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154366 This Petition for Review on Certiorari[1] under Rule

SUPPLY, INC. and Present: 45 of the Rules of Court assails the Resolution[2] dated
LYDIA SIA, February 5, 2002 and the Amended Decision[3] dated
Petitioners, CORONA, C.J., July 5, 2002 of the Court of Appeals in CA-G.R. CV
No. 57216. In the Resolution dated February 5, 2002,
- versus - LEONARDO-DE the Court of Appeals admitted the Motion for
CASTRO, Reconsideration[4] of herein respondents Development
Bank of the Philippines (DBP), Jose To Chip, Patricio
BANK OF THE Yap and Roger Balila, notwithstanding the fact that
PHILIPPINES, JOSE Promulgated: the same was filed more than six months beyond the
TO CHIP, PATRICIO reglementary period. Said motion prayed for the
YAP and ROGER November 17, 2010
BALILA, reversal of the Court of Appeals Decision[5] dated
Respondents. February 14, 2001, which affirmed the
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Decision[6] dated April 25, 1997 of the Regional Trial
- - - - - - - - - - - - - -x
Court (RTC) of Cebu, Branch 8, in Civil Case No.
CEB-10104 that ruled in favor of petitioners. In the
DECISION Amended Decision of July 5, 2002, the Court of
Appeals reversed its previous Decision dated
February 14, 2001 and dismissed the petitioners
complaint for lack of merit.

The facts leading to the instant petition are as follows:

On June 2, 1981, the spouses Rudy R. Robles, Jr. and KNOW ALL MEN BY THESE PRESENTS:
Elizabeth R. Robles entered into a mortgage This Lease Contract made and entered into, by
contract[7] with DBP in order to secure a loan from and between:
the said bank in the amount of P500,000.00. The RUDY ROBLES, JR., Filipino, of legal age,
properties mortgaged were a parcel of land situated in married and resident of 173 Maria Cristina Ext.,
Cebu City, hereinafter referred to as the
Tabunoc, Talisay, Cebu, which was then covered by LESSOR,
Transfer Certificate of Title (TCT) No. T- 47783 of
- and -
the Register of Deeds of Cebu, together with all the
existing improvements, and the commercial building CEBU BIONIC BUILDER SUPPLY,
represented by LYDIA SIA, Filipino, of legal
to be constructed thereon[8] (subject properties). Upon age, married and with address at 240
completion, the commercial building was named the Magallanes St., Cebu City hereinafter known as
State Theatre Building.

On October 28, 1981, Rudy Robles executed The LESSOR is the owner of a commercial
a contract of lease in favor of petitioner Cebu Bionic building along Tabunok, Talisay, Cebu, known
as the State Theatre Building.
Builders Supply, Inc. (Cebu Bionic), a domestic
corporation engaged in the construction business, as The LESSOR agrees to lease unto the LESSEE
and the LESSEE accepts the lease from the
well as the sale of hardware materials. The contract LESSOR, a portion of the ground floor thereof,
pertinently provides: consisting of one (1) unit/store space under the
following terms and conditions:

1. The LESSEE shall pay a monthly
rental of One Thousand (P1,000.00) Pesos,
thus, prompted to effect extrajudicial foreclosure on
Philippine Currency. The rental is payable in the subject properties.[10] On February 6, 1987, DBP
advance within the first five (5) days of the
month, without need of demand;
was the lone bidder in the foreclosure sale and thereby
acquired ownership of the mortgaged subject
2. That the term of this agreement
shall start on November 1, 1981 and shall properties.[11] On October 13, 1988, a final Deed of
terminate on the last day of every month Sale[12] was issued in favor of DBP.
thereafter; provided however that this
contract shall be automatically renewed on a
month to month basis if no notice, in writing, Meanwhile, on June 18, 1987, DBP sent a letter to
is sent to the other party to terminate this
agreement after fifteen (15) days from receipt Bonifacio Sia, the husband of petitioner Lydia Sia
of said notice; who was then President of Cebu Bionic, notifying the
xxxx latter of DBPs acquisition of the State Theatre
Building. Said letter reads:
9. Should the LESSOR decide to sell
the property during the term of this lease
contract or immediately after the expiration June 18, 1987
of the lease, the LESSEE shall have the first
option to buy and shall match offers from Mr. Bonifacio Sia
outside parties.[9] (Emphases ours.) Bionic Builders Inc.
State Theatre Bldg.
Tabunok, Talisay, Cebu

The above contract was not registered by the parties Sir:

thereto with the Registry of Deeds of Cebu.
This refers to the commercial space you are
occupying in the acquired property of the Bank,
formerly owned by Rudy Robles, Jr.
Subsequently, the spouses Robles failed to
settle their loan obligation with DBP. The latter was,
Please be informed that said property has We consider, temporarily, the current
been acquired through foreclosure on monthly rental based on the six-month
February 6, 1987. Considering thereat, we receipts, which we require you to submit,
require you to remit the rental due for June until such time when we will fix the amount
1987. accordingly.

If you wish to continue on leasing the If the contract of lease is not executed within
property, we request you to come to the Bank thirty (30) days from date hereof, it is
for the execution of a Contract of Lease, the construed that you are not interested in
salient conditions of which are as follows: leasing the premises and will vacate within
the said period.
1. The lease will be on month to
month basis, for a maximum Please be guided accordingly.
period of one (1) year;
Truly yours,
2. Deposit equivalent to two (2) months
rental and advance of one (1) (SGD)LUCILO S. REVILLAS
month rental, and the remaining Branch Head[13] (Emphases ours.)
amount for one year period
(equivalent to 9 months rental)
shall be secured by either surety On July 7, 1987, the counsel of Bonifacio Sia replied
bond, cash bond or assigned time to the above letter, to wit:
July 7, 1987
3. That in case there is a better offer or if
the property will be subject of a Mr. Lucilo S. Revillas
purchase offer, within the term, Branch Head
the lessor is given an option of Development Bank of the Philippines
first refusal, otherwise he has to
vacate the premises within thirty Dear Mr. Revillas,
(30) days from date of notice.
This has reference to your letter of 18 June 1987
which you sent to my client, Mr. Bonifacio Sia
of Cebu Bionic Builders Supply the lessee of a For reasons unclear, however, no written contract of
commercial space of the State Theatre Bldg., lease was executed between DBP and Cebu Bionic.
located at Tabunok, Talisay, Cebu.

My client is amenable to the terms contained in In the meantime, subsequent to the acquisition
your letter except the following: of the subject properties, DBP offered the same for
sale along with its other assets. Pursuant thereto, DBP
1. In lieu of item no. 2 thereof, my published a series of invitations to bid on such
client will deposit with your bank the amount of properties, which were scheduled on January 19,
P10,000.00, as assigned time deposit;
1989,[16] February 23, 1989,[17] April 13, 1989,[18] and
2. The 30 days notice you mentioned in November 15, 1990.[19] As no interested bidder came
your letter, (3), is too short. My client is forward, DBP publicized an Invitation on Negotiated
requesting for at least 60 days notice. Sale/Offer, the relevant terms and conditions of which
I sincerely hope that you will give due course to
Thank you.
Truly PHILIPPINES, Cebu Branch, will receive
(SGD) ANASTACIO T. MUNTUERTO, JR.[14] at its Branch Office, DBP Building, Osmea
Boulevard, Cebu City for the sale of its acquired
assets mentioned hereinunder within the 15-
Thereafter, on November 14, 1989, a Certificate of Day-Acceptance-Period starting from
Time Deposit[15] for P11,395.64 was issued in the NOVEMBER 19, 1990 up to 12:00 oclock
name of Bonifacio Sia and the same was allegedly noon of DECEMBER 3, 1990. Sealed offers
remitted to DBP as advance rental deposit. submitted shall be opened by the Committee on
Negotiated Offers at exactly 2:00 oclock in the
afternoon of the last day of the acceptance
period in order to determine the highest and/or Interested negotiated offerors are requested to
most advantageous offer. see Atty. Apolinar K. Panal, Jr., Acquired Asset
in Charge (Tel. No. 9-63-25), in order to secure
Item No. Description/Locatio Starting Price copies of the Letter-Offer form and Negotiated
n Sale Rules and Procedures.

