratified
by a majority of the votes cast by the
people in a national referendum when
the Congress so requires, and such new
DECISION
TINGA, J p:
Before the Court are two Petitions for
Review assailing the Decision of the
Court of Appeals, dated 27 February
2001, in CA-G.R. CV No. 63619. 1
The facts of the case are undisputed.
For several years prior to 1991, Globe
Mckay Cable and Radio Corporation,
now Globe Telecom, Inc. (Globe), had
105
treaty is recognized as such by the US

Government.
the withdrawal of US military personnel

from Subic Naval Base after the
termination of the RP-US Military Bases
Agreement. Globe invoked as basis for
the letter of termination Section 8
(Default) of the Agreement, which
provides: aTDcAH
Subsequently, Philcomsat installed and

established the earth station at Cubi
Point and the USDCA made use of the
same.
On 16 September 1991, the Senate
passed and adopted Senate Resolution
No. 141, expressing its decision not to
concur in the ratification of the Treaty of
Friendship, Cooperation and Security
and its Supplementary Agreements that
was supposed to extend the term of the
use by the US of Subic Naval Base,
among others. 5 The last two
paragraphs of the Resolution state:
Neither party shall be held liable or

deemed to be in default for any failure to
perform its obligation under this
Agreement if such failure results directly
or indirectly from force majeure or
fortuitous event. Either party is thus
precluded from performing its obligation
until such force majeure or fortuitous
event shall terminate. For the purpose of
this paragraph, force majeure shall
mean circumstances beyond the control
of the party involved including, but not
limited to, any law, order, regulation,
direction or request of the Government
of the Philippines, strikes or other labor
difficulties, insurrection riots, national
emergencies, war, acts of public
enemies, fire, floods, typhoons or other
catastrophies or acts of God.
FINDING that the Treaty constitutes a

defective framework for the continuing
relationship between the two countries
in the spirit of friendship, cooperation
and sovereign equality: Now, therefore,
be it
Resolved by the Senate, as it is hereby
resolved, To express its decision not to
concur in the ratification of the Treaty of
and its Supplementary Agreements, at
the same time reaffirming its desire to
continue friendly relations with the
government and people of the United
States of America. 6
Philcomsat sent a reply letter dated 10

August 1992 to Globe, stating that "we
expect [Globe] to know its commitment
to pay the stipulated rentals for the
remaining terms of the Agreement even
after [Globe] shall have discontinue[d]
the use of the earth station after
November 08, 1992." 7 Philcomsat
referred to Section 7 of the Agreement,
stating as follows:
On 31 December 1991, the Philippine

Government sent a Note Verbale to the
US Government through the US
Embassy, notifying it of the Philippines'
Agreement. The Note Verbale stated
that since the RP-US Military Bases
Agreement,
as
amended,
shall
terminate on 31 December 1992, the
withdrawal of all US military forces from
Subic Naval Base should be completed
by said date.
7. DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue
with the use of the earth station after it
has been put into operation, a written
notice shall be served to PHILCOMSAT
at least sixty (60) days prior to the
expected
date
of
termination.
Notwithstanding the non-use of the
earth station, [Globe] shall continue to
pay PHILCOMSAT for the rental of the
actual number of T1 circuits in use, but
in no case shall be less than the first two
(2) T1 circuits, for the remaining life of
In a letter dated 06 August 1992, Globe

notified Philcomsat of its intention to
discontinue the use of the earth station
effective 08 November 1992 in view of
106
the agreement. However, should

PHILCOMSAT make use or sell the
earth station subject to this agreement,
the obligation of [Globe] to pay the
rental for the remaining life of the
agreement shall be at such monthly rate
as may be agreed upon by the parties. 8
exchange rate prevailing at the time of

compliance or payment) representing
rentals for the month of December 1992
with interest thereon at the legal rate of
twelve percent (12%) per annum
starting December 1992 until the
amount is fully paid;
After the US military forces left Subic

Naval Base, Philcomsat sent Globe a
letter dated 24 November 1993
demanding payment of its outstanding
obligations under the Agreement
amounting to US$4,910,136.00 plus
interest and attorney's fees. However,
Globe refused to heed Philcomsat's
demand.
2. Ordering the defendant to pay the

plaintiff the amount of Three Hundred
Thousand (P300,000.00) Pesos as and
for attorney's fees;
3. Ordering the DISMISSAL of
defendant's counterclaim for lack of
merit; and
4. With costs against the defendant.
On 27 January 1995, Philcomsat filed

with the Regional Trial Court of Makati a
Complaint against Globe, praying that
the latter be ordered to pay liquidated
damages under the Agreement, with
legal interest, exemplary damages,
attorney's fees and costs of suit. The
case was raffled to Branch 59 of said
court.
SO ORDERED. 9
Both parties appealed the trial court's
Decision to the Court of Appeals.
Philcomsat claimed that the trial court
erred in ruling that: (1) the nonratification by the Senate of the Treaty of
and its Supplementary Agreements
constitutes
force
majeure
which
exempts Globe from complying with its
obligations under the Agreement; (2)
Globe is not liable to pay the rentals for
the remainder of the term of the
Agreement; and (3) Globe is not liable to
Philcomsat for exemplary damages.
Globe filed an Answer to the Complaint,

insisting that it was constrained to end
the Agreement due to the termination of
the RP-US Military Bases Agreement
and the non-ratification by the Senate of
the
Treaty
of
Friendship
and
Cooperation, which events constituted
force majeure under the Agreement.
Globe explained that the occurrence of
said events exempted it from paying
rentals for the remaining period of the
Agreement.
Globe, on the other hand, contended

that the RTC erred in holding it liable for
payment of rent of the earth station for
December 1992 and of attorney's fees.
It
explained
that
it
terminated
Philcomsat's services on 08 November
1992; hence, it had no reason to pay for
rentals beyond that date.
On 05 January 1999, the trial court

rendered its Decision, the dispositive
portion of which reads:
judgment is hereby rendered as follows:
On 27 February 2001, the Court of

Appeals promulgated its Decision
dismissing Philcomsat's appeal for lack
of merit and affirming the trial court's
finding that certain events constituting
force majeure under Section 8 the
Agreement occurred and justified the
1. Ordering the defendant to pay the

plaintiff the amount of Ninety Two
Thousand Two Hundred Thirty Eight US
Dollars (US$92,238.00) or its equivalent
in Philippine Currency (computed at the
107
non-payment by Globe of rentals for the

remainder of the term of the Agreement.
CcaDHT
DEFINITION FOUND IN ARTICLE 1174

OF THE CIVIL CODE, PROVIDES, SO
AS TO EXEMPT GLOBE TELECOM
FROM
COMPLYING
WITH
ITS
OBLIGATIONS UNDER THE SUBJECT
AGREEMENT.
The appellate court ruled that the nonratification by the Senate of the Treaty of
Friendship, Cooperation and Security,
and its Supplementary Agreements, and
the termination by the Philippine
Government of the RP-US Military
Bases
Agreement
effective
31
December 1991 as stated in the
Philippine Government's Note Verbale to
the US Government, are acts,
directions,
or
requests
of
the
Government of the Philippines which
constitute force majeure. In addition,
there were circumstances beyond the
control of the parties, such as the
issuance of a formal order by Cdr.
Walter Corliss of the US Navy, the
issuance of the letter notification from
ATT and the complete withdrawal of all
US military forces and personnel from
Cubi Point, which prevented further use
of the earth station under the
Agreement.
B. THE HONORABLE COURT OF

APPEALS ERRED IN RULING THAT
GLOBE TELECOM IS NOT LIABLE TO
PHILCOMSAT FOR RENTALS FOR
THE REMAINING TERM OF THE
AGREEMENT, DESPITE THE CLEAR
TENOR OF SECTION 7 OF THE
AGREEMENT.
C. THE HONORABLE COURT OF
APPEALS ERRED IN DELETING THE
TRIAL
COURT'S
AWARD
OF
ATTORNEY'S FEES IN FAVOR OF
PHILCOMSAT.
D. THE HONORABLE COURT OF
APPEALS ERRED IN RULING THAT
GLOBE TELECOM IS NOT LIABLE TO
PHILCOMSAT
FOR
EXEMPLARY
DAMAGES. 12
Philcomsat argues that the termination
of the RP-US Military Bases Agreement
cannot be considered a fortuitous event
because the happening thereof was
foreseeable. Although the Agreement
was freely entered into by both parties,
Section 8 should be deemed ineffective
because it is contrary to Article 1174 of
the Civil Code. Philcomsat posits the
view that the validity of the parties'
definition of force majeure in Section 8
of the Agreement as "circumstances
beyond the control of the party involved
including, but not limited to, any law,
order, regulation, direction or request of
the Government of the Philippines,
strikes or other labor difficulties,
insurrection riots, national emergencies,
war, acts of public enemies, fire, floods,
typhoons or other catastrophies or acts
of God," should be deemed subject to
Article 1174 which defines fortuitous
events as events which could not be
foreseen, or which, though foreseen,
were inevitable. 13
However, the Court of Appeals ruled that

although Globe sought to terminate
Philcomsat's services by 08 November
1992, it is still liable to pay rentals for
the December 1992, amounting to
US$92,238.00 plus interest, considering
that the US military forces and
personnel completely withdrew from
Cubi Point only on 31 December 1992.
10
Both parties filed their respective
Petitions for Review assailing the
Decision of the Court of Appeals.
In G.R. No. 147324, 11 petitioner
Philcomsat
raises
the
following
assignments of error:
A. THE HONORABLE COURT OF
APPEALS ERRED IN ADOPTING A
DEFINITION OF FORCE MAJEURE
DIFFERENT FROM WHAT ITS LEGAL
108
Court of Appeals erred in finding it liable

for the amount of US$92,238.00,
representing rentals for December 1992,
since Philcomsat's services were
actually terminated on 08 November
1992. 20
Philcomsat further claims that the Court

of Appeals erred in holding that Globe is
not liable to pay for the rental of the
earth station for the entire term of the
Agreement because it runs counter to
what was plainly stipulated by the
parties in Section 7 thereof. Moreover,
said ruling is inconsistent with the
appellate court's pronouncement that
Globe is liable to pay rentals for
December 1992 even though it
terminated
Philcomsat's
services
effective 08 November 1992, because
the
US military and
personnel
completely withdrew from Cubi Point
only in December 1992. Philcomsat
points out that it was Globe which
proposed the five-year term of the
Agreement, and that the other
provisions of the Agreement, such as
Section 4.1 14 thereof, evince the intent
of Globe to be bound to pay rentals for
the entire five-year term. 15
In its Comment, Philcomsat claims that

Globe's petition should be dismissed as
it raises a factual issue which is not
cognizable by the Court in a petition for
review on certiorari. 21
On 15 August 2001, the Court issued a
Resolution giving due course to
Philcomsat's Petition in G.R. No.
147324 and required the parties to
submit their respective memoranda. 22
Similarly, on 20 August 2001, the Court
issued a Resolution giving due course to
the Petition filed by Globe in G.R. No.
147334 and required both parties to
submit their memoranda. 23
Philcomsat also maintains that contrary

to the appellate court's findings, it is
entitled to attorney's fees and exemplary
damages. 16
Philcomsat and Globe thereafter filed

their
respective
Consolidated
Memoranda in the two cases, reiterating
their arguments in their respective
petitions.
In its Comment to Philcomsat's Petition,

Globe asserts that Section 8 of the
Agreement is not contrary to Article 1174
of the Civil Code because said provision
does not prohibit parties to a contract
from providing for other instances when
they would be exempt from fulfilling their
contractual obligations. Globe also
claims that the termination of the RP-US
Military Bases Agreement constitutes
force majeure and exempts it from
complying with its obligations under the
Agreement. 17 On the issue of the
propriety of awarding attorney's fees
and exemplary damages to Philcomsat,
Globe maintains that Philcomsat is not
entitled thereto because in refusing to
pay rentals for the remainder of the term
of the Agreement, Globe only acted in
accordance with its rights. 18
The Court is tasked to resolve the

following issues: (1) whether the
Agreement, the non-ratification of the
Treaty of Friendship, Cooperation and
Security, and the consequent withdrawal
of US military forces and personnel from
Cubi Point constitute force majeure
which would exempt Globe from
complying with its obligation to pay
rentals under its Agreement with
Philcomsat; (2) whether Globe is liable
to pay rentals under the Agreement for
the month of December 1992; and (3)
whether Philcomsat is entitled to
attorney's fees and exemplary damages.
No reversible error was committed by
the Court of Appeals in issuing the
assailed Decision; hence the petitions
are denied.
In G.R. No. 147334, 19 Globe, the

petitioner therein, contends that the
109
There is no merit is Philcomsat's

argument that Section 8 of the
Agreement cannot be given effect
because the enumeration of events
constituting force majeure therein
unduly expands the concept of a
fortuitous event under Article 1174 of the
Civil Code and is therefore invalid.
events shall be deemed

constituting force majeure:
In support of its position, Philcomsat

contends that under Article 1174 of the
Civil Code, an event must be
unforeseen in order to exempt a party to
a contract from complying with its
obligations therein. It insists that since
the expiration of the RP-US Military
Bases Agreement, the non-ratification of
the Treaty of Friendship, Cooperation
and Security and the withdrawal of US
military forces and personnel from Cubi
Point were not unforeseeable, but were
possibilities known to it and Globe at the
time they entered into the Agreement,
such events cannot exempt Globe from
performing its obligation of paying
rentals for the entire five-year term
thereof.
3. Insurrection;
events
1. Any law, order, regulation, direction or

request of the Philippine Government;
TIDHCc
2. Strikes or other labor difficulties;
4. Riots;
5. National emergencies;
6. War;
7. Acts of public enemies;
8. Fire, floods, typhoons or other
catastrophies or acts of God;
9. Other circumstances beyond the
control of the parties.
Clearly, the foregoing are either
unforeseeable, or foreseeable but
beyond the control of the parties. There
is nothing in the enumeration that runs
contrary to, or expands, the concept of a
fortuitous event under Article 1174.
However, Article 1174, which exempts

an obligor from liability on account of
fortuitous events or force majeure,
refers not only to events that are
unforeseeable, but also to those which
are foreseeable, but inevitable:
Furthermore, under Article 1306 26 of

the Civil Code, parties to a contract may
establish such stipulations, clauses,
terms and conditions as they may deem
fit, as long as the same do not run
counter to the law, morals, good
customs, public order or public policy. 27
Art. 1174. Except in cases specified by

the law, or when it is otherwise declared
by stipulation, or when the nature of the
obligation requires the assumption of
risk, no person shall be responsible for
those events which, could not be
foreseen, or which, though foreseen
were inevitable.
Article 1159 of the Civil Code also

provides that "[o]bligations arising from
contracts have the force of law between
the contracting parties and should be
complied with in good faith." 28 Courts
cannot stipulate for the parties nor
amend their agreement where the same
does not contravene law, morals, good
customs, public order or public policy,
for to do so would be to alter the real
intent of the parties, and would run
contrary to the function of the courts to
give force and effect thereto. 29
A fortuitous event under Article 1174

may either be an "act of God," or natural
occurrences such as floods or typhoons,
24 or an "act of man," such as riots,
strikes or wars. 25
Philcomsat and Globe agreed in Section
8 of the Agreement that the following
110
military forces from Subic Naval Base

should be completed by said date.
Subsequently,
defendant
[Globe]
received a formal order from Cdr. Walter
F. Corliss II Commander USN dated July
31, 1992 and a notification from ATT
dated July 29, 1992 to terminate the
provision of T1s services (via an IBS
Standard B Earth Station) effective
November
08,
1992.
Plaintiff
[Philcomsat] was furnished with copies
of the said order and letter by the
defendant on August 06, 1992.
Not being contrary to law, morals, good

customs, public order, or public policy,
Section 8 of the Agreement which
Philcomsat and Globe freely agreed
upon has the force of law between
them. 30
In order that Globe may be exempt from
non-compliance with its obligation to pay
rentals
under
Section
8,
the
concurrence of the following elements
must be established: (1) the event must
be independent of the human will; (2)
the
occurrence
must
render
it
impossible for the debtor to fulfill the
obligation in a normal manner; and (3)
the obligor must be free of participation
in, or aggravation of, the injury to the
creditor. 31
Resolution No. 141 of the Philippine

Senate and the Note Verbale of the
Philippine Government to the US
Government are acts, direction or
request of the Government of the
Philippines and circumstances beyond
the control of the defendant. The formal
order from Cdr. Walter Corliss of the
USN, the letter notification from ATT and
the complete withdrawal of all the
Point in the year-end 1992 are also acts
and circumstances beyond the control of
the defendant.
The Court agrees with the Court of

Appeals and the trial court that the
abovementioned requisites are present
in the instant case. Philcomsat and
Globe had no control over the nonrenewal of the term of the RP-US
Military Bases Agreement when the
same expired in 1991, because the
prerogative to ratify the treaty extending
the life thereof belonged to the Senate.
Neither did the parties have control over
the subsequent withdrawal of the US
Point in December 1992:
Considering the foregoing, the Court

finds and so holds that the aforenarrated circumstances constitute "force
majeure or fortuitous event(s) as defined
under paragraph 8 of the Agreement.
xxx xxx xxx
From the foregoing, the Court finds that
the defendant is exempted from paying
the rentals for the facility for the
remaining term of the contract.
Obviously the non-ratification by the

Senate of the RP-US Military Bases
Agreement (and its Supplemental
Agreements) under its Resolution No.
141. (Exhibit "2") on September 16,
1991 is beyond the control of the
parties. This resolution was followed by
the sending on December 31, 1991 o[f]
a "Note Verbale" (Exhibit "3") by the
Philippine Government to the US
Government notifying the latter of the
former's termination of the RP-US
Military Bases Agreement (as amended)
on 31 December 1992 and that
accordingly, the withdrawal of all U.S.
As a consequence of the termination of

the RP-US Military Bases Agreement
(as amended) the continued stay of all
US Military forces and personnel from
Subic Naval Base would no longer be
allowed, hence, plaintiff would no longer
be in any position to render the service it
was obligated under the Agreement. To
put it blantly (sic), since the US military
forces and personnel left or withdrew
from Cubi Point in the year end
111
December 1992, there was no longer

any necessity for the plaintiff to continue
maintaining the IBS facility . . . 32
(Emphasis in the original.)
Although
Globe
alleged
that it
terminated
the
Agreement
with
Philcomsat effective 08 November 1992
pursuant to the formal order issued by
Cdr. Corliss of the US Navy, the date
when they actually ceased using the
earth station subject of the Agreement
was not established during the trial. 34
However, the trial court found that the
US military forces and personnel
completely withdrew from Cubi Point
only on 31 December 1992. 35 Thus,
until that date, the USDCA had control
over the earth station and had the option
of using the same. Furthermore,
Philcomsat could not have removed or
rendered ineffective said communication
facility until after 31 December 1992
because Cubi Point was accessible only
to US naval personnel up to that time.
Hence, the Court of Appeals did not err
when it affirmed the trial court's ruling
that Globe is liable for payment of
rentals until December 1992.
The aforementioned events made

impossible the continuation of the
Agreement until the end of its five-year
term without fault on the part of either
party. The Court of Appeals was thus
correct in ruling that the happening of
such fortuitous events rendered Globe
exempt from payment of rentals for the
remainder of the term of the Agreement.
SEIDAC
Moreover, it would be unjust to require
Globe to continue paying rentals even
though Philcomsat cannot be compelled
to perform its corresponding obligation
under the Agreement. As noted by the
appellate court:
We also point out the sheer inequity of
PHILCOMSAT's position. PHILCOMSAT
would like to charge GLOBE rentals for
the balance of the lease term without
there
being
any
corresponding
telecommunications service subject of
the lease. It will be grossly unfair and
iniquitous to hold GLOBE liable for lease
charges for a service that was not and
could not have been rendered due to an
act of the government which was clearly
beyond GLOBE's control. The binding
effect of a contract on both parties is
based on the principle that the
obligations arising from contracts have
the force of law between the contracting
parties, and there must be mutuality
between them based essentially on their
equality under which it is repugnant to
have one party bound by the contract
while leaving the other party free
therefrom (Allied Banking Corporation v.
Court of Appeals, 284 SCRA 357) . . . 33
Neither did the appellate court commit

any error in holding that Philcomsat is
not entitled to attorney's fees and
exemplary damages.
The award of attorney's fees is the
exception rather than the rule, and must
be supported by factual, legal and
equitable justifications. 36 In previously
decided cases, the Court awarded
attorney's fees where a party acted in
gross and evident bad faith in refusing
to satisfy the other party's claims and
compelled the former to litigate to
protect his rights; 37 when the action
filed is clearly unfounded, 38 or where
moral or exemplary damages are
awarded. 39 However, in cases where
both parties have legitimate claims
against each other and no party actually
prevailed, such as in the present case
where the claims of both parties were
sustained in part, an award of attorney's
fees would not be warranted. 40
With respect to the issue of whether

Globe is liable for payment of rentals for
the month of December 1992, the Court
likewise affirms the appellate court's
ruling that Globe should pay the same.
Exemplary damages may be awarded in

cases involving contracts or quasicontracts, if the erring party acted in a
112
wanton, fraudulent, reckless, oppressive

or malevolent manner. 41 In the present
case, it was not shown that Globe acted
wantonly or oppressively in not heeding
Philcomsat's demands for payment of
rentals. It was established during the
trial of the case before the trial court that
Globe had valid grounds for refusing to
comply with its contractual obligations
after 1992.
against
Gaisano
Cagayan,
Inc.
(petitioner); and the CA Resolution
dated April 11, 2001 which denied
petitioner's motion for reconsideration.
The factual background of the case is as
follows:
Intercapitol Marketing Corporation (IMC)
is the maker of Wrangler Blue Jeans.
Levi Strauss (Phils.) Inc. (LSPI) is the
local distributor of products bearing
trademarks owned by Levi Strauss &
Co.. IMC and LSPI separately obtained
from respondent fire insurance policies
with book debt endorsements. The
insurance policies provide for coverage
on "book debts in connection with readymade clothing materials which have
been sold or delivered to various
customers and dealers of the Insured
anywhere in the Philippines." 2 The
policies defined book debts as the
"unpaid account still appearing in the
Book of Account of the Insured 45 days
after the time of the loss covered under
this Policy." 3 The policies also provide
for the following conditions:
WHEREFORE,
the
Petitions
are
DENIED for lack of merit. The assailed
Decision of the Court of Appeals in CAG.R. CV No. 63619 is AFFIRMED.
SO ORDERED.
Quisumbing,
Austria-Martinez
Callejo, Sr., JJ ., concur.
and
Puno, J ., is on official leave.

||| (Philippine Communications Satellite
Corp. v. Glove Telecom, Inc., G.R. No.
147324, 147334, [May 25, 2004], 473
PHIL 116-135)
18. GAISANO CAGAYAN VS. INS.
CO. OF NORTH AMERICA
1. Warranted that the Company shall not

be liable for any unpaid account in
respect of the merchandise sold and
delivered by the Insured which are
outstanding at the date of loss for a
period in excess of six (6) months from
the date of the covering invoice or actual
delivery of the merchandise whichever
shall first occur.
FIRST DIVISION
[G.R. No. 147839. June 8, 2006.]
GAISANO CAGAYAN, INC., petitioner,
vs. INSURANCE COMPANY OF
NORTH AMERICA, respondent.
DECISION
2. Warranted that the Insured shall

submit to the Company within twelve
(12) days after the close of every
calendar month all amount shown in
their books of accounts as unpaid and
thus become receivable item from their
customers and dealers. . . . 4
AUSTRIA-MARTINEZ, J p:
Before the Court is a petition for review
on certiorari of the Decision 1 dated
October 11, 2000 of the Court of
Appeals (CA) in CA-G.R. CV No. 61848
which set aside the Decision dated
August 31, 1998 of the Regional Trial
Court, Branch 138, Makati (RTC) in Civil
Case No. 92-322 and upheld the causes
of action for damages of Insurance
Company of North America (respondent)
xxx xxx xxx

Petitioner is a customer and dealer of
the products of IMC and LSPI. On
February 25, 1991, the Gaisano
Superstore Complex in Cagayan de Oro
City, owned by petitioner, was
113
consumed by fire. Included in the items

lost or destroyed in the fire were stocks
of ready-made clothing materials sold
and delivered by IMC and LSPI.
agreed that merely for purpose of

securing the payment of purchase price,
the
above-described
merchandise
remains the property of the vendor until
the purchase price is fully paid", IMC
and LSPI retained ownership of the
delivered goods and must bear the loss.
On February 4, 1992, respondent filed a

complaint
for
damages
against
petitioner. It alleges that IMC and LSPI
filed with respondent their claims under
their respective fire insurance policies
with book debt endorsements; that as of
February 25, 1991, the unpaid accounts
of petitioner on the sale and delivery of
ready-made clothing materials with IMC
was P2,119,205.00 while with LSPI it
was P535,613.00; that respondent paid
the claims of IMC and LSPI and, by
virtue
thereof,
respondent
was
subrogated to their rights against
petitioner; that respondent made several
demands for payment upon petitioner
but these went unheeded. 5
Dissatisfied, petitioner appealed to the

CA. 9 On October 11, 2000, the CA
rendered its decision setting aside the
decision of the RTC. The dispositive
portion of the decision reads:
WHEREFORE, in view of the foregoing,
the appealed decision is REVERSED
and SET ASIDE and a new one is
entered ordering defendant-appellee
Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60
representing the amount paid by the
plaintiff-appellant to the insured Inter
Capitol Marketing Corporation, plus
legal interest from the time of demand
until fully paid;
In its Answer with Counter Claim dated

July 4, 1995, petitioner contends that it
could not be held liable because the
property covered by the insurance
policies were destroyed due to fortuities
event
or
force
majeure;
that
respondent's right of subrogation has no
basis inasmuch as there was no breach
of contract committed by it since the
loss was due to fire which it could not
prevent or foresee; that IMC and LSPI
never communicated to it that they
insured their properties; that it never
consented to paying the claim of the
insured. 6
2. the amount of P535,613.00

representing the amount paid by the
plaintiff-appellant to the insured Levi
Strauss Phil., Inc., plus legal interest
from the time of demand until fully paid.
With costs
appellee.
against
the
defendant-
SO ORDERED. 10
The CA held that the sales invoices are
proofs of sale, being detailed statements
of the nature, quantity and cost of the
thing sold; that loss of the goods in the
fire must be borne by petitioner since
the proviso contained in the sales
invoices is an exception under Article
1504 (1) of the Civil Code, to the
general rule that if the thing is lost by a
fortuitous event, the risk is borne by the
owner of the thing at the time the loss
under the principle of res perit domino;
that petitioner's obligation to IMC and
LSPI is not the delivery of the lost goods
but the payment of its unpaid account
At the pre-trial conference the parties

failed to arrive at an amicable
settlement. 7 Thus, trial on the merits
ensued. TADaCH
On August 31, 1998, the RTC rendered
its decision dismissing respondent's
complaint. 8 It held that the fire was
purely accidental; that the cause of the
fire was not attributable to the
negligence of the petitioner; that it has
not been established that petitioner is
the debtor of IMC and LSPI; that since
the sales invoices state that "it is further
114
and as such the obligation to pay is not

extinguished, even if the fire is
considered a fortuitous event; that by
subrogation, the insurer has the right to
go against petitioner; that, being a fire
insurance with book debt endorsements,
what was insured was the vendor's
interest as a creditor. 11
respondent only after it had already paid

IMC and LSPI under the fire insurance
policies. 15
As to the second error, petitioner avers
that despite delivery of the goods,
petitioner-buyer IMC and LSPI assumed
the risk of loss when they secured fire
insurance policies over the goods.
Petitioner
filed
a
motion
for
reconsideration 12 but it was denied by
the CA in its Resolution dated April 11,
2001. 13
Concerning the third ground, petitioner

submits that there is no subrogation in
favor of respondent as no valid
insurance could be maintained thereon
by IMC and LSPI since all risk had
transferred to petitioner upon delivery of
the goods; that petitioner was not privy
to the insurance contract or the payment
between respondent and its insured nor
was its consent or approval ever
secured; that this lack of privity
forecloses any real interest on the part
of respondent in the obligation to pay,
limiting its interest to keeping the
insured goods safe from fire.
Hence, the present petition for review on

certiorari anchored on the following
Assignment of Errors:
THE COURT OF APPEALS ERRED IN
HOLDING THAT THE INSURANCE IN
THE INSTANT CASE WAS ONE OVER
CREDIT.
HOLDING THAT ALL RISK OVER THE
SUBJECT GOODS IN THE INSTANT
CASE HAD TRANSFERRED TO
PETITIONER
UPON
DELIVERY
THEREOF.
For its part, respondent counters that

while ownership over the ready-made
clothing materials was transferred upon
delivery to petitioner, IMC and LSPI
have insurable interest over said goods
as creditors who stand to suffer direct
pecuniary loss from its destruction by
fire; that petitioner is liable for loss of the
ready-made clothing materials since it
failed to overcome the presumption of
liability under Article 1265 16 of the Civil
Code; that the fire was caused through
petitioner's negligence in failing to
provide stringent measures of caution,
care and maintenance on its property
because electric wires do not usually
short circuit unless there are defects in
their installation or when there is lack of
proper maintenance and supervision of
the property; that petitioner is guilty of
to pay respondent's valid claim and
should be liable to respondent for
contracted lawyer's fees, litigation
expenses and cost of suit. 17

HOLDING
THAT
THERE
WAS
AUTOMATIC SUBROGATION UNDER
ART. 2207 OF THE CIVIL CODE IN
FAVOR OF RESPONDENT. 14
Anent the first error, petitioner contends
that the insurance in the present case
cannot be deemed to be over credit
since an insurance "on credit" belies not
only the nature of fire insurance but the
express terms of the policies; that it was
not credit that was insured since
respondent paid on the occasion of the
loss of the insured goods to fire and not
because of the non-payment by
petitioner of any obligation; that, even if
the insurance is deemed as one over
credit, there was no loss as the
accounts were not yet due since no prior
demands were made by IMC and LSPI
against petitioner for payment of the
debt and such demands came from
115
As a general rule, in petitions for review,

the jurisdiction of this Court in cases
brought before it from the CA is limited
to reviewing questions of law which
involves no examination of the probative
value of the evidence presented by the
litigants or any of them. 18 The
Supreme Court is not a trier of facts; it is
not its function to analyze or weigh
evidence all over again. 19 Accordingly,
findings of fact of the appellate court are
generally conclusive on the Supreme
Court. 20
construing a fire insurance policy on

book debts as one covering the unpaid
accounts of IMC and LSPI since such
insurance applies to loss of the readymade clothing materials sold and
delivered to petitioner.
The Court disagrees with petitioner's
stand.
It is well-settled that when the words of
a contract are plain and readily
understood, there is no room for
construction. 22 In this case, the
questioned insurance policies provide
coverage for "book debts in connection
with ready-made clothing materials
which have been sold or delivered to
various customers and dealers of the
Insured anywhere in the Philippines." 23
; and defined book debts as the "unpaid
account still appearing in the Book of
Account of the Insured 45 days after the
time of the loss covered under this
Policy." 24 Nowhere is it provided in the
questioned insurance policies that the
subject of the insurance is the goods
sold and delivered to the customers and
dealers of the insured.
Nevertheless,
jurisprudence
has
recognized several exceptions in which
factual issues may be resolved by this
Court, such as: (1) when the findings
are grounded entirely on speculation,
surmises or conjectures; (2) when the
inference made is manifestly mistaken,
absurd or impossible; (3) when there is
grave abuse of discretion; (4) when the
judgment
is
based
on
a
misapprehension of facts; (5) when the
findings of facts are conflicting; (6) when
in making its findings the CA went
beyond the issues of the case, or its
findings are contrary to the admissions
of both the appellant and the appellee;
(7) when the findings are contrary to the
trial court; (8) when the findings are
conclusions without citation of specific
evidence on which they are based; (9)
when the facts set forth in the petition as
well as in the petitioner's main and reply
briefs are not disputed by the
respondent; (10) when the findings of
fact are premised on the supposed
absence of evidence and contradicted
by the evidence on record; and (11)
when the CA manifestly overlooked
certain relevant facts not disputed by the
parties, which, if properly considered,
would justify a different conclusion. 21
Exceptions (4), (5), (7), and (11) apply to
the present petition. cATDIH
Indeed, when the terms of the

agreement are clear and explicit that
they do not justify an attempt to read
into it any alleged intention of the
parties, the terms are to be understood
literally just as they appear on the face
of the contract. 25 Thus, what were
insured against were the accounts of
IMC and LSPI with petitioner which
remained unpaid 45 days after the loss
through fire, and not the loss or
destruction of the goods delivered.
Petitioner argues that IMC bears the risk
of loss because it expressly reserved
ownership of the goods by stipulating in
the sales invoices that "[i]t is further
agreed that merely for purpose of
securing the payment of the purchase
price the above described merchandise
remains the property of the vendor until
the purchase price thereof is fully paid."
26
At issue is the proper interpretation of

the
questioned
insurance
policy.
Petitioner claims that the CA erred in
116
damnify the insured." Parenthetically,

under Section 14 of the same Code, an
insurable interest in property may
consist in: (a) an existing interest; (b) an
inchoate interest founded on existing
interest; or (c) an expectancy, coupled
with an existing interest in that out of
which the expectancy arises.
The Court is not persuaded.

The present case clearly falls under
paragraph (1), Article 1504 of the Civil
Code:
ART. 1504. Unless otherwise agreed,
the goods remain at the seller's risk until
the ownership therein is transferred to
the buyer, but when the ownership
therein is transferred to the buyer the
goods are at the buyer's risk whether
actual delivery has been made or not,
except that:
Therefore, an insurable interest in

property does not necessarily imply a
property interest in, or a lien upon, or
possession of, the subject matter of the
insurance, and neither the title nor a
beneficial interest is requisite to the
existence of such an interest, it is
sufficient that the insured is so situated
with reference to the property that he
would be liable to loss should it be
injured or destroyed by the peril against
which it is insured. 29 Anyone has an
insurable interest in property who
derives a benefit from its existence or
would suffer loss from its destruction. 30
Indeed, a vendor or seller retains an
insurable interest in the property sold so
long as he has any interest therein, in
other words, so long as he would suffer
by its destruction, as where he has a
vendor's lien. 31 In this case, the
insurable interest of IMC and LSPI
pertain to the unpaid accounts
appearing in their Books of Account 45
days after the time of the loss covered
by the policies.
(1) Where delivery of the goods has

been made to the buyer or to a bailee
for the buyer, in pursuance of the
contract and the ownership in the goods
has been retained by the seller merely
to secure performance by the buyer of
his obligations under the contract, the
goods are at the buyer's risk from the
time of such delivery; (Emphasis
supplied)
xxx xxx xxx
Thus, when the seller retains ownership
only to insure that the buyer will pay its
debt, the risk of loss is borne by the
buyer. 27 Accordingly, petitioner bears
the risk of loss of the goods delivered.
IMC and LSPI did not lose complete
interest over the goods. They have an
insurable interest until full payment of
the value of the delivered goods. Unlike
the civil law concept of res perit domino,
where ownership is the basis for
consideration of who bears the risk of
loss, in property insurance, one's
interest is not determined by concept of
title, but whether insured has substantial
economic interest in the property. 28
The next question is: Is petitioner liable

for the unpaid accounts?
Petitioner's argument that it is not liable
because the fire is a fortuitous event
under Article 1174 32 of the Civil Code is
misplaced. As held earlier, petitioner
bears the loss under Article 1504 (1) of
the Civil Code.
Moreover, it must be stressed that the
insurance in this case is not for loss of
goods by fire but for petitioner's
accounts with IMC and LSPI that
remained unpaid 45 days after the fire.
Accordingly, petitioner's obligation is for
the payment of money. As correctly
Section 13 of our Insurance Code

defines insurable interest as "every
interest in property, whether real or
personal, or any relation thereto, or
liability in respect thereof, of such nature
that a contemplated peril might directly
117
stated by the CA, where the obligation

consists in the payment of money, the
failure of the debtor to make the
payment even by reason of a fortuitous
event shall not relieve him of his liability.
33 The rationale for this is that the rule
that an obligor should be held exempt
from liability when the loss occurs thru a
fortuitous event only holds true when the
obligation consists in the delivery of a
determinate thing and there is no
stipulation holding him liable even in
case of fortuitous event. It does not
apply when the obligation is pecuniary in
nature. 34
respondent upon receipt of the

insurance
proceeds.
All
these
documents
have
been
properly
identified, presented and marked as
exhibits in court. The subrogation
receipt, by itself, is sufficient to establish
not only the relationship of respondent
as insurer and IMC as the insured, but
also the amount paid to settle the
insurance
claim.
The
right
of
subrogation accrues simply upon
payment by the insurance company of
the insurance claim. 41 Respondent's
action against petitioner is squarely
sanctioned by Article 2207 of the Civil
Code which provides:
Under Article 1263 of the Civil Code,

"[i]n an obligation to deliver a generic
thing, the loss or destruction of anything
of the same kind does not extinguish the
obligation." If the obligation is generic in
the sense that the object thereof is
designated merely by its class or genus
without any particular designation or
physical segregation from all others of
the same class, the loss or destruction
of anything of the same kind even
without the debtor's fault and before he
has incurred in delay will not have the
effect of extinguishing the obligation. 35
This rule is based on the principle that
the genus of a thing can never perish.
Genus nunquan perit. 36 An obligation
to pay money is generic; therefore, it is
not excused by fortuitous loss of any
specific property of the debtor. 37
Art. 2207. If the plaintiff's property has

been insured, and he has received
indemnity from the insurance company
for the injury or loss arising out of the
wrong or breach of contract complained
of, the insurance company shall be
subrogated to the rights of the insured
against the wrongdoer or the person
who has violated the contract. . . .
Petitioner failed to refute respondent's
evidence.
As to LSPI, respondent failed to present
sufficient evidence to prove its cause of
action. No evidentiary weight can be
given to Exhibit "F Levi Strauss", 42 a
letter dated April 23, 1991 from
petitioner's General Manager, Stephen
S. Gaisano, Jr., since it is not an
admission of petitioner's unpaid account
with LSPI. It only confirms the loss of
Levi's products in the amount of
P535,613.00 in the fire that razed
petitioner's building on February 25,
1991.
Thus, whether fire is a fortuitous event

or petitioner was negligent are matters
immaterial to this case. What is relevant
here is whether it has been established
that petitioner has outstanding accounts
with IMC and LSPI. HcSETI
With respect to IMC, the respondent has
adequately established its claim.
Exhibits "C" to "C-22" 38 show that
petitioner has an outstanding account
with
IMC
in
the
amount
of
P2,119,205.00. Exhibit "E" 39 is the
check voucher evidencing payment to
IMC. Exhibit "F" 40 is the subrogation
receipt executed by IMC in favor of
Moreover, there is no proof of full

settlement of the insurance claim of
LSPI; no subrogation receipt was
offered in evidence. Thus, there is no
evidence that respondent has been
subrogated to any right which LSPI may
have against petitioner. Failure to
substantiate the claim of subrogation is
118
fatal to petitioner's case for recovery of

the amount of P535,613.00.
It appears that on different dates from

September to October 1987, Lulu V.
Jorge (respondent Lulu) pawned several
pieces of jewelry with Agencia de R.C.
Sicam located at No. 17 Aguirre Ave.,
BF Homes Paraaque, Metro Manila, to
secure a loan in the total amount of
P59,500.00.
WHEREFORE, the petition is partly

GRANTED. The assailed Decision dated
October 11, 2000 and Resolution dated
April 11, 2001 of the Court of Appeals in
CA-G.R. CV No. 61848 are AFFIRMED
with the MODIFICATION that the order
to pay the amount of P535,613.00 to
respondent is DELETED for lack of
factual basis.
On October 19, 1987, two armed men

entered the pawnshop and took away
whatever cash and jewelry were found
inside the pawnshop vault. The incident
was entered in the police blotter of the
Southern Police District, Paraaque
Police Station as follows:
No pronouncement as to costs.
SO ORDERED.
Panganiban, C.J., Callejo,
Chico-Nazario, JJ., concur.
Sr. and
Investigation shows that at above

TDPO, while victims were inside the
office, two (2) male unidentified persons
entered into the said office with guns
drawn. Suspects (sic) (1) went straight
inside and poked his gun toward Romeo
Sicam and thereby tied him with an
electric wire while suspects (sic) (2)
poked his gun toward Divina Mata and
Isabelita Rodriguez and ordered them to
lay (sic) face flat on the floor. Suspects
asked forcibly the case and assorted
pawned jewelries items mentioned
above.
Ynares-Santiago, J., is on leave.

||| (Gaisano Cagayan, Inc. v. Insurance
Company of North America, G.R. No.
147839, [June 8, 2006], 523 PHIL 677694)
19. SICAM VS. JORGE
THIRD DIVISION
[G.R. No. 159617. August 8, 2007.]
Suspects after taking the money and

jewelries fled on board a Marson Toyota
unidentified plate number. 3
ROBERTO C. SICAM and AGENCIA de

R.C. SICAM, INC., petitioners, vs. LULU
V. JORGE and CESAR JORGE,
respondents.
Petitioner Sicam sent respondent Lulu a

letter dated October 19, 1987 informing
her of the loss of her jewelry due to the
robbery incident in the pawnshop. On
November 2, 1987, respondent Lulu
then wrote a letter 4 to petitioner Sicam
expressing disbelief stating that when
the robbery happened, all jewelry
pawned were deposited with Far East
Bank near the pawnshop since it had
been the practice that before they could
withdraw, advance notice must be given
to the pawnshop so it could withdraw
the jewelry from the bank. Respondent
Lulu then requested petitioner Sicam to
prepare the pawned jewelry for
withdrawal on November 6, 1987 but
DECISION
AUSTRIA-MARTINEZ, J p:
Before us is a Petition for Review on
Certiorari filed by Roberto C. Sicam, Jr.
(petitioner Sicam) and Agencia de R.C.
Sicam, Inc. (petitioner corporation)
seeking to annul the Decision 1 of the
Court of Appeals dated March 31, 2003,
and its Resolution 2 dated August 8,
2003, in CA G.R. CV No. 56633.
DcICEa
119
petitioner Sicam failed to return the

jewelry.
The RTC further ruled that petitioner

corporation could not be held liable for
the loss of the pawned jewelry since it
had not been rebutted by respondents
that the loss of the pledged pieces of
jewelry in the possession of the
corporation was occasioned by armed
robbery; that robbery is a fortuitous
event which exempts the victim from
liability for the loss, citing the case of
Austria v. Court of Appeals; 7 and that
the parties' transaction was that of a
pledgor and pledgee and under Art.
1174 of the Civil Code, the pawnshop as
a pledgee is not responsible for those
events which could not be foreseen.
On September 28, 1988, respondent

Lulu joined by her husband, Cesar
Jorge, filed a complaint against
petitioner Sicam with the Regional Trial
Court of Makati seeking indemnification
for the loss of pawned jewelry and
payment of actual, moral and exemplary
damages as well as attorney's fees. The
case was docketed as Civil Case No.
88-2035. DAEIHT
Petitioner Sicam filed his Answer
contending that he is not the real partyin-interest as the pawnshop was
incorporated on April 20, 1987 and
known as Agencia de R.C. Sicam, Inc;
that petitioner corporation had exercised
due care and diligence in the
safekeeping of the articles pledged with
it and could not be made liable for an
event that is fortuitous.
Respondents
appealed
the
RTC
Decision to the CA. In a Decision dated
March 31, 2003, the CA reversed the
RTC, the dispositive portion of which
reads as follows:
the instant Appeal is GRANTED, and
the Decision dated January 12, 1993, of
the Regional Trial Court of Makati,
Branch 62, is hereby REVERSED and
SET ASIDE, ordering the appellees to
pay appellants the actual value of the
lost jewelry amounting to P272,000.00,
and attorney' fees of P27,200.00. 8
TAECaD
Respondents subsequently filed an

Amended
Complaint
to
include
petitioner corporation.
Thereafter, petitioner Sicam filed a
Motion to Dismiss as far as he is
concerned considering that he is not the
real
party-in-interest.
Respondents
opposed the same. The RTC denied the
motion in an Order dated November 8,
1989. 5
In finding petitioner Sicam liable

together with petitioner corporation, the
CA applied the doctrine of piercing the
veil of corporate entity reasoning that
respondents were misled into thinking
that they were dealing with the
pawnshop owned by petitioner Sicam as
all the pawnshop tickets issued to them
bear the words "Agencia de R.C.
Sicam"; and that there was no indication
on the pawnshop tickets that it was the
petitioner corporation that owned the
pawnshop
which
explained
why
respondents had to amend their
complaint
impleading
petitioner
corporation.
After trial on the merits, the RTC

rendered its Decision 6 dated January
12, 1993, dismissing respondents'
complaint as well as petitioners'
counterclaim. The RTC held that
petitioner Sicam could not be made
personally liable for a claim arising out
of a corporate transaction; that in the
Amended Complaint of respondents,
they asserted that "plaintiff pawned
assorted jewelries in defendants'
pawnshop"; and that as a consequence
of the separate juridical personality of a
corporation, the corporate debt or credit
is not the debt or credit of a stockholder.
The CA further held that the

corresponding diligence required of a
120
pawnshop is that it should take steps to

secure and protect the pledged items
and should take steps to insure itself
against the loss of articles which are
entrusted to its custody as it derives
earnings from the pawnshop trade
which petitioners failed to do; that
Austria is not applicable to this case
since the robbery incident happened in
1961 when the criminality had not as yet
reached the levels attained in the
present day; that they are at least guilty
of contributory negligence and should
be held liable for the loss of jewelries;
and that robberies and hold-ups are
foreseeable risks in that those engaged
in the pawnshop business are expected
to foresee.
RESPONDENTS COULD NOT HAVE

BEEN SUSTAINED IN VIEW OF
UNREBUTTED
EVIDENCE
ON
RECORD. 9
Anent the first assigned error, petitioners
point out that the CA's finding that
petitioner Sicam is personally liable for
the loss of the pawned jewelries is "a
virtual and uncritical reproduction of the
arguments set out on pp. 5-6 of the
Appellants' brief." 10
Petitioners argue that the reproduced
arguments of respondents in their
Appellants' Brief suffer from infirmities,
as follows:
(1) Respondents conclusively asserted
in paragraph 2 of their Amended
Complaint that Agencia de R.C. Sicam,
Inc. is the present owner of Agencia de
R.C. Sicam Pawnshop, and therefore,
the CA cannot rule against said
conclusive assertion of respondents;
The CA concluded that both petitioners

should be jointly and severally held
liable to respondents for the loss of the
pawned jewelry.
Petitioners' motion for reconsideration
was denied in a Resolution dated
August 8, 2003.
(2) The issue resolved against petitioner

Sicam was not among those raised and
litigated in the trial court; and
Hence, the instant petition for review

with the following assignment of errors:
(3) By reason of the above infirmities, it

was error for the CA to have pierced the
corporate veil since a corporation has a
personality distinct and separate from its
individual stockholders or members.
aSIETH
THE COURT OF APPEALS ERRED

AND WHEN IT DID, IT OPENED
ITSELF TO REVERSAL, WHEN IT
ADOPTED UNCRITICALLY (IN FACT IT
REPRODUCED
AS
ITS
OWN
WITHOUT
IN
THE
MEANTIME
ACKNOWLEDGING IT) WHAT THE
RESPONDENTS ARGUED IN THEIR
BRIEF, WHICH ARGUMENT WAS
PALPABLY UNSUSTAINABLE.
Anent the second error, petitioners point

out that the CA finding on their
negligence is likewise an unedited
reproduction of respondents' brief which
had the following defects:
THE COURT OF APPEALS ERRED,

AND WHEN IT DID, IT OPENED
ITSELF TO REVERSAL BY THIS
HONORABLE COURT, WHEN IT
AGAIN ADOPTED UNCRITICALLY
(BUT WITHOUT ACKNOWLEDGING IT)
THE
SUBMISSIONS
OF
THE
RESPONDENTS IN THEIR BRIEF
WITHOUT ADDING ANYTHING MORE
THERETO DESPITE THE FACT THAT
THE SAID ARGUMENT OF THE
(1) There were unrebutted evidence on

record that petitioners had observed the
diligence required of them, i.e, they
wanted to open a vault with a nearby
bank for purposes of safekeeping the
pawned articles but was discouraged by
the Central Bank (CB) since CB rules
provide that they can only store the
pawned articles in a vault inside the
pawnshop premises and no other place;
121
factual findings of the Court of Appeals

and the trial court are conflicting or
contradictory 13 as is obtaining in the
instant case.
(2) Petitioners were adjudged negligent

as they did not take insurance against
the loss of the pledged jewelries, but it is
judicial notice that due to high incidence
of crimes, insurance companies refused
to cover pawnshops and banks because
of high probability of losses due to
robberies;
However, after a careful examination of

the records, we find no justification to
absolve petitioner Sicam from liability.
The CA correctly pierced the veil of the
corporate fiction and adjudged petitioner
Sicam liable together with petitioner
corporation. The rule is that the veil of
corporate fiction may be pierced when
made as a shield to perpetrate fraud
and/or confuse legitimate issues. 14 The
theory of corporate entity was not meant
to promote unfair objectives or
otherwise to shield them. 15
(3) In Hernandez v. Chairman,

Commission on Audit (179 SCRA 39,
45-46), the victim of robbery was
exonerated from liability for the sum of
money belonging to others and lost by
him to robbers.
Respondents filed their Comment and
petitioners filed their Reply thereto. The
parties subsequently submitted their
respective Memoranda.
Notably, the evidence on record shows

that at the time respondent Lulu pawned
her jewelry, the pawnshop was owned
by petitioner Sicam himself. As correctly
observed by the CA, in all the pawnshop
receipts issued to respondent Lulu in
September 1987, all bear the words
"Agencia
de
R.C.
Sicam,"
notwithstanding that the pawnshop was
allegedly incorporated in April 1987. The
receipts issued after such alleged
incorporation were still in the name of
"Agencia de R.C. Sicam," thus inevitably
misleading, or at the very least, creating
the wrong impression to respondents
and the public as well, that the
pawnshop was owned solely by
petitioner Sicam and not by a
corporation. SEDIaH
We find no merit in the petition.

To begin with, although it is true that
indeed the CA findings were exact
reproductions of the arguments raised in
respondents' (appellants') brief filed with
the CA, we find the same to be not
fatally infirmed. Upon examination of the
Decision, we find that it expressed
clearly and distinctly the facts and the
law on which it is based as required by
Section 8, Article VIII of the Constitution.
The discretion to decide a case one way
or another is broad enough to justify the
adoption of the arguments put forth by
one of the parties, as long as these are
legally tenable and supported by law
and the facts on records. 11
Even petitioners' counsel, Atty. Marcial

T. Balgos, in his letter 16 dated October
15, 1987 addressed to the Central Bank,
expressly referred to petitioner Sicam as
the proprietor of the pawnshop
notwithstanding
the
alleged
incorporation in April 1987.
Our jurisdiction under Rule 45 of the

Rules of Court is limited to the review of
errors of law committed by the appellate
court. Generally, the findings of fact of
the appellate court are deemed
conclusive and we are not duty-bound to
analyze and calibrate all over again the
evidence adduced by the parties in the
court a quo. 12 This rule, however, is not
without exceptions, such as where the
We also
argument
alleged in
petitioner
122
find no merit in petitioners'

that since respondents had
their Amended Complaint that
corporation is the present
owner of the pawnshop, the CA is bound

to decide the case on that basis.
because petitioner Sicam alleged in his

Answer to the original complaint filed
against him that he was not the real
party-in-interest as the pawnshop was
incorporated in April 1987. Moreover, a
reading of the Amended Complaint in its
entirety shows that respondents referred
to both petitioner Sicam and petitioner
corporation where they (respondents)
pawned their assorted pieces of jewelry
and ascribed to both the failure to
observe due diligence commensurate
with the business which resulted in the
loss of their pawned jewelry. SACEca
Section 4 Rule 129 of the Rules of Court

provides that an admission, verbal or
written, made by a party in the course of
the proceedings in the same case, does
not require proof. The admission may be
contradicted only by showing that it was
made through palpable mistake or that
no such admission was made.
Thus, the general rule that a judicial
admission is conclusive upon the party
making it and does not require proof,
admits of two exceptions, to wit: (1)
when it is shown that such admission
was made through palpable mistake,
and (2) when it is shown that no such
admission was in fact made. The latter
exception allows one to contradict an
admission by denying that he made
such an admission. 17
Markedly,
respondents,
in
their
Opposition to petitioners' Motion to
Dismiss Amended Complaint, insofar as
petitioner Sicam is concerned, averred
as follows:
Roberto C. Sicam was named the
defendant in the original complaint
because the pawnshop tickets involved
in this case did not show that the R.C.
Sicam Pawnshop was a corporation. In
paragraph 1 of his Answer, he admitted
the allegations in paragraph 1 and 2 of
the Complaint. He merely added "that
defendant is not now the real party in
interest in this case."
The Committee on the Revision of the

Rules of Court explained the second
exception in this wise:
. . . if a party invokes an "admission" by
an adverse party, but cites the
admission "out of context," then the one
making the "admission" may show that
he made no "such" admission, or that
his admission was taken out of context.
It was defendant Sicam's omission to

correct the pawnshop tickets used in the
subject transactions in this case which
was the cause of the instant action. He
cannot now ask for the dismissal of the
complaint against him simply on the
mere allegation that his pawnshop
business is now incorporated. It is a
matter of defense, the merit of which
can only be reached after consideration
of the evidence to be presented in due
course. 19
. . . that the party can also show that he

made no "such admission", i.e., not in
the sense in which the admission is
made to appear.
That is the reason for the modifier
"such" because if the rule simply states
that the admission may be contradicted
by showing that "no admission was
made," the rule would not really be
providing for a contradiction of the
admission but just a denial. 18
(Emphasis supplied).
Unmistakably, the alleged admission

made
in
respondents'
Amended
Complaint was taken "out of context" by
petitioner Sicam to suit his own purpose.
Ineluctably, the fact that petitioner Sicam
continued to issue pawnshop receipts
under his name and not under the
While it is true that respondents alleged

in their Amended Complaint that
petitioner corporation is the present
owner of the pawnshop, they did so only
123
corporation's name militates for the

piercing of the corporate veil.
We likewise find no merit in petitioners'
contention that the CA erred in piercing
the veil of corporate fiction of petitioner
corporation, as it was not an issue
raised and litigated before the RTC.
veil should or should not apply to the

case.
The next question is whether petitioners
are liable for the loss of the pawned
articles in their possession.
Petitioners insist that they are not liable
since robbery is a fortuitous event and
they are not negligent at all.
Petitioner Sicam had alleged in his

Answer filed with the trial court that he
was not the real party-in-interest
because since April 20, 1987, the
pawnshop business initiated by him was
incorporated and known as Agencia de
R.C. Sicam. In the pre-trial brief filed by
petitioner Sicam, he submitted that as
far as he was concerned, the basic
issue was whether he is the real party in
interest against whom the complaint
should be directed. 20 In fact, he
subsequently moved for the dismissal of
the complaint as to him but was not
favorably acted upon by the trial court.
Moreover, the issue was squarely
passed upon, although erroneously, by
the trial court in its Decision in this
manner:
We are not persuaded.

Art. 1174. Except in cases expressly
events which could not be foreseen or
which, though foreseen, were inevitable.
Fortuitous events by definition are
extraordinary events not foreseeable or
avoidable. It is therefore, not enough
that the event should not have been
foreseen or anticipated, as is commonly
believed but it must be one impossible
to foresee or to avoid. The mere
difficulty to foresee the happening is not
impossibility to foresee the same. 22
. . . The defendant Roberto Sicam, Jr.

likewise denies liability as far as he is
concerned for the reason that he cannot
be made personally liable for a claim
arising from a corporate transaction.
AaCEDS
To constitute a fortuitous event, the

following elements must concur: (a) the
cause
of
the
unforeseen
and
unexpected occurrence or of the failure
of the debtor to comply with obligations
must be independent of human will; (b)
it must be impossible to foresee the
event that constitutes the caso fortuito
or, if it can be foreseen, it must be
impossible to avoid; (c) the occurrence
must be such as to render it impossible
for the debtor to fulfill obligations in a
normal manner; and, (d) the obligor
must be free from any participation in
the aggravation of the injury or loss. 23
This Court sustains the contention of the

defendant Roberto C. Sicam, Jr. The
amended complaint itself asserts that
"plaintiff pawned assorted jewelries in
defendant's pawnshop." It has been
held that " as a consequence of the
separate juridical personality of a
corporation, the corporate debt or credit
is not the debt or credit of the
stockholder, nor is the stockholder's
debt or credit that of a corporation. 21
Clearly, in view of the alleged
incorporation of the pawnshop, the issue
of whether petitioner Sicam is personally
liable is inextricably connected with the
determination of the question whether
the doctrine of piercing the corporate
The burden of proving that the loss was

due to a fortuitous event rests on him
who invokes it. 24 And, in order for a
124
fortuitous event to exempt one from

liability, it is necessary that one has
committed no negligence or misconduct
that may have occasioned the loss. 25
the part of herein petitioners. In Co v.

