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CIV those already made by them, simply to avoid seeming hardships.

Neither abstract justice nor the rule of liberal construction justifies the
Buenaventura vs MBTC creation of a contract for the parties which they did not make
themselves or the imposition upon one party to a contract of an
A duly executed contract is the law between the parties, and, as such, obligation not assumed."20chanrobleslaw
commands them to comply fully and not selectively with its terms. A
contract of adhesion, of itself, does not exempt the parties from Secondly, the petitioner submits that the promissory notes were null
compliance with what was mutually agreed upon by them. and void for being simulated and fictitious; hence, the CA erred in
Ruling enforcing them against her.

The appeal lacks merit. The submission contradicts the records and the law pertinent to
simulated contracts.
First of all, the petitioner claims that the promissory notes she
executed were contracts of adhesion because her only participation in Based on Article 134521 of the Civil Code, simulation of contracts is of
their execution was affixing her signature,11 and that the terms of the two kinds, namely: (1) absolute; and (2) relative. Simulation is absolute
promissory notes should consequently be strictly construed against the when there is color of contract but without any substance, the parties
respondent as the party responsible for their preparation.12 In contrast, not intending to be bound thereby.22 It is relative when the parties
the respondent counters that the terms and conditions of the come to an agreement that they hide or conceal in the guise of another
promissory notes were clear and unambiguous; hence, there was no contract.23chanrobleslaw
room or need for interpretation thereof.13chanrobleslaw
The effects of simulated contracts are dealt with in Article 1346 of the
The respondent is correct. Civil Code, to wit:ChanRoblesVirtualawlibrary
Art. 1346. An absolutely simulated or fictitious contract is void. A
The promissory notes were written as relative simulation, when it does not prejudice a third person and is not
follows:ChanRoblesVirtualawlibrary intended for any purpose contrary to law, morals, good customs, public
FOR VALUE RECEIVED, I/we jointly and severally promise to pay order or public policy binds the parties to their real agreement.
Metropolitan Bank and Trust Company, at its office x x x the principal The burden of showing that a contract is simulated rests on the party
sum of PESOS xxx, Philippine currency, together with interest and impugning the contract. This is because of the presumed validity of the
credit evaluation and supervision fee (CESF) thereon at the effective contract that has been duly executed.24 The proof required to
rate of xxx per centum xxx per annum, inclusive, from date hereof and overcome the presumption of validity must be convincing and
until fully paid.14 preponderant. Without such proof, therefore, the petitioner's allegation
What the petitioner advocates is for the Court to now read into the that she had been made to believe that the promissory notes would be
promissory notes terms and conditions that would contradict their clear guaranties for the rediscounted checks, not evidence of her primary
and unambiguous terms in the guise of such promissory notes being and direct liability under loan agreements,25cralawred could not stand.
contracts of adhesion. This cannot be permitted, for, even assuming
that the promissory notes were contracts of adhesion, such Moreover, the issue of simulation of contract was not brought up in the
circumstance alone did not necessarily entitle her to bar their literal RTC. It was raised for the first time only in the CA.26 Such belatedness
enforcement against her if their terms were unequivocal. It is forbids the consideration of simulation of contracts as an issue. Indeed,
preposterous on her part to disparage the promissory notes for being the appellate courts, including this Court, should adhere to the rule that
contracts of adhesion, for she thereby seems to forget that the validity issues not raised below should not be raised for the first time on
and enforceability of contracts of adhesion were the same as those of appeal. Basic considerations of due process and fairness impel this
other valid contracts. The Court has made this plain in Avon adherence, for it would be violative of the right to be heard as well as
Cosmetics, Inc. v. Luna,15 stating:ChanRoblesVirtualawlibrary unfair to the parties and to the administration of justice if the points of
A contract of adhesion is so-called because its terms are prepared by law, theories, issues and arguments not brought to the attention of the
only one party while the other party merely affixes his signature lower courts should be considered and passed upon by the reviewing
signifying his adhesion thereto. Such contract is just as binding as courts for the first time.
ordinary contracts.
Thirdly, the petitioner insists that the promissory notes, even if valid,
It is true that we have, on occasion, struck down such contracts as void were meant as guaranties to secure payment of the checks by the
when the weaker party is imposed upon in dealing with the dominant issuer, Rene Imperial; hence, her liability was that of a guarantor, and
bargaining party and is reduced to the alternative of taking it or leaving would take effect only upon exhaustion of all properties and after resort
it, completely deprived of the opportunity to bargain on equal footing. to all legal remedies against Imperial.27chanrobleslaw
Nevertheless, contracts of adhesion are not invalid per se and they are
not entirely prohibited. The one who adheres to the contract is in reality The insistence of the petitioner is bereft of merit.
free to reject it entirely, if he adheres, he gives his consent.
The CA rejected this insistence, expounding as
xxxx follows:ChanRoblesVirtualawlibrary
A guaranty is not presumed; it must be expressed (Art. 2055, New Civil
Accordingly, a contract duly executed is the law between the parties, Code). The PNs provide, in clear language, that appellant is primarily
and they are obliged to comply fully and not selectively with its terms. liable thereunder. On the other hand, said PNs do not state that
A contract of adhesion is no exception. Imperial, who is not even privy thereto, is the one primarily liable and
As a rule, indeed, the contract of adhesion is no different from any that appellant is merely a guarantor. Parenthetically, the disclosure
other contract. Its interpretation still aligns with the literal meaning of its statement (Exh. "D") executed by appellant states that PN No. 232711
terms and conditions absent any ambiguity, or with the intention of the is "secured by postdated checks". In other words, it does not appear
parties.16 The terms and conditions of the promissory notes involved that the PNs were executed as guaranty for the payment of the subject
herein, being clear and beyond doubt, should then be enforced checks.
accordingly. In this regard, we approve of the observation by the CA,
citing Cruz v. Court of Appeals, 17 that the intention of the parties Nevertheless, appellant insists that she did not obtain a short-term loan
should be "deciphered not from the unilateral post facto assertions of from appellee but rediscounted the subject checks, with the PNs as
one of the parties, but from the language used in the contract." 18 As guaranty. The contention is untenable.
fittingly declared in The Insular Life Assurance Company, Ltd. vs.
Court of Appeals and Sun Brothers & Company,19 "[w]hen the In Great Asian Sales Center Corporation vs. Court of Appeals (381
language of the contract is explicit leaving no doubt as to the intention SCRA 557), which was cited in support of appellant's claim, the
of the drafters thereof, the courts may not read into it any other Supreme Court explained the meaning of "discounting line",
intention that would contradict its plain import." Accordingly, no court, thus:ChanRoblesVirtualawlibrary
even this Court, can "make new contracts for the parties or ignore