xxxx NOTE: If no offer is received during the

above stated acceptance period, the
II Commercial land, Lot No. properties described above shall be
3681-C-3, having an area of sold to the first offeror who submits
396 sq. m., situated in an acceptable proposal on a First-
Tabunok, Talisay, Cebu and Come-First-Served basis.
covered by TCT No. T-
65199 (DBP), including the City of Cebu, Philippines, November 16, 1990.
commercial building P1,838,100.0
thereon. 0 (SGD.)
xxxx P.
A pre-numbered Acknowledgment Receipt Branch
duly signed by at least two (2) of the [20]
Head (Emphas
Committee members shall be issued to the es ours.)
offeror acknowledging receipt of such offer.
In the morning of December 3, 1990, the last day for
Negotiated offers may be made in CASH or
the acceptance of negotiated offers, petitioners
TERMS, the former requiring a deposit of
10% and the latter 20% of the starting price, submitted through their representative, Judy Garces, a
either in the form of cash or letter-offer form, offering to purchase the subject
cashiers/managers check to be enclosed in the properties for P1,840,000.00. Attached to the letter-
sealed offer. offer was a copy of the Negotiated Sale Rules and
Procedures issued by DBP and a managers check for
the amount of P184,000.00, representing 10% of the
offered purchase price. This offer of petitioners was
not accepted by DBP, however, as the corresponding The counsel of Cebu Bionic replied[24] that his client
deposit therefor was allegedly insufficient. received the above letter on January 11, 1991. He
stated that he has instructed Cebu Bionic to verify first
After the lapse of the above-mentioned 15-day the ownership of the subject properties since it had the
acceptance period, petitioners did not submit any preferential right to purchase the same. He likewise
other offer/proposal to purchase the subject properties. requested that he be furnished a copy of the deed of
sale executed by DBP in favor of respondents To
On December 17, 1990, respondents To Chip, Yap Chip, Yap and Balila.
and Balila presented their letter-offer[21] to purchase
the subject properties on a cash basis On February 15, 1991, respondent To Chip wrote a
for P1,838,100.00. Said offer was accompanied by a letter[25] to the counsel of Cebu Bionic, insisting that
downpayment of 10% of the offered purchase price, he and his co-respondents Yap and Balila urgently
amounting to P183,810.00. On even date, DBP needed the subject properties to pursue their business
acknowledged the receipt of and accepted their plans. He also reiterated their demand for Cebu Bionic
offer. On December 28, 1990, respondents To Chip, to vacate the premises.
Yap and Balila paid the balance of the purchase price
and DBP issued a Deed of Sale[22] over the subject Shortly thereafter, on February 27, 1991, the counsel
properties in their favor. of respondents To Chip, Yap and Balila sent its final
demand letter[26] to Cebu Bionic, warning the latter to
On January 11, 1991, the counsel of respondents To vacate the subject properties within seven (7) days
Chip, Yap and Balila sent a letter[23] addressed to the from receipt of the letter, otherwise, a case for
proprietor of Cebu Bionic, informing the latter of the ejectment with damages will be filed against it.[27]
transfer of ownership of the subject properties. Cebu
Bionic was ordered to vacate the premises within Despite the foregoing notice, Cebu Bionic still
thirty (30) days from receipt of the letter and directed paid[28] to DBP, on March 22, 1991, the amount
to pay the rentals from January 1, 1991 until the end of P5,000.00 as monthly rentals on the unit of the
of the said 30-day period. State Theatre Building it was occupying for period of
November 1990 to March 1991.
On April 10, 1991, petitioners filed against
respondents DBP, To Chip, Yap and Balila 6.2 Negotiated Sale Rules and
Procedures, duly signed by plaintiff, x x x;
a complaint[29] for specific performance, cancellation
of deed of sale with damages, injunction with a prayer 6.3 Managers check for the amount
for the issuance of a writ of preliminary of P184,000 representing 10% of the deposit
injunction.[30] The complaint was docketed as Civil dated December 3, 1990 and issued by Allied
Case No. CEB-10104 in the RTC. Banking Corp. in favor of the Development
Bank of the Philippines. x x x.[31] (Emphasis
Petitioners alleged, inter alia, that Cebu Bionic
was the lessee and occupant of a commercial space in Petitioners asserted that the above documents
the State Theatre Building from October 1981 up to were initially accepted but later returned. DBP
the time of the filing of the complaint. During the allegedly advised petitioners that there was no urgent
latter part of 1990, DBP advertised for sale the State need for the same x x x, considering that the property
Theatre Building and the commercial lot on which the will necessarily be sold to [Cebu Bionic] for the
same was situated. In the prior invitation to bid, the reasons that there was no other interested party and
bidding was scheduled on November 15, 1990; while that [Cebu Bionic] was a preferred party being the
in the next, under the 15-day acceptance period, the lessee and present occupant of the property subject of
submission of proposals was to be made from the lease[.][32] Petitioners then related that, without
November 19, 1990 up to 12:00 noon of December 3, their knowledge, DBP sold the subject properties to
1990. Petitioners claimed that, at about 10:00 a.m. on respondents To Chip, Yap and Balila. The sale was
December 3, 1990, they duly submitted to Atty. claimed to be simulated and fictitious, as DBP still
Apolinar Panal, Jr., Chief of the Acquired Assets of received rentals from petitioners until March 1991. By
DBP, the following documents, namely: acquiring the subject properties, petitioners contended
that DBP was deemed to have assumed the contract of
6.1 Letter-offer form, offering to
purchase the property advertised, for the lease executed between them and Rudy Robles. As
price of P1,840,000, which was higher than the such, DBP was bound by the provision of the lease
starting price of P1,838,100.00 on cash basis. x contract, which stated that:
x x;
9. Should the Lessor decide to sell the that there was no other offeror as of that time, Lydia
property during the term of this lease contract or Sia allegedly summoned back her representative who
immediately after the expiration of the lease, the
did not leave a copy of the letter-offer and the
Lessee shall have the first option to buy and
shall match offers from outside parties.[33] attached documents. DBP maintained that petitioners
documents did not show that the same were received
and approved by any approving authority of the
Petitioners sought the rescission of the contract bank. The letter-offer attached to the complaint, which
of sale between DBP and respondents To Chip, Yap indicated that the mode of payment was on a cash
and Balila. Petitioners also prayed for the issuance of basis, was allegedly not the document shown to
a writ of preliminary injunction, restraining DBP. In addition, DBP argued that there was no
respondents To Chip, Yap and Balila from registering assumption of the lease contract between Rudy Robles
the Deed of Sale in the latters favor and from and petitioners since it acquired the subject properties
undertaking the ejectment of petitioners from the through the involuntary mode of extrajudicial
subject properties. Likewise, petitioners entreated that foreclosure and its request to petitioners to sign a new
DBP be ordered to execute a deed of sale covering the lease contract was simply ignored. DBP, therefore,
subject properties in their name and to pay damages insisted that petitioners occupancy of the unit in the
and attorneys fees. State Theatre Building was merely upon its
acquiescence. The petitioners payment of rentals on
In its answer,[34] DBP denied the existence of a March 22, 1991 was supposedly made in bad faith as
contract of lease between itself and petitioners. DBP they were made to a mere teller who had no
countered that the letter-offer of petitioners was knowledge of the sale of the subject properties to
actually not accepted as their offer to purchase was on respondents To Chip, Yap and Balila. DBP, thus,
a term basis, which therefore required a 20% prayed for the dismissal of the complaint and, by way
deposit. The 10% deposit accompanying the of counterclaim, asked that petitioners be ordered to
petitioners letter-offer was declared insufficient. DBP pay damages and attorneys fees.
stated that the letter-offer form was not completely
filled out as the Term and Mode of Payment fields Respondents To Chip, Yap and Balila no longer
were left blank. DBP then informed petitioner Lydia filed a separate answer, adopting instead the answer of
Sia of the inadequacy of her offer. After ascertaining DBP.[35]
specifically [respondents] To Chip, Balila and
In an Order dated July 31, 1991, the RTC Yap. It is also a fact on record that [respondent]
DBP in its letter dated June 18, 1987 to
granted the prayer of petitioners for the issuance of a
[petitioners] wrote in paragraph 3 thereof, that
writ of preliminary injunction.[37] in case there is better offer or if a property will
be subject of purchase offer, within the term, the
On April 25, 1997, the RTC rendered judgment lessee is given the option of first refusal,
in Civil Case No. CEB-10104, finding meritorious the otherwise, he has to vacate the premises within
complaint of the petitioners. Explained the trial court: thirty (30) days. Yet, [respondent] DBP never
informed [petitioners] that there was an
interested party to buy the property,
It is a fact on record that [petitioners] complied
meaning, [respondents To Chip, Yap and
with the requirements of deposit and advance
Balila], thus depriving [petitioners] of the
rental as conditions for constitution of lease
opportunity of first refusal promised to them
between the parties. [Petitioners] in complying
in its letter dated June 18, 1987. x x
with the requirements, issued a time deposit in
x.[38] (Emphases ours.)
the amount of P11,395.64 and remitted
faithfully its monthly rentals until April, 1991,
which monthly rental was no longer accepted by As regards the offer of petitioners to purchase the
the DBP.Although there was no formal subject properties from DBP, the RTC gave more
written contract executed between credence to the petitioners version of the facts, to wit:
[respondent] DBP and the [petitioners], it is
very clear that DBP opted to continue the old It is also a fact on record that when [respondent]
and previous contract including the terms DBP offered the property for negotiated sale
thereon by accepting the requirements under the 15-day acceptance period[, which]
contained in paragraph 2 of its letter dated ended at noon of December 3, 1991, [Cebu
June 18, 1987. It is also a fact on record that Bionic] submitted its offer, complete with [the
under the lease contract continued by the DBP required documents.] x x x.
on the [petitioners], it is provided in paragraph 9
thereof that the lessee shall have the first option xxxx
to buy and shall match offers from outside
parties. And yet, [respondent] DBP never These requirements, however, were
gave [petitioners] the first option to buy or to unceremoniously returned by [respondent] bank
match offers from outside parties, more with the assurance that since there was no other
bidder of the said property, there was no there was no urgency for the same as there
urgency for the same and that [Cebu Bionic] was no other bidder of [the said] property
also, in all events, is entitled to first option and that Cebu Bionic was entitled to a first
being the present lessee. option to buy being the present lessee. In the
letter also of [respondent] bank dated June 18,
The declaration of Atty. Panal to the effect that 1987, it is important to note that aside from
Cebu Bionic wanted to buy the property on requiring Cebu Bionic to comply with certain
installment terms, such that the deposit requirements of time deposit and advance rental,
of P184,000.00 was insufficient being only 10% as condition for constitution of lease between
of the offer, could not be given much credence the parties and which was complied by Cebu
as it is refuted by Exh. H which is the negotiated Bionic[,] said letter further states in paragraph 3
offer to purchase form under the 15-day thereof that in case there is [a] better offer or if
acceptance period accomplished by [petitioners] the property will be subject of a purchase offer,
which shows clearly the written word Cash after within the term, the lessee is given the option of
the printed words Term and Mode of Payment, first refusal, otherwise, he has to vacate the
Exhibit J, the Managers check issued by Allied premises within thirty days. In answer to the
Banking Corporation dated December 3, 1990 Courts question, however, Atty. Panal admitted
in the amount of P184,000.00 representing 10% that he did not tell [petitioners] that there was
of the offer showing the mode of payment is for another party who was willing to purchase the
cash; Exhibit K which is the application for property, in violation of [petitioners] right of
Managers check in the amount of P184,000.00 first refusal.[39] (Emphasis ours.)
dated December 3, 1990 showing the
beneficiary as DBP. If it is true that the offer Likewise, the RTC found that respondents To Chip,
of [petitioners] was for installment payments, Yap and Balila were aware of the lease contract
then in the ordinary course of human
involving the subject properties before they purchased
behavior, it would not have wasted effort in
securing a Managers check in the amount the same from DBP.Thus:
of P184,000.00 which was insufficient for
20% deposit as required for installment [Respondent] Jose To Chip lamely pretends
payments. More credible is the explanation ignorance that [petitioners] are lessees of the
[given by] witness Judy Garces when she said property, subject matter of this case. He states
that DBP through Atty. Panal returned the that he and his partners, the other [respondents],
documents submitted by her, saying that were given assurances by Atty. Panal of the
DBP that [Lydia Sia] is not a lessee, although he
knew that [petitioners] were presently her was whether she was interested to buy the
occupying the property and that it was property. x x x.[40]
possessed by [petitioners] even before it was
owned by the DBP. x x x.
The trial court, therefore, concluded that:
From the foregoing facts on record, it is thus
[Respondent] Roger Balila, in his testimony, clear that [petitioner] Cebu Bionic is the present
likewise pretended ignorance that he knew that lessee of the property, the lease contract having
[Lydia Sia] was a lessee of the property. x x x. been continued by [respondent] DBP when it
received rental payments up to March of 1991
xxxx as well as the advance rental for one year
represented by the assigned time deposit which
Upon further questioning by the Court, he is still in [respondent] banks possession. The
admitted that [Lydia Sia] was not possessing the provision, therefore, in the lease contract, on the
building freely; that she was a lessee of Rudy right of first option to buy and the right of first
Robles, the former owner, but cleverly insisted refusal contained in [respondent] banks letter
in disowning knowledge that [Lydia Sia] was a dated June 18, 1987, are still subsisting and
lessee, denying knowledge that [Lydia Sia] was binding up to the present, not only on
paying rentals to [respondent] bank. His [respondent] bank but also on [respondents To
pretended ignorance x x x was a way of evading Chip, Yap and Balila]. x x x.
[Cebu Bionics] right of first priority to buy the
property under the contract of lease. x x x The xxxx
Court is convinced that [respondents To Chip,
Yap and Balila] knew that [Cebu Bionic] was WHEREFORE, THE FOREGOING
the present lessee of the property before they PREMISES CONSIDERED, judgment is
bought the same from [respondent] hereby rendered:
bank. Common observation, knowledge and
experience dictates that as a prudent (1) Rescinding the Deed of Sale dated
businessman, it was but natural that he ask December 28, 1990 between
Lydia Sia what her status was in occupying the [respondent] Development Bank of
property when he went to talk to her, that he ask the Philippines and [respondents]
her if she was a lessee. But he said, all he asked
Roger Balila, Jose To Chip and
Patricio Yap; The RTC determined, upon evidence on
record after a careful evaluation of the witnesses
(2) Ordering the [respondent] and their testimonies during the trial that indeed
Development Bank of the [petitioners] right of first option was violated
Philippines to execute a Deed of Sale and thus, rescission of the sale made by DBP to
over the property, subject matter of [respondents To Chip, Yap and Balila] are in
this case upon payment by order.
[petitioners] of the whole
consideration involved and to xxxx
complete all acts or documents
necessary to have the title over said Apparently, DBP accepted [the
property transferred to the name of documents submitted by petitioners] and
[petitioners]; thereafter, through Atty. Panal (of DBP),
returned all of it to the [petitioners] with the
(3) Costs against [respondents].[41] assurance that since there was no other bidder of
the said property, there was no urgency for the
same and that [Cebu Bionic] also, in all events,
DBP forthwith filed a Notice of is entitled to first option being the present
Appeal. Respondents To Chip, Yap and Balila filed lessee.
a Motion for Reconsideration[43] of the above
[DBP] maintains that the return of the
decision, but the RTC denied the same in an documents [submitted by petitioners] was in
Order[44] dated July 4, 1997. Said respondents then order since the [petitioners] offered to buy the
filed their Notice of Appeal.[45] property in question on installment basis
requiring a higher 20% deposit. This, however,
On February 14, 2001, the Court of Appeals was correctly rejected by the trial court[.] x x x
promulgated its Decision,[46] pronouncing that:
The binding effect of the lease
agreement upon the [respondents To Chip, Yap
We find nothing erroneous with the and Balila] must be sustained since from
judgment rendered by the trial court. Perforce, existing jurisprudence cited by the lower court,
We sustain it and dismiss the [respondents] it was determined during trial that:
unless for [strong] and cogent reasons. These
... [respondents To findings generally, so long as supported by
Chip, Yap and Balila] knew evidence on record, are not to be disturbed
that [Cebu Bionic] was the unless there are some facts or evidence which
present lessee of the property the trial court has misappreciated or overlooked,
before they bought the same and which if considered would have altered the
from [respondent] results of the entire case. Sad to say for the
bank.Common observation, [respondents], We see no reason to depart from
knowledge and experience this well-settled legal principle.
dictates that as a prudent
businessman, it was but WHEREFORE, in view of the
natural that he ask Lydia Sia foregoing, the judgment of the Regional Trial
what her status was in Court of Cebu City, Branch 8, in Civil Case No.
occupying the property when 10104 is hereby AFFIRMED in toto.[47]
he went to talk to her, that he
ask her if she was a lessee. But
he said, all he asked her was On October 1, 2001, petitioners filed a Motion
whether she was interested to for Issuance of Entry of Judgment.[48] Petitioners
buy the property. x x x.
stressed that, based on the records of the case,
Moreover, We find that the submissions respondents were served a copy of the Court of
presented by the [respondents] in their Appeals Decision dated February 14, 2001 sometime
respective briefs argue against questions of facts on March 7, 2001. However, petitioners discovered
as found and determined by the lower court. The that respondents have not filed any motion for
respondents contentions consist of crude reconsideration of the said decision within the
attempts to question the assessment and
evaluation of testimonies and other evidence
reglementary period therefor, nor was there any
gathered by the trial court. petition for certiorari or appeal filed before the
Supreme Court.
It must be remembered that findings of
fact as determined by the trial court are entitled In response to the above motion, respondents
to great weight and respect from appellate To Chip, Yap and Balila filed on October 8, 2001 a
courts and should not be disturbed on appeal
Motion to Admit Motion for Reconsideration.[49] Atty.
Francis M. Zosa, the counsel for respondents To Chip, we are convinced that DBP had terminated the
Yap and Balila, explained that he sent copies of the Robles lease contract. From its letter of June 18,
1987, DBP had expressly notified [petitioners]
motion for reconsideration to petitioners and
that (I)f they wish to continue on leasing the
DBP via personal delivery. On the other hand, the property x x x to come to the Bank for the
copies of the motion to be filed with the Court of execution of a Contract of Lease, the salient
Appeals were purportedly sent to Mr. Domingo Tan, a conditions of which are as follows:
friend of Atty. Zosa in Quezon City, who agreed to
file the same personally with the appellate court in 1. The lease will be on a month to
month basis for a maximum period of one (1)
Manila. When Atty. Zosa inquired if the motion for
reconsideration was accordingly filed, Mr. Tan
allegedly answered in the affirmative. To his surprise, 2. Deposit equivalent to two (2)
Atty. Zosa received a copy of petitioners Motion for months rental and advance of one (1) month
Issuance of Entry of Judgment. Atty. Zosa, thus, rental, and the remaining amount for one
attributed the failure of his clients to file a motion for year (equivalent to 9 months rental) shall be
secured by either surety bond, cash bond or
reconsideration on the mistake, excusable negligence
assigned time deposit;
and/or fraud committed by Mr. Tan.
3. That in case there is a better offer
In the assailed Resolution dated February 5, or if the property will be subject of a
2002, the Court of Appeals granted the motion of purchase offer, within the term, the lessor is
respondents To Chip, Yap and Balila and admitted the given an option of first refusal, otherwise he
has to vacate the premises within thirty (30)
motion for reconsideration attached therewith in the
days from date of notice.
higher interest of substantial justice.[50]
We consider, temporarily, the current
On July 5, 2002, the Court of Appeals reversed monthly rental based on the six-month receipts,
its original Decision dated February 14, 2001, which we require you to submit, until such time
reasoning thus: when we will fix the amount accordingly.