Court of Appeals, 27 the Court held:
It is not a defense for a repair shop of
motor vehicles to escape liability simply
because the damage or loss of a thing
lawfully placed in its possession was
due to carnapping. Carnapping per se
cannot be considered as a fortuitous
event. The fact that a thing was
unlawfully and forcefully taken from
another's rightful possession, as in
cases of carnapping, does not
automatically give rise to a fortuitous
event. To be considered as such,
carnapping entails more than the mere
forceful taking of another's property. It
must be proved and established that the
event was an act of God or was done
solely by third parties and that neither
the claimant nor the person alleged to
be negligent has any participation. In
accordance with the Rules of Evidence,
the burden of proving that the loss was
due to a fortuitous event rests on him
who invokes it which in this case is
the private respondent. However, other
than the police report of the alleged
carnapping incident, no other evidence
was presented by private respondent to
the effect that the incident was not due
to its fault. A police report of an alleged
crime, to which only private respondent
is privy, does not suffice to establish the
carnapping. Neither does it prove that
there was no fault on the part of private
respondent notwithstanding the parties'
agreement at the pre-trial that the car
was carnapped. Carnapping does not
foreclose the possibility of fault or
negligence on the part of private
respondent. 28
It has been held that an act of God

cannot be invoked to protect a person
who has failed to take steps to forestall
the possible adverse consequences of
such a loss. One's negligence may have
concurred with an act of God in
producing damage and injury to another;
nonetheless,
showing
that
the
immediate or proximate cause of the
damage or injury was a fortuitous event
would not exempt one from liability.
When the effect is found to be partly the
result of a person's participation
whether by active intervention, neglect
or failure to act the whole occurrence
is humanized and removed from the
rules applicable to acts of God. 26
Petitioner Sicam had testified that there
was a security guard in their pawnshop
at the time of the robbery. He likewise
testified that when he started the
pawnshop business in 1983, he thought
of opening a vault with the nearby bank
for the purpose of safekeeping the
valuables but was discouraged by the
Central Bank since pawned articles
should only be stored in a vault inside
the pawnshop. The very measures
which petitioners had allegedly adopted
show that to them the possibility of
robbery was not only foreseeable, but
actually foreseen and anticipated.
Petitioner Sicam's testimony, in effect,
contradicts petitioners' defense of
fortuitous event. acCITS
Just like in Co, petitioners merely

presented the police report of the
Paraaque Police Station on the
robbery committed based on the report
of petitioners' employees which is not
sufficient to establish robbery. Such
report also does not prove that
petitioners were not at fault.
Moreover, petitioners failed to show that

they were free from any negligence by
which the loss of the pawned jewelry
may have been occasioned.
Robbery per se, just like carnapping, is
not a fortuitous event. It does not
foreclose the possibility of negligence on
125
On the contrary, by the very evidence of

petitioners, the CA did not err in finding
that petitioners are guilty of concurrent
or contributory negligence as provided
in Article 1170 of the Civil Code, to wit:
ordinarily regulate the conduct of human

affairs, would do; or the doing of
something which a prudent and
reasonable man would not do. 31 It is
want of care required by the
circumstances.
Art. 1170. Those who in the

performance of their obligations are
guilty of fraud, negligence, or delay, and
those who in any manner contravene
the tenor thereof, are liable for
damages. 29
A review of the records clearly shows

that petitioners failed to exercise
reasonable care and caution that an
ordinarily prudent person would have
used in the same situation. Petitioners
were guilty of negligence in the
operation of their pawnshop business.
Petitioner Sicam testified, thus:

that with regard to pawnshops and other
establishments which are engaged in
making loans secured by pledges, the
special laws and regulations concerning
them shall be observed, and subsidiarily,
the provisions on pledge, mortgage and
antichresis. aTHCSE
Court:
Q. Do you have security guards in your
pawnshop?
A. Yes, your honor.
The provision on pledge, particularly

Article 2099 of the Civil Code, provides
that the creditor shall take care of the
thing pledged with the diligence of a
good father of a family. This means that
petitioners must take care of the pawns
the way a prudent person would as to
his own property.
Q. Then how come that the robbers

were able to enter the premises when
according to you there was a security
guard?
A. Sir, if these robbers can rob a bank,
how much more a pawnshop.
In this connection, Article 1173 of the

Civil Code further provides:
Q. I am asking you how were the

robbers able to enter despite the fact
that there was a security guard?
TECIaH
Art. 1173. The fault or negligence of the

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

happened about 1:00 and 2:00 o'clock in
the afternoon and it happened on a
Saturday and everything was quiet in
the area BF Homes Paraaque they
pretended to pawn an article in the
pawnshop, so one of my employees
allowed him to come in and it was only
when it was announced that it was a
hold up.
If the law or contract does not state the

diligence which is to be observed in the
performance, that which is expected of a
good father of a family shall be required.
Q. Did you come to know how the vault

was opened?
We expounded in Cruz v. Gangan 30

that negligence is the omission to do
something which a reasonable man,
guided by those considerations which
A. When the pawnshop is official (sic)

open your honor the pawnshop is partly
open. The combination is off.
126
time was quiet, there was more reason

for petitioners to have exercised
reasonable foresight and diligence in
protecting the pawned jewelries. Instead
of taking the precaution to protect them,
they let open the vault, providing no
difficulty for the robbers to cart away the
pawned articles.
Q. No one open (sic) the vault for the

robbers?
A. No one your honor it was open at the
time of the robbery.
Q. It is clear now that at the time of the
robbery the vault was open the reason
why the robbers were able to get all the
items pawned to you inside the vault.
We, however, do not agree with the CA

when it found petitioners negligent for
not taking steps to insure themselves
against loss of the pawned jewelries.
A. Yes sir. 32
revealing that there were no security
measures adopted by petitioners in the
operation of the pawnshop. Evidently, no
sufficient precaution and vigilance were
adopted by petitioners to protect the
pawnshop from unlawful intrusion. There
was no clear showing that there was
any security guard at all. Or if there was
one, that he had sufficient training in
securing a pawnshop. Further, there is
no showing that the alleged security
guard exercised all that was necessary
to prevent any untoward incident or to
ensure that no suspicious individuals
were allowed to enter the premises. In
fact, it is even doubtful that there was a
security guard, since it is quite
impossible that he would not have
noticed that the robbers were armed
with caliber .45 pistols each, which were
allegedly poked at the employees. 33
Significantly, the alleged security guard
was not presented at all to corroborate
petitioner Sicam's claim; not one of
petitioners' employees who were
present during the robbery incident
testified in court.
Furthermore,
petitioner
Sicam's
admission that the vault was open at the
time of robbery is clearly a proof of
petitioners' failure to observe the care,
precaution and vigilance that the
circumstances
justly
demanded.
Petitioner Sicam testified that once the
pawnshop was open, the combination
was already off. Considering petitioner
Sicam's testimony that the robbery took
place on a Saturday afternoon and the
area in BF Homes Paraaque at that
Under Section 17 of Central Bank

Circular No. 374, Rules and Regulations
for Pawnshops, which took effect on
July 13, 1973, and which was issued
pursuant to Presidential Decree No. 114,
Pawnshop Regulation Act, it is provided
that pawns pledged must be insured, to
wit:
Sec. 17. Insurance of Office Building
and Pawns The place of business of
a pawnshop and the pawns pledged to it
must be insured against fire and against
burglary as well as for the latter (sic), by
an insurance company accredited by the
Insurance Commissioner.
However, this Section was subsequently
amended by CB Circular No. 764 which
took effect on October 1, 1980, to wit:
DTAIaH
Sec. 17 Insurance of Office Building and
Pawns The office building/premises
and pawns of a pawnshop must be
insured
against
fire.
(emphasis
supplied).
where the requirement that insurance
against burglary was deleted. Obviously,
the Central Bank considered it not
feasible to require insurance of pawned
articles against burglary.
The robbery in the pawnshop happened
in 1987, and considering the abovequoted amendment, there is no statutory
duty imposed on petitioners to insure
the pawned jewelry in which case it was
error for the CA to consider it as a factor
127
in concluding
negligent.
that petitioners were
must, in addition to the casus itself, be

free of any concurrent or contributory
fault or negligence. 38
Nevertheless, the preponderance of

evidence shows that petitioners failed to
exercise the diligence required of them
under the Civil Code.
We found in Austria that under the

circumstances prevailing at the time the
Decision was promulgated in 1971, the
City of Manila and its suburbs had a
high incidence of crimes against
persons and property that rendered
travel after nightfall a matter to be
sedulously avoided without suitable
precaution and protection; that the
conduct of Maria Abad in returning alone
to her house in the evening carrying
jewelry of considerable value would
have been negligence per se and would
not exempt her from responsibility in the
case of robbery. However we did not
hold Abad liable for negligence since,
the robbery happened ten years
previously; i.e., 1961, when criminality
had not reached the level of incidence
obtaining in 1971.
The diligence with which the law

requires the individual at all times to
govern his conduct varies with the
nature of the situation in which he is
placed and the importance of the act
which he is to perform. 34 Thus, the
cases of Austria v. Court of Appeals, 35
Hernandez v. Chairman, Commission on
Audit 36 and Cruz v. Gangan 37 cited by
petitioners in their pleadings, where the
victims of robbery were exonerated from
liability, find no application to the present
case.
In Austria, Maria Abad received from
Guillermo Austria a pendant with
diamonds to be sold on commission
basis, but which Abad failed to
subsequently return because of a
robbery committed upon her in 1961.
The incident became the subject of a
criminal case filed against several
persons. Austria filed an action against
Abad and her husband (Abads) for
recovery of the pendant or its value, but
the Abads set up the defense that the
robbery extinguished their obligation.
The RTC ruled in favor of Austria, as the
Abads failed to prove robbery; or, if
committed, that Maria Abad was guilty of
negligence. The CA, however, reversed
the RTC decision holding that the fact of
robbery was duly established and
declared the Abads not responsible for
the loss of the jewelry on account of a
fortuitous event. We held that for the
Abads to be relieved from the civil
liability of returning the pendant under
Art. 1174 of the Civil Code, it would only
be sufficient that the unforeseen event,
the robbery, took place without any
concurrent fault on the debtor's part, and
this can be done by preponderance of
evidence; that to be free from liability for
reason of fortuitous event, the debtor
In contrast, the robbery in this case took

place in 1987 when robbery was already
prevalent and petitioners in fact had
already foreseen it as they wanted to
deposit the pawn with a nearby bank for
safekeeping. Moreover, unlike in Austria,
where no negligence was committed,
we found petitioners negligent in
securing their pawnshop as earlier
discussed.
In Hernandez, Teodoro Hernandez was
the OIC and special disbursing officer of
the Ternate Beach Project of the
Philippine Tourism in Cavite. In the
morning of July 1, 1983, a Friday, he
went to Manila to encash two checks
covering the wages of the employees
and the operating expenses of the
project. However for some reason, the
processing of the check was delayed
and was completed at about 3 p.m.
Nevertheless, he decided to encash the
check because the project employees
would be waiting for their pay the
following day; otherwise, the workers
128
would have to wait until July 5, the

earliest time, when the main office would
open. At that time, he had two choices:
(1) return to Ternate, Cavite that same
afternoon and arrive early evening; or
(2) take the money with him to his house
in Marilao, Bulacan, spend the night
there, and leave for Ternate the
following day. He chose the second
option, thinking it was the safer one.
Thus, a little past 3 p.m., he took a
passenger jeep bound for Bulacan.
While the jeep was on Epifanio de los
Santos Avenue, the jeep was held up
and the money kept by Hernandez was
taken, and the robbers jumped out of
the jeep and ran. Hernandez chased the
robbers and caught up with one robber
who was subsequently charged with
robbery and pleaded guilty. The other
robber who held the stolen money
escaped. The Commission on Audit
found Hernandez negligent because he
had not brought the cash proceeds of
the checks to his office in Ternate,
Cavite for safekeeping, which is the
normal procedure in the handling of
funds. We held that Hernandez was not
negligent in deciding to encash the
check and bringing it home to Marilao,
Bulacan instead of Ternate, Cavite due
to the lateness of the hour for the
following reasons: (1) he was moved by
unselfish motive for his co-employees to
collect their wages and salaries the
following day, a Saturday, a nonworking, because to encash the check
on July 5, the next working day after
July 1, would have caused discomfort to
laborers who were dependent on their
wages for sustenance; and (2) that
choosing Marilao as a safer destination,
being nearer, and in view of the
comparative hazards in the trips to the
two places, said decision seemed
logical at that time. We further held that
the fact that two robbers attacked him in
broad daylight in the jeep while it was on
a busy highway and in the presence of
other passengers could not be said to
be a result of his imprudence and
negligence. aSADIC
Unlike in Hernandez where the robbery

happened in a public utility, the robbery
in this case took place in the pawnshop
which is under the control of petitioners.
Petitioners had the means to screen the
persons who were allowed entrance to
the premises and to protect itself from
unlawful intrusion. Petitioners had failed
to exercise precautionary measures in
ensuring that the robbers were
prevented from entering the pawnshop
and for keeping the vault open for the
day, which paved the way for the
robbers to easily cart away the pawned
articles.
In Cruz, Dr. Filonila O. Cruz, Camanava
District
Director
of
Technological
Education and Skills Development
Authority (TESDA), boarded the Light
Rail Transit (LRT) from Sen. Puyat
Avenue to Monumento when her
handbag was slashed and the contents
were stolen by an unidentified person.
Among those stolen were her wallet and
the government-issued cellular phone.
She then reported the incident to the
police authorities; however, the thief was
not located, and the cellphone was not
recovered. She also reported the loss to
the Regional Director of TESDA, and
she requested that she be freed from
accountability for the cellphone. The
Resident Auditor denied her request on
the ground that she lacked the diligence
required in the custody of government
property and was ordered to pay the
purchase value in the total amount of
P4,238.00. The COA found no sufficient
justification to grant the request for relief
from accountability. We reversed the
ruling and found that riding the LRT
cannot per se be denounced as a
negligent act more so because Cruz's
mode of transit was influenced by time
and money considerations; that she
boarded the LRT to be able to arrive in
Caloocan in time for her 3 pm meeting;
that any prudent and rational person
under
similar
circumstance
can
reasonably be expected to do the same;
that possession of a cellphone should
not hinder one from boarding the LRT
129
coach as Cruz did considering that

whether she rode a jeep or bus, the risk
of theft would have also been present;
that because of her relatively low
position and pay, she was not expected
to have her own vehicle or to ride a
taxicab; she did not have a government
assigned vehicle; that placing the
cellphone in a bag away from covetous
eyes and holding on to that bag as she
did is ordinarily sufficient care of a
cellphone while traveling on board the
LRT; that the records did not show any
specific act of negligence on her part
and negligence can never be presumed.
DEVELOPMENT BANK OF THE

PHILIPPINES, petitioner, vs. COURT
OF APPEALS, Sps. NORMY D.
CARPIO and CARMEN ORQUISA; Sps.
ROLANDO D. CARPIO and RAFAELA
VILLANUEVA; Sps ELISEO D. CARPIO
and ANUNCIACION del ROSARIO; LUZ
C. REYES, MARIO C. REYES, JULIET
REYES-RUBIN, respondents.
Unlike in the Cruz case, the robbery in

this case happened in petitioners'
pawnshop and they were negligent in
not exercising the precautions justly
demanded of a pawnshop.
SYLLABUS
DBP Office of the Legal Counsel for

petitioner.
Restituto G.
respondents.
Costs against petitioners.

SO ORDERED.
and
||| (Sicam v. Jorge, G.R. No. 159617,

[August 8, 2007], 556 PHIL 278-301)
ART 1181 - In conditional obligations,

the acquisition of rights, as well as
the extinguishment or loss of those
already acquired, shall depend upon
the happening of the event which
constitutes the condition. (1114)
20. DEVELOPMENT BANK
COURT OF APPEALS
for
private
1. LABOR AND SOCIAL LEGISLATION;

COMPREHENSIVE
AGRARIAN
REFORM LAW; SECTION 6 THEREOF;
PROHIBITED LAND TRANSACTIONS;
PERTAINS
ONLY
TO
THOSE
EXECUTED BY THE "ORIGINAL
LANDOWNER." Petitioner cannot
invoke the last paragraph of Sec. 6 of
Rep. Act 6657 to set aside its
obligations already existing prior to its
enactment. In the first place, said last
paragraph clearly deals with "any sale,
lease, management contract or transfer
or possession of private lands executed
by the original landowner." The original
owner in this case is not the petitioner
but the private respondents. Petitioner
acquired the land through foreclosure
proceedings but agreed thereafter to
reconvey it to private respondents, albeit
conditionally. As earlier stated, Sec. 6 of
Rep. Act 6657 in its entirety deals with
retention limits allowed by law to small
landowners. Since the property here
involved is more or less ten (10)
hectares, it is then within the jurisdiction
of the Department of Agrarian Reform
(DAR) to determine whether or not the
property can be subjected to agrarian
reform. But this necessitates an entirely
different proceeding.
WHEREFORE, except for the insurance

aspect, the Decision of the Court of
Appeals dated March 31, 2003 and its
Resolution dated August 8, 2003, are
AFFIRMED.
Ynares-Santiago, Chico-Nazario
Nachura, JJ., concur.
Cudiamat
VS.
FIRST DIVISION
2. ID.; ID.; THE CARL WAS NOT
INTENDED
TO
TAKE
AWAY
PROPERTY WITHOUT DUE PROCESS
[G.R. No. 118180. September 20, 1996.]

130
OF LAW NOR IS IT INTENDED TO

IMPAIR
THE
OBLIGATION
OF
CONTRACTS. The CARL (Rep. Act
6657) was not intended to take away
property without due process of law. Nor
is it intended to impair the obligation of
contracts. In the same manner must
E.O. 407 be regarded. It was enacted
two (2) months after private respondents
had legally fulfilled the condition in the
contract of conditional sale by the
payment of all installments on their due
dates. These laws cannot have
retroactive effect unless there is an
express provision in them to that effect.

under Rule 45 of the Rules of Court
which seeks to set aside the decision 1
of the Court of Appeals (CA) dated 28
February 1994 in CA-G.R. CV No.
37158, as well as the resolution dated
11 August 1994 denying petitioners
The facts are undisputed:
Private respondents were the original
owners of a parcel of agricultural land
covered by TCT. No. T-1432, situated in
Barrio Capucao, Ozamis City, with an
area of 113,695 square meters, more or
less.
5. CIVIL LAW; DAMAGES; AWARD OF

ATTORNEY'S FEES; MUST HAVE
FACTUAL, LEGAL OR EQUITABLE
JUSTIFICATION. The award of
attorney's fees under Article 2208 of the
Civil Code is more of an exception to the
general rule that it is not sound policy to
place a penalty on the right to litigate.
While judicial discretion in the award of
attorney's fees is not entirely left out, the
same, as a rule, must have a factual,
legal or equitable justification. The
matter cannot and Should not be left to
speculation and conjecture. As aptly
stated in the Mirasol case: ". . . The
matter of attorney's fees cannot be
touched once and only in the dispositive
portion of the decision. The text itself
must expressly state the reason why
attorney's fees are being awarded. The
court, after reading through the text of
the appealed decision, finds the same
bereft of any findings of fact and law to
justify the award of attorney's fees. The
matter of such fees was touched but
once and appears only in the dispositive
portion of the decision. Simply put, the
text of the decision did not state the
reason why attorney's fees are being
awarded, and for this reason, the Court
finds it necessary to disallow the same
for being conjectural."
On 30 May 1977, private respondents

mortgaged said land to petitioner. When
private respondents defaulted on their
obligation, petitioner foreclosed the
mortgage on the land and emerged as
sole bidder in the ensuing auction sale.
Consequently, Transfer Certificate of
Title No. T-10913 was eventually issued
in petitioner's name.
On 6 April 1984, petitioner and private
respondents entered into a Deed of
Conditional Sale wherein petitioner
agreed to reconvey the foreclosed
property to private respondents.
The pertinent stipulations of the Deed
provided that:
"WHEREAS, the VENDOR acquired a
parcel of land in an auction sale by the
City Sheriff of Ozamis City, pursuant to
Act 3135, as amended, and subject to
the redemption period pursuant to CA
141, described as follows:
xxx xxx xxx
WHEREAS, the VENDEES offered to
repurchase and the VENDOR agreed to
sell the above-described property,
subject to the terms and stipulations as
hereinafter stipulated, for the sum of
SEVENTY THREE THOUSAND SEVEN
HUNDRED ONLY (P73,700.00), with a
DECISION
PADILLA, J p:
131
down payment of P8,900.00 and the

balance of P64,800 shall be payable in
six (6) years on equal quarterly
amortization plan at 18% interest per
annum. The first quarterly amortization
of P4,470.36 shall be payable three
months from the date of the execution of
the documents and all subsequent
amortization shall be due and payable
every quarter thereafter.
separate memorandum and deemed the

case submitted for decision thereafter.
On 30 January 1992, the trial court
rendered judgment, the dispositive part
of which reads:
"WHEREFORE, judgment is rendered
ordering defendant to execute and
deliver unto plaintiffs a deed of final sale
of the land subject of their deed of
conditional sale Lot 5259-A, to pay
plaintiffs
P10,000.00
as
nominal
damages, P5,000.00 as attorneys fees,
P3,000.00 as litis expenses and costs."
3
xxx xxx xxx

That, upon completion of the payment
herein stipulated and agreed, the
Vendor agrees to deliver to the
Vendee/s(,) his heirs, administrators and
assigns(,) a good and sufficient deed of
conveyance covering the property,
subject matter of this deed of conditional
sale, in accordance with the provisions
of law." (Exh. "A", p. 5, Records) 2
The trial court held that petitioner

interpreted the fourth paragraph of Sec.
6, Rep. Act 6657 literally in conjunction
with Sec. 1 of E.O. 407.
The fourth paragraph of Sec. 6, Rep. Act
6657 states that:
On 6 April 1990, upon completing the

payment of the full repurchase price,
private respondents demanded from
petitioner the execution of a Deed of
Conveyance in their favor.
"Upon the effectivity of this Act, any

sale, disposition, lease, management
contract or transfer of possession of
private lands executed by the original
landowner in violation of this act shall be
null and void; Provided, however, that
those executed prior to this act shall be
valid only when registered with the
Register of Deeds after the effectivity of
this Act. Thereafter, all Registers of
Deeds shall inform the DAR within 320
days of any transaction involving
agricultural lands in excess of five
hectares."
Petitioner
then
informed
private
respondents that the prestation to
execute and deliver a deed of
conveyance in their favor had become
legally impossible in view of Sec. 6 of
Rep. Act 6657 (the Comprehensive
Agrarian Reform Law or CARL)
approved 10 June 1988, and Sec. 1 of
E.O. 407 issued 10 June 1990.
Aggrieved, private respondents filed a
complaint for specific performance with
damages against petitioner before the
Regional Trial Court of Ozamis City,
Branch XV. During the pre-trial, the trial
court narrowed down the issue to
whether or not Sec. 6 of the CARL (Rep.
Act 6657) had rendered legally
impossible compliance by petitioner with
its obligation to execute a deed of
conveyance of the subject land in favor
of private respondents. The trial court
ordered both parties to file their
while Sec. 1 of E.O. 407 states that:

"Sec. 1. All government instrumentalities
but not limited to . . . financial institutions
such as the DBP . . . shall immediately
execute deeds of transfer in favor of the
Republic of the
Philippines as
represented by the Department of
Agrarian Reform and surrender to the
department all landholdings suitable for
agriculture."
The court a quo noted that Sec. 6 of
Rep. Act 6657, taken in its entirely, is a
132
provision dealing primarily with retention

limits in agricultural land allowed the
landowner and his family and that the
fourth paragraph, which nullifies any
sale . . . by the original landowner in
violation of the Act, does not cover the
sale by petitioner (not the original land
owner) to private respondents.
6, 1984. From that time, all elements of

the contract of sale were present.
Consequently, the contract of sale was
perfected. As such, the said sale does
not come under the coverage of R.A.
6657.
On the other hand, according to the trial

court, E.O. 407 took effect on 10 June
1990.
But
private
respondents
completed payment of the price for the
property, object of the conditional sale,
as early as 6 April 1990. Hence, with the
fulfillment of the condition for the sale,
the land covered thereby, was detached
from the mass of foreclosed properties
held by DBP, and, therefore, fell beyond
the ambit or reach of E.O. 407.
It is likewise interesting to note that

despite the mandate of Sec. 1, R.A.
6657, appellant continued to accept the
payments made by the appellee until it
was fully paid on April 6, 1990. All that
the appellant has to do now is to
execute the final deed of sale in favor of
the appellee. To follow the line of
argument of the appellant would only
result in an unconscionable injury to the
appellee. Obligations arising from
contracts have the force of law between
the contracting parties and should be
complied with in good faith (Flavio
Macasaet & Associates, Inc. vs.
Commission on Audit, 173 SCRA 352).
Dissatisfied, petitioner appealed to the

Court of Appeals (CA), still insisting that
its obligation to execute a Deed of Sale
in favor of private respondents had
become a legal impossibility and that
the non-impairment clause of the
Constitution must yield to the demands
of police power.
Going now to E.O 407, We hold that the

same can neither affect appellant's
obligation under the deed of conditional
sale. Under the said law, appellant is
required to transfer to the Republic of
the Philippines 'all lands foreclosed'
effective June 10, 1990. Under the facts
obtaining, the subject property has
ceased to belong to the mass of
foreclosed property falling within the
reach of said law. As earlier explained,
the property has already been sold to
herein appellees even before the said
E.O. has been enacted. On this same
reason, We therefore need not delve on
the applicability of DBP Circular No. 11."
4
On 28 February 1994, the CA rendered

judgment dismissing petitioners appeal
on the basis of the following
disquisitions:
"It is a rule that if the obligation depends
upon a suspensive condition, the
demandability as well as the acquisition
or effectivity of the rights arising from the
obligation is suspended pending the
happening or fulfillment of the fact or
event which constitutes the condition.
Once the event which constitutes the
condition is fulfilled resulting in the
effectivity of the obligation, its effects
retroact to the moment when the
essential elements which gave birth to
the obligation have taken place (8
Manresa, 5th Ed. Bk. 1, pa. 33).
Applying this precept to the case, the full
payment by the appellee on April 6,
1990 retroacts to the time the contract of
conditional sale was executed on April
In the present petition for review on

certiorari, petitioner still insists on its
position that Rep. Act 6657, E.O. 407
and DBP Circular No. 11 rendered its
obligation to execute a Deed of Sale to
private
respondents
"a
legal
impossibility." 5 Petitioner also questions
the award of attorney's fees, nominal
damages, and costs in favor of private
133
respondents, as not in accord with law

and the evidence. 6
by the original landowner." The original

owner in this case is not the petitioner
but the private respondents. Petitioner
acquired the land through foreclosure
proceedings but agreed thereafter to
reconvey it to private respondents, albeit
conditionally.
We rule in favor of private respondents.

In conditional obligations, the acquisition
of rights, as well as the extinguishment
or loss of those already acquired, shall
depend upon the happening of the event
which constitutes the condition. 7
As earlier stated, Sec 6 of Rep. Act

6657 in its entirety deals with retention
limits allowed by law to small
landowners. Since the property here
involved is more or less ten (10)
hectares, it is then within the jurisdiction
of the Department of Agrarian Reform
(DAR) to determine whether or not the
property can be subjected to agrarian
reform. But this necessitates an entirely
different proceeding.
The deed of conditional sale between

petitioner and private respondents was
executed on 6 April 1984. Private
respondents had religiously paid the
agreed installments on the property until
they completed payment on 6 April
1990. Petitioner, in fact, allowed private
respondents to fulfill the condition of
effecting full payment, and invoked
Section 6 of Rep. Act 6657 only
afterprivate respondents, having fully
paid the repurchase price, demanded
the execution of a Deed of Sale in their
favor.
The CARL (Rep. Act 6657) was not

intended to take away property without
due process of law. Nor is it intended to
impair the obligation of contracts. In the
same manner must E.O. 407 be
regarded. It was enacted two (2) months
after private respondents had legally
fulfilled the condition in the contract of
conditional sale by the payment of all
installments on their due dates. These
laws cannot have retroactive effect
unless there is an express provision in
them to that effect. 8
It will be noted that Rep. Act 6657 was

enacted on 10 June 1988. Following
petitioners argument in this case, its
prestation to execute the deed of sale
was rendered legally impossible by
Section 6 of said law. In other words, the
deed
of
conditional
sale
was
extinguished by a supervening event,
giving rise to an impossibility of
performance.
As to petitioner's contention, however,

that the CA erred in affirming the trial
court's decision awarding nominal
damages, and attorney's fees to private
respondents, we rule in favor of
petitioner.
We reject petitioners contention as we

rule as the trial court and CA have
correctly ruled that neither Sec. 6 of
Rep. Act 6657 nor Sec. 1 of E.O. 407
was intended to impair the obligation of
contract petitioner had much earlier
concluded with private respondents.
It appears that the core issue in this

case, being a pure question of law, did
not reach the trial stage as the case was
submitted for decision after pre-trial.
More specifically, petitioner cannot

invoke the last paragraph of Sec. 6 of
Rep. Act 6657 to set aside its
obligations already existing prior to its
enactment. In the first place, said last
paragraph clearly deals with "any sale,
lease, management contract or transfer
or possession of private lands executed
The award of attorney's fees under

Article 2208 of the Civil Code is more of
an exception to the general rule that it is
not sound policy to place a penalty on
the right to litigate. While judicial
discretion in the award of attorney's fees
is not entirely left out, the same, as a
134
rule, must have a factual, legal or

equitable justification. The matter cannot
and should not be left to speculation and
conjecture. 9
Bellosillo,
Vitug,
Kapunan
Hermosisima, Jr., JJ ., concur.
and
||| (Development Bank of the Phils. v.

Court of Appeals, G.R. No. 118180,
[September 20, 1996], 330 PHIL 801811)
As aptly stated in the Mirasol case:

". . . The matter of attorney's fees cannot
be touched once and only in the
dispositive portion of the decision. The
text itself must expressly state the
reason why attorney's fees are being
awarded. The court, after reading
through the text of the appealed
decision, finds the same bereft of any
findings of fact and law to justify the
award of attorney's fees. The matter of
such fees was touched but once and
appears only in the dispositive portion of
the decision. Simply put, the text of the
decision did not state the reason why
attorney's fees are being awarded, and
for this reason, the Court finds it
necessary to disallow the same for
being conjectural." 10
21. CENTRAL
PHILIPPINES
UNIVERSITY VS. COURT OF
APPEALS
FIRST DIVISION
[G.R. No. 112127. July 17, 1995.]
CENTRAL PHILIPPINE UNIVERSITY,
REMEDIOS FRANCO, FRANCISCO N.
LOPEZ, CECILIA P. VDA. DE LOPEZ,
REDAN LOPEZ AND REMARENE
LOPEZ, respondents.
Juanito M. Acanto for petitioner.
Santos B. Aguadera
respondents.
While DBP committed egregious error in

interpreting Sec. 6 of RA 6657, the
same is not equivalent to gross and
evident bad faith when it refused to
execute the deed of sale in favor of
private respondents.
for
private
SYLLABUS
1. CIVIL LAW; PROPERTY; MODES OF
ACQUIRING
OWNERSHIP;
DONATION; CONSIDERED ONEROUS
WHEN EXECUTED FOR A VALUABLE
CONSIDERATION
WHICH
IS
CONSIDERED THE EQUIVALENT OF
THE DONATION. A clear perusal of
the condition set forth in the deed of
donation executed by Don Ramon
Lopez, Sr., gives us no alternative but to
conclude that his donation was onerous,
one
executed
for
a
valuable
consideration which is considered the
equivalent of the donation itself, e.g.,
when a donation imposes a burden
equivalent to the value of the donation.
A gift of land to the City of Manila
requiring the latter to erect schools,
construct a children's playground and
open streets on the land was considered
an onerous donation. Similarly, where
Don Ramon Lopez donated the subject
parcel of land to petitioner but imposed
For the same reasons stated above, the

award of nominal damages in the
amount of P10,000.00 should also be
deleted.
The amount of P3,000.00 as litigation
expenses and costs against petitioner
must remain.
the petition is hereby DENIED, and the
decision of the CA is hereby
AFFIRMED, for lack of any reversible
error, with the MODIFICATION that
attorney's fees and nominal damages
awarded to private respondents are
hereby DELETED.
SO ORDERED.
135
an obligation upon the latter to establish

a medical college thereon, the donation
must be for an onerous consideration.
condition should be fulfilled depended

upon the exclusive will of the petitioner,
it has been held that its absolute
acceptance and the acknowledgment of
its obligation provided in the deed of
donation were sufficient to prevent the
statute of limitations from barring the
action of private respondents upon the
original contract which was the deed of
donation.
2. ID.; ID.; ID.; ID.; MAY BE REVOKED

FOR NON-FULFILLMENT OR NONCOMPLIANCE OF THE CONDITIONS
SET FORTH THEREIN; CASE AT BAR.
Under Art. 1181 of the Civil Code, on
conditional obligations, the acquisition of
rights, as well as the extinguishment or
loss of those already acquired, shall
which constitutes the condition. Thus,
when a person donates land to another
on the condition that the latter would
build upon the land a school, the
condition imposed was not a condition
precedent or a suspensive condition but
a resolutory one. It is not correct to say
that the schoolhouse had to be
constructed before the donation became
effective, that is, before the donee could
become the owner of the land,
otherwise, it would be invading the
property rights of the donor. The
donation had to be valid before the
fulfillment of the condition. If there was
no fulfillment or compliance with the
condition, such as what obtains in the
instant case, the donation may now be
revoked and all rights which the donee
may have acquired under it.
4. ID.; ID.; ID.; ID.; IN CASE OF

REVOCATION, A CAUSE OF ACTION
ARISES WHEN THAT WHICH SHOULD
HAVE BEEN DONE IS NOT DONE, OR
THAT WHICH SHOULD NOT HAVE
BEEN DONE IS DONE. The time
from which the cause of action accrued
for the revocation of the donation and
recovery of the property donated cannot
be specifically determined in the instant
case. A cause of action arises when that
which should have been done is not
done, or that which should not have
been done is done. In cases where
there is no special provision for such
computation, recourse must be had to
the rule that the period must be counted
from
the
day
on
which
the
corresponding action could have been
instituted. It is the legal possibility of
bringing the action which determines the
starting point for the computation of the
period. In this case, the starting point
begins with the expiration of a
reasonable period and opportunity for
petitioner to fulfill what has been
charged upon it by the donor.
3. ID.; ID.; ID.; ID.; DONEE'S

ACCEPTANCE
AND
ACKNOWLEDGMENT
OF
ITS
OBLIGATION PROVIDED IN THE
DEED, SUFFICIENT TO PREVENT
THE STATUTE OF LIMITATION FROM
BARRING THE ACTION OF DONOR
UPON THE ORIGINAL CONTRACT.
The claim of petitioner that prescription
bars the instant action of private
respondents is unavailing. The condition
imposed by the donor, i.e., the building
of a medical school upon the land
donated, depended upon the exclusive
will of the donee as to when this
condition shall be fulfilled. When
petitioner accepted the donation, it
bound itself to comply with the condition
thereof. Since the time within which the
5. ID.; ID.; ID.; ID.; GENERALLY, WHEN

THE OBLIGATION DOES NOT FIX A
PERIOD BUT FROM ITS NATURE AND
CIRCUMSTANCES
IT
CAN
BE
INFERRED THAT A PERIOD WAS
INTENDED, COURT MAY FIX THE
PERIOD FOR COMPLIANCE. The
period of time for the establishment of a
medical college and the necessary
buildings and improvements on the
property cannot be quantified in a
specific number of years because of the
presence of several factors and
circumstances involved in the erection
136
of an educational institution, such as

government laws and regulations
pertaining
to
education,
building
requirements and property restrictions
which are beyond the control of the
donee. Thus, when the obligation does
not fix a period but from its nature and
circumstances it can be inferred that a
period was intended, the general rule
provided in Art. 1197 of the Civil Code
applies, which provides that the courts
may fix the duration thereof because the
fulfillment of the obligation itself cannot
be demanded until after the court has
fixed the period for compliance therewith
and such period has arrived.
THE LEAST TRANSMISSION OF

RIGHTS AND INTERESTS. Finally,
since the questioned deed of donation
herein is basically a gratuitous one,
doubts
referring
to
incidental
circumstances of a gratuitous contract
should be resolved in favor of the least
transmission of rights and interests.
Records are clear and facts are
undisputed that since the execution of
the deed of donation up to the time of
filing of the instant action, petitioner has
failed to comply with its obligation as
donee. Petitioner has slept on its
obligation for an unreasonable length of
time. Hence, it is only just and equitable
now to declare the subject donation
already ineffective and, for all purposes,
revoked so that petitioner as donee
should now return the donated property
to the heirs of the donor, private
respondents herein, by means of
reconveyance.
6. ID.; ID.; ID.; ID.; WHEN OBLIGOR

CANNOT COMPLY WITH WHAT IS
INCUMBENT
UPON
HIM,
THE
OBLIGEE MAY SEEK RESCISSION;
EXCEPTION. This general rule
however cannot be applied considering
the different set of circumstances
existing in the instant case. More than a
reasonable period of fifty (50) years has
already been allowed petitioner to avail
of the opportunity to comply with the
condition even if it be burdensome, to
make the donation in its favor forever
valid. But, unfortunately, it failed to do
so. Hence, there is no more need to fix
the duration of a term of the obligation
when such procedure would be a mere
technicality and formality and would
serve no purpose than to delay or lead
to an unnecessary and expensive
multiplication of suits. Moreover, under
Art. 1191 of the Civil Code, when one of
the obligors cannot comply with what is
incumbent upon him, the obligee may
seek rescission and the court shall
decree the same unless there is just
cause authorizing the fixing of a period.
In the absence of any just cause for the
court to determine the period of the
compliance, there is no more obstacle
for the court to decree the rescission
claimed.
DAVIDE, JR., J, dissenting opinion:

1. CIVIL LAW; PROPERTY, MODES OF
ACQUIRING
OWNERSHIP;
DONATION; IN LAW OF DONATION,
"CONDITIONS"
REFERS
TO
OBLIGATION OR CHARGES IMPOSED
BY THE DONOR ON THE DONEE.
There is no conditional obligation to
speak of in this case. It seems that the
"conditions" imposed by the donor and
as the word is used in the law of
donations confused with "conditions" as
used in the law of obligations. In his
annotation of Article 764 of the Civil
Code on Donations, Arturo M. Tolentino,
citing the well-known civilists such as
Castan, Perez Gonzalez and Alguer,
and Colin & Capitant, states clearly the
context
within
which
the
term
"conditions" is used in the law of
donations, to wit: The word "conditions"
in this article does not refer to uncertain
events on which the birth or
extinguishment of a juridical relation
depends, but it is used in the vulgar
sense of obligations or charges imposed
by the donor on the donee. It is used,
not in its technical or strict legal sense,
7. ID.; ID.; ID.; ID.; IN CASE OF

GRATUITOUS DONATION DOUBTS
SHOULD BE RESOLVED IN FAVOR OF
137
but in its broadest sense. (Italics

supplied) Clearly then, when the law
and the deed of donation speaks of
"conditions" of a donation, what are
referred to are actually the obligations,
charges or burdens imposed by the
donor upon the donee and which would
characterize the donation as onerous. In
the present case, the donation is, quite
obviously, onerous, but it is more
properly called a "modal donation." A
modal donation is one in which the
donor imposes a prestation upon the
donee. The establishment of the medical
college as the condition of the donation
in the present case is one such
prestation.
3. ID.; ID.; ID.; ID.; MERE FACT THAT

THERE IS NO TIME FIXED AS TO
WHEN THE CONDITION THEREOF
ARE TO BE FULFILLED DOES NOT
IPSO FACTO MEAN THAT THE
STATUTE OF LIMITATION WILL NOT
APPLY. There is misplaced reliance
again on a previous decision of this
Court in Osmea vs. Rama. That case
does not speak of a deed of donation as
erroneously quoted and cited by the
majority opinion. It speaks of a contract
for a sum of money where the debtor
herself imposed a condition which will
determine when she will fulfill her
obligation to pay the creditor, thus,
making the fulfillment of her obligation
dependent upon her will. What we have
here, however, is not a contract for a
sum of money but a donation where the
donee has not imposed any conditions
on the fulfillment of its obligations.
Although it is admitted that the fulfillment
of the conditions/obligations of the
present donation may be dependent on
the will of the donee as to when it will
comply therewith, this did not arise out
of a condition which the donee itself
imposed. It is believed that the donee
was not meant to and does not have
absolute control over the time within
which it will perform its obligations. It
must still do so within a reasonable time.
What that reasonable time is, under the
circumstances, for the courts to
determine. Thus, the mere fact that
there is no time fixed as to when the
conditions of the donation are to be
fulfilled does not ipso facto mean that
the statute of limitations will not apply
anymore and the action to revoke the
donation becomes imprescriptible.
2. ID.; ID.; ID.; ID.; WHEN NO FIXED

PERIOD IN WHICH THE CONDITION
SHOULD BE FULFILLED, IT IS THE
DUTY OF THE COURT TO FIX A
SUITABLE
TIME
FOR
ITS
FULFILLMENT. J. Davide, Jr., cannot
subscribe to the view that the provisions
of Article 1197 cannot be applied here.
The conditions/obligations imposed by
the donor herein are subject to a period.
I draw this conclusion/based on our
previous ruling which, although made
almost 90 years ago, still finds
application in the present case. In
Barreto vs. City of Manila, we said that
when the contract of donation, as the
one involved therein, has no fixed period
in which the condition should be fulfilled,
the provisions of what is now Article
1197 (then Article 1128) are applicable
and it is the duty of the court to fix a
suitable time for its fulfillment. Indeed,
from the nature and circumstances of
the conditions/obligations of the present
donation, it can be inferred that a period
was contemplated by the donor. Don
Ramon Lopez could not have intended
his property to remain idle for a long
period of time when in fact, he
specifically burdened the donee with the
obligation to set up a medical college
therein and thus put his property to good
use. There is a need to fix the duration
of the time within which the conditions
imposed are to be fulfilled.
4. ID.; ID.; ID.; ID.; ACTION TO

REVOKE THEREOF PRESCRIBES IN
FOUR (4) YEARS. More recently, in
De Luna vs. Abrigo, this Court reiterated
the ruling in Parks and said that: It is
true that under Article 764 of the New
Civil Code, actions for the revocation of
138
a donation must be brought within four

(4) years from the non-compliance of
the conditions of the donation. However,
it is Our opinion that said article does
not apply to onerous donations in view
of the specific provision of Article 733
providing that onerous donations are
governed by the rules on contracts. In
the light of the above, the rules on
contracts and the general rules on
prescription and not the rules on
donations are applicable in the case at
bar. The law applied in both cases is
Article 1144(1). It refers to the
prescription of an action upon a written
contract, which is what the deed of an
onerous donation is. The prescriptive
period is ten years from the time the
cause of action accrues, and that is,
from the expiration of the time within
which the donee must comply with the
conditions/obligations of the donation.
As to when this exactly is remains to be
determined, and that is for the courts to
do as reposed upon them by Article
1197.
annotations copied from the deed of

donation.
1. The land described shall be utilized
by the CPU exclusively for the
establishment and use of a medical
college with all its buildings as part of
the curriculum:
2. The said college shall not sell,
transfer or convey to any third party nor
in any way encumber said land;
3. The said land shall be called
"RAMON LOPEZ CAMPUS", and the
said college shall be under obligation to
erect a cornerstones bearing that name.
Any net income from the land or any of
its parks shall be put in a fund to be
known as the "RAMON LOPEZ
CAMPUS FUND" to be used for
improvements of said campus and
erection of a building thereon. " 1
On 31 May 1989, privates respondents,
who are the heirs of Don Ramon Lopez,
Sr., filed an action for annulment of
donation, reconveyance and damages
against CPU alleging that since 1939 up
to the time the action was filed the latter
had not complied with the conditions of
the donation. Private respondents also
argued that petitioner had in fact
negotiated with the National Housing
Authority (NHA) to exchange the
donated property with another land
owned by the latter.
DECISION
BELLOSILLO, J p:
CENTRAL PHILIPPINE UNIVERSITY
filed this petition for review on certiorari
of the decision of the Court of Appeals
which reversed that of the Regional trial
Court of Iloilo City directing petitioner to
reconvey to private respondents the
property donated to it by their
predecessor-in-interest.
In its answer petitioner alleged that the

right of private respondents to file the
action had prescribe; that it did not
violate any of the conditions in the deed
of donation because it never used the
donated properly for any other purpose
than that for which it was intended; and,
that it did not sell, transfer or convey it to
any third party.
Sometime in 1939, the late Don Ramon

Lopez, Sr., who was then a member of
the Board of Trustees of the Central
Philippine
College
(now
Central
Philippine University [CPU]), executed a
deed of donation in favor of the latter of
a parcel of land identified as Lot No.
3174-B-1 of the subdivision plan Psd1144, then a portion of Lot No. 3174-B,
for which Transfer Certificate of Title No.
T-3910-A was issued in the name of the
donee
CPU
with
the
following
On 31 May 11991, the trial court held

that petitioner failed to comply with the
conditions of the donation and declared
it null and void. The court a quo further
directed petitioner to execute a deed of
139
reconveyance of the property in favor of

the heirs of the donor, namely, private
respondents herein.
value of the donation. A gift of land to

the City of Manila requiring the latter to
erect schools, construct a children's
playground and open streets on the land
was considered an onerous donation. 3
Similarly, where Don Ramon Lopez
donated the subject parcel of land to
petitioner but imposed an obligation
upon the latter to establish a medical
college thereon, the donation must be
for an onerous consideration.
Under Art. 1181 of the Civil Code, on
conditional obligations, the acquisition of
rights, as well as the extinguishment or
loss of those already acquired, shall
which constitutes the condition. Thus,
when a person donates land to another
on the condition that the latter would
build upon the land a school, the
condition imposed was not a condition
precedent or a suspensive condition but
a resolutory one. 4 It is not correct to
say that the schoolhouse had to be
constructed before the donation became
effective, that is, before the donee could
become the owner of the land,
otherwise, it would be invading the
property rights of the donor. The
donation had to be valid before the
fulfillment of the condition. 5 If there was
no fulfillment or compliance with the
condition, such as what obtains in the
instant case, the donation may now be
revoked and all rights which the donee
may have acquired under it shall be
deemed lost and extinguished.
The claim of petitioner that prescription
bars the instant action of private
respondents is unavailing. The condition
imposed by the donor, i.e., the building
of a medical school upon the land
donated, depended upon the exclusive
will of the donee as to when this
condition shall fulfilled. When petitioner
accepted the donation, it bound itself to
comply with the condition thereof. Since
the time within which the condition
should be fulfilled depended upon the
exclusive will of the petitioner, it has
been held that its absolute acceptance
and the acknowledgement of its
obligation provided in the deed of
Petitioner appealed to the Court of

Appeals which on 18 June 1993 ruled
that the ruled that the annotations at the
back of petitioner's certificate of title
were resolutory conditions breach of
which should terminate the rights of the
donee thus making the donation
revocable.
The appellate court also found that while
the first condition mandated petitioner to
utilize the donated property for the
establishment of a medical school, the
donor did not fix a period within which
the condition must be fulfilled, hence,
until a period was fixed for the fulfillment
of the condition, petitioner could not be
considered as having failed to comply
with its part of the bargain. Thus, the
appellate court rendered its decision
reversing the appealed decision and
remanding the case to the court of origin
for the determination of the time within
which petitioner should comply with the
first condition annotated in the certificate
of title.
Petitioner now alleged that the court of
Appeals erred: (a) in holding that the
quoted annotations in the certificate of
title of petitioner are onerous obligations
and resolutory conditions of the
donation which must be fulfilled noncompliance of which would render the
donation revocable; (b) in holding that
the issue of prescription does not
deserve "disquisition;" and, (c) in
remanding the case to the trial court for
the fixing of the period within which
petitioner would establish a medical
college. 2
We find it difficult to sustain the petition.
A clear perusal of the conditions set
forth in the deed of donation executed
by Don Ramon Lopez, Sr., gives us no
alternative but to conclude that this
donation was onerous, one executed for
a valuable consideration which is
considered the equivalent of the
donation itself, e.g., when a donation
imposes a burden equivalent to the
140
donation were sufficient to prevent the

statute of limitations from barring the
action of private respondents upon the
original contract which was the deed of
donation. 6
Moreover, the time from which the
cause of action accrued for the
revocation of the donation and recovery
of the property donated cannot be
specifically determined in the instant
case. A cause of action arises when that
which should have been done is not
done, or that which should not have
been done is done. 7 In cases where
there is no special provision for such
computation, recourse must be had to
the rule that the period must be counted
from
the
day
on
which
the
corresponding action could have been
instituted. It is the legal possibility of
bringing the action which determines the
starting point for the computation of the
period. In this case, the starting point
begins with the expiration of a
reasonable period and opportunity for
petitioner to fulfill what has been
charged upon it by the donor.
be demanded until after the court has

fixed the period for compliance therewith
and such period has arrived. 8
This general rule however cannot be
applied considering the different set of
circumstances existing in the instant
case. More than a reasonable period of
fifty (50) years has already been allowed
petitioner to avail of the opportunity to
comply with the condition even if it be
burdensome, to make the donation in its
favor forever valid. But, unfortunately, it
failed to do so. Hence, there is no more
need to fix the duration of a term of the
obligation when such procedure would
be a mere technicality and formality and
would serve no purpose that to delay or
lead to an unnecessary and expensive
multiplication of suits. 9 Moreover, under
Art. 1191 of the Civil Code, when one of
the obligors cannot comply with what is
incumbent upon him, the obligee may
seek rescission and the court shall
decree the same unless there is just
cause authorizing the fixing of a period.
In the absence of any just cause for the
court to determine the period of the
compliance, there is no more obstacle
for the court to decree the rescission
claimed.
Finally, since the questioned deed of
donation herein is basically a gratuitous
one, doubts referring to incidental
circumstances of a gratuitous contract
should be resolved in favor of the least
transmission of rights and interest. 10
Records are clear and facts are
undisputed that since the execution of
the deed of donation up to the time of
filing of the instant action, petitioner has
failed to comply with its obligation as
donee. Petitioner has slept on its
obligation for an unreasonable length of
time. Hence, it is only just and equitable
now to declare the subject donation
already ineffective and, for all purposes,
revoked so that petitioner as donee
should now return the donated property
to the heirs of the donor, private
respondents herein, by means of
reconveyance.
WHEREFORE, the decision of the
Regional Trial Court of Iloilo, Br. 34, of
The period of time for the establishment

of a medical college and the necessary
buildings and improvements on the
property cannot be quantified in a
specific number of years because of the
presence of several factors and
circumstances involved in the erection
of an educational institution, such as
government laws and regulations
pertaining to government laws and
regulations pertaining to education,
building requirements and property
restrictions which are beyond the control
of the donee. LibLex
Thus, when the obligation does not fix a
period but from its nature and
circumstances it can be inferred that a
period was intended, the general rule
provided in Art. 1197 of the Civil Code
applies, which provides that the courts
may fix the duration thereof because the
fulfillment of the obligation itself cannot
141
31 May 1991 is REINSTATED and

AFFIRMED, and the decision of the
Court of Appeals of 18 June 1993 is
accordingly MODIFIED. Consequently,
petitioner is directed to reconvey to
private respondents Lot No. 3174-B-1 of
the subdivision plan Psd-1144 covered
by Transfer Certificate of Title No. T3910-A within thirty (30) days from the
finality of this judgment.
whereby the Court of Appeals (CA)

upheld the order issued on November 5,
2002 by the Regional Trial Court,
Branch 67, in Pasig City (RTC) in Civil
Case
No.
67813
directing
the
defendants (petitioners herein) to
perform their obligation to provide
round-the-clock security for the property
under development. 2 Also appealed is
the
resolution
promulgated
on
September 12, 2005 denying the
petitioners' motion for reconsideration. 3
Antecedents
On September 23, 1994, Megaworld
Properties
and
Holdings,
Inc.
(developer) entered into a Joint Venture
Agreement (JVA) 4 with Majestic
Finance and Investment Co., Inc.
(owner) for the development of the
residential subdivision located in Brgy.
Alingaro,
General
Trias,
Cavite.
According to the JVA, the development
of the 215 hectares of land belonging to
the owner (joint venture property) would
be for the sole account of the developer;
5 and that upon completion of the
development of the subdivision, the
owner would compensate the developer
in the form of saleable residential
subdivision lots. 6 The JVA further
provided that the developer would
advance all the costs for the relocation
and resettlement of the occupants of the
joint venture property, subject to
reimbursement by the owner; 7 and that
the developer would deposit the initial
amount of P10,000,000.00 to defray the
expenses for the relocation and
settlement, and the costs for obtaining
from the Government the exemptions
and conversion permits, and the
required clearances. 8
On September 24, 1994, the developer
and owner agreed, through the
addendum to the JVA, 9 to increase the
initial deposit for the settlement of
claims and the relocation of the tenants
from
P10,000,000.00
to
P60,000,000.00.
On October 27, 1994, the developer, by
deed of assignment, 10 transferred,
conveyed and assigned to Empire East
Land
Holdings,
Inc.
Costs against petitioner.

SO ORDERED.
Quiason and Kapunan, JJ ., concur.
||| (Central Philippine University v. Court
of Appeals, G.R. No. 112127, [July 17,
1995], 316 PHIL 616-634)
ART 1184 - The condition that some
event happen at a determinate time
shall extinguish the obligation as
soon as the time expires or if it has
become indubitable that the event
will not take place. (1117)
22. MEGAWORLD VS. MAJESTIC
FINANCE
FIRST DIVISION
[G.R. No. 169694. December 9, 2015.]
MEGAWORLD PROPERTIES AND
HOLDINGS, INC., EMPIRE EAST LAND
HOLDINGS, INC., and ANDREW L.
TAN,
petitioners,
vs.
MAJESTIC
FINANCE AND INVESTMENT CO.,
INC., RHODORA LOPEZ-LIM, and
PAULINA CRUZ, respondents.
DECISION
BERSAMIN, J p:
This case arises from a dispute on
whether either party of a joint venture
agreement to develop property into a
residential subdivision has already
performed its obligation as to entitle it to
demand the performance of the other's
reciprocal obligation.
The Case
Under
review
is
the
decision
promulgated on April 27, 2005, 1
142
(developer/assignee) all its rights and

obligations under the JVA including the
addendum.
On February 29, 2000, the owner filed in
the RTC a complaint for specific
performance with damages against the
developer, the developer/assignee, and
respondent Andrew Tan, who are now
the petitioners herein. The complaint,
docketed as Civil Case No. 67813, was
mainly based on the failure of the
petitioners to comply with their
obligations under the JVA, 11 including
the obligation to maintain a strong
security force to safeguard the entire
joint venture property of 215 hectares
from illegal entrants and occupants.
CAIHTE
Following the joinder of issues by the
petitioners' answer with counterclaim,
and by the respondents' reply with
answer to the counterclaim, the RTC set
the pre-trial of the case. At the
conclusion of the pre-trial conference,
the presentation of the owner's evidence
was suspended because of the parties'
manifestation that they would settle the
case amicably. It appears that the
parties negotiated with each other on
how to implement the JVA and the
addendum.
On September 16, 2002, the owner filed
in the RTC a manifestation and motion,
12 praying therein that the petitioners be
directed to provide round-the-clock
security for the joint venture property in
order to defend and protect it from the
invasion of unauthorized persons. The
petitioners opposed the manifestation
and motion, 13 pointing out that: (1) the
move to have them provide security in
the properties was premature; and (2)
under the principle of reciprocal
obligations, the owner could not compel
them to perform their obligations under
the JVA if the owner itself refused to
honor its obligations under the JVA and
the addendum.
On November 5, 2002, the RTC issued
its first assailed order, 14 directing the
developer to provide sufficient roundthe-clock security for the protection of
the joint venture property, as follows:
For consideration is a "Manifestation

and Motion" filed by plaintiff, through
counsel, defendants having filed their
Opposition thereto, the incident is now
ripe for resolution.
After a careful examination of the
records of this case, the Court believes
that the defendants should provide
security for the 215 hectares land
subject of the joint venture agreement to
protect it from unlawful elements as well
as to avoid undue damage which may
be caused by the settling of squatters.
As specified in Article III par. (j) of the
joint venture agreement which was
entered into by plaintiffs and defendants,
the latter shall at its exclusive account
and sole expense secure the land in
question from the influx of squatters
and/or unauthorized settlers, occupants,
tillers, cultivators and the likes from date
of execution of this agreement.
WHEREFORE, and as prayed for, the
Court hereby directs the defendants to
provide sufficient round the clock
security for the protection of the 215
hectares land subject of the joint venture
agreement during the pendency of this
case.
SO ORDERED.
The
petitioners
sought
the
reconsideration of the November 5,
2002 order, 15 but the RTC denied the
motion on May 19, 2003, 16 observing
that there was no reason to reverse the
order in question considering that the
allegations
in
the
motion
for
reconsideration, being a mere rehash of
those made earlier, had already been
passed upon.
On August 4, 2003, the petitioners
instituted a special civil action for
certiorari in the CA, 17 claiming therein
that the RTC thereby gravely abused its
discretion amounting to lack or excess
of jurisdiction in issuing the order of
November 5, 2002, specifying the
following grounds, namely:
THE PUBLIC RESPONDENT GRAVELY
ABUSED
HIS
DISCRETION
AMOUNTING TO LACK OR EXCESS
OF JURISDICTION IN DIRECTING
PETITIONERS TO PROVIDE ROUND
143
THE CLOCK SECURITY GUARDS ON

THE SUBJECT PROPERTIES.
I.
THE
PUBLIC
RESPONDENT
ARBITRARILY AND PREMATURELY
DISPOSED OF ONE OF THE
RELIEF[S] PRAYED FOR BY PRIVATE
RESPONDENTS
IN
THEIR
COMPLAINT WHEN TRIAL HAS NOT
EVEN STARTED.
II.
PUBLIC
RESPONDENT
ARBITRARILY DISREGARDED THE
FACT THAT THE PARTIES ARE
DISCUSSING HOW TO PURSUE THE
JVA.
III.
PUBLIC
RESPONDENT
ARBITRARILY DISREGARDED THE
PRINCIPLE
OF
"RECIPROCAL
OBLIGATIONS" UNDER THE CIVIL
CODE.
On April 27, 2005, the CA promulgated
its assailed decision dismissing the
petitioner's petition for certiorari, 18
ruling thusly:
On the merits of the petition, our
examination of the records shows
nothing whimsical or arbitrary in the
respondent judge's order directing the
petitioners to provide security over the
joint venture property. Like the
respondent judge, we believe that the
obligation of the petitioners under the
JVA to provide security in the area, as
spelled out under Article II, par. (c) and
Article III, paragraphs (h) and (j), is well
established, thus:
xxx xxx xxx
These clear and categorical provisions
in the JVA which petitioners
themselves do not question obviously
belie
their
contention
that
the
respondent judge's order to provide
security for the property is premature at
this stage. The petitioner's obligation to
secure the property under the JVA arose
upon the execution of the Agreement, or
as soon as the petitioners acquired
possession of the joint venture property
in 1994, and is therefore already
demandable. The settled rule is that
"contracts are the laws between the
contracting parties, and if their terms are
clear and leave no room for doubt as to
their intentions, the contracts are
obligatory no matter what their forms

may be, whenever the essential
requisites for their validity are present."
Thus, unless the existence of this
particular obligation i.e., to secure the
joint venture property is challenged,
petitioners are bound to respect the
terms of the Agreement and of his
obligation as the law between them and
MAJESTIC.
We stress along this line that the
complaint MAJESTIC filed below is for
specific performance and is not for
rescission of contract. The complaint
presupposes existing obligations on the
part of the petitioners that MAJESTIC
seeks to be carried out in accordance
with the terms of the Agreement.
Significantly, MAJESTIC did not pray in
the complaint that petitioners be ordered
to secure the area from the influx of
illegal settlers and squatters because
petitioner's obligation in this regard
commenced upon the execution of the
JVA and hence, is already an existing
obligation. What it did ask is for the
petitioners to maintain a strong security
force at all times over the area, in
keeping with their commitment to secure
the area from the influx of illegal settlers
and occupant. To be sure, to "maintain"
means "to continue", "to carry on", to
"hold or keep in any particular state or
condition"
and
presupposes
an
obligation that already began. Thus,
contrary to petitioner's submissions, the
question of whether or not they have the
obligation to provide security in the area
is not at all an issue in the case below.
The issue MAJESTIC presented below
is whether or not petitioner should be
ordered to maintain a strong security
force within the joint venture property.
Hence, in issuing the assailed orders,
the public respondent prejudged no
issue that is yet to be resolved after the
parties shall have presented their
evidence. DETACa
Our conclusion (that the petitioner's
obligation to secure and protect the joint
venture property is a non-issue in the
case below) necessarily explains why
the first assailed order although not in
144
the form of a preliminary mandatory

injunction is nonetheless legally
justified. As an established and
undisputed interim measure pending the
resolution of the case on the merits, we
do not see its enforcement as hindrance
to whatever negotiations the parties may
undertake to settle their dispute.
Nor do we find the principle of reciprocal
obligations a justification for petitioner's
refusal to perform their commitment of
safeguarding the joint venture property.
For, while it is true that the JVA gives
rise to reciprocal obligations from both
parties, these obligations are not
necessarily demandable at the same
time. MAJESTIC's initial obligation
under the JVA is to deliver or surrender
to the petitioners the possession of the
joint venture property an obligation it
fulfilled upon the execution of the
Agreement. MAJESTIC's obligation
under the JVA to deliver to the
petitioners the titles to the joint venture
property and to reimburse them for
tenant-related
expenses
are
demandable at later stages of the
contract or upon completion of the
development, and therefore may not be
used by the petitioners as an excuse for
not complying with their own currently
demandable obligation.
All told, we believe that securing and
protecting the area from unlawful
elements benefits both the developer
and the landowner who are equally keen
in safeguarding their interests in the
project. Otherwise stated, incursion by
unlawful settlers into an unsecured and
unprotected joint venture property can
only cause great loss and damage to
both parties. Reasons of practicality
within legal parameters, rather than
grave abuse of discretion, therefore
underlie
the
respondent
judge's
challenged orders.
we hereby DISMISS the petition for lack
of merit.
SO ORDERED. 19 (Emphasis omitted)
On May 26, 2005, the petitioners filed a
motion for reconsideration, 20 but the
CA denied the motion on September 12,

2005. 21
Hence, this appeal by petition for review
on certiorari.
Issues
The petitioner submits the following
issues:
a. Whether or not the petitioners are
obligated to perform their obligations
under the JVA, including that of
providing round-the-clock security for
the
subject
properties,
despite
respondents' failure or refusal to
acknowledge, or perform their reciprocal
obligations there;
b. Whether or not the RTC gravely
abused its discretion in directing the
petitioners to perform their obligations
under the JVA, including that of
providing round-the-clock security for
the subject properties, although the JVA
had been suspended due to the parties'
disagreement as to how to implement
the same;
c. Whether or not the RTC gravely
abused its discretion in issuing the first
and second assailed orders and
prematurely resolving and disposing of
one of the causes of action of the
respondents, which was to provide
round-the-clock security for the subject
properties, an issue proposed by the
respondents,
even
before
the
termination of the pre-trial;
d. Whether or not the RTC gravely
abused its discretion in issuing the first
and second assailed orders in clear
disregard
of
the
mandatory
requirements of Rule 58 of the Rules of
Court. 22
Ruling of the Court
The appeal is meritorious. The CA erred
in upholding the November 5, 2002
order of the RTC.
The obligations of the parties under the
JVA were unquestionably reciprocal.
Reciprocal obligations are those that
arise from the same cause, and in which
each party is a debtor and a creditor of
the other at the same time, such that the
obligations of one are dependent upon
the obligations of the other. They are to
be performed simultaneously, so that the
145
performance by one is conditioned upon

the simultaneous fulfillment by the other.
23 As the Court has expounded in
Consolidated Industrial Gases, Inc. v.
Alabang Medical Center: 24
Reciprocal obligations are those which
arise from the same cause, and in which
the other, such that the obligation of one
is dependent upon the obligation of the
other. They are to be performed
simultaneously, so that the performance
of one is conditioned upon the
simultaneous fulfillment of the other. In
reciprocal obligations, neither party
other begins.
xxx xxx xxx
In reciprocal obligations, before a party
can demand the performance of the
obligation of the other, the former must
also perform its own obligation. For its
failure to turn over a complete project in
accordance with the terms and
conditions of the installation contracts,
CIGI cannot demand for the payment of
the contract price balance from AMC,
which, in turn, cannot legally be ordered
to pay. 25
The determination of default on the part
of either of the parties depends on the
terms of the JVA that clearly categorized
the parties' several obligations into two
types.
The first type related to the continuous
obligations that would be continuously
performed from the moment of the
execution of the JVA until the parties
shall have achieved the purpose of their
joint venture. The continuous obligations
under the JVA were as follows: (1) the
developer would secure the joint venture
property from unauthorized occupants;
26 (2) the owner would allow the
developer to take possession of the joint
venture property; 27 (3) the owner
would deliver any and all documents
necessary for the accomplishment of
each activity; 28 and (4) both the
developer and the owner would pay the

real estate taxes. 29
The second type referred to the activity
obligations. The following table shows
the activity obligations of the parties
under the JVA, to wit:
SEQUENCE OF ACTIVITIES (Article
XIV of the JVA)
ACTIVITY
OWNER
DEVELOPER
OBLIGATION
OBLIGATION
Signing of JVA.
Sign JVA
Sign
JVA
Art. II (b)
Art. V par. 2
Deliver any and all Pay
real
estate taxes
documents required for theArt.
IIIa par. 2
successful
development
of
Deposit P10M
the Project
Art. V par. 2
Pay real estate taxes
Art. II (g)
Warrant
absolute
ownership
DEVELOPER to negotiate Art. II (b)
Art. V par. 2
immediately with all Deliver any and all
Pay real estate taxes
tenants, settlers,
documents required
for the Art. II (c)
occupants, tillers, successful
development of
Take possession of
the
cultivators of the land in
the
Project
parcels of land
question.
Art. V par. 2 Art. III (j)
Pay
real
estate
taxes
Secure property from
Art. II (c)
invasion
of
squatters and
Allow DEVELOPER to
other
elements
take possession of subject Art. III
(c)
property
To negotiate with
occupants
146
one (1) year from date of accepted

conditions. Art. III (a) par. 2
execution of this
Art. VI Deposit
P10M in a joint
Agreement. The
Must consent on
the
account of OWNER and
remaining
25%
of
the
reasonableness
of
the
DEVELOPER
same requirements shall expenses.
Art. III (c)
be fully accomplished
Relocate the occupants
within another 6 months
from date of expiration of
the original one-year
period.
DEVELOPER to pay and Art. II (b)

Art. V par. 2
settle all monetary claims Deliver any
and allPay real estate taxes
of all tenants, settlers,
documents
required for the
Art. II (c)
occupants, tillers, successful
development of
Take possession of
the
cultivators of the land.
the
Project
parcels of land
Art. V par. 2 Art. III (j)
Pay
real
estate
taxes
Secure property from
Art. VI invasion of squatters and
Must consent on the
other
elements
reasonableness oh the
Art. III
(a) par. 1
expenses. Advance expense
for
settlement and relocation
Art. III (a) par. 2
Deposit P10M in a joint
account of parties.
DEVELOPER to apply for Art. II (b)

Art. V par. 2
and secure exemption or Deliver any
conversion permit and
documents
required for the
Art. II (c)
such other related successful
development of
Take possession of
the
requirements needed for the
Project
parcels of land
the approval of exemption Art. V par. 2
Art. III (j)
or conversion application Pay
real
estate taxes Secure property from
of the land in question
Art. II (f)
invasion of squatters and
within a period of one and Assist
DEVELOPER secure
other
elements
a half (1 1/2) years from exemption
from CARL and
Art. III (a)
date
of
execution
of
this
conversion/reclassification
Advance expenses for
Agreement subject to a six of
subject
property
exemption, conversion,
(6) month extension.
Art. III (b)
re-classification expenses.
Give DEVELOPER Art. III (b)
secure
authority
to
apply
for
exemption and conversion
exemption, conversion andpermit
re-classification.
DEVELOPER to relocate Art. II (b)

Art. V par. 2
and
transfer
all
the
tenants,
Deliver any and all Pay
real
estate taxes
settlers, occupants, tillers, documents
required for the
Art. II (c)
cultivators of the land to successful
development of
Take possession of
the
their relocation site, and the
Project
parcels of land
shall endeavor to fulfill
Art. V par. 2
Art. III (j)
the same and the two
Pay
real
immediately preceding
Art. II (d)
paragraphs (b & c) up to Agree
to
allocate and other elements
the extent of 75% aggregate
a
resettlement Art. III (a) par. 1
accomplishment
site
within
the
property
Advance expense for
thereof within a period of subject
to
mutually
settlement and relocation
147
Art. VI
Must consent on the
reasonableness of the
expenses.
after release of DAR

successful
development of
Take possession of
the
exemption permit or the
Project
parcels of land
conversion clearance and Art. V par. 2
Art. III (j)
approval of other required Pay
real
permits by pertinent
invasion of
squatters and
agencies of the
other
elements
government.
Art. III (c)
Mobilize development
work and solely pay its
expenses
Art. III (f)
Develop the property and
solely pay its expenses on
necessary permits
DEVELOPER to lay out a Art. III (i)