1
"In the financing industry, the term 'discounting line' means a credit all the documents given to her for signature, she remained a layman
facility with a financing company or bank which allows a business faced with and puzzled by complex banking terms; and that her
entity to sell, on a continuing basis, its accounts receivable at a acceding to signing the promissory notes should not be taken against
discount. The term 'discount' means the sale of a receivable at less her as to conclude her.40chanrobleslaw
than its face value. The purpose of a discounting line is to enable a
business entity to generate instant cash out of its receivables which The petitioner's position is unworthy of serious consideration.
are still to mature at future dates. The financing company or bank
which buys the receivables makes its profit out of the difference After having determined that the terms and conditions of the
between the face value of the receivable and the discounted price." promissory notes were clear and unambiguous, and thus should be
A guarantor may bind himself for less, but not for more than the given their literal meaning and not be interpreted differently, we insist
principal debtor, both as regards the amount and the onerous nature of and hold that she should be bound by such terms and conditions.
the conditions (Art. 2054, id). Curiously, the face amounts of the PNs Verily, the promissory notes as contracts should bind both contracting
(totaling P3,000,000.00) are more than those of the subject checks parties; hence, the validity or compliance therewith should not be left to
(totaling P2,897,000.00). And unlike the subject checks, the PNs the will of the petitioner.41 Otherwise, she would contravene and violate
provide for interest, CESF and penalty. the principles of mutuality and of the obligatory force of contracts. A
respected commentator on civil law has written in this
Moreover, the maturity date (July 1, 1997) of PN No. 232663 is ahead respect:ChanRoblesVirtualawlibrary
of the dates (January 5, 1998 and March 31, 1998) of the subject The binding effect of the contract on both parties is based on the
checks. In other words, appellant, as "guarantor", was supposed to principles (1) that obligations arising from contracts have the force of
make good her "guaranty", i.e. PNs in question, even before the law between the contracting parties; and (2) that there must be
"principal" obligations, i.e. subject checks, became due. It is also noted mutuality between the parties based on their essential equality, to
that the rediscounting of the subject checks (in January 1997) occurred which is repugnant to have one party bound by the contract leaving the
months ahead of the execution of PN No. 232711 (on April 17, 1997) other free therefrom.
even as the PNs were supposedly a precondition to said rediscounting.
xxxx
xxxx
Just as nobody can be forced to enter into a contract, in the same
Stated differently, appellant is primarily liable under the subject checks. manner once a contract is entered into, no party can renounce it
She is a principal debtor and not a guarantor. Consequently, the unilaterally or without the consent of the other. It is a general principle
benefit of excussion may not be interposed as a defense in an action of law that no one may be permitted to change his mind or disavow
to enforce appellant's warranty as indorser of the subject checks. and go back upon his own acts, or to proceed contrary thereto, to the
prejudice of the other party.
Moreover, it is absurd that appellant (as maker of the PNs) may act as
guarantor of her own obligations (as indorser of the subject checks). If, after a perfect and binding contract has been executed between the
Thus, Art. 2047 of the New Civil Code provides that "(b)y guaranty, a parties, it occurs to one of them to allege some defect therein as a
person called the guarantor, binds himself to the creditor to fulfill the reason for annulling it, the alleged defect must be conclusively proven,
obligation of the principal debtor in case the latter should fail to do since the validity and fulfillment of contracts cannot be left to the will of
so."28 (Emphasis supplied) one of the contracting parties. The fact that a party may not have fully
The CA was correct. A contract of guaranty is one where a person, the understood the legal effect of the contract is no ground for setting it
guarantor, binds himself or herself to another, the creditor, to fulfill the aside.42
obligation of the principal debtor in case of failure of the latter to do And, lastly, there is need to revise the monetary awards by the CA.
so.29 It cannot be presumed, but must be express and in writing to be Although no issue is raised by the petitioner concerning the monetary
enforceable,30 especially as it is considered a special promise to awards, the Court feels bound to make this revision as a matter of law
answer for the debt, default or miscarriage of another.31 It being clear in order to arrive at a just resolution of the controversy.
that the promissory notes were entirely silent about the supposed
guaranty in favor of Imperial, we must read the promissory notes Involved here are two loans of the petitioner from the respondent,
literally due to the absence of any ambiguities about their language specifically: (1) the principal amount of PI,500,000.00 covered by
and meaning. In other words, the petitioner could not validly insist on Promissory Note No. 232663 to be paid on or before July 1, 1997 with
the guaranty. In addition, the disclosure statements32 and the interest and credit evaluation and supervision fee (CESF) at the rate of
statements of loan release33 undeniably identified her, and no other, as 17.532% per annum and penalty charge of 18% per annum based on
the borrower in the transactions. Under such established the unpaid principal to be computed from the date of default until full
circumstances, she was directly and personally liable for the payment of the obligation; and (2) the principal amount of
obligations under the promissory notes. PI,500,000.00 covered by Promissory Note No. 232711 to be paid on
or before April 7, 1998 with interest and CESF at the rate of 14.239%
Fourth, the petitioner argues that the respondent was immediately . per annum and penalty charge of 18% per annum based on the unpaid
subrogated as the creditor of the accounts by its purchase of the principal to be computed from the date of default until full payment of
checks from her through its rediscounting facility;34 and that legal the obligation.
subrogation should be presumed because the petitioner, a third person
not interested in the obligation, paid the debt with the express or tacit The RTC adjudged the petitioner liable to pay to the respondent the
approval of the debtor.35chanrobleslaw total of P3,553,444.45 representing her outstanding obligation,
including accrued interests and penalty charges under the promissory
The argument is barren of factual and legal support. notes, plus attorney's fees.43 On appeal, the CA ruled that she was
liable to the respondent for the sum of P3,553,444.45 with interest and
Legal subrogration finds no application because there is no evidence penalties at 14.239% per annum and 18% per annum, respectively,
showing that Imperial, the issuer of the checks, had consented to the from July 15, 1998 until fully paid.44chanrobleslaw
subrogation, expressly or impliedly.36 This circumstance was pointed
out by the RTC itself.37 Also, as the CA emphatically observed,38 the The bases of the amounts being claimed from the petitioner were
argument was off-tangent because the suit was not for the recovery of apparently the two statements of past due interest and penalty charges
money by virtue of the checks of Imperial but for the enforcement of as of July 15, 1998, one corresponding to Promissory Note No.
her obligation as the maker of the promissory notes. 232711,45 and the other to Promissory Note No. 232663,46
Respondent's witness Patrick N. Miranda, testifying on the obligation
Fifth, the petitioner posits that she was made to believe by the and the computation thereof,47
manager of the respondent's Timog Avenue, Quezon City Branch that The total of P3,553,444.45 was the final sum of the computations
the promissory notes would be mere guaranties for the rediscounted contained in the statements of past due interest and penalty charges
checks;39 that despite the finding of the RTC and the CA that she was as of July 15, 1998, and was inclusive of interest at the rate of
a seasoned businesswoman presumed to have read and understood 34.991% (on the principal of P1,500,000.00) and 27.901% (on the