Evidently, except for the remittance of

After a judicious review and
the monthly rentals up to March 1991, the
reevaluation of the evidence and facts on record,
conditions imposed by DBP have never been Here, a notice was sent to [petitioners] on June
complied with. [Petitioners] did not go to the 18, 1987, informing them that if they wish to
Bank to sign any new written contract of lease continue on leasing the property, we request you
with DBP. [Petitioners] also did not put up a to come to the Bank for the execution of a
surety bond nor cash bond nor assign a time Contract of Lease x x x.
deposit to secure the payment of rental for nine
(9) months, although the [petitioners] opened a [Petitioners] failed to enter into the
time deposit but did not assign it to DBP. contract of lease required by DBP for it to
continue occupying the leased premises.
But even with the remittance and
acceptance of the deposit made by [petitioners] Because of [petitioners] failure to
equivalent to two (2) months rental and advance comply with the conditions embodied in the 18
of one (1) month rental it does not necessarily June 1987 letter, it cannot be said that
follow that DBP opted to continue with the [petitioners] entered into a new contract with
Robles lease. This is because the Robles DBP where they were given the first option to
contract provides: buy the leased property and to match offers
from outside parties.
That the term of the
agreement shall start on xxxx
November 1, 1981 and shall
terminate on the last day of Be that as it may, DBP continued to
every month thereafter, accept the monthly rentals based on the old
provided however, that this Robles contract despite the fact that the
contract shall be automatically [petitioners] failed to enter into a written lease
renewed on a month to month contract with it.Corollarily, the relations
basis if no notice in writing is between the parties is now governed by Article
sent to the other party to 1670 of the New Civil Code, thus:
determine to terminate this
agreement after fifteen (15) Art. 1670. If at the end of
days from the receipt of said contract the lessee should
notice. continue enjoying the thing
leased for fifteen days with the
acquiescence of the lessor, and
unless a notice to the contrary by for rescission of the deed of sale executed by
either party has previously been DBP in favor of [respondents To Chip, Yap and
given, it is understood that there Balila] because said deed of sale did not violate
is an implied new lease, not for their alleged first option to buy or match offers
the period of the original from outside parties which is legally non-
contract, but for the time existent and which was not impliedly renewed
established in Articles 1682 and under Article 1670 of the Civil Code.
1687. The other terms of the
original contract shall be revived. WHEREFORE, premises considered,
the 14 February 2001 Decision is
xxxx hereby RECONSIDERED and another one
is issued REVERSING the 25 April 1997
x x x [T]he acceptance by DBP of the Decision of the Regional Trial Court, Branch 8,
monthly rentals does not mean that the terms of Cebu City in Civil Case No. CEB-10104 and
the Robles contract were revived. In the case the complaint of [petitioners]
of Dizon vs. Court of Appeals, the Supreme is DISMISSED for lack of merit.[51]
Court declared that: Without seeking a reconsideration of the above
decision, petitioners filed the instant petition. In their
The other terms of the
Comment, respondents opposed the petition on both
original contract of lease which
are revived in the implied new procedural and substantive grounds.
lease under Article 1670 of the
New Civil Code are only those In petitioners Memorandum, they summarized
terms which are germane to the the issues to be resolved in the present case as
lessees right [of] continued follows:
enjoyment of the property leased
an implied new lease does
not ipso facto carry with it any
implied revival of any option to
purchase the leased premises.