Art. III (d)
complete Development
Give written
conformity to Complete comprehensive
Plan the
development
plan
development plan (within
6 months to one year from
the execution of the JVA)
DEVELOPER to apply for Art. II (b)
Art. V par. 2
and secure all necessary Deliver any
development permit,
documents
required for the
Art. II (c)
performance bonds, successful
development of
Take possession of
the
environmental compliance the
Project
parcels of land
certificate, license to sell Art. V par. 2
Art. III (j)
and all other related Pay real estate
taxes Secure property from
requirement from
invasion of
squatters and
the pertinent Municipal
other
elements
Government, DENR,
Art. III
(f)
HLURB and other
Secure
development
governmental agencies
permit, ECC, License to
concerned within a period
Sell,
etc.
of 2 years from date of
execution of this
Agreement.
DEVELOPER to secure
Art. II (b)
Art. V par. 2
approval of subdivision
Deliver any
plan and technical documents required
for the Art. II (c)
description from the successful
development of
Take possession of
the
Bureau of Lands based on the
Project
parcels of land
the approved scheme and Art. V par. 2
Art. III (j)
thereafter to petition,
Pay
real
follow-up and secure the Art. II (a)
release of individual titles Deliver titles
to
other elements
for all lots in the project in
DEVELOPER
Art. III (k)
the respective names of Art. II (a)
Process titling of lots
the parties from the Execute Deed of
DEVELOPER
Art. II (b)
Art. V
par. 2
construction stage/ground Deliver any
breaking to commence
documents
required for the
Art. II (c)
register of deeds. Assignment

Art. III (a)
Pay all expenses for
settlement of claims,
relocation, application for
exemption, conversion, re148
classification
Market and Sell the Fix
Fix selling date
property
selling
In each activity, the obligation of each

party was dependent upon the
obligation of the other. Although their
obligations were to be performed
simultaneously, the performance of an
activity obligation was still conditioned
upon the fulfillment of the continuous
obligation, and vice versa. Should either
party cease to perform a continuous
obligation, the other's subsequent
activity obligation would not accrue.
Conversely, if an activity obligation was
not performed by either party, the
continuous obligation of the other would
cease to take effect. The performance of
the continuous obligation was subject to
the resolutory condition that the
precedent obligation of the other party,
whether continuous or activity, was
fulfilled as it became due. Otherwise,
the continuous obligation would be
extinguished.
According to Article 1184 of the Civil
Code, the condition that some event
happen at a determinate time shall
extinguish the obligation as soon as the
time expires, or if it has become
indubitable that the event will not take
place. Here, the common cause of the
parties in entering into the joint venture
was the development of the joint venture
property into the residential subdivision
as to eventually profit therefrom.
Consequently, all of the obligations
under the JVA were subject to the
happening of the complete development
of the joint venture property, or if it would
become indubitable that the completion
would not take place, like when an
obligation, whether continuous or
activity, was not performed. Should any
of the obligations, whether continuous or
activity, be not performed, all the other
remaining obligations would not ripen
into demandable obligations while those
already performed would cease to take
effect. This is because every single
obligation of each party under the JVA
rested on the common cause of profiting
from the developed subdivision.
It appears that upon the execution of the
JVA, the parties were performing their
respective
obligations
until
date
Owner to reimburse and

pay the DEVELOPER
The activities under the JVA fell into
seven major categories, specifically (1)
the relocation of the occupants; (2) the
completion of the development plan; (3)
the securing of exemption and
conversion permits; (4) the obtention of
the
development
permits
from
government
agencies;
(5)
the
development of the subject land; (6) the
issuance of titles for the subdivided lots;
and (7) the selling of the subdivided lots
and the reimbursement of the advances.
aDSIHc
For the first activity (i.e., the relocation
of the occupants), the developer was
obliged to negotiate with the occupants,
to advance payment for disturbance
compensation, and to relocate the
occupants to an area within the subject
land, while the owner was obliged to
agree to and to allocate the resettlement
site within the property, and to approve
the expenses to be incurred for the
process. Should the owner fail to
allocate the site for the resettlement, the
obligation of the developer to relocate
would not be demandable. Conversely,
should the developer fail to negotiate
with the occupants, the owner's
obligation to allocate the resettlement
site would not become due.
As to the second activity (i.e., the
completion of the development plan),
the developer had the obligation to lay
out the plan, but the owner needed to
conform to the plan before the same
was finalized. Accordingly, the final
development plan would not be
generated should the owner fail to
approve the lay-out plan; nor would the
owner be able to approve if no such
plan had been initially laid out by the
developer.
149
disagreement arose between them that

affected the subsequent performance of
their
accrued
obligations.
Being
reciprocal in nature, their respective
obligations as the owner and the
developer were dependent upon the
performance by the other of its
obligations; hence, any claim of delay or
non-performance against the other
could prosper only if the complaining
party had faithfully complied with its own
correlative obligation. 30
A respected commentator has cogently
observed in this connection: 31
135. Same; consequences of
simultaneous
performance. As
a
consequence of the rule of simultaneous
performance, if the party who has not
performed his obligation demands
performance from the other, the latter
may interpose the defense of unfulfilled
contract
(exceptio
non
adimpleti
contractus) by virtue of which he cannot
be obliged to perform while the other's
obligation remains unfulfilled. Hence,
the Spanish Supreme Court has ruled
that the non-performance of one party is
justified if based on the nonperformance of the other; that the party
who has failed to perform cannot
demand performance from the other;
and that judicial approval is not
necessary to release a party from his
obligation, the non-performance of the
other being a sufficient defense against
any demand for performance by the
guilty party.
Another consequence of simultaneous
performance is the rule of compensatio
morae, that is to say that neither party
incurs in delay if the other does not or is
not ready to comply in a proper manner
with what is incumbent upon him. From
the moment one of the parties fulfills his
obligations, delay by the other begins.
Yet, the record is bereft of the proof to
support the lower courts' unanimous
conclusion that the owner had already
performed its correlative obligation
under the JVA as to place itself in the
position to demand that the developer
should already perform its obligation of
providing the round-the-clock security
on the property. In issuing its order of

November 5, 2002, therefore, the RTC
acted whimsically because it did not first
ascertain whether or not the precedent
reciprocal obligation of the owner upon
which the demanded obligation of the
developer was dependent had already
been performed. Without such showing
that the developer had ceased to
perform a continuous obligation to
provide security over the joint venture
property despite complete fulfillment by
the owner of all its accrued obligations,
the owner had no right to demand from
the developer the round-the-clock
security over the 215 hectares of land.
The CA further gravely erred in
characterizing the order for the
petitioners to implement the round-theclock security provision of the JVA and
the addendum as an established and
undisputed interim measure that could
be issued pending the resolution of the
case on the merits.
Apart from the provisional remedies
expressly
recognized
and
made
available under Rule 56 to Rule 61 of
the Rules of Court, the Court has
sanctioned only the issuance of the
status quo ante order but only to
maintain the last, actual, peaceable and
uncontested state of things that
preceded the controversy. 32 The
eminent Justice Florenz D. Regalado,
33 an authority on remedial law, has
delineated the nature of the status quo
ante order, and distinguished it from the
provisional
remedy of
temporary
restraining order, as follows:
There have been instances when the
Supreme Court has issued a status quo
order which, as the very term connotes,
is merely intended to maintain the last,
actual, peaceable and uncontested state
of
things
which
preceded
the
controversy. This was resorted to when
the projected proceedings in the case
made the conservation of the status quo
desirable or essential, but the affected
party neither sought such relief or the
allegations in his pleading did not
sufficiently make out a case for a
temporary restraining order. The status
150
quo order was thus issued motu proprio

on equitable considerations. Also, unlike
a temporary restraining order or a
preliminary injunction, a status quo
order is more in the nature of a cease
and desist order, since it neither directs
the doing or undoing of acts as in the
case of prohibitory or mandatory
injunctive relief. The further distinction is
provided by the present amendment in
the sense that, unlike the amended rule
on restraining orders, a status quo order
does not require the posting of a bond.
The order of November 5, 2002, by
directing the developer to provide
sufficient round-the-clock security for the
protection of the joint venture property
during the pendency of the case, was
not of the nature of the status quo ante
order because the developer, as averred
in the complaint, had not yet provided a
single security watchman to secure the
entire 215 hectares of land for several
years, 34 Also, the owner stated in the
comment to the petition that the
developer had dismissed all the security
guards posted in the property since
1997. 35 At the time of the filing of the
complaint for specific performance on
February 29, 2000, therefore, the last
actual, peaceable and uncontested state
of things preceding the controversy was
the absence of such security, not the
installation
of
the
security
personnel/measures. In fact, the failure
of the developer to provide the roundthe-clock security itself became the
controversy that impelled the owner to
bring the action against the petitioners.
By preliminarily directing the developer
to provide sufficient round-the-clock
security for the protection of the joint
venture property during the pendency of
the case, the November 5, 2002 order of
the RTC did not come under the
category of the status quo ante order
that would issue upon equitable
consideration, or even of an injunctive
relief that would issue under Rule 58 of
the Rules of Court. Hence, the issuance
of the order constituted a blatant
jurisdictional error that needed to be
excised. Verily, a jurisdictional error is
one by which the act complained of was

issued by the court without or in excess
of jurisdiction. 36 Without jurisdiction
means that the court acted with absolute
want
of jurisdiction.
Excess of
jurisdiction means that the court has
jurisdiction but has transcended the
same or acted without any statutory
authority. 37
Although the RTC undoubtedly had
jurisdiction to hear and decide the
principal action for specific performance
as well as to act on the motions
submitted to it in the course of the
proceedings, the distinction between
jurisdiction over the case and jurisdiction
to issue an interlocutory order as an
ancillary remedy incident to the principal
action should be discerned. We have
frequently declared that a court may
have jurisdiction over the principal
action but may nevertheless act
irregularly or in excess of its jurisdiction
in the course of its proceedings by the
granting of an auxiliary remedy. 38 In
Leung Ben v. O'Brien, 39 for instance,
this Court has thus clarified: ETHIDa
It may be observed in this connection
that the word "jurisdiction" as used in
attachment cases, has reference not
only to the authority of the court to
entertain the principal action but also to
its authority to issue the attachment, as
dependent upon the existence of the
statutory ground. (6 C.J., 89.) This
distinction between jurisdiction to issue
the attachment as an ancillary remedy
incident to the principal litigation is of
importance; as a court's jurisdiction over
the main action may be complete, and
yet it may lack authority to grant an
attachment as ancillary to such action.
This distinction between jurisdiction over
the ancillary has been recognized by
this court in connection with actions
involving the appointment of a receiver.
Thus in Rocha & Co. vs. Crossfield and
Figueras (6 Phil. Rep., 355), a receiver
had been appointed without legal
justification. It was held that the order
making the appointment was beyond the
jurisdiction of the court; and though the
court admittedly had jurisdiction of the
151
main cause, the order was vacated by

this court upon application a writ of
certiorari. (See Blanco vs. Ambler, 3
Phil. Rep., 358, Blanco vs. Ambler and
McMicking 3 Phil. Rep., 735, Yangco vs.
Rohde, 1 Phil. Rep., 404.)
By parity of reasoning it must follow that
when a court issues a writ of attachment
for which there is no statutory authority,
it is acting irregularly and in excess of its
jurisdiction, in the sense necessary to
justify the Supreme Court in granting
relief by the writ of certiorari.
WHEREFORE, the Court GRANTS the
petition for review on certiorari;
REVERSES and SETS ASIDE the
decision promulgated on April 27, 2005
and the resolution promulgated on
September 12, 2005; NULLIFIES the
orders issued on November 5, 2002 and
May 19, 2003 in Civil Case No. 67813
by the Regional Trial Court, Branch 67,
in Pasig City; DIRECTS the Regional
Trial Court, Branch 67, in Pasig City to
resume the proceedings in Civil Case
No. 67813 with dispatch; and ORDERS
the respondents to pay the costs of suit.
SO ORDERED.
Perez and Perlas-Bernabe, JJ., concur.
||| (Megaworld Properties and Holdings,
Inc. v. Majestic Finance and Investment
Co., Inc., G.R. No. 169694, [December
9, 2015])
APPEALS and ALBRIGIDO LEYVA,

respondents.
Facundo T. Bautista for petitioners.
Jesus T. Garcia for private respondent.
SYLLABUS
1.
CIVIL
LAW;
CONTRACTS;
RESCISSION; WAIVER OF RIGHT
THERETO. The suggestion of
petitioners that the covenant must be
cancelled in the light of private
respondent's so-called breach seems to
overlook petitioners' demeanor who,
instead of immediately filing the case
precisely to rescind the instrument
because of non-compliance, allowed
private respondent to effect numerous
payments posterior to the grace periods
provided in the contract. This apathy of
petitioners who even permitted private
respondent to take the initiative in filing
the suit for specific performance against
them, is akin to waiver or abandonment
of the right to rescind normally conferred
by Article 1191 of the Civil Code. As
aptly observed by Justice Gutierrez, Jr.
in Angeles vs. Calasanz (135 SCRA 323
[1985]; 4 Paras, Civil Code of the
Philippines Annotated, Twelfth Ed.
[1989], p. 203): ". . . We agree with the
plaintiffs-appellees that when the
defendants-appellants,
instead
of
availing of their alleged right to rescind,
have accepted and received delayed
payments of installments, though the
plaintiffs-appellees have been in arrears
beyond the grace period mentioned in
paragraph 6 of the contract, the
defendants-appellants have waived, and
are now estopped from exercising their
alleged right of rescission . . ." In
Development Bank of the Philippines vs.
Sarandi (5 CAR (25) 811; 817-818; cited
in 4 Padilla, Civil Code Annotated,
Seventh Ed. [1987], pp. 212-213) a
similar opinion was expressed to the
effect that: "In a perfected contract of
sale of land under an agreed schedule
of payments, while the parties may
mutually oblige each other to compel the
ART 1186 - The condition shall be

deemed fulfilled when the obligor
voluntarily prevents its fulfillment.
(1119)
23. TAYAG
VS.
APPEALS
COURT
OF
THIRD DIVISION
[G.R. No. 96053. March 3, 1993.]
JOSEFINA TAYAG, RICARDO GALICIA,
TERESITA GALICIA, EVELYN GALICIA,
JUAN GALICIA, JR. and RODRIGO
GALICIA, petitioners, vs. COURT OF
152
specific performance of the monthly

amortization plan, and upon failure of
the buyer to make the payment, the
seller has the right to ask for a
rescission of the contract under Art.
1191 of the Civil Code, this shall be
deemed waived by acceptance of
posterior payments." Both the trial and
appellate courts were, therefore, correct
in sustaining the claim of private
respondent anchored on estoppel or
waiver by acceptance of delayed
payments under Article 1235 of the Civil
Code in that: "When the obligee accepts
the
performance,
knowing
its
incompleteness or irregularity, and
without expressing any protest or
objection, the obligation is deemed fully
complied with."
DECISION
MELO, J p:
The deed of conveyance executed on
May 28, 1975 by Juan Galicia, Sr., prior
to his demise in 1979, and Celerina
Labuguin, in favor of Albrigido Leyva
involving the undivided one-half portion
of a piece of land situated at Poblacion,
Guimba, Nueva Ecija for the sum of
P50,000.00 under the following terms:
"1. The sum of PESOS: THREE
THOUSAND (P3,000.00) is HEREBY
acknowledged to have been paid upon
the execution of this agreement;
2. The sum of PESOS: TEN
THOUSAND (P10,000.00) shall be paid
within ten (10) days from and after the
execution of this agreement;
2.
ID.;
ID.;
IN
RECIPROCAL
CONTRACTS BOTH PARTIES ARE
CONSIDERED MUTUALLY OBLIGORS
AND OBLIGEES OF EACH OTHER.
Respondent court applied Article 1186 of
the Civil Code on constructive fulfillment
which petitioners claim should not have
been appreciated because they are the
obligees while the proviso in point
speaks of the obligor. But, petitioners
must concede that in a reciprocal
obligation like a contract of purchase
(Ang vs. Court of Appeals, 170 SCRA
286 [1989]; 4 Paras, supra, at p. 201),
both parties are mutually obligors and
also obligees (4 Padilla, supra, at p.
197), and any of the contracting parties
may, upon non-fulfillment by the other
privy of his part of the prestation,
rescind the contract or seek fulfillment
(Article 1191, Civil Code). In short, it is
puerile for petitioners to say that they
are the only obligees under the contract
since they are also bound as obligors to
respect the stipulation in permitting
private respondent to assume the loan
with the Philippine Veterans Bank which
petitioners impeded when they paid the
balance of said loan. As vendors, they
are supposed to execute the final deed
of sale upon full payment of the balance
as determined hereafter.
3. The sum of PESOS: TEN

THOUSAND (P10,000.00) represents
the VENDORS' indebtedness with the
Philippine Veterans Bank which is
hereby assumed by the VENDEE; and
4. The balance of PESOS: TWENTY
SEVEN THOUSAND (P27,000.00) shall
be paid within one (1) year from and
after the execution of this instrument."
(p. 53, Rollo). cdll0
is the subject matter of the present
litigation between the heirs of Juan
Galicia, Sr. who assert breach of the
conditions
as
against
private
respondent's claim anchored on full
payment and compliance with the
stipulations thereof.
The court of origin which tried the suit
for specific performance filed by private
respondent on account of the herein
petitioners' reluctance to abide by the
covenant, ruled in favor of the vendee
(p. 64, Rollo) while respondent court
practically agreed with the trial court
except as to the amount to be paid to
petitioners and the refund to private
respondent are concerned (p. 46, Rollo).
153
There is no dispute that the sum of

P3,000.00 listed as first installment was
received by Juan Galicia, Sr. According
to petitioners, of the P10,000.00 to be
paid within ten days from execution of
the instrument, only P9,707.00 was
tendered to, and received by, them on
numerous occasions from May 29,
1975, up to November 3, 1979.
Concerning
private
respondent's
assumption of the vendors' obligation to
the Philippine Veterans Bank, the
vendee paid only the sum of P6,926.41
while the difference of the indebtedness
came from Celerina Labuguin (p. 73,
Rollo). Moreover, petitioners asserted
that not a single centavo of the
P27,000.00 representing the remaining
balance was paid to them. Because of
the apprehension that the heirs of Juan
Galicia, Sr. are disavowing the contract
inked by their predecessor, private
respondent filed the complaint for
specific performance.
the sister and co-vendor of Juan Galicia,

Sr. paid P3,778.77 which circumstance
was construed to be a ploy under Article
1186 of the Civil Code that "prematurely
prevented plaintiff from paying the
installment fully" and "for the purpose of
withdrawing the title to the lot". The
acceptance by petitioners of the various
payments even beyond the periods
agreed upon, was perceived by the
lower court as tantamount to faithful
performance of the obligation pursuant
to Article 1235 of the Civil Code.
Furthermore, the trial court noted that
private
respondent
consigned
P18,520.00, an amount sufficient to
offset the remaining balance, leaving the
sum of P1,315.00 to be credited to
private respondent.
On September 12, 1984, judgment was
rendered:
"1. Ordering the defendants heirs of
Juan Galicia, to execute the Deed of
Sale of their undivided ONE HALF (1/2)
portion of Lot No. 1130, Guimba
Cadastre, covered by TCT No. NT120563, in favor of plaintiff Albrigido
Leyva, with an equal frontage facing the
national road upon finality of judgment;
that, in their default, the Clerk of Court
II, is hereby ordered to execute the deed
of conveyance in line with the provisions
of Section 10, Rule 39 of the Rules of
Court; prcd
In addressing the issue of whether the

conditions of the instrument were
performed by herein private respondent
as vendee, the Honorable Godofredo G.
Rilloraza, Presiding Judge of Branch 31
of the Regional Trial Court, Third
Judicial Region stationed at Guimba,
Nueva Ecija, decided to uphold private
respondent's theory on the basis of
constructive fulfillment under Article
1186 and estoppel through acceptance
of piecemeal payments in line with
Article 1235 of the Civil Code.
2. Ordering the defendants, heirs of

Juan Galicia, jointly and severally to pay
attorney's fees of P6,000.00 and the
further sum of P3,000.00 for actual and
compensatory damages;
Anent the P10,000.00 specified as

second installment, the lower court
counted against the vendors the candid
statement of Josefina Tayag who sat on
the witness stand and made the
admission that the check issued as
payment thereof was nonetheless paid
on a staggered basis when the check
was dishonored (TSN, September 1,
1983, pp. 3-4; p. 3, Decision; p. 66,
Rollo). Regarding the third condition, the
trial court noted that plaintiff below paid
more than P6,000.00 to the Philippine
Veterans Bank but Celerina Labuquin,
3. Ordering Celerina Labuguin and the

other defendants herein to surrender to
the Court the owner's duplicate of TCT
No. NT-120563, province of Nueva
Ecija, for the use of plaintiff in registering
the portion, subject matter of the instant
suit;
4. Ordering the withdrawal of the
amount of P18,520.00 now consigned
154
with the Court, and the amount of

P17,204.75 be delivered to the heirs of
Juan Galicia as payment of the balance
of the sale of the lot in question, the
defendants herein after deducting the
amount of attorney's fees and damages
awarded to the plaintiff hereof and the
delivery to the plaintiff of the further sum
of P1,315.25 excess or over payment
and, defendants to pay the cost of the
suit." (p. 69, Rollo).
P18,500.00, he is entitled to get the

excess of P1,629.48. Thus, when the
heirs of Juan Galicia, Sr. (obligees)
accepted the performance, knowing its
incompleteness or irregularity and
complied with (Article 1235, Civil
Code)." (p. 50, Rollo)
Petitioners are of the impression that the
decision appealed from, which agreed
with the conclusions of the trial court, is
vulnerable to attack via the recourse
before Us on the principal supposition
that the full consideration of the
agreement to sell was not paid by
private respondent and, therefore, the
contract must be rescinded.
and following the appeal interposed with

respondent court, Justice Dayrit with
whom Justices Purisima and Aldecoa,
Jr. concurred, modified the fourth
paragraph of the decretal portion to
read:
"4. Ordering the withdrawal of the
amount of P18,500.00 now consigned
with the Court, and that the amount of
P16,870.52 be delivered to the heirs of
Juan Galicia, Sr. as payment to the
unpaid balance of the sale, including the
reimbursement of the amount paid to
Philippine Veterans Bank, minus the
amount of attorney's fees and damages
awarded in favor of plaintiff. The excess
of P1,649.48 will be returned to plaintiff.
The costs against defendants." (p. 51,
Rollo).
The suggestion of petitioners that the

covenant must be cancelled in the light
of private respondent's so-called breach
seems to overlook petitioners' demeanor
who, instead of immediately filing the
case precisely to rescind the instrument
because of non-compliance, allowed
private respondent to effect numerous
payments posterior to the grace periods
provided in the contract. This apathy of
petitioners who even permitted private
respondent to take the initiative in filing
the suit for specific performance against
them, is akin to waiver or abandonment
of the right to rescind normally conferred
by Article 1191 of the Civil Code. As
aptly observed by Justice Gutierrez, Jr.
in Angeles vs. Calasanz (135 SCRA 323
[1985]; 4 Paras, Civil Code of the
Philippines Annotated, Twelfth Ed.
[1989], p. 203): prcd
As to how the foregoing directive was

arrived at, the appellate court declared:
"With respect to the fourth condition
stipulated in the contract, the period
indicated therein is deemed modified by
the parties when the heirs of Juan
Galicia, Sr. accepted payments without
objection up to November 3, 1979. On
the basis of receipts presented by
appellee commencing from August 8,
1975 up to November 3, 1979, a total
amount of P13,908.25 has been paid,
thereby
leaving
a
balance
of
P13,091.75. Said unpaid balance plus
the amount reimbursable to appellant in
the amount of P3,778.77 will leave an
unpaid total of P16,870.52. Since
appellee consigned in court the sum of
" . . . We agree with the plaintiffsappellees that when the defendantsappellants, instead of availing of their
alleged right to rescind, have accepted
and received delayed payments of
installments, though the plaintiffsappellees have been in arrears beyond
the grace period mentioned in
paragraph 6 of the contract, the
defendants-appellants have waived, and
are now estopped from exercising their
alleged right of rescission . . . "
155
arising from overdue accounts of private

respondent.
Now, as to the issue of whether
payments had in fact been made, there
is no doubt that the second installment
was actually paid to the heirs of Juan
Galicia, Sr. due to Josefina Tayag's
admission in judicio that the sum of
P10,000.00 was fully liquidated. It is
thus erroneous for petitioners to
suppose that "the evidence in the
records do not support this conclusion"
(p. 18, Memorandum for Petitioners; p.
157, Rollo). A contrario, when the court
of origin, as well as the appellate court,
emphasized the frank representation
along this line of Josefina Tayag before
the trial court (TSN, September 1, 1983,
pp. 3-4; p. 5, Decision in CA-G.R. CV
No. 13339, p. 50, Rollo; p. 3, Decision in
Civil Case No. 681-G, p. 66, Rollo),
petitioners chose to remain completely
mute even at this stage despite the
opportunity accorded to them, for
clarification.
Consequently,
the
prejudicial aftermath of Josefina Tayag's
spontaneous reaction may no longer be
obliterated on the basis of estoppel
(Article 1431, Civil Code; Section 4,
Rule 129; Section 2(a), Rule 131,
Revised Rules on Evidence).
In Development Bank of the Philippines

vs. Sarandi (5 CAR (25) 811; 817-818;
cited in 4 Padilla, Civil Code Annotated,
Seventh Ed. [1987], pp. 212-213) a
similar opinion was expressed to the
effect that:
"In a perfected contract of sale of land
under an agreed schedule of payments,
while the parties may mutually oblige
each other to compel the specific
performance of the monthly amortization
plan, and upon failure of the buyer to
make the payment, the seller has the
right to ask for a rescission of the
contract under Art. 1191 of the Civil
Code, this shall be deemed waived by
acceptance of posterior payments."
Both the trial and appellate courts were,
therefore, correct in sustaining the claim
of private respondent anchored on
estoppel or waiver by acceptance of
delayed payments under Article 1235 of
the Civil Code in that:
"When the obligee accepts the
performance,
knowing
its
incompleteness or irregularity, and
complied with."
Insofar as the third item of the contract

is concerned, it may be recalled that
respondent court applied Article 1186 of
the Civil Code on constructive fulfillment
which petitioners claim should not have
been appreciated because they are the
obligees while the proviso in point
speaks of the obligor. But, petitioners
must concede that in a reciprocal
obligation like a contract of purchase
(Ang vs. Court of Appeals, 170 SCRA
286 [1989]; 4 Paras, supra, at p. 201),
both parties are mutually obligors and
also obligees (4 Padilla, supra, at p.
197), and any of the contracting parties
may, upon non-fulfillment by the other
privy of his part of the prestation,
rescind the contract or seek fulfillment
(Article 1191, Civil Code). In short, it is
puerile for petitioners to say that they
are the only obligees under the contract
considering that the heirs of Juan

Galicia, Sr. accommodated private
respondent by accepting the latter's
delayed payments not only beyond the
grace periods but also during the
pendency of the case for specific
performance (p. 27, Memorandum for
petitioners; p. 166, Rollo). Indeed, the
right to rescind is not absolute and will
not be granted where there has been
substantial compliance by partial
payments (4 Caguioa, Comments and
Cases on Civil Law, First Ed. [1968], p.
132). By and large, petitioners' actuation
is susceptible of but one construction
that they are now estopped from
reneging from their commitment on
account of acceptance of benefits
156
since they are also bound as obligors to

respect the stipulation in permitting
private respondent to assume the loan
with the Philippine Veterans Bank which
petitioners impeded when they paid the
balance of said loan. As vendors, they
are supposed to execute the final deed
of sale upon full payment of the balance
as determined hereafter. LibLex
respondent with legal rate of interest

until fully paid to the heirs of Juan
Galicia, Sr. as balance of the sale
including reimbursement of the sum
paid to the Philippine Veterans Bank,
minus the attorney's fees and damages
awarded in favor of private respondent.
The excess of P1,649.48 shall be
returned to private respondent also with
legal interest until fully paid by
petitioners.
With
costs
against
petitioners." cdrep
Lastly, petitioners argue that there was

no valid tender of payment nor
consignation of the sum of P18,520.00
which they acknowledge to have been
deposited in court on January 22, 1981
five years after the amount of
P27,000.00 had to be paid (p. 23,
Memorandum for Petitioners; p. 162,
Rollo). Again this suggestion ignores the
fact that consignation alone produced
the effect of payment in the case at bar
because it was established below that
two or more heirs of Juan Galicia, Sr.
claimed the same right to collect (Article
1256, (4), Civil Code; pp. 4-5, Decision
in Civil Case No. 681-G; pp. 67-68,
Rollo). Moreover, petitioners did not
bother to refute the evidence on hand
that, aside from the P18,520.00 (not
P18,500.00 as computed by respondent
court) which was consigned, private
respondent also paid the sum of
P13,908.25 (Exhibits "F" to "CC"; p. 50,
Rollo). These two figures representing
private respondent's payment of the
fourth condition amount to P32,428.25,
less the P3,778.77 paid by petitioners to
the bank, will lead us to the sum of
P28,649.48 or a refund of P1,649.48 to
private respondent as overpayment of
the P27,000.00 balance.
SO ORDERED.
Feliciano, Bidin, Davide,
Romero, JJ ., concur.
Jr.
and
Gutierrez, Jr., J ., is on terminal leave.

||| (Tayag v. Court of Appeals, G.R. No.
96053, [March 3, 1993])
ART 1191 - The power to rescind
obligations is implied in reciprocal
ones, in case one of the obligors
should not comply with what is
incumbent upon him.
The injured party may choose
between the fulfillment and the
rescission of the obligation, with the
payment of damages in either case.
He may also seek rescission, even
after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission
claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without
prejudice to the rights of third
persons who have acquired the thing,
in accordance with articles 1385 and
1388 and the Mortgage Law. (1124)

DISMISSED and the decision appealed
from is hereby AFFIRMED with the
slight modification of Paragraph 4 of the
dispositive thereof which is thus
amended to read:
24. CANNU VS. GALANG

SECOND DIVISION
"4. ordering the withdrawal of the sum of

P18,520.00 consigned with the Regional
Trial Court, and that the amount of
P16,870.52 be delivered by private
[G.R. No. 139523. May 26, 2005.]
157
SPS. FELIPE AND LETICIA CANNU,

petitioners, vs. SPS. GIL AND
FERNANDINA
GALANG
AND
NATIONAL
HOME
MORTGAGE
FINANCE
CORPORATION,
respondents.
Savings & Loan

P173,800.00.
Association
for
Respondent
Fernandina
Galang
authorized 4 her attorney-in-fact,
Adelina R. Timbang, to sell the subject
house and lot.
DECISION
Petitioner Leticia Cannu agreed to buy
the property for P120,000.00 and to
assume the balance of the mortgage
obligations with the NHMFC and with
CERF Realty 5 (the Developer of the
property). cEDIAa
CHICO-NAZARIO, J p:
Before Us is a Petition for Review on
Certiorari which seeks to set aside the
decision 1 of the Court of Appeals dated
30 September 1998 which affirmed with
modification the decision of Branch 135
of the Regional Trial Court (RTC) of
Makati City, dismissing the complaint for
Specific Performance and Damages
filed by petitioners, and its Resolution 2
dated 22 July 1999 denying petitioners'
Of the P120,000.00, the following

payments were made by petitioners:
Date Amount Paid
July 19, 1990 P40,000.00 6
March 13, 1991 15,000.00 7
A complaint 3 for Specific Performance

and Damages was filed by petitionersspouses Felipe and Leticia Cannu
against respondents-spouses Gil and
Fernandina Galang and the National
Home Mortgage Finance Corporation
(NHMFC) before Branch 135 of the RTC
of Makati, on 24 June 1993. The case
was docketed as Civil Case No. 932069.
April 6, 1991 15,000.00 8

November 28, 1991 5,000.00 9
Total P75,000.00
Thus, leaving a balance of P45,000.00.
A Deed of Sale with Assumption of
Mortgage Obligation 10 dated 20 August
1990 was made and entered into by and
between spouses Fernandina and Gil
Galang (vendors) and spouses Leticia
and Felipe Cannu (vendees) over the
house and lot in question which
contains, inter alia, the following:
The facts that gave rise to the aforesaid

complaint are as follows:
Respondents-spouses
Gil
and
Fernandina Galang obtained a loan from
Fortune Savings & Loan Association for
P173,800.00 to purchase a house and
lot located at Pulang Lupa, Las Pias,
with an area of 150 square meters
covered by Transfer Certificate of Title
(TCT) No. T-8505 in the names of
respondents-spouses.
To
secure
payment, a real estate mortgage was
constituted on the said house and lot in
favor of Fortune Savings & Loan
Association. In early 1990, NHMFC
purchased the mortgage loan of
respondents-spouses from Fortune
NOW, THEREFORE, for and in

consideration of the sum of TWO
HUNDRED FIFTY THOUSAND PESOS
(P250,000.00), Philippine Currency,
receipt of which is hereby acknowledged
by the Vendors and the assumption of
the mortgage obligation, the Vendors
hereby sell, cede and transfer unto the
Vendees, their heirs, assigns and
successor in interest the abovedescribed property together with the
existing improvement thereon.
158
It is a special condition of this contract

that the Vendees shall assume and
continue with the payment of the
amortization with the National Home
Mortgage Finance Corporation Inc. in
the
outstanding
balance
of
P_______________, as of __________
and shall comply with and abide by the
terms and conditions of the mortgage
document dated Feb. 27, 1989 and
identified as Doc. No. 82, Page 18,
Book VII, S. of 1989 of Notary Public for
Quezon City Marites Sto. Tomas Alonzo,
as if the Vendees are the original
signatories.
names of respondents-spouses had

been ceded and transferred to her and
her husband per Deed of Sale with
Assumption of Mortgage, and that they
were obligated to assume the mortgage
and pay the remaining unpaid loan
balance. Petitioners' formal assumption
of mortgage was not approved by the
NHMFC. 19
Because the Cannus failed to fully
comply
with
their
obligations,
respondent Fernandina Galang, on 21
May 1993, paid P233,957.64 as full
payment of her remaining mortgage
loan with NHMFC. 20
Petitioners immediately took possession

and occupied the house and lot.
Petitioners opposed the release of TCT

No. T-8505 in favor of respondentsspouses insisting that the subject
property had already been sold to them.
Consequently, the NHMFC held in
abeyance the release of said TCT.
TSHIDa
Petitioners made the following payments

to the NHMFC:
Date Amount Receipt No.
July 9, 1990 P14,312.47 D-503986 11
Thereupon, a Complaint for Specific

Performance and Damages was filed
asking, among other things, that
petitioners
(plaintiffs
therein)
be
declared the owners of the property
involved subject to reimbursements of
the amount made by respondentsspouses
(defendants
therein)
in
preterminating the mortgage loan with
NHMFC.
March 12, 1991 8,000.00 D-729478 12

February 4, 1992 10,000.00 D-999127
13
March 31, 1993 6,000.00 E-563749 14
April 19, 1993 10,000.00 E-582432 15
April 27, 1993 7,000.00 E-618326 16
Respondent NHMFC filed its Answer. 21

It claimed that petitioners have no cause
of action against it because they have
not submitted the formal requirements to
be
considered
assignees
and
successors-in-interest of the property
under litigation.
P55,312.47
Petitioners paid the "equity" or second
mortgage to CERF Realty. 17
Despite requests from Adelina R.
Timbang and Fernandina Galang to pay
the balance of P45,000.00 or in the
alternative to vacate the property in
question, petitioners refused to do so.
In their Answer, 22 respondentsspouses alleged that because of

petitioners-spouses' failure to fully pay
the consideration and to update the
monthly amortizations with the NHMFC,
they paid in full the existing obligations
with NHMFC as an initial step in the
rescission and annulment of the Deed of
Sale with Assumption of Mortgage. In
In a letter 18 dated 29 March 1993,

petitioner Leticia Cannu informed Mr.
Fermin T. Arzaga, Vice President, Fund
Management Group of the NHMFC, that
the ownership rights over the land
covered by TCT No. T-8505 in the
159
their counterclaim, they maintain that

the acts of petitioners in not fully
complying with their obligations give rise
to rescission of the Deed of Sale with
Assumption of Mortgage with the
corresponding damages.
spouses Galang to return the partial

payments made by plaintiffs; and the
plaintiffs are ordered, on the other hand,
to return the physical and legal
possession of the subject property to
spouses Galang by way of mutual
restitution; SIDEaA
After trial, the lower court rendered its

decision ratiocinating:
2. To pay defendants spouses Galang

and NHMFC, each the amount of
P10,000.00 as litigation expenses,
jointly and severally;
On the basis of the evidence on record,

testimonial and documentary, this Court
is of the view that plaintiffs have no
cause of action either against the
spouses Galang or the NHMFC.
Plaintiffs have admitted on record they
failed to pay the amount of P45,000.00
the balance due to the Galangs in
consideration of the Deed of Sale With
Assumption of Mortgage Obligation
(Exhs. "C" and "3"). Consequently, this
is a breach of contract and evidently a
failure to comply with obligation arising
from contracts. . . In this case, NHMFC
has not been duly informed due to lack
of formal requirements to acknowledge
plaintiffs as legal assignees, or
legitimate transferees and, therefore,
successors-in-interest to the property,
plaintiffs
should
have
no
legal
personality to claim any right to the
same property. 23
3. To pay attorney's fees to defendants

in the amount of P20,000.00, jointly and
severally; and
4. The costs of suit.
5. No moral and exemplary damages
awarded. 24
A Motion for Reconsideration 25 was
filed, but same was denied. Petitioners
appealed the decision of the RTC to the
Court of Appeals. On 30 September
1998, the Court of Appeals disposed of
the appeal as follows:
Obligations arising from contract have
the force of law between the contracting
parties and should be complied in good
faith. The terms of a written contract are
binding on the parties thereto.
The decretal portion of the decision

reads:
Plaintiffs-appellants therefore are under

obligation to pay defendants-appellees
spouses
Galang
the
sum
of
P250,000.00, and to assume the
mortgage.
Premises considered, the foregoing

complaint has not been proven even by
preponderance of evidence, and, as
such, plaintiffs have no cause of action
against the defendants herein. The
above-entitled
case
is
ordered
dismissed for lack of merit.
Records show that upon the execution

of the Contract of Sale or on July 19,
1990
plaintiffs-appellants
paid
defendants-appellees spouses Galang
the amount of only P40,000.00.
Judgment is hereby rendered by way of

counterclaim, in favor of defendants and
against plaintiffs, to wit:
The next payment was made by

plaintiffs-appellants on March 13, 1991
or eight (8) months after the execution
of the contract. Plaintiffs-appellants paid
1. Ordering the Deed of Sale With

Assumption of Mortgage Obligation
(Exhs. "C" and "3") rescinded and
hereby declared the same as nullified
without prejudice for defendants160
The next payment was made on April 6,

1991 for P15,000.00 and on November
28, 1991, for another P15,000.00.
On account of these circumstances, the

rescission of the Contract of Sale is
warranted and justified.
From 1991 until the present, no other

payments were made by plaintiffsappellants
to
defendants-appellees
spouses Galang.
xxx xxx xxx

WHEREFORE, foregoing considered,
the appealed decision is hereby
AFFIRMED
with
modification.
Defendants-appellees spouses Galang
are hereby ordered to return the partial
payments made by plaintiff-appellants in
Out of the P250,000.00 purchase price

which was supposed to be paid on the
day of the execution of contract in July,
1990 plaintiffs-appellants have paid, in
the span of eight (8) years, from 1990 to
present, the amount of only P75,000.00.
Plaintiffs-appellants should have paid
the P250,000.00 at the time of the
execution of contract in 1990. Eight (8)
years have already lapsed and plaintiffsappellants have not yet complied with
their obligation.
We consider
substantial.
this
breach
to
No pronouncement as to cost. 26
The motion for reconsideration 27 filed
by petitioners was denied by the Court
of Appeals in a Resolution 28 dated 22
July 1999.
be
Hence, this Petition for Certiorari.

Petitioners
raise
assignment of errors:
The tender made by plaintiffs-appellants

after the filing of this case, of the
Managerial Check in the amount of
P278,957.00 dated January 24, 1994
cannot be considered as an effective
mode of payment.
the
following
1. THE HONORABLE COURT OF

APPEALS ERRED WHEN IT HELD
THAT PETITIONERS' BREACH OF
THE
OBLIGATION
WAS
SUBSTANTIAL.
APPEALS ERRED WHEN IN EFFECT
IT HELD THAT THERE WAS NO
SUBSTANTIAL COMPLIANCE WITH
THE OBLIGATION TO PAY THE
MONTHLY
AMORTIZATION
WITH
NHMFC.
Performance or payment may be

effected not by tender of payment alone
but by both tender and consignation. It
is consignation which is essential in
order to extinguish plaintiffs-appellants
purchase price.

APPEALS ERRED WHEN IT FAILED
TO CONSIDER THE OTHER FACTS
AND
CIRCUMSTANCES
THAT
MILITATE AGAINST RESCISSION.
In addition, plaintiffs-appellants failed to

comply with their obligation to pay the
monthly amortizations due on the
mortgage. SDIACc
In the span of three (3) years from 1990
to 1993, plaintiffs-appellants made only
six payments. The payments made by
plaintiffs-appellants are not even
sufficient to answer for the arrearages,
interests and penalty charges.

APPEALS ERRED WHEN IT FAILED
TO CONSIDER THAT THE ACTION
FOR RESCISSION IS SUBSIDIARY. 29
161
Before discussing the errors allegedly

committed by the Court of Appeals, it
must be stated a priori that the latter
made a misappreciation of evidence
regarding the consideration of the
property in litigation when it relied solely
on the Deed of Sale with Assumption of
Mortgage executed by the respondentsspouses Galang and petitionersspouses Cannu.
pleading, among others, its failure to

express the true intent and agreement
of the parties thereto. 31
In the case at bar, when respondentsspouses enumerated in their Answer the
terms and conditions for the sale of the
property under litigation, which is
different from that stated in the Deed of
Sale with Assumption with Mortgage,
they already put in issue the matter of
consideration. Since there is a
difference as to what the true
consideration is, this Court has admitted
evidence aliunde to explain such
inconsistency. Thus, the Court has
looked
into
the
pleadings
and
testimonies of the parties to thresh out
the discrepancy and to clarify the intent
of the parties.
As above-quoted, the consideration for

the house and lot stated in the Deed of
Sale with Assumption of Mortgage is
P250,000.00, plus the assumption of the
balance of the mortgage loan with
NHMFC. However, after going over the
record of the case, more particularly the
Answer of respondents-spouses, the
evidence shows the consideration
therefor is P120,000.00, plus the
payment of the outstanding loan
mortgage with NHMFC, and of the
"equity" or second mortgage with CERF
Realty (Developer of the property). 30
As regards the computation 32 of

petitioners as to the breakdown of the
P250,000.00 consideration, we find the
same
to
be
self-serving
and
unsupported by evidence.
Nowhere in the complaint and answer of

the petitioners-spouses Cannu and
respondents-spouses Galang shows
that the consideration is "P250,000.00."
In fact, what is clear is that of the
P120,000.00 to be paid to the latter, only
P75,000.00 was paid to Adelina
Timbang,
the
spouses
Galang's
attorney-in-fact. This debunks the
provision in the Deed of Sale with
Assumption of Mortgage that the
amount of P250,000.00 has been
received by petitioners. SEAHID
On the first assigned error, petitioners

argue that the Court erred when it ruled
that their breach of the obligation was
substantial.
Settled is the rule that rescission or,
more accurately, resolution, 33 of a
party to an obligation under Article 1191
34 is predicated on a breach of faith by
the other party that violates the
reciprocity between them. 35 Article
1191 reads:
Inasmuch as the Deed of Sale with

Assumption of Mortgage failed to
express the true intent and agreement
of
the
parties
regarding
its
consideration, the same should not be
fully relied upon. The foregoing facts
lead us to hold that the case on hand
falls within one of the recognized
exceptions to the parole evidence rule.
Under the Rules of Court, a party may
present evidence to modify, explain or
add to the terms of the written
agreement if he puts in issue in his
Art. 1191. The power to rescind

obligations is implied in reciprocal ones,
in case one of the obligors should not
comply with what is incumbent upon
him.
The injured party may choose between
the fulfillment and the rescission of the
obligation, with the payment of damages
in either case. He may also seek
rescission, even after he has chosen
fulfillment, if the latter should become
impossible.
162
spouses Galang in the amount of

P278,957.00 seven months after the
filing of this case is of no moment.
Tender of payment does not by itself
produce legal payment, unless it is
completed by consignation. 40 Their
failure to fulfill their obligation gave the
respondents-spouses Galang the right
to rescission.

Rescission will not be permitted for a
slight or casual breach of the contract.
Rescission may be had only for such
breaches that are substantial and
fundamental as to defeat the object of
the parties in making the agreement. 36
The question of whether a breach of
contract is substantial depends upon the
attending circumstances 37 and not
merely on the percentage of the amount
not paid.
Anent the second assigned error, we

find that petitioners were not religious in
paying the amortization with the
NHMFC. As admitted by them, in the
span of three years from 1990 to 1993,
their payments covered only thirty
months. 41 This, indeed, constitutes
another breach or violation of the Deed
of Sale with Assumption of Mortgage.
On top of this, there was no formal
assumption of the mortgage obligation
with NHMFC because of the lack of
approval by the NHMFC 42 on account
of
petitioners'
non-submission
of
requirements in order to be considered
as
assignees/successors-in-interest
over the property covered by the
mortgage obligation. 43
In the case at bar, we find petitioners'

failure to pay the remaining balance of
P45,000.00 to be substantial. Even
assuming arguendo that only said
amount was left out of the supposed
consideration of P250,000.00, or
eighteen (18%) percent thereof, this
percentage is still substantial. Taken
together with the fact that the last
payment made was on 28 November
1991, eighteen months before the
respondent Fernandina Galang paid the
outstanding balance of the mortgage
loan with NHMFC, the intention of
petitioners to renege on their obligation
is utterly clear. ECSHAD
On the third assigned error, petitioners

claim there was no clear evidence to
show that respondents-spouses Galang
demanded from them a strict and/or
faithful compliance of the Deed of Sale
with Assumption of Mortgage.
Citing Massive Construction, Inc. v.

Intermediate Appellate Court, 38
petitioners ask that they be granted
additional time to complete their
obligation. Under the facts of the case,
to give petitioners additional time to
comply with their obligation will be
putting premium on their blatant noncompliance of their obligation. They had
all the time to do what was required of
them (i.e., pay the P45,000.00 balance
and to properly assume the mortgage
loan with the NHMFC), but still they
failed to comply. Despite demands for
them to pay the balance, no payments
were made. 39
We do not agree.
There is sufficient evidence showing that
demands were made from petitioners to
comply with their obligation. Adelina R.
Timbang,
attorney-in-fact
of
respondents-spouses, per instruction of
respondent Fernandina Galang, made
constant follow-ups after the last
payment made on 28 November 1991,
but petitioners did not pay. 44
Respondent Fernandina Galang stated
in her Answer 45 that upon her arrival
from America in October 1992, she
demanded from petitioners the complete
compliance of their obligation by paying
the full amount of the consideration
The fact that petitioners tendered a

Manager's Check to respondents163
(P120,000.00) or in the alternative to

vacate the property in question, but still,
petitioners refused to fulfill their
obligations under the Deed of Sale with
Assumption of Mortgage. Sometime in
March 1993, due to the fact that full
payment has not been paid and that the
monthly amortizations with the NHMFC
have not been fully updated, she made
her intentions clear with petitioner
Leticia Cannu that she will rescind or
annul the Deed of Sale with Assumption
of Mortgage.
the P120,000.00 they were obligated to

pay.
We find petitioners' statement that there
is no evidence of prejudice or damage
to justify rescission in favor of
respondents-spouses to be unfounded.
The damage suffered by respondentsspouses is the effect of petitioners'
failure to fully comply with their
obligation, that is, their failure to pay the
remaining P45,000.00 and to update the
amortizations on the mortgage loan with
the NHMFC. Petitioners have in their
possession the property under litigation.
Having parted with their house and lot,
respondents-spouses should be fully
compensated for it, not only monetarily,
but also as to the terms and conditions
agreed upon by the parties. This did not
happen in the case before us.
We likewise rule that there was no

waiver on the part of petitioners to
demand the rescission of the Deed of
Sale with Assumption of Mortgage. The
fact
that
respondents-spouses
accepted, through their attorney-in-fact,
payments in installments does not
constitute waiver on their part to
exercise their right to rescind the Deed
of Sale with Assumption of Mortgage.
Adelina Timbang merely accepted the
installment
payments
as
an
accommodation to petitioners since they
kept on promising they would pay.
However, after the lapse of considerable
time (18 months from last payment) and
the purchase price was not yet fully
paid, respondents-spouses exercised
their right of rescission when they paid
the outstanding balance of the mortgage
loan with NHMFC. It was only after
petitioners
stopped
paying
that
respondents-spouses moved to exercise
their right of rescission. AEaSTC
Citing Seva v. Berwin & Co., Inc., 47

petitioners argue that no rescission
should be decreed because there is no
evidence on record that respondent
Fernandina Galang is ready, willing and
able to comply with her own obligation
to restore to them the total payments
they made. They added that no
allegation to that effect is contained in
respondents-spouses' Answer.
We find this argument to be misleading.
First, the facts obtaining in Seva case
do not fall squarely with the case on
hand. In the former, the failure of one
party to perform his obligation was the
fault of the other party, while in the case
on hand, failure on the part of petitioners
to perform their obligation was due to
their own fault.
Petitioners cite the case of Angeles v.

Calasanz 46 to support their claim that
respondents-spouses waived their right
to rescind. We cannot apply this case
since it is not on all fours with the case
before us. First, in Angeles, the breach
was only slight and casual which is not
true in the case before us. Second, in
Angeles, the buyer had already paid
more than the principal obligation, while
in the instant case, the buyers
(petitioners) did not pay P45,000.00 of
Second, what is stated in the book of

Justice Edgardo L. Paras is "[i]t
(referring to the right to rescind or
resolve) can be demanded only if the
plaintiff is ready, willing and able to
comply with his own obligation, and the
other is not." In other words, if one party
has complied or fulfilled his obligation,
and the other has not, then the former
164
can exercise his right to rescind. In this

case, respondents-spouses complied
with their obligation when they gave the
possession of the property in question to
petitioners. Thus, they have the right to
ask for the rescission of the Deed of
Sale with Assumption of Mortgage.
is
On the contrary, in the rescission by

reason of lesion or economic prejudice,
the cause of action is subordinated to
the existence of that prejudice, because
it is the raison d tre as well as the
measure of the right to rescind. Hence,
where the defendant makes good the
damages caused, the action cannot be
maintained or continued, as expressly
provided in Articles 1383 and 1384. But
the operation of these two articles is
limited to the cases of rescission for
lesion enumerated in Article 1381 of the
Civil Code of the Philippines, and does
not apply to cases under Article 1191.
The subsidiary character of the action

for rescission applies to contracts
enumerated in Article 1381 48 of the
Civil Code. The contract involved in the
case before us is not one of those
mentioned therein. The provision that
applies in the case at bar is Article 1191.
From the foregoing, it is clear that

rescission ("resolution" in the Old Civil
Code) under Article 1191 is a principal
action, while rescission under Article
1383 is a subsidiary action. The former
is based on breach by the other party
that violates the reciprocity between the
parties, while the latter is not.
In the concurring opinion of Justice Jose

B.L. Reyes in Universal Food Corp. v.
Court of Appeals, 49 rescission under
Article 1191 was distinguished from
rescission under Article 1381. Justice
J.B.L. Reyes said:
In the case at bar, the reciprocity

between the parties was violated when
petitioners failed to fully pay the balance
of P45,000.00 to respondents-spouses
and their failure to update their
amortizations with the NHMFC.
. . . The rescission on account of breach

of stipulations is not predicated on injury
to economic interests of the party
plaintiff but on the breach of faith by the
defendant, that violates the reciprocity
between the parties. It is not a
subsidiary action, and Article 1191 may
be scanned without disclosing anywhere
that the action for rescission thereunder
is subordinated to anything other than
the culpable breach of his obligations by
the defendant. This rescission is a
principal action retaliatory in character, it
being unjust that a party be held bound
to fulfill his promises when the other
violates his. As expressed in the old
Latin aphorism: "Non servanti fidem,
non est fides servanda." Hence, the
reparation of damages for the breach is
purely secondary. ScAIaT
Petitioners maintain that inasmuch as

respondents-spouses Galang were not
granted the right to unilaterally rescind
the sale under the Deed of Sale with
Assumption of Mortgage, they should
have first asked the court for the
rescission thereof before they fully paid
the outstanding balance of the mortgage
loan with the NHMFC. They claim that
such payment is a unilateral act of
rescission which violates existing
jurisprudence.
On the fourth assigned error, petitioners,

relying on Article 1383 of the Civil Code,
maintain that the Court of Appeals erred
when it failed to consider that the action
for rescission is subsidiary.
Their reliance
misplaced.
on
Article
1383
In Tan v. Court of Appeals, 50 this court

said:
. . . [T]he power to rescind obligations is
implied in reciprocal ones in case one of
the obligors should not comply with what
is incumbent upon him is clear from a
reading of the Civil Code provisions.
165
However, it is equally settled that, in the

absence of a stipulation to the contrary,
this power must be invoked judicially; it
cannot be exercised solely on a party's
own judgment that the other has
committed a breach of the obligation.
Where there is nothing in the contract
empowering the petitioner to rescind it
without resort to the courts, the
petitioner's
action
in
unilaterally
terminating the contract in this case is
unjustified.
petitioner
Leticia
Cannu's
bare
allegation, we find the same not to be
supported by competent evidence. As a
general rule, one who pleads payment
has the burden of proving it. 52
However, since it has been admitted in
respondents-spouses'
Answer
that
petitioners shall assume the second
mortgage with CERF Realty in the
amount of P35,000.00, and that Adelina
Timbang, respondents-spouses' very
own witness, testified 53 that same has
been paid, it is but proper to return this
amount to petitioners. The three
amounts total P165,312.47 the sum
to be returned to petitioners.
It is evident that the contract under

consideration does not contain a
provision authorizing its extrajudicial
rescission in case one of the parties fails
to comply with what is incumbent upon
him. This being the case, respondentsspouses should have asked for judicial
intervention to obtain a judicial
declaration of rescission. Be that as it
may, and considering that respondentsspouses' Answer (with affirmative
defenses) with Counterclaim seeks for
the rescission of the Deed of Sale with
Assumption of Mortgage, it behooves
the court to settle the matter once and
for all than to have the case re-litigated
again on an issue already heard on the
merits and which this court has already
taken cognizance of. Having found that
petitioners seriously breached the
contract, we, therefore, declare the
same is rescinded in favor of
respondents-spouses. aCSDIc

the decision of the Court of Appeals is
hereby
AFFIRMED
with
MODIFICATION. Spouses Gil and
Fernandina Galang are hereby ordered
to return the partial payments made by
petitioners
in
the
amount
of
P165,312.47. With costs.
SO ORDERED.
Puno, Austria-Martinez and Callejo, Sr.,
JJ., concur.
Tinga, J., is out of the country.
||| (Spouses Cannu v. Spouses Galang,
G.R. No. 139523, [May 26, 2005], 498
PHIL 128-147)
As a consequence of the rescission or,

more accurately, resolution of the Deed
of Sale with Assumption of Mortgage, it
is the duty of the court to require the
parties to surrender whatever they may
have received from the other. The
parties should be restored to their
original situation. 51
25. MAGSALANG
VS.
NORTHWESTERN UNIVERSITY
FIRST DIVISION
[G.R. No. 188986. March 20, 2013.]
GALILEO A. MAGLASANG, doing
business
under
the
name
GL
Enterprises,
petitioner,
vs.
NORTHWESTERN UNIVERSITY, INC.,
respondent.
The record shows petitioners paid

respondents-spouses the amount of
P75,000.00 out of the P120,000.00
agreed upon. They also made payments
to NHMFC amounting to P55,312.47. As
to the petitioners' alleged payment to
CERF Realty of P46,616.70, except for
DECISION
SERENO, C.J p:
166
A. 2-RADAR SYSTEM
B.
OVERHEAD
CONSOLE
MONITORING SYSTEM
C. ENGINE TELEGRAPH SYSTEM
D. ENGINE CONTROL SYSTEM
E. WEATHER CONTROL SYSTEM
F. ECDIS SYSTEM
G. STEERING WHEEL SYSTEM
H. BRIDGE CONSOLE
TOTAL COST
PhP3,800,000.00
LESS: OLD MARITIME
Before this Court is a Rule 45 Petition,

seeking a review of the 27 July 2009
Court of Appeals (CA) Decision in CAG.R. CV No. 88989, 1 which modified
the Regional Trial Court (RTC) Decision
of 8 January 2007 in Civil Case No. Q04-53660. 2 The CA held that petitioner
substantially breached its contracts with
respondent for the installation of an
integrated bridge system (IBS).
The antecedent facts are as follows: 3
EQUIPMENT TRADE-IN VALUE

1,000,000.00
DISCOUNT
100,000.00
On 10 June 2004, respondent

Northwestern University (Northwestern),
an educational institution offering
maritime-related courses, engaged the
services of a Quezon City-based firm,
petitioner GL Enterprises, to install a
new IBS in Laoag City. The installation
of an IBS, used as the students' training
laboratory, was required by the
Commission on Higher Education
(CHED) before a school could offer
maritime transportation programs. 4
PROJECT COST (MATERIALS

PhP2,700,000.00
& INSTALLATION)
==============
(Emphasis in the original)
The
second
contract
essentially
contains the same terms and conditions
as follows: 6
Since its IBS was already obsolete,

respondent required petitioner to supply
and install specific components in order
to form the most modern IBS that would
be acceptable to CHED and would be
compliant with the standards of the
International Maritime
Organization
(IMO). For this purpose, the parties
executed two contracts.
That in consideration of the payment

herein mentioned to be made by the
First Party (defendant), the Second
Party agrees to furnish, supply, install &
integrate
the
most
modern
INTEGRATED
BRIDGE
SYSTEM
located at Northwestern University
MOCK BOAT in accordance with the
general
conditions,
plans
and
specifications of this contract.
The first contract partly reads: 5

That in consideration of the payment
herein mentioned to be made by the
First Party (defendant), the Second
Party agrees to furnish, supply, install
and integrate the most modern
INTEGRATED
BRIDGE
SYSTEM
located at Northwestern University
MOCK BOAT in accordance with the
general
conditions,
plans
and
specifications of this contract. SacDIE
SUPPLY & INSTALLATION OF THE

FOLLOWING:
1. ARPA RADAR SIMULATION ROOM
xxx xxx xxx
2. GMDSS SIMULATION ROOM
xxx xxx xxx
SUPPLY & INSTALLATION OF THE

FOLLOWING:
INTEGRATED BRIDGE SYSTEM
TOTAL COST: PhP270,000.00

167
prayed for the following sums: P1.97

million, representing the amount that it
would have earned, had Northwestern
not stopped it from performing its tasks
under the two contracts; at least
P100,000 as moral damages; at least
P100,000 by way of exemplary
damages; at least P100,000 as
attorney's fees and litigation expenses;
and cost of suit. Petitioner alleged that
Northwestern breached the contracts by
ordering the work stoppage and thus
preventing the installation of the
materials for the IBS.
(Emphasis in the original) TcEaDS

Common to both contracts are the
following provisions: (1) the IBS and its
components must be compliant with the
IMO and CHED standard and with
manuals
for
simulators/major
equipment; (2) the contracts may be
terminated if one party commits a
substantial breach of its undertaking;
and (3) any dispute under the
agreement shall first be settled mutually
between the parties, and if settlement is
not obtained, resort shall be sought in
the courts of law.
Northwestern denied the allegation. In

its defense, it asserted that since the
equipment delivered were not in
accordance with the specifications
provided
by
the
contracts,
all
succeeding works would be futile and
would entail unnecessary expenses.
Hence, it prayed for the rescission of the
contracts and made a compulsory
counterclaim for actual, moral, and
exemplary damages, and attorney's
fees.
Subsequently, Northwestern paid P1

million as down payment to GL
Enterprises. The former then assumed
possession of Northwestern's old IBS as
trade-in payment for its service. Thus,
the balance of the contract price
remained at P1.97 million. 7
Two months after the execution of the
contracts, GL Enterprises technicians
delivered various materials to the project
site. However, when they started
installing the components, respondent
halted the operations. GL Enterprises
then asked for an explanation. 8
The RTC held both parties at fault. It

found that Northwestern unduly halted
the operations, even if the contracts
called for a completed project to be
evaluated by the CHED. In turn, the
breach committed by GL Enterprises
consisted of the delivery of substandard
equipment that were not compliant with
IMO and CHED standards as required
by the agreement. HICSaD
Northwestern
justified
the
work
stoppage upon its finding that the
delivered equipment were substandard.
9 It explained further that GL Enterprises
violated the terms and conditions of the
contracts,
since
the
delivered
components (1) were old; (2) did not
have instruction manuals and warranty
certificates; (3) contained indications of
being reconditioned machines; and (4)
did not meet the IMO and CHED
standards.
Thus,
Northwestern
demanded
compliance
with
the
agreement and suggested that GL
Enterprises meet with the former's
representatives to iron out the situation.
Invoking the equitable principle that

"each party must bear its own loss," the
trial court treated the contracts as
impossible of performance without the
fault of either party or as having been
dissolved
by
mutual
consent.
Consequently,
it
ordered
mutual
restitution, which would thereby restore
the parties to their original positions as
follows: 11
Instead of heeding this suggestion, GL

Enterprises filed on 8 September 2004 a
Complaint 10 for breach of contract and
Accordingly, plaintiff is hereby ordered to

restore to the defendant all the
equipment obtained by reason of the
168
First
Contract
and
refund
the
downpayment of P1,000,000.00 to the
defendant; and for the defendant to
return to the plaintiff the equipment and
materials it withheld by reason of the
non-continuance of the installation and
integration project. In the event that
restoration of the old equipment taken
from defendant's premises is no longer
possible, plaintiff is hereby ordered to
pay the appraised value of defendant's
old equipment at P1,000,000.00.
Likewise, in the event that restoration of
the equipment and materials delivered
by the plaintiff to the defendant is no
longer possible, defendant is hereby
ordered to pay its appraised value at
P1,027,480.00.
the
appellate
court
disregarded
petitioner's excuse that the equipment
delivered might not have been the
components intended to be installed, for
it would be contrary to human
experience to deliver equipment from
Quezon City to Laoag City with no
intention to use it. ITcCaS
This time, applying Article 1191 of the
Civil Code,the CA declared the
rescission of the contracts. It then
proceeded to affirm the RTC's order of
mutual restitution. Additionally, the
appellate court granted P50,000 to
Northwestern by way of attorney's fees.
SO ORDERED.
Before this Court, petitioner rehashes all

the arguments he had raised in the
courts a quo. 12 He maintains his prayer
for actual damages equivalent to the
amount that he would have earned, had
respondent not stopped him from
performing his tasks under the two
contracts;
moral
and
exemplary
damages; attorney's fees; litigation
expenses; and cost of suit.
Aggrieved, both parties appealed to the