2
principal of P1,200,00.00). Yet, such interest rates were different from total obligation within five days from receipt. As the registry return
the interest rates stipulated in the promissory notes, namely: 14.239% receipt indicated,59 the final demand letter was received for the
for promissory Note No. 232711 and 17.532% for Promissory Note No. petitioner by one Elisa dela Cruz on July 28, 1998. Hence, the
232663. As a result, the P3,553,444.45 claimed by the respondent as petitioner had five days from such receipt, or until August 2, 1998,
the petitioner's aggregate oustanding loan obligatopn included interest within which to comply. The reckoning date of default is, therefore,
of almost double the rates stipulated by the parties. August 3, 1998.

We hold that the respondent had no legal basis for imposing rates far As to the penalty charge, the same was warranted for being expressly
higher than those agreed upon and stipulated in the promissory notes. stipulated in the promissory notes, to wit:ChanRoblesVirtualawlibrary
It did not suitably justify the imposition of the increased rates of I/we further agree to pay the Bank, in addition to the agreed interest
34.991% and 27.901%, as borne out by the statements of past due rate, a penalty charge of eighteen per centum (18%) per annum based
interest and penalty charges as of July 15, 1998, although it certainly on any unpaid principal to be computed from date of default until full
was its burden to show the legal and factual support for the imposition. payment of the obligation.60
We need not remind that the burden of proof is the duty of any party to Verily, a penal clause is an accessory undertaking attached to a
present evidence to establish its claim or defense by the amount of principal obligation. It has for its purposes, firstly, to provide for
evidence required by law, which in civil cases is preponderance of liquidated damages; and, secondly, to strengthen the coercive force of
evidence.51 Consequently, we have to strike down the imposition. the obligation by the threat of greater responsibility in the event of
breach of obligation.61 Under Article 1226 of the Civil Code,62 a penal
Parenthetically, we observe that the stipulation in the promissory notes clause is a substitute indemnity for damages and the payment of
on the automatic increase of the interest rate to the prevailing rate52 did interests in case of noncompliance, unless there is a stipulation to the
not justify the increase of the interest rates because the respondent did contrary. In Tan v. Court of Appeals[63] the Court has elaborated on
not adduce evidence about the prevailing rates at the time material to the nature of a penalty clause in the
this case. following:ChanRoblesVirtualawlibrary
Penalty on delinquent loans may take different forms. In Government
On May 16, 2013, the Monetary Board of the Bangko Sentral ng Service Insurance System v. Court of Appeals, this Court has ruled
Pilipinas, in the exercise of its statutory authority to review and fix that the New Civil Code permits an agreement upon a penalty apart
interest rates, issued Circular No. 799, Series of 2013 to lower to 6% from the monetary interest. If the parties stipulate this kind of
per annum the rate of interest for loan or forbearance of any money, agreement, the penalty does not include the monetary interest, and as
goods or credits, and the rate allowed in judgment.53 The revised rate such the two are different and distinct from each other and may be
applies only in the absence of stipulation in loan contracts. Hence, the demanded separately. Quoting Equitable Banking Corp. v. Liwanag,
contractual stipulations on the rates of interest contained in the the GSIS case went on to state that such a stipulation about payment
promissory notes remained applicable. of an additional interest rate partakes of the nature of a penalty clause
which is sanctioned by law, more particularly under Article 2229 of the
Considering that, as mentioned, the P3,553,444.45 was an aggregate New Civil Code which provides that:ChanRoblesVirtualawlibrary
inclusive of the interest {i.e., at the rates of 34.991% and 27.901% per If the obligation consists in the payment of a sum of money, and the
annum); and that the penalty charges contravened the express debtor incurs in delay, the indemnity for damages, there being no
provisions of the promissory notes, the RTC and the CA both erred on stipulation to the contrary, shall be the payment of the interest agreed
a matter of law, and we should correct their error as a matter of law in upon, and the absence of stipulation, the legal interest, which is six per
the interest of justice. cent per annum.
The penalty charge of two percent (2%) per month in the case at bar
It is further held that the CA could not validly apply the lower interest began to accrue from the time of default by the petitioner. There is no
rate of 14.239% per annum to the whole amount of P3,553,444.45 in doubt that the petitioner is liable for both the stipulated monetary
contravention of the stipulation of the parties. In Mallari v. Prudential interest and the stipulated penalty charge. The penalty charge is also
Bank,54 the Court declared that the interest rate of "3% per month and called penalty or compensatory interest.
higher are excessive, unconscionable and exorbitant, hence, the The Court has explained the rate of compensatory interest on