In view of the foregoing, it is clear that WHETHER OR NOT THE

[petitioners] had no right to file a case VERIFICATION (AND



PETITIONERS RIGHT OF FIRST Except for the powers which are expressly
REFUSAL TO WHICH RESPONDENTS conferred on it by the Corporation Code and those that
WERE BOUND are implied by or are incidental to its existence, a
corporation has no powers. It exercises its powers
VI through its board of directors and/or its duly
authorized officers and agents. Thus, its power to sue
OF APPEALS ERRED WHEN IT and be sued in any court is lodged with the board of
FAILED TO DECLARE THAT directors that exercises its corporate
RESPONDENT DBP HAD VIOLATED powers. Physical acts, like the signing of
PETITIONERS RIGHTS documents, can be performed only by natural persons
duly authorized for the purpose by corporate by-laws
VII or by a specific act of the board of directors.[54]
WHETHER OR NOT THE HON. COURT OF In this case, respondents To Chip, Yap and
Balila obviously overlooked the Secretarys
PETITIONERS CLAIM FOR RESCISSION[52] Certificate[55] attached to the instant petition, which
was executed by the Corporate Secretary of Cebu
Bionic. Unequivocally stated therein was the fact that
We shall first resolve the preliminary issues. the Board of Directors of Cebu Bionic held a special
meeting on July 26, 2002 and they thereby approved a
Respondents To Chip, Yap and Balila argue that the Resolution authorizing Lydia Sia to elevate the
instant petition should be dismissed outright as the present case to this Court in behalf of Cebu Bionic, to
verification and certification of non-forum shopping wit:
was executed only by petitioner Lydia Sia in her
personal capacity, without the participation of Cebu Whereas, the board appointed LYDIA I.
Bionic. SIA to act and in behalf of the corporation to
file the CERTIORARI with the Supreme Court
in relations to the decision of the Court of
The Court is not persuaded. Appeals dated July 5, 2002 which reversed its
own judgment earlier promulgated on February distinctly set forth. A question of law arises when
14, 2001 entitled CEBU BIONIC BUILDERS there is doubt as to what the law is on a certain state
SUPPLY, INC. and LYDIA SIA, (Petitioners-
of facts, while there is a question of fact when the
Appellants) versus THE DEVELOPMENT
BANK OF THE PHILIPPINES, JOSE TO doubt arises as to the truth or falsity of the alleged
CHIP, PATRICIO YAP and ROGER BALILA facts. For a question to be one of law, the same must
(Respondents- Appelles), docketed CA-G.R. not involve an examination of the probative value of
NO. 57216. the evidence presented by the litigants or any of
them. The resolution of the issue must rest solely on
Whereas, on mass unanimously motion
what the law provides on the given set of
of all members of directors present hereby
approved the appointment of LYDIA I. SIA to circumstances. Once it is clear that the issue invites a
act and sign all papers in connection of CA-G.R. review of the evidence presented, the question posed
NO. 57216. is one of fact.[57]
Resolved and it is hereby resolve to The above rule, however, admits of certain
appoint and authorized LYDIA I. SIA to sign
exceptions,[58] one of which is when the findings of
and file with the SUPREME COURT in
connection to decision of the Court of Appeals the Court of Appeals are contrary to those of the trial
as above mention.[56] court. As will be discussed further, this exception is
attendant in the case at bar.

Respondents To Chip, Yap and Balila next We now determine the principal issues put
argue that the instant petition raises questions of fact, forward by petitioners.
which are not allowed in a petition for review
on certiorari. They, therefore, submit that the factual First off, petitioners fault the Court of Appeals
findings of the Court of Appeals are binding on this for admitting the Motion for Reconsideration of its
Court. Decision dated February 14, 2001, which was filed by
respondents To Chip, Yap and Balila more than six
Section 1, Rule 45 of the Rules of Court months after receipt of the said decision. The motion
categorically states that the petition filed thereunder was eventually granted and the Court of Appeals
shall raise only questions of law, which must be
issued its assailed Amended Decision, ruling in favor negligence of the party favored by the
of respondents. suspension of the rules, (e) a lack of any
showing that the review sought is merely
frivolous and dilatory, and (f) the other party
Indeed, the appellate courts Decision dated will not be unjustly prejudiced thereby.[60]
February 14, 2001 would have ordinarily attained
finality for failure of respondents to seasonably file
their Motion for Reconsideration thereon. However, In this case, what are involved are the property
we agree with the Court of Appeals that the higher rights of the parties given that, ultimately, the
interest of substantial justice will be better served if fundamental issue to be determined is who among the
respondents procedural lapse will be excused. petitioners and respondents To Chip, Yap and Balila
has the better right to purchase the subject
Verily, we had occasion to apply this liberality properties. More importantly, the merits of the case
in the application of procedural rules in Barnes v. sufficiently called for the suspension of the rules in
Padilla[59] where we aptly declared that order to settle conclusively the rights and obligations
of the parties herein.
The failure of the petitioner to file his motion
for reconsideration within the period fixed by
In essence, the questions that must be resolved
law renders the decision final and
executory. Such failure carries with it the result are: 1) whether or not there was a contract of lease
that no court can exercise appellate jurisdiction between petitioners and DBP; 2) if in the affirmative,
to review the case. Phrased elsewise, a final and whether or not this contract contained a right of first
executory judgment can no longer be attacked refusal in favor of petitioners; and 3) whether or not
by any of the parties or be modified, directly or respondents To Chip, Yap and Balila are likewise
indirectly, even by the highest court of the land.
bound by such right of first refusal.
However, this Court has relaxed this rule
in order to serve substantial justice considering Petitioners contend that there was a contract of
(a) matters of life, liberty, honor or property, (b) lease between them and DBP, considering that they
the existence of special or compelling had been allowed to occupy the premises of the
circumstances, (c) the merits of the case, (d) a subject property from 1987 up to 1991 and DBP
cause not entirely attributable to the fault or
received their rental payments corresponding to the of a piece of land which is under a lease that is not
said period. Petitioners claim that DBP were aware of recorded in the Registry of Property may terminate
their lease on the subject property when the latter the lease, save when there is a stipulation to the
foreclosed the same and the acquisition of the subject contrary in the contract of sale, or when the purchaser
properties through foreclosure did not terminate the knows of the existence of the lease. In short, the buyer
lease. Petitioners subscribe to the ruling of the RTC at the foreclosure sale, as a rule, may terminate an
that even if there was no written contract of lease, unregistered lease except when it knows of the
DBP chose to continue the existing contract of lease existence of the lease.
between petitioners and Rudy Robles by accepting the
requirements set down by DBP on the letter dated In the instant case, the lease contract between
June 18, 1987. Petitioners likewise posit that the petitioners and Rudy Robles was not
contract of lease between them and Rudy Robles registered. During trial, DBP denied having any
never expired, inasmuch as the contract did not have a knowledge of the said lease contract.[63] It asserted
definite term and none of the parties thereto that the lease was merely presumed in view of the
terminated the same. In view of the continuation of existence of tenants in the subject
the lease contract between petitioners and Rudy property. Nevertheless, DBP recognized and
Robles, petitioners submit that Article 1670 of the acknowledged this lease contract in its letter dated
Civil Code on implied lease is not applicable on the June 18, 1987, which was addressed to Bonifacio Sia,
instant case. then President of Cebu Bionic. DBP even required Sia
to pay the monthly rental for the month of June 1987,
We are not persuaded. thereby exercising the right of the previous lessor,
Rudy Robles, to collect the rental payments from the
In Uy v. Land Bank of the Philippines,[61] the lessee. In the same letter, DBP extended an offer to
Court held that [i]n respect of the lease on the Cebu Bionic to continue the lease on the subject
foreclosed property, the buyer at the foreclosure sale property, outlining the provisions of the proposed
merely succeeds to the rights and obligations of the contract and specifically instructing the latter to come
pledgor-mortgagor subject to the provisions of Article to the bank for the execution of the same. DBP
1676 of the Civil Code on its possible likewise gave Cebu Bionic a 30-day period within
termination. This article provides that [t]he purchaser which to act on the said contract execution. Should
Cebu Bionic fail to do so, it would be deemed In Metropolitan Manila Development Authority
uninterested in continuing with the lease. In that v. JANCOM Environmental Corporation,[65] we
eventuality, the letter states that Cebu Bionic should emphasized that:
vacate the premises within the said period.
Under Article 1305 of the Civil Code,
Instead of acceding to the terms of the [a] contract is a meeting of minds between two
persons whereby one binds himself, with respect
aforementioned letter, the counsel of Cebu Bionic sent
to the other, to give something or to render some
a counter-offer to DBP dated July 7, 1987, suggesting service. A contract undergoes three distinct
a different mode of payment for the rentals and stages preparation or negotiation, its perfection,
requesting for a 60-day period within which time the and finally, its consummation. Negotiation
parties will execute a new contract of lease. begins from the time the prospective contracting
parties manifest their interest in the contract and
ends at the moment of agreement of the
The parties, however, failed to execute a
parties. The perfection or birth of the contract
written contract of lease. Petitioners put the blame on takes place when the parties agree upon the
DBP, asserting that no contract was signed because essential elements of the contract. The last stage
DBP did not prepare it for them. DBP, on the other is the consummation of the contract wherein the
hand, counters that it was petitioners who did not parties fulfill or perform the terms agreed upon
positively act on the conditions for the execution of in the contract, culminating in the
extinguishment thereof (Bugatti vs. CA, 343
the lease contract. In view of the counter-offer of
SCRA 335 [2000]). Article 1315 of the Civil
petitioners, DBP and respondents To Chip, Yap and Code, provides that a contract is perfected by
Balila argue that there was no meeting of minds mere consent. Consent, on the other hand, is
between DBP and petitioners, which would have manifested by the meeting of the offer and the
given rise to a new contract of lease. acceptance upon the thing and the cause which
are to constitute the contract (See Article 1319,
Civil Code). x x x.[66]
The Court rules that, indeed, no new contract of
lease was ever perfected between petitioners and
DBP. In the case at bar, there was no concurrence of
offer and acceptance vis--vis the terms of the proposed
lease agreement. In fact, after the reply of petitioners month rental, and the remaining
counsel dated July 7, 1987, there was no indication amount for one year period
(equivalent to 9 months rental)
that the parties undertook any other action to pursue
shall be secured by either surety
the execution of the intended lease bond, cash bond or assigned time
contract. Petitioners even admitted that they merely deposit;
waited for DBP to present the contract to them,
despite being instructed to come to the bank for the 3. That in case there is a better
execution of the same.[67] offer or if the property will be
subject of a purchase offer,
within the term, the lessor is
Contrary to the ruling of the RTC, the Court is given an option of first refusal,
also not convinced that DBP opted to continue the otherwise he has to vacate the
existing lease contract between petitioners and Rudy premises within thirty (30) days
Robles. from date of notice.[68]