CA. With each of them pointing a finger
at the other party as the violator of the
contracts, the appellate court ultimately
determined that GL Enterprises was the
one guilty of substantial breach and
liable for attorney's fees.
Hence, the pertinent issue to be

resolved in the instant appeal is whether
the CA gravely erred in (1) finding
substantial breach on the part of GL
Enterprises; (2) refusing petitioner's
claims for damages, and (3) awarding
attorney's fees to Northwestern.
The CA appreciated that since the

parties essentially sought to have an
IBS compliant with the CHED and IMO
standards, it was GL Enterprises'
delivery of defective equipment that
materially and substantially breached
the contracts. Although the contracts
contemplated a completed project to be
evaluated by CHED, Northwestern could
not just sit idly by when it was apparent
that the components delivered were
substandard.
RULING OF THE COURT

Substantial Breaches of the
Contracts
Although the RTC and the CA concurred
in ordering restitution, the courts a quo,
however, differed on the basis thereof.
The RTC applied the equitable principle
of mutual fault, while the CA applied
Article 1191 on rescission.
Moreover, plaintiff is likewise ordered to

restore and return all the equipment
obtained by reason of the Second
Contract, or if restoration or return is not
possible, plaintiff is ordered to pay the
value thereof to the defendant.
The power to rescind the obligations of

the injured party is implied in reciprocal
obligations, such as in this case. On this
score, the CA correctly applied Article
1191, which provides thus:
The CA held that Northwestern only

exercised ordinary prudence to prevent
the inevitable rejection of the IBS
delivered by GL Enterprises. Likewise,
169
The power to rescind obligations is

implied in reciprocal ones, in case one
of the obligors should not comply with
what is incumbent upon him.
2005, any simulator used for simulatorbased training shall be capable of

simulating the operating capabilities of
the shipboard equipment concerned.
The simulation must be achieved at a
level of physical realism appropriate for
training
objectives;
include
the
capabilities, limitations and possible
errors of such equipment; and provide
an interface through which a trainee can
interact with the equipment, and the
simulated environment.

impossible.
Given these conditions, it was thus

incumbent upon GL Enterprises to
supply the components that would
create an IBS that would effectively
facilitate the learning of the students.
The two contracts require no less than

substantial breach before they can be
rescinded. Since the contracts do not
provide for a definition of substantial
breach that would terminate the rights
and obligations of the parties, we apply
the definition found in our jurisprudence.
IcDHaT
This Court defined in Cannu v. Galang
13 that substantial, unlike slight or
casual breaches of contract, are
fundamental breaches that defeat the
object of the parties in entering into an
agreement, since the law is not
concerned with trifles. 14
However, GL Enterprises miserably

failed in meeting its responsibility. As
contained in the findings of the CA and
the
RTC,
petitioner
supplied
substandard
equipment
when
it
delivered components that (1) were old;
(2) did not have instruction manuals and
warranty certificates; (3) bore indications
of being reconditioned machines; and,
all told, (4) might not have met the IMO
and CHED standards. Highlighting the
defects of the delivered materials, the
CA quoted respondent's testimonial
evidence as follows: 16
The question of whether a breach of

contract is substantial depends upon the
attending circumstances. 15
Q: In particular which of these

equipment of CHED requirements were
not complied with?
In the case at bar, the parties explicitly

agreed that the materials to be delivered
must be compliant with the CHED and
IMO standards and must be complete
with manuals. Aside from these clear
provisions in the contracts, the courts a
quo similarly found that the intent of the
parties was to replace the old IBS in
order to obtain CHED accreditation for
Northwestern's
maritime-related
courses.
A: The Radar Ma'am, because they

delivered only 10-inch PPI, that is the
monitor of the Radar. That is 16-inch
and the gyrocompass with two (2)
repeaters and the history card. The
gyrocompass there is no marker,
there is no model, there is no serial
number, no gimbal, no gyroscope and a
bulb to work it properly to point the true
Northbecause it is very important to the
Cadets to learn where is the true North
being
indicated
by the
Master
Gyrocompass. IaAHCE
According to CHED Memorandum Order

(CMO) No. 10, Series of 1999, as
amended by CMO No. 13, Series of
xxx xxx xxx

170
automobile, instead of one used in

ships. Logically, by no stretch of the
imagination could these form part of the
most modern IBS compliant with the
IMO and CHED standards.
Q: Mr. Witness, one of the defects you

noted down in this history card is that
the master gyrocompass had no
gimbals, gyroscope and balls and was
replaced with an ordinary electric motor.
So what is the Implication of this?
Even in the instant appeal, GL

Enterprises does not refute that the
equipment it delivered was substandard.
However, it reiterates its rejected excuse
that Northwestern should have made an
assessment only after the completion of
the IBS. 17 Thus, petitioner stresses
that it was Northwestern that breached
the agreement when the latter halted the
installation of the materials for the IBS,
even if the parties had contemplated a
completed project to be evaluated by
CHED. However, as aptly considered by
the CA, respondent could not just "sit
still and wait for such day that its
accreditation may not be granted by
CHED due to the apparent substandard
equipment installed in the bridge
system." 18 The appellate court
correctly emphasized that, by that time,
both parties would have incurred more
costs for nothing. AcSIDE
A: Because those gimbals, balls and the

gyroscope it let the gyrocompass to
work so it will point the true North but
they being replaced with the ordinary
motor used for toys so it will not indicate
the true North.
Q: So what happens if it will not indicate
the true North?
A: It is very big problem for my cadets
because they must[,] to learn into school
where is the true North and what is that
equipment to be used on board.
Q: One of the defects is that the steering
wheel was that of an ordinary
automobile. And what is the implication
of this?
A: Because on board Ma'am, we are
using the real steering wheel and the
cadets will be implicated if they will
notice that the ship have the same
steering wheel as the car so it is not
advisable for them.
Additionally, GL Enterprises reasons

that, based on the contracts, the
materials that were hauled all the way
from Quezon City to Laoag City under
the custody of the four designated
installers might not have been the
components to be used. 19 Without
belaboring the point, we affirm the
conclusion of the CA and the RTC that
the excuse is untenable for being
contrary to human experience. 20
Q: And another one is that the

gyrocompass
repeater
was
only
refurbished and it has no serial number.
What is wrong with that?
A: It should be original Ma'am because
this gyro repeater, it must to repeat also
the true [N]orth being indicated by the
Master Gyro Compass so it will not work
properly, I don't know it will work
properly. (Underscoring supplied)
Given
that
petitioner,
without
justification,
supplied
substandard
components for the new IBS, it is thus
clear that its violation was not merely
incidental, but directly related to the
essence of the agreement pertaining to
the installation of an IBS compliant with
the CHED and IMO standards.
Consequently, the CA correctly found
substantial breach on the part of
petitioner.
Evidently, the materials delivered were

less likely to pass the CHED standards,
because the navigation system to be
installed might not accurately point to
the true north; and the steering wheel
delivered was one that came from an
171
In contrast, Northwestern's breach, if

any, was characterized by the appellate
court as slight or casual. 21 By way of
negative definition, a breach is
considered casual if it does not
fundamentally defeat the object of the
parties in entering into an agreement.
Furthermore, for there to be a breach to
begin with, there must be a "failure,
without legal excuse, to perform any
promise which forms the whole or part
of the contract." 22
appellate court correctly awarded

attorney's fees to respondent. Notably,
this litigation could have altogether been
avoided
if
petitioner
heeded
respondent's suggestion to amicably
settle; or, better yet, if in the first place
petitioner delivered the right materials
as required by the contracts. DAaIHT
IN VIEW THEREOF, the assailed 27
July 2009 Decision of the Court of
Appeals in CA-G.R. CV No. 88989 is
hereby AFFIRMED.
Here, as discussed, the stoppage of the

installation was justified. The action of
Northwestern constituted a legal excuse
to prevent the highly possible rejection
of the IBS. Hence, just as the CA
concluded, we find that Northwestern
exercised ordinary prudence to avert a
possible wastage of time, effort,
resources and also of the P2.9 million
representing the value of the new IBS.
SO ORDERED.
Leonardo-de
Castro,
Bersamin,
Villarama, Jr. and Leonen, * JJ., concur.
|||
(Maglasang
v.
Northwestern
University, Inc., G.R. No. 188986,
[March 20, 2013], 707 PHIL 118-130)
26. SWIRE REALTY VS. YU
Actual Damages, Moral and

Exemplary Damages, and Attorney's
Fees
As between the parties, substantial
breach can clearly be attributed to GL
Enterprises. Consequently, it is not the
injured party who can claim damages
under Article 1170 of the Civil Code.For
this reason, we concur in the result of
the CA's Decision denying petitioner
actual damages in the form of lost
earnings, as well as moral and
exemplary damages.
THIRD DIVISION
[G.R. No. 207133. March 9, 2015.]
SWIRE
REALTY
DEVELOPMENT
CORPORATION, petitioner, vs. JAYNE
YU, respondent.
DECISION
PERALTA, J p:
This is a Petition for Review on
Certiorari under Rule 45 of the 1997
Rules of Civil Procedure which seeks to
reverse and set aside the Decision 1
dated January 24, 2013 and Resolution
2 dated April 30, 2013 of the Court of
Appeals (CA) in CA-G.R. SP No.
121175.
With respect to attorney's fees, Article

2208 of the Civil Code allows the grant
thereof when the court deems it just and
equitable that attorney's fees should be
recovered. An award of attorney's fees
is proper if one was forced to litigate and
incur expenses to protect one's rights
and interest by reason of an unjustified
act or omission on the part of the party
from whom the award is sought. 23
The facts follow.

Respondent Jayne Yu and petitioner
Swire Realty Development Corporation
entered into a Contract to Sell on July
25, 1995 covering one residential
condominium unit, specifically Unit 3007
Since we affirm the CA's finding that it

was
not
Northwestern
but
GL
Enterprises that breached the contracts
without justification, it follows that the
172
of the Palace of Makati, located at P.

Burgos corner Caceres Sts., Makati City,
with an area of 137.30 square meters
for the total contract price of
P7,519,371.80, payable in equal
monthly installments until September
24,
1997.
Respondent
likewise
purchased a parking slot in the same
condominium building for P600,000.00.
b. moral damages of P20,000.00;

c. Attorney's fees of P20,000.00.
On the other hand, [respondent] is
hereby directed to immediately update
her account insofar as the parking slot is
concerned, without interest, surcharges
or penalties charged therein.
On September 24, 1997, respondent

paid the full purchase price of
P7,519,371.80 for the unit while making
a down payment of P20,000.00 for the
parking lot. However, notwithstanding
full payment of the contract price,
petitioner failed to complete and deliver
the subject unit on time. This prompted
respondent to file a Complaint for
Rescission of Contract with Damages
before the Housing and Land Use
Regulatory Board (HLURB) Expanded
National Capital Region Field Office
(ENCRFO).
All other claims and counterclaims are

hereby dismissed for lack of merit.
IT IS SO ORDERED. 4
Respondent then elevated the matter to
the HLURB Board of Commissioners.
In a Decision 5 dated March 30, 2006,
the HLURB Board of Commissioners
reversed and set aside the ruling of the
HLURB ENCRFO and ordered the
rescission of the Contract to Sell,
ratiocinating:
On October 19, 2004, the HLURB

ENCRFO rendered a Decision 3
dismissing respondent's complaint. It
ruled that rescission is not permitted for
slight or casual breach of the contract
but only for such breaches as are
substantial and fundamental as to
defeat the object of the parties in
making the agreement. It disposed of
the case as follows:
We find merit in the appeal. The report

on the ocular inspection conducted on
the subject condominium project and
subject unit shows that the amenities
under the approved plan have not yet
been provided as of May 3, 2002, and
that the subject unit has not been
delivered to [respondent] as of August
28, 2002, which is beyond the period of
development of December 1999 under
the license to sell. The delay in the
completion of the project as well as of
the delay in the delivery of the unit are
breaches of statutory and contractual
obligations which entitles [respondent]
to rescind the contract, demand a refund
and payment of damages.
WHEREFORE,
PREMISES
CONSIDERED, judgment is hereby
rendered ordering [petitioner] the
following:
1. To finish the subject unit as pointed
out in the inspection Report
2. To pay [respondent] the following:
The delay in the completion of the

project in accordance with the license to
sell also renders [petitioner] liable for the
payment of administrative fine.
a. the amount of P100,000 as

compensatory damages for the minor
irreversible
defects
in
her
unit
[respondent], or, in the alternative,
conduct the necessary repairs on the
subject unit to conform to the intended
specifications;
Wherefore, the decision of the Office

below is set aside and a new decision is
rendered as follows:
173
1. Declaring the contract to sell as

rescinded and directing [petitioner] to
refund to [respondent] the amount of
P7,519,371.80 at 6% per annum from
the time of extrajudicial demand on
January
05,
2001:
subject
to
computation and payment of the correct
filing fee;
decisions of the HLURB Board of

Commissioners to the Office of the
President is 15 days from receipt thereof
pursuant to Section 15 of P.D. No. 957
and Section 2 of P.D. No. 1344 which
are special laws that provide an
exception to Section 1 of Administrative
Order No. 18.
2.
Directing
[petitioner]
to
pay
respondent attorney's fees in the
amount of P20,000.00;
Corollary thereto, par. 2, Section 1 of

Administrative Order No. 18, Series of
1987 provides that:
3. Directing [petitioner] to pay an

administrative fine of P10,000.00 for
violation of Section 20, in relation to
Section 38 of P.D. 957.
The time during which a motion for

reconsideration has been pending with
the Ministry/Agency concerned shall be
deducted from the period of appeal. But
where such a motion for reconsideration
has been filed during office hours of the
last day of the period herein provided,
the appeal must be made within the day
following receipt of the denial of said
motion by the appealing party.
(Underscoring supplied)
SO ORDERED. 6
Petitioner moved for reconsideration,
but the same was denied by the HLURB
Board of Commissioners in a Resolution
7 dated June 14, 2007.
Unfazed, petitioner appealed to the
Office of the President (OP) on August
7, 2007.
xxx xxx xxx

Accordingly, the [petitioner] had only
four (4) days from receipt on 23 July
2007 of HLURB Resolution dated 14
June 2007, or until 27 July 2007 to file
the Notice of Appeal before this Office.
However, [petitioner] filed its appeal only
on 7 August 2007 or eleven (11) days
late.

2007, the OP, through then Deputy
Executive Secretary Manuel Gaite,
dismissed petitioner's appeal on the
ground that it failed to promptly file its
appeal before the OP. It held:
Records show that [petitioner] received
its copy of the 30 March 2006 HLURB
Decision on 17 April 2006 and instead of
filing an appeal, it opted first to file a
Motion for Reconsideration on 28 April
2006 or eleven (11) days thereafter. The
said motion interrupted the 15-day
period to appeal.
Thus, this Office need not delve on the

merits of the appeal filed as the records
clearly show that the said appeal was
filed out of time.
[petitioner]'s
appeal
is
hereby
DISMISSED, and the HLURB Decision
dated 30 March 2006 and HLURB
Resolution dated 14 June 2007 are
hereby AFFIRMED.
On 23 July 2007, [petitioner] received

the HLURB Resolution dated 14 June
2007
denying
the
Motion
for
Reconsideration.
SO ORDERED. 9
Based on the ruling in United Overseas

Bank Philippines, Inc. v. Ching (486
SCRA 655), the period to appeal
Immediately thereafter, petitioner filed a

motion for reconsideration against said
decision.
174
SO ORDERED. 13
In a Resolution 10 dated February 17,
2009, the OP, through then Executive
Secretary Eduardo Ermita, granted
petitioner's motion and set aside Deputy
Executive Secretary Gaite's decision. It
held that after a careful and thorough
evaluation and study of the records of
the case, the OP was more inclined to
agree with the earlier decision of the
HLURB ENCRFO as it was more in
accord with facts, law and jurisprudence
relevant to the case. Thus:
Petitioner moved for reconsideration,

however, the CA denied the same in a
Resolution dated April 30, 2013.
Hence, the present petition wherein
petitioner raises the following grounds to
support its petition:
THE COURT OF APPEALS GRAVELY
ERRED IN IGNORING THE LEGAL
PRECEPTS THAT:

the instant Motion for Reconsideration is
hereby GRANTED. The Decision and
Resolution of the HLURB Third Division
Board of Commissioners, dated March
30, 2006 and June 14, 2007,
respectively, are hereby SET ASIDE,
and the HLURB ENCRFO Decision
dated October 19, 2004 is hereby
REINSTATED.
A. TECHNICAL RULES ARE NOT

BINDING UPON ADMINISTRATIVE
AGENCIES; and
SO ORDERED. 11
In essence, the issues are: (1) whether

petitioner's appeal was timely filed
before the OP; and (2) whether
rescission of the contract is proper in the
instant case.
B. RESCISSION WILL BE ORDERED

ONLY
WHERE
THE
BREACH
COMPLAINED OF IS SUBSTANTIAL
AS TO DEFEAT THE OBJECT OF THE
PARTIES IN ENTERING INTO THE
AGREEMENT. 14
Respondent sought reconsideration of

said resolution, however, the same was
denied by the OP in a Resolution 12
dated August 18, 2011.
We shall resolve the issues in seriatim.

Consequently, respondent
appeal to the CA.
filed
an
First, the period to appeal the decision
of the HLURB Board of Commissioners
to the Office of the President has long
been settled in the case of SGMC
Realty Corporation v. Office of the
President, 15 as reiterated in the cases
of Maxima Realty Management and
Development Corporation v. Parkway
Real Estate Development Corporation
16 and United Overseas Bank
Philippines, Inc. v. Ching. 17
In a Decision dated January 24, 2013,

the CA granted respondent's appeal and
reversed and set aside the Order of the
OP. The fallo of its decision reads:
WHEREFORE, the Petition is hereby
GRANTED. The assailed Resolution
dated 17 February 2009 and Order
dated 18 August 2011 of the Office of
the President, in O.P. Case No. 07-H283, are hereby REVERSED and SET
ASIDE. Accordingly, the Decision dated
30 March 2006 and Resolution dated 14
June 2007 of the HLURB Board of
Commissioners in HLURB Case No.
REM-A-050127-0014,
are
REINSTATED.
In the aforementioned cases, we ruled

that the period to appeal decisions of
the HLURB Board of Commissioners is
fifteen (15) days from receipt thereof
pursuant to Section 15 18 of PD No. 957
19 and Section 2 20 of PD No. 1344 21
which are special laws that provide an
exception to Section 1 of Administrative
175
Order No. 18. Thus, in the SGMC Realty

Corporation v. Office of the President
case, the Court explained:
days from April 17, 2006 within which to

file its appeal or until May 2, 2006.
However, on April 28, 2006, or eleven
days after receipt of the HLURB Board
of Commissioner's decision, it filed a
Motion for Reconsideration, instead of
an appeal.
As pointed out by public respondent, the

aforecited administrative order allows
aggrieved party to file its appeal with the
Office of the President within thirty (30)
days from receipt of the decision
complained of. Nonetheless, such thirtyday period is subject to the qualification
that there are no other statutory periods
of appeal applicable. If there are special
laws governing particular cases which
provide for a shorter or longer
reglementary period, the same shall
prevail over the thirty-day period
provided for in the administrative order.
This is in line with the rule in statutory
construction that an administrative rule
or regulation, in order to be valid, must
not contradict but conform to the
provisions of the enabling law.
Concomitantly,
Section
1
of
Administrative Order No. 18 23 provides
that the time during which a motion for
reconsideration has been pending with
the ministry or agency concerned shall
be deducted from the period for appeal.
Petitioner received the HLURB Board
Resolution denying its Motion for
Reconsideration on July 23, 2007 and
filed its appeal only on August 7, 2007.
Consequently therefore, petitioner had
only four days from July 23, 2007, or
until July 27, 2007, within which to file its
appeal to the OP as the filing of the
motion for reconsideration merely
suspended the running of the 15-day
period. However, records reveal that
petitioner only appealed to the OP on
August 7, 2007, or eleven days late.
Ergo,
the
HLURB
Board
of
Commissioners' decision had become
final and executory on account of the
fact that petitioner did not promptly
appeal with the OP.
We note that indeed there are special

laws that mandate a shorter period of
fifteen (15) days within which to appeal
a case to public respondent. First,
Section 15 of Presidential Decree No.
957 provides that the decisions of the
National Housing Authority (NHA) shall
become final and executory after the
lapse of fifteen (15) days from the date
of receipt of the decision. Second,
Section 2 of Presidential Decree No.
1344 states that decisions of the
National Housing Authority shall become
final and executory after the lapse of
fifteen (15) days from the date of its
receipt. The latter decree provides that
the decisions of the NHA is appealable
only to the Office of the President.
Further, we note that the regulatory
functions of NHA relating to housing and
land development has been transferred
to Human Settlements Regulatory
Commission,
now
known
as
HLURB. . . . 22
In like manner, we find no cogent reason

to exempt petitioner from the effects of
its failure to comply with the rules.
In an avuncular case, we have held that
while the dismissal of an appeal on
purely technical grounds is concededly
frowned upon, it bears emphasizing that
the procedural requirements of the rules
on appeal are not harmless and trivial
technicalities that litigants can just
discard and disregard at will. Neither
being a natural right nor a part of due
process, the rule is settled that the right
to appeal is merely a statutory privilege
which may be exercised only in the
manner and in accordance with the
provisions of the law. 24
Records show that petitioner received a

copy of the HLURB Board of
Commissioners' decision on April 17,
2006. Correspondingly, it had fifteen
176
Time and again, we have held that rules

of procedure exist for a noble purpose,
and to disregard such rules, in the guise
of liberal construction, would be to
defeat such purpose. Procedural rules
are not to be disdained as mere
technicalities. They may not be ignored
to suit the convenience of a party. 25
The reason for the liberal application of
the rules before quasi-judicial agencies
cannot be used to perpetuate injustice
and hamper the just resolution of the
case. Neither is the rule on liberal
construction a license to disregard the
rules of procedure. 26
accordance with Articles 1385 and 1388

and the Mortgage Law.
Basic is the rule that the right of
rescission of a party to an obligation
under Article 1191 of the Civil Code is
predicated on a breach of faith by the
other party who violates the reciprocity
between
them.
The
breach
contemplated in the said provision is the
obligor's failure to comply with an
existing obligation. When the obligor
cannot comply with what is incumbent
upon it, the obligee may seek rescission
and, in the absence of any just cause for
the court to determine the period of
compliance, the court shall decree the
rescission. 27
Thus, while there may be exceptions for

the relaxation of technical rules
principally geared to attain the ends of
justice, petitioner's fatuous belief that it
had a fresh 15-day period to elevate an
appeal with the OP is not the kind of
exceptional circumstance that merits
relaxation.
In the instant case, the CA aptly found

that the completion date of the
condominium unit was November 1998
pursuant to License No. 97-12-3202
dated November 2, 1997 but was
extended to December 1999 as per
License to Sell No. 99-05-3401 dated
May 8, 1999. However, at the time of the
ocular inspection conducted by the
HLURB ENCRFO, the unit was not yet
completely finished as the kitchen
cabinets and fixtures were not yet
installed and the agreed amenities were
not yet available. Said inspection report
states:
Second, Article 1191 of the Civil Code

sanctions the right to rescind the
obligation in the event that specific
performance becomes impossible, to
wit:
Article 1191. The power to rescind
him.
May 3, 2002:

impossible.
1. The unit of the [respondent] is Unit

3007, which was labeled as P2-07, at
the Palace of Makati, located at the
corner of P. Burgos Street and Caceres
Street, Poblacion, Makati City. Based on
the approved plans, the said unit is at
the 26th Floor.

2. During the time of inspection, the said

unit appears to be completed except for
the installation of kitchen cabinets and
fixtures.

prejudice to the rights of third persons
who have acquired the thing, in
3. Complainant pinpointed to the

undersigned the deficiencies as follows:
177
a. The delivered unit has high density

fiber (HDF) floorings instead of narra
wood parquet.
not yet been provided as of May 3,

2002, and that the subject unit has not
been delivered to respondent as of
August 28, 2002, which is beyond the
period of development of December
1999 under the license to sell.
Incontrovertibly, petitioner had incurred
delay in the performance of its obligation
amounting to breach of contract as it
failed to finish and deliver the unit to
respondent within the stipulated period.
The delay in the completion of the
project as well as of the delay in the
delivery of the unit are breaches of
statutory and contractual obligations
which entitle respondent to rescind the
contract, demand a refund and payment
of damages.
b. The [petitioners] have also installed

baseboards as borders instead of pink
porrino granite boarders.
c. Walls are newly painted by the
respondent and the alleged obvious
signs of cladding could not be
determined.
d. Window opening at the master
bedroom conforms to the approved
plans. As a result it leaves a 3 inches
(sic) gap between the glass window and
partitioning of the master's bedroom.
e. It was verified and confirmed that a
square column replaced the round
column, based on the approved plans.

the instant petition is DENIED. The
Decision dated January 24, 2013 and
Resolution dated April 30, 2013 of the
121175 are hereby AFFIRMED, with
MODIFICATION that moral damages be
awarded in the amount of P20,000.00.
f. At the time of inspection, amenities

such as swimming pool and change
room are seen at the 31st floor only.
These amenities are reflected on the
27th floor plan of the approved
condominium plans. Health spa for men
and women, Shiatsu Massage Room,
Two-Level Sky Palace Restaurant and
Hall for games and entertainments,
replete with billiard tables, a bar, indoor
golf with spectacular deck and karaoke
rooms were not yet provided by the
[petitioner].
SO ORDERED.
Velasco, Jr., Villarama, Jr., Reyes and
||| (Swire Realty Development Corp. v.
Yu, G.R. No. 207133, [March 9, 2015])
27. FONG VS. DUENAS
g. The [master's] bedroom door bore

sign of poor quality of workmanship as
seen below.
SECOND DIVISION
[G.R. No. 185592. June 15, 2015.]
GEORGE C. FONG, petitioner, vs.
JOSE V. DUEAS, respondent.
h. The stairs have been installed in such

manner acceptable to the undersigned.
i. Bathrooms and powder room have
been installed in such manner
acceptable to the undersigned. 28
DECISION
BRION, J p:
We resolve in this petition for review on
certiorari 1 the challenge to the
September 16, 2008 decision 2 and the
December 8, 2008 resolution 3 of the
Court of Appeals (CA) in CA-G.R. CV
No. 88396. TCAScE
From the foregoing, it is evident that the

report on the ocular inspection
conducted on the subject condominium
project and subject unit shows that the
amenities under the approved plan have
178
These assailed CA rulings annulled the

June 27, 2006 decision 4 and October
30, 2006 order 5 of the Regional Trial
Court of Makati, Branch 64 (trial court),
which directed respondent Jose V.
Dueas (Dueas) to pay Five Million
Pesos (P5 Million) to petitioner George
C. Fong (Fong), and imposed a six
percent (6%) annual interest on this
amount.
Factual Antecedents
Dueas is engaged in the bakery, food
manufacturing, and retailing business,
which are all operated under his two
companies,
D.C.
DANTON,
Inc.
(Danton) and Bakcom Food Industries,
Inc. (Bakcom). He was an old
acquaintance of Fong as they were
former schoolmates at the De La Salle
University. 6
Sometime in November 1996, Dueas
and Fong entered into a verbal joint
venture contract where they agreed to
engage in the food business and to
incorporate a holding company under
the name Alliance Holdings, Inc.
(Alliance or the proposed corporation).
Its capitalization would be Sixty Five
Million Pesos (P65 Million), to which
they would contribute in equal parts. 7
The parties agreed that Fong would
contribute Thirty Two Million and Five
Hundred Thousand Pesos (P32.5
Million) in cash while Dueas would
contribute all his Danton and Bakcom
shares which he valued at P32.5 Million.
8 Fong required Dueas to submit the
financial documents supporting the
valuation of these shares.
On November 25, 1996, Fong started
remitting in tranches his share in the
proposed corporation's capital. He made
the remittances under the impression
that his contribution would be applied as
his subscription to fifty percent (50%) of
Alliance's total shareholdings. On the
other hand, Dueas started processing
the Boboli 9 international license that
they would use in their food business.
Fong's
cash
contributions
are
summarized below. 10
Date
Amount
November 25, 1996

P1,980,475.20
January 14, 1997
P1,000,000.00
February 8, 1997
P500,000.00
March 7, 1997
P100,000.00
April 28, 1997
P500,000.00
June 13, 1997
P919,524.80
Total
P5,000,000.00
===========
On June 13, 1997, Fong sent a letter to
Dueas informing him of his decision to
limit his total contribution from P32.5
Million to P5 Million. This letter reads:
June 13, 1997
Mr. Jose Dueas
c/o Camira Industries
Re: Proposed JV in Bakcom, D.C.
Danton and Boboli
Dear Jojit,
Enclosed is our check for P919,534.80
representing our additional advances to
subject company in process of
incorporation. This will make our total
advances to date amounting to P5
million.
Since we agreed in principal late last
year to pursue subject matter, the
delays in implementing the joint venture
have caused us to rethink our position.
First, we were faced with the 'personal'
factor which was explained to you one
time. This has caused us to turn down a
number of business opportunities.
Secondly, since last year, the operation
of Century 21 has been taking more
time from us than anticipated. That is
why we decided to relinquish our
original plan to manage and operate
'Boboli' knowing this limitation. For us, it
does not make sense anymore to go for
a significant shareholding when we
cannot be hands on and participate
179
actively as originally planned. For your

information, we will probably be giving
up our subway franchise too.
Together with our business advisers and
legal counsel, we came to a decision to
hold our commitment (from advances to
investment) at P5 million only for now
from the original plan of P32.5 million, if
this is acceptable to you.
We know that our decision will
somewhat upset the overall plans. But it
will probably be more problematic for us
in the long run if we continue full speed.
We have put our money down in trust
and good faith despite the much
delayed financials. We continue to
believe in your game plan and
capabilities to achieve the desired goals
for subject undertaking. Please permit
us instead to be just a modest silent
investor now with a take out plan when
time and price is right.
Thank you for your kind understanding
and consideration.
With best regards.
(Signed) George Fong 11
Fong observed that despite his P5
Million contribution, Dueas still failed to
give him the financial documents on the
valuation of the Danton and Bakcom
shares. Thus, except for Dueas'
representations, Fong had nothing to
rely on to ensure that these shares were
really valued at P32.5 Million. Moreover,
Dueas failed to incorporate and
register Alliance with the Securities and
Exchange Commission (SEC). 12
These circumstances convinced Fong
that Dueas would no longer honor his
obligations in their joint venture
agreement. 13 Thus, on October 30,
1997, Fong wrote Dueas informing him
of his decision to cancel the joint
venture agreement. He also asked for
the refund of the P5 Million that he
advanced. 14 In response, Dueas
admitted that he could not immediately
return the money since he used it to
defray the business expenses of Danton
and Bakcom. 15
To meet Fong's demand, Dueas
proposed several schemes for payment
of the P5 Million. 16 However, Fong did
not accept any of these proposed

schemes. On March 25, 1998, Fong
wrote a final letter of demand 17
informing Dueas that he would file a
judicial action against him should he still
fail to pay after receipt of this written
demand.
Since Dueas did not pay, Fong filed a
complaint against him for collection of a
sum of money and damages 18 on April
24, 1998.
The Trial Court's Ruling
In its June 27, 2006 decision, the trial
court ruled in favor of Fong and held
that a careful examination of the
complaint shows that although it was
labeled as an action for collection of a
sum of money, it was actually an action
for rescission. 19
The trial court noted that Dueas' failure
to furnish Fong with the financial
documents on the valuation of the
Danton and Bakcom shares, as well as
the almost one year delay in the
incorporation of Alliance, caused Fong
to rescind the joint venture agreement.
20 According to the trial court, these are
adequate and acceptable reasons for
rescission. cTDaEH
The trial court also held that Dueas
erroneously invested Fong's cash
contributions in his two companies,
Danton and Bakcom. The signed
receipts, 21 presented as evidence,
expressly provided that each remittance
should be applied as advance
subscription to Fong's shareholding in
Alliance. Thus, Dueas' investment of
the money in Danton and Bakcom was
clearly unauthorized and contrary to the
parties' agreement.
Since Dueas was unjustly enriched by
Fong's advance capital contributions,
the trial court ordered him to return the
money amounting to P5 Million and to
pay ten percent (10%) of this amount in
attorney's fees, as well as the cost of the
suit. 22
Fong filed a partial motion for
reconsideration from the trial court's
June 27, 2006 decision and asked for
the imposition of a six percent (6%)
annual interest, computed from the date
180
of extrajudicial demand until full

payment of the award. The trial court
granted this prayer in its October 30,
2006 order. 23
The CA's Ruling
Dueas responded to the trial court's
ruling through an appeal with the CA,
which granted the appeal and annulled
the trial court's ruling.
The CA ruled that Fong's June 13, 1997
letter evidenced his intention to convert
his cash contributions from "advances"
to the proposed corporation's shares, to
mere "investments." Thus, contrary to
the trial court's ruling, Dueas correctly
invested Fong's P5 Million contribution
to Bakcom and Danton. This did not
deviate from the parties' original
agreement as eventually, the shares of
these two companies would form part of
Alliance's capital. 24
Lastly, the CA held that the June 13,
1997 letter showed that Fong knew all
along that he could not immediately ask
for the return of his P5 Million
investment. Thus, whether the action
filed was a complaint for collection of a
sum of money, or rescission, it must still
fail. 25
The Petition
Fong submits that the CA erred when it
ruled that his June 13, 1997 letter
showed his intent to convert his
contributions
from
advance
subscriptions to Alliance's shares, to
investments in Dueas' two companies.
Contrary to the CA's findings, the
receipts and the letter expressly
mentioned that his contributions should
all be treated as his share subscription
to Alliance. 26
Also, Fong argues that Dueas'
unjustified retention of the P5 Million
and its appropriation to his (Dueas')
own business, amounted to unjust
enrichment; and that he contributed to
fund Alliance's capital and incorporation,
not to pay for Danton and Bakcom's
business expenses. 27
The Case for Dueas
Dueas contends that he could no
longer refund the P5 Million since he
had already applied it to his two
companies; that this is proper since

Danton and Bakcom's shares would
also form part of his capital contribution
to Alliance. 28
Moreover, the incorporation did not push
through because Fong unilaterally
rescinded the joint venture agreement
by limiting his investment from P32.5
Million to P5 Million. 29 Thus, it was
Fong who first breached the contract,
not he. Consequently, Fong's failure to
comply with his undertaking disqualified
him from seeking the agreement's
rescission. 30
The Court's Ruling
We resolve to GRANT the petition.
At the outset, the Court notes that the
parties' joint venture agreement to
incorporate a company that would hold
the shares of Danton and Bakcom and
that would serve as the business vehicle
for their food enterprise, is a valid
agreement. The failure to reduce the
agreement to writing does not affect its
validity or enforceability as there is no
law or regulation which provides that an
agreement to incorporate must be in
writing. ITAaHc
With this as premise, we now address
the related issues raised by the parties.
The body rather than the title of
the complaint determines the
nature of the action.
A well-settled rule in procedural law is
that the allegations in the body of the
pleading or the complaint, and not its
title, determine the nature of an action.
31
An examination of Fong's complaint
shows that although it was labeled as an
action for a sum of money and
damages, it was actually a complaint for
rescission. The following allegations in
the complaint support this finding:
9.
Notwithstanding
the
aforesaid
remittances, defendant failed for an
unreasonable length of time to submit a
valuation of the equipment of D.C.
Danton and Bakcom . . . .
10. Worse, despite repeated reminders
from plaintiff, defendant failed to
accomplish the organization and
incorporation of the proposed holding
181
company, contrary to his representation

to promptly do so.
xxx xxx xxx
17. Considering that the incorporation of
the proposed holding company failed to
materialize, despite the lapse of one
year and four months from the time of
subscription, plaintiff has the right to
revoke
his
pre-incorporation
subscription. Such revocation entitles
plaintiff to a refund of the amount of
P5,000,000.00 he remitted to defendant,
representing advances made in favor of
defendant to be considered as payment
on plaintiff's subscription to the
proposed holding company upon its
incorporation, plus interest from receipt
by defendant of said amount until fully
paid. [Emphasis supplied.]
Fong's allegations primarily pertained to
his cancellation of their verbal
agreement because Dueas failed to
perform his obligations to provide
verifiable documents on the valuation of
the Danton's and Bakcom's shares, and
to incorporate the proposed corporation.
These allegations clearly show that what
Fong sought was the joint venture
agreement's rescission.
As a contractual remedy, rescission is
available when one of the parties
substantially fails to do what he has
obligated himself to perform. 32 It aims
to address the breach of faith and the
violation of reciprocity between two
parties in a contract. 33 Under Article
1191 of the Civil Code, the right of
rescission is inherent in reciprocal
obligations, viz.:
what is incumbent upon him. [Emphasis
supplied.]
Dueas submits that Fong's prayer for
the return of his cash contribution
supports his claim that Fong's complaint
is an action for collection of a sum of
money. However, Dueas failed to
appreciate that the ultimate effect of
rescission is to restore the parties to
their original status before they entered
in a contract. As the Court ruled in Unlad

Resources v. Dragon: 34
Rescission has the effect of "unmaking
a contract, or its undoing from the
beginning,
and
not
merely
its
termination." Hence, rescission creates
the obligation to return the object of the
contract. It can be carried out only when
the one who demands rescission can
return whatever he may be obliged to
restore. To rescind is to declare a
contract void at its inception and to put
an end to it as though it never was. It is
not merely to terminate it and release
the parties from further obligations to
each other, but to abrogate it from the
beginning and restore the parties to their
relative positions as if no contract has
been made. CHTAIc
Accordingly, when a decree for
rescission is handed down, it is the duty
of the court to require both parties to
surrender that which they have
respectively received and to place each
other as far as practicable in his original
situation. 35 [Emphasis supplied.]
In this light, we rule that Fong's prayer
for the return of his contribution did not
automatically convert the action to a
complaint for a sum of money. The
mutual restitution of the parties' original
contributions is only a necessary
consequence of their agreement's
rescission.
Rescission under Art. 1191 is
applicable in the present case
Reciprocal obligations are those which
arise from the same cause, in which
the other, such that the obligation of one
is dependent on the obligation of the
other. 36
Fong and Dueas' execution of a joint
venture agreement created between
them reciprocal obligations that must be
performed in order to fully consummate
the contract and achieve the purpose for
which it was entered into.
Both parties verbally agreed to
incorporate a company that would hold
the shares of Danton and Bakcom and
which, in turn, would be the platform for
their food business. Fong obligated
182
himself to contribute half of the capital or

P32.5 Million in cash. On the other
hand, Dueas bound himself to shoulder
the other half by contributing his Danton
and Bakcom shares, which were
allegedly also valued at P32.5 Million.
Aside from this, Dueas undertook to
process Alliance's incorporation and
registration with the SEC.
When the proposed company remained
unincorporated by October 30, 1997,
Fong cancelled the joint venture
agreement and demanded the return of
his P5 Million contribution.
For his part, Dueas explained that he
could not immediately return the P5
Million since he had invested it in his
two companies. He found nothing
irregular in this as eventually, the
Danton and Bakcom shares would form
part of Alliance's capital.
Dueas' assertion is erroneous.
The parties never agreed that Fong
would invest his money in Danton and
Bakcom.
Contrary
to
Dueas'
submission, Fong's understanding was
that his money would be applied to his
shareholdings in Alliance. As shown in
Fong's June 13, 1997 letter, this fact
remained to be true even after he limited
his contribution to P5 Million, viz.:
Dear Jojit,
Enclosed is our check for P919,534.80
representing our additional advances to
subject company in process of
incorporation. This will make our total
advances to date amounting to P5
million. 37 [Emphasis supplied.]
Moreover, under the Corporation Code,
before a stock corporation may be
incorporated and registered, it is
required that at least twenty five percent
(25%) of its authorized capital stock as
stated in the articles of incorporation, be
first subscribed at the time of
incorporation, and at least twenty five
percent (25%) of the total subscription,
be paid upon subscription. 38
To prove
compliance
with
this
requirement, the SEC requires the
incorporators to submit a treasurer's
affidavit and a certificate of bank
deposit, showing the existence of an
amount compliant with the prescribed

capital subscription. 39
In this light, we conclude that Fong's
cash contributions play an indispensable
part in Alliance's incorporation. The
process necessarily requires the money
not only to fund Alliance's registration
with the SEC but also its initial capital
subscription. This is evident in the
receipts
which
Dueas
himself
executed, one of which provides:
I,
JOSE
V.
DUEAS,
hereby
acknowledge the receipt on January 14,
1997 of the amount of One Million
Pesos (Php1,000,000.00) Check No.
118 118 7014 Metro Bank, Pasong
Tamo branch dated January 13, 1997
from Mr. George Fong, which amount
shall constitute an advance of the
contribution or investment of Mr. Fong in
the joint venture which he and I are in
the process of organizing. Specifically,
this amount will be considered as part of
Mr. Fong's subscription to the shares of
stock of the joint venture company
which we will incorporate to embody and
carry out our joint venture. 40 [Emphasis
supplied.]
Thus, Dueas erred when he invested
Fong's contributions in his two
companies. This money should have
been used in processing Alliance's
registration. Its incorporation would not
materialize if there would be no funds
for its initial capital. Moreover, Dueas
represented that Danton and Bakcom's
shares were valued at P32.5 Million. If
this was true, then there was no need
for Fong's additional P5 Million
investment,
which
may
possibly
increase the value of the Danton and
Bakcom shares.
Under these circumstances, the Court
agrees with the trial court that Dueas
violated his agreement with Fong. Aside
from
unilaterally applying
Fong's
contributions to his two companies,
Dueas also failed to deliver the
valuation documents of the Danton and
Bakcom shares to prove that the
combined values of their capital
contributions actually amounted to
P32.5 Million. ISHCcT
183
These acts led to Dueas' delay in

incorporating the planned holding
company, thus resulting in his breach of
the contract.
On this basis, Dueas' breach justified
Fong's rescission of the joint venture
agreement under Article 1191. As the
Court ruled in Velarde v. Court of
Appeals: 41
The right of rescission of a party to an
obligation under Article 1191 of the Civil
Code is predicated on a breach of faith
by the other party who violates the
reciprocity between them. The breach
contemplated in the said provision is the
obligor's failure to comply with an
existing obligation. When the obligor
cannot comply with what is incumbent
upon it, the obligee may seek rescission
and in the absence of any just cause for
the court to determine the period of
compliance, the court shall decree the
rescission.
In the present case, private respondents
validly exercised their right to rescind
the contract, because of the failure of
petitioners to comply with their
purchase price. Indubitably, the latter
violated the very essence of reciprocity
in the contract of sale, a violation that
consequently gave rise to private
respondents' right to rescind the same in
accordance with law. 42 [Emphasis
supplied.]
However, the Court notes that Fong also
breached his obligation in the joint
venture agreement.
In his June 13, 1997 letter, Fong
expressly informed Dueas that he
would be limiting his cash contribution
from P32.5 Million to P5 Million because
of the following reasons which we quote
verbatim:
1. First, we were faced with the
'personal' factor which was explained to
you one time. This has caused us to turn
down
a
number
of
business
opportunities;
2. Secondly, since last year, the
operation of Century 21 has been taking
more time from us than anticipated. That
is why we decided to relinquish our
original plan to manage and operate

'Boboli' knowing this limitation. For us, it
does not make sense anymore to go for
a significant shareholding when we
cannot be hands on and participate
actively as originally planned. 43 . . . .
Although these reasons appear to be
valid, they do not erase the fact that
Fong still reneged on his original
promise to contribute P32.5 Million. The
joint venture agreement was not
reduced to writing and the evidence
does not show if the parties agreed on
valid causes that would justify the
limitation of the parties' capital
contributions. Their only admission was
that they obligated themselves to
contribute P32.5 Million each.
Hence, Fong's diminution of his capital
share to P5 Million also amounted to a
substantial breach of the joint venture
agreement, which breach occurred
before Fong decided to rescind his
agreement with Dueas. Thus, Fong
also contributed to the non-incorporation
of Alliance that needed P65 Million as
capital to operate.
Fong cannot entirely blame Dueas
since the substantial reduction of his
capital contribution also greatly impeded
the implementation of their agreement to
engage in the food business and to
incorporate a holding company for it.
As both parties failed to comply with
their respective reciprocal obligations,
we apply Article 1192 of the Civil Code,
which provides:
Art. 1192. In case both parties have
committed a breach of the obligation,
the liability of the first infractor shall be
equitably tempered by the courts. If it
cannot be determined which of the
parties first violated the contract, the
same shall be deemed extinguished,
and each shall bear his own damages.
[Emphasis supplied.]
Notably, the Court is not aware of the
schedule of performance of the parties'
obligations since the joint venture
agreement was never reduced to
writing. The facts, however, show that
both parties began performing their
obligations after executing the joint
184
venture agreement. Fong started

remitting his share while Dueas started
processing the Boboli international
license for the proposed corporation's
food business. CAacTH
The absence of a written contract
renders the Court unsure as to whose
obligation must be performed first. It is
possible that the parties agreed that
Fong would infuse capital first and
Dueas' submission of the documents
on the Danton and Bakcom shares
would just follow. It could also be the
other way around. Further, the parties
could
have
even
agreed
to
simultaneously perform their respective
obligations.
Despite these gray areas, the fact that
both Fong and Dueas substantially
contributed to the non-incorporation of
Alliance and to the failure of their food
business plans remains certain.
As the Court cannot precisely determine
who between the parties first violated
the agreement, we apply the second
part of Article 1192 which states: "if it
cannot be determined which of the
parties first violated the contract, the
same shall be deemed extinguished,
and each shall bear his own damages."
cEaSHC
In these lights, the Court holds that the
joint venture agreement between Fong
and Dueas is deemed extinguished
through rescission under Article 1192 in
relation with Article 1191 of the Civil
Code. Dueas must therefore return the
P5 Million that Fong initially contributed
since
rescission
requires
mutual
restitution. 44 After rescission, the
parties must go back to their original
status before they entered into the
agreement. Dueas cannot keep Fong's
contribution as this would constitute
unjust enrichment.
No damages shall be awarded to any
party in accordance with the rule under
Article 1192 of the Civil Code that in
case of mutual breach and the first
infractor of the contract cannot exactly
be determined, each party shall bear his
own damages.

we hereby GRANT the petition and
reverse the September 16, 2008
decision and December 8, 2008
resolution of the Court of Appeals in CAG.R. CV No. 88396. Respondent Jose
V. Dueas is ordered to RETURN Five
Million Pesos to petitioner George C.
Fong. This amount shall incur an
interest of six percent (6%) per annum
from the date of finality of this judgment
until fully paid. 45 The parties'
respective claims for damages are
deemed EXTINGUISHED and each of
them shall bear his own damages.
SO ORDERED.
Carpio, Del Castillo, Leonen and
Jardeleza, * JJ., concur.
||| (Fong v. Dueas, G.R. No. 185592,
[June 15, 2015])
28. ASCANO-CUPINO VS. PACIFIC
REHOUSE
SECOND DIVISION
[G.R. No. 205113. August 26, 2015.]
HONORLITA ASCANO-CUPINO and
FLAVIANA
ASCANO-COLOCADO,
petitioners, vs. PACIFIC REHOUSE
CORPORATION, respondent.
DECISION
CARPIO, J p:
The Case
Before the Court is a petition for review
on certiorari under Rule 45 of the Rules
of Court seeking to reverse the Decision
1 dated 17 July 2012 and Resolution 2
dated 8 January 2013 of the Court of
Appeals (CA) in CA-G.R. CV No. 90568.
The CA reversed and set aside the
Decision 3 dated 15 April 2005 of the
Regional Trial Court (RTC) of Trece
Martires City, Cavite, Branch 23, in Civil
Case No. TM-936.
The Facts
On 1 October 1994, Honorlita AscanoCupino 4 and Flaviana AscanoColocado (petitioners), and their sister,
Noeminia Ascano, (collectively, the
Ascanos) 5 entered into a Deed of
185
Conditional Sale with Pacific Rehouse

Corporation (Pacific). The latter obliged
itself to purchase from the Ascanos a
parcel of land with an area of 59,753
square meters located in General Trias,
Cavite for P5,975,300.
Following the terms of the Deed of
Conditional Sale, Pacific paid a down
payment of P1,792,590 leaving a
balance of P4,182,710, to be paid upon
the fulfillment of certain conditions,
namely: (1) the completion of all
documents necessary for the transfer of
the certificate of title of the land; (2) the
vendors (the Ascanos) shall guarantee
removal of the tenants, squatters and
other occupants on the land, with the
disturbance compensation to said
tenants to be paid by vendors; and (3)
submission by vendors to Pacific of the
Affidavit of Non-Tenancy and the land
operation transfer documents. 6
In November 1994, petitioners asked for
an additional P600,000 to be deducted
from the purchase price, which Pacific
paid. 7
In 1995, petitioners asked for another
P1,000,000, again deductible from the
purchase price, purportedly to be used
to fulfill the conditions in the Deed of
Conditional Sale. Pacific paid the
amount. 8 TCAScE
On 13 February 1995, petitioners
submitted to Pacific a Barangay
Agrarian Reform Council Certification
stating
that
the
property
was
untenanted. They also informed Pacific
that the other necessary documents
were being processed and more
expected to be completed the following
month. 9
The
following
month,
however,
petitioners failed to submit the
necessary documents despite several
demands from Pacific to do so. Instead,
they informed Pacific that they wanted
to rescind the contract and refused to
accept Pacific's tender of additional
payments amounting to P1,005,180. 10
In the latter part of March 1995, Pacific,
through Melecio P. Fortuno, Jr.
(Fortuno), opened a savings account
with the Capitol Bank of General Trias,
Cavite, in the names of petitioners,

depositing in said account the amount of
P1,005,180. 11 Pacific then informed
petitioners of the deposit and that "they
were authorized to withdraw the same at
[their] convenience." 12
Thereafter,
Pacific
learned
that
petitioners were negotiating the sale of
the property with other buyers allegedly
for a higher consideration. In September
1995, Pacific effected an annotation of
an adverse claim on the property's title.
13
Pacific made several demands on
petitioners to fulfill their obligations
under the Deed of Conditional Sale.
Instead of heeding the demands,
petitioners, through a certain Atty. Fojas,
began negotiating with Pacific for the
rescission of the Deed of Conditional
Sale. 14
On 11 February 1999, Pacific made
another demand on petitioners to fulfill
all their obligations under the Deed of
Conditional Sale or to return all
payments it had already made plus legal
interest. Petitioners continued to ignore
the demand. 15
On 2 September 1999, Pacific filed a
Complaint for Cancellation of Contract,
Sum of Money and Damages before the
RTC of Trece Martires City. However,
before pre-trial, Pacific discovered that
petitioners
had
withdrawn
the
P1,005,180 it had deposited with Capitol
Bank of General Trias. 16
In view of petitioners' action, Pacific filed
an Amended Complaint 17 changing its
cause of action from cancellation to
On the other hand, petitioners alleged
that it was Pacific that defaulted in its
payment. They maintained that the real
purchase price they agreed upon was
P200 per square meter, or a total of
P11,950,600, and that allegedly the
much lower amount stated in the Deed
of Conditional Sale was put there at
Pacific's request in order to lower the
taxes they would need to pay. 18
Petitioners further alleged that in
October 2004, the parties had executed
an Addendum to Deed of Conditional
186
Sale, 19 with item "2" of the original

deed amended to read as follows:
That full payment of the balance of
P4,182,710.00 shall be paid in full to the
Vendors by the Vendees within six (6)
months from the date of the Deed of
Conditional Sale, otherwise, in case of
default, the sale shall automatically be
cancelled and all monies received by
the Vendors shall be refunded to the
Vendee,
minus
the
amount
of
P792,590.00
taken
by
the
representative of the Vendee for
payment of disturbance compensation
to ten[a]nts.
Petitioners insisted that the Addendum
clearly stated that Pacific undertook the
obligation
to
pay
the
tenants'
disturbance compensation with the
P792,590 taken by Fortuno as Pacific's
authorized representative. However,
petitioners averred that the amount was
never paid to the tenants, who remained
in the subject property, in violation of the
conditions set in the deed. 20
Pacific,
however,
refused
to
acknowledge the Addendum because
the same was allegedly not signed by its
authorized representative, Dee Hua T.
Gatchalian, who was the signatory in the
original Deed of Conditional Sale.
Pacific also denied that the price they
agreed upon was P11,950,600. 21
The Decision of the RTC
On 15 April 2005, the RTC promulgated
its decision, the dispositive portion of
which reads:
rendered cancelling the contract and the
addendum to it entered into by the
plaintiff and defendants dated October
1, 1994 and ordering defendants
Honorlita Ascao, Noeminia Ascao and
Flaviana Ascao to return the amount of
Two Million Six Hundred Two Thousand
(P2,602,000.00) Pesos to the plaintiff;
while Plaintiff is hereby ordered to pay
defendants who incurred the following in
defending their rights:
1. The amount of One Hundred Fifty
Thousand (P150,000.00) Pesos as
damages;
2. The amount of One Hundred

Thousand (P100,000.00) Pesos as
attorney's fees; and
3. The litigation expenses.
SO ORDERED. 22
The RTC held:
In this case, parties admitted that there
was a Deed of Conditional Sale and an
addendum to it executed by the parties.
That based on this contract, plaintiff paid
defendant the amount of One Million
Seven Hundred Ninety Two Thousand
Five Hundred Ninety (P1,792,590.00)
[Pesos] (Exh. "K"), Six Hundred
Thousand (P600,000.00) Pesos (Exh.
"M"), One Million (P1,000,000.00) Pesos
(Exh[.] "Q") and Five Hundred Five
Thousand One Hundred Eighty (P505,
[180].00) Pesos (Exh. "Q") and those
payments were all received by
defendants, that when Plaintiff deposited
the
balance
of
One
Million
(P1,000,000.00) pesos as full payment
for the property, defendants refused to
withdraw it from the bank until plaintiff
for failure of the defendant[s] to
withdraw their tender of payment,
withdraw
the
amount
deposited.
cTDaEH
Defendants in their defense alleged that
they refused to withdraw the amount as
full payment since plaintiff failed to pay
their tenants and the latter were still
occupying their property. With respect to
this, plaintiff alleged that it is the duty of
the party defendants to pay their tenants
as per their agreement but defendants
countered that as per their addendum,
which was incorporated in their Contract
to Sell, a part of what they received from
the plaintiff was given to Mr. Melecio
Fortuno to pay the tenants amounting to
Seven Hundred Ninety Two Thousand
(P792,000.00) Pesos; that with respect
to the claims of the defendant[s], plaintiff
denied that Mr. Melecio Fortuno (now
deceased) is not their (sic) authorized
agent to transact in behalf of the plaintiff.
With respect to this, the Court can very
well see that this claim of the plaintiff
cannot be given merit. Plaintiff cannot
deny that in their letter addressed to
Honorlita and Flaviano (sic) Ascao
187
(Exhibit "G"), the signature of Melecio

Fortuno
appeared
as
authorized
representative of the plaintiff and this
cannot be denied by plaintiff. The fact
that it was this person who received the
amount of P792,000.00 as payment for
the tenant shows that defendants
cannot be faulted when they refused to
accept the full payment for their property
considering that the tenants are still
occupying defendants' land despite the
latter giving the amount to be paid to the
tenant.
However, plaintiff in his (sic) complaint
prays for the rescission or cancellation
of contract and to this allegation, the
Court has no recourse but to grant this
prayer since parties are no longer willing
to proceed with their contract and in
rescission, the parties are duty bound to
return what they received. With respect
to damages, expenses and attorney's
fees alleged by the parties, the Court
from the pieces of evidence submitted
so maintains that plaintiff is not entitled
since defendant[s] [are] not at fault. 23
Pacific filed a motion for reconsideration
of the RTC's decision. However, the
motion was denied in an Order 24 dated
9 May 2006, prompting it to file an
appeal before the CA. 25
The Decision of the CA
In the assailed decision dated 17 July
2012, the CA granted the appeal, thus:
the instant Appeal is GRANTED. The
appealed Decision dated 15 April 2005
is hereby REVERSED and SET ASIDE.
Accordingly, this Court ORDERS:
(1) the plaintiff-appellant to pay the
defendants-appellees the amount of
One Million Five Hundred Seventy
Seven Thousand Five Hundred Thirty
Pesos (P1,577,530.00), upon the
execution by the defendants-appellees
of the Deed of Absolute Sale in favor of
the plaintiff-appellant and delivery to the
latter all documents necessary for the
transfer of the title to the subject
property; and
(2) the defendants-appellees shall, at

their expense, commence the necessary
proceedings for the eviction of the
tenants and/or informal settlers in the
property until the same is cleared of the
same.
No pronouncement as to costs.
SO ORDERED. 26
The CA held that "the trial court erred in
deciding the case on the basis of the
original complaint." The CA noted that
Pacific amended its complaint from
cancellation of contract to specific
performance, which was done with
leave of and allowed by the RTC. 27
The CA also held that rescission was
not warranted in this case. It ruled that
petitioners "were clearly the ones who
failed in their obligation under the
contract." 28 Pacific then is the injured
party entitled to choose between
rescission of the contract and fulfillment
of the obligation. Pacific chose the latter,
as stated in their Amended Complaint
for specific performance. 29
Lastly, the CA found that it was proven
and undisputed that a total of
P4,497,770 had already been paid by
Pacific leaving only a balance of
P1,577,530.
Petitioners
filed
a
motion
for
reconsideration, which was denied in a
Resolution dated 8 January 2013. 30
Petition for Review with Prayer for TRO
Petitioners filed the present petition for
review asking the Court to reverse the
decision of the CA and reinstate the
decision of the RTC with the deletion of
the order to return the payments
received. 31
Petitioners also prayed for the issuance
of a temporary restraining order (TRO)
arguing that Pacific was likely to move
for a writ of execution once the CA
issues an entry of judgment, causing
them grave and irreparable damage.
In its Resolution dated 4 March 2013,
the Court granted the request for TRO
upon payment of a cash or surety bond
in the amount of P4.4 million. 32
However, petitioners later withdrew their
application for TRO because they could
188
no longer afford to pay or secure a

surety bond. 33
Petitioners' Arguments
Petitioners aver that the CA erred in
ordering specific performance instead of
rescission, arguing that the cancellation
of the Deed of Conditional Sale was
justified because Pacific was indeed
remiss in its obligation as vendee. 34
Petitioners further argue that they, and
not Pacific, are the injured parties in this
case. cSaATC
Petitioners assert that Pacific is bound
by the Deed of Conditional Sale and its
Addendum because Fortuno was its
authorized
representative.
They
emphasized that Fortuno, along with
Pacific's liaison officer Purity Mendez,
signed the Deed of Conditional Sale and
Addendum, while Dee Hua T. Gatchalian
did not. 35 As further proof, they pointed
to a letter dated 5 April 1995 where
Fortuno himself clearly stated that he
was
the
company's
authorized
representative. 36
Petitioners also insist that Pacific has
not paid the entire purchase price
agreed upon. They underscore that the
real purchase price agreed upon was
P200 per square meter or P11,950,600.
However, Pacific only acknowledges the
purchase price to be P5,975,300, the
amount stated in the Deed of
Conditional Sale. In any case,
petitioners insist that since the total
amount paid by Pacific only totals
P3,605,180, 37 there remains a balance
to be paid whether the purchase price is
that stated in the Deed of Conditional
Sale or P11,950,600.
Petitioners also allege that Pacific has
not complied with its contractual
obligation
to
pay
the
tenants'
disturbance compensation. Despite
receiving
P792,590
through
its
authorized representative, Pacific never
paid the tenants who continue to occupy
the property. 38
Thus, petitioners contend that they are
the injured parties in this case, and
therefore, entitled to ask for the
rescission of the Deed of Conditional
Sale. 39
Respondent's Arguments
In its Comment/Opposition, 40 Pacific
presents a different version of the facts.
It alleges that the purchase price agreed
upon is that stated in the Deed of
Conditional Sale, which is P5,975,300.
Pacific paid the down payment
amounting to P1,792,590, leaving a
balance of P4,182,710. The balance, as
stipulated in the deed, was to be paid
"upon completion by the VENDORS of
the pertinent documents that are
necessary for the transfer of the
Certificate of Title of the above
mentioned parcel of land unto the
VENDEE[.]" Likewise, the deed stated
that the vendors guaranteed to pay the
tenants disturbance compensation to rid
the property of squatters and other
occupants. 41
In
November
1994,
petitioners
requested from Pacific an additional
partial payment of P600,000 purportedly
to be used to fulfill the conditions in the
Deed of Conditional Sale. Thereafter,
petitioners
asked
for
another
P1,000,000, again to be considered as
partial payment, which Pacific agreed to
pay on the conditions that, first,
petitioners submit a Barangay Agrarian
Reform Council Certification that the
property was untenanted, and second,
deliver all the necessary documents,
certifications and clearances necessary
to consummate the sale. On 13
February 1995, petitioners submitted to
Pacific a Barangay Agrarian Reform
Council Certification that the land was
untenanted. They also assured Pacific
that the other documents needed to
complete
the
sale
were
being
processed. 42
However, by March 1995, petitioners
were still unable to deliver the
necessary documents, certifications and
clearances. Pacific also heard from
Fortuno
that
petitioners
were
contemplating on rescinding the Deed of
Conditional Sale.
This prompted Pacific to tender to
petitioners the payment for the balance
of the purchase price by opening a
savings account in petitioners' names
189
and depositing the amount in said

account. Pacific informed petitioners of
the deposit and told them that the
amount was at their disposal. Petitioners
still failed to comply with their
obligations
under
the
Deed
of
Conditional Sale. 43
Pacific was then constrained to effect an
annotation of adverse claim on the
property's transfer certificate of title. 44
Thereafter, Pacific sent several demand
letters to petitioners, 45 which remained
unheeded.
When Pacific was about to initiate legal
action, petitioners' lawyer commenced
negotiations for the rescission of the
Deed of Conditional Sale. However, in
December 1998, the lawyer informed
Pacific that his services had been
terminated and he would no longer
negotiate for petitioners. 46
On 11 February 1999, Pacific again
demanded that petitioners fulfill their
obligations
under
the
Deed
of
Conditional Sale. 47 The demand was
again unheeded. Hence, Pacific filed the
Complaint 48 for rescission/cancellation
of contract and damages before the
RTC.
Pacific argues that the petition raises
questions of fact and should be denied.
Moreover, Pacific avers that the issues
raised by petitioners have already been
decided by the CA. In particular, Pacific
emphasizes that the argument regarding
Fortuno's
authority
has
been
conclusively passed upon by the CA. 49
Pacific also maintains that it is not the
party guilty of failing to comply with the
obligations
under
the
Deed
of
Conditional Sale. It maintains that it is
simply not true that the purchase price
agreed upon is P200 per square meter.
For one, it says, being a corporation, it
is in its best interest that the true and
correct purchase price be recorded in its
books as an expense. In fact, it further
says, the party that will most benefit
from reducing the price will be
petitioners themselves. 50
Likewise, Pacific points out that the
Addendum, which states, "[t]hat we, the
above-named Vendors, hereby amend
item 2 of the said Deed of Conditional