stipulation was void for being contrary to morals." Even so, the Court monetary awards adjudged in decisions of the Court in Planters
did not consider as unconscionable the interest rate of 23% per annum Development Bank v. Lopez,64 citing Nacar v. Gallery Frames [65] to
agreed upon by the parties. Upholding the 23% per annum interest wit:ChanRoblesVirtualawlibrary
rate agreed upon, the Court instead opined that "the borrowers cannot With respect to the computation of compensatory interest, Section 1 of
renege on their obligation to comply with what is incumbent upon them Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013,
under the contract of loan as the said contract is the law between the which took effect on July 1, 2013, provides:ChanRoblesVirtualawlibrary
parties and they are bound by its stipulations."55 Consequently, the Section 1. The rate of interest for the loan or forbearance of any
respondent could not impose the flat interest rate of 14.239% per money, goods or credits and the rate allowed in judgments, in the
annum on the petitioner's loan obligation. Verily, the obligatory force of absence of an express contract as to such rate of interest, shall be six
the stipulations between the parties called for the imposition of the percent (6%) per annum.
interest rates stipulated in the promissory notes. This provision amends Section 2 of Central Bank (CB) Circular No.
905-82, Series of 1982, which took effect on January 1, 1983. Notably,
To accord with the prevailing jurisprudence, the Court pronounces that we recently upheld the constitutionality of CB Circular No. 905-82 in
the respondent was entitled to recover the principal amount of Advocates for Truth in Lending, Inc., et al. v. Bangko Sentral ng
P1,500,000.00 subject to the stipulated interest of 14.239%per annum Pilipinas Monetary Board, etc. Section 2 of CB Circular No. 905-82
from date of default until full payment;56 and the principal amount of provides:ChanRoblesVirtualawlibrary
P1,200,000.00 subject to the stipulated interest of 17.532%per annum Section 2. The rate of interest for the loan or forbearance of any
from date of default until full payment.57chanrobleslaw money, goods or credits and the rate allowed in judgments, in the
absence of express contract as to such rate of interest, shall continue
The next matter to be considered and determined is the date of default. to be twelve percent (12%) per annum.
Pursuant to these changes, this Court modified the guidelines in
According to Article 1169 of the Civil Code, there is delay or default Eastern Shipping Lines, Inc. v. Court of Appeals in the case of Dario
from the time the obligee judicially or extrajudically demands from the Nacar v. Gallery Frames, et al.(Nacar). In Nacar, we established the
obligor the fulfillment of his or her obligation. The records reveal that following guidelines:ChanRoblesVirtualawlibrary
the respondent did not establish when the petitioner defaulted in her
obligation to pay based on the two promissory notes. As such, its claim
I. When an obligation, regardless of its source, i.e., law,
for payment computed from July 15, 1998 until full payment of the
contracts, quasi-contracts, delicts or quasi-delicts is
obligation had no moorings other than July 15, 1998 being the date
breached, the contravenor can be held liable for damages.
reflected in the statements of past due interest and penalty charges as
The provisions under Title XVIII on "Damages" of the Civil
of July 15, 1998. Nonetheless, its counsel, through the letter dated July
Code govern in determining the measure of recoverable
7, 1998,58 made a final demand in writing for the petitioner to settle her
damages.
3
II. With regard particularly to an award of interest in the A petition for the judicial reconstitution of a Torrens title must strictly
concept of actual and compensatory damages, the rate comply with the requirements prescribed in Republic Act No. 26;1
of interest, as well as the accrual thereof, is imposed, as otherwise, the petition should be dismissed.
follows:
This case is a direct resort to the Court by petition for certiorari and
1. When the obligation is breached, and it consists in the mandamus. The petitioner applied for the judicial reconstitution of
payment of a sum of money, i.e., a loan or forbearance Original Certificate of Title (OCT) No. 1609 of the Register of Deeds of
of money, the interest due should be that which may Quezon City, and for the issuance of a new OCT in place thereof,
have been stipulated in writing. Furthermore, the docketed as L.R.C. Case No. Q-18987 (04), but respondent Acting
interest due shall itself earn legal interest from the time Presiding Judge of Branch 85 of the Regional Trial Court (RTC) in
it is judicially demanded. In the absence of stipulation, Quezon City dismissed the petition for reconstitution through the
the rate of interest shall be 6% per annum to be assailed order dated September 12, 2006. The petitioner alleges that
computed from default, i.e., from judicial or extrajudicial the respondent Judge thereby committed grave abuse of discretion
demand under and subject to the provisions of Article and unlawful neglect of performance of an act specifically enjoined
1169 of the Civil Code, (emphasis and underscore upon him. Equally assailed is the ensuing denial of its motion for
supplied) reconsideration through the order dated February 5, 2007.