The findings of the RTC that DBP supposedly

accepted the requirements the latter set forth in its The so-called requirements enumerated in the
letter dated June 18, 1987 is not well taken. To above paragraph are not really requirements to be
recapitulate, the third paragraph of the letter reads: complied with by the petitioners for the execution of
the proposed lease contract, as apparently considered
If you wish to continue on leasing the by the RTC and the petitioners. A close reading of the
property, we request you to come to the Bank letter reveals that the items enumerated therein were
for the execution of a Contract of Lease, the in fact the salient terms and conditions of the
salient conditions of which are as follows: proposed contract of lease, which the DBP and the
petitioners were to execute if the latter were so
1. The lease will be on month to willing. Also, the Certificate of Time Deposit in the
month basis, for a maximum amount of P11,395.64, which was allegedly paid to
period of one (1) year; DBP as advance rental deposit pursuant to the said
2. Deposit equivalent to two (2) months requirements, was not even clearly established as such
rental and advance of one (1)
since it was neither secured by a security bond or a of its letter dated June 18, 1987. We reiterate that the
cash bond, nor was it assigned to DBP. letter explicitly directed the petitioners to come to the
office of the DBP if they wished to enter into a new
The contention that the lease contract between lease agreement with the said bank. Otherwise, if no
petitioners and Rudy Robles did not expire, given that contract of lease was executed within 30 days from
it did not have a definite term and the parties thereto the date of the letter, petitioners were to be considered
failed to terminate the same, deserves scant uninterested in entering into a new contract and were
consideration. To recall, the second paragraph of the thereby ordered to vacate the property. As no new
terms and conditions of the contract of lease between contract was in fact executed between petitioners and
petitioners and Rudy Robles reads: DBP within the 30-day period, the directive to vacate,
thus, took effect. DBPs letter dated June 18, 1987,
2. That the term of this agreement shall start on therefore, constituted the written notice that was
November 1, 1981 and shall terminate on required to terminate the lease agreement between
the last day of every month thereafter;
petitioners and Rudy Robles. From then on, the
provided however that this contract shall be
automatically renewed on a month to month petitioners continued possession of the subject
basis if no notice, in writing, is sent to the property could be deemed to be without the consent of
other party to terminate this agreement after DBP.
fifteen (15) days from receipt of said
notice.[69] (Emphases ours.) Thusly, petitioners assertion that Article 1670
of the Civil Code is not applicable to the instant case
Crystal clear from the above provision is that is correct. The reason, however, is not that the
the lease is on a month-to-month basis. Relevantly, existing contract was continued by DBP, but because
the well-entrenched principle is that a lease from the lease was terminated by DBP, which termination
month-to-month is with a definite period and expires was accompanied by a demand to petitioners to vacate
at the end of each month upon the demand to vacate the premises of the subject property.
by the lessor.[70] As held by the Court of Appeals in
the assailed Amended Decision, the above-mentioned Article 1670 states that [i]f at the end of the
lease contract was duly terminated by DBP by virtue contract the lessee should continue enjoying the thing
leased for fifteen days with the acquiescence of the
lessor, and unless a notice to the contrary by either demand to vacate the properties. These facts
party has previously been given, it is understood that substantially weaken, if not controvert, the finding of
there is an implied new lease, not for the period of the the RTC and the argument of petitioners that the latter
original contract, but for the time established in were faithfully remitting their rental payments to DBP
Articles 1682 and 1687. The other terms of the until the year 1991.
original contract shall be revived. In view of the order
to vacate embodied in the letter of DBP dated June 18, Thus, having determined that the petitioners
1987 in the event that no new lease contract is entered and DBP neither executed a new lease agreement, nor
into, the petitioners continued possession of the entered into an implied lease contract, it follows that
subject properties was without the acquiescence of petitioners claim of entitlement to a right of first
DBP, thereby negating the constitution of an implied refusal has no leg to stand on. Furthermore, even if we
lease. were to grant, for the sake of argument, that an
implied lease was constituted between petitioners and
Contrary to the ruling of the RTC, DBPs the DBP, the right of first refusal that was contained
acceptance of petitioners rental payments in the prior lease contract with Rudy Robles was not
of P5,000.00 for the period of November 1990 to renewed therewith. This is in accordance with the
March 1991 did not likewise give rise to an implied ruling in Dizon v. Magsaysay,[72] which involved the
lease between petitioners and DBP. In Tagbilaran issue of whether a provision regarding a preferential
Integrated Settlers Association (TISA) Incorporated v. right to purchase is revived in an implied lease under
Court of Appeals,[71] we held that the subsequent Article 1670, to wit:
acceptance by the lessor of rental payments does not,
absent any circumstance that may dictate a contrary [T]he other terms of the original contract which
conclusion, legitimize the unlawful character of their are revived in the implied new lease under
Article 1670 are only those terms which are
possession. In the present case, the petitioners rental
germane to the lessees right of continued
payments to DBP were made in lump sum on March enjoyment of the property leased. This is a
22, 1991. Significantly, said payments were remitted reasonable construction of the provision, which
only after petitioners were notified of the sale of the is based on the presumption that when the lessor
subject properties to respondents To Chip, Yap and allows the lessee to continue enjoying
Balila and after the petitioners were given a final possession of the property for fifteen days after
the expiration of the contract he is willing that and the Amended Decision dated July 5, 2002 of the
such enjoyment shall be for the entire period Court of Appeals in CA-G.R. CV No. 57216 are
corresponding to the rent which is customarily
hereby AFFIRMED. No costs.
paid in this case up to the end of the month
because the rent was paid monthly. Necessarily,
if the presumed will of the parties refers to the SO ORDERED.
enjoyment of possession the presumption covers GOVERNMENT SERVICE G.R. Nos. 158090
the other terms of the contract related to such INSURANCE SYSTEM (GSIS), Present:
possession, such as the amount of rental, the Petitioner,
date when it must be paid, the care of the
property, the responsibility for repairs, etc. But
no such presumption may be indulged in with NACHURA,** J., Act
respect to special agreements which by nature - versus - Chairperson,
are foreign to the right of occupancy or PERALTA,
enjoyment inherent in a contract of lease.[73] MENDOZA, and
DBP cannot, therefore, be accused of violating
CABALLERO, represented by his Promulgated:
the rights of petitioners when it offered the subject October 4, 2010
daughter, JOCELYN G.
properties for sale, and eventually sold the same to
respondents To Chip, Yap and Balila, without first Respondents.
notifying petitioners. Neither were the said x----------------------------------------------------------------
respondents bound by any right of first refusal in -------------------------x
favor of petitioners. Consequently, the sale of the
subject properties to respondents was
valid. Petitioners claim for rescission was properly

WHEREFORE, the Petition for Review PERALTA, J.:

on Certiorari under Rule 45 of the Rules of Court
is DENIED. The Resolution dated February 5, 2002
Before this Court is a petition for review note. Fernando and his wife likewise executed a real
on certiorari under Rule 45 of the Rules of Court estate mortgage on the same date, mortgaging the
seeking to set aside the Decision[1] and the afore-stated property as security.
Resolution,[2] dated December 17, 2002 and April 29, Fernando defaulted on the payment of his loan with
2003, respectively, of the Court of Appeals (CA) in the GSIS. Hence, on January 20, 1973, the mortgage
CA-G.R. CV. No. 49300. covering the subject property was foreclosed, and on
March 26, 1973, the same was sold at a public auction
The antecedents are as follows: where the petitioner was the only bidder in the amount
of P36,283.00. For failure of Fernando to redeem the
Respondent Fernando C. Caballero (Fernando) was said property within the designated period, petitioner
the registered owner of a residential lot designated as executed an Affidavit of Consolidation of Ownership
Lot No. 3355, Ts-268, covered by TCT No. T-16035 on September 5, 1975. Consequently, TCT No. T-
of the Register of Deeds of Cotabato, containing an 16035 was cancelled and TCT No. T-45874 was
area of 800 square meters and situated at Rizal Street, issued in the name of petitioner.
Mlang, Cotabato. On the said lot, respondent built a On November 26, 1975, petitioner wrote a letter to
residential/commercial building consisting of two (2) Fernando, informing him of the consolidation of title
stories. in its favor, and requesting payment of monthly rental
in view of Fernando's continued occupancy of the
On March 7, 1968, Fernando and his wife, Sylvia subject property. In reply, Fernando requested that he
Caballero, secured a loan from petitioner Government be allowed to repurchase the same through partial
Service Insurance System (GSIS) in the amount payments. Negotiation as to the repurchase by
of P20,000.00, as evidenced by a promissory Fernando of the subject property went on for several
years, but no agreement was reached between the Due to the foregoing, Fernando, represented by his
parties. daughter and attorney-in-fact, Jocelyn Caballero, filed
with the Regional Trial Court (RTC) of Kabacan,
On January 16, 1989, petitioner scheduled the subject Cotabato a Complaint[3] against CMTC, the GSIS and
property for public bidding. On the scheduled date of its responsible officers, and the Register of Deeds of
bidding, Fernando's daughter, Jocelyn Caballero, Kidapawan, Cotabato. Fernando prayed, among
submitted a bid in the amount of P350,000.00, while others, that judgment be rendered: declaring GSIS
Carmelita Mercantile Trading Corporation (CMTC) Board of Trustees Resolution No. 199, dated May 16,
submitted a bid in the amount of P450,000.00. Since 1989, null and void; declaring the Deed of Absolute
CMTC was the highest bidder, it was awarded the Sale between petitioner and CMTC null and void ab
subject property. On May 16, 1989, the Board of initio; declaring TCT No. 76183 of the Register of
Trustees of the GSIS issued Resolution No. 199 Deeds of Kidapawan, Cotabato, likewise, null and
confirming the award of the subject property to void ab initio; declaring the bid made by Fernando in
CMTC for a total consideration of P450,000.00. the amount ofP350,000.00 for the repurchase of his
Thereafter, a Deed of Absolute Sale was executed property as the winning bid; and ordering petitioner to
between petitioner and CMTC on July 27, 1989, execute the corresponding Deed of Sale of the subject
transferring the subject property to property in favor of Fernando. He also prayed for
CMTC.Consequently, TCT No. T-45874 in the name payment of moral damages, exemplary damages,
of GSIS was cancelled, and TCT No. T-76183 was attorney's fees and litigation expenses.
issued in the name of CMTC.
In his complaint, Fernando alleged that there were
irregularities in the conduct of the bidding. CMTC
misrepresented itself to be wholly owned by Filipino the GSIS to dispose of the property by public bidding
citizens. It misrepresented its working capital. Its as mandated by law. There is also no prior right to
representative Carmelita Ang Hao had no prior buy back that can be exercised by Fernando. Further,
authority from its board of directors in an appropriate it averred that the articles of incorporation and other
board resolution to participate in the bidding. The papers of CMTC were all in order. In its counterclaim,
corporation is not authorized to acquire real estate or petitioner alleged that Fernando owed petitioner the
invest its funds for purposes other than its primary sum of P130,365.81, representing back rentals,
purpose. Fernando further alleged that the GSIS including additional interests from January 1973 to
allowed CMTC to bid despite knowledge that said February 1987, and the additional amount
corporation has no authority to do so. The GSIS also of P249,800.00, excluding applicable interests,
disregarded Fernando's prior right to buy back his representing rentals Fernando unlawfully collected
family home and lot in violation of the laws. The from Carmelita Ang Hao from January 1973 to
Register of Deeds of Cotabato acted with abuse of February 1988.
power and authority when it issued the TCT in favor
of CMTC without requiring the CMTC to submit its After trial, the RTC, in its Decision[5] dated September
supporting papers as required by the law. 27, 1994, ruled in favor of petitioner and dismissed
the complaint. In the same decision, the trial court
Petitioner and its officers filed their Answer with granted petitioner's counterclaim and directed
Affirmative Defenses and Counterclaim.[4] The GSIS Fernando to pay petitioner the rentals paid by CMTC
alleged that Fernando lost his right of redemption. He in the amount of P249,800.00. The foregoing amount
was given the chance to repurchase the property; was collected by Fernando from the CMTC and
however, he did not avail of such option compelling represents payment which was not turned over to
petitioner, which was entitled to receive the rent from prayed that they be allowed to be substituted for the
the date of the consolidation of its ownership over the deceased, as respondents in this case.
subject property.
Petitioner enumerated the following grounds in
Fernando filed a motion for reconsideration, which support of its petition:
was denied by the RTC in an Order dated March 27,
1995. I
Aggrieved by the Decision, respondent filed a Notice HOLDING THAT GSIS' COUNTERCLAIM,
of Appeal.[6] The CA, in its Decision dated December AMONG OTHERS, OF P249,800.00
17, 2002, affirmed the decision of the RTC with the BY PRIVATE RESPONDENT FROM
modification that the portion of the judgment ordering CARMELITA MERCANTILE TRADING
Fernando to pay rentals in the amount of P249,800.00, PERMISSIVE COUNTERCLAIM WHICH
in favor of petitioner, be deleted. Petitioner filed a REQUIRED THE PAYMENT BY GSIS OF
motion for reconsideration, which the CA denied in a COURT CAN ACQUIRE JURISDICTION
Resolution dated April 29, 2003. Hence, the instant OVER SAID COUNTERCLAIM.