Sale to read as follows . . .," proves that
the amendment was a "unilateral act"
and without Pacific's consent. 51
Based on the foregoing arguments,
Pacific insists that it is the injured party
in this case. As it has clearly asked for
specific performance in its Amended
Complaint, the CA correctly overturned
the RTC's decision. 52
The Issue
Petitioners raise this sole issue:
WITH ALL DUE RESPECT, TO
DECLARE
THAT
SPECIFIC
PERFORMANCE IS WARRANTED IN
THE CASE AT BAR, INSTEAD OF
RESCISSION,
THE
COURT
OF
APPEALS HAS DECIDED IN A WAY
PROBABLY NOT IN ACCORD WITH
LAW AND/OR WITH THE APPLICABLE
DECISIONS OF THIS HONORABLE
COURT.
ON
THE
CONTRARY,
CANCELLATION OF THE DEED OF
CONDITIONAL SALE IS JUSTIFIED
BECAUSE
[RESPONDENT]
WAS
INDEED REMISS [IN] ITS OBLIGATION
AS VENDEE. 53 cHDAIS
The Court's Ruling
The petition is denied. The Court affirms
the assailed decision and resolution of
the CA.
The RTC erred in deciding
based on the original complaint.
It is clear that the RTC erred in deciding
the case based on the original complaint
and not on the Amended Complaint,
thus:
[Pacific] in [its] complaint prays for the
rescission or cancellation of contract
and to this allegation, the Court has no
recourse but to grant this prayer . . . .
rendered cancelling (sic) the contract
and the addendum to it entered into by
[Pacific] and [petitioners] on October 1,
1994 . . . ." 54
The RTC failed to consider the
Amended Complaint filed by Pacific
which changed Pacific's cause of action
from cancellation/rescission of the
Conditional Deed of Sale 55 into one for
specific performance. In particular, the
190
Amended Complaint modified Pacific's

prayer to read:
WHEREFORE, in view of the foregoing
premises, plaintiff respectfully prays that
judgment be rendered in favor of plaintiff
and against defendants:
a) Directing defendants to sign and
deliver to plaintiff a Deed of Absolute
Sale covering the subject property and
compel said defendants [to] comply with
their undertaking with plaintiff as
embodied in the Conditional Deed of
Sale marked as Annex C.
xxx xxx xxx 56 (Underscoring in the
original)
Section 8, Rule 10 of the Rules of Court
provides:
SEC. 8. Effect of amended pleadings.
An amended pleading supersedes the
pleading that it amends. However,
admissions in superseded pleadings
may be received in evidence against the
pleader; and claims or defenses alleged
therein not incorporated in the amended
pleading shall be deemed waived.
(Emphasis supplied)
In particular, the terms and conditions

under the Deed of Conditional Sale are:
1. That the VENDEE shall pay unto the
VENDORS the sum of PESOS: ONE
MILLION SEVEN HUNDRED NINETY
TWO THOUSAND FIVE HUNDRED
NINETY
(P1,792,590.00),
as
downpayment for the purchase of the
aforesaid parcel of land, which the
VENDORS
acknowledged
receipt
hereof upon the execution of this
Conditional Sale;
2. That full payment of the balance of
PESOS:
FOUR
MILLION
ONE
HUNDRED EIGHTY TWO THOUSAND
SEVEN
HUNDRED
TEN
ONLY
(P4,182,710.00), shall be made by the
VENDEE unto the VENDORS upon
completion by the VENDORS of the
pertinent documents that are necessary
for the transfer of the [Transfer of]
Certificate of Title of the above
mentioned parcel of land unto the
VENDEE;
3. That the VENDORS shall guarantee
the removal of any tenant/s, squatters
and other occupants on the said parcel
of land. Payments for the tenants'
disturbance compensation shall be
shouldered by the VENDORS;
4. That the VENDORS shall furnish the
VENDEE the Affidavit of Non-Tenancy
and the Land operation transfer
document;
xxx xxx xxx 60
In summary, Pacific's obligations are: (1)
to pay the down payment of P1,892,590,
which it did; and (2) to pay the balance
of the purchase price "upon completion
by the VENDORS of the pertinent
documents that are necessary for the
transfer of the Transfer Certificate of
Title of the above mentioned parcel of
land unto the VENDEE[.]" ISHCcT
On the other hand, the Ascanos
undertook the following: (1) to furnish
Pacific with all "pertinent documents that
are necessary for the transfer of the
Transfer Certificate of Title" to the
subject property; (2) to guarantee
removal of tenants and shoulder the full
amount of the tenants' disturbance
compensation; and (3) to furnish Pacific
With Pacific's filing of the Amended

Complaint, the original one must be
deemed to have been abandoned and
to have become functus officio. 57 Thus,
this Court has ruled:
When a pleading is amended, the
original pleading is deemed abandoned.
The original ceases to perform any
further function as a pleading. The case
stands for trial on the amended pleading
only. 58
Therefore, the Amended Complaint, to
which petitioners filed an Amended
Answer with Counterclaim, 59 should
have been the basis for the RTC's
decision.
The parties' obligations under
the Deed of Conditional Sale
Considering that Pacific seeks specific
performance, particularly for petitioners
to execute a Deed of Absolute Sale and
fulfill their obligations under the Deed of
Conditional Sale, it is prudent to reexamine the terms of said deed to
understand each party's obligations.
191
the certificate of non-tenancy and land

operation transfer document.
Likewise, as ruled by the CA, the
Addendum relied upon by petitioners
cannot prevail over the original Deed of
Conditional Sale entered into by the
parties. 61 As the CA found, the
Addendum was not signed by any of
Pacific's
officers
or
authorized
representatives. Pacific's authorized
representative, Dee Hua T. Gatchalian,
did not sign the Addendum. Moreover,
Fortuno, the person purported to be
Pacific's representative, signed as a
mere witness. 62
A witness is not a party to the contract
and is not automatically converted to a
party simply because, under some other
extraneous document or circumstance,
he has presented himself as the
corporation's authorized representative.
63 Likewise, such act of signing as a
witness cannot be taken as evidence of
that person's authority.
Thus, the Addendum did not alter the
parties' obligations under the original
Deed of Conditional Sale.
Pacific is entitled to ask for
Article 1191 of the Civil Code states:
him.
fulfillment and the rescission of the
obligation, with payment of damages in
either case. He may also seek
impossible.
As previously discussed, the Deed of
Conditional Sale clearly spells out the
obligations of each party. Based on the
allegations of the parties and the

findings of the lower courts, Pacific has
already partially fulfilled its obligation
while petitioners have not.
The obligation of petitioners under the
Deed of Conditional Sale is to
"guarantee removal of tenants" and not
merely
to
pay
disturbance
compensation. It is an undertaking
specifically given to petitioners under
the
Deed
of
Conditional
Sale,
considering that Pacific is not yet the
owner of the property and will have no
personality to evict the property's
present occupants. Petitioners failed to
fulfill this obligation, as well as the
obligation to deliver the necessary
documents to complete the sale.
As previously held by the Court, "the
injured party is the party who has
faithfully fulfilled his obligation or is
ready and willing to perform his
obligation." 64 From the foregoing, it is
clear that Pacific is the injured party,
entitled to elect between rescinding of
the contract and exacting fulfillment of
the obligation. It has opted for the
remedy of specific performance, as
embodied in its Amended Complaint.
Moreover, rescission must not be
allowed in favor of petitioners, since
they themselves failed to perform their
obligations
under
the
Deed
of
Conditional Sale. 65
As to the purchase price, both the RTC
and the CA held that, given no other
evidence to conclude otherwise, the true
purchase price agreed upon by the
parties is P5,975,300, the amount
stipulated in the Deed of Conditional
Sale.
The Court agrees.
The RTC's Pre-trial Order 66 is
instructive. Specifically, item "2" of the
stipulations reads:
STIPULATIONS
The parties have agreed on the
following:
xxx xxx xxx
2. That on October 1, 1994, plaintiff and
defendant[s] entered into a Deed of
Conditional Sale whereby plaintiff
obliged itself to purchase the property
192
belonging to defendants for a sum of

P5,975,300.00;
xxx xxx xxx 67
Likewise, in the check vouchers issued
by Pacific for each of its payments, the
consideration under the contract was
stated as P100 per square meter. These
check vouchers were acknowledged
and signed by petitioners. 68
Finally, records show, and petitioners do
not dispute, that the following amounts
have already been paid by Pacific:
(1) down payment of P1,792,590,
receipt evidenced by Check Voucher
No. 0863; 69
(2) additional payment of P600,000,
No. 0968; 70
(3) additional payment of P1,000,000,
No. 1113; 71
(4) additional payments of P505,180 72
and P500,000 deposited at Capitol Bank
of General Trias in Cavite. 73
Pacific, therefore, has a balance of
P1,577,530 to be paid upon the
fulfillment by petitioners of their
obligations
under
the
Deed
of
Conditional Sale. Thereafter, petitioners
are to execute the Deed of Absolute
Sale in favor of Pacific and deliver all
the
necessary
documents
to
consummate the sale.
WHEREFORE, the petition is DENIED
for lack of merit. The Decision dated 17
July 2012 and Resolution dated 8
January 2013 of the Court of Appeals in
CA-G.R. CV No. 90568 are AFFIRMED.
SO ORDERED.
Del Castillo, Mendoza, Leonen and
Jardeleza, * JJ., concur.
||| (Ascano-Cupino v. Pacific Rehouse
Corp., G.R. No. 205113 , [August 26,
2015])
NOLASCO,
and
REMEDIOS
M.
NOLASCO, represented by ELENITA M.
NOLASCO, petitioners, vs. CELERINO
S. CUERPO, JOSELITO ENCABO,
JOSEPH ASCUTIA, and DOMILO
LUCENARIO, respondents.
DECISION
PERLAS-BERNABE, J p:
Assailed in this petition for review on
certiorari 1 are the Decision 2 dated
June 17, 2013 and the Resolution 3
dated November 19, 2013 of the Court
of Appeals (CA) in CA-G.R. CV No.
95353, which affirmed in toto the
Decision 4 dated March 1, 2010 of the
Regional Trial Court of Quezon City,
Branch 81 (RTC) in Civil Case No. Q08-63860 ordering the rescission of the
Contract to Sell executed by herein
parties and the return of the amounts
already paid by respondents Celerino S.
Cuerpo, Joselito Encabo, Joseph
Ascutia,
and
Domilo
Lucenario
(respondents) to petitioners Rogelio S.
Nolasco,
Nicanora
N.
Guevara,
Leonarda N. Elpedes, Heirs of Arnulfo
S. Nolasco, and Remedios M. Nolasco,
represented by Elenita M. Nolasco
(petitioners), as well as the remaining
post-dated checks issued by respondent
Celerino S. Cuerpo representing the
remaining monthly amortizations, all in
connection with the said contract.
aDSIHc
The Facts
On July 22, 2008, petitioners and
respondents entered into a Contract to
Sell 5 (subject contract) over a 165,775square meter parcel of land located in
Barangay San Isidro, Rodriguez, Rizal
covered by Original Certificate of Title
No. 152 (subject land). 6 The subject
contract provides, inter alia, that: (a) the
consideration
for
the
sale
is
P33,155,000.00 payable as follows:
down payment in the amount of
P11,604,250.00 inclusive of the amount
of P2,000,000.00 previously paid by
respondents
as
earnest
money/reservation
fee,
and
the
remaining balance of P21,550,750.00
29. NOLASCO VS. CUERPO

FIRST DIVISION
[G.R. No. 210215. December 9, 2015.]
ROGELIO S. NOLASCO, NICANORA
N.
GUEVARA,
LEONARDA
N.
ELPEDES, HEIRS OF ARNULFO S.
193
payable in 36 monthly installments,

each in the amount of P598,632.00
through post-dated checks; (b) in case
any of the checks is dishonored, the
amounts already paid shall be forfeited
in petitioners' favor, and the latter shall
be entitled to cancel the subject contract
without judicial recourse in addition to
other appropriate legal action; (c)
respondents are not entitled to possess
the subject land until full payment of the
purchase price; (d) petitioners shall
transfer the title over the subject land
from a certain Edilberta N. Santos to
petitioners' names, and, should they fail
to do so, respondents may cause the
said transfer and charge the costs
incurred
against
the
monthly
amortizations; and (e) upon full payment
of the purchase price, petitioners shall
transfer title over the subject land to
respondents. 7 However, respondents
sent petitioners a letter 8 dated
November 7, 2008 seeking to rescind
the subject contract on the ground of
financial difficulties in complying with the
same. They also sought the return of the
amount of P12,202,882.00 they had
paid to petitioners. 9 As their letter went
unheeded, respondents filed the instant
complaint 10 for rescission before the
RTC. 11
In their defense, 12 petitioners
countered that respondents' act is a
unilateral cancellation of the subject
contract as the former did not consent to
it. Moreover, the ground of financial
difficulties is not among the grounds
provided by law to effect a valid
rescission. 13
In view of petitioners' failure to file the
required pre-trial brief, they were
declared
"as
in
default"
and,
consequently, respondents were allowed
to present their evidence ex-parte. 14
The RTC Ruling
In a Decision 15 dated March 1, 2010,
the RTC ruled in favor of respondents
and, accordingly, ordered: (a) the
rescission of the subject contract; and
(b) the return of the amounts already
paid by respondents to petitioners, as
well as the remaining post-dated checks
issued by respondent Celerino S.

Cuerpo representing the remaining
monthly amortizations. 16
It found petitioners to have substantially
breached paragraph 7 of the subject
contract which states that "[t]he
[petitioners] shall, within ninety (90)
days from the signing of [the subject
contract] cause the completion of the
transfer of registration of title of the
property subject of [the said contract],
from Edilberta N. Santos to their names,
at [petitioners'] own expense." 17 As
such, respondents were entitled to
rescission under Article 1191 of the Civil
Code.18
Dissatisfied, petitioners appealed 19 to
the CA.
The CA Ruling
In a Decision 20 dated June 17, 2013,
the CA affirmed the RTC ruling. It
agreed with the RTC that petitioners
substantially breached paragraph 7 of
the subject contract when they did not
effect the transfer of the subject land
from Edilberta N. Santos to petitioners'
names within ninety (90) days from the
execution of said contract, thus, entitling
respondents to rescind the same. In this
relation, the CA held that under the
present circumstances, the forfeiture of
the payments already made by
respondents to petitioners is clearly
improper and unwarranted. 21
Aggrieved, petitioners moved for
reconsideration, 22 which was denied in
a Resolution 23 dated November 19,
2013; hence, this petition.
The Issue Before the Court
The core issue for the Court's resolution
is whether or not the CA correctly
affirmed the rescission of the subject
contract and the return of the amounts
already paid by respondents to
petitioners, as well as the remaining
post-dated checks issued by respondent
Celerino S. Cuerpo representing the
remaining monthly amortizations.
The Court's Ruling
The petition is partially meritorious.
In reciprocal obligations, either party
may rescind or more appropriately,
resolve the contract upon the other
194
party's substantial breach of the

obligation/s
he
had
assumed
thereunder. 24 This is expressly
provided for in Article 1191 of the Civil
Code which states:
him.
impossible.
ETHIDa
"More accurately referred to as
resolution, the right of rescission under
Article 1191 is predicated on a breach of
faith that violates the reciprocity
between the parties to the contract. This
retaliatory remedy is given to the
contracting party who suffers the
injurious breach on the premise that it is
'unjust that a party be held bound to
fulfill his promises when the other
violates his.'" 25 Note that the rescission
(or resolution) of a contract will not be
permitted for a slight or casual breach,
but only for such substantial and
fundamental violations as would defeat
the very object of the parties in making
the agreement. 26 Ultimately, the
question of whether a breach of contract
is substantial depends upon the
attending circumstances. 27
In the instant case, both the RTC and
the CA held that petitioners were in
substantial breach of paragraph 7 of the
subject contract as they did not cause
the transfer of the property to their
names from one Edilberta N. Santos
within 90 days from the execution of

said contract. 28
The courts a quo are mistaken.
Paragraph 7 of the subject contract
state in full:
7. [Petitioners] shall, within ninety (90)
days from the signing of [the subject
contract], cause the completion of the
transfer of registration of title of the
property subject of [the subject
contract], from Edilberta N. Santos to
their names, at [petitioners'] own
expense. Failure on the part of
[petitioners] to undertake the foregoing
within the prescribed period shall
automatically authorize [respondents] to
undertake the same in behalf of
[petitioners] and charge the costs
incidental to the monthly amortizations
upon due date. (Emphasis and
underscoring supplied)
A plain reading of paragraph 7 of the
subject contract reveals that while the
RTC and the CA were indeed correct in
finding that petitioners failed to perform
their obligation to effect the transfer of
the title to the subject land from one
Edilberta N. Santos to their names
within the prescribed period, said courts
erred in concluding that such failure
constituted a substantial breach that
would entitle respondents to rescind (or
resolve) the subject contract. To
reiterate, for a contracting party to be
entitled to rescission (or resolution) in
accordance with Article 1191 of the Civil
Code,the other contracting party must
be in substantial breach of the terms
and conditions of their contract. A
substantial breach of a contract, unlike
slight and casual breaches thereof, is a
fundamental breach that defeats the
object of the parties in entering into an
agreement. 29 Here, it cannot be said
that petitioners' failure to undertake their
obligation under paragraph 7 defeats
the object of the parties in entering into
the subject contract, considering that the
same paragraph provides respondents
contractual recourse in the event of
petitioners' non-performance of the
aforesaid obligation, that is, to cause
195
such transfer themselves in behalf and

at the expense of petitioners.
Indubitably, there is no substantial
breach of paragraph 7 on the part of
petitioners that would necessitate a
rescission (or resolution) of the subject
contract. As such, a reversal of the
rulings of the RTC and the CA is in
order.
The foregoing notwithstanding, the
Court cannot grant petitioners' prayer in
the instant petition to order the
cancellation of the subject contract and
the forfeiture of the amounts already
paid by respondents on account of the
latter's failure to pay its monthly
amortizations, 30 simply because in
their
Answer
with
Compulsory
Counterclaim and Motion for Summary
Judgment 31 filed before the RTC,
petitioners neither prayed for this
specific relief nor argued that they were
entitled to the same. Worse, petitioners
were declared "as in default" for failure
to file the required pre-trial brief and,
thus, failed to present any evidence in
support of their defense. 32 It is settled
that "[w]hen a party deliberately adopts
a certain theory and the case is decided
upon that theory in the court below, he
will not be permitted to change the same
on appeal, because to permit him to do
so would be unfair to the adverse party."
33 The Court's pronouncement in Pea
v. Spouses Tolentino 34 is instructive on
this matter, to wit:
Indeed, the settled rule in this
jurisdiction, according to Mon v. Court of
Appeals, is that a party cannot change
his theory of the case or his cause of
action on appeal. This rule affirms that
"courts of justice have no jurisdiction or
power to decide a question not in issue."
Thus, a judgment that goes beyond the
issues and purports to adjudicate
something on which the court did not
hear the parties is not only irregular but
also extrajudicial and invalid. The legal
theory under which the controversy was
heard and decided in the trial court
should be the same theory under which
the review on appeal is conducted.
Otherwise, prejudice will result to the
adverse party. We stress that points of

law, theories issues, and arguments not
adequately brought to the attention of
the lower court will not be ordinarily
considered by a reviewing court,
inasmuch as they cannot be raised for
the first time on appeal. This would be
offensive to the basic rules of fair play,
justice, and due process. 35 (Emphasis
and underscoring supplied)
WHEREFORE,
the
petition
is
PARTIALLY GRANTED. Accordingly, the
Decision dated June 17, 2013 and the
Resolution dated November 19, 2013 of
the Court of Appeals in CA-G.R. CV No.
95353 are hereby REVERSED and SET
ASIDE. The Contract to Sell executed
by the parties on July 22, 2008 remains
VALID and SUBSISTING. cSEDTC
SO ORDERED.
Bersamin and Perez, JJ., concur.
||| (Nolasco v. Cuerpo, G.R. No. 210215,
[December 9, 2015])
30. ASB REALTY VS. ORTIGAS
FIRST DIVISION
[G.R. No. 202947. December 9, 2015.]
ASB
REALTY
CORPORATION,
petitioner, vs. ORTIGAS & COMPANY
LIMITED PARTNERSHIP, respondent.
DECISION
BERSAMIN, J p:
This appeal seeks the review and
reversal of the amended decision
promulgated on January 9, 2012, 1
whereby the Court of Appeals (CA)
disposed thusly:
judgment is rendered:
1. Granting the appeal of plaintiffappellant and herein movant Ortigas
and Company Limited Partnership, and
reversing the Decision of the court a quo
dated December 14, 2009;
2. Rescinding the June 24, 1994 Deed
of Sale between Ortigas and Company
Limited Partnership and Amethyst Pearl
196
Corporation in view of the material

breached (sic) thereof by AMETHYST;
3. Ordering ASB Realty Corporation, by
way
of
mutual
restitution,
the
RECONVEYANCE to ORTIGAS of the
subject property covered by TCT No.
PT-105797 upon payment by ORTIGAS
to ASB of the amount of Two Million
Twenty
Four
Thousand
Pesos
(PhP2,024,000.00) plus legal interest at
the rate of 6% per annum from the time
of the finality of this judgment until the
same shall have been fully paid; and
4. Ordering the Register of Deeds of
Pasig City to cancel TCT No. PT-105797
and issue a new title over the subject
property under the name of ORTIGAS &
COMPANY LIMITED PARTNERSHIP.
No pronouncement as to cost.
SO ORDERED. 2
The petitioner also assails the resolution
promulgated on July 26, 2012, 3
whereby the CA denied its Motion for
Reconsideration.
Antecedents
On June 29, 1994, respondent Ortigas &
Company Limited Partnership (Ortigas)
entered into a Deed of Sale with
Amethyst Pearl Corporation (Amethyst)
involving the parcel of land with an area
of 1,012 square meters situated in
Barrio Oranbo, Pasig City and
registered under Transfer Certificate of
Title (TCT) No. 65118 of the Register of
Deeds of Rizal 4 for the consideration of
P2,024,000.00. The Deed of Sale 5
contained the following stipulations,
among others:
COVENANTS,
CONDITIONS
AND
RESTRICTIONS
This lot has been segregated by
ORTIGAS from its subdivisions to form
part of a zonified BUILDING AREA
pursuant to its controlled real estate
development project and subdivision
scheme, and is subject to the following
covenants which form part of the
consideration of ORTIGAS' sale to
VENDEE and its assigns, namely:
xxx xxx xxx
B.
BUILDING
WORKS
AND
ARCHITECTURE:
1. The building to be constructed on the

lot shall be of reinforced concrete,
cement hollow blocks and other highquality materials and shall be of the
following height of not more than:
fourteen (14) storeys plus one
penthouse. CAIHTE
xxx xxx xxx
L. SUBMISSION OF PLANS:
The final plans and specifications of the
said building shall be submitted to
ORTIGAS for approval not later than six
(6) months from date hereof. Should
ORTIGAS object to the same, it shall
notify and specify to the VENDEE in
writing the amendments required to
conform with its building restrictions and
VENDEE shall submit the amended
plans within sixty (60) days from receipt
of said notice.
M.
CONSTRUCTION
AND
COMPLETION OF BUILDING:
The VENDEE shall finish construction of
its building within four (4) years from
December 31, 1991. 6
As a result, the Register of Deeds of
Rizal cancelled TCT No. 65118 and
issued TCT No. PT-94175 in the name
of Amethyst. 7 The conditions contained
in the Deed of Sale were also annotated
on
TCT
No.
PT-94175
as
encumbrances. 8
On December 28, 1996, Amethyst
assigned the subject property to its sole
stockholder, petitioner ASB Realty
Corporation (the petitioner), under a socalled
Deed
of
Assignment
in
Liquidation in consideration of 10,000
shares of the petitioner's outstanding
capital stock. 9 Thus, the property was
transferred to the petitioner free from
any liens or encumbrances except those
duly annotated on TCT No. PT-94175.
10 The Register of Deeds of Rizal
cancelled TCT No. PT-94175 and issued
TCT No. PT-105797 in the name of the
petitioner with the same encumbrances
annotated on TCT No. PT-94175. 11
On July 7, 2000, Ortigas filed its
complaint for specific performance
against the petitioner, 12 which was
docketed as Civil Case No. 67978 of the
Regional Trial Court (RTC) in Pasig City.
197
13 Ortigas amended the complaint, and

alleged, 14 among others, that:
5. Defendant has violated the terms of
the Deed of Absolute Sale (Annex "A")
in the following manner:
a. While the lot may be used only "for
office
and
residential
purposes",
defendant introduced constructions on
the property which are commercial in
nature, like restaurants, retail stores and
the like (see par. A, Deed of Absolute
Sale, Annex "A").
b.
The
commercial
structures
constructed by defendant on the
property extend up to the boundary lines
of the lot in question violating the
setbacks established in the contract
(see par. B.A., ibid.).
c. Defendant likewise failed to submit
the final plans and specifications of its
proposed building not later than six (6)
months from June 29, 1994 and to
complete construction of the same
within four (4) years from December 31,
1991. (see pars. L and M, ibid.).
d. Being situated in a first-class office
building area, it was agreed that no
advertisements
or
any kind
of
commercial signs shall be allowed on
the lot or the improvements therein but
this was violated by defendant when it
put
up
commercial
signs
and
advertisements all over the area. (see
par. F, ibid.).
6. Any of the afore-described violations
committed by the defendant empower
the plaintiff to sue under paragraph "N.
Unilateral Cancellation", plaintiff may
have the Deed of Absolute Sale (Annex
"A") cancelled and the property reverted
to it by paying the defendant the amount
it has paid less the items indicated
therein. 15 DETACa
For reliefs, Ortigas prayed for the
reconveyance of the subject property, or,
alternatively, for the demolition of the
structures and improvements thereon,
plus the payment of penalties, attorney's
fees and costs of suit. 16
During the pendency of the proceedings
in the RTC, the petitioner amended its
Articles of Incorporation to change its
name to St. Francis Square Realty

Corporation. 17
rendered its decision on December 14,
2009, 18 and dismissed the complaint,
pertinently holding as follows:
Ortigas sold the property [to] Amethyst
on 29 June 1994. Amethyst was
supposed to finish construction on 31
December 1995. Yet, up to the time the
property was transferred to ASB on 28
December 1996, Ortigas never initiated
any action against Amethyst to enforce
said provision. Ortigas is therefore guilty
of laches or negligence or omission to
assert a right within a reasonable time,
warranting a presumption that the party
entitled to assert it either has
abandoned it or declined to assert it.
(Tijam v. Sibonghanoy, L-21450, 15 April
1968, 23 SCRA 29).
It is worth mentioning that the
restrictions annotated in TCT No. 94175
(in the name of Amethyst Pearl
Corporation) and TCT No. PT-105797
(in the name of ASB) repeatedly and
consistently refer to the VENDEE. The
term VENDEE in the said restrictions
obviously refer to Amethyst Pearls
Corporation considering the fact that the
date referred to in Paragraph N thereof
(Construction and Completion of
Building), which is four (4) years from
December 31, 1991, obviously refer to
the plaintiff's VENDEE Amethyst Pearl
Corporation. Definitely, it cannot refer to
the defendant ASB which is not a
vendee of the plaintiff. Therefore, all
references
to
VENDEE
in
the
restrictions evidently refer to Amethyst
Pearl Corporation, the VENDEE in the
sale from the plaintiff. Such explanation
is more consistent with logic than the
plaintiff's convoluted assertions that the
said restrictions apply to the defendant
ASB.
Reconveyance of the property to Ortigas
necessarily implies rescission of the
sale or transfer from Amethyst to ASB
and from Ortigas to Amethyst. But
Amethyst was not made a party to the
case. Reconveyance of the property to
the original seller (Ortigas) applies only
198
on the sale to the original vendee

(Amethyst) and not to subsequent
vendees to whom the property was sold
(Ayala Corp. v. Rosa Diana Realty and
Dev. Corp. GR No. 134284, Dec. 1,
2000, 346 SCRA 663).
The non-compliance by the plaintiff with
the requisites of its own restrictions
further proves that it had no intention
whatsoever to enforce or implement the
same. If at all, this evinces an
afterthought of the plaintiff to belatedly
and unjustifiably single out the
defendant for alleged non compliance of
the said restrictions which are not
applicable to it anyway.
WHEREFORE, foregoing
premises
considered, the present complaint is
hereby dismissed for lack of basis.
SO ORDERED. 19
Ortigas appealed to the CA, which
initially affirmed the RTC under the
decision promulgated on September 6,
2011, 20 ruling thusly:
. . . . ORTIGAS can no longer enforce
the said restrictions as against ASB.
The "Covenants, Conditions and
Restrictions" of ORTIGAS with respect
to the property clearly states the
following purpose: aDSIHc
"This lot has been segregated by
ORTIGAS from its subdivisions to form
part of a zonified BUILDING AREA
pursuant to its controlled real estate
development project and subdivision
scheme, . . ."
However,
it
appears
from
the
circumstances obtaining in this case that
ORTIGAS failed to pursue the
aforequoted purpose. It never filed a
complaint
against
its
vendee,
AMETHYST, notwithstanding that it
required the latter to complete
construction of the building within four
(4) years from the execution of the Deed
of Sale. Neither did it make a demand to
enforce
the
subject
restriction.
Moreover, while it imposed a restriction
on the registration and issuance of title
in the name of the vendee under
Paragraph "P" on "Registration of Sale",
to wit:
"P. REGISTRATION OF SALE:
The VENDEE hereby agrees that, for

the time being, this Deed will not be
registered and that its title shall not be
issued until the satisfactory construction
of the contemplated Office Building and
VENDEE's
compliance
with
all
conditions therein. . . ."
AMETHYST was nonetheless able to
procure the title to the property in its
name, and subsequently, assigned the
same to ASB.
Besides, records show that there are
registered owner-corporations of several
properties within the Ortigas area,
where the subject property is located,
that have likewise failed to comply with
the restriction on building construction
notwithstanding the fact of its annotation
on the titles covering their properties. In
fact, the tax declarations covering these
properties in the respective names of
UNIMART,
INC.,
CHAILEASE
DEVELOPMENT CO., INC., CANOGA
PARK
DEVELOPMENT
CORPORATION,
and
MAKATI
SUPERMARKET
CORPORATION
reveal that no improvements or
buildings have been erected thereon.
Notwithstanding such blatant noncompliance, however, records are bereft
of evidence to prove that ORTIGAS took
steps to demand observance of the said
restriction from these corporations, or
that it opted to institute any case against
them in order to enforce its rights as
seller. Thus, while ORTIGAS effectively
tolerated the non-compliance of these
other corporations, it nonetheless
proceeded with the filing of the
Complaint a quo against ASB, seeking
the rescission of the original Deed of
Sale on the ground of non-compliance
of the very same restriction being
violated by other property owners
similarly situated.
On the basis of the foregoing acts or
omissions of ORTIGAS, and the factual
milieu of the present case, it cannot be
pretended that it failed to actively pursue
the attainment of its objective of having
a "controlled real estate development
project and subdivision scheme". The
Court
thus
concurs
with
the
199
ratiocinations of the RTC when it posited

that the restrictions imposed by
ORTIGAS on ASB have been "rendered
obsolete and inexistent" for failure of
ORTIGAS to enforce the same uniformly
and indiscriminately against all noncomplying property owners. If the
purpose of ORTIGAS for imposing the
restrictions was for its "controlled real
estate
development
project
and
subdivision scheme", then it should
have sought compliance from all
property owners that have violated the
restriction on building completion. As
things stand, ASB would appear to have
been singled out by ORTIGAS,
rendering the present action highly
suspect and a mere afterthought.
Consequently, while it may be true that
ASB was bound by the restrictions
annotated on its title, specifically the
restriction on building completion,
ORTIGAS is now effectively estopped
from enforcing the same by virtue of its
inaction and silence.
xxx xxx xxx
In this case, ORTIGAS acquiesced to
the conveyance of the property from
AMETHYST to ASB with nary a
demand, reservation or complaint for the
enforcement of the restriction on
building construction. It allowed the fouryear period within which to construct a
building to lapse before it decided that it
wanted, after all, to enforce the
restriction, which cannot be allowed lest
the property rights of the registered
owner, ASB, be transgressed. Such a
silence or inaction, which in effect led
ASB to believe that ORTIGAS no longer
sought the enforcement of the
restrictions on the contract, therefore
bars ORTIGAS from enforcing the
restriction it imposed on the subject
property.
xxx xxx xxx
the instant appeal is DENIED. The
assailed Decision is hereby AFFIRMED.
SO ORDERED. 21
Acting
on
Ortigas'
Motion
for
Reconsideration, however, the CA
promulgated its assailed amended
decision on January 9, 2012, 22

whereby it reversed the decision
promulgated on September 6, 2011. It
observed and ruled as follows:
It is not disputed that AMETHYST failed
to finish construction within the period
stated in the 1994 Deed of Sale. As
correctly pointed out by ORTIGAS, in
accordance with Article 1144 of the Civil
Code,the prescriptive period within
which to enforce remedies under the
1994 Deed of sale is ten (10) years from
the time the right of action accrues.
ORTIGAS, therefore, had ten (10) years
from 31 December 1995 or until 31
December 2005 within which to file suit
to enforce the restriction. ORTIGAS filed
the present complaint on 07 July 2000
well within the prescriptive period for
filing the same. ETHIDa
ASB contends that it could not have
complied with the particular restriction to
finish construction of the building as the
period to finish the same had already
lapsed by the time ASB acquired the
property by way of a Deed of
Assignment in Liquidation between
AMETHYST and ASB on 28 December
1996. We hold, however, that the mere
assignment or transfer of the subject
property from AMETHYST to ASB does
not serve to defeat the vested right of
ORTIGAS to avail of remedies to
enforce the subject restriction within the
applicable prescriptive period.
xxx xxx xxx
As to the argument that the inaction of
ORTIGAS with respect to other noncompliant properties in the Ortigas area
is tantamount to consenting to such
non-compliance, it must be mentioned
that it is the sole prerogative and
discretion of Ortigas to initiate any
action against the violators of the deed
restrictions. This Court cannot interfere
with
the
exercise
of
such
prerogative/discretion. Furthermore, We
cannot sustain estoppel in doubtful
inference. Absent the conclusive proof
that its essential elements are present,
estoppel must fail. Estoppel, when
misapplied, becomes an effective
weapon to accomplish an injustice,
200
inasmuch as it shuts a man's mouth

from speaking the truth. 23
By its resolution promulgated on July
26, 2012, the CA denied the petitioner's
Motion for Reconsideration 24 for being
filed out of time. 25
Issues
Hence, this appeal in which ASB
submits: (1) that its Motion for
Reconsideration vis-a-vis the CA's
amended decision was filed on time;
and (2) that the amended decision
promulgated on January 9, 2012 by CA
be reversed and set aside, and the
decision promulgated on September 6,
2011 be reinstated. 26
The petitioner essentially seeks the
resolution of the issue of whether or not
Ortigas validly rescinded the Deed of
Sale due to the failure of Amethyst and
its assignee, the petitioner, to fulfil the
covenants under the Deed of Sale.
Ruling of the Court
The petition for review is meritorious.
1.
Petitioner's motion for reconsideration
vis-a-vis
the amended decision of the CA was
timely filed
In denying the petitioner's Motion for
Reconsideration, the CA concluded as
follows:
Per allegation of material dates, the
Motion for Reconsideration filed by
Balgos Gumara & Jalandoni, co-counsel
with Jose, Mendoza & Associates, on
January 30, 2012 appears to have been
filed on time. However, per registry
return attached at the back of p. 212 of
the
Rollo,
the
Motion
for
Reconsideration was filed three (3) days
late considering that the Amended
Decision was received by defendant
appellee's counsel of record, Jose,
Mendoza & Associates, on January 12,
2012. 27
The conclusion of the CA was
unwarranted because the petitioner
established that its filing of the Motion
for Reconsideration was timely.
It is basic that the party who asserts a
fact or the affirmative of an issue has the
burden of proving it. 28 Here, that party
was the petitioner. To comply with its

burden, it attached to its petition for
review on certiorari: (1) the affidavit
executed by Noel S.R. Rose, Senior
Partner of Jose, Mendoza & Associates
attesting that he had requested the
postmaster of the Mandaluyong City
Post Office to certify the date when
Jose, Mendoza & Associates had
received the copy of the amended
decision of the CA; 29 and (2) the
certification issued on August 15, 2012
by Postmaster Rufino C. Robles, and
Letter Carrier, Jojo Salvador, both of the
Mandaluyong Central Post Office,
certifying that Registered Letter No.
MVC 457 containing the copy of the
amended decision had been delivered
to and received on January 18, 2012 by
Jose, Mendoza & Associates, through
Ric Ancheta. 30 It thereby sought to
prove that it had received the copy of
the amended decision only on January
18, 2012, not January 12, 2012 as
stated in the registry return card on
record. Thus, it had until February 2,
2012, or 15 days from January 18,
2012, within which to file the same. In
contrast, Ortigas relied only on the copy
of the registry return to refute the
petitioner's assertion. 31 Under the
circumstances, the filing on January 30,
2012 of the Motion for Reconsideration
was timely. cSEDTC
2.
Ortigas' action for rescission could not
prosper
The petitioner reiterates that although
the restrictions and covenants imposed
by Ortigas under the Deed of Sale with
Amethyst, particularly with regard to the
construction of the building, were
similarly imposed on Ortigas' other
buyers and annotated on the latter's
respective certificates of title, 32 Ortigas
never took to task such other buyers
and Amethyst for failing to construct the
buildings within the periods contractually
imposed. 33 It maintains, therefore, that
Ortigas slept on its rights because it did
not take any action against Amethyst
during the period prescribed in the Deed
of Sale. 34 It argues that even assuming
201
that it was bound by the terms of the

Deed of Sale, certain circumstances
occurred in the interim that rendered it
impossible for the petitioner to comply
with the covenants embodied in the
Deed of Sale, namely: (1) the delay in
the petitioner's possession of the
property resulted from the complaint for
forcible entry it had filed in the
Metropolitan Trial Court in Pasig City;
(2) at the time the property was
transferred to the petitioner, the period
within which to construct the building
had already expired without Ortigas
enforcing
the
obligation
against
Amethyst; and (3) the petitioner was
placed under corporate rehabilitation by
the
Securities
and
Exchange
Commission (SEC) by virtue of which a
stay order was issued on May 4, 2000.
35
In contrast, Ortigas contends that it had
the sole discretion whether or not to
commence any action against a party
who violated a restriction in the Deed of
Sale; 36 and that it could not be
estopped because the Deed of Sale with
Amethyst and the deeds of sale with its
other buyers contained a uniform
provision to the effect that "any inaction,
delay or tolerance by OCLP (Ortigas) in
respect to violation of any of the
covenants and restrictions committed by
these buyers shall not bar or estop the
institution of an action to enforce them."
37
In asserting its right to rescind, Ortigas
insists that the petitioner was bound by
the covenants of the Deed of Sale
annotated on TCT No. PT-10597 in the
name of the petitioner; 38 and that the
petitioner's privity to the Deed of Sale
was by virtue of its being the successorin-interest or assignee of Amethyst. 39
After evaluating the parties' arguments
and the records of the case, the Court
holds that Ortigas could not validly
demand the reconveyance of the
property, or the demolition of the
structures thereon through rescission.
The Deed of Assignment in Liquidation
executed between Amethyst and the
petitioner expressly stated, in part, that:
. . . . [T]he ASSIGNOR hereby assigns,

transfers and conveys unto the
ASSIGNEE, its successors and assigns,
free from any lien or encumbrance
except those that are duly annotated on
the Transfer Certificate of Title (TCT),
one parcel of real property (with
improvements), . . . .
xxx xxx xxx
The ASSIGNEE in turn in consideration
of the foregoing assignment of assets to
it, hereby surrenders to ASSIGNOR,
Amethyst Pearl Corporation, Stock
Certificate Nos. (006, 007, 008, 009,
010, 011), covering a total of TEN
THOUSAND
SHARES
(10,000)
registered in the name of the
ASSIGNEE and its nominees in the
books of ASSIGNOR, receipt of which is
hereby acknowledged, and in addition
hereby releases ASSIGNOR from any
and all claims. 40
The express terms of the Deed of
Assignment in Liquidation, supra,
indicate that Amethyst transferred to the
petitioner only the tangible asset
consisting of the parcel of land covered
by TCT No. PT-94175 registered in the
name of Amethyst. By no means did
Amethyst assign the rights or duties it
had assumed under the Deed of Sale.
The petitioner thus became vested with
the ownership of the parcel of land "free
from any lien or encumbrance except
those that are duly annotated on the
[title]" from the time Amethyst executed
the Deed of Assignment in Liquidation.
SDAaTC
Although the Deed of Sale stipulated
that:
3. The lot, together with any
improvements thereon, or any rights
thereto, shall not be transferred, sold or
encumbered before the final completion
of the building as herein provided unless
it is with the prior express written
approval of ORTIGAS. 41
xxx xxx xxx
The VENDEE hereby agrees that, for
the time being, this Deed will not be
registered and that its title shall not be
issued until the satisfactory construction
of the contemplated Office Building and
202
VENDEE's
compliance
with
all
conditions herein. . . . 42
Ortigas apparently recognized without
any reservation the issuance of the new
certificate of title in the name of
Amethyst and the subsequent transfer
by assignment from Amethyst to the
petitioner that resulted in the issuance of
the new certificate of title under the
name of the petitioner. As such, Ortigas
was estopped from assailing the
petitioner's acquisition and ownership of
the property.
The application of estoppel was
appropriate. The doctrine of estoppel
was based on public policy, fair dealing,
good faith and justice, and its purpose
was to forbid a party to speak against
his own act or omission, representation,
or commitment to the injury of another to
whom the act, omission, representation,
or commitment was directed and who
reasonably relied thereon. The doctrine
sprang from equitable principles and the
equities in the case, and was designed
to aid the law in the administration of
justice where without its aid injustice
would result. Estoppel has been applied
by the Court wherever and whenever
special circumstances of the case so
demanded. 43
Yet, the query that persists is whether or
not the covenants annotated on TCT
No. PT-10597 bound the petitioner to
the performance of the obligations
assumed by Amethyst under the Deed
of Sale.
We agree with Ortigas that the
annotations on TCT No. PT-10597
bound the petitioner but not to the extent
that rendered the petitioner liable for the
non-performance of the covenants
stipulated in the Deed of Sale.
Section 39 of Act No. 496 (The Land
Registration Act) requires that every
person receiving a certificate of title in
pursuance of a decree of registration,
and every subsequent purchaser of
registered land who takes a certificate of
title for value in good faith shall hold the
same free of all encumbrances except
those noted on said certificate. An
encumbrance in the context of the
provision is "anything that impairs the

use or transfer of property; anything
which constitutes a burden on the title; a
burden or charge upon property; a claim
or lien upon property." 44 It denotes
"any right to, or interest in, land which
may subsist in another to the diminution
of its value, but consistent with the
passing of the fee by conveyance." 45
An annotation, on the other hand, is "a
remark, note, case summary, or
commentary on some passage of a
book, statutory provision, court decision,
of the like, intended to illustrate or
explain its meaning." 46 The purpose of
the annotation is to charge the
purchaser or title holder with notice of
such burden and claims. 47 Being
aware of the annotation, the purchaser
must face the possibility that the title or
the real property could be subject to the
rights of third parties. 48
By acquiring the parcel of land with
notice of the covenants contained in the
Deed of Sale between the vendor
(Ortigas) and the vendee (Amethyst),
the
petitioner
bound
itself
to
acknowledge
and
respect
the
encumbrance. Even so, the petitioner
did not step into the shoes of Amethyst
as a party in the Deed of Sale. Thus, the
annotation of the covenants contained in
the Deed of Sale did not give rise to a
liability on the part of the petitioner as
the
purchaser/successor-in-interest
without its express assumption of the
duties or obligations subject of the
annotation. As stated, the annotation
was
only
the
notice
to
the
purchaser/successor-in-interest of the
burden, claim or lien subject of the
annotation. In that respect, the Court
has observed in Garcia v. Villar: 49
acEHCD
The sale or transfer of the mortgaged
property cannot affect or release the
mortgage; thus the purchaser or
transferee is necessarily bound to
acknowledge
and
respect
the
encumbrance.
xxx xxx xxx
. . . However, Villar, in buying the subject
property with notice that it was
203
mortgaged, only undertook to pay such

mortgage or allow the subject property
to be sold upon failure of the mortgage
creditor to obtain payment from the
principal debtor once the debt matures.
Villar did not obligate herself to replace
the debtor in the principal obligation,
and could not do so in law without the
creditors consent. Article 1293 of the
Civil Code provides:
Art. 1293. Novation which consists in
substituting a new debtor in the place of
the original one, may be made even
without the knowledge or against the will
of the latter, but not without the consent
of the creditor. Payment by the new
debtor gives him the rights mentioned in
articles 1236 and 1237.
Therefore, the obligation to pay the
mortgage indebtedness remains with
the original debtors Galas and Pingol. . .
.
To be clear, contractual obligations,
unlike contractual rights or benefits, are
generally not assignable. But there are
recognized means by which obligations
may be transferred, such as by subcontract and novation. In this case, the
substitution of the petitioner in the place
of Amethyst did not result in the
novation of the Deed of Sale. To start
with, it does not appear from the records
that the consent of Ortigas to the
substitution had been obtained despite
its essentiality to the novation. Secondly,
the petitioner did not expressly assume
Amethyst's obligations under the Deed
of Sale, whether through the Deed of
Assignment in Liquidation or another
document. And, thirdly, the consent of
the new obligor (i.e., the petitioner),
which was as essential to the novation
as that of the obligee (i.e., Ortigas), was
not obtained. 50
Even if we would regard the petitioner
as the assignee of Amethyst as far as
the Deed of Sale was concerned,
instead of being the buyer only of the
subject property, there would still be no
express or implied indication that the
petitioner had assumed Amethyst's
obligations. In short, the burden to
perform the covenants under the Deed
of Sale, or the liability for the nonperformance thereof, remained with

Amethyst. As held in an American case:
The mere assignment of a bilateral
executory contract may not be
interpreted as a promise by the
assignee to the assignor to assume the
performance of the assignor's duties, so
as to have the effect of creating a new
liability on the part of the assignee to the
other party to the contract assigned. The
assignee of the vendee is under no
personal engagement to the vendor
where there is no privity between them.
(Champion v. Brown, 6 Johns. Ch. 398;
Anderson v. N. Y. & H. R. R. Co., 132
App. Div. 183, 187, 188; Hugel v. Habel,
132 App. Div. 327, 328.) The assignee
may, however, expressly or impliedly,
bind himself to perform the assignor's
duties. This he may do by contract with
the assignor or with the other party to
the contract. It has been held (Epstein v.
Gluckin, 233 N. Y. 490) that where the
assignee of the vendee invokes the aid
of a court of equity in an action for
specific performance, he impliedly binds
himself to perform on his part and
subjects himself to the conditions of the
judgment appropriate thereto. "He who
seeks equity must do equity." The
converse of the proposition, that the
assignee of the vendee would be bound
when the vendor began the action, did
not follow from the decision in that case.
On the contrary, the question was wholly
one of remedy rather than right and it
was held that mutuality of remedy is
important only so far as its presence is
essential to the attainment of the ends
of justice. This holding was necessary to
sustain the decision. No change was
made in the law of contracts nor in the
rule for the interpretation of an
assignment of a contract.
A judgment requiring the assignee of the
vendee to perform at the suit of the
vendor would operate as the imposition
of a new liability on the assignee which
would be an act of oppression and
injustice, unless the assignee had,
expressly or by implication, entered into
a personal and binding contract with the
204
assignor or with the vendor to assume

the obligations of the assignor. 51
Is rescission the proper remedy for
Ortigas to recover the subject property
from the petitioner? SDHTEC
The Civil Code uses rescission in two
different contexts, namely: (1) rescission
on account of breach of contract under
Article 1191; and (2) rescission by
reason of lesion or economic prejudice
under Article 1381. Cogently explaining
the differences between the contexts of
rescission in his concurring opinion in
Universal Food Corp. v. Court of
Appeals, 52 the eminent Justice J.B.L.
Reyes observed:
. . . The rescission on account of breach
of stipulations is not predicated on injury
to economic interests of the party
plaintiff but on the breach of faith by the
defendant, that violates the reciprocity
between the parties. It is not a
subsidiary action, and Article 1191 may
be scanned without disclosing anywhere
that the action for rescission thereunder
is subordinated to anything; other than
the culpable breach of his obligations by
the defendant. This rescission is in
principal action retaliatory in character, it
being unjust that a party be held bound
to fulfill his promises when the other
violates his, as expressed in the old
Latin aphorism: "Non servanti fidem,
non est fides servanda." Hence, the
reparation of damages for the breach is
purely secondary.
On the contrary, in the rescission by
reason of lesion or economic prejudice,
the cause of action is subordinated to
the existence of that prejudice, because
it is the raison d'etre as well as the
measure of the right to rescind. Hence,
where the defendant makes good the
damages caused, the action cannot be
maintained or continued, as expressly
provided in Articles 1383 and 1384. But
the operation of these two articles is
limited to the cases of rescission for
lesion enumerated in Article 1381 of the
Civil Code of the Philippines, and does
not apply to cases under Article 1191.
Based on the foregoing, Ortigas'

complaint was predicated on Article
1191 of the Civil Code, which provides:
Article 1191. The power to rescind
him.
impossible.
accordance with articles 1385 and 1388
Rescission under Article 1191 of the
Civil Code is proper if one of the parties
to the contract commits a substantial
breach of its provisions. It abrogates the
contract from its inception and requires
the mutual restitution of the benefits
received; 53 hence, it can be carried out
only when the party who demands
rescission can return whatever he may
be obliged to restore.
Considering the foregoing, Ortigas did
not have a cause of action against the
petitioner for the rescission of the Deed
of Sale. Under Section 2, Rule 2 of the
Rules of Court, a cause of action is the
act or omission by which a party violates
a right of another. The essential
elements of a cause of action are: (1) a
right in favor of the plaintiff by whatever
means and under whatever law it arises
or is created; (2) an obligation on the
part of the defendant not to violate such
right; and (3) an act or omission on the
part of the defendant in violation of the
right of the plaintiff or constituting a
breach of the obligation of the defendant
to the plaintiff for which the latter may
maintain an action for recovery of
damages or other relief. It is only upon
the occurrence of the last element that
205
the cause of action arises, giving the

plaintiff the right to file an action in court
for the recovery of damages or other
relief. 54 AScHCD
The second and third elements were
absent herein. The petitioner was not
privy to the Deed of Sale because it was
not the party obliged thereon. Not
having come under the duty not to
violate any covenant in the Deed of Sale
when it purchased the subject property
despite the annotation on the title, its
failure to comply with the covenants in
the Deed of Sale did not constitute a
breach of contract that gave rise to
Ortigas' right of rescission. It was rather
Amethyst that defaulted on the
covenants under the Deed of Sale;
hence, the action to enforce the
provisions of the contract or to rescind
the contract should be against
Amethyst. In other words, rescission
could not anymore take place against
the petitioner once the subject property
legally
came
into
the
juridical
possession of the petitioner, who was a
third party to the Deed of Sale. 55
In view of the outcome, we consider to
be superfluous any discussion of the
other matters raised in the petition, like
the effects of the petitioner's corporate
rehabilitation and whether Ortigas was
guilty of laches.
WHEREFORE, the Court GRANTS the
petition for review on certiorari; ANNULS
and REVERSES the amended decision
promulgated on January 9, 2012 and
the resolution promulgated on July 26,
2012 by the Court of Appeals in C.A.G.R. CV No. 94997; DISMISSES Civil
Case No. 67978 for lack of cause of
action; and ORDERS respondent
ORTIGAS & COMPANY LIMITED
PARTNERSHIP to pay the costs of suit.
SO ORDERED.
Villarama, Jr. * and Perez, JJ., concur.
||| (ASB Realty Corp. v. Ortigas &
Company Limited Partnership, G.R. No.
202947, [December 9, 2015])
debtors in one and the same

obligation does not imply that each
one of the former has a right to
demand, or that each one of the latter
is bound to render, entire compliance
with the prestation. There is a
solidary liability only when the
obligation expressly so states, or
when the law or the nature of the
obligation requires solidarity. (1137a)
Article 1208. If from the law, or the
nature or the wording of the
obligations to which the preceding
article refers the contrary does not
appear, the credit or debt shall be
presumed to be divided into as many
shares as there are creditors or
debtors, the credits or debts being
considered distinct from one another,
subject to the Rules of Court
governing the multiplicity of suits.
(1138a)
Article 1209. If the division is
impossible, the right of the creditors
may be prejudiced only by their
collective acts, and the debt can be
enforced only by proceeding against
all the debtors. If one of the latter
should be insolvent, the others shall
not be liable for his share. (1139)
Article 1210. The indivisibility of an
obligation does not necessarily give
rise to solidarity. Nor does solidarity
of itself imply indivisibility. (n)
Article 1211. Solidarity may exist
although the creditors and the
debtors may not be bound in the
same manner and by the same
periods and conditions. (1140)
Article 1212. Each one of the solidary
creditors may do whatever may be
useful to the others, but not anything
which may be prejudicial to the latter.
(1141a)
Article 1213. A solidary creditor
cannot assign his rights without the
consent of the others. (n)
Article 1207. The concurrence of two

or more creditors or of two or more
206
in proportion to the debt of each.

(1145a)
Article 1214. The debtor may pay any

one of the solidary creditors; but if
any demand, judicial or extrajudicial,
has been made by one of them,
payment should be made to him.
(1142a)
Article 1218. Payment by a solidary

debtor shall not entitle him to
reimbursement from his co-debtors if
such payment is made after the
obligation has prescribed or become
illegal. (n)
Article
1215.
Novation,
compensation,
confusion
or
remission of the debt, made by any of
the solidary creditors or with any of
the solidary debtors, shall extinguish
the obligation, without prejudice to
the provisions of article 1219.
Article 1219. The remission made by

the creditor of the share which
affects one of the solidary debtors
does not release the latter from his
responsibility
towards
the
codebtors, in case the debt had been
totally paid by anyone of them before
the remission was effected. (1146a)
The creditor who may have executed

any of these acts, as well as he who
collects the debt, shall be liable to
the others for the share in the
obligation corresponding to them.
(1143)
Article 1220. The remission of the

whole obligation, obtained by one of
the solidary debtors, does not entitle
him to reimbursement from his codebtors. (n)
Article 1216. 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. (1144a)
Article 1221. If the thing has been lost

or if the prestation has become
impossible without the fault of the
solidary debtors, the obligation shall
be extinguished.
If there was fault on the part of any
one of them, all shall be responsible
to the creditor, for the price and the
payment of damages and interest,
without prejudice to their action
against the guilty or negligent debtor.
Article 1217. Payment made by one of

the solidary debtors extinguishes the
obligation. If two or more solidary
debtors offer to pay, the creditor may
choose which offer to accept.
He who made the payment may claim
from his co-debtors only the share
which corresponds to each, with the
interest for the payment already
made. If the payment is made before
the debt is due, no interest for the
intervening
period
may
be
demanded.
If through a fortuitous event, the

thing is lost or the performance has
become impossible after one of the
solidary debtors has incurred in
delay through the judicial or
extrajudicial demand upon him by the
creditor, the provisions of the
preceding paragraph shall apply.
(1147a)
When one of the solidary debtors

cannot, because of his insolvency,
reimburse his share to the debtor
paying the obligation, such share
shall be borne by all his co-debtors,
Article 1222. A solidary debtor may, in

actions filed by the creditor, avail
himself of all defenses which are
derived from the nature of the
obligation and of those which are
207
personal to him, or pertain to his own

share. With respect to those which
personally belong to the others, he
may avail himself thereof only as
regards that part of the debt for
which the latter are responsible.
(1148a)
more than the principal debtor, both as

regards the amount and the onerous
nature of the conditions. It is likewise not
disputed by the parties that the credit
limit granted to Celia Regala was
P2,000.00 per month and that Celia
Regala succeeded in using the card
beyond the original period of its
effectivity, October 29, 1979. We do not
agree however, that Roberto Jr.'s liability
should be limited to that extent. Private
respondent Roberto Regala, Jr., as
surety of his wife, expressly bound
himself up to the extent of the debtor's
(Celia) indebtedness likewise expressly
waiving any "discharge in case of any
change or novation of the terms and
conditions in connection with the
issuance of the Pacificard credit card."
Roberto, in fact, made his commitment
as a surety a continuing one, binding
upon himself until all the liabilities of
Celia Regala have been fully paid. All
these were clear under the "Guarantor's
Undertaking' Roberto signed. Private
respondent Roberto Regala, Jr. had
been made aware by the terms of the
undertaking of future changes in the
terms and conditions governing the
issuance of the credit card to his wife
and that notwithstanding, he voluntarily
agreed to be bound as a surety. As in
guaranty, a surety may secure additional
and future debts of the principal debtor
the amount of which is not yet known
( Article 2053, Civil Code of the
Philippines).
31. PACIFIC BANKING VS. IAC

FIRST DIVISION
[G.R. No. 72275. November 13, 1991.]
PACIFIC BANKING CORPORATION,
petitioner, vs. HON. INTERMEDIATE
APPELLATE COURT AND ROBERTO
REGALA, JR., respondents.
Ocampo,
petitioner.
Dizon
&
Domingo
for
Angara, Concepcion, Regala & Cruz for

private respondent.
SYLLABUS
1. CIVIL LAW; SPECIAL CONTRACTS;
SURETYSHIP; DISTINGUISHED FROM
GUARANTY. A contract of surety as
distinguished from a contract of
guaranty where the guarantor binds
himself to the creditor to fulfill the
obligation of the principal debtor only in
case the latter should fail to do so, in a
contract of suretyship, the surety binds
himself solidarily with the principal
debtor (Art. 2047, Civil Code of the
Philippines).
3. ID.; ID.; ID.; ID.; DETERMINED BY

THE CLAUSES IN THE CONTRACT OF
SURETYSHIP. A guarantor or surety
does not incur liability unless the
principal debtor is held liable. It is in this
sense that a surety, although solidarily
liable with the principal debtor, is
different from the debtor. It does not
mean, however, that the surety cannot
be held liable to the same extent as the
principal debtor. The nature and extent
of the liabilities of a guarantor or a
surety is determined by the clauses in
the contract of suretyship (PCIB v. CA,
2. ID.; ID.; ID.; LIABILITY OF SURETY;

CASE AT BAR. As a surety he bound
himself jointly and severally with the
debtor Celia Regala "to pay the Pacific
Banking Corporation upon demand, any
and all indebtedness, obligations,
charges or liabilities due and incurred by
said Celia Syjuco Regala with the use of
Pacificard or renewals thereof issued in
(her)
favor
by Pacific
Banking
Corporation." It is true that under Article
2054 of the Civil Code, "(A) guarantor
may bind himself for less, but not for
208
L-34959, March 18, 1988, 159 SCRA

24).
terms and conditions in connection with

the issuance or use of the Pacificard, or
any extension of time to pay such
obligations, charges or liabilities shall
not in any manner release me/us from
responsibility hereunder, it being
understood that I fully agree to such
charges, novation or extension, and that
this understanding is a continuing one
and shall subsist and bind me until the
liabilities of the said Celia Syjuco Regala
have been fully satisfied or paid.'
DECISION
MEDIALDEA, J p:
of the decision (pp. 21-31, Rollo) of the
Intermediate Appellate Court (now Court
of Appeals) in AC-G.R. C.V. No. 02753,
1 which modified the decision of the trial
court against herein private respondent
Roberto Regala, Jr., one of the
defendants in the case for sum of
money filed by Pacific Banking
Corporation.
"Plaintiff-appellee
Pacific
Banking
Corporation
has
contracted
with
accredited business establishments to
honor purchases of goods and or
services by Pacificard holders and the
cost thereof to be advanced by the
plaintiff-appellee for the account of the
defendant cardholder, and the latter
undertook to pay any statements of
account rendered by the plaintiffappellee for the advances thus made
within thirty (30) days from the date of
the statement, provided that any
overdue account shall earn interest at
the rate of 14% per annum from date of
default.
The facts of the case as adopted by the

respondent appellate court from herein
petitioner's brief before said court are as
follows:
"On October 24, 1975, defendant Celia
Syjuco Regala (hereinafter referred to
as Celia Regala for brevity), applied for
and obtained from the plaintiff the
issuance and use of Pacificard credit
card (Exhs. 'A', 'A-1'), under the "Terms
and Conditions Governing the Issuance
and Use of Pacificard (Exh. 'B' and
hereinafter referred to as Terms and
Conditions), a copy of which was issued
to and received by the said defendant
on the date of the application and
expressly agreed that the use of the
Pacificard is governed by said Terms
and Conditions. On the same date, the
defendant-appellant Robert Regala, Jr.,
spouse of defendant Celia Regala,
executed a 'Guarantor's Undertaking'
(Exh. 'A-1-a') in favor of the appellee
Bank, whereby the latter agreed 'jointly
and severally of Celia Aurora Syjuco
Regala, to pay the Pacific Banking
Corporation upon demand, any and all
indebtedness, obligations, charges or
liabilities due and incurred by said Celia
Aurora Syjuco Regala with the use of
the Pacificard, or renewals thereof,
issued in her favor by the Pacific
Banking Corporation'. It was also agreed
that 'any changes of or novation in the
"The defendant Celia Regala, as such

Pacificard holder, had purchased goods
and/or services on credit (Exh. 'C', 'C-1'
to 'C-112') under her Pacificard, for
which the plaintiff advanced the cost
amounting to P92,803.98 at the time of
the filing of the complaint.
'In view of defendant Celia Regala's
failure to settle her account for the
purchases made thru the use of the
Pacificard, a written demand (Exh. 'D')
was sent to the latter and also to the
defendant Roberto Regala, Jr. ('Exh.' ')
under his 'Guarantor's Undertaking.'
"A complaint was subsequently filed in
Court for defendant's (sic) repeated
failure to settle their obligation.
Defendant Celia Regala was declared in
default for her failure to file her answer
within
the
reglementary
period.
Defendant-appellant Roberto Regala,
209
Jr., on the other hand, filed his Answer

with
Counterclaim
admitting
his
execution
of
the
'Guarantor's
Understanding,
but
with
the
understanding that his liability would be
limited to P2,000.00 per month.'
amount of P92,803.98, with interest

thereon
at
14%
per
annum,
compounded annually, from the time of
demand on November 17, 1978 until
said principal amount is fully paid; plus
15% of the principal obligation as and
for attorney's fees and expense of suit,
and the costs.
"In view of the solidary nature of the

liability of the parties, the presentation of
evidence ex-parte as against the
defendant Celia Regala was jointly held
with the trial of the case as against the
defendant Roberto Regala.
"The counterclaim of defendant Roberto

Regala, Jr. is dismissed for lack of merit.
"SO ORDERED." (pp. 22-23, Rollo)
"After the presentation of plaintiff's

testimonial and documentary evidence,
fire struck the City Hall of Manila,
including the court where the instant
case was pending, as well as all its
records.
The defendants appealed from the

decision of the court a quo to the
Intermediate Appellate Court.
On August 12, 1985, respondent
appellate court rendered judgment
modifying the decision of the trial court.
Private respondent Roberto Regala, Jr.
was made liable only to the extent of the
monthly credit limit granted to Celia
Regala, i.e., at P2,000.00 a month and
only for the advances made during the
one year period of the card's effectivity
counted from October 29, 1975 up to
October 29, 1976. The dispositive
portion of the decision states:
"Upon plaintiff-appellee's petition for

reconstitution, the records of the instant
case
were
duly
reconstituted.
Thereafter, the case was set for pre-trial
conference with respect to the
defendant-appellant Roberto Regala on
plaintiff-appellee's
motion,
after
furnishing the latter a copy of the same.
No opposition thereto having been
interposed by defendant-appellant, the
trial court set the case for pre-trial
conference. Neither did said defendantappellant nor his counsel appear on the
date scheduled by the trial court for said
conference
despite
due
notice.
Consequently, plaintiff-appellee moved
that the defendant-appellant Roberto
Regala be declared as in default and
that it be allowed to present its evidence
ex-parte, which motion was granted. On
July
21,
1983,
plaintiff-appellee
presented its evidence ex-parte. (pp. 2326, Rollo).
WHEREFORE, the judgment of the trial

court dated December 5, 1983 is
modified only as to appellant Roberto
Regala, Jr., so as to make him liable
only for the purchases made by
defendant Celia Aurora Syjuco Regala
with the use of the Pacificard from
October 29, 1975 up to October 29,
1976 up to the amount of P2,000.00 per
month only, with interest from the filing
of the complaint up to the payment at
the rate of 14% per annum without
pronouncement as to costs." (p. 32,
Rollo). Cdpr
After trial, the court a quo rendered

judgment on December 5, 1983, the
dispositive portion of which reads:
A motion for reconsideration was filed by

Pacific Banking Corporation which the
respondent appellate court denied for
lack of merit on September 19, 1985 (p.
33, Rollo).
"WHEREFORE, the Court renders

judgment for the plaintiff and against the
defendants condemning the latter, jointly
and severally, to pay said plaintiff the
210
himself to the creditor to fulfill the

obligation of the principal debtor only in
case the latter should fail to do so, in a
contract of suretyship, the surety binds
himself solidarily with the principal
debtor (Art. 2047, Civil Code of the
Philippines).
On November 8, 1985, Pacificard filed

this petition. The petitioner contends that
while the appellate court correctly
recognized Celia Regala's obligation to
Pacific Banking Corp. for the purchases
of goods and services with the use of a
Pacificard credit card in the total amount
of P92,803.98 with 14% interest per
annum, it erred in limiting private
respondent Roberto Regala, Jr.'s liability
only for purchases made by Celia
Regala with the use of the card from
October 29, 1975 up to October 29,
1976 up to the amount of P2,000.00 per
month with 14% interest from the filing
of the complaint.
We need not look elsewhere to

determine the nature and extent of
private respondent Roberto Regala, Jr.'s
undertaking. As a surety he bound
himself jointly and severally with the
debtor Celia Regala "to pay the Pacific
Banking Corporation upon demand, any
and all indebtedness, obligations,
charges or liabilities due and incurred by
said Celia Syjuco Regala with the use of
(her)
favor
by Pacific
Banking
Corporation." This undertaking was also
provided as a condition in the issuance
of the Pacificard to Celia Regala, thus:
There is merit in this petition.