2. When an obligation, not constituting a loan or forbearance of Ruling


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 The petition for certiorari and mandamus, being devoid of procedural
adjudged on unliquidated claims or damages, except when and substantive merit, is dismissed.
or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with Firstly, certiorari, being an extraordinary remedy, is granted only under
reasonable certainty, the interest shall begin to run from the the conditions defined by the Rules of Court. The conditions are that:
time the claim is made judicially or extrajudicially (Art. 1169, (1) the respondent tribunal, board or officer exercising judicial or quasi
Civil Code), but when such certainty cannot be so judicial functions has acted without or inexcess of its or his jurisdiction,
reasonably established at the time the demand is made, the or with grave abuse of discretion amounting to lack or excess of
interest shall begin to run only from the date the judgment of jurisdiction; and (2) there is no appeal, or any plain, speedy, and
the court is made (at which time the quantification of adequate remedy in the ordinary course of law.19 Without jurisdiction
damages may be deemed to have been reasonably means that the court acted with absolute lack of authority; there is
ascertained). The actual base for the computation of legal excess of jurisdiction when the court transcends its power or acts
interest shall, in any case, be on the amount finally without any statutory authority; grave abuse of discretionimplies such
adjudged. capricious and whimsical exercise of judgment as to be equivalent to
lack or excess of jurisdiction; in other words, power is exercised in an
3. When the judgment of the court awarding a sum of money arbitrary or despotic manner by reason of passion, prejudice, or
becomes final and executory, the rate of legal interest, personal hostility; and such exercise isso patent or so gross as to
whether the case falls under paragraph 1 or paragraph 2, amount to an evasion of a positive duty or to a virtual refusal either to
above, shall be 6% per annum from such finality until its perform the duty enjoined or to act at all in contemplation of law.20
satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.
The petition for certiorari and mandamus did not show how respondent
Judge could have been guilty of lacking or exceeding his jurisdiction, or
And, in addition to the above, judgments that have become final and could have gravely abused his discretion amounting to lack or excess
executory prior to July 1, 2013, shall not be disturbed and shall of jurisdiction. Under Section 1221 of Republic Act No. 26, the law on
continue to be implemented applying the rate of interest fixed therein. the judicial reconstitution of a Torrens title, the Regional Trial Court (as
To accord with the foregoing rulings, the 17.532% and 14.239% annual the successor of the Court of First Instance) had the original and
interest rates shall also respectively earn a penalty charge of 18% per exclusive jurisdiction to act on the petition for judicial reconstitution of
annum reckoned on the unpaid principals computed from the date of title. Hence, the RTC neither lacked nor exceeded its authority in
default (August 3, 1998) until fully paid. This is in line with the express acting on and dismissing the petition. Nor did respondent Judge
agreement between the parties to impose such penalty charge. gravely abuse his discretion amounting to lack or excess of jurisdiction
considering that the petition for reconstitution involved land already
Article 2212 of the Civil Code requires that interest due shall earn legal registered in the name of the UP, as confirmed by the LRA. Instead, it
interest from the time it is judicially demanded, although the obligation would have been contrary to law had respondent Judge dealt with and
may be silent upon this point. Accordingly, the interest due shall itself granted the petition for judicial reconstitution of title of the petitioner.
earn legal interest of 6% per annum from the date of finality of the
judgment until its full satisfaction, the interim period being deemed to
Secondly, the petitioner did not present the duplicate or certified copy
be an equivalent to a forbearance of credit.66chanrobleslaw
of OCT No. 1609. Thereby, it disobeyed Section 2 and Section 3 of
Republic Act No. 26, the provisions that expressly listed the acceptable
WHEREFORE, the Court AFFIRMS the decision promulgated on April
bases for judicial reconstitution of an existing Torrens title, to wit: Sec.
23, 2004 with the MODIFICATION that the petitioner shall pay to the
2. Original certificates of titleshall be reconstituted from such of the
respondent: (1) the principal sum of PI,500,000.00 under Promissory
sources hereunder enumerated asmay be available, in the following
Note No. 232711, plus interest at the rate of 14.239% per annum
order:
commencing on August 3, 1998 until fully paid; (2) the principal sum of
PI,200,000.00 under Promissory Note No. 232663, plus interest at the
rate of 17.532% per annum commencing on August 3, 1998 until fully (a) The owner's duplicate of the certificate of title;
paid; (3) penalty interest on the unpaid principal amounts at the rate of
18% per annum commencing on August 3, 1998 until fully paid; (4)
(b) The co-owner's, mortgagee's,or lessee's duplicate of the
legal interest of 6% per annum on the interests commencing from the
certificate of title;
finality of this judgment until fully paid; (5) attorney's fees equivalent to
10% of the total amount due to the respondent; and (6) costs of suit.
(c) A certified copy of the certificate of title, previously issued
St Mary Crusade vs Hon Riel by the register of deeds or by a legal custodian thereof;

4
(d) An authenticated copy of the decree of registration or Finally, the land covered by the petition for judicial reconstitution
patent, as the case may be, pursuant to which the original related to the same area that formed the UP campus.1wphi1 The
certificate of title was issued; UPs registered ownership of the land comprising its campus has long
been settled under the law. Accordingly, the dismissal of the petition
for judicial reconstitution by respondent Judge only safeguarded the
(e) A document, on file in the registry of deeds, by which the
UPs registered ownership. In so doing, respondent Judge actually
property, the description of which is given in said document,
heeded the clear warnings to the lower courts and the Law Profession
is mortgaged, leased or encumbered, or an authenticated
in general against mounting or abetting any attack against such
copy of said document showing that its original had been
ownership. One such warning was that in Caero v. University of the
registered; and
Philippines,24 as follows:

(f) Any other document which, in the judgment of the court, is


We strongly admonish courts and unscrupulous lawyers to stop
sufficient and proper basis for reconstituting the lost or
entertaining spurious cases seeking further to assail respondent UPs
destroyed certificate of title.
title. These cases open the dissolute avenues of graft to unscrupulous
land-grabbers who prey like vultures upon the campus of respondent
Sec. 3. Transfer certificates of title shall be reconstituted from such of UP. By such actions, they wittingly or unwittingly aid the hucksters who
the sources hereunder enumerated asmay be available, in the want to earn a quick buck by misleading the gullible to buy the
following order: Philippine counterpart of the proverbial London Bridge. It is well past
time for courts and lawyers to cease wasting their time and resources
on these worthless causes and take judicial notice of the fact that
(a) The owner's duplicate of the certificate of title; respondent UPs title had already been validated countless times by
this Court. Any ruling deviating from such doctrine is to be viewed as a
(b) The co-owner's, mortgagee's,or lessee's duplicate of the deliberate intent to sabotage the rule of law and will no longer be
certificate of title; countenanced.25

(c) A certified copy of the certificate of title, previously issued WHEREFORE, the Court DISMISSES the petition for certiorari and
by the register of deeds or by a legal custodian thereof; mandamus for lack of merit; and ORDERS the petitioner to pay the
costs of suit.
(d) The deed of transfer or other document, on file in the
registry of deeds, containing the description of the property, SO ORDERED.
or an authenticated copy thereof, showing that its original
had been registered, and pursuant to which the lost or
destroyed transfer certificate of title was issued; Vector Shipping Corp vs American Home Assurance

Subrogation under Article 2207 of the Civil Code givesrisetoacauseofactioncreatedbylaw.For


(e) A document, on file in the registry of deeds, by which the purposesofthelawontheprescriptionofactions,theperiodoflimitation is ten years .
property, the description of which is given in said document,
is mortgaged, leased or encumbered, or an authenticated Heirs of Mario Malabanan vs RP
copy of said document showing that its original had been
For our consideration and resolution are the motions for
registered; and
reconsideration of the parties who both assail the decision
promulgated on April 29, 2009, whereby we upheld the ruling of the
(f) Any other document which, in the judgment of the court, is Court of Appeals (CA) denying the application of the petitioners for the
sufficient and proper basis for reconstituting the lost or registration of a parcel of land situated in Barangay Tibig, Silang,
destroyed certificate of title. Cavite on the ground that they had not established by sufficient
evidence their right to the registration in accordance with either Section
14(1) or Section 14(2) of Presidential Decree No. 1529 (Property
Thirdly, with the questioned orders of the RTC having finally disposed
Registration Decree).
of the application for judicial reconstitution, nothing more was left for
Ruling
the RTC to do in the case. As of then, therefore, the correct recourse
for the petitioner was to appeal to the Court of Appeals by notice of
We deny the motions for reconsideration.
appeal within 15 days from notice of the denial of its motion for
reconsideration. By allowing the period of appeal toelapse without
In reviewing the assailed decision, we consider to be imperative to
taking action, it squandered its right to appeal. Its present resort to
discuss the different classifications of land in relation to the existing
certiorari is impermissible, for an extraordinary remedy like certiorari
applicable land registration laws of the Philippines.
cannot be a substitute for a lost appeal. That the extraordinary remedy
of certiorari is not an alternative to an available remedy inthe ordinary
Classifications of land according to ownership
course of law is clear from Section 1 of Rule 65, which requires that
there must be no appeal, or any plain, speedy, and adequate remedy
Land, which is an immovable property,10 may be classified as either of
in the ordinary course of law. Indeed, no error of judgment by a court
public dominion or of private ownership.11 Land is considered of public
will be corrected by certiorari, which corrects only jurisdictional
dominion if it either: (a) is intended for public use; or (b) belongs to the
errors.22
State, without being for public use, and is intended for some public
service or for the development of the national wealth.12 Land belonging
Fourthly, the filing of the instant special civil action directly in this Court to the State that is not of such character, or although of such character
is in disregard of the doctrine of hierarchy of courts. Although the Court but no longer intended for public use or for public service forms part of
has concurrent jurisdiction with the Court of Appeals in issuing the writ the patrimonial property of the State.13 Land that is other than part of
of certiorari, direct resort is allowed only when there are special, the patrimonial property of the State, provinces, cities and
extraordinary or compelling reasons that justify the same. The Court municipalities is of private ownership if it belongs to a private
enforces the observance of the hierarchy of courts in order to free itself individual.
from unnecessary, frivolous and impertinent cases and thus afford time
for it to deal with the more fundamental and more essential tasks that Pursuant to the Regalian Doctrine (Jura Regalia), a legal concept first
the Constitution has assigned to it.23 There being no special, introduced into the country from the West by Spain through the Laws
important or compelling reason, the petitioner thereby violated the of the Indies and the Royal Cedulas,14 all lands of the public domain
observance of the hierarchy of courts, warranting the dismissal of the belong to the State.15 This means that the State is the source of any
petition for certiorari. asserted right to ownership of land, and is charged with the

5
conservation of such patrimony.16 All lands not appearing to be clearly Section 48. The following-described citizens of the Philippines,
under private ownership are presumed to belong to the State. Also, occupying lands of the public domain or claiming to own any such
public lands remain part of the inalienable land of the public domain lands or an interest therein, but whose titles have not been perfected
unless the State is shown to have reclassified or alienated them to or completed, may apply to the Court of First Instance of the province
private persons.17cralaw virtualaw library where the land is located for confirmation of their claims and the
issuance of a certificate of title thereafter, under the Land Registration
Classifications of public lands according to alienability Act, to wit:

Whether or not land of the public domain is alienable and disposable xxxx
primarily rests on the classification of public lands made under the
Constitution. Under the 1935 Constitution,18 lands of the public domain (b) Those who by themselves or through their predecessors-in-interest
were classified into three, namely, agricultural, timber and mineral. 19 have been in open, continuous, exclusive, and notorious possession
Section 10, Article XIV of the 1973 Constitution classified lands of the and occupation of alienable and disposable lands of the public domain,
public domain into seven, specifically, agricultural, industrial or under a bona fide claim of acquisition of ownership, since June 12,
commercial, residential, resettlement, mineral, timber or forest, and 1945, or earlier, immediately preceding the filing of the applications for
grazing land, with the reservation that the law might provide other confirmation of title, except when prevented by war or force majeure.
classifications. The 1987 Constitution adopted the classification under These shall be conclusively presumed to have performed all the
the 1935 Constitution into agricultural, forest or timber, and mineral, conditions essential to a Government grant and shall be entitled to a
but added national parks.20 Agricultural lands may be further classified certificate of title under the provisions of this chapter. (Bold emphasis
by law according to the uses to which they may be devoted. 21 The supplied)
identification of lands according to their legal classification is done Note that Section 48(b) of the Public Land Act used the words lands of
exclusively by and through a positive act of the Executive the public domain or alienable and disposable lands of the public
Department.22cralaw virtualaw library domain to clearly signify that lands otherwise classified, i.e., mineral,
forest or timber, or national parks, and lands of patrimonial or private
Based on the foregoing, the Constitution places a limit on the type of ownership, are outside the coverage of the Public Land Act. What the
public land that may be alienated. Under Section 2, Article XII of the law does not include, it excludes. The use of the descriptive phrase
1987 Constitution, only agricultural lands of the public domain may be alienable and disposable further limits the coverage of Section 48(b)
alienated; all other natural resources may not be. to only the agricultural lands of the public domain as set forth in Article
XII, Section 2 of the 1987 Constitution. Bearing in mind such limitations
Alienable and disposable lands of the State fall into two categories, to under the Public Land Act, the applicant must satisfy the following
wit: (a) patrimonial lands of the State, or those classified as lands of requirements in order for his application to come under Section 14(1)
private ownership under Article 425 of the Civil Code,23 without of the Property Registration Decree,28 to wit:chanrobles virtua1aw
limitation; and (b) lands of the public domain, or the public lands as 1ibrary
provided by the Constitution, but with the limitation that the lands must
only be agricultural. Consequently, lands classified as forest or timber,
1. The applicant, by himself or through his predecessor-in-
mineral, or national parks are not susceptible of alienation or
interest, has been in possession and occupation of the
disposition unless they are reclassified as agricultural. 24 A positive act
property subject of the application;
of the Government is necessary to enable such reclassification, 25 and
the exclusive prerogative to classify public lands under existing laws is
vested in the Executive Department, not in the courts. 26 If, however, 2. The possession and occupation must be open, continuous,
public land will be classified as neither agricultural, forest or timber, exclusive, and notorious;
mineral or national park, or when public land is no longer intended for
public service or for the development of the national wealth, thereby 3. The possession and occupation must be under a bona fide
effectively removing the land from the ambit of public dominion, a claim of acquisition of ownership;
declaration of such conversion must be made in the form of a law duly
enacted by Congress or by a Presidential proclamation in cases where 4. The possession and occupation must have taken place since
the President is duly authorized by law to that effect. 27 Thus, until the
June 12, 1945, or earlier; and
Executive Department exercises its prerogative to classify or reclassify
lands, or until Congress or the President declares that the State no
longer intends the land to be used for public service or for the 5. The property subject of the application must be an
development of national wealth, the Regalian Doctrine is applicable. agricultural land of the public domain.

Disposition of alienable public lands Taking into consideration that the Executive Department is vested with
the authority to classify lands of the public domain, Section 48(b) of the
Section 11 of the Public Land Act (CA No. 141) provides the manner Public Land Act, in relation to Section 14(1) of the Property
by which alienable and disposable lands of the public domain, i.e., Registration Decree, presupposes that the land subject of the
agricultural lands, can be disposed of, to wit:chanrobles virtua1aw application for registration must have been already classified as
1ibrary agricultural land of the public domain in order for the provision to apply.
Section 11. Public lands suitable for agricultural purposes can be Thus, absent proof that the land is already classified as agricultural
disposed of only as follows, and not otherwise: land of the public domain, the Regalian Doctrine applies, and
overcomes the presumption that the land is alienable and disposable
(1) For homestead settlement; as laid down in Section 48(b) of the Public Land Act. However,
emphasis is placed on the requirement that the classification required
(2) By sale; by Section 48(b) of the Public Land Act is classification or
reclassification of a public land as agricultural.
(3) By lease; and
The dissent stresses that the classification or reclassification of the
(4) By confirmation of imperfect or incomplete titles; land as alienable and disposable agricultural land should likewise have
been made on June 12, 1945 or earlier, because any possession of
(a) By judicial legalization; or the land prior to such classification or reclassification produced no
legal effects. It observes that the fixed date of June 12, 1945 could not
(b) By administrative legalization (free patent). be minimized or glossed over by mere judicial interpretation or by
The core of the controversy herein lies in the proper interpretation of judicial social policy concerns, and insisted that the full legislative
Section 11(4), in relation to Section 48(b) of the Public Land Act, which intent be respected.
expressly requires possession by a Filipino citizen of the land since
June 12, 1945, or earlier, viz:chanrobles virtua1aw 1ibrary We find, however, that the choice of June 12, 1945 as the reckoning