An Ex Parte Motion for Substitution of Party,[7] dated THE HONORABLE COURT OF APPEALS
July 18, 2003, was filed by the surviving heirs of COMMITTED AN ERROR OF LAW IN
Fernando, who died on February 12, 2002. They EVIDENCE SUPPORTING ITS CLAIM
IDENTIFICATION. [8] These additional averments cannot be taken
cognizance by the Court, because they were
substantially respondents arguments in their petition
The petition of the GSIS seeks the review of the CA's
for review on certiorari earlier filed before Us and
Decision insofar as it deleted the trial court's award
docketed as G.R. No. 156609. Records show that said
of P249,800.00 in its favor representing rentals
petition was denied by the Court in a
collected by Fernando from the CMTC.
Resolution[9] dated April 23, 2003, for petitioners
(respondents herein) failure to sufficiently show that
In their Memorandum, respondents claim that CMTC
the Court of Appeals committed any reversible error
cannot purchase real estate or invest its funds in any
in the challenged decision as to warrant the exercise
purpose other than its primary purpose for which it
by this Court of its discretionary appellate
was organized in the absence of a corporate board
jurisdiction.[10] Said resolution became final and
resolution; the bid award, deed of absolute sale and
executory on June 9, 2003.[11] Respondents attempt to
TCT No. T-76183, issued in favor of the CMTC,
re-litigate claims already passed upon and resolved
should be nullified; the trial court erred in concluding
with finality by the Court in G.R. No. 156609 cannot
that GSIS personnel have regularly performed their
be allowed.
official duty when they conducted the public bidding;
Fernando, as former owner of the subject property and
Going now to the first assigned error, petitioner
former member of the GSIS, has the preemptive right
submits that its counterclaim for the rentals collected
to repurchase the foreclosed property.
by Fernando from the CMTC is in the nature of a
compulsory counterclaim in the original action of
Fernando against petitioner for annulment of bid
award, deed of absolute sale and TCT No. 76183. CMTC is permissive. The evidence needed by
Respondents, on the other hand, alleged that Fernando to cause the annulment of the bid award,
petitioner's counterclaim is permissive and its failure deed of absolute sale and TCT is different from that
to pay the prescribed docket fees results into the required to establish petitioner's claim for the
dismissal of its claim. recovery of rentals.
To determine whether a counterclaim is compulsory
or not, the Court has devised the following tests: (a) The issue in the main action, i.e., the nullity or
Are the issues of fact and law raised by the claim and validity of the bid award, deed of absolute sale and
by the counterclaim largely the same? (b) TCT in favor of CMTC, is entirely different from the
Would res judicata bar a subsequent suit on issue in the counterclaim,i.e., whether petitioner is
defendants claims, absent the compulsory entitled to receive the CMTC's rent payments over the
counterclaim rule? (c) Will substantially the same subject property when petitioner became the owner of
evidence support or refute plaintiffs claim as well as the subject property by virtue of the consolidation of
the defendants counterclaim? and (d) Is there any ownership of the property in its favor.
logical relation between the claim and the
counterclaim? A positive answer to all four questions The rule in permissive counterclaims is that for the
would indicate that the counterclaim is compulsory.[12] trial court to acquire jurisdiction, the counterclaimant
is bound to pay the prescribed docket fees.[13] This,
Tested against the above-mentioned criteria, this petitioner did not do, because it asserted that its claim
Court agrees with the CA's view that petitioner's for the collection of rental payments was a
counterclaim for the recovery of the amount compulsory counterclaim. Since petitioner failed to
representing rentals collected by Fernando from the pay the docket fees, the RTC did not acquire
jurisdiction over its permissive counterclaim. The alter or supplement the rules of the Supreme Court
judgment rendered by the RTC, insofar as it ordered concerning pleading, practice and procedure, the 1987
Fernando to pay petitioner the rentals which he Constitution removed this power from
collected from CMTC, is considered null and void. Congress. Hence, the Supreme Court now has the sole
Any decision rendered without jurisdiction is a total authority to promulgate rules concerning pleading,
nullity and may be struck down at any time, even on practice and procedure in all courts.
appeal before this Court.[14]
In said case, the Court ruled that:
Petitioner further argues that assuming that its
counterclaim is permissive, the trial court has The separation of powers among the
three co-equal branches of our government has
jurisdiction to try and decide the same, considering erected an impregnable wall that keeps the
petitioner's exemption from all kinds of fees. power to promulgate rules of pleading, practice
and procedure within the sole province of this
Court. The other branches trespass upon this
In In Re: Petition for Recognition of the Exemption of prerogative if they enact laws or issue orders
that effectively repeal, alter or modify any of the
the Government Service Insurance System from procedural rules promulgated by this Court.
Payment of Legal Fees,[15] the Court ruled that the Viewed from this perspective, the claim of a
legislative grant of exemption from the payment
provision in the Charter of the GSIS, i.e., Section 39 of legal fees under Section 39 of RA 8291
of Republic Act No. 8291, which exempts it from all necessarily fails.
taxes, assessments, fees, charges or duties of all kinds, Congress could not have carved out an
cannot operate to exempt it from the payment of legal exemption for the GSIS from the payment of
legal fees without transgressing another equally
fees. This was because, unlike the 1935 and 1973 important institutional safeguard of the Court's
Constitutions, which empowered Congress to repeal, independence − fiscal autonomy. Fiscal
autonomy recognizes the power and authority of prescribed filing fee but, subsequently, the
the Court to levy, assess and collect fees, judgment awards a claim not specified in the
including legal fees. Moreover, legal fees under pleading, or if specified the same has been left
Rule 141 have two basic components, the for determination by the court, the additional
Judiciary Development Fund (JDF) and the filing fee therefor shall constitute a lien on the
Special Allowance for the Judiciary Fund judgment. It shall be the responsibility of the
(SAJF). The laws which established the JDF and Clerk of Court or his duly authorized deputy to
the SAJF expressly declare the identical purpose enforce said lien and assess and collect the
of these funds to "guarantee the independence of additional fee.
the Judiciary as mandated by the Constitution
and public policy." Legal fees therefore do not
In Ayala Corporation v. Madayag,[17] the Court,
only constitute a vital source of the Court's in interpreting the third rule laid down in Sun
financial resources but also comprise an
essential element of the Court's fiscal
Insurance Office, Ltd. v. Judge Asuncion regarding
independence. Any exemption from the awards of claims not specified in the pleading, held
payment of legal fees granted by Congress to
government-owned or controlled corporations that the same refers only to damages arising after the
and local government units will necessarily filing of the complaint or similar pleading as to which
reduce the JDF and the SAJF. Undoubtedly,
such situation is constitutionally infirm for it the additional filing fee therefor shall constitute a lien
impairs the Court's guaranteed fiscal autonomy on the judgment.
and erodes its independence.
The amount of any claim for damages,
Petitioner also invoked our ruling in Sun Insurance therefore, arising on or before the filing of the
complaint or any pleading should be specified.
Office, Ltd. v. Judge Asuncion,[16] where the Court While it is true that the determination of certain
held that: damages as exemplary or corrective damages is
left to the sound discretion of the court, it is the
xxxx duty of the parties claiming such damages to
specify the amount sought on the basis of which
3. Where the trial court acquires the court may make a proper determination, and
jurisdiction over a claim by the filing of the for the proper assessment of the appropriate
appropriate pleading and payment of the docket fees. The exception contemplated as to
claims not specified or to claims although LIBRADA M. AQUINO, G.R. No. 153567
specified are left for determination of the
court is limited only to any damages that may Petitioner, Present:
arise after the filing of the complaint or
similar pleading for then it will not be
possible for the claimant to specify nor
speculate as to the amount thereof. (Emphasis
supplied.) Chairperson,

Petitioner's claim for payment of rentals collected by CHICO-NAZARIO,

Fernando from the CMTC did not arise after the filing NACHURA, and
of the complaint; hence, the rule laid down in Sun
Insurance finds no application in the present case. REYES, JJ.
- versus -
Due to the non-payment of docket fees on petitioner's
counterclaim, the trial court never acquired
jurisdiction over it and, thus, there is no need to
discuss the second issue raised by petitioner. Promulgated:
WHEREFORE, the petition is DENIED.
The Decision and the Resolution, dated December 17,
2002 and April 29, 2003, respectively, of the Court of February 18, 2008
Appeals in CA-G.R. CV. No.
49300, are AFFIRMED. ERNEST S. AURE[1],
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - -x
ground, inter alia, of failure to comply with barangay
conciliation proceedings.