The pertinent portion of the "Guarantor's
Undertaking' which private respondent
Roberto Regala, Jr. signed in favor of
Pacific Banking Corporation provides:
"5. A Pacificard is issued to a Pacificardholder against the joint and several

signature of a third party and as such,
the Pacificard holder and the guarantor
assume joint and several liabilities for
any and all amount arising out of the
use of the Pacificard." (p 14, Rollo).
"I/We, the undersigned, hereby agree,

jointly and severally with Celia Syjuco
Regala to pay the Pacific Banking
Corporation upon demand any and all
indebtedness, obligations, charges or
liabilities due and incurred by said Celia
Syjuco Regala with the use of the
his favor by the Pacific Banking
Corporation. Any changes of or
Novation in the terms and conditions in
connection with the issuance or use of
said Pacificard, or any extension of time
to pay such obligations, charges or
liabilities shall not in any manner release
me/us from the responsibility hereunder,
it being understood that the undertaking
is a continuing one and shall subsist and
bind me/us until all the liabilities of the
said Celia Syjuco Regala have been
fully satisfied or paid." ( p. 12, Rollo)
The respondent appellate court held that

"all the other rights of the guarantor are
not thereby lost by the guarantor
becoming liable solidarily and therefore
a surety." It further ruled that although
the surety's liability is like that of a joint
and several debtor, it does not make
him the debtor but still the guarantor (or
the surety), relying on the case of
Government of the Philippines v. Tizon,
G.R. No. L-22108, August 30, 1967, 20
SCRA 1182. Consequently, Article 2054
of the Civil Code providing for a limited
liability on the part of the guarantor or
debtor still applies. LexLib
The undertaking signed by Roberto

Regala, Jr. although denominated
"Guarantor's Undertaking," was in
substance a contract of surety. As
distinguished from a contract of
guaranty where the guarantor binds
It is true that under Article 2054 of the

Civil Code, "(A) guarantor may bind
himself for less, but not for more than
the principal debtor, both as regards the
amount and the onerous nature of the
211
conditions. 2 It is likewise not disputed

by the parties that the credit limit
granted to Celia Regala was P2,000.00
per month and that Celia Regala
succeeded in using the card beyond the
original period of its effectivity, October
29, 1979. We do not agree however,
that Roberto Jr.'s liability should be
limited to that extent. Private respondent
Roberto Regala, Jr., as surety of his
wife, expressly bound himself up to the
extent
of
the
debtor's
(Celia)
indebtedness likewise expressly waiving
any "discharge in case of any change or
novation of the terms and conditions in
connection with the issuance of the
Pacificard credit card." Roberto, in fact,
made his commitment as a surety a
continuing one, binding upon himself
until all the liabilities of Celia Regala
have been fully paid. All these were
clear
under
the
"Guarantor's
Undertaking' Roberto signed, thus:
is misplaced. It was held in that case

that:
" . . . , although the defendants bound
themselves in solidum, the liability of the
Surety under its bond would arise only if
its co-defendants, the principal obligor,
should fail to comply with the contract.
To paraphrase the ruling in the case of
Municipality of Orion vs. Concha, the
liability of the Surety is 'consequent
upon the liability' of Tizon, or 'so
dependent on that of the principal
debtor' that the Surety 'is considered in
law as being the same party as the
debtor in relation to whatever is
adjudged, touching the obligation of the
latter'; or the liabilities of the two
defendants herein 'are so interwoven
and dependent as to be inseparable.'
Changing the expression, if the
defendants are held liable, their liability
to pay the plaintiff would be solidary, but
the nature of the Surety's undertaking is
such that it does not incur liability unless
and until the principal debtor is held
liable."
" . . . . Any changes of or novation in the

terms and conditions in connection with
the issuance or use of said Pacificard,
or any extension of time to pay such
obligations, charges or liabilities shall
not in any manner release me/us from
the responsibility hereunder, it being
understood that the undertaking is a
continuing one and shall subsist and
bind me/us until all the liabilities of of the
said Celia Syjuco Regala have been
fully satisfied or paid." (p. 12, supra;
emphasis supplied).
A guarantor or surety does not incur

liability unless the principal debtor is
held liable. It is in this sense that a
surety, although solidarily liable with the
principal debtor, is different from the
debtor. It does not mean, however, that
the surety cannot be held liable to the
same extent as the principal debtor. The
nature and extent of the liabilities of a
guarantor or a surety is determined by
the clauses in the contract of suretyship
(see PCIB v. CA, L-34959, March 18,
1988, 159 SCRA 24). prcd
Private respondent Roberto Regala, Jr.

had been made aware by the terms of
the undertaking of future changes in the
terms and conditions governing the
issuance of the credit card to his wife
and that notwithstanding, he voluntarily
agreed to be bound as a surety. As in
guaranty, a surety may secure additional
and future debts of the principal debtor
the amount of which is not yet known
(see Article 2053, supra).
ACCORDINGLY,
the
petition
is
GRANTED. The questioned decision of
respondent appellate court is SET
ASIDE and the decision of the trial court
is REINSTATED.
SO ORDERED.
The application by respondent court of

the ruling in Government v. Tizon, supra
Narvasa, Cruz, Feliciano and GrioAquino, JJ., concur.

212
||| (Pacific Banking Corp. v. Intermediate

Appellate Court, G.R. No. 72275,
[November 13, 1991])
32. INDUSTRIAL
VS. NLRC
changed the tenor of the decision by

changing the liability of therein
respondents from joint to solidary, by the
insertion of the words "AND/OR"
between "Antonio Gonzales/Industrial
Management Development Corporation
and Filipinas Carbon and Mining
Corporation, et al." However, the Labor
Arbiter denied the motion. Petitioner
appealed the labor arbiter's order to the
respondent NLRC. The NLRC dismissed
the appeal. Dissatisfied, petitioner filed
the instant case, alleging that the
respondent NLRC committed grave
abuse of discretion in affirming the order
of the labor arbiter, which declared the
liability of petitioner to be solidary. The
only issue in this petition is whether
petitioner's liability pursuant to the
decision of the labor arbiter, is solidary
or not.
MANAGEMENT
SECOND DIVISION
[G.R. No. 101723. May 11, 2000.]
INDUSTRIAL
MANAGEMENT
INTERNATIONAL
DEVELOPMENT
CORP. (INIMACO), petitioner, vs.
NATIONAL
LABOR
RELATIONS
COMMISSION, (Fourth Division) Cebu
City, and ENRIQUE SULIT, SOCORRO
MAHINAY, ESMERALDO PEGARIDO,
TITA BACUSMO,
GINO
NIERE,
VIRGINIA
BACUS,
ROBERTO
NEMENZO, DARIO GO, and ROBERTO
ALEGARBES, respondents.
The Supreme Court, after carefully

examining the pleadings filed by the
parties, found that petitioner's liability
was not solidary but merely joint, and
that the respondent NLRC acted with
grave abuse of discretion in upholding
the labor arbiter's alias writ of execution
and subsequent orders to the effect that
petitioner's liability became solidary. The
petition was granted, and the resolution
of the respondent National Labor
Relations was declared null and void.
Roberto R. Palmares for petitioner.

The Solicitor
respondent.
Virgilio
U.
respondent.
General
Lapinid
for
for
public
private
SYNOPSIS
Private respondents herein filed a
complaint with the Department of Labor
against
Filipinas
Carbon
Mining
Corporation, Gerardo Sicat, Antonio
Gonzales, Chiu Chin Gin, Lo Kuan Chin,
and petitioner Industrial Management
Development Corporation (INIMACO),
for payment of separation pay and
unpaid wages. The labor arbiter decided
in favor of the private respondents and
ordered payment of their claims in the
total amount of P138,588.31. No appeal
was filed within the reglementary period,
thus, the decision became final and
executory. The labor arbiter issued a writ
of execution, but it was returned
unsatisfied. Then an alias writ of
execution was issued. Petitioner herein
moved to quash the alias writ of
execution alleging that it altered and
SYLLABUS
1.
CIVIL
LAW;
OBLIGATIONS;
SOLIDARY AND JOINT OBLIGATION,
DISTINGUISHED. A solidary or joint
and several obligation is one in which
each debtor is liable for the entire
obligation, and each creditor is entitled
to demand the whole obligation. In a
joint obligation each obligor answers
only for a part of the whole liability and
to each obligee belongs only a part of
the correlative rights.
2. ID.; ID.; SOLIDARY OBLIGATION;
WHEN APPLICABLE; CASE AT BAR.
Well-entrenched is the rule that solidary
obligation cannot lightly be inferred.
213
There is a solidary liability only when the

obligation expressly so states, when the
law so provides or when the nature of
the obligation so requires. In the
dispositive portion of the Labor Arbiter,
the word "solidary" does not appear. The
said fallo expressly states the following
respondents therein as liable, namely:
Filipinas
Carbon
and
Mining
Corporation, Gerardo Sicat, Antonio
Gonzales,
Industrial
Management
Development Corporation (petitioner
INIMACO), Chiu Chin Gin, and Lo Kuan
Chin. Nor can it be inferred therefrom
that the liability of the six (6)
respondents in the case below is
solidary, thus their liability should merely
be joint. Moreover, it is already a wellsettled doctrine in this jurisdiction that,
when it is not provided in a judgment
that the defendants are liable to pay
jointly and severally a certain sum of
money, none of them may be compelled
to satisfy in full said judgment. In
Oriental Commercial Co. vs. Abeto and
Mabanag, 60 Phil. 723 [1934], this Court
held: "It is of no consequence that,
under the contract of suretyship
executed by the parties, the obligation
contracted by the sureties was joint and
several in character. The final judgment,
which superseded the action for the
enforcement of said contract, declared
the obligation to be merely joint, and the
same cannot be executed otherwise."
executory judgment is null and void for

lack of jurisdiction, including the entire
proceedings held for that purpose. An
order of execution, which varies the
tenor of the judgment or exceeds the
terms thereof is a nullity. IHCacT
DECISION
BUENA, J p:
This is a petition for certiorari assailing
the Resolution dated September 4, 1991
issued by the National Labor Relations
Commission in RAB-VII-0711-84 on the
alleged ground that it committed a grave
abuse of discretion amounting to lack of
jurisdiction in upholding the Alias Writ of
Execution issued by the Labor Arbiter
which deviated from the dispositive
portion of the Decision dated March 10,
1987, thereby holding that the liability of
the six respondents in the case below is
solidary despite the absence of the word
"solidary" in the dispositive portion of the
Decision, when their liability should
merely be joint. LLjur
The factual antecedents are undisputed:
In September 1984, private respondent
Enrique
Sulit,
Socorro
Mahinay,
Esmeraldo Pegarido, Tita Bacusmo,
Gino Niere, Virginia Bacus, Roberto
Nemenzo, Dario Go, and Roberto
Alegarbes filed a complaint with the
Department of Labor and Employment,
Regional Arbitration Branch No. VII in
Cebu City against Filipinas Carbon
Mining Corporation, Gerardo Sicat,
Antonio Gonzales, Chiu Chin Gin, Lo
Kuan Chin, and petitioner Industrial
(INIMACO), for payment of separation
pay and unpaid wages.
3.
REMEDIAL
LAW;
CIVIL
PROCEDURE; JUDGMENT; WHEN
FINAL AND EXECUTORY; BECOMES
IMMUTABLE AND UNALTERABLE. It
is an elementary principle of procedure
that the resolution of the court in a given
issue as embodied in the dispositive
part of a decision or order is the
controlling factor as to settlement of
rights of the parties. Once a decision or
order becomes final and executory, it is
removed from the power or jurisdiction
of the court which rendered it to further
alter or amend it. It thereby becomes
immutable and unalterable and any
amendment
or
alteration
which
substantially affects a final and
In a Decision dated March 10, 1987,

Labor Arbiter Bonifacio B. Tumamak
held that:
"RESPONSIVE, to all the foregoing,
judgment is hereby entered, ordering
respondents Filipinas Carbon and
214
Mining Corp. Gerardo Sicat, Antonio

Gonzales/Industrial
Management
Development Corp. (INIMACO), Chiu
Chin Gin and Lo Kuan Chin, to pay
complainants Enrique Sulit, the total
award of P82,800.00; ESMERALDO
PEGARIDO
the
full
award
of
P19,565.00; Roberto Nemenzo the total
sum of P29,623.60 and DARIO GO the
total award of P6,599.71, or the total
aggregate award of ONE HUNDRED
THIRTY-EIGHT
THOUSAND
FIVE
HUNDRED EIGHTY-EIGHT PESOS
AND 31/100 (P138,588.31) to be
deposited with this Commission within
ten (10) days from receipt of this
Decision for appropriate disposition. All
other claims are hereby Dismiss (sic) for
lack of merit.
(P138,588.31) and thereafter turn over

said amount to complainants ENRIQUE
SULIT,
ESMERALDO
PEGARIDO,
ROBERTO NEMENZO AND DARIO GO
or to this Office for appropriate
disposition. Should you fail to collect the
said sum in cash, you are hereby
authorized to cause the satisfaction of
the same on the movable or immovable
property(s) of respondents not exempt
from execution. You are to return this
writ sixty (6) (sic) days from your receipt
hereof, together with your corresponding
report.
"You may collect your legal expenses
from the respondents as provided for by
law.
"SO ORDERED." 2
"SO ORDERED.
On September 3, 1987, petitioner filed a
"Motion to Quash Alias Writ of Execution
and Set Aside Decision," 3 alleging
among others that the alias writ of
execution altered and changed the tenor
of the decision by changing the liability
of therein respondents from joint to
solidary, by the insertion of the words
"AND/OR"
between
"Antonio
Gonzales/Industrial
Management
Development Corporation and Filipinas
Carbon and Mining Corporation, et al."
However, in an order dated September
14, 1987, the Labor Arbiter denied the
motion.
"Cebu City, Philippines.

"10 March 1987." 1
No appeal was filed within the
reglementary period thus, the above
Decision became final and executory.
On June 16, 1987, the Labor Arbiter
issued a writ of execution but it was
returned unsatisfied. On August 26,
1987, the Labor Arbiter issued an Alias
Writ of Execution which ordered thus:
"NOW THEREFORE, by virtue of the
powers vested in me by law, you are
hereby commanded to proceed to the
premises of respondents Antonio
Gonzales/Industrial
Management
Development Corporation (INIMACO)
situated at Barangay Lahug, Cebu City,
in front of La Curacha Restaurant,
and/or to Filipinas Carbon and Mining
Corporation and Gerardo Sicat at 4th
Floor Universal RE-Bldg. 106 Paseo de
Roxas, Legaspi Village, Makati Metro
Manila and at Philippine National Bank,
Escolta, Manila respectively, and collect
the
aggregate
award
of
ONE
HUNDRED THIRTY-EIGHT THOUSAND
FIVE
HUNDRED
EIGHTY-EIGHT
PESOS AND THIRTY ONE CENTAVOS
On October 2, 1987, petitioner appealed

4 the Labor Arbiters Order dated
September 14, 1987 to the respondent
NLRC.
The respondent NLRC dismissed the
appeal in a Decision 5 dated August 31,
1988, the pertinent portions of which
read:
"In matters affecting labor rights and
labor justice, we have always adopted
the liberal approach which favors the
exercise of labor rights and which is
beneficial to labor as a means to give
full meaning and import to the
215
constitutional
mandate
to
afford
protection to labor. Considering the
factual circumstances in this case, there
is no doubt in our mind that the
respondents herein are called upon to
pay, jointly and severally, the claims of
the complainants as was the latters
prayers. Inasmuch as respondents
herein never controverted the claims of
the complainants below, there is no
reason why complainants prayer should
not be granted. Further, in line with the
powers granted to the Commission
under Article 218 (c) of the Labor Code,
to waive any error, defect or irregularity
whether in substance or in form in a
proceeding before Us, We hold that the
Writ of Execution be given due course in
all respects."
its Resolution 8 dated September 4,

1991 which held that:
"The arguments of respondent on the
finality of the dispositive portion of the
decision in this case is beside the point.
What is important is that the
Commission has ruled that the Writ of
Execution issued by the Labor Arbiter in
this case is proper. It is not really correct
to say that said Writ of Execution varied
the terms of the judgment. At most,
considering the nature of labor
proceedings there was, an ambiguity in
said dispositive portion which was
subsequently clarified by the Labor
Arbiter and the Commission in the
incidents which were initiated by
INIMACO itself. By sheer technicality
and unfounded assertions, INIMACO
would now reopen the issue which was
already resolved against it. It is not in
keeping with the established rules of
practice and procedure to allow this
attempt of INIMACO to delay the final
disposition of this case.
On July 31, 1989, petitioner filed a

"Motion To Compel Sheriff To Accept
Payment Of P23,198.05 Representing
One Sixth Pro Rata Share of
Respondent INIMACO As Full and Final
Satisfaction of Judgment As to Said
Respondent." 6 The private respondents
opposed the motion. In an Order 7
dated August 15, 1989, the Labor Arbiter
denied the motion ruling thus:
"WHEREFORE, in view of all the

foregoing, this appeal is DISMISSED
and the Order appealed from is hereby
AFFIRMED.
"With double costs against appellant."
"WHEREFORE, responsive to the

foregoing
respondent
INIMACOs
Motions are hereby DENIED. The
Sheriff of this Office is order (sic) to
accept INIMACOs tender payment (sic)
of the sum of P23,198.05, as partial
satisfaction of the judgment and to
proceed with the enforcement of the
Alias Writ of Execution of the levied
properties, now issued by this Office, for
the full and final satisfaction of the
monetary award granted in the instant
case.
Dissatisfied with the foregoing, petitioner

filed the instant case, alleging that the
respondent NLRC committed grave
abuse of discretion in affirming the
Order of the Labor Arbiter dated August
15, 1989, which declared the liability of
petitioner to be solidary.
The only issue in this petition is whether
petitioners liability pursuant to the
Decision of the Labor Arbiter dated
March 10, 1987, is solidary or not.
"SO ORDERED."
Upon careful examination of the

pleadings filed by the parties, the Court
finds that petitioner INIMACOs liability is
not solidary but merely joint and that the
respondent NLRC acted with grave
abuse of discretion in upholding the
Petitioner appealed the above Order of

the Labor Arbiter but this was again
dismissed by the respondent NLRC in
216
Labor Arbiters Alias Writ of Execution

and subsequent Orders to the effect that
petitioners liability is solidary. LLphil
the obligation to be merely joint, and the

same cannot be executed otherwise."
14
A solidary or joint and several obligation

is one in which each debtor is liable for
the entire obligation, and each creditor
is entitled to demand the whole
obligation. 9 In a joint obligation each
obligor answers only for a part of the
whole liability and to each obligee
belongs only a part of the correlative
rights. 10
Granting that the Labor Arbiter has

committed a mistake in failing to indicate
in the dispositive portion that the liability
of respondents therein is solidary, the
correction which is substantial can
no longer be allowed in this case
because the judgment has already
become final and executory.
It is an elementary principle of
procedure that the resolution of the
court in a given issue as embodied in
the dispositive part of a decision or
order is the controlling factor as to
settlement of rights of the parties. 15
Once a decision or order becomes final
and executory, it is removed from the
power or jurisdiction of the court which
rendered it to further alter or amend it.
16 It thereby becomes immutable and
unalterable and any amendment or
alteration which substantially affects a
final and executory judgment is null and
void for lack of jurisdiction, including the
entire proceedings held for that purpose.
17 An order of execution which varies
the tenor of the judgment or exceeds the
terms thereof is a nullity. 18
Well-entrenched is the rule that solidary

obligation cannot lightly be inferred. 11
There is a solidary liability only when the
obligation expressly so states, when the
law so provides or when the nature of
the obligation so requires. 12
In the dispositive portion of the Labor
Arbiter, the word "solidary" does not
appear. The said fallo expressly states
the following respondents therein as
liable, namely: Filipinas Carbon and
Mining Corporation, Gerardo Sicat,
Antonio
Gonzales,
Industrial
(petitioner INIMACO), Chiu Chin Gin,
and Lo Kuan Chin. Nor can it be inferred
therefrom that the liability of the six (6)
respondents in the case below is
solidary, thus their liability should merely
be joint.
None of the parties in the case before

the Labor Arbiter appealed the Decision
dated March 10, 1987, hence the same
became final and executory. It was,
therefore, removed from the jurisdiction
of the Labor Arbiter or the NLRC to
further alter or amend it. Thus, the
proceedings held for the purpose of
amending or altering the dispositive
portion of the said decision are null and
void for lack of jurisdiction. Also, the
Alias Writ of Execution is null and void
because it varied the tenor of the
judgment in that it sought to enforce the
final
judgment
against
"Antonio
Gonzales/Industrial
Management
Development Corp. (INIMACO) and/or
Filipinas Carbon and Mining Corp. and
Gerardo Sicat," which makes the liability
solidary.
Moreover, it is already a well-settled

doctrine in this jurisdiction that, when it
is not provided in a judgment that the
defendants are liable to pay jointly and
severally a certain sum of money, none
of them may be compelled to satisfy in
full
said
judgment.
In
Oriental
Commercial Co. vs. Abeto and Mabanag
13 this Court held:
"It is of no consequence that, under the
contract of suretyship executed by the
parties, the obligation contracted by the
sureties was joint and several in
character. The final judgment, which
superseded
the
action
for
the
enforcement of said contract, declared
217
COMPUESTO, ISABELITO CORTEZ, *

MATURAN
ROSAURO,
SAMSON
CANAS, FEBIEN ISIP, JESUS RIPARIP,
ALFREDO SIENES, ADOLAR ALBERT,
HONESTO CABANILLAS, AMPING
CASTILLO and ELWIN REVILLA,
respondents.

GRANTED. The Resolution dated
September 4, 1991 of the respondent
National Labor Relations is hereby
declared NULL and VOID. The liability of
the respondents in RAB-VII-0711-84
pursuant to the Decision of the Labor
Arbiter dated March 10, 1987 should be,
as it is hereby, considered joint and
petitioners payment which has been
accepted considered as full satisfaction
of its liability, without prejudice to the
enforcement of the award, against the
other five (5) respondents in the said
case.
King Capuchino Tan & Associates for

petitioner.
The Solicitor
respondent.
General
for
public
C.S. Cruz & Associates for private

respondents.
SO ORDERED. cdasia
SYNOPSIS
Bellosillo, Mendoza and Quisumbing,

JJ., concur.
Petitioner Corporation sought before the

Court of Appeals the nullification of the
decision of the NLRC which affirmed the
Labor Arbiter's decision finding it jointly
and severally liable with the Longest
Force
Investigation
and
Security
Agency, Inc. for the underpayment of
wages and overtime pay due to the
latter's
security
guards,
private
respondents herein, deployed at the
petitioner's shipyard in Mariveles,
Bataan. Petitioner denied any liability,
arguing that it had religiously and
promptly paid the compensation of the
security guards as stipulated under the
contract with the security agency. The
Court of Appeals dismissed outright
petitioner's petition for certiorari and its
subsequent motion for reconsideration,
due to a defective certificate of nonforum shopping and non-submission of
the required documents to accompany
said petition. The appellate court found
that the verification and certification on
non-forum shopping was signed not by
the duly authorized officer of petitioner,
but by its counsel.
De Leon, Jr., J., is on leave.

||| (Industrial Management International
Development Corp v. National Labor
Relations Commission, G.R. No.
101723, [May 11, 2000], 387 PHIL 659668)
33. MARIVELES SHIPYARD
COURT OF APPEALS
VS.
SECOND DIVISION
[G.R. No. 144134. November 11, 2003.]
MARIVELES
SHIPYARD
CORP.,
petitioner, vs. HON. COURT OF
APPEALS, LUIS REGONDOLA, *
MANUELIT GATALAN, * ORESCA
AGAPITO,
NOEL ALBADBAD,
*
ROGELIO
PINTUAN,
DANILO
CRISOSTOMO,
ROMULO
MACALINAO, NESTOR FERER, *
RICKY CUESTA, ROLLY ANDRADA, *
LARRY
ROGOLA,
FRANCISCO
LENOGON, AUGUSTO QUINTO, *
ARFE
BERAMO,
BONIFACIO
TRINIDAD, ALFREDO ASCARRAGA, *
ERNESTO MAGNO, HONORARIO
HORTECIO, * NELBERT PINEDA,
GLEN
ESTIPULAR,
FRANCISCO
Hence, this petition for review on

certiorari where petitioner corporation
prayed for liberal construction of the
Rules.
218
The Supreme Court denied petitioner's

plea for liberality. It held that the
appellate court did not err in dismissing
the petition for non-compliance with the
requirements governing the certification
of non-forum shopping. The Rule
requires that the certification of nonforum shopping should be executed and
signed by the plaintiff or the principal. In
the case of the corporations, the
physical act of signing may be
performed, in behalf of the corporate
entity, only by specifically authorized
individuals. The requirements of the
Rule means that the counsel cannot
sign said certification unless clothed
with special authority to do so. A
certification signed by the counsel alone
is defective and constitutes a valid
cause for dismissal of the petition. Here,
not only was the originally appended
certification signed by counsel, but in its
motion for reconsideration, petitioner
utterly failed to show that the Personnel
Manager who signed the verification and
certification of non-forum shopping
attached thereto, was duly authorized
for this purpose.
of the Court
modification.
of
Appeals
with
SYLLABUS
1.
REMEDIAL
LAW;
CIVIL
PROCEDURE;
ACTIONS;
CERTIFICATION OF NON-FORUM
SHOPPING;
CONSIDERED
DEFECTIVE IF SIGNED BY COUNSEL
ALONE. It is settled that the
requirement in the Rules that the
certification of non-forum shopping
should be executed and signed by the
plaintiff or the principal means that
counsel cannot sign said certification
unless clothed with special authority to
do so. The reason for this is that the
plaintiff or principal knows better than
anyone else whether a petition has
previously been filed involving the same
case or substantially the same issues.
Hence, a certification signed by counsel
alone is defective and constitutes a valid
cause for dismissal of the petition.
2. ID.; ID.; ID.; ID.; MUST BE SIGNED
BY
SPECIFICALLY
AUTHORIZED
INDIVIDUALS
IN
CASE
OF
CORPORATIONS; CASE AT BAR. In
the case of natural persons, the Rule
requires the parties themselves to sign
the certificate of non-forum shopping.
However, in the case of the
corporations, the physical act of signing
may be performed, on behalf of the
corporate entity, only by specifically
authorized individuals for the simple
reason that corporations, as artificial
persons, cannot personally do the task
themselves. In this case, not only was
the originally appended certification
signed by counsel, but in its motion for
reconsideration, still petitioner utterly
failed to show that Ms. Rosanna
Ignacio, its Personnel Manager who
signed the verification and certification
of non-forum shopping attached thereto,
was duly authorized for this purpose. It
cannot be gainsaid that obedience to
the requirements of procedural rule is
needed if we are to expect fair results
therefrom. Utter disregard of the rules
The Court further held that petitioner's

liability was joint and several with that of
the security agency pursuant to Articles
106, 107 and 109 of the Labor Code.
The security agency is liable by virtue of
its status as direct employer, while the
corporation is deemed the indirect
employer of the guards for the purpose
of paying their wages in the event of
failure of the agency to pay them.
Petitioner Corporation cannot hide
behind its contract with the security
agency in order to evade liability for
noncompliance with the statutory
minimum wage. Labor laws are
considered written in every contract.
Stipulations in violation thereof are
considered null. However, the joint and
several liability imposed on petitioner
Corporation was without prejudice to its
claim for reimbursement against the
security agency for such amounts as it
may have to pay to private respondents
therein. The Court affirmed the decision
219
cannot justly be rationalized by harking

on the policy of liberal construction.
Thus, on this point, no error could be
validly attributed to respondent Court of
Appeals. It did not err in dismissing the
petition for non-compliance with the
of non-forum shopping.
provide as follows: x x x. In this case,

when petitioner contracted for security
services with Longest Force as the
security agency that hired private
respondents to work as guards for the
shipyard corporation, petitioner became
an indirect employer of private
respondents pursuant to Article 107
abovecited. Following Article 106, when
the agency as contractor failed to pay
the guards, the corporation as principal
becomes jointly and severally liable for
the guards' wages. This is mandated by
the Labor Code to ensure compliance
with its provisions, including payment of
statutory minimum wage. The security
agency is held liable by virtue of its
status as direct employer, while the
failure of the agency to pay them. This
statutory scheme gives the workers the
ample protection consonant with labor
and social justice provisions of the 1987
Constitution.
3. LABOR AND SOCIAL LEGISLATION;

LABOR CODE; REQUIREMENT OF
DUE PROCESS IN LABOR CASES
BEFORE LABOR ARBITER SATISFIED
WHERE
PARTIES
ARE
GIVEN
OPPORTUNITY TO SUBMIT THEIR
POSITION PAPERS. Well settled is
the rule that the essence of due process
is simply an opportunity to be heard, or,
as
applied
to
administrative
proceedings, an opportunity to explain
one's side or an opportunity to seek a
reconsideration of the action or ruling
complained of. Not all cases require a
trial-type hearing. The requirement of
due process in labor cases before a
Labor Arbiter is satisfied when the
parties are given the opportunity to
submit their position papers to which
they are supposed to attach all the
supporting documents or documentary
evidence that would prove their
respective claims, in the event the Labor
Arbiter determines that no formal
hearing would be conducted or that
such hearing was not necessary. In any
event, as found by the NLRC, petitioner
was given ample opportunity to present
its side in several hearings conducted
before the Labor Arbiter and in the
position papers and other supporting
documents that it had submitted. We
find that such opportunity more than
satisfies the requirement of due process
in labor cases.
5. ID.; ID.; ID.; ID.; EMPLOYERS

CANNOT
HIDE
BEHIND
THEIR
CONTRACTS IN ORDER TO EVADE
THEIR CONTRACTORS' LIABILITY
FOR NON-COMPLIANCE WITH THE
STATUTORY MINIMUM WAGE.
Petitioner cannot evade its liability by
claiming that it had religiously paid the
compensation of guards as stipulated
under the contract with the security
agency. Labor standards are enacted by
the legislature to alleviate the plight of
workers whose wages barely meet the
spiraling costs of their basic needs.
Labor laws are considered written in
every contract. Stipulations in violation
thereof are considered null. Similarly,
legislated wage increases are deemed
amendments to the contract. Thus,
employers cannot hide behind their
contracts in order to evade their (or their
contractors' or subcontractors') liability
for noncompliance with the statutory
minimum wage.
4. ID.; LABOR STANDARDS; PAYMENT

OF WAGES; SOLIDARY LIABILITY OF
INDIRECT EMPLOYER WITH THE
CONTRACTOR FOR THE NONPAYMENT OF WAGES. Petitioner's
liability is joint and several with that of
Longest Force, pursuant to Articles 106,
107 and 109 of the Labor Code which
220
6. ID.; ID.; ID.; ID.; INDIRECT

EMPLOYER
HAS
RIGHT
OF
REIMBURSEMENT
FROM
THE
CONTRACTOR. However, we must
emphasize that the solidary liability of
petitioner with that of Longest Force
does not preclude the application of the
Civil Code provision on the right of
reimbursement from his co-debtor by
the one who paid. As held in Del
Rosario & Sons Logging Enterprises,
Inc. v NLRC, the joint and several
liability imposed on petitioner is without
prejudice to a claim for reimbursement
by petitioner against the security agency
for such amounts as petitioner may
have to pay to complainants, the private
respondents herein. The security
agency may not seek exculpation by
claiming that the principal's payments to
it were inadequate for the guards' lawful
compensation. As an employer, the
security agency is charged with
knowledge of labor laws; and the
adequacy of the compensation that it
demands for contractual services is its
principal concern and not any other's.
REVIEWED THEREIN. On the issue

of the propriety of the award of overtime
pay despite the alleged lack of proof
thereof, suffice it to state that such
involves a determination and evaluation
of facts which cannot be done in a
petition for review. Well-established is
the rule that in an appeal via certiorari,
only questions of law may be reviewed.
DECISION
QUISUMBING, J p:
For review on certiorari is the
Resolution, 1 dated December 29, 1999,
of the Court of Appeals in CA-G.R. SP
No. 55416, which dismissed outright the
petition for certiorari of Mariveles
Shipyard Corp., due to a defective
certificate of non-forum shopping and
non-submission
of
the
required
documents to accompany said petition.
Mariveles Shipyard Corp., had filed a
special civil action for certiorari with the
Court of Appeals to nullify the resolution
2 of the National Labor Relations
Commission (NLRC), dated April 22,
1999, in NLRC NCR Case No. 00-09005440-96-A, which affirmed the Labor
Arbiter's decision, 3 dated May 22,
1998, holding petitioner jointly and
severally liable with Longest Force
Investigation and Security Agency, Inc.,
for the underpayment of wages and
overtime pay due to the private
respondents. Likewise challenged in the
instant petition is the resolution 4 of the
Court of Appeals, dated July 12, 2000,
denying
petitioner's
motion
for
reconsideration.
7.
ID.;
LABOR
RELATIONS;
TERMINATION OF EMPLOYMENT;
AWARD
OF BACKWAGES AND
ATTORNEY'S FEES. Upon review of
the award of backwages and attorney's
fees, we discovered certain errors that
happened in the addition of the amount
of individual backwages that resulted in
the
erroneous
total
amount
of
backwages and attorney's fees. These
errors ought to be properly rectified now.
Thus, the correct sum of individual
backwages should be P126,648.40
instead of P126,684.40, while the
correct sum of total backwages awarded
and
attorney's
fees
should
be
P3,926,100.40,
and
P392,610.04,
instead
of
P3,927,216.40
and
P392,721.64, respectively.
The facts, as culled from records, are as

follows:
Sometime on October 1993, petitioner
Mariveles
Shipyard
Corporation
engaged the services of Longest Force
Investigation and Security Agency, Inc.
(hereinafter, "Longest Force") to render
security services at its premises.
Pursuant to their agreement, Longest
Force deployed its security guards, the
8.
REMEDIAL
LAW;
APPEALS;
APPEAL VIA CERTIORARI; ONLY
QUESTIONS OF LAW MAY BE
221
private respondents herein, at the

petitioner's shipyard in Mariveles,
Bataan.
The petitioner denied any liability on

account of the alleged illegal dismissal,
stressing that no employer-employee
relationship existed between it and the
security guards. It further pointed out
that it would be the height of injustice to
make it liable again for monetary claims
which it had already paid. Anent the
cross-claim filed by Longest Force
against it, petitioner prayed that it be
dismissed for lack of merit. Petitioner
averred that Longest Force had
benefited from the contract, it was now
estopped
from
questioning
said
agreement on the ground that it had
made a bad deal.
According to petitioner, it religiously

complied with the terms of the security
contract with Longest Force, promptly
paying its bills and the contract rates of
the latter. However, it found the services
being rendered by the assigned guards
unsatisfactory and inadequate, causing
it to terminate its contract with Longest
Force on April 1995. 5 Longest Force, in
turn, terminated the employment of the
security guards it had deployed at
petitioner's shipyard.
On September 2, 1996, private
respondents filed a case for illegal
dismissal, underpayment of wages
pursuant to the PNPSOSIA-PADPAO
rates, non-payment of overtime pay,
premium pay for holiday and rest day,
service incentive leave pay, 13th month
pay and attorney's fees, against both
Longest Force and petitioner, before the
Labor Arbiter. Docketed as NLRC NCR
Case No. 00-09-005440-96-A, the case
sought the guards' reinstatement with
full backwages and without loss of
seniority rights.
On May 22, 1998, the Labor Arbiter

decided NLRC NCR Case No. 00-09005440-96-A, to wit:
WHEREFORE, conformably with the
foregoing, judgment is hereby rendered
ordering the respondents as follows:
1. DECLARING respondents Longest
Force Investigation & Security Agency,
Inc. and Mariveles Shipyard Corporation
jointly and severally liable to pay the
money
claims
of
complainants
representing underpayment of wages
and overtime pay in the total amount of
P2,700,623.40 based on the PADPAO
rates of pay covering the period from
October 16, 1993 up to April 29, 1995
broken down as follows:
For its part, Longest Force filed a crossclaim 6 against the petitioner. Longest
Force admitted that it employed private
respondents and assigned them as
security guards at the premises of
petitioner from October 16, 1993 to April
30, 1995, rendering a 12 hours duty per
shift for the said period. It likewise
admitted its liability as to the nonpayment of the alleged wage differential
in the total amount of P2,618,025 but
passed on the liability to petitioner
alleging that the service fee paid by the
latter to it was way below the
PNPSOSIA and PADPAO rate, thus,
"contrary to the mandatory and
prohibitive laws because the right to
proper compensation and benefits
provided under the existing labor laws
cannot be waived nor compromised."
UNDERPAYMENT OF WAGES:
MONTHLY UNDER
PERIOD PADPAO ACTUAL PAYMENT
COVERED RATES SALARY
WAGE
FOR
(8 hrs. duty) RECEIVED THE PERIOD

DIFFERENTIALS
Oct. 16-Dec. P5,485.00 P5,000 P485.00

P970.00
222
Jan. 1-Apr. 29/95 7,220 x 3.97 =

14,331.70
15/93 (2 mos.)
(3.97 mos.) 2
Dec.
16/93-Mar.
1,630.00 5,705.00
6,630.00
5,000
TOTAL OVERTIME
P63,324.20
=========
Sub-Total of Underpayments
Overtime P87,116.90
31/94 (3.5 mos.)
Apr. 1-Dec. 31/94

1,280.00 11,520.00
7,090.00
and
5,810
1. Luis Regondula
P87,116.90
(the
same)
2. Manolito
87,116.90
(the
same)
(9 mos.)
Jan. 1-Apr. 29/95

1,410.00 5,597.70
(3.97 mos.)
7,220.00
5,810
3. Oresca Agapito (the same) 87,116.90

4. Noel Alibadbad (the same) 87,116.90
TOTAL
P23,792.70
Catalan
5. Rogelio Pintuan (the same) 87,116.90
UNDERPAYMENTS
6. Danilo
87,116.90
=========
OVERTIME:
Crisostomo
(the
same)
Macalinao
(the
same)
7. Romulo
87,116.90
8. Nestor Ferrer (the same) 87,116.90
Oct. 16-Dec. 15/93 P5,485 x 2 =

P5,485.00
9. Ricky Cuesta (the same) 87,116.90
(2 mos.) 2
10. Andrada Ricky (the same) 87,116.90

11. Larry Rogola (the same) 87,116.90
Dec. 16/93-Mar. 31/94 6,630 x 3.5 =

11,602.50
12. Francisco Lenogon (the same)

87,116.90
(3.5 mos.) 2
13. Augosto
87,116.90
Quinto
(the
same)
14. Arfe Beramo (the same) 87,116.90
Apr. 1-Dec. 31/94 7,090 x 9 = 31,905.00
15. Bonifacio
87,116.90
(9 mos.) 2
16. Alfredo
87,116.90
223
Trinidad
(the
same)
Azcarraga
(the
same)
17. Ernesto
87,116.90
Magno
(the
same)
18. Honario
87,116.90
Hortecio
(the
same)
equivalent positions without loss of

seniority rights and privileges with full
backwages which as computed as of the
date of this decision are as follows:
ACTIcS
19. Nelbert Pineda (the same) 87,116.90
Backwages:
20. Glen Estipular (the same) 87,116.90

10/16 12/15/93 = 2 mos.
21. Francisco Compuesto (the same)

87,116.90
P5,485.00 x 2 mos. = P10,970.00

22. Isabelito
87,116.90
Cortes
(the
same)
23. Maturan
87,116.90
Rosauro
(the
same)
24. Samson
87,116.90
Canas
12/16/93 3/31/94 = 3.5 mos.

P6,630.00 x 3.5 mos. = 23,205.00
(the
same)
25. Febien Isip (the same) 87,116.90
4/1 12/31/94 = 9 mos.
26. Jesus Riparip (the same) 87,116.90
P7,090.00 x 9 mos. = 63,810.00
27. Alfredo Sienes (the same) 87,116.90

28. Adolar Albert (the same) 87,116.90
1/1 4/29/95 = 3.97 mos.
29. Cabanillas Honesto (the same)

87,116.90
P7,220.00 x 3.97 mos. = 28,663.40
30. Castillo
87,116.90
Amping
(the
same)
TOTAL P126,684.40 7
==========
31. Revilla Elwin (the same) 87,116.90
1. Luis Regondula (same) P126,684.40

8
GRAND TOTAL P2,700,623.90

===========
2. DECLARING both respondents liable
to pay complainants attorney's fees
equivalent to ten (10%) percent of the
total award recovered or the sum of
P270,062.34.
2. Manolito Catalan (same) 126,684.40

3. Oresca Agapito (same) 126,684.40
4. Noel Alibadbad (same) 126,684.40
5. Rogelio Pintuan (same) 126,684.40
3. ORDERING respondent Longest

Force Investigation & Security Agency,
Inc. to reinstate all the herein
complainants to their former or
6. Danilo Crisostomo (same) 126,684.40
224
7.
Romulo
126,684.40
Macalinao
(same)
30. Castillo Amping (same) 126,684.40

31. Revilla Elwin (same) 126,684.40
8. Nestor Ferrer (same) 126,684.40
9. Ricky Cuesta (same) 126,684.40

GRAND TOTAL P3,927,216.40 9
4. ORDERING said Longest Force
Investigation & Security Agency, Inc. to
pay attorney's fees equivalent to ten
(10%) percent of the total award
recovered representing backwages in
the amount of P392,721.64. 10
10. Andrada Rolly (same) 126,684.40

11. Larry Rogola (same) 126,684.40
12.
Francisco
126,684.40
Lenogon
(same)
13. Augosto Quinto (same) 126,684.40
5. DISMISSING all other claims for lack

of legal basis.
14. Arfe Beramo (same) 126,684.40

SO ORDERED. 11
15.
Bonifacio
126,684.40
16.
Alfredo
126,684.40
Trinidad
Azcarraga
(same)
Petitioner appealed the foregoing to the
NLRC in NLRC NCR Case No. 00-09005440-96-A. The labor tribunal,
however, affirmed in toto the decision of
the Labor Arbiter. Petitioner moved for
reconsideration, but this was denied by
the NLRC.
(same)
17. Ernesto Magno (same) 126,684.40

18. Honario Hortecio (same) 126,684.40
19. Nelbert Pineda (same) 126,684.40
The petitioner then filed a special civil

action for certiorari assailing the NLRC
judgment for having been rendered with
grave abuse of discretion with the Court
of Appeals, docketed as CA-G.R. SP
No. 55416. The Court of Appeals,
however, denied due course to the
petition and dismissed it outright for the
following reasons:
20. Glen Estipular (same) 126,684.40

21. Francisco
126,684.40
Compuesto
(same)
22. Isabelito Cortes (same) 126,684.40

23.
Maturan
126,684.40
Rosauro
(same)
1. The verification and certification on

non-forum shopping is signed not by
duly authorized officer of petitioner
corporation, but by counsel (Section 1,
Rule 65, 1997 Rules of Civil Procedure).
24. Samson Canas (same) 126,684.40

25. Febien Isip (same) 126,684.40
26. Jesus Riparip (same) 126,684.40
2. The petition is unaccompanied by

copies of relevant and pertinent
documents, particularly the motion for
reconsideration filed before the NLRC
(Section 1, Rule 65, 1997 Rules of Civil
Procedure). 12
27. Alfredo Sienes (same) 126,684.40

28. Adolar Albert (same) 126,684.40
29.
Cabanillas
126,684.40
Honesto
(same)
225
The
petitioner
then
moved
for
reconsideration of the order of
dismissal. The appellate court denied
the motion, pointing out that under
prevailing
case
law
subsequent
compliance with formal requirements for
filing a petition as prescribed by the
Rules, does not ipso facto warrant a
reconsideration. In any event, it found
no grave abuse of discretion on the part
of the NLRC to grant the writ of
certiorari.
compliance with the requirements under

the Rules of Court by the petitioner? (2)
Did the appellate court err in not holding
that petitioner was denied due process
of law by the NLRC? and (3) Did the
appellate court grievously err in finding
petitioner jointly and severally liable with
Longest Force for the payment of wage
differentials and overtime pay owing to
the private respondents?
On the first issue, the Court of Appeals
in dismissing CA-G.R. SP No. 55416
observed that: (1) the verification and
certification of non-forum shopping was
not signed by any duly authorized officer
of petitioner but merely by petitioner's
counsel; and (2) the petition was not
accompanied by a copy of motion for
reconsideration filed before the NLRC,
thus violating Section 1, 14 Rule 65 of
the Rules of Court. Hence, a dismissal
was proper under Section 3, 15 Rule 46
of the Rules.
Hence, this present petition before us.

Petitioner submits that THE COURT OF
APPEALS GRAVELY ERRED:
1. . . . IN DISMISSING THE PETITION
AND DENYING THE MOTION FOR
RECONSIDERATION DESPITE THE
FACT
THAT
PETITIONER
SUBSTANTIALLY COMPLIED WITH
THE REQUIREMENTS OF SECTION 1,
RULE 65, 1997 RULES OF CIVIL
PROCEDURE.
In assailing the appellate court's ruling,

the petitioner appeals to our sense of
compassion and kind consideration. It
submits that the certification signed by
its counsel and attached to its petition
filed with the Court of Appeals is
substantial
compliance
with
the
requirement. Moreover, petitioner calls
our attention to the fact that when it filed
its motion for reconsideration before the
Court of Appeals, a joint verification and
certification of non-forum shopping duly
signed by its Personnel Manager 16 and
a copy of the Motion for Reconsideration
17 filed before the NLRC were attached
therein. Thus, petitioner prays that we
take a liberal stance to promote the
ends of justice.
2. . . . IN RULING THAT PETITIONER

WAS NOT DENIED DUE PROCESS OF
LAW.
3. . . . IN AFFIRMING THE DECISION
OF
THE
NATIONAL
LABOR
RELATIONS
COMMISSION
THAT
"LONGEST FORCE" AND PETITIONER
ARE JOINTLY AND SEVERALLY
LIABLE FOR PAYMENT OF WAGES
AND OVERTIME PAY DESPITE THE
CLEAR SHOWING THAT PETITIONER
HAVE ALREADY PAID THE SECURITY
SERVICES THAT WAS RENDERED BY
PRIVATE RESPONDENTS.
4. . . . WHEN IT FAILED TO RULE
THAT ONLY "LONGEST FORCE"
SHOULD
BE
SOLELY
AND
ULTIMATELY LIABLE IN THE INSTANT
CASE. 13
Petitioner's plea for liberality, however,

cannot be granted by the Court for
reasons herein elucidated.
We find the issues for our resolution to

be: (1) Was it error for the Court of
Appeals to sustain its order of dismissal
of petitioner's special civil action for
certiorari, notwithstanding subsequent
It is settled that the requirement in the

Rules that the certification of non-forum
shopping should be executed and
signed by the plaintiff or the principal
means that counsel cannot sign said
226
certification unless clothed with special

authority to do so. 18 The reason for this
is that the plaintiff or principal knows
better than anyone else whether a
petition has previously been filed
involving the same case or substantially
the same issues. Hence, a certification
signed by counsel alone is defective and
constitutes a valid cause for dismissal of
the petition. 19 In the case of natural
persons, the Rule requires the parties
themselves to sign the certificate of nonforum shopping. However, in the case of
the corporations, the physical act of
signing may be performed, on behalf of
the corporate entity, only by specifically
authorized individuals for the simple
reason that corporations, as artificial
persons, cannot personally do the task
themselves. 20 In this case, not only
was the originally appended certification
signed by counsel, but in its motion for
reconsideration, still petitioner utterly
failed to show that Ms. Rosanna
Ignacio, its Personnel Manager who
signed the verification and certification
of non-forum shopping attached thereto,
was duly authorized for this purpose. It
cannot be gainsaid that obedience to
the requirements of procedural rule is
needed if we are to expect fair results
therefrom. Utter disregard of the rules
cannot justly be rationalized by harking
on the policy of liberal construction. 21
If the Labor Arbiter finds no necessity of

further hearing after the parties have
submitted their position papers and
supporting documents, he shall issue an
Order to that effect and shall inform the
parties, stating the reasons therefor . . .
22
Petitioner's contention, in our view, lacks
sufficient basis. Well settled is the rule
that the essence of due process is
simply an opportunity to be heard, or, as
applied to administrative proceedings,
an opportunity to explain one's side or
an opportunity to seek a reconsideration
of the action or ruling complained of. 23
Not all cases require a trial-type hearing.
The requirement of due process in labor
cases before a Labor Arbiter is satisfied
when the parties are given the
opportunity to submit their position
papers to which they are supposed to
attach all the supporting documents or
documentary evidence that would prove
their respective claims, in the event the
Labor Arbiter determines that no formal
hearing would be conducted or that
such hearing was not necessary. 24 In
any event, as found by the NLRC,
petitioner was given ample opportunity
to present its side in several hearings
conducted before the Labor Arbiter and
in the position papers and other
supporting documents that it had
submitted. We find that such opportunity
more than satisfies the requirement of
due process in labor cases.
Thus, on this point, no error could be

validly attributed to respondent Court of
Appeals. It did not err in dismissing the
petition for non-compliance with the
of non-forum shopping.
On the third issue, petitioner argues that

it should not be held jointly and severally
liable
with
Longest
Force
for
underpayment of wages and overtime
pay because it had been religiously and
promptly paying the bills for the security
services sent by Longest Force and that
these are in accordance with the
statutory minimum wage. Also, petitioner
contends that it should not be held liable
for overtime pay as private respondents
failed to present proof that overtime
work was actually performed. Lastly,
petitioner claims that the Court of
Appeals failed to render a decision that
Anent the second issue, petitioner avers

that there was denial of due process of
law when the Labor Arbiter failed to
have the case tried on the merits.
Petitioner adds that the Arbiter did not
observe the mandatory language of the
then Sec. 5(b) Rule V (now Section 11,
per amendment in Resolution No. 0102, Series of 2002) of the NLRC New
Rules of Procedure which provided that:
227
finally disposed of the case because it

did not specifically rule on the
immediate
recourse
of
private
respondents, that is, the matter of
reimbursement between petitioner and
Longest Force in accordance with Eagle
Security Agency Inc. v. NLRC , 25 and
Philippine
Fisheries
Development
Authority v. NLRC . 26
subcontractor for any violation of any

provision of this Code. For purposes of
determining the extent of their civil
liability under this Chapter, they shall be
considered as direct employers.
In this case, when petitioner contracted
for security services with Longest Force
as the security agency that hired private
respondents to work as guards for the
shipyard corporation, petitioner became
an indirect employer of private
respondents pursuant to Article 107
abovecited. Following Article 106, when
the agency as contractor failed to pay
the guards, the corporation as principal
becomes jointly and severally liable for
the guards' wages. This is mandated by
the Labor Code to ensure compliance
with its provisions, including payment of
statutory minimum wage. The security
agency is held liable by virtue of its
status as direct employer, while the
failure of the agency to pay them. This
statutory scheme gives the workers the
ample protection consonant with labor
and social justice provisions of the 1987
Constitution. 27
Petitioner's liability is joint and several

with that of Longest Force, pursuant to
Articles 106, 107 and 109 of the Labor
Code which provide as follows:
ART.
106.
CONTRACTOR
OR
SUBCONTRACTOR. Whenever an
employer enters into a contract with
another person for the performance of
the former's work, the employees of the
contractor
and
of
the
latter's
subcontractor, if any, shall be paid in
accordance with the provisions of this
Code.
In the event that the contractor or
subcontractor fails to pay the wages of
his employees in accordance with this
Code, the employer shall be jointly and
severally liable with his contractor or
subcontractor to such employees to the
extent of the work performed under the
contract, in the same manner and extent
that he is liable to employees directly
employed by him.
Petitioner cannot evade its liability by

claiming that it had religiously paid the
compensation of guards as stipulated
under the contract with the security
agency. Labor standards are enacted by
the legislature to alleviate the plight of
workers whose wages barely meet the
spiraling costs of their basic needs.
Labor laws are considered written in
every contract. Stipulations in violation
thereof are considered null. Similarly,
legislated wage increases are deemed
amendments to the contract. Thus,
employers cannot hide behind their
contracts in order to evade their (or their
contractors' or subcontractors') liability
for noncompliance with the statutory
minimum wage. 28
xxx xxx xxx
ART. 107. INDIRECT EMPLOYER.

The provisions of the immediately
preceding Article shall likewise apply to
any person, partnership, association or
corporation which, not being an
employer, contracts with an independent
contractor for the performance of any
work, task, job or project.
ART. 109. SOLIDARY LIABILITY .
The provisions of existing laws to the
contrary
notwithstanding,
every
employer or indirect employer shall be
held responsible with his contractor or
228
However, we must emphasize that the

solidary liability of petitioner with that of
Longest Force does not preclude the
application of the Civil Code provision
on the right of reimbursement from his
co-debtor by the one who paid. 29 As
held in Del Rosario & Sons Logging
Enterprises, Inc. v. NLRC , 30 the joint
and several liability imposed on
petitioner is without prejudice to a claim
for reimbursement by petitioner against
the security agency for such amounts as
petitioner may have to pay to
complainants, the private respondents
herein. The security agency may not
seek exculpation by claiming that the
principal's payments to it were
inadequate for the guards' lawful
compensation. As an employer, the
security agency is charged with
knowledge of labor laws; and the
adequacy of the compensation that it
demands for contractual services is its
principal concern and not any other's. 31
WHEREFORE, the Resolution of the

55416
is
AFFIRMED
with
MODIFICATION. Petitioner and Longest
Force are held liable jointly and
severally for underpayment of wages
and overtime pay of the security guards,
without prejudice to petitioner's right of
reimbursement from Longest Force
Investigation and Security Agency, Inc.
The amounts payable to complaining
security
guards,
herein
private
respondents, by way of total backwages
and attorney's fees are hereby set at
P3,926,100.40
and
P392,610.04,
respectively. Costs against petitioner.
SO ORDERED.
Bellosillo, Austria-Martinez, Callejo, Sr.
and Tinga, JJ ., concur.
||| (Mariveles Shipyard Corp. v. Court of
Appeals, G.R. No. 144134, [November
11, 2003], 461 PHIL 249-269)
On the issue of the propriety of the

award of overtime pay despite the
alleged lack of proof thereof, suffice it to
state that such involves a determination
and evaluation of facts which cannot be
done in a petition for review. Well
established is the rule that in an appeal
via certiorari, only questions of law may
be reviewed. 32
34. CONSTRUCTION
DEVELOPMENT
ESTRELLA
VS.
FIRST DIVISION
[G.R. No. 147791. September 8, 2006.]
CONSTRUCTION
DEVELOPMENT
CORPORATION
OF
THE
PHILIPPINES, petitioner, vs. REBECCA
G.
ESTRELLA,
RACHEL
E.
FLETCHER, PHILIPPINE PHOENIX
SURETY
&
INSURANCE
INC.,
BATANGAS LAGUNA TAYABAS BUS
CO., and WILFREDO DATINGUINOO,
respondents.
One final point. Upon review of the

award of backwages and attorney's
fees, we discovered certain errors that
happened in the addition of the amount
of individual backwages that resulted in
the
erroneous
total
amount
of
backwages and attorney's fees. These
errors ought to be properly rectified now.
Thus, the correct sum of individual
backwages should be P126,648.40
instead of P126,684.40, while the
correct sum of total backwages awarded
and
attorney's
fees
should
be
P3,926,100.40,
and
P392,610.04,
instead
of
P3,927,216.40
and
P392,721.64, respectively.
DECISION
YNARES-SANTIAGO, J p:
This petition for review assails the
March 29, 2001 Decision 1 of the Court
of Appeals in CA-G.R. CV No. 46896,
which affirmed with modification the
February 9, 1993 Decision 2 of the
229
Regional Trial Court of Manila, Branch

13, in Civil Case No. R-82-2137, finding
Batangas Laguna Tayabas Bus Co.
(BLTB) and Construction Development
Corporation of the Philippines (CDCP)
liable for damages.
13. They alleged (1) that Payunan, Jr.

and Datinguinoo, who were the drivers
of CDCP and BLTB buses, respectively,
were negligent and did not obey traffic
laws; (2) that BLTB and CDCP did not
exercise the diligence of a good father
of a family in the selection and
supervision of their employees; (3) that
BLTB allowed its bus to operate knowing
that it lacked proper maintenance thus
exposing its passengers to grave
danger; (4) that they suffered actual
damages amounting to P250,000.00 for
Estrella and P300,000.00 for Fletcher;
(5) that
they suffered
physical
discomfort, serious anxiety, fright and
mental anguish, besmirched reputation
and wounded feelings, moral shock, and
lifelong social humiliation; (6) that
defendants failed to act with justice, give
respondents their due, observe honesty
and good faith which entitles them to
claim for exemplary damage; and (7)
that they are entitled to a reasonable
amount of attorney's fees and litigation
expenses. TaEIAS
The antecedent facts are as follows:

On December 29, 1978, respondents
Rebecca
G.
Estrella
and
her
granddaughter, Rachel E. Fletcher,
boarded in San Pablo City, a BLTB bus
bound for Pasay City. However, they
never reached their destination because
their bus was rammed from behind by a
tractor-truck of CDCP in the South
Expressway. The strong impact pushed
forward their seats and pinned their
knees to the seats in front of them. They
regained consciousness only when
rescuers created a hole in the bus and
extricated their legs from under the
seats. They were brought to the Makati
Medical Center where the doctors
diagnosed their injuries to be as follows:
Medical Certificate of Rebecca Estrella
CDCP filed its Answer 6 which was later

amended to include a third-party
complaint against Philippine Phoenix
Surety and Insurance, Inc. (Phoenix). 7
Fracture, left tibia mid 3rd

Lacerated wound, chin
On February 9, 1993, the trial court

rendered a decision finding CDCP and
BLTB and their employees liable for
damages, the dispositive portion of
which, states:
Contusions with abrasions, left lower leg

Fracture, 6th and 7th ribs, right 3
Medical Certificate of Rachel Fletcher
WHEREFORE, judgment is rendered:

Extensive lacerated wounds, right leg
posterior aspect popliteal area
and antero-lateral aspect mid lower leg
with severance of muscles.
Partial amputation BK left leg with
severance of gastro-soleus and
antero-lateral compartment of lower leg.
Fracture, open comminuted, both tibial 4
In the Complaint
1. In favor of the plaintiffs and against
the
defendants
BLTB,
Wilfredo
Datinguinoo,
Construction
and
Development
Corporation
of
the
Philippines (now PNCC) and Espiridion
Payunan, Jr., ordering said defendants,
jointly and severally to pay the plaintiffs
the sum of P79,254.43 as actual
damages and to pay the sum of
P10,000.00 as attorney's fees or a total
of P89,254.43;
Thereafter,
respondents
filed
a
Complaint 5 for damages against CDCP,
BLTB, Espiridion Payunan, Jr. and
Wilfredo
Datinguinoo
before
the
Regional Trial Court of Manila, Branch
230
acted negligently. BLTB's inability to

carry respondents to their destination
gave rise to an action for breach of
contract of carriage while its failure to
rebut the presumption of negligence
made it liable to respondents for the
breach. 9
2. In addition, defendant Construction

and Development Corporation of the
Philippines and defendant Espiridion
Payunan, Jr., shall pay the plaintiffs the
amount of Fifty Thousand (P50,000.00)
Pesos to plaintiff Rachel Fletcher and
Twenty Five Thousand (P25,000.00)
Pesos to plaintiff Rebecca Estrella;
Regarding CDCP, the trial court found

that the tractor-truck it owned bumped
the BLTB bus from behind. Evidence
showed that CDCP's driver was reckless
and driving very fast at the time of the
incident. The gross negligence of its
driver raised the presumption that
CDCP was negligent either in the
selection or in the supervision of its
employees which it failed to rebut thus
making it and its driver liable to
respondents. 10
3. On the counterclaim of BLTB Co. and

Wilfredo Datinguinoo
Dismissing the counterclaim;
4.
On
the
crossclaim
against
Construction
and
Development
Corporation of the Philippines (now
PNCC) and Espiridion Payunan, Jr.
Dismissing the crossclaim;
Unsatisfied with the award of damages

and attorney's fees by the trial court,
respondents moved that the decision be
reconsidered
but
was
denied.
Respondents elevated the case 11 to
the Court of Appeals which affirmed the
decision of the trial court but modified
the amount of damages, the dispositive
portion of which provides:
5. On the counterclaim of Construction

Philippines (now PNCC)
Dismissing the counterclaim;
6. On the crossclaim against BLTB
Dismissing the crossclaim;
WHEREFORE, the assailed decision

dated October 7, 1993 of the Regional
Trial Court, Branch 13, Manila is hereby
AFFIRMED
with
the
following
MODIFICATION:
7. On the Third Party Complaint by

Construction
and
Development
Corporation of the Philippines against
Philippine
Phoenix
Surety
and
Insurance, Incorporated
1. The interest of six (6) percent per

annum on the actual damages of
P79,354.43 should commence to run
from the time the judicial demand was
made or from the filing of the complaint
on February 4, 1980; CIScaA
Dismissing the Third Party Complaint.