6
point of the requisite possession and occupation was the sole now run against the State.
prerogative of Congress, the determination of which should best be left
to the wisdom of the lawmakers. Except that said date qualified the To sum up, we now observe the following rules relative to the
period of possession and occupation, no other legislative intent disposition of public land or lands of the public domain,
appears to be associated with the fixing of the date of June 12, 1945. namely:chanrobles virtua1aw 1ibrary
Accordingly, the Court should interpret only the plain and literal (1) As a general rule and pursuant to the Regalian Doctrine, all lands
meaning of the law as written by the legislators. of the public domain belong to the State and are inalienable. Lands
that are not clearly under private ownership are also presumed to
Moreover, an examination of Section 48(b) of the Public Land Act belong to the State and, therefore, may not be alienated or
indicates that Congress prescribed no requirement that the land disposed;
subject of the registration should have been classified as agricultural (2) The following are excepted from the general rule, to wit:
since June 12, 1945, or earlier. As such, the applicants imperfect or (a) Agricultural lands of the public domain are rendered alienable
incomplete title is derived only from possession and occupation since and disposable through any of the exclusive modes
June 12, 1945, or earlier. This means that the character of the property enumerated under Section 11 of the Public Land Act. If the
subject of the application as alienable and disposable agricultural land mode is judicial confirmation of imperfect title under Section
of the public domain determines its eligibility for land registration, not 48(b) of the Public Land Act, the agricultural land subject of the
the ownership or title over it. Alienable public land held by a possessor, application needs only to be classified as alienable and
either personally or through his predecessors-in-interest, openly, disposable as of the time of the application, provided the
continuously and exclusively during the prescribed statutory period is applicants possession and occupation of the land dated back to
converted to private property by the mere lapse or completion of the June 12, 1945, or earlier. Thereby, a conclusive presumption
period.29 In fact, by virtue of this doctrine, corporations may now that the applicant has performed all the conditions essential to a
acquire lands of the public domain for as long as the lands were government grant arises,36 and the applicant becomes the
already converted to private ownership, by operation of law, as a result owner of the land by virtue of an imperfect or incomplete title.
of satisfying the requisite period of possession prescribed by the Public By legal fiction, the land has already ceased to be part of the
Land Act.30 It is for this reason that the property subject of the public domain and has become private property.37
application of Malabanan need not be classified as alienable and (b) Lands of the public domain subsequently classified or declared
disposable agricultural land of the public domain for the entire duration as no longer intended for public use or for the development of
of the requisite period of possession. national wealth are removed from the sphere of public dominion
and are considered converted into patrimonial lands or lands of
To be clear, then, the requirement that the land should have been private ownership that may be alienated or disposed through
classified as alienable and disposable agricultural land at the time of any of the modes of acquiring ownership under the Civil Code.
the application for registration is necessary only to dispute the If the mode of acquisition is prescription, whether ordinary or
presumption that the land is inalienable. extraordinary, proof that the land has been already converted to
private ownership prior to the requisite acquisitive prescriptive
The declaration that land is alienable and disposable also serves to period is a condition sine qua non in observance of the law
determine the point at which prescription may run against the State. (Article 1113, Civil Code) that property of the State not
The imperfect or incomplete title being confirmed under Section 48(b) patrimonial in character shall not be the object of prescription.
of the Public Land Act is title that is acquired by reason of the To reiterate, then, the petitioners failed to present sufficient evidence to
applicants possession and occupation of the alienable and disposable establish that they and their predecessors-in-interest had been in
agricultural land of the public domain. Where all the necessary possession of the land since June 12, 1945. Without satisfying the
requirements for a grant by the Government are complied with through requisite character and period of possession possession and
actual physical, open, continuous, exclusive and public possession of occupation that is open, continuous, exclusive, and notorious since
an alienable and disposable land of the public domain, the possessor June 12, 1945, or earlier the land cannot be considered ipso jure
is deemed to have acquired by operation of law not only a right to a converted to private property even upon the subsequent declaration of
grant, but a grant by the Government, because it is not necessary that it as alienable and disposable. Prescription never began to run against
a certificate of title be issued in order that such a grant be sanctioned the State, such that the land has remained ineligible for registration
by the courts.31cralaw virtualaw library under Section 14(1) of the Property Registration Decree. Likewise, the
land continues to be ineligible for land registration under Section 14(2)
If one follows the dissent, the clear objective of the Public Land Act to of the Property Registration Decree unless Congress enacts a law or
adjudicate and quiet titles to unregistered lands in favor of qualified the President issues a proclamation declaring the land as no longer
Filipino citizens by reason of their occupation and cultivation thereof for intended for public service or for the development of the national
the number of years prescribed by law32 will be defeated. Indeed, we wealth.
should always bear in mind that such objective still prevails, as a fairly
recent legislative development bears out, when Congress enacted WHEREFORE, the Court DENIES the petitioners Motion for
legislation (Republic Act No. 10023)33 in order to liberalize stringent Reconsideration and the respondents Partial Motion for
requirements and procedures in the adjudication of alienable public Reconsideration for their lack of merit.chanroblesvirtualawlibrary
land to qualified applicants, particularly residential lands, subject to
area limitations.34cralaw virtualaw library SO ORDERED.

On the other hand, if a public land is classified as no longer intended Yinlu Bicol Mining Corp vs Trans Asia
for public use or for the development of national wealth by declaration
of Congress or the President, thereby converting such land into Rights pertaining to mining patents issued pursuant to the Philippine
patrimonial or private land of the State, the applicable provision Bill of 1902 and existing prior to November 15, 1935 are vested rights
concerning disposition and registration is no longer Section 48(b) of that cannot be impaired.cralawred
the Public Land Act but the Civil Code, in conjunction with Section
14(2) of the Property Registration Decree.35 As such, prescription can
Heir