The subject of the present controversy is a parcel of
land situated in Roxas District, Quezon City, with an
area of 449 square meters and covered by Transfer
Certificate of Title (TCT) No. 205447 registered with
CHICO-NAZARIO, J.: the Registry of Deeds of Quezon City (subject

Aure and E.S. Aure Lending Investors, Inc. (Aure

Before this Court is a Petition for Review Lending) filed a Complaint for ejectment against
on Certiorari[2] under Rule 45 of the Revised Rules of Aquino before the MeTC docketed as Civil Case No.
Court filed by petitioner Librada M. Aquino (Aquino), 17450. In their Complaint, Aure and Aure Lending
seeking the reversal and the setting aside of the alleged that they acquired the subject property from
Decision[3] dated 17 October 2001 and the Aquino and her husband Manuel (spouses Aquino) by
Resolution[4] dated 8 May 2002 of the Court of virtue of a Deed of Sale[8]executed on 4 June
Appeals in CA-G.R. SP No. 63733. The appellate court, 1996. Aure claimed that after the spouses Aquino
in its assailed Decision and Resolution, reversed the received substantial consideration for the sale of the
Decision[5] of the Regional Trial Court (RTC) of Quezon subject property, they refused to vacate the same.[9]
City, Branch 88, affirming the Decision[6] of the
Metropolitan Trial Court (MeTC) of Quezon City,
Branch 32, which dismissed respondent Ernesto
Aures (Aure) complaint for ejectment on the
In her Answer,[10] Aquino countered that the further observed that Aure Lending was improperly
Complaint in Civil Case No. 17450 lacks cause of included as plaintiff in Civil Case No. 17450 for it did
action for Aure and Aure Lending do not have any not stand to be injured or benefited by the
legal right over the subject property. Aquino suit. Finally, the MeTC ruled that since the question
admitted that there was a sale but such was of ownership was put in issue, the action was
governed by the Memorandum of converted from a mere detainer suit to one incapable
Agreement (MOA) signed by Aure. As stated in the of pecuniary estimation which properly rests within
MOA, Aure shall secure a loan from a bank or the original exclusive jurisdiction of the RTC. The
financial institution in his own name using the subject dispositive portion of the MeTC Decision reads:
property as collateral and turn over the proceeds
thereof to the spouses Aquino. However, even after
Aure successfully secured a loan, the spouses Aquino WHEREFORE, premises considered,
did not receive the proceeds thereon or benefited let this case be, as it is, hereby ordered
therefrom. DISMISSED. [Aquinos] counterclaim is
likewise dismissed.[12]

On 20 April 1999, the MeTC rendered a

Decision in Civil Case No. 17450 in favor of Aquino
and dismissed the Complaint for ejectment of Aure
and Aure Lending for non-compliance with the On appeal, the RTC affirmed the dismissal of
barangay conciliation process, among other the Complaint on the same ground that the dispute
grounds. The MeTC observed that Aure and Aquino was not brought before the Barangay Council for
are residents of the same barangay but there is no conciliation before it was filed in court. In a Decision
showing that any attempt has been made to settle dated 14 December 2000, the RTC stressed that
the case amicably at the barangay level. The MeTC the barangay conciliation process is a conditio sine
qua non for the filing of an ejectment complaint parties was not a proper ground for dismissal of his
involving residents of the same barangay, and failure Complaint and that the MeTC should have only
to comply therewith constitutes sufficient cause for ordered the exclusion of Aure Lending as plaintiff
the dismissal of the action. The RTC likewise without prejudice to the continuation of the
validated the ruling of the MeTC that the main issue proceedings in Civil Case No. 17450 until the final
involved in Civil Case No. 17450 is incapable of determination thereof. Aure further asseverated that
pecuniary estimation and cognizable by the mere allegation of ownership should not divest the
RTC. Hence, the RTC ruled: MeTC of jurisdiction over the ejectment suit since
jurisdiction over the subject matter is conferred by
law and should not depend on the defenses and
WHEREFORE, finding no reversible objections raised by the parties. Finally, Aure
error in the appealed judgment, it is contended that the MeTC erred in dismissing his
hereby affirmed in its entirety.[13] Complaint with prejudice on the ground of non-
compliance with barangay conciliation process. He
was not given the opportunity to rectify the
procedural defect by going through
the barangay mediation proceedings and, thereafter,
Aures Motion for Reconsideration was denied by the refile the Complaint.[15]
RTC in an Order[14] dated 27 February 2001.
On 17 October 2001, the Court of Appeals
rendered a Decision, reversing the MeTC and RTC
Decisions and remanding the case to the MeTC for
Undaunted, Aure appealed the adverse RTC
further proceedings and final determination of the
Decision with the Court of Appeals arguing that the
substantive rights of the parties. The appellate court
lower court erred in dismissing his Complaint for lack
declared that the failure of Aure to subject the
of cause of action.Aure asserted that misjoinder of
matter to barangay conciliation is not a jurisdictional
flaw and it will not affect the sufficiency of Aures In a Resolution dated 8 May 2002, the Court of
Complaint since Aquino failed to seasonably raise Appeals denied the Motion for Reconsideration
such issue in her Answer. The Court of Appeals interposed by Aquino for it was merely a rehash of
further ruled that mere allegation of ownership does the arguments set forth in her previous pleadings
not deprive the MeTC of jurisdiction over the which were already considered and passed upon by
ejectment case for jurisdiction over the subject the appellate court in its assailed Decision.
matter is conferred by law and is determined by the
allegations advanced by the plaintiff in his
complaint. Hence, mere assertion of ownership by Aquino is now before this Court via the Petition at
the defendant in an ejectment case will not oust the bar raising the following issues:
MeTC of its summary jurisdiction over the same. The
decretal part of the Court of Appeals Decision reads:

WHEREFORE, premises considered,

the petition is hereby GRANTED - and the WHETHER OR NOT NON-COMPLIANCE
decisions of the trial courts below WITH THE BARANGAY CONCILIATION
be remanded back to the court a quo for DEFECT THAT WARRANTS THE DISMISSAL
further proceedings for an eventual OF THE COMPLAINT.
decision of the substantive rights of the
WHETHER OR NOT ALLEGATION OF OWNERSHIP The primordial objective of Presidential Decree No.
OUSTS THE MeTC OF ITS JURISDICTION 1508 is to reduce the number of court litigations and
OVER AN EJECTMENT CASE. prevent the deterioration of the quality of justice
which has been brought by the indiscriminate filing of
cases in the courts.[18] To ensure this objective,
Section 6 of Presidential Decree No. 1508[19] requires
the parties to undergo a conciliation process before
The barangay justice system was established the Lupon Chairman or the Pangkat ng
primarily as a means of easing up the congestion of Tagapagkasundo as a precondition to filing a
cases in the judicial courts. This could be complaint in court subject to certain
accomplished through a proceeding before [20]
exceptions which are inapplicable to this case. The
the barangay courts which, according to the said section has been declared compulsory in
conceptor of the system, the late Chief Justice Fred nature.[21]
Ruiz Castro, is essentially arbitration in character, and
to make it truly effective, it should also be
compulsory. With this primary objective of Presidential Decree No. 1508 is now
the barangay justice system in mind, it would be incorporated in Republic Act No. 7160, otherwise
wholly in keeping with the underlying philosophy of known as The Local Government Code, which took
Presidential Decree No. 1508, otherwise known as effect on 1 January 1992.
the Katarungang Pambarangay Law, and the policy
behind it would be better served if an out-of-court
settlement of the case is reached voluntarily by the The pertinent provisions of the Local
parties.[17] Government Code making conciliation a precondition
to filing of complaints in court, read:
SEC. 412. Conciliation.- (a) Pre-
condition to filing of complaint in court.
(2) Where a person has otherwise
No complaint, petition, action, or
been deprived of personal liberty calling
proceeding involving any matter within
for habeas corpus proceedings;
the authority of the lupon shall be filed or
instituted directly in court or any other
government office for adjudication, unless
(3) Where actions are coupled with
there has been a confrontation between
provisional remedies such as preliminary
the parties before the lupon chairman or
injunction, attachment, delivery of
the pangkat, and that no conciliation or
personal property, and support pendente
settlement has been reached as certified
lite; and
by the lupon secretary or pangkat
secretary as attested to by the lupon
chairman or pangkat chairman or unless
(4) Where the action may
the settlement has been repudiated by
otherwise be barred by the statute of
the parties thereto.
(b) Where parties may go directly to court.
(c) Conciliation among members of
The parties may go directly to court in the
indigenous cultural communities. The
following instances:
customs and traditions of indigenous
cultural communities shall be applied in
settling disputes between members of the
(1) Where the accused is under
cultural communities.
SEC. 408. Subject Matter for
Amicable Settlement; Exception Therein.
(d) Offenses where there is no
The lupon of each barangay shall have
private offended party;
authority to bring together the parties
actually residing in the same city or
municipality for amicable settlement of all
(e) Where the dispute involves real
disputes except:
properties located in different cities or
municipalities unless the parties thereto
agree to submit their differences to
(a) Where one party is the
amicable settlement by an appropriate
government or any subdivision or
instrumentality thereof;