SO ORDERED. 8
The trial court held that BLTB, as a
common carrier, was bound to observe
extraordinary diligence in the vigilance
over the safety of its passengers. It must
carry the passengers safely as far as
human care and foresight provide, using
the utmost diligence of very cautious
persons, with a due regard for all the
circumstances.
Thus,
where
a
passenger dies or is injured, the carrier
is presumed to have been at fault or has
2. Thirty (30) percent of the total amount

recovered is hereby awarded as
attorney's fees;
3. Defendants-appellants Construction
Philippines (now PNCC) and Espiridion
Payunan, Jr. are ordered to pay plaintiffappellants Rebecca Estrella and Rachel
231
Fletcher the amount of Twenty

Thousand
(P20,000.00)
each
as
exemplary damages and P80,000.00 by
way of moral damages to Rachel
Fletcher.
III
WHETHER OR NOT THE COURT OF
APPEALS GRAVELY ERRED IN NOT
HOLDING RESPONDENT PHOENIX
LIABLE UNDER ITS INSURANCE
POLICY ON THE GROUND OF
PRESCRIPTION.
SO ORDERED. 12
The Court of Appeals held that the
actual or compensatory damage sought
by respondents for the injuries they
sustained in the form of hospital bills
were already liquidated and were
ascertained. Accordingly, the 6% interest
per annum should commence to run
from the time the judicial demand was
made or from the filing of the complaint
and not from the date of judgment. The
Court of Appeals also awarded
attorney's fees equivalent to 30% of the
total amount recovered based on the
retainer agreement of the parties. The
appellate
court
also
held
that
respondents are entitled to exemplary
and moral damages. Finally, it affirmed
the ruling of the trial court that the claim
of CDCP against Phoenix had already
prescribed.
The issues for resolution are as follows:

(1) whether BLTB and its driver Wilfredo
Datinguinoo are solely liable for the
damages sustained by respondents; (2)
whether the damages, attorney's fees
and legal interest awarded by the CA
are excessive and unfounded; (3)
whether CDCP can recover under its
insurance policy from Phoenix.
Petitioner contends that since it was
made solidarily liable with BLTB for
actual damages and attorney's fees in
paragraph 1 of the trial court's decision,
then it should no longer be held liable to
pay the amounts stated in paragraph 2
of the same decision. Petitioner claims
that the liability for actual damages and
attorney's fees is based on culpa
contractual, thus, only BLTB should be
held liable. As regards paragraph 2 of
the trial court's decision, petitioner
claims that it is ambiguous and arbitrary
because the dispositive portion did not
state the basis and nature of such
award.
Hence, this petition raising the following

issues:
I
APPEALS GRAVELY ERRED IN NOT
HOLDING
RESPONDENTS
BLTB
AND/OR ITS DRIVER WILFREDO
DATINGUINOO SOLELY LIABLE FOR
THE DAMAGES SUSTAINED BY
HEREIN RESPONDENTS FLETCHER
AND ESTRELLA.
Respondents, on the other hand, argue

that petitioner is also at fault, hence, it
was properly joined as a party. There
may be an action arising out of one
incident where questions of fact are
common to all. Thus, the cause of action
based on culpa aquiliana in the civil suit
they filed against it was valid. CacHES
II
APPEALS GRAVELY ERRED IN
AWARDING
EXCESSIVE
OR
UNFOUNDED
DAMAGES,
ATTORNEY'S FEES AND LEGAL
INTEREST
TO
RESPONDENTS
FLETCHER AND ESTRELLA.
The petition lacks merit.

The case filed by respondents against
petitioner is an action for culpa aquiliana
or quasi-delict under Article 2176 of the
Civil Code. 13 In this regard, Article
2180 provides that the obligation
imposed by Article 2176 is demandable
232
for the acts or omissions of those

persons for whom one is responsible.
Consequently, an action based on
quasi-delict may be instituted against
the employer for an employee's act or
omission. The liability for the negligent
conduct of the subordinate is direct and
primary, but is subject to the defense of
due diligence in the selection and
supervision of the employee. 14 In the
instant case, the trial court found that
petitioner failed to prove that it exercised
the diligence of a good father of a family
in the selection and supervision of
Payunan, Jr.
springs from contract while that of

respondents [owner and driver of other
vehicle] arises from quasi-delict. As
early as 1913, we already ruled in
Gutierrez vs. Gutierrez, 56 Phil. 177,
that in case of injury to a passenger due
to the negligence of the driver of the bus
on which he was riding and of the driver
of another vehicle, the drivers as well as
the owners of the two vehicles are jointly
and severally liable for damages. . . .
xxx xxx xxx
As in the case of BLTB, private
respondents in this case and her coplaintiffs did not stake out their claim
against the carrier and the driver
exclusively on one theory, much less on
that of breach of contract alone. After all,
it was permitted for them to allege
alternative causes of action and join as
many parties as may be liable on such
causes of action so long as private
respondent and her co-plaintiffs do not
recover twice for the same injury. What
is clear from the cases is the intent of
the plaintiff there to recover from both
the carrier and the driver, thus justifying
the holding that the carrier and the
driver were jointly and severally liable
because their separate and distinct acts
concurred to produce the same injury.
16 (Emphasis supplied)
The trial court and the Court of Appeals

found petitioner solidarily liable with
BLTB for the actual damages suffered
by respondents because of the injuries
they sustained. It was established that
Payunan, Jr. was driving recklessly
because of the skid marks as shown in
the sketch of the police investigator.
It is well-settled in Fabre, Jr. v. Court of
Appeals, 15 that the owner of the other
vehicle which collided with a common
carrier is solidarily liable to the injured
passenger of the same. We held, thus:
The same rule of liability was applied in
situations where the negligence of the
driver of the bus on which plaintiff was
riding concurred with the negligence of a
third party who was the driver of another
vehicle, thus causing an accident. In
Anuran v. Buo, Batangas Laguna
Tayabas Bus Co. v. Intermediate
Appellate Court, and Metro Manila
Transit Corporation v. Court of Appeals,
the bus company, its driver, the operator
of the other vehicle and the driver of the
vehicle were jointly and severally held
liable to the injured passenger or the
latter's heirs. The basis of this allocation
of liability was explained in Viluan v.
Court of Appeals, thus:
In a "joint" obligation, each obligor

answers only for a part of the whole
liability; in a "solidary" or "joint and
several" obligation, the relationship
between the active and the passive
subjects is so close that each of them
must comply with or demand the
fulfillment of the whole obligation. In
Lafarge Cement v. Continental Cement
Corporation, 17 we reiterated that joint
tort feasors are jointly and severally
liable for the tort which they commit.
Citing Worcester v. Ocampo, 18 we held
that:
. . . The difficulty in the contention of the
appellants is that they fail to recognize
that the basis of the present action is
Nor should it make any difference that

the liability of petitioner [bus owner]
233
tort. They fail to recognize the universal

doctrine that each joint tort feasor is not
only individually liable for the tort in
which he participates, but is also jointly
liable with his tort feasors. . . .
courts may release some for lack of

evidence while condemning others of
the alleged tort feasors. And this is true
even though they are charged jointly
and severally. 19
It may be stated as a general rule that

joint tort feasors are all the persons who
command,
instigate,
promote,
encourage,
advise,
countenance,
cooperate in, aid or abet the
commission of a tort, or who approve of
it after it is done, if done for their benefit.
They are each liable as principals, to the
same extent and in the same manner as
if they had performed the wrongful act
themselves. . . .
Petitioner's claim that paragraph 2 of the

dispositive portion of the trial court's
decision is ambiguous and arbitrary and
also entitles respondents to recover
twice is without basis. In the body of the
trial court's decision, it was clearly
stated that petitioner and its driver
Payunan, Jr., are jointly and solidarily
liable for moral damages in the amount
of P50,000.00 to respondent Fletcher
and P25,000.00 to respondent Estrella.
20 Moreover, there could be no double
recovery because the award in
paragraph 2 is for moral damages while
the award in paragraph 1 is for actual
damages and attorney's fees. DICcTa
Joint tort feasors are jointly and

severally liable for the tort which they
commit. The persons injured may sue all
of them or any number less than all.
Each is liable for the whole damages
caused by all, and all together are jointly
liable for the whole damage. It is no
defense for one sued alone, that the
others who participated in the wrongful
act are not joined with him as
defendants; nor is it any excuse for him
that his participation in the tort was
insignificant as compared to that of the
others. . . .
Petitioner next claims that the damages,

attorney's fees, and legal interest
awarded by the Court of Appeals are
excessive.
Moral damages may be recovered in
quasi-delicts causing physical injuries.
21 The award of moral damages in favor
of Fletcher and Estrella in the amount of
P80,000.00 must be reduced since
prevailing jurisprudence fixed the same
at P50,000.00. 22 While moral damages
are not intended to enrich the plaintiff at
the expense of the defendant, the award
should nonetheless be commensurate
to the suffering inflicted. 23
Joint tort feasors are not liable pro rata.

The damages can not be apportioned
among
them,
except
among
themselves. They cannot insist upon an
apportionment, for the purpose of each
paying an aliquot part. They are jointly
and severally liable for the whole
amount. . . .
The Court of Appeals correctly awarded

respondents exemplary damages in the
amount of P20,000.00 each. Exemplary
damages may be awarded in addition to
moral and compensatory damages. 24
Article 2231 of the Civil Code also states
that
in
quasi-delicts,
exemplary
damages may be granted if the
defendant acted with gross negligence.
25 In this case, petitioner's driver was
driving recklessly at the time its truck
rammed the BLTB bus. Petitioner, who
has direct and primary liability for the
A payment in full for the damage done,

by one of the joint tort feasors, of course
satisfies any claim which might exist
against the others. There can be but
satisfaction. The release of one of the
joint tort feasors by agreement generally
operates to discharge all. . . .
Of course the court during trial may find
that some of the alleged tort feasors are
liable and that others are not liable. The
234
negligent conduct of its subordinates,

was also found negligent in the selection
and supervision of its employees. In Del
Rosario v. Court of Appeals, 26 we held,
thus:
In the instant case, the Court of Appeals

correctly awarded attorney's fees and
other expenses of litigation as they may
be recovered as actual or compensatory
damages when exemplary damages are
awarded; when the defendant acted in
to satisfy the plaintiff's valid, just and
demandable claim; and in any other
case where the court deems it just and
equitable that attorney's fees and
expenses of litigation should be
recovered. 29
ART. 2229 of the Civil Code also

provides that such damages may be
imposed, by way of example or
correction for the public good. While
exemplary
damages
cannot
be
recovered as a matter of right, they
need not be proved, although plaintiff
must show that he is entitled to moral,
temperate or compensatory damages
before the court may consider the
question of whether or not exemplary
damages
should
be
awarded.
Exemplary Damages are imposed not to
enrich one party or impoverish another
but to serve as a deterrent against or as
a negative incentive to curb socially
deleterious actions.
Regarding the imposition of legal

interest at the rate of 6% from the time
of the filing of the complaint, we held in
Eastern Shipping Lines, Inc. v. Court of
Appeals, 30 that when an obligation,
regardless of its source, i.e., law,
contracts, quasi-contracts, delicts or
quasi-delicts
is
breached,
the
contravenor can be held liable for
payment of interest in the concept of
actual and compensatory damages, 31
subject to the following rules, to wit
Regarding attorney's fees, we held in

Traders Royal Bank Employees UnionIndependent v. National Labor Relations
Commission, 27 that:
1. When the obligation is breached, and

it consists in the payment of a sum of
money, i.e., a loan or forbearance of
money, the interest due should be that
which may have been stipulated in
writing. Furthermore, the interest due
shall itself earn legal interest from the
time it is judicially demanded. In the
absence of stipulation, the rate of
interest shall be 12% per annum to be
computed from default, i.e., from judicial
or extrajudicial demand under and
subject to the provisions of Article 1169
of the Civil Code. IEaATD
There are two commonly accepted

concepts of attorney's fees, the socalled ordinary and extraordinary. In its
ordinary concept, an attorney's fee is the
reasonable compensation paid to a
lawyer by his client for the legal services
he has rendered to the latter. The basis
of this compensation is the fact of his
employment by and his agreement with
the client.
In its extraordinary concept, an
attorney's fee is an indemnity for
damages ordered by the court to be
paid by the losing party in a litigation.
The basis of this is any of the cases
provided by law where such award can
be made, such as those authorized in
Article 2208, Civil Code, and is payable
not to the lawyer but to the client, unless
they have agreed that the award shall
pertain to the lawyer as additional
compensation or as part thereof. 28
(Emphasis supplied)
2. When an obligation, not constituting a

loan or forbearance of money, is
breached, an interest on the amount of
damages awarded may be imposed at
the discretion of the court at the rate of
6% per annum. No interest, however,
shall be adjudged on unliquidated
claims or damages except when or until
235
the demand can be established with

reasonable certainty. Accordingly, where
the demand is established with
reasonable certainty, the interest shall
begin to run from the time the claim is
made judicially or extrajudicially (Art.
1169, Civil Code) but when such
certainty cannot be so reasonably
established at the time the demand is
made, the interest shall begin to run
only from the date the judgment of the
court is made (at which time the
quantification of damages may be
deemed to have been reasonably
ascertained). The actual base for the
computation of legal interest shall, in
any case, be on the amount finally
adjudged.
As regards the liability of Phoenix, the

court a quo correctly ruled that
defendant-appellant
CDCP's
claim
against Phoenix already prescribed
pursuant to Section 384 of P.D. 612, as
amended, which provides:
Any person having any claim upon the
policy issued pursuant to this chapter
shall, without any unnecessary delay,
present to the insurance company
concerned a written notice of claim
setting forth the nature, extent and
duration of the injuries sustained as
certified by a duly licensed physician.
Notice of claim must be filed within six
months from date of the accident,
otherwise, the claim shall be deemed
waived. Action or suit for recovery of
damage due to loss or injury must be
brought in proper cases, with the
Commissioner or Courts within one year
from denial of the claim, otherwise, the
claimant's right of action shall prescribe.
(As amended by PD 1814, BP 874.) 34
3. When the judgment of the court

awarding a sum of money becomes final
and executory, the rate of legal interest,
whether the case falls under paragraph
1 or paragraph 2, above, shall be 12%
per annum from such finality until its
satisfaction, this interim period being
deemed to be by then an equivalent to a
forbearance of credit. 32 (Emphasis
supplied)
The law is clear and leaves no room for

interpretation. A written notice of claim
must be filed within six months from the
date of the accident. Since petitioner
never made any claim within six months
from the date of the accident, its claim
has already prescribed.
Accordingly, the legal interest of 6%

shall begin to run on February 9, 1993
when the trial court rendered judgment
and not on February 4, 1980 when the
complaint was filed. This is because at
the time of the filing of the complaint, the
amount of the damages to which
plaintiffs may be entitled remains
unliquidated and unknown, until it is
definitely ascertained, assessed and
determined by the court and only upon
presentation of proof thereon. 33 From
the time the judgment becomes final
and executory, the interest rate shall be
12% until its satisfaction.
WHEREFORE, the instant petition is

DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 46896
dated March 29, 2001, which modified
the Decision of the Regional Trial Court
of Manila, Branch 13, in Civil Case No.
R-82-2137, is AFFIRMED with the
MODIFICATIONS that petitioner is held
jointly and severally liable to pay (1)
actual damages in the amount of
P79,354.43; (2) moral damages in the
amount of P50,000.00 each for Rachel
Fletcher and Rebecca Estrella; (3)
exemplary damages in the amount of
P20,000.00 each for Rebecca Estrella
and Rachel Fletcher; and (4) thirty
percent (30%) of the total amount
recovered as attorney's fees. The total
amount adjudged shall earn interest at
Anent the last issue of whether

petitioner can recover under its
insurance policy from Phoenix, we affirm
the findings of both the trial court and
the Court of Appeals, thus:
236
the rate of 6% per annum from the date

of judgment of the trial court until finality
of this judgment. From the time this
Decision becomes final and executory
and the judgment amount remains
unsatisfied, the same shall earn interest
at the rate of 12% per annum until its
satisfaction.
liable with Yulim for its loan obligations

with respondent International Exchange
Bank (iBank).
The Facts
On June 2, 2000, iBank, a commercial
bank, granted Yulim, a domestic
partnership, a credit facility in the form
of an Omnibus Loan Line for
P5,000,000.00, as evidenced by a
Credit Agreement 3 which was secured
by a Chattel Mortgage 4 over Yulim's
inventories
in
its
merchandise
warehouse at 106 4th Street, 9th
Avenue, Caloocan City. As further
guarantee, the partners, namely, James,
Jonathan and Almerick, executed a
Continuing Surety Agreement 5 in favor
of iBank.
SO ORDERED.
Panganiban, C.J., Austria-Martinez,
Callejo, Sr. and Chico-Nazario, JJ.,
concur.
||| (Construction Development Corp. of
the Philippines v. Estrella, G.R. No.
147791, [September 8, 2006], 532 PHIL
671-688)
35. YULIM
INTERNATIONAL
COMPANY
LTD.
VS.
INTERNATIONAL EXCHANGE
BANK
Yulim availed of its aforesaid credit

facility with iBank, as follows:
Promissory Note No.
Face Value
PN Date
Date of Maturity
THIRD DIVISION
2110005852 P1,298,926.00
10/26/2000 01/29/2001
2110006026 1,152,963.00
11/18/2000 02/05/2001
2110006344 499,890.00
12/04/2000 03/12/2001
2110006557 798,010.00
12/18/2000 04/23/2001
2110100189 496,521.00
01/11/2001 05/07/2001 6
[G.R. No. 203133. February 18, 2015.]

YULIM INTERNATIONAL COMPANY
LTD., JAMES YU, JONATHAN YU, and
ALMERICK TIENG LIM, petitioners, vs.
INTERNATIONAL EXCHANGE BANK
(now Union Bank of the Philippines),
respondent.
DECISION
The above promissory notes (PN) were

later consolidated under a single
promissory
note,
PN
No.
SADDK001014188, for P4,246,310.00,
to mature on February 28, 2002. 7 Yulim
defaulted on the said note. On April 5,
2002, iBank sent demand letters to
Yulim, through its President, James, and
through Almerick, 8 but without success.
iBank then filed a Complaint for Sum of
Money with Replevin 9 against Yulim
and its sureties. On August 8, 2002, the
Court granted the application for a writ
of replevin. Pursuant to the Sheriff's
Certificate of Sale dated November 7,
2002, 10 the items seized from Yulim's
REYES, J p:
In the assailed Decision 1 dated
February 1, 2012 in CA-G.R. CV No.
95522, the Court of Appeals (CA)
modified the Decision 2 dated
December 21, 2009 of the Regional Trial
Court (RTC) of Makati City, Branch 145,
in Civil Case No. 02-749, holding that
James Yu (James), Jonathan Yu
(Jonathan) and Almerick Tieng Lim
(Almerick), who were capitalist partners
in Yulim International Company Ltd.
(Yulim), collectively called as the
petitioners, were jointly and severally
237
warehouse
were
worth
only
P140,000.00, not P500,000.00 as the
petitioners have insisted. 11
The counterclaims of defendants

against plaintiff iBank are hereby
DISMISSED
for
insufficiency
of
evidence.
On October 2, 2002, the petitioners

moved to dismiss the complaint insisting
that their loan had been fully paid after
they
assigned
to
iBank
their
Condominium Unit No. 141, with parking
space, at 20 Landsbergh Place in
Tomas Morato Avenue, Quezon City. 12
They claimed that while the pre-selling
value of the condominium unit was P3.3
Million, its market value has since risen
to P5.5 Million. 13 The RTC, however,
did not entertain the motion to dismiss
for non-compliance with Rule 15 of the
Rules of Court.
SO ORDERED. 15
Thus, the RTC ordered Yulim alone to
pay iBank the amount of P4,246,310.00,
plus interest at 16.50% per annum from
February 28, 2002 until fully paid, plus
costs of suit, and dismissed the
complaint against petitioners James,
Jonathan and Almerick, stating that
there was no iota of evidence that the
loan proceeds benefited their families.
16
The
petitioners
moved
for
reconsideration on January 12, 2010; 17
iBank on January 19, 2010 likewise filed
a motion for partial reconsideration. 18
In its Joint Order 19 dated March 8,
2010, the RTC denied both motions.
On May 16, 2006, the petitioners filed

their Answer reiterating that they have
paid their loan by way of assignment of
a condominium unit to iBank, as well as
insisting that iBank's penalties and
charges were exorbitant, oppressive
and unconscionable. 14 HEIcDT
Ruling of the CA
On March 23, 2010, Yulim filed a Notice
of Partial Appeal, followed on March 30,
2010 by iBank with a Notice of Appeal.
Ruling of the RTC

rendered judgment on December 21,
2009, the dispositive portion of which
reads, as follows:
Yulim interposed the following as errors

of the court a quo:
WHEREFORE, in view off the foregoing

considerations, the Court finds the
individual
defendants James Yu,
Jonathan Yu and Almerick Tieng Lim,
not liable to the plaintiff, iBank, hence
the complaint against them is hereby
DISMISSED
for
insufficiency
of
evidence, without pronouncement as to
cost.
I. THE LOWER COURT ERRED IN

ORDERING [YULIM] TO PAY [iBANK]
THE AMOUNT OF P4,246,310.00 WITH
INTEREST AT 16.5% PER ANNUM
FROM FEBRUARY 28, 2002 UNTIL
FULLY PAID.
II. THE LOWER COURT ERRED IN
NOT ORDERING [iBANK] TO PAY
ATTORNEY'S
FEES,
MORAL
DAMAGES
AND
EXEMPLARY
DAMAGES. 20
This court, however, finds defendant

corporation
Yulim
International
Company Ltd. liable; and it hereby
orders defendant corporation to pay
plaintiff the sum of P4,246,310.00 with
interest at 16.50% per annum from
February 28, 2002 until fully paid plus
cost of suit.
For its part, iBank raised the following

as errors of the RTC:
I. THE TRIAL COURT ERRED IN NOT
HOLDING INDIVIDUAL [PETITIONERS
JAMES, JONATHAN AND ALMERICK]
SOLIDARILY LIABLE WITH [YULIM] ON
238
THE BASIS OF THE CONTINUING

SURETYSHIP
AGREEMENT
EXECUTED BY THEM.
nothing in the Deed of Assignment

which could signify that iBank had
accepted the said property as full
payment of the petitioners' loan. The CA
cited Manila Banking Corporation v.
Teodoro, Jr. 22 which held that an
assignment to guarantee an obligation is
in effect a mortgage and not an absolute
conveyance of title which confers
ownership on the assignee.
II. THE TRIAL COURT ERRED IN NOT

HOLDING ALL THE [PETITIONERS]
LIABLE FOR PENALTY CHARGES
UNDER THE CREDIT AGREEMENT
AND PROMISSORY NOTES SUED
UPON.
III. THE TRIAL COURT ERRED IN NOT
HOLDING [THE PETITIONERS] LIABLE
TO [iBANK] FOR ATTORNEY'S FEES
AND
INDIVIDUAL
[PETITIONERS]
JOINTLY AND SEVERALLY LIABLE
WITH [YULIM] FOR COSTS OF SUIT
INCURRED BY [iBANK] IN ORDER TO
PROTECT ITS RIGHTS. 21 EICSDT
Concerning the solidary liability of

petitioners James, Jonathan and
Almerick, the CA disagreed with the trial
court's ruling that it must first be shown
that the proceeds of the loan redounded
to the benefit of the family of the
individual petitioners before they can be
held liable. Article 161 of the Civil Code
and Article 121 of the Family Code cited
by the RTC apply only where the liability
is sought to be enforced against the
conjugal partnership itself. In this case,
regardless of whether the loan benefited
the family of the individual petitioners,
they signed as sureties, and iBank
sought to enforce the loan obligation
against them as sureties of Yulim.
Chiefly, the factual issue on appeal to

the CA, raised by petitioners James,
Jonathan and Almerick, was whether
Yulim's loans have in fact been
extinguished with the execution of a
Deed
of
Assignment
of
their
condominium unit in favor of iBank,
while the corollary legal issue, raised by
iBank, was whether they should be held
solidarily liable with Yulim for its loans
and other obligations to iBank.
Thus, the appellate court granted the

appeal of iBank, and denied that of the
petitioners, as follows:
The CA ruled that the petitioners failed

to prove that they have already paid
Yulim's consolidated loan obligations
totaling P4,246,310.00, for which it
issued
to
iBank
PN
No.
SADDK001014188 for the said amount.
It held that the existence of a debt
having been established, the burden to
prove with legal certainty that it has
been extinguished by payment devolves
upon the debtors who have offered such
defense. The CA found the records
bereft of any evidence to show that
Yulim had fully settled its obligation to
iBank, further stating that the so-called
assignment by Yulim of its condominium
unit to iBank was nothing but a mere
temporary arrangement to provide
security for its loan pending the
subsequent execution of a real estate
mortgage. Specifically, the CA found
WHEREFORE,
the
foregoing
considered, [iBank's] appeal is PARTLY
GRANTED while [the petitioners']
appeal is DENIED. Accordingly, the
appealed decision is hereby MODIFIED
in that [petitioners] James Yu, Jonathan
Yu and A[l]merick Tieng Lim are hereby
held jointly and severally liable with
defendant-appellant Yulim for the
payment of the monetary awards. The
rest of the assailed decision is
AFFIRMED.
SO ORDERED. 23
Petition for Review to the Supreme
Court
In the instant petition, the following
assigned errors are before this Court:
239
1. The CA erred in ordering petitioners

James, Jonathan and Almerick jointly
and severally liable with petitioner Yulim
to
pay iBank the
amount of
P4,246,310.00 with interest at 16.5%
per annum from February 28, 2002 until
fully paid.
Ruling of the Court

Firstly, the individual petitioners do not
deny that they executed the Continuing
Surety Agreement, wherein they "jointly
and severally with the PRINCIPAL
[Yulim], hereby unconditionally and
irrevocably guarantee full and complete
payment when due, whether at stated
maturity, by acceleration, or otherwise,
of any and all credit accommodations
that have been granted" to Yulim by
iBank, including interest, fees, penalty
and other charges. 25 Under Article
2047 of the Civil Code,these words are
said to describe a contract of suretyship.
It states:
2. The CA erred in not ordering iBank to

pay the petitioners moral damages,
exemplary damages, and attorney's
fees. 24
The petitioners insist that they have paid
their loan to iBank. They maintain that
the letter of iBank to them dated May 4,
2001, which "expressly stipulated that
the petitioners shall execute a Deed of
Assignment over one condominium unit
No. 141, 3rd Floor and a parking slot
located at 20 Landsbergh Place, Tomas
Morato Avenue, Quezon City," was with
the understanding that the Deed of
Assignment, which they in fact
executed, delivering also to iBank all the
pertinent supporting documents, would
serve to totally extinguish their loan
obligation to iBank. In particular, the
petitioners state that it was their
understanding that upon approval by
iBank of their Deed of Assignment, the
same "shall be considered as full and
final payment of the petitioners'
obligation." They further assert that
iBank's May 4, 2001 letter expressly
carried the said approval. EHSAaD
Art. 2047. By guaranty a person, called

the guarantor, binds himself to the
creditor to fulfill the obligation of the
principal debtor in case the latter should
fail to do so.
If a person binds himself solidarily with
the principal debtor, the provisions of
Section 4, Chapter 3, Title I of this Book
shall be observed. In such case the
contract is called a suretyship.
In a contract of suretyship, one lends his
credit by joining in the principal debtor's
obligation so as to render himself
directly and primarily responsible with
him without reference to the solvency of
the principal. 26 According to the above
Article, if a person binds himself
solidarily with the principal debtor, the
provisions of Articles 1207 to 1222, or
Section 4, Chapter 3, Title I, Book IV of
the Civil Code on joint and solidary
obligations, shall be observed. Thus,
where there is a concurrence of two or
more creditors or of two or more debtors
in one and the same obligation, Article
1207 provides that among them, "[t]here
is a solidary liability only when the
obligation expressly so states, or when
the law or the nature of the obligation
requires solidarity."
The petitioner invoked Article 1255 of

the Civil Code,on payment by cession,
which provides:
Art. 1255. The debtor may cede or
assign his property to his creditors in
payment of his debts. This cession,
unless there is stipulation to the
contrary, shall only release the debtor
from responsibility for the net proceeds
of the thing assigned. The agreements
which, on the effect of the cession, are
made between the debtor and his
creditors shall be governed by special
laws.
240
"A surety is considered in law as being

the same party as the debtor in relation
to whatever is adjudged touching the
obligation of the latter, and their
liabilities are interwoven as to be
inseparable." 27 And it is well settled
that when the obligor or obligors
undertake to be "jointly and severally"
liable, it means that the obligation is
solidary, 28 as in this case. There can
be no mistaking the same import of
Article I of the Continuing Surety
Agreement executed by the individual
petitioners:
Yulim to "unconditionally and irrevocably

guarantee full and complete payment" of
any and all credit accommodations that
have been granted to Yulim, the
petitioners further warrant that their
liability as sureties "shall be direct,
immediate and not contingent upon the
pursuit [by] the BANK of whatever
remedies it may have against the
PRINCIPAL of other securities." There
can thus be no doubt that the individual
petitioners have bound themselves to be
solidarily liable with Yulim for the
payment of its loan with iBank.
ARTICLE I
As regards the petitioners' contention

that iBank in its letter dated May 4, 2001
had
"accepted/approved"
the
assignment of its condominium unit in
Tomas Morato Avenue as full and final
payment
of
their
various
loan
obligations, the Court is far from
persuaded. On the contrary, what the
letter accepted was only the collaterals
provided for the loans, as well as the
consolidation of the petitioners' various
PN's under one PN for their aggregate
amount of P4,246,310.00. The letter
goes on to spell out the terms of the
new PN, such as, that its expiry would
be February 28, 2002 or a term of 360
days, that interest would be due every
90 days, and that the rate would be
based on the 91-day Treasury Bill rate
or other market reference.
LIABILITIES OF SURETIES
SECTION 1.01. The SURETIES, jointly
and severally with the PRINCIPAL,
hereby unconditionally and irrevocably
guarantee full and complete payment
when due, whether at stated maturity, by
acceleration, or otherwise, of any and all
credit accommodations that have been
granted or may be granted, renewed
and/or extended by the BANK to the
PRINCIPAL.
The liability of the SURETIES shall not
be limited to the maximum principal
amount of FIVE MILLION PESOS
(P5,000,000.00) but shall include
interest, fees, penalty and other charges
due thereon. HEDCAS
Nowhere can it be remotely construed

that the letter even intimates an
understanding by iBank that the Deed of
Assignment would serve to extinguish
the petitioners' loan. Otherwise, there
would have been no need for iBank to
mention therein the three "collaterals" or
"supports" provided by the petitioners,
namely, the Deed of Assignment, the
Chattel Mortgage and the Continuing
Surety Agreement executed by the
individual petitioners. In fact, Section
2.01 of the Deed of Assignment
expressly acknowledges that it is a mere
"interim security for the repayment of
any loan granted and those that may be
granted in the future by the BANK to the
SECTION 1.02. This INSTRUMENT is a

guarantee of payment and not merely of
collection and is intended to be a perfect
and continuing indemnity in favor of the
BANK for the amounts and to the extent
stated above.
The liability of the SURETIES shall be
direct, immediate and not contingent
upon the pursuit of the BANK of
whatever remedies it may have against
the PRINCIPAL of the other securities
for the Accommodation. 29
Thereunder, in addition to binding
themselves "jointly and severally" with
241
ASSIGNOR and/or the BORROWER,

for compliance with the terms and
conditions of the relevant credit and/or
loan documents thereof." 30 The
condominium unit, then, is a mere
temporary security, not a payment to
settle their promissory notes. 31
[condominium] unit so that that will

constitute full payment of his obligation?
A: No ma'am. It was not offered that
way. It was offered as security or
collateral to pay the outstanding loans.
But the premise is, that he will pay . . . in
cash. So, that property was offered as a
security or collateral.
Even more unmistakably, Section 2.02

of the Deed of Assignment provides that
as soon as title to the condominium unit
is issued in its name, Yulim shall
"immediately execute the necessary
Deed of Real Estate Mortgage in favor
of the BANK to secure the loan
obligations of the ASSIGNOR and/or the
BORROWER." 32 This is a plain and
direct acknowledgement that the parties
really intended to merely constitute a
real estate mortgage over the property.
In fact, the Deed of Assignment
expressly states, by way of a resolutory
condition concerning the purpose or use
of the Deed of Assignment, that after the
petitioners have delivered or caused the
delivery of their title to iBank, the Deed
of Assignment shall then become null
and void. Shorn of its legal efficacy as
an interim security, the Deed of
Assignment would then become functus
officio once title to the condominium unit
has been delivered to iBank. This is so
because the petitioners would then
execute a Deed of Real Estate
Mortgage over the property in favor of
iBank as security for their loan
obligations.
Q: That was your position?

A: That was the agreement and that was
how the document was signed. It was
worded out[.]
xxx xxx xxx
Q: Do you remember if a real estate
mortgage was executed over this
property that was being assigned to the
plaintiff?
A: To my recollection, none at all.
Q: Madam Witness, this Deed of
Assignment was considered as full
payment by the plaintiff bank, what
document was executed by the plaintiff
bank?
A: It should have been a Dacion en
Pago.
Q: Was there such document executed
in this account?
A: None. 33
Respondent iBank certainly does not

share the petitioners' interpretation of its
May 4, 2001 letter. Joy Valerie Gatdula,
Senior Bank Officer of iBank and the
Vice President of iBank's Commercial
Banking Group, declared in her
testimony that the purpose of the Deed
of Assignment was merely to serve as
collateral for their loan: HcTEaA
To stress, the assignment being in its

essence a mortgage, it was but a
security and not a satisfaction of the
petitioners' indebtedness. 34 Article
1255 35 of the Civil Code invoked by the
petitioners contemplates the existence
of two or more creditors and involves
the assignment of the entire debtor's
property, not a dacion en pago. 36
Under Article 1245 of the Civil
Code,"[d]ation in payment, whereby
property is alienated to the creditor in
satisfaction of a debt in money, shall be
governed by the law on sales." Nowhere
Q: And during the time that the

defendant[,] James Yu[,] was negotiating
with your bank, [is it] not a fact that the
defendant
offered
to
you
a
242
in the Deed of Assignment can it be

remotely said that a sale of the
condominium unit was contemplated by
the parties, the consideration for which
would consist of the amount of
outstanding loan due to iBank from the
petitioners.
Chinabank of P700,000.00 intended as

working capital in their rice milling
business. During the next few years,
they executed several amendments to
the mortgage contract progressively
increasing their credit line secured by
the aforesaid mortgage. Thus, from
P700,000.00 in 1990, their loan limit
was increased to P1,140,000.00 on
October
31,
1990,
then
to
P1,300,000.00 on March 4, 1991, and
then to P2,450,000.00 on March 23,
1994. 5 The spouses Manalastas
executed several promissory notes
(PNs) in favor of Chinabank. In two of
the PNs, petitioners Estanislao and
Africa Sinamban (spouses Sinamban)
signed as co-makers.
On November 18, 1998, Chinabank filed
a Complaint 6 for sum of money,
docketed as Civil Case No. 11708,
against the spouses Manalastas and the
spouses Sinamban (collectively called
the defendants) before the RTC. The
complaint alleged that they reneged on
their loan obligations under the PNs
which the spouses Manalastas executed
in favor of Chinabank on different dates,
namely:
1. PN No. OACL 634-95, dated April 24,
1995, for a loan principal of
P1,800,000.00, with interest at 23% per
annum; the spouses Manalastas signed
alone as makers. 7
2. PN No. OACL 636-95, dated May 23,
P325,000.00, with interest at 21% per
annum; the spouses Sinamban signed
as solidary co-makers; 8
3. PN No. CLF 5-93, dated February 26,
P1,300,000.00, with interest at 22.5%
per annum; only Estanislao Sinamban
signed as solidary co-maker. 9 DcHSEa
All of the three promissory notes carried
an acceleration clause stating that if the
borrowers failed to pay any stipulated
interest, installment or loan amortization
as they accrued, the notes shall, at the
option of Chinabank and without need of
notice, immediately become due and
demandable. A penalty clause also
provides that an additional amount shall

the petition is DENIED.
SO ORDERED.
Velasco, Jr., Peralta, Del Castillo * and
Villarama, Jr., JJ., concur.
||| (Yulim International Co., Ltd. v.
International Exchange Bank, G.R. No.
203133, [February 18, 2015])
36. SINAMBAN
BANKING
VS.
CHINA
THIRD DIVISION
[G.R. No. 193890. March 11, 2015.]
ESTANISLAO and AFRICA SINAMBAN,
petitioners, vs. CHINA BANKING
CORPORATION, respondent.
DECISION
REYES, J p:
Before this Court is a Petition for Review
on Certiorari 1 of the Decision 2 dated
May 19, 2010 of the Court of Appeals
(CA) in CA-G.R. CV. No. 66274
modifying the Decision 3 dated July 30,
1999 of the Regional Trial Court (RTC)
of San Fernando City, Pampanga,
Branch 45 for Sum of Money in Civil
Case No. 11708. IAETDc
Factual Antecedents
On February 19, 1990, the spouses
Danilo and Magdalena Manalastas
(spouses Manalastas) executed a Real
Estate Mortgage (REM) 4 in favor of
respondent China Banking Corporation
(Chinabank) over two real estate
properties
covered
by
Transfer
Certificate of Title Nos. 173532-R and
173533-R, Registry of Deeds of
Pampanga, to secure a loan from
243
be paid equivalent to 1/10 of 1% per day

of the total amount due from date of
default until fully paid, and the further
sum of 10% of the total amount due,
inclusive of interests, charges and
penalties, as and for attorney's fees and
costs. 10
In Chinabank's Statement of Account 11
dated May 18, 1998, reproduced below,
the outstanding balances of the three
loans are broken down, as follows:
(a) PN No. OACL 636-95 has an
outstanding principal of P325,000.00,
cumulative interest of P184,679.00, and
cumulative penalties of P258,050.00, or
a total amount due of P767,729.00;
(b) PN No. OACL 634-95 has an
outstanding principal of P1,800,000.00,
cumulative interest of P1,035,787.50,
and
cumulative
penalties
of
P1,429,200.00, or a total amount due of
P4,264,987.50; and
(c) PN No. CLF 5-93 has an outstanding
principal of P148,255.08, cumulative
interest of P64,461.84, and cumulative
penalties of P156,541.58, or a total
amount due of P369,258.50. Note that
from
the
original
amount
of
P1,300,000.00, the loan principal had
been reduced to only P148,255.08 as of
May 18, 1998. 12
CHINA BANKING CORPORATIONSan
Fernando, PampangaSPS. DANILO &
MAGDALENA
MANALASTASSTATEMENT
OF
ACCOUNTAs of May 18, 1998
-----------------------------------OACL 636-95
325,000.00
184,679.00
258,050.00
767,729.00
OACL 634-95
1,800,000.00
1,035,787.50
1,429,200.00
4,264,987.50
CLF 005-93
148,255.08
64,461.84
156,541.58
369,258.50
TOTAL
P2,273,255.08
1,284,928.34
1,843,791.58
5,401,975.00
TOTAL AMOUNT DUE
5,401,975.00
PLUS 10% ATTORNEY'S FEE
540,197.50
5,942,172.50
ADD: OTHER EXPENSES
36%
INSURANCE PREMIUM
PN NUMBER
PRINCIPAL
INTEREST
PENALTY FEE
TOTAL
22,618.37
POSTING OF NOTICE OF SALE
----------------------------------------------------
17,500.00
REGISTRATION
CERTIFICATE OF SALE (MISC.)
700.00
PUBLICATION FEE
244
OF
1,000.00
REGISTRATION
OF
CERTIFICATE OF SALE (REGISTER
OF DEEDS)
was held on May 18, 1998, with

Chinabank offering the highest bid of
P4,600,000.00, but by then the
defendants' total obligations on the three
promissory notes had
risen
to
P5,401,975.00, before attorney's fees of
10% and auction expenses, leaving a
loan deficiency of P1,758,427.87. 14
Thus, in the complaint before the RTC,
Chinabank prayed to direct the
defendants to jointly and severally settle
the said deficiency, plus 12% interest
per annum after May 18, 1998, 15 the
date of the auction sale. 16 SCaITA
The spouses Sinamban, in their Answer
17 dated February 26, 1999, averred
that they do not recall having executed
PN No. OACL 636-95 for P325,000.00
on May 23, 1995, or PN No. CLF 5-93
for P1,300,000.00 on February 26,
1991, and had no participation in the
execution of PN No. OACL 634-95 for
P1,800,000.00 on April 24, 1995. They
however admitted that they signed some
PN forms as co-makers upon the
request of the spouses Manalastas who
are their relatives; although they insisted
that they derived no money or other
benefits from the loans. They denied
knowing about the mortgage security
provided by the spouses Manalastas, or
that the latter defaulted on their loans.
They also refused to acknowledge the
loan deficiency of P1,758,427.87 on the
PNs, insisting that the mortgage
collateral was worth more than
P10,000,000.00, enough to answer for
all the loans, interests and penalties.
They also claimed that they were not
notified of the auction sale, and denied
that they knew about the Certificate of
Sale 18 and the Statement of Account
dated May 18, 1998, and insisted that
Chinabank manipulated the foreclosure
sale to exclude them therefrom. By way
of counterclaim, the Spouses Sinamban
prayed for damages and attorney's fees
of 25%, plus litigation expenses and
costs of suit.
The spouses Manalastas were declared
in default in the RTC Order 19 dated
April 6, 1999, and Chinabank was
allowed to present evidence ex parte as
Registration fee
10,923.00
Entry fee
30.00
Legal fund
20.00
BIR certification
60.00
Doc. stamps tax
69,000.00
Capital Gains tax
276,000.00
356,033.00
EXPENSES INCURRED
OCULAR INSPECTION MADE
ON
ON
404.00
TCT#173532-R & TCT#173533-R
ATTORNEY'S FEE
18,000.00
416,255.37
LESS: BID PRICE
4,600,000.00
GRAND TOTAL
1,758,427.87 13
On the basis of the above statement of

account, and pursuant to the promissory
notes, Chinabank instituted extrajudicial
foreclosure proceedings against the
mortgage security. The foreclosure sale
245
against them, but at the pre-trial

conference held on July 5, 1999, the
spouses Sinamban and their counsel
also did not appear; 20 hence, in the
Order 21 dated July 5, 1999, the RTC
allowed Chinabank to present evidence
ex parte against the defendants before
the Branch Clerk of Court. During the
testimony of Rosario D. Yabut, Branch
Manager of Chinabank-San Fernando
Branch, all the foregoing facts were
adduced and confirmed, particularly the
identity of the pertinent loan documents
and the signatures of the defendants.
On July 21, 1999, the court admitted the
exhibits of Chinabank and declared the
case submitted for decision. 22
Ruling of the RTC
On July 30, 1999, the RTC rendered its
Decision 23
with
the
following
dispositive portion:
judgment is hereby rendered in favor of
plaintiff China Banking Corporation and
against defendant Sps. Danilo and
Magdalena Manalastas and defendant
Sps. Estanislao and Africa Sinamban to
jointly and severally pay [Chinabank] the
amount of P1,758,427.87, representing
the deficiency between the acquisition
cost of the foreclosed real estate
properties
and
the
outstanding
obligation of defendants at the time of
the foreclosure sale; interest at the legal
rate of 12% per annum from and after
May 18, 1998; attorney's fees equivalent
to 10% of the aforesaid deficiency
amount and the litigation and costs of
suit. aTHCSE
SO ORDERED. 24
On Motion for Reconsideration 25 of the
spouses Sinamban dated August 27,
1999, to which Chinabank filed an
Opposition 26 dated September 14,
1999, the RTC in its Order 27 dated
October 22, 1999 set aside the Decision
dated July 30, 1999 with respect to the
spouses Sinamban, in this wise:
As it is undisputed that Exhibit "B"
(Promissory Note dated April 24, 1995 in
the amount of P1,800,000.00), was not
signed by the Spouses Sinamban it
would not be equitable that the said
defendants be made solidarily liable for

the payment of the said note as comakers of their co-defendants Spouses
Manalastas who are the one[s]
principally liable thereto. Prescinding
from this premise, the movant spouses
could only be held liable for the two (2)
promissory notes they have signed,
Promissory Notes dated May 23, 1995
in the amount of P325,000.00 and
February 26, 1991 in the amount of
P1,300,000.00, Exhibits "A" and "C",
respectively. As the total amount of the
said notes is only P1,625,000.00, so
even if we would add the interests due
thereon, there is no way that the said
outstanding
loan
exceed[s]
the
acquisition cost of the foreclosed real
estate properties subject hereof in the
amount of P4,600,000.00. It would
appear then that the Spouses Sinamban
could not be held liable for the
deficiency
in
the
amount
of
P1,758,427.87 which should justly be
borne alone by the defendant Spouses
Manalastas. Guided by law and equity
on the matter, the court will not hesitate
to amend a portion of its assailed
decision to serve the interest of justice.
the decision dated July 30, 1999 is
hereby Reconsidered and Set Aside
with respect to the Spouses Estanislao
and Africa Sinamban hereby Relieving
them from any liability arising from the
said Decision which is affirmed in toto
with respect to Spouses Manalastas.
SO ORDERED. 28 (Emphases ours)
The RTC ruled that the proceeds of the
auction were sufficient to answer for the
two PNs co-signed by the spouses
Sinamban, including interest and
penalties thereon, and therefore the
spouses Manalastas should solely
assume
the
deficiency
of
P1,758,427.87. Chinabank moved for
reconsideration on November 11, 1999,
29 to which the spouses Sinamban filed
their comment/opposition on November
23, 1999. 30
On December 8, 1999, the RTC set
aside its Order dated October 22, 1999
and reinstated its Decision dated July
246
30, 1999, with modification, as follows:

31
the instant Motion for Reconsideration of
plaintiff is Granted.
Order dated October 22, 1999 is hereby
Set Aside. cAaDHT
Accordingly, the dispositive portion of
the Decision dated July 30, 1999 is
hereby Modified to read as follows:
judgment [is] hereby rendered in favor of
plaintiff China Banking Corporation and
against the defendant Sps. Danilo and
Magdalena Manalastas and defendant
Sps. Estanislao and Africa Sinamban,
ordering them to pay as follows:
l. For defendant Sps. Danilo and
Magdalena Manalastas, the amount of
P1,758,427.87, the deficiency between
the acquisition cost of the foreclosed
real properties and their outstanding
obligation;
2. For defendant Sps. Sinamban a
percentage of P1,758,427.87, jointly and
severally with the defendant Sps.
[Manalastas] only on two (2) promissory
notes;
3. The corresponding interests thereon
at legal rate;
4. Attorney's fees; and
5. Costs of suit.
SO ORDERED. 32
This time the RTC held that the spouses
Sinamban must, solidarily with the
spouses Manalastas, proportionately
answer for the loan deficiency pertaining
to the two PNs they co-signed, since the
mortgage security provided by the
spouses Manalastas secured all three
PNs and thus also benefited them as
co-makers. But since they did not cosign PN No. OACL 634-95, the
deficiency judgment pertaining thereto
will be the sole liability of the spouses
Manalastas.
Ruling of the CA
From the Order dated December 8,
1999 of the RTC, the spouses
Sinamban appealed to the CA on
January 4, 2000, docketed as CA-G.R.
CV. No. 66274, interposing the following
errors of the RTC, viz.:
I
THE LOWER COURT ERRED WHEN
IT HELD DEFENDANTS-APPELLANTS
SPS. SINAMBAN LIABLE TO PAY A
PERCENTAGE
OF
P1,758,427.87,
JOINTLY AND SEVERALLY WITH THE
DEFENDANTS SPS. MANALASTAS
ON THE TWO PROMISSORY NOTES
(EXHIBITS 'C' AND 'A'). HCaDIS
II
IT RECONSIDERED AND SET ASIDE
ITS PREVIOUS ORDER DATED 22
OCTOBER
1999
RELIEVING
DEFENDANTS-APPELLANTS
SPS.
SINAMBAN FROM ANY LIABILITY
ARISING FROM THE DECISION
DATED 30 JULY 1999.
III
IT RENDERED THE VAGUE ORDER
OF 8 DECEMBER 1999 (ANNEX 'B'
HEREOF). 33
On May 19, 2010, the CA rendered
judgment denying the appeal, the fallo
of which reads:
WHEREFORE,
considering
the
foregoing disquisition, the appeal is
DENIED. The Decision dated 30 July
1999 and the Order dated 08 December
1999 of the Regional Trial Court of San
Fernando, Pampanga, Branch 45 in
Civil Case No. 11708 are hereby
AFFIRMED with MODIFICATION in that:
l.
Sps.
Danilo
and
Magdalena
Manalastas are solidarily liable for the
deficiency amount of Php507,741.62
(inclusive of 10% attorney's fees) on
Promissory Note No. OACL 634-95
dated 24 April 1995;
2. Sps. Estanislao and Africa Sinamban
are solidarily liable with Sps. Danilo and
Magdalena Manalastas for the amount
of Php844,501.90 (inclusive of 10%
attorney's fees) on Promissory Note No.
OACL00636-95 dated 23 May 1995;
3. Estanislao Sinamban and Sps. Danilo
and
Magdalena
Manalastas
are
solidarily liable for the amount of
Php406,184.35 (inclusive of 10%
CLF 5-93 dated 26 February 1991; and
247
4. The foregoing amounts shall bear

interest at the rate of 12% per annum
from 18 November 1998 until fully paid.
SO ORDERED. 34 (Some emphasis
ours)
Petition for Review to the Supreme
Court
In this petition for review, the spouses
Sinamban seek to be completely
relieved of any liability on the PNs,
solidary or otherwise, by interposing the
following issues: AHCETa
5.1 Whether or not the Honorable Court
of Appeals erred in not considering that
the Sps. Sinamban's obligations under
PN# OACL 636-95 dated May 23, 1995
in the principal sum of Php325,000.00
and PN# CLF 5-93 dated February 26,
1991 in the principal sum of
Php1,300,000.00 are more onerous and
burdensome on their part as mere
sureties (co-makers) of their codefendants-spouses
Danilo
and
Magdalena Manalastas' (hereinafter
referred to as the "Sps. Manalastas")
obligations over the same, compared to
the Sps. Manalastas' sole obligation
under PN# OACL 634-95 dated 24 April
1995 in the principal amount of
Php1,800,000.00,
such
that
the
proceeds of the auction sale of the
properties securing all the three (3)
promissory notes should first be applied
to satisfy the promissory notes signed
by the Sps. Sinamban; and
5.2 Whether or not the Honorable Court
of Appeals erred in not considering the
facts indubitably showing that it is the
Sps. Sinamban, as the debtors, and not
the respondent bank, who are given the
choice under Article 1252 of the Civil
Code to have the proceeds of the
auction sale applied as payments to
their obligations under PN# OACL 63695 dated 23 May 1995 and PN# CLF 593 dated 26 February 1991. 35
Ruling of the Court
The Court modifies the CA decision.
A co-maker of a PN who binds
himself with the maker "jointly and
severally" renders himself directly
and primarily liable with the maker
on the debt, without reference to his
solvency.
"A promissory note is a solemn
acknowledgment of a debt and a formal
commitment to repay it on the date and
under the conditions agreed upon by the
borrower and the lender. A person who
signs such an instrument is bound to
honor it as a legitimate obligation duly
assumed by him through the signature
he affixes thereto as a token of his good
faith. If he reneges on his promise
without cause, he forfeits the sympathy
and assistance of this Court and
deserves instead its sharp repudiation."
36
Employing
words
of
common
commercial usage and well-accepted
legal significance, the three subject PNs
uniformly describe the solidary nature
and extent of the obligation assumed by
each of the defendants in Civil Case No.
11708, to wit:
"FOR VALUE RECEIVED, I/We jointly
and severally promise to pay to the
CHINA BANKING CORPORATION or its
order the sum of PESOS . . . " 37
(Emphasis ours) ScHADI
According to Article 2047 of the Civil
Code,38 if a person binds himself
solidarily with the principal debtor, the
provisions of Articles 1207 to 1222 of
the Civil Code (Section 4, Chapter 3,
Title I, Book IV) on joint and solidary
obligations shall be observed. Thus,
where there is a concurrence of two or
more creditors or of two or more debtors
in one and the same obligation, Article
1207 provides that among them, "[t]here
is a solidary liability only when the
obligation expressly so states, or when
the law or the nature of the obligation
requires solidarity." It is settled that
when the obligor or obligors undertake
to be "jointly and severally" liable, it
means that the obligation is solidary. 39
In this case, the spouses Sinamban
expressly bound themselves to be jointly
and severally, or solidarily, liable with the
principal makers of the PNs, the
spouses Manalastas.
Moreover, as the CA pointed out, in
Paragraph 5 of the PNs, the borrowers
248
and
their
co-makers
expressly
authorized Chinabank, as follows:
[T]o apply to the payment of this note
and/or any other particular obligation or
obligations of all or any one of us to the
CHINA BANKING CORPORATION as
the said Corporation may select,
irrespective of the dates of maturity,
whether or not said obligations are then
due, any or all moneys, securities and
things of value which are now or which
may hereafter be in its hands on deposit
or otherwise to the credit of, or
belonging to, all or any one of us, and
the CHINA BANKING CORPORATION
is hereby authorized to sell at public or
private sale such securities or things of
value for the purpose of applying their
proceeds to such payments. 40
Pursuant to Article 1216 of the Civil
Code, as well as Paragraph 5 of the
PNs, Chinabank opted to proceed
against the co-debtors
simultaneously, as implied in its
May 18, 1998 statement of
account when it applied the entire
amount of its auction bid to the
aggregate amount of the loan
obligations.
The PNs were executed to acknowledge
each loan obtained from the credit line
extended by Chinabank, which the
principal makers and true beneficiaries,
the spouses Manalastas, secured with a
REM they executed over their
properties. As the RTC noted in its
Order dated December 8, 1999, "the
real estate mortgage was constituted to
secure all the three (3) promissory
notes," concluding that "[j]ust as the
liability of the [spouses] Sinamban was
lessened
by
the
foreclosure
proceedings, so must they also share in
the deficiency judgment, in proportion to
the PNs they co-signed with the
[spouses] Manalastas, but not the entire
deficiency judgment of P1,758,427.87."
41 aICcHA
Significantly, in modifying the RTC's
second amended decision, which
provides for the pro rata distribution of
the loan deficiency of P1,758,427.87,
the CA first applied the entire net
proceeds of the auction sale of

P4,183,744.63 (after auction expenses
of P416,255.37), to PN No. OACL 63495, which on May 18, 1998 had an
outstanding balance of P4,264,987.50,
inclusive of interest and penalties, plus
10% attorney's fees, or a total of
P4,691,486.25. Thus, P4,691,486.25
less P4,183,744.63 leaves a deficiency
on PN No. OACL 634-95 of
P507,741.62, which is due solely from
the spouses Manalastas.
As for PN No. OACL 636-95, the CA
ordered the spouses Sinamban to pay,
solidarily with the spouses Manalastas,
the entire amount due thereon,
P844,501.90, consisting of the loan
principal of P767,729.00 plus accrued
interest, penalties and 10% attorney's
fees; concerning PN No. CLF 5-93, the
CA ordered the spouses Sinamban to
pay, solidarily with the spouses
Manalastas,
the
amount
of
P406,184.35, consisting of the balance
of the loan principal of P369,258.50 plus
accrued interest, penalties and 10%
attorney's fees. The CA further ordered
the payment of 12% interest per annum
from November 18, 1998, the date of
judicial demand, until fully paid, on the
above deficiencies.
that "[t]he creditor may proceed against
any one of the solidary debtors or some
or all of them simultaneously. The
demand made against one of them shall
not be an obstacle to those which may
subsequently be directed against the
others, so long as the debt has not been
fully collected." Article 1252 42 of the
Civil Code does not apply, as urged by
the petitioners, because in the said
article the situation contemplated is that
of a debtor with several debts due,
whereas the reverse is true, with each
solidary debt imputable to several
debtors.
While the CA correctly noted that the
choice is given to the solidary creditor to
determine against whom he wishes to
enforce payment, the CA stated that
Chinabank, in the exercise of the
aforesaid option, chose to apply the net
249
proceeds of the extrajudicial foreclosure

sale first to the PN solely signed by
spouses Manalastas. 43 Thus, the net
proceeds were applied first to PN No.
OACL 634-95 in the principal amount of
P1,800,000.00, instead of pro rata to all
three PNs due.
The Court finds this factual conclusion
of the CA not supported by any
evidence or any previous arrangement.
To the contrary, as clearly shown in its
Statement of Account dated May 18,
1998, Chinabank opted to apply the
entire auction proceeds to the aggregate
amount of the three PNs due,
P5,401,975.00 (before attorney's fees
and auction expenses). Had it chosen to
enforce the debts as ruled by the CA,
the Statement of Account would have
shown that the loan due on PN No.
OACL 634-95 which is P4,691,486.25,
should have been deducted first from
the
net
auction
proceeds
of
P4,183,744.63, arriving at a deficiency
of P507,741.62 on PN No. OACL 63495 alone; thereby, leaving no remainder
of the proceeds available to partially
settle the other two PNs. As it appears,
the auction proceeds are not even
sufficient to cover just PN No. OACL
634-95 alone. EHaASD
But as the Court has noted, by
deducting the auction proceeds from the
aggregate amount of the three loans
due, Chinabank in effect opted to apply
the entire proceeds of the auction
simultaneously to all the three loans.
This implies that each PN will assume a
pro rata portion of the resulting
deficiency on the total indebtedness as
bears upon each PN's outstanding
balance. Contrary to the spouses
Sinamban's insistence, none of the
three PNs is more onerous than the
others to justify applying the proceeds
according to Article 1254 of the Civil
Code,in relation to Articles 1252 and
1253. 44 Since each loan, represented
by each PN, was obtained under a
single credit line extended by Chinabank
for the working capital requirements of
the spouses Manalastas' rice milling
business, which credit line was secured
also by a single REM over their

properties,
then
each
PN
is
simultaneously covered by the same
mortgage security, the foreclosure of
which
will
also
benefit
them
proportionately. No PN enjoys any
priority or preference in payment over
the others, with the only difference being
that the spouses Sinamban are
solidarily liable for the deficiency on two
of them.
Pursuant, then, to the order or manner
of application of the auction proceeds
chosen by Chinabank, the solidary
liability of the defendants pertaining to
each PN shall be as follows:
a) PN No. OACL 634-95, with a balance
as of May 18, 1998 of P4,264,987.50: its
share in the total deficiency is computed
as the ratio of P4,264,987.50 to
P5,401,975.00,
multiplied
by
P1,758,427.87, or P1,388,320.55, (not
P507,741.62 as found by the CA);
b) PN No. OACL 636-95, with a balance
of P767,729.00 as of May 18, 1998: its
share in the deficiency is computed as
the
ratio
of
P767,729.00
to
P5,401,975.00,
multiplied
by
P1,758,427.87, or P249,907.87, (not
P844,501.90 as computed by the CA);
c) PN No. CLF 5-93, with an outstanding
balance of P369,258.50 as of May 18,
1998: its share in the deficiency is
computed as the ratio of P369,258.50 to
P5,401,975.00,
multiplied
by
P1,758,427.87, or P120,199.45, (not
P406,184.35 as found by the CA).
In short, in the CA decision, the spouses
Manalastas would be solely liable on PN
No. OACL 634-95 for only P507,741.62
(instead of the much bigger amount of
P1,388,320.55 which this Court found),
whereas the spouses Sinamban would
be solidarily liable with the spouses
Manalastas for a total deficiency of
P1,250,686.25 on PN No. OACL 636-95
and PN No. CLF 5-93. But under the
Court's interpretation, the spouses
Sinamban are solidarily liable with the
spouses
Manalastas
for
only
P370,107.32 on the said two PNs, for a
significant difference of P880,578.93.
DaIAcC
250
Pursuant to Monetary Board

Circular No. 799, effective July 1,
2013, the rate of interest for the
loan or forbearance of any money,
goods or credits and the rate
allowed in judgments, in the
absence of an express contract as to
such rate of interest, has been
reduced to six percent (6%) per
annum.
The subject three PNs bear interests
ranging from 21% to 23% per annum,
exclusive of penalty of 1% on the
overdue amount per month of delay,
whereas in its complaint, Chinabank
prayed to recover only the legal rate of
12% on whatever judgment it could
obtain. Meanwhile, the Monetary Board
of the Bangko Sentral ng Pilipinas in its
Resolution No. 796 dated May 16, 2013,
and now embodied in Monetary Board
Circular No. 799, has effective July 1,
2013 reduced to 6%, from 12%, the
legal rate of interest for the loan or
forbearance of any money, goods or
credits and the rate allowed in
judgments, in the absence of stipulation.
45 Since Chinabank demanded only the
legal, not the stipulated, interest rate on
the deficiency and attorney's fees due,
the defendants will solidarily pay interest
on their shares in the deficiency at the
rate of 12% from November 18, 1998 to
June 30, 2013, and 6% from July 1,
2013 until fully paid.
WHEREFORE, the Decision of the
Court of Appeals dated May 19, 2010 in
CA-G.R. CV No. 66274 is MODIFIED.
The Decision dated July 30, 1999 and
the Order dated December 8, 1999 of
the Regional Trial Court of San
Fernando City, Pampanga, Branch 45 in
Civil Case No. 11708 are hereby
AFFIRMED with MODIFICATIONS as
follows:
1. Spouses Danilo and Magdalena
Manalastas are solidarily liable for the
deficiency amount of P1,388,320.55
(inclusive of 10% attorney's fees) on
Promissory Note No. OACL 634-95
dated April 24, 1995;
2. Spouses Estanislao and Africa
Sinamban are solidarily liable with
spouses
Danilo
and
Magdalena
Manalastas for the deficiency amount of
P249,907.87
(inclusive
of
10%
OACL 636-95 dated May 23, 1995;
3. Estanislao Sinamban and spouses
Danilo and Magdalena Manalastas are
solidarily liable for the deficiency amount
of P120,199.45 (inclusive of 10%
CLF 5-93 dated February 26, 1991; and
4. The foregoing amounts shall bear
interest at the rate of twelve percent
(12%) per annum from November 18,
1998 to June 30, 2013, and six percent
(6%) per annum from July 1, 2013 until
fully paid.
SO ORDERED. DHIcET
Velasco, Jr., Peralta, Villarama, Jr. and
||| (Sinamban v. China Banking Corp.,
G.R. No. 193890, [March 11, 2015])
37. LIGHT RAIL
MENDOZA
TRANSIT
VS.
SECOND DIVISION
[G.R. No. 202322. August 19, 2015.]
LIGHT RAIL TRANSIT AUTHORITY,
petitioner, vs. ROMULO S. MENDOZA,
FRANCISCO S. MERCADO, ROBERTO
M. REYES, EDGARDO CRISTOBAL,
JR.,
and
RODOLFO
ROMAN,
respondents.
DECISION
BRION, J p:
For resolution is the present petition for
review on certiorari 1 which seeks the
reversal of the January 31, 2012
Decision 2 and June 15, 2012
Resolution 3 of the Court of Appeals in
CA-G.R. SP No. 109224.
The Antecedents
The Light Rail Transit Authority (LRTA)
is a government-owned and -controlled
corporation created under Executive
Order No. 603 for the construction,
operation, maintenance, and/or lease of
light rail transit systems in the
Philippines.
251
To carry out its mandate, LRTA entered

into a ten-year operations and
management (O & M) agreement 4 with
the Meralco Transit Organization, Inc.
(MTOI) from June 8, 1984, to June 8,
1994,
for
an
annual
fee
of
P5,000,000.00. Subject to specified
conditions, and in connection with the
operation and maintenance of the
system not covered by the O & M
agreement,
LRTA
undertook
to
reimburse
MTOI
such
operating
expenses and advances to the revolving
fund.
"Operating expenses" included "all
salaries, wages and fringe benefits (both
direct and indirect) up to the rank of
manager, and a lump sum amount to be
determined
annually
as
top
management compensation (above the
rank of manager up to president),
subject to consultation with the LRTA."
MTOI hired the necessary employees
for its operations and forged collective
bargaining agreements (CBAs) with the
employees' unions, with the LRTA's
approval.
On June 9, 1989, the Manila Electric
Company, who owned 499,990 of MTOI
shares of stocks, sold said shares to the
LRTA. Consequently, MTOI became a
wholly owned subsidiary of LRTA. MTOI
changed its corporate name to Metro
Transit Organization, Inc. (METRO), but
maintained its distinct and separate
personality. LRTA and METRO renewed
the O & M agreement upon its expiration
on June 8, 1994, extended on a monthto-month- basis. 5 cEaSHC
On July 25, 2000, the Pinag-isang
Lakas ng Manggagawa sa METRO,
INC., the rank-and-file union at METRO,
staged an illegal strike over a bargaining
deadlock, paralyzing the operations of
the light rail transport system. On July
28, 2000, the LRTA Board of Directors
issued Resolution No. 00-44 6 where
LRTA agreed to shoulder METRO's
operating expenses for a maximum of
two months counted from August 1,
2000. It also updated the Employee
Retirement Fund.
Because of the strike, LRTA no longer

renewed the O & M agreement when it
expired on July 31, 2000, resulting in the
cessation of METRO's operations and
the termination of employment of its
workforce, including the respondents
Romulo Mendoza, Francisco Mercado,
Roberto Reyes, Edgardo Cristobal, Jr.,
and Rodolfo Roman.
On April 1, 2001, the METRO Board of
Directors authorized the payment of
50% of the dismissed employees'
separation pay, to be sourced from the
retirement
fund.
In
May
2001,
respondents received one half (1/2) of
their separation pay. Dissatisfied, they
demanded from LRTA payment of the
50% balance of their separation pay, but
LRTA rejected the demand, prompting
them to file on August 31, 2004, a formal
complaint, 7 before the labor arbiter,
against LRTA and METRO.
LRTA moved to dismiss the complaint
on grounds of absence of employeremployee
relationship
with
the
respondents, lack of jurisdiction and of
merit, and prescription of action.
The Compulsory Arbitration Rulings
In his decision 8 dated August 8, 2005,
Labor Arbiter (LA) Arthur L. Amansec
pierced the veil of METRO's corporate
fiction, invoked the law against laboronly contracting, and declared LRTA
solidarily liable with METRO for the
payment of the remaining 50% of
respondents' separation pay. On appeal
by the LRTA, the National Labor
Relations Commission (NLRC) affirmed
in its decision 9 of December 23, 2008,
LA Amansec's ruling, thereby dismissing
the appeal. It also held that the case
had not prescribed. LRTA moved for
reconsideration, but the NLRC denied
the motion in its resolution 10 of March
30, 2009.
The Case before the CA
LRTA challenged the NLRC decision
before the CA through a petition for
certiorari under Rule 65 of the Rules of
Court, contending that the labor tribunal
committed grave abuse of discretion
when it (1) assumed jurisdiction over the
case; (2) held that it was an indirect
252
employer of the respondents with

solidary liability for their claim; and (3)
took cognizance of the case despite its
being barred by prescription.
LRTA argued that as a governmentowned and -controlled corporation, all
actions against it should be brought
before the Civil Service Commission,
not the NLRC, pursuant to Article IX-B,
Section 2 (1) of the Constitution, as
declared by this Court's decision in the
consolidated cases of LRTA v. Venus,
Jr., and METRO v. Court of Appeals
(Venus case). 11 It further argued that it
could not be made solidarily liable with
METRO for the respondents' claim since
METRO is an independent job
contractor. CTIEac
In a different vein, LRTA stressed that its
Resolution No. 00-44 updating the
retirement fund for METRO employees
was merely a financial assistance to
METRO, which neither created an
employer-employee
relationship
between it and the METRO employees,
nor did it impose a contractual obligation
upon it for the employees' separation
pay.
Lastly,
it
reiterated
that
respondents'
claim
had
already
prescribed since they filed the complaint
beyond the three-year period under
Article 306 of the Labor Code (formerly
Article 291; re-numbered by R.A. 10151,
An Act Allowing the Employment of
Nightworkers). 12
The respondents, for their part, prayed
for the dismissal of the petition, relying
on an earlier case involving the same
cause of action decided by the CA,
LRTA v. NLRC and Ricardo B. Malanao,
et al., 13 and which had become final
and executory on February 21, 2006. 14
In that case, they pointed out, LRTA was
held solidarily liable with METRO, as an
indirect employer, for the payment of the
severance pay of METRO's separated
employees.
In the meantime, or on June 3, 2010, LA
Amansec issued a Writ of Execution 15
for his August 8, 2005 decision. On
August 5, 2010, respondents filed an
Urgent Manifestation 16 stating that
pursuant to the labor arbiter's order,
LRTA's cash bond covered by Check

No. LB0000007505, dated September
20, 2005, for P1,082,929.16 had been
released to them. Thus, they considered
the case to have become academic.
The CA Decision
The CA affirmed the NLRC ruling that
LRTA is solidarily liable for the remaining
50% of respondents' separation pay, but
not squarely on the same grounds.
Unlike the NLRC, it considered
inapplicable the doctrine of piercing the
veil of corporate fiction to justify LRTA's
solidary liability due to the absence of
fraud or wrongdoing on LRTA's part in
relation to the non-payment of the
balance of the respondents' separation
pay as this Court had stated in the
Venus case. 17
The CA likewise disagreed with the
NLRC's opinion that METRO is a laboronly contractor so as to make LRTA the
respondents'
direct
employer.
It
explained
that
METRO
was
a
corporation with sufficient capital and
investment in tools and equipment, and
its own employees (who were even
unionized) to undertake the operation
and management of the light rail transit
system, for which it was exclusively
engaged by LRTA. Neither did LRTA
exercise the prerogatives of an
employer over the METRO employees.
It thus concluded that LRTA's solidary
liability as an indirect employer is limited
to the payment of wages, and for any
violation of the Labor Code,18 excluding
backwages and separation pay which
are punitive in nature. 19
The CA nonetheless held that LRTA
cannot avoid liability for respondents'
separation pay as it is a contractual
obligation. It agreed with the NLRC
finding that LRTA provided METRO's
"operating expenses" which included the
employees' wages and fringe benefits,
and all other general and administrative
expenses relative to the operation of the
light rail transit system. SaCIDT
The CA found additional basis for its
ruling in the letter to the LRTA, dated
July 12, 2001, of then Acting Chairman
of the METRO Board of Directors,
253
Wilfredo
Trinidad,
that
"Funding
provisions for the retirement fund have
always been considered operating
expenses of METRO. Pursuant to the O
& M Agreement, the LRTA had been
reimbursing METRO of all operating
expenses, including the funds set aside
for the retirement fund. It follows now
that circumstances call for Metro to pay
the full separation benefits that LRTA
should provide the necessary funding to
completely satisfy these benefits." 20
Also, the CA noted that "METRO's
November 17, 1997 Memorandum
further revealed that the LRTA Board
approved
'the
additional
retirement/resignation benefit of 7.65
days or a total of 1.5 months' salary for
every year of service' for METRO's rankand-file employees and that 'the
granting of 1.5 months' salary for every
year of service as severance or
resignation pay would effectively amend
the existing Employees' Retirement
Plan." 21 This LRTA memorandum,
together with its July 28, 2000
Resolution. No. 00-44, the CA believed,
was an indication that LRTA regularly
financed the retirement fund.
Accordingly, the CA stressed, the LRTA
cannot argue that the retirement fund
was not meant to cover the separation
pay of the "terminated" employees of
METRO, and neither can it deny that it
is bound to comply with its undertaking
to provide the necessary funds to cover
payment of the respondents' claim.
The CA brushed aside the prescription
issue. It held that the complaint is not
time-barred, citing De Guzman v. Court
of Appeals, 22 where the Court affirmed
the applicability of Article 1155 of the
Civil Code 23 to an employee's claim for
separation pay in the absence of an
equivalent Labor Code provision for
determining whether the period for such
claim may be interrupted. It agreed with
the
NLRC
conclusion
that
the
prescriptive period for respondents'
claim for separation pay was interrupted
by their letters to LRTA 24 (dated
September 19, 2002 and October 14,
2002) demanding payment of the 50%

balance of their separation pay.
The Petition
Its motion for reconsideration having
been denied by the CA, LRTA now asks
the Court for a reversal, contending that
the appellate court committed a serious
error of law when it affirmed the NLRC
decision.
It faults the CA for not ruling on the
jurisdictional
question
which,
it
contends, had been settled with finality
"in actions similar to the one at bar." 25
On the merits of the case, LRTA submits
that no liability, from whatever origin or
source, was ever attached to it insofar
as the respondents' claim is concerned.
It disputes the CA opinion that its liability
for 50% of the respondents' separation
pay is a contractual obligation under
METRO's retirement fund. It also assails
the CA's reliance on its July 28, 2000
Resolution No. 00-44 as evidence of its
contractual obligation. It asserts it has
no such obligation. cHECAS
Lastly, LRTA contends that while its
board of directors updated METRO's
retirement fund to cover the retirement
benefits of METRO's employees, the
updating was a mere financial
assistance or goodwill to METRO. It did
not execute, it stresses, any deed or
contract in favor of METRO, which
amended the O & M agreement
between them, or assumed any
obligation in favor of METRO or its
employees; thus, it has no contractual
obligation for the unpaid balance of
respondents' separation pay.
The Respondents' Position
In their Comment 26 dated October 8,
2012, the respondents prayed that the
petition be dismissed for lack of merit as
the CA had committed no error of law
when it affirmed the NLRC decision.
They stand firm on their position that
LRTA is legally bound to pay the
balance of their separation pay as
evidenced by its official undertakings
such as the Joint Memorandum, dated
June 6, 1989, 27 with METRO, its
wholly owned subsidiary, providing,
among others, for the establishment of
254
the Retirement Fund of METRO, Inc.,

Employees; LRTA Board Resolution No.
00-44 of July 28, 2000, 28 authorizing
the updating of the retirement fund; and
approving the collective bargaining
agreements entered into by METRO
with its unions containing terms and
conditions of employment and benefits
for its employees.
They also cite the letter to LRTA, 29
dated July 12, 2001, of the Acting
Chairman of the METRO Board of
Directors stating that funding provisions
for the retirement fund have always
been considered operating expenses of
METRO. In short, they maintain, LRTA
regularly financed the retirement fund
intended not only for the retirement
benefit, but also for the severance
and/or resignation pay of METRO's
employees.
The Court's Ruling
The jurisdictional issue
LRTA reiterates its position that the labor
arbiter and the NLRC had no jurisdiction
over it in relation to the respondents'
claim, quoting the Venus ruling to prove
its point, thus: ". . . There should be no
dispute then that employment in
petitioner LRTA should be governed only
by civil service rules, and not the Labor
Code and beyond the reach of the
Department of Labor and Employment,
since petitioner LRTA is a governmentowned and -controlled corporation with
an original charter . . . Petitioner
METRO was originally organized under
the Corporation Code,and only became
a government-owned and -controlled
corporation after it was acquired by
petitioner LRTA. Even then, petitioner
METRO has no original charter, hence,
it is the Department of Labor and
Employment, and not the Civil Service
Commission, which has jurisdiction over
disputes from the employment of its
workers . . . ." 30 AHDacC
We disagree. Under the facts of the
present labor controversy, LRTA's
reliance on the Venus ruling is
misplaced. The ruling has no bearing on
the respondents' case. As we see it, the
jurisdictional issue should not have been
brought up in the first place because the

respondents' claim does not involve
their employment with LRTA. There is
no dispute on this aspect of the case.
The respondents were hired by METRO
and, were, therefore, its employees.
Rather, the controversy involves the
question of whether LRTA can be made
liable by the labor tribunals for the
respondents' money claim, despite the
absence of an employer-employee
relationship between them and despite
the fact that LRTA is a governmentowned and -controlled corporation with
an original charter.
The Court provided the answer in Phil.
National Bank v. Pabalan 31 where it
said: "By engaging in a particular
business through the instrumentality of a
corporation, the government divests
itself pro hac vice of its sovereign
character, so as to render the
corporation subject of the rules
governing private corporations." 32
The NLRC accordingly declared: "for
having conducted business through a
private corporation, in this case,
respondent METRO, as its business
conduit or alter ego, respondent LRTA
must submit itself to the provisions
governing private corporations, including
the Labor Code.Consequently, the Labor
Arbiter rightfully dismissed the Motion to
Dismiss of respondent LRTA." 33
In this light, we find no grave abuse of
discretion in the labor tribunals' taking
cognizance of the respondents' money
claim against LRTA.
The substantive aspect of the case
The petition is without merit, for the
following reasons:
First. LRTA obligated, itself to fund
METRO's retirement fund to answer for
the retirement or severance/resignation
of METRO employees as part of
METRO's "operating expenses." Under
Article 4.05.1 of the O & M agreement
34 between LRTA and Metro, "The
Authority shall reimburse METRO
for . . . "OPERATING EXPENSES . . . ."
In the letter to LRTA 35 dated July 12,
2001, the Acting Chairman of the
METRO Board of Directors at the time,
255
Wilfredo Trinidad, reminded LRTA that

"funding provisions for the retirement
fund have always been considered
operating expenses of Metro. 36 The
coverage of operating expenses to
include provisions for the retirement
fund has never been denied by LRTA.
In the same letter, Trinidad stressed that
as a consequence of the non-renewal of
the O & M agreement by LRTA, METRO
was compelled to close its business
operations effective September 30,
2000. This created, Trinidad added, a
legal obligation to pay the qualified
employees separation benefits under
existing company policy and collective
bargaining agreements. The METRO
Board of Directors approved the
payment of 50% of the employees'
separation pay because that was only
what the Employees' Retirement Fund
could accommodate. 37 IDSEAH
The evidence supports Trinidad's
position. We refer principally to
Resolution No. 00-44 38 issued by the
LRTA Board of Directors on July 28,
2000, in anticipation of and in
preparation for the expiration of the O &
M agreement with METRO on July 31,
2000.
Specifically, the LRTA anticipated and
prepared for the (1) non-renewal (at its
own behest) of the agreement, (2) the
eventual
cessation
of
METRO
operations, and (3) the involuntary loss
of jobs of the METRO employees; thus,
(1) the extension of a two-month
bridging fund for METRO from August 1,
2000, to coincide with the agreement's
expiration on July 31, 2000; (2)
METRO's cessation of operations it
closed on September 30, 2000, the last
day of the bridging fund and most
significantly to the employees adversely
affected; (3) the updating of the "Metro,
Inc., Employee Retirement Fund with
the Bureau of Treasury to ensure that
the fund fully covers all retirement
benefits payable to the employees of
Metro, Inc." 39
The clear language of Resolution No.
00-44, to our mind, established the
LRTA's obligation for the 50% unpaid
balance of the respondents' separation

pay. Without doubt, it bound itself to
provide the necessary funding to
METRO's Employee Retirement Fund to
fully compensate the employees who
had been involuntary retired by the
cessation of operations of METRO. This
is not at all surprising considering that
METRO was a wholly owned subsidiary
of the LRTA.
Second. Even on the assumption that
the LRTA did not obligate itself to fully
cover the separation benefits of the
respondents and others similarly
situated, it still cannot avoid liability for
the respondents' claim. It is solidarily
liable as an indirect employer under the
law for the respondents' separation pay.
This liability arises from the O & M
agreement it had with METRO, which
created a principal-job contractor
relationship
between
them,
an
arrangement it admitted when it argued
before the CA that METRO was an
independent job contractor 40 who, it
insinuated, should be solely responsible
for the respondents' claim.
Under Article 107 of the Labor Code,an
indirect employer is "any person,
partnership, association or corporation
which, not being an employer, contracts
with an independent contractor for the
performance of any work, task, job or
project."
On the other hand, Article 109 on
solidary liability, mandates that . . .
"every employer or indirect employer
shall be held responsible with his
contractor or subcontractor for any
violation of any provisions of this Code.
For purposes of determining the extent
of their civil liability under this Chapter,
they shall be considered as direct
employers."
Department Order No. 18-02, s. 2002,
the rules implementing Articles 106 to
109 of the Labor Code,provides in its
Section 19 that "the principal shall also
be solidarily liable in case the contract
between the principal is preterminated
for reasons not attributable to the
contractor or subcontractor." aCIHcD
256
Although the cessation of METRO's

operations was due to a non-renewal of
the O & M agreement and not a
pretermination of the contract, the cause
of the nonrenewal and the effect on the
employees are the same as in the
contract pretermination contemplated in
the rules. The agreement was not
renewed through no fault of METRO, as
it was solely at the behest of LRTA. The
fact is, under the circumstances,
METRO really had no choice on the
matter, considering that it was a mere
subsidiary of LRTA.
Nevertheless,
whether
it
is
a
pretermination or a nonrenewal of the
contract, the same adverse effect befalls
the
workers
affected,
like
the
respondents in this case the
involuntary loss of their employment,
one of the contingencies addressed and
sought to be rectified by the rules.
In fine, we find no reversible error in the
CA rulings.
the petition for review on certiorari is
DISMISSED, for lack of merit. The
assailed decision and resolution of the
Court of Appeals are AFFIRMED. The
decision dated May 8, 2005, of Labor
Arbiter
Arthur
L.
Amansec,
is
REINSTATED.
SO ORDERED.
Carpio, Del Castillo, Mendoza, and
||| (Light Rail Transit Authority v.
Mendoza, G.R. No. 202322, [August 19,
2015])
SPOUSES ALEXANDER AND JULIE

LAM, Doing Business Under the Name
and
Style
"COLORKWIK
LABORATORIES" AND "COLORKWIK
PHOTO SUPPLY", petitioners, vs.
KODAK
PHILIPPINES,
LTD.,
respondent.
DECISION
LEONEN, J p:
This is a Petition for Review on
Certiorari filed on April 20, 2005
assailing the March 30, 2005 Decision 1
and September 9, 2005 Amended
Decision 2 of the Court of Appeals,
which modified the February 26, 1999
Decision 3 of the Regional Trial Court by
reducing the amount of damages
awarded
to
petitioners
Spouses
Alexander and Julie Lam (Lam
Spouses). 4 The Lam Spouses argue
that respondent Kodak Philippines,
Ltd.'s breach of their contract of sale
entitles them to damages more than the
amount awarded by the Court of
Appeals. 5
I
On January 8, 1992, the Lam Spouses
and Kodak Philippines, Ltd. entered into
an agreement (Letter Agreement) for the
sale of three (3) units of the Kodak
Minilab System 22XL 6 (Minilab
Equipment)
in
the
amount
of
P1,796,000.00 per unit, 7 with the
following terms: HTcADC
This confirms our verbal agreement for
Kodak Phils., Ltd. to provide Colorkwik
Laboratories, Inc. with three (3) units
Kodak Minilab System 22XL . . . for your
proposed outlets in Rizal Avenue
(Manila), Tagum (Davao del Norte), and
your existing Multicolor photo counter in
Cotabato City under the following terms
and conditions:
1. Said Minilab Equipment packages will
avail a total of 19% multiple order
discount based on prevailing equipment
price provided said equipment packages
will be purchased not later than June 30,
1992.
2. 19% Multiple Order Discount shall be
applied in the form of merchandise and
ART 1223 - The divisibility or

indivisibility of the things that are the
object of obligations in which there is
only one debtor and only one creditor
does not alter or modify the
provisions of Chapter 2 of this Title.
(1149)
38. LAM VS. KODAK PHILIPPINES
SECOND DIVISION
[G.R. No. 167615. January 11, 2016.]
257
delivered in advance immediately after

signing of the contract.
* Also includes start-up packages worth
P61,000.00.
3. NO DOWNPAYMENT.
4. Minilab Equipment Package shall be
payable in 48 monthly installments at
THIRTY FIVE THOUSAND PESOS
(P35,000.00) inclusive of 24% interest
rate for the first 12 months; the balance
shall be re-amortized for the remaining
36 months and the prevailing interest
shall be applied.
5. Prevailing price of Kodak Minilab
System 22XL as of January 8, 1992 is at
ONE MILLION SEVEN HUNDRED
NINETY SIX THOUSAND PESOS.
6. Price is subject to change without
prior notice.
*Secured with PDCs; 1st monthly
amortization due 45 days after
installation[.] 8
On
January
15,
1992,
Kodak
Philippines, Ltd. delivered one (1) unit of
the Minilab Equipment in Tagum, Davao
Province. 9 The delivered unit was
installed by Noritsu representatives on
March 9, 1992. 10 The Lam Spouses
issued postdated checks amounting to
P35,000.00 each for 12 months as
payment for the first delivered unit, with
the first check due on March 31, 1992.
11
The Lam Spouses requested that Kodak
Philippines, Ltd. not negotiate the check
dated March 31, 1992 allegedly due to
insufficiency of funds. 12 The same
request was made for the check due on
April 30, 1992. However, both checks
were negotiated by Kodak Philippines,
Ltd. and were honored by the depository
bank. 13 The 10 other checks were
subsequently dishonored after the Lam
Spouses ordered the depository bank to
stop payment. 14
Kodak Philippines, Ltd. canceled the
sale and demanded that the Lam
Spouses return the unit it delivered
together with its accessories. 15 The
Lam Spouses ignored the demand but
also rescinded the contract through the
letter dated November 18, 1992 on
account of Kodak Philippines, Ltd.'s
failure to deliver the two (2) remaining

Minilab Equipment units. 16
On November 25, 1992, Kodak
Philippines, Ltd. filed a Complaint for
replevin and/or recovery of sum of
money. The case was raffled to Branch
61 of the Regional Trial Court, Makati
City. 17 The Summons and a copy of
Kodak Philippines, Ltd.'s Complaint was
personally served on the Lam Spouses.
18
The Lam Spouses failed to appear
during the pre-trial conference and
submit their pre-trial brief despite being
given extensions. 19 Thus, on July 30,
1993, they were declared in default. 20
Kodak Philippines, Ltd. presented
evidence ex-parte. 21 The trial court
issued the Decision in favor of Kodak
Philippines, Ltd. ordering the seizure of
the Minilab Equipment, which included
the lone delivered unit, its standard
accessories, and a separate generator
set. 22 Based on this Decision, Kodak
Philippines, Ltd. was able to obtain a
writ of seizure on December 16, 1992
for the Minilab Equipment installed at
the Lam Spouses' outlet in Tagum,
Davao Province. 23 The writ was
enforced on December 21, 1992, and
Kodak
Philippines,
Ltd.
gained
possession of the Minilab Equipment
unit, accessories, and the generator set.
24
The Lam Spouses then filed before the
Court of Appeals a Petition to Set Aside
the Orders issued by the trial court
dated July 30, 1993 and August 13,
1993. These Orders were subsequently
set aside by the Court of Appeals Ninth
Division, and the case was remanded to
the trial court for pre-trial. 25
On September 12, 1995, an Urgent
Motion for Inhibition was filed against
Judge Fernando V. Gorospe, Jr., 26 who
had issued the writ of seizure. 27 The
ground for the motion for inhibition was
not provided. Nevertheless, Judge
Fernando V. Gorospe Jr. inhibited
himself, and the case was reassigned to
Branch 65 of the Regional Trial Court,
Makati City on October 3, 1995. 28
258
In the Decision dated February 26,

1999, the Regional Trial Court found
that Kodak Philippines, Ltd. defaulted in
the performance of its obligation under
its Letter Agreement with the Lam
Spouses. 29 It held that Kodak
Philippines, Ltd.'s failure to deliver two
(2) out of the three (3) units of the
Minilab Equipment caused the Lam
Spouses to stop paying for the rest of
the installments. 30 The trial court noted
that while the Letter Agreement did not
specify a period within which the
delivery of all units was to be made, the
Civil Code provides "reasonable time"
as the standard period for compliance:
The second paragraph of Article 1521 of
the Civil Code provides:
Where by a contract of sale the seller is
bound to send the goods to the buyer,
but no time for sending them is fixed,
the seller is bound to send them within a
reasonable time.
What constitutes reasonable time is
dependent on the circumstances
availing both on the part of the seller
and the buyer. In this case, delivery of
the first unit was made five (5) days
after the date of the agreement. Delivery
of the other two (2) units, however, was
never made despite the lapse of at least
three (3) months. 31
Kodak Philippines, Ltd. failed to give a
sufficient explanation for its failure to
deliver all three (3) purchased units
within a reasonable time. 32
The trial court found: aScITE
Kodak would have the court believe that
it did not deliver the other two (2) units
due to the failure of defendants to make
good the installments subsequent to the
second. The court is not convinced. First
of all, there should have been
simultaneous delivery on account of the
circumstances
surrounding
the
transaction . . . . Even after the first
delivery . . . no delivery was made
despite repeated demands from the
defendants and despite the fact no
installments were due. Then in March
and in April (three and four months
respectively from the date of the
agreement and the first delivery) when
the installments due were both honored,

still no delivery was made.
Second, although it might be said that
Kodak was testing the waters with just
one delivery determining first
defendants' capacity to pay it was not
at liberty to do so. It is implicit in the
letter agreement that delivery within a
reasonable time was of the essence and
failure to so deliver within a reasonable
time and despite demand would render
the vendor in default.
xxx xxx xxx
Third, at least two (2) checks were
honored. If indeed Kodak refused
delivery on account of defendants'
inability to pay, non-delivery during the
two (2) months that payments were
honored is unjustified. 33
Nevertheless, the trial court also ruled
that when the Lam Spouses accepted
delivery of the first unit, they became
liable for the fair value of the goods
received:
On the other hand, defendants accepted
delivery of one (1) unit. Under Article
1522 of the Civil Code,in the event the
buyer accepts incomplete delivery and
uses the goods so delivered, not then
knowing that there would not be any
further delivery by the seller, the buyer
shall be liable only for the fair value to
him of the goods received. In other
words, the buyer is still liable for the
value of the property received.
Defendants were under obligation to pay
the amount of the unit. Failure of
delivery of the other units did not
thereby give unto them the right to
suspend payment on the unit delivered.
Indeed, in incomplete deliveries, the
buyer has the remedy of refusing
payment unless delivery is first made. In
this case though, payment for the two
undelivered units have not even
commenced; the installments made
were for only one (1) unit.
Hence, Kodak is right to retrieve the unit
delivered. 34
The Lam Spouses were under obligation
to pay for the amount of one unit, and
the failure to deliver the remaining units
did not give them the right to suspend
259
payment for the unit already delivered.

35 However, the trial court held that
since Kodak Philippines, Ltd. had
elected to cancel the sale and retrieve
the delivered unit, it could no longer
seek payment for any deterioration that
the unit may have suffered while under
the custody of the Lam Spouses. 36
As to the generator set, the trial court
ruled that Kodak Philippines, Ltd.
attempted to mislead the court by
claiming that it had delivered the
generator set with its accessories to the
Lam Spouses, when the evidence
showed that the Lam Spouses had
purchased it from Davao Ken Trading,
not from Kodak Philippines, Ltd. 37
Thus, the generator set that Kodak
Philippines, Ltd. wrongfully took from the
Lam Spouses should be replaced. 38
The dispositive portion of the Regional
Trial Court Decision reads:
PREMISES CONSIDERED, the case is
hereby dismissed. Plaintiff is ordered to
pay the following:
1) PHP130,000.00 representing the
amount of the generator set, plus legal
interest at 12% per annum from
December 1992 until fully paid; and
2) PHP1,300,000.00 as actual expenses
in the renovation of the Tagum, Davao
and Rizal Ave., Manila outlets.
SO ORDERED. 39
On March 31, 1999, the Lam Spouses
filed their Notice of Partial Appeal,
raising as an issue the Regional Trial
Court's
failure
to
order
Kodak
Philippines, Ltd. to pay: (1) P2,040,000
in actual damages; (2) P50,000,000 in
moral damages; (3) P20,000,000 in
exemplary damages; (4) P353,000 in
attorney's fees; and (5) P300,000 as
litigation expenses. 40 The Lam
Spouses did not appeal the Regional
Trial Court's award for the generator set
and the renovation expenses. 41
Kodak Philippines, Ltd. also filed an
appeal. However, the Court of Appeals
42 dismissed it on December 16, 2002
for Kodak Philippines, Ltd.'s failure to file
its appellant's brief, without prejudice to
the continuation of the Lam Spouses'
appeal. 43 The Court of Appeals'
December 16, 2002 Resolution denying

Kodak Philippines, Ltd.'s appeal became
final and executory on January 4, 2003.
44
In the Decision 45 dated March 30,
2005, the Court of Appeals Special
Fourteenth Division
modified
the
February 26, 1999 Decision of the
Regional Trial Court:
WHEREFORE,
PREMISES
CONSIDERED, the Assailed Decision
dated 26 February 1999 of the Regional
Trial Court, Branch 65 in Civil Case No.
92-3442 is hereby MODIFIED. Plaintiffappellant is ordered to pay the following:
1. P130,000.00 representing the amount
of the generator set, plus legal interest
at 12% per annum from December 1992
until fully paid; and
2. P440,000.00 as actual damages;
3. P25,000.00 as moral damages; and
4. P50,000.00 as exemplary damages.
SO ORDERED. 46 (Emphasis supplied)
The Court of Appeals agreed with the
trial court's Decision, but extensively
discussed the basis for the modification
of the dispositive portion. HEITAD
The Court of Appeals ruled that the
Letter Agreement executed by the
parties showed that their obligations
were susceptible of partial performance.
Under Article 1225 of the New Civil
Code, their obligations are divisible:
In determining the divisibility of an
obligation, the following factors may be
considered, to wit: (1) the will or
intention of the parties, which may be
expressed or presumed; (2) the
objective or purpose of the stipulated
prestation; (3) the nature of the thing;
and (4) provisions of law affecting the
prestation.
Applying the foregoing factors to this
case, We found that the intention of the
parties is to be bound separately for
each Minilab Equipment to be delivered
as shown by the separate purchase
price for each of the item, by the
acceptance of Sps. Lam of separate
deliveries for the first Minilab Equipment
and for those of the remaining two and
the separate payment arrangements for
each of the equipment. Under this
260
premise, Sps. Lam shall be liable for the

entire amount of the purchase price of
the
Minilab
Equipment
delivered
considering that Kodak had already
completely fulfilled its obligation to
deliver the same. . . .
Third, it is also evident that the contract
is one that is severable in character as
demonstrated by the separate purchase
price for each of the minilab equipment.
"If the part to be performed by one party
consists in several distinct and separate
items and the price is apportioned to
each of them, the contract will generally
be held to be severable. In such case,
each distinct stipulation relating to a
separate subject matter will be treated
as a separate contract." Considering
this, Kodak's breach of its obligation to
deliver the other two (2) equipment
cannot bar its recovery for the full
payment of the equipment already
delivered. As far as Kodak is concerned,
it had already fully complied with its
separable obligation to deliver the first
unit of Minilab Equipment. 47 (Emphasis
supplied)
The Court of Appeals held that the
issuance of a writ of replevin is proper
insofar as the delivered Minilab
Equipment unit and its standard
accessories are concerned, since Kodak
Philippines, Ltd. had the right to possess
it: 48
The purchase price of said equipment is
P1,796,000.00
which,
under
the
agreement is payable with forty eight
(48) monthly amortization. It is
undisputed that Sps. Lam made
payments which amounted to Two
Hundred Seventy Thousand Pesos
(P270,000.00) through the following
checks:
Metrobank
Check
Nos.
00892620 and 00892621 dated 31
March 1992 and 30 April 1992
respectively in the amount of Thirty Five
Thousand Pesos (P35,000.00) each,
and BPI Family Check dated 31 July
1992 amounting to Two Hundred
Thousand Pesos (P200,000.00). This
being the case, Sps. Lam are still liable
to Kodak in the amount of One Million
Five Hundred Twenty Six Thousand
Pesos (P1,526,000.00),
which
is
payable in several monthly amortization,
pursuant to the Letter Agreement.
However, Sps. Lam admitted that
sometime in May 1992, they had
already ordered their drawee bank to
stop the payment on all the other checks
they had issued to Kodak as payment
for the Minilab Equipment delivered to
them. Clearly then, Kodak ha[d] the right
to repossess the said equipment,
through this replevin suit. Sps. Lam
cannot excuse themselves from paying
in full the purchase price of the
equipment delivered to them on account
of Kodak's breach of the contract to
deliver the other two (2) Minilab
Equipment, as contemplated in the
Letter Agreement. 49
(Emphasis
supplied)
Echoing the ruling of the trial court, the
Court of Appeals held that the liability of
the Lam Spouses to pay the remaining
balance for the first delivered unit is
based on the second sentence of Article
1592 of the New Civil Code. 50 The Lam
Spouses' receipt and use of the Minilab
Equipment before they knew that Kodak
Philippines, Ltd. would not deliver the
two (2) remaining units has made them
liable for the unpaid portion of the
purchase price. 51
The Court of Appeals noted that Kodak
Philippines, Ltd. sought the rescission of
its contract with the Lam Spouses in the
letter dated October 14, 1992. 52 The
rescission was based on Article 1191 of
the New Civil Code, which provides:
"The power to rescind obligations is
what is incumbent upon him." 53 In its
letter, Kodak Philippines, Ltd. demanded
that the Lam Spouses surrender the
lone delivered unit of Minilab Equipment
along with its standard accessories. 54
The Court of Appeals likewise noted that
the Lam Spouses rescinded the contract
through its letter dated November 18,
1992 on account of Kodak Philippines,
Inc.'s breach of the parties' agreement
to deliver the two (2) remaining units. 55
261
As a result of this rescission under

Article 1191, the Court of Appeals ruled
that "both parties must be restored to
their original situation, as far as
practicable, as if the contract was never
entered into." 56 The Court of Appeals
ratiocinated that Article 1191 had the
effect of extinguishing the obligatory
relation as if one was never created: 57
To rescind is to declare a contract void
in its inception and to put an end to it as
though it never were. It is not merely to
terminate it and to release parties from
further obligations to each other but
abrogate it from the beginning and
restore parties to relative positions
which they would have occupied had no
contract been made. 58
The Lam Spouses were ordered to
relinquish possession of the Minilab
Equipment unit and its standard
accessories, while Kodak Philippines,
Ltd. was ordered to return the amount of
P270,000.00, tendered by the Lam
Spouses as partial payment. 59
As to the actual damages sought by the
parties, the Court of Appeals found that
the Lam Spouses were able to
substantiate the following: ATICcS
Incentive fee paid to Mr. Ruales in the
amount of P100,000.00; the rider to the
contract of lease which made the Sps.
Lam liable, by way of advance payment,
in the amount of P40,000.00, the same
being intended for the repair of the
flooring of the leased premises; and
lastly, the payment of P300,000.00, as
compromise agreement for the pretermination of the contract of lease with
Ruales. 60
The total amount is P440,000.00. The
Court of Appeals found that all other
claims made by the Lam Spouses were
not supported by evidence, either
through official receipts or check
payments. 61
As regards the generator set improperly
seized from Kodak Philippines, Ltd. on
the basis of the writ of replevin, the
Court of Appeals found that there was
no basis for the Lam Spouses' claim for
reasonable rental of P5,000.00. It held
that the trial court's award of 12%
interest, in addition to the cost of the

generator set in the amount of
P130,000.00, is sufficient compensation
for whatever damage the Lam Spouses
suffered on account of its improper
seizure. 62
The Court of Appeals also ruled on the
Lam Spouses' entitlement to moral and
exemplary damages, as well as
attorney's fees and litigation expenses:
In seeking recovery of the Minilab
Equipment,
Kodak
cannot
be
considered to have manifested bad faith
and malevolence because as earlier
ruled upon, it was well within its right to
do the same. However, with respect to
the seizure of the generator set, where
Kodak misrepresented to the court a
quo its alleged right over the said item,
Kodak's bad faith and abuse of judicial
processes
become
self-evident.
Considering
the
off-setting
circumstances attendant, the amount of
P25,000.00 by way of moral damages is
considered sufficient.
In addition, so as to serve as an
example to the public that an application
for replevin should not be accompanied
by
any
false
claims
and
misrepresentation, the amount of
P50,000.00 by way of exemplary
damages should be pegged against
Kodak.
With respect to the attorney's fees and
litigation expenses, We find that there is
no basis to award Sps. Lam the amount
sought for. 63
Kodak Philippines, Ltd. moved for
reconsideration of the Court of Appeals
Decision, but it was denied for lack of
merit. 64 However, the Court of Appeals
noted that the Lam Spouses' Opposition
correctly pointed out that the additional
award of P270,000.00 made by the trial
court was not mentioned in the decretal
portion of the March 30, 2005 Decision:
Going over the Decision, specifically
page 12 thereof, the Court noted that, in
addition to the amount of Two Hundred
Seventy Thousand (P270,000.00) which
plaintiff-appellant should return to the
defendants-appellants, the Court also
ruled that defendants-appellants should,
262
in turn, relinquish possession of the

Minilab Equipment and the standard
accessories
to
plaintiff-appellant.
Inadvertently, these material items were
not mentioned in the decretal portion of
the Decision. Hence, the proper
correction should herein be made. 65
The Lam Spouses filed this Petition for
Review on April 14, 2005. On the other
hand, Kodak Philippines, Ltd. filed its
Motion for Reconsideration 66 before
the Court of Appeals on April 22, 2005.
While the Petition for Review on
Certiorari filed by the Lam Spouses was
pending before this court, the Court of
Appeals Special Fourteenth Division,
acting on Kodak Philippines, Ltd.'s
Motion for Reconsideration, issued the
Amended Decision 67 dated September
9, 2005. The dispositive portion of the
Decision reads:
this Court resolved that:
A.
Plaintiff-appellant's
Motion
for
Reconsideration is hereby DENIED for
lack of merit.
B. The decretal portion of the 30 March
2005 Decision should now read as
follows:
"WHEREFORE,
PREMISES
CONSIDERED, the Assailed Decision
dated 26 February 1999 of the Regional
Trial Court, Branch 65 in Civil Cases No.
92-3442 is hereby MODIFIED. Plaintiffappellant is ordered to pay the following:
a. P270,000.00 representing the partial
payment
made
on
the
Minilab
equipment.
b. P130,000.00 representing the amount
of the generator set, plus legal interest
at 12% per annum from December 1992
until fully paid;
c. P440,000.00 as actual damages;
d. P25,000.00 as moral damages; and
e. P50,000.00 as exemplary damages.
Upon the other hand, defendantsappellants are hereby ordered to return
to
plaintiff-appellant
the
Minilab
equipment
and
the
standard
accessories delivered by plaintiffappellant.
SO ORDERED."
SO ORDERED. 68 (Emphasis in the

original)
Upon receiving the Amended Decision
of the Court of Appeals, Kodak
Philippines, Ltd. filed a Motion for
Extension of Time to File an Appeal by
Certiorari under Rule 45 of the 1997
Rules of Civil Procedure before this
court. 69
This was docketed as G.R. No. 169639.
In the Motion for Consolidation dated
November 2, 2005, the Lam Spouses
moved that G.R. No. 167615 and G.R.
No. 169639 be consolidated since both
involved the same parties, issues,
transactions, and essential facts and
circumstances. 70 TIADCc
In the Resolution dated November 16,
2005, this court noted the Lam Spouses'
September 23 and September 30, 2005
Manifestations praying that the Court of
Appeals' September 9, 2005 Amended
Decision be considered in the resolution
of the Petition for Review on Certiorari.
71 It also granted the Lam Spouses'
Motion for Consolidation. 72
In the Resolution 73 dated September
20, 2006, this court deconsolidated G.R.
No. 167615 from G.R. No. 169639 and
declared G.R. No. 169639 closed and
terminated since Kodak Philippines, Ltd.
failed to file its Petition for Review.
II
We resolve the following issues:
First, whether the contract between
petitioners Spouses Alexander and Julie
Lam and respondent Kodak Philippines,
Ltd. pertained to obligations that are
severable, divisible, and susceptible of
partial performance under Article 1225
of the New Civil Code; and
Second, upon rescission of the contract,
what the parties are entitled to under
Article 1190 and Article 1522 of the New
Civil Code.
Petitioners argue that the Letter
Agreement it executed with respondent
for three (3) Minilab Equipment units
was not severable, divisible, and
susceptible of partial performance.
Respondent's recovery of the delivered
unit was unjustified. 74
263
Petitioners assert that the obligations of

the parties were not susceptible of
partial performance since the Letter
Agreement was for a package deal
consisting of three (3) units. 75 For the
delivery of these units, petitioners were
obliged to pay 48 monthly payments, the
total of which constituted one debt. 76
Having
relied
on
respondent's
assurance that the three units would be
delivered at the same time, petitioners
simultaneously rented and renovated
three
stores
in
anticipation
of
simultaneous operations. 77 Petitioners
argue that the divisibility of the object
does not necessarily determine the
divisibility of the obligation since the
latter is tested against its susceptibility
to a partial performance. 78 They argue
that even if the object is susceptible of
separate deliveries, the transaction is
indivisible if the parties intended the
realization of all parts of the agreed
obligation. 79
Petitioners support the claim that it was
the parties' intention to have an
indivisible agreement by asserting that
the payments they made to respondent
were intended to be applied to the whole
package of three units. 80 The
postdated checks were also intended as
initial payment for the whole package.
81 The separate purchase price for each
item
was
merely
intended
to
particularize the unit prices, not to
negate the indivisible nature of their
transaction. 82 As to the issue of
delivery, petitioners claim that their
acceptance of separate deliveries of the
units was solely due to the constraints
faced by respondent, who had sole
control over delivery matters. 83
With the obligation being indivisible,
petitioners argue that respondent's
failure to comply with its obligation to
deliver the two (2) remaining Minilab
Equipment units amounted to a breach.
Petitioners claim that the breach entitled
them to the remedy of rescission and
damages under Article 1191 of the New
Civil Code. 84
Petitioners also argue that they are
entitled to moral damages more than the
P50,000.00 awarded by the Court of

Appeals since respondent's wrongful act
of accusing them of non-payment of
their obligations caused them sleepless
nights, mental anguish, and wounded
feelings. 85 They further claim that, to
serve as an example for the public
good, they are entitled to exemplary
damages as respondent, in making false
allegations, acted in evident bad faith
and in a wanton, oppressive, capricious,
and malevolent manner. 86
Petitioners also assert that they are
entitled to attorney's fees and litigation
expenses under Article 2208 of the New
Civil Code since respondent's act of
bringing a suit against them was
baseless and malicious. This prompted
them to engage the services of a lawyer.
87
Respondent argues that the parties'
Letter Agreement contained divisible
obligations
susceptible
of
partial
performance as defined by Article 1225
of the New Civil Code. 88 In
respondent's view, it was the intention of
the parties to be bound separately for
each
individually
priced
Minilab
Equipment unit to be delivered to
different outlets: 89
The three (3) Minilab Equipment are
intended by petitioners LAM for
install[a]tion at their Tagum, Davao del
Norte, Sta. Cruz, Manila and Cotabato
City outlets. Each of these units [is]
independent from one another, as many
of them may perform its own job without
the other. Clearly the objective or
purpose of the prestation, the obligation
is divisible.
The nature of each unit of the three (3)
Minilab Equipment is such that one can
perform its own functions, without
awaiting for the other units to perform
and complete its job. So much so, the
nature of the object of the Letter
Agreement is susceptible of partial
performance, thus the obligation is
divisible. 90
With the contract being severable in
character, respondent argues that it
performed its obligation when it
delivered one unit of the Minilab
264
Equipment. 91 Since each unit could

perform on its own, there was no need
to await the delivery of the other units to
complete its job. 92 Respondent then is
of the view that when petitioners
ordered the depository bank to stop
payment of the issued checks covering
the first delivered unit, they violated their
obligations under the Letter Agreement
since respondent was already entitled to
full payment. 93 AIDSTE
Respondent also argues that petitioners
benefited from the use of the Minilab
Equipment for 10 months from March
to December 1992 despite having
paid only two (2) monthly installments.
94 Respondent avers that the two
monthly installments amounting to
P70,000.00 should be the subject of an
offset against the amount the Court of
Appeals awarded to petitioners. 95
Respondent
further
avers
that
petitioners have no basis for claiming
damages since the seizure and recovery
of the Minilab Equipment was not in bad
faith and respondent was well within its
right. 96
III
The Letter Agreement contained an
indivisible obligation.
Both parties rely on the Letter
Agreement 97 as basis of their
respective obligations. Written by
respondent's Jeffrey T. Go and Antonio
V. Mines and addressed to petitioner
Alexander Lam, the Letter Agreement
contemplated a "package deal" involving
three (3) units of the Kodak Minilab
System 22XL, with the following terms
and conditions:
This confirms our verbal agreement for
Kodak Phils., Ltd. to provide Colorkwik
Laboratories, Inc. with three (3) units
Kodak Minilab System 22XL . . . for your
proposed outlets in Rizal Avenue
(Manila), Tagum (Davao del Norte), and
your existing Multicolor photo counter in
Cotabato City under the following terms
and conditions:
1. Said Minilab Equipment packages will
avail a total of 19% multiple order
discount based on prevailing equipment
price provided said equipment packages
will be purchased not later than June 30,

1992.
2. 19% Multiple Order Discount shall be
applied in the form of merchandise and
delivered in advance immediately after
signing of the contract.
* Also includes start-up packages worth
P61,000.00.
3. NO DOWNPAYMENT.
4. Minilab Equipment Package shall be
payable in 48 monthly installments at
THIRTY FIVE THOUSAND PESOS
(P35,000.00) inclusive of 24% interest
rate for the first 12 months; the balance
shall be re-amortized for the remaining
36 months and the prevailing interest
shall be applied.
5. Prevailing price of Kodak Minilab
System 22XL as of January 8, 1992 is at
ONE MILLION SEVEN HUNDRED
NINETY SIX THOUSAND PESOS.
6. Price is subject to change without
prior notice.
*Secured with PDCs; 1st monthly
amortization due 45 days after
installation[.] 98
Based on the foregoing, the intention of
the parties is for there to be a single
transaction covering all three (3) units of
the Minilab Equipment. Respondent's
obligation was to deliver all products
purchased under a "package," and, in
turn, petitioners' obligation was to pay
for the total purchase price, payable in
installments.
The intention of the parties to bind
themselves to an indivisible obligation
can be further discerned through their
direct acts in relation to the package
deal. There was only one agreement
covering all three (3) units of the Minilab
Equipment and their accessories. The
Letter Agreement specified only one
purpose for the buyer, which was to
obtain these units for three different
outlets. If the intention of the parties
were to have a divisible contract, then
separate agreements could have been
made for each Minilab Equipment unit
instead of covering all three in one
package deal. Furthermore, the 19%
multiple order discount as contained in
the Letter Agreement was applied to all
265
three acquired units. 99 The "no

downpayment" term contained in the
Letter Agreement was also applicable to
all the Minilab Equipment units. Lastly,
the fourth clause of the Letter
Agreement clearly referred to the object
of the contract as "Minilab Equipment
Package."
In ruling that the contract between the
parties intended to cover divisible
obligations, the Court of Appeals
highlighted: (a) the separate purchase
price of each item; (b) petitioners'
acceptance of separate deliveries of the
units; and (c) the separate payment
arrangements for each unit. 100
However, through the specified terms
and conditions, the tenor of the Letter
Agreement indicated an intention for a
single transaction. This intent must
prevail even though the articles involved
are physically separable and capable of
being paid for and delivered individually,
consistent with the New Civil Code:
Article 1225. For the purposes of the
preceding articles, obligations to give
definite things and those which are not
susceptible of partial performance shall
be deemed to be indivisible.
When the obligation has for its object
the execution of a certain number of
days of work, the accomplishment of
work by metrical units, or analogous
things which by their nature are
susceptible of partial performance, it
shall be divisible.
However, even though the object or
service may be physically divisible, an
obligation is indivisible if so provided by
law or intended by the parties.
(Emphasis supplied)
In Nazareno v. Court of Appeals, 101 the
indivisibility of an obligation is tested
against whether it can be the subject of
partial performance: AaCTcI
An obligation is indivisible when it
cannot be validly performed in parts,
whatever may be the nature of the thing
which is the object thereof. The
indivisibility refers to the prestation and
not to the object thereof. In the present
case, the Deed of Sale of January 29,
1970 supposedly conveyed the six lots
to Natividad. The obligation is clearly

indivisible because the performance of
the contract cannot be done in parts,
otherwise the value of what is
transferred is diminished. Petitioners are
therefore mistaken in basing the
indivisibility of a contract on the number
of obligors. 102 (Emphasis supplied,
citation omitted)
There is no indication in the Letter
Agreement that the units petitioners
ordered were covered by three (3)
separate transactions. The factors
considered by the Court of Appeals are
mere incidents of the execution of the
obligation, which is to deliver three units
of the Minilab Equipment on the part of
respondent and payment for all three on
the part of petitioners. The intention to
create an indivisible contract is apparent
from the benefits that the Letter
Agreement afforded to both parties.
Petitioners were given the 19% discount
on account of a multiple order, with the
discount being equally applicable to all
units that they sought to acquire. The
provision on "no downpayment" was
also applicable to all units. Respondent,
in turn, was entitled to payment of all
three Minilab Equipment units, payable
by installments.
IV
With both parties opting for rescission of
the contract under Article 1191, the
Court of Appeals correctly ordered for
restitution.
The contract between the parties is one
of sale, where one party obligates
himself or herself to transfer the
ownership and deliver a determinate
thing, while the other pays a certain
price in money or its equivalent. 103 A
contract of sale is perfected upon the
meeting of minds as to the object and
the price, and the parties may
reciprocally demand the performance of
their respective obligations from that
point on. 104
The Court of Appeals correctly noted
that respondent had rescinded the
parties' Letter Agreement through the
letter dated October 14, 1992. 105 It
likewise noted petitioners' rescission
266
through the letter dated November 18,

1992. 106 This rescission from both
parties is founded on Article 1191 of the
New Civil Code:
what is incumbent upon him.
the fulfilment and the rescission of the
fulfilment, if the latter should become
impossible.
Rescission under Article 1191 has the
effect of mutual restitution. 107 In
Velarde v. Court of Appeals: 108
Rescission abrogates the contract from
its inception and requires a mutual
restitution of benefits received.
xxx xxx xxx
Rescission creates the obligation to
return the object of the contract. It can
be carried out only when the one who
demands rescission can return whatever
he may be obliged to restore. To rescind
is to declare a contract void at its
inception and to put an end to it as
though it never was. It is not merely to
terminate it and release the parties from
further obligations to each other, but to
abrogate it from the beginning and
restore the parties to their relative
positions as if no contract has been
made. 109 (Emphasis supplied, citations
omitted)
The Court of Appeals correctly ruled that
both parties must be restored to their
original situation as far as practicable,
as if the contract was never entered
into.
Petitioners
must
relinquish
possession of the delivered Minilab
Equipment unit and accessories, while
respondent must return the amount
tendered by petitioners as partial
payment for the unit received. Further,
respondent cannot claim that the two (2)
monthly installments should be offset
against the amount awarded by the
Court of Appeals to petitioners because

the effect of rescission under Article
1191 is to bring the parties back to their
original positions before the contract
was entered into. Also in Velarde:
As discussed earlier, the breach
committed by petitioners was the
nonperformance
of
a
reciprocal
obligation, not a violation of the terms
and conditions of the mortgage contract.
Therefore, the automatic rescission and
forfeiture of payment clauses stipulated
in the contract does not apply. Instead,
Civil Code provisions shall govern and
regulate
the
resolution
of
this
controversy.
Considering that the rescission of the
contract is based on Article 1191 of the
Civil Code,mutual restitution is required
to bring back the parties to their original
situation prior to the inception of the
contract. Accordingly, the initial payment
of P800,000 and the corresponding
mortgage payments in the amounts of
P27,225, P23,000 and P23,925 (totaling
P874,150.00) advanced by petitioners
should
be
returned
by
private
respondents, lest the latter unjustly
enrich themselves at the expense of the
former. 110 (Emphasis supplied)
When rescission is sought under Article
1191 of the Civil Code,it need not be
judicially invoked because the power to
resolve is implied in reciprocal
obligations. 111 The right to resolve
allows an injured party to minimize the
damages he or she may suffer on
account of the other party's failure to
perform what is incumbent upon him or
her. 112 When a party fails to comply
with his or her obligation, the other
party's right to resolve the contract is
triggered.
113
The
resolution
immediately produces legal effects if the
non-performing party does not question
the resolution. 114 Court intervention
only becomes necessary when the party
who allegedly failed to comply with his
or her obligation disputes the resolution
of the contract. 115 Since both parties in
this case have exercised their right to
resolve under Article 1191, there is no
267
need for a judicial decree before the

resolution produces effects. EcTCAD
V
The issue of damages is a factual one. A
petition for review on certiorari under
Rule 45 shall only pertain to questions
of law. 116 It is not the duty of this court
to re-evaluate the evidence adduced
before
the
lower
courts.
117
Furthermore, unless the petition clearly
shows that there is grave abuse of
discretion, the findings of fact of the trial
court as affirmed by the Court of
Appeals are conclusive upon this court.
118 In Lorzano v. Tabayag, Jr.: 119
For a question to be one of law, the
same must not involve an examination
of the probative value of the evidence
presented by the litigants or any of
them. The resolution of the issue must
rest solely on what the law provides on
the given set of circumstances. Once it
is clear that the issue invites a review of
the evidence presented, the question
posed is one of fact.
xxx xxx xxx
For the same reason, we would
ordinarily disregard the petitioner's
allegation as to the propriety of the
award of moral damages and attorney's
fees in favor of the respondent as it is a
question of fact. Thus, questions on
whether
or
not
there
was
a
preponderance of evidence to justify the
award of damages or whether or not
there was a causal connection between
the given set of facts and the damage
suffered by the private complainant or
whether or not the act from which civil
liability might arise exists are questions
of fact.
Essentially, the petitioner is questioning
the award of moral damages and
attorney's fees in favor of the
respondent as the same is supposedly
not fully supported by evidence.
However, in the final analysis, the
question of whether the said award is
fully supported by evidence is a factual
question as it would necessitate whether
the evidence adduced in support of the
same has any probative value. For a
question to be one of law, it must involve
no examination of the probative value of

the evidence presented by the litigants
or any of them. 120 (Emphasis supplied,
citations omitted)
The damages awarded by the Court of
Appeals
were
supported
by
documentary evidence. 121 Petitioners
failed to show any reason why the
factual determination of the Court of
Appeals must be reviewed, especially in
light of their failure to produce receipts
or check payments to support their other
claim for actual damages. 122
Furthermore, the actual damages
amounting to P2,040,000.00 being
sought by petitioners 123 must be
tempered on account of their own failure
to pay the rest of the installments for the
delivered unit. This failure on their part is
a breach of their obligation, for which
the liability of respondent, for its failure
to deliver the remaining units, shall be
equitably tempered on account of
Article, 1192 of the New Civil Code. 124
In Central Bank of the Philippines v.
Court of Appeals: 125
Since both parties were in default in the
performance
of
their
respective
reciprocal obligations, that is, Island
Savings Bank failed to comply with its
obligation to furnish the entire loan and
Sulpicio M. Tolentino failed to comply
with his obligation to pay his P17,000.00
debt within 3 years as stipulated, they
are both liable for damages.
that in case both parties have committed
a breach of their reciprocal obligations,
the liability of the first infractor shall be
equitably tempered by the courts. WE
rule that the liability of Island Savings
Bank for damages in not furnishing the
entire loan is offset by the liability of
Sulpicio M. Tolentino for damages, in the
form of penalties and surcharges, for not
paying his overdue P17,000.00 debt.
The liability of Sulpicio M. Tolentino for
interest on his P17,000.00 debt shall not
be included in offsetting the liabilities of
both parties. Since Sulpicio M. Tolentino
derived some benefit for his use of the
P17,000.00, it is just that he should
268
account for the interest thereon. 126

(Emphasis supplied)
The award for moral and exemplary
damages also appears to be sufficient.
Moral damages are granted to alleviate
the moral suffering suffered by a party
due to an act of another, but it is not
intended to enrich the victim at the
defendant's expense. 127 It is not meant
to punish the culpable party and,
therefore, must always be reasonable
vis-a-vis the injury caused. 128
Exemplary damages, on the other hand,
are awarded when the injurious act is
attended by bad faith. 129 In this case,
respondent was found to have
misrepresented its right over the
generator set that was seized. As such,
it is properly liable for exemplary
damages as an example to the public.
130
However, the dispositive portion of the
Court of Appeals Amended Decision
dated September 9, 2005 must be
modified to include the recovery of
attorney's fees and costs of suit in favor
of petitioners. In Sunbanun v. Go: 131
Furthermore, we affirm the award of
exemplary damages and attorney's fees.
Exemplary damages may be awarded
when a wrongful act is accompanied by
bad faith or when the defendant acted in
a
wanton,
fraudulent,
reckless,
oppressive, or malevolent manner which
would justify an award of exemplary
damages under Article 2232 of the Civil
Code.Since the award of exemplary
damages is proper in this case,

attorney's fees and cost of the suit may
also be recovered as provided under
Article 2208 of the Civil Code. 132
(Emphasis supplied, citation omitted)
Based on the amount awarded for moral
and
exemplary
damages,
it
is
reasonable
to
award
petitioners
P20,000.00 as attorney's fees.
WHEREFORE, the Petition is DENIED.
The
Amended
Decision
dated
September 9, 2005 is AFFIRMED with
MODIFICATION. Respondent Kodak
Philippines, Ltd. is ordered to pay
petitioners Alexander and Julie Lam:
HSAcaE
(a) P270,000.00, representing the partial
payment
made
on
the
Minilab
Equipment;
(b) P130,000.00, representing the
amount of the generator set, plus legal
interest at 12% per annum from
December 1992 until fully paid;
(c) P440,000.00 as actual damages;
(d) P25,000.00 as moral damages;
(e) P50,000.00 as exemplary damages;
and
(f) P20,000.00 as attorney's fees.
Petitioners are ordered to return the
Kodak Minilab System 22XL unit and its
standard accessories to respondent.
SO ORDERED.
Carpio, Brion, Del Castillo and Mendoza
JJ., concur.
||| (Spouses Lam v. Kodak Phils., Ltd.,
G.R. No. 167615, [January 11, 2016])
269

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ATTY. DJUMEIL GERARD P.

1970 and the latter's other heirs had

Espinosa submitted the blueprint of

ART. 1113 All things which are

On March 3, 1999, respondent Domingo

On August 18, 2000, the MTC rendered

ATTY. DJUMEIL GERARD P. TINAMPAY

WHEREFORE, and in view of all the

possession of the property only in 1970

Further, petitioner claimed that the

The Court is likewise convinced that the

The contention of [petitioner] is not

Petitioner appealed to the CA and

ATTY. DJUMEIL GERARD P. TINAMPAY

ipso jure converts the same into private

"The fact that the lower court finds the

b)It is true that the requirement of

There is no dispute that, in case of Del

"Following the logic of the petitioner, any

xxx xxx xxx

Again, the aforesaid contention of [the

Moreover, the CA ruled that Espinosa

ATTY. DJUMEIL GERARD P. TINAMPAY

[Espinosa] has established that Lot

sufficed to prove that the land applied

Petitioner moved for reconsideration but

This Court is of a different view.

Based on Espinosa's allegations and his

xxx xxx xxx

a.whether the blueprint of the advanced

(2)Those who have acquired ownership

b.whether the notation on the blueprint

ATTY. DJUMEIL GERARD P. TINAMPAY

years. Section 48 (b) of the PLA

application for confirmation of title

Sec. 48.The following described citizens

On January 25, 1977, P.D. No. 1073

xxx xxx xxx

Sec. 4. The provisions of Section 48(b)

Thus, the required possession and

P.D. No. 1073, in effect, repealed R.A.

On June 22, 1957, Republic Act (R.A.)

ATTY. DJUMEIL GERARD P. TINAMPAY

Abejaron v. Nabasa, 21 this Court

that there is an option between

However, as petitioner Abejaron's 30year period of possession and

In this case, the lower courts concluded

Consequently, for one to invoke Section

In Republic v. Court of Appeals, 25 the

There is nothing in Section 48 (b) that

ATTY. DJUMEIL GERARD P. TINAMPAY

February 5, 1987. Nonetheless, there is

property may be rendered susceptible to

Thus, assuming that it is Section 48 (b)

Accordingly, there must be an express

Being clear that it is Section 14 (2) of

Thus, granting that Isabel and, later,

ATTY. DJUMEIL GERARD P. TINAMPAY

(30) years, this does not operate to

of the inalienable public domain. The

At any rate, as petitioner correctly

Menguito v. Republic teaches, however,

In Republic v. Sarmiento, 29 this Court

All lands of the public domain belong to