(f) Disputes involving parties who

(b) Where one party is a public
actually reside in barangays of different
officer or employee, and the dispute
cities or municipalities, except where such
relates to the performance of his official
barangay units adjoin each other and the
parties thereto agree to submit their
differences to amicable settlement by an
appropriate lupon;
(c) Offenses punishable by
imprisonment exceeding one (1) year or a
fine exceeding Five thousand pesos
(g) Such other classes of disputes
which the President may determine in the
interest of justice or upon the We do not agree.
recommendation of the Secretary of
It is true that the precise technical effect of
failure to comply with the requirement of Section
412 of the Local Government Code
on barangay conciliation (previously contained in
There is no dispute herein that the present Section 5 of Presidential Decree No. 1508) is much
case was never referred to the Barangay Lupon for the same effect produced by non-exhaustion of
conciliation before Aure and Aure Lending instituted administrative remedies -- the complaint becomes
Civil Case No. 17450.In fact, no allegation of afflicted with the vice of pre-maturity; and the
such barangay conciliation proceedings was made in controversy there alleged is not ripe for judicial
Aure and Aure Lendings Complaint before the determination. The complaint becomes vulnerable to
MeTC. The only issue to be resolved is whether non- a motion to dismiss.[22] Nevertheless, the conciliation
recourse to the barangay conciliation process is a process is not a jurisdictional requirement, so that
jurisdictional flaw that warrants the dismissal of the non-compliance therewith cannot affect the
ejectment suit filed with the MeTC. jurisdiction which the court has otherwise acquired
over the subject matter or over the person of the
Aquino posits that failure to resort
to barangay conciliation makes the action for
ejectment premature and, hence, dismissible. She As enunciated in the landmark case of Royales
likewise avers that this objection was timely raised v. Intermediate Appellate Court[24]:
during the pre-trial and even subsequently in her
Position Paper submitted to the MeTC.
participated in the trial of the case by
cross-examining respondent Planas. Upon
Ordinarily, non-compliance with the
this premise, petitioners cannot now be
condition precedent prescribed by P.D.
allowed belatedly to adopt an
1508 could affect the sufficiency of the
inconsistent posture by attacking the
plaintiff's cause of action and make his
jurisdiction of the court to which they
complaint vulnerable to dismissal on
had submitted themselves voluntarily. x x
ground of lack of cause of action or
x (Emphasis supplied.)
prematurity; but the same would not
prevent a court of competent jurisdiction
from exercising its power of adjudication
over the case before it, where the
defendants, as in this case, failed to In the case at bar, we similarly find that Aquino
object to such exercise of jurisdiction in cannot be allowed to attack the jurisdiction of the
their answer and even during the entire MeTC over Civil Case No. 17450 after having
proceedings a quo. submitted herself voluntarily thereto. We have
scrupulously examined Aquinos Answer before the
MeTC in Civil Case No. 17450 and there is utter lack
While petitioners could have of any objection on her part to any deficiency in the
prevented the trial court from exercising complaint which could oust the MeTC of its
jurisdiction over the case by seasonably jurisdcition.
taking exception thereto, they instead
invoked the very same jurisdiction by
filing an answer and seeking affirmative
We thus quote with approval the disquisition
of the Court of Appeals:
relief from it. What is more, they
move for the dismissal of the ejectment suit for Aure
and Aure Lendings failure to resort to
Moreover, the Court takes note
the barangay conciliation process, since she is
that the defendant [Aquino] herself did
already precluded from doing so. The fact that
not raise in defense the aforesaid lack of
Aquino raised such objection during the pre-trial and
conciliation proceedings in her answer, in her Position Paper is of no moment, for the issue
which raises the exclusive affirmative of non-recourse to barangaymediation proceedings
defense of simulation. By this should be impleaded in her Answer.
acquiescence, defendant [Aquino] is
deemed to have waived such objection. As
held in a case of similar circumstances, the As provided under Section 1, Rule 9 of the
failure of a defendant [Aquino] in an 1997 Rules of Civil Procedure:
ejectment suit to specifically allege the
fact that there was no compliance with
the barangay conciliation procedure Sec. 1. Defenses and objections not
constitutes a waiver of that defense. x x pleaded. Defenses and objections not
x.[25] pleaded either in a motion to dismiss or
in the answer are deemed
waived. However, when it appears from
the pleadings or the evidence on record
that the court has no jurisdiction over the
By Aquinos failure to seasonably object to the subject matter, that there is another
deficiency in the Complaint, she is deemed to have
action pending between the same parties
already acquiesced or waived any defect attendant
for the same cause, or that the action is
thereto. Consequently, Aquino cannot thereafter
barred by a prior judgment or by statute
of limitations, the court shall dismiss the multiple objections may be avoided.[26] It is clear and
claim. (Emphasis supplied.) categorical in Section 1, Rule 9 of the Revised Rules
of Court that failure to raise defenses and objections
in a motion to dismiss or in an answer is deemed a
waiver thereof; and basic is the rule in statutory
construction that when the law is clear and free from
While the aforequoted provision applies to a any doubt or ambiguity, there is no room for
pleading (specifically, an Answer) or a motion to construction or interpretation.[27] As has been our
dismiss, a similar or identical rule is provided for all consistent ruling, where the law speaks in clear and
other motions in Section 8 of Rule 15 of the same categorical language, there is no occasion for
Rule which states: interpretation; there is only room for
Sec. 8. Omnibus Motion. - Subject to the application. Thus, although Aquinos defense of
non-compliance with Presidential Decree No. 1508 is
provisions of Section 1 of Rule 9, a motion
meritorious, procedurally, such defense is no longer
attacking a pleading, order, judgment, or
available for failure to plead the same in the Answer
proceeding shall include all objections
as required by the omnibus motion rule.
then available, and all objections not so
included shall be deemed waived.
Neither could the MeTC dismiss Civil Case No.
17450 motu proprio. The 1997 Rules of Civil
Procedure provide only three instances when the
court may motu proprio dismiss the claim, and that is
The spirit that surrounds the foregoing statutory
when the pleadings or evidence on the record show
norm is to require the party filing a pleading or
that (1) the court has no jurisdiction over the subject
motion to raise all available exceptions for relief
matter; (2) there is another cause of action pending
during the single opportunity so that single or
between the same parties for the same cause; or (3) may resolve to dismiss the action for insufficiency of
where the action is barred by a prior judgment or by evidence.
a statute of limitations. Thus, it is clear that a court
may not motu propriodismiss a case on the ground of
failure to comply with the requirement The necessary allegations in a Complaint for
for barangay conciliation, this ground not being ejectment are set forth in Section 1, Rule 70 of the
among those mentioned for the dismissal by the trial Rules of Court, which reads:
court of a case on its own initiative.
SECTION 1. Who may institute
Aquino further argues that the issue of possession in proceedings, and when. Subject to the
the instant case cannot be resolved by the MeTC provisions of the next succeeding section,
without first adjudicating the question of ownership, a person deprived of the possession of
since the Deed of Sale vesting Aure with the legal any land or building by force, intimidation,
right over the subject property is simulated. threat, strategy, or stealth, or a lessor,
vendor, vendee, or other person against
whom the possession of any land or
Again, we do not agree. Jurisdiction in building is unlawfully withheld after the
ejectment cases is determined by the allegations expiration or termination of the right to
pleaded in the complaint. As long as these allegations
hold possession, by virtue of any contract,
demonstrate a cause of action either for forcible
express or implied, or the legal
entry or for unlawful detainer, the court acquires
representatives or assigns of any such
jurisdiction over the subject matter. This principle
lessor, vendor, vendee, or other person
holds, even if the facts proved during the trial do not
support the cause of action thus alleged, in which may at any time within one (1) year after
instance the court -- after acquiring jurisdiction -- such unlawful deprivation or withholding
of possession, bring an action in the
proper Municipal Trial Court against the 3. However, despite the sale thus
person or persons unlawfully withholding transferring ownership of the subject
or depriving of possession, or any person premises to [Aure and Aure Lending] as
or persons claiming under them, for the above-stated and consequently
restitution of such possession, together terminating [Aquinos] right of possession
with damages and costs. over the subject property, [Aquino]
together with her family, is continuously
In the case at bar, the Complaint filed by Aure and
occupying the subject premises
Aure Lending on 2 April 1997, alleged as follows:
notwithstanding several demands made
2. [Aure and Aure Lending] became by [Aure and Aure Lending] against
the owners of a house and lot located at [Aquino] and all persons claiming right
No. 37 Salazar Street corner Encarnacion under her to vacate the subject premises
Street, B.F. Homes, Quezon City by virtue and surrender possession thereof to [Aure
of a deed of absolute sale executed by and Aure Lending] causing damage and
[the spouses Aquino] in favor of [Aure and prejudice to [Aure and Aure Lending] and
Aure Lending] although registered in the making [Aquinos] occupancy together
name of x x x Ernesto S. Aure; title to the with those actually occupying the subject
said property had already been issued in premises claiming right under her,
the name of [Aure] as shown by a transfer illegal.[29]
Certificate of Title , a copy of which is
hereto attached and made an integral part
hereof as Annex A;

It can be inferred from the foregoing that Aure,

together with Aure Lending, sought the possession of
the subject property which was never surrendered by competence to resolve the issue of
Aquino after the perfection of the Deed of Sale, ownership albeit only to determine the
which gives rise to a cause of action for an ejectment issue of possession.
suit cognizable by the MeTC. Aures assertion of
possession over the subject property is based on his
ownership thereof as evidenced by TCT No. 156802 x x x. The law, as revised, now provides
bearing his name. That Aquino impugned the validity instead that when the question of
of Aures title over the subject property and claimed possession cannot be resolved without
that the Deed of Sale was simulated should not divest
deciding the issue of ownership, the issue
the MeTC of jurisdiction over the ejectment case.[30]
of ownership shall be resolved only to
determine the issue of possession. On its
face, the new Rule on Summary Procedure
As extensively discussed by the eminent jurist Florenz
was extended to include within the
D. Regalado in Refugia v. Court of Appeals[31]:
jurisdiction of the inferior courts
ejectment cases which likewise involve
As the law on forcible entry and unlawful the issue of ownership. This does not
detainer cases now stands, even where mean, however, that blanket authority to
the defendant raises the question of adjudicate the issue of ownership in
ownership in his pleadings and the ejectment suits has been thus conferred
question of possession cannot be resolved on the inferior courts.
without deciding the issue of ownership,
the Metropolitan Trial Courts, Municipal
Trial Courts, and Municipal Circuit Trial At the outset, it must here be
Courts nevertheless have the undoubted stressed that the resolution of this
particular issue concerns and applies only title to the land. The foregoing doctrine is
to forcible entry and unlawful detainer a necessary consequence of the nature of
cases where the issue of possession is forcible entry and unlawful detainer cases
intimately intertwined with the issue of where the only issue to be settled is the
ownership. It finds no proper application physical or material possession over the
where it is otherwise, that is, where real property, that is, possession de
ownership is not in issue, or where the facto and not possession de jure.
principal and main issue raised in the
allegations of the complaint as well as the
relief prayed for make out not a case for
ejectment but one for recovery of
ownership. In other words, inferior courts are now conditionally
vested with adjudicatory power over the issue of title
or ownership raised by the parties in an ejectment
suit. These courts shall resolve the question of
ownership raised as an incident in an ejectment case
Apropos thereto, this Court ruled in Hilario v. Court of where a determination thereof is necessary for a
Appeals[32]: proper and complete adjudication of the issue of

Thus, an adjudication made therein

regarding the issue of ownership should WHEREFORE, premises considered, the instant
be regarded as merely provisional and, Petition is DENIED. The Court of Appeals Decision
therefore, would not bar or prejudice an dated 17 October 2001 and its Resolution dated 8
action between the same parties involving
May 2002 in CA-G.R. SP No. 63733 are DECISION
hereby AFFIRMED. Costs against the petitioner.


This petition for review on certiorari[1] assails the 30

DORIS U. SUNBANUN, G.R. No. 163280 September 2003 Decision[2] and the 18 March 2004
Petitioner, Resolution[3] of the Court of Appeals in CA-G.R. CV
Present: No. 67836.
The Facts
- versus - BRION,
DEL CASTILLO, and Petitioner Doris U. Sunbanun is the owner of a
PEREZ, JJ. residential house located at No. 68-F Junquera Street,
Cebu City. On 7 July 1995, respondent Aurora B. Go
AURORA B. GO, leased the entire ground floor of petitioners residential
Respondent. house for one year which was to expire on 7 July
Promulgated: 1996. As required under the lease contract, respondent
February 2, 2010 paid a deposit of P16,000 to answer for damages and
unpaid rent. To earn extra income, respondent
x------------------------------------ accepted lodgers, mostly her relatives, from whom she
--------------x received a monthly income of P15,000. Respondent
paid the monthly rental until March 1996 when
petitioner drove away respondents lodgers by telling
them that they could stay on the rented premises only
until 15 April 1996 since she was terminating the submit their respective memoranda, after which the
lease. The lodgers left the rented premises by 15 April case would be considered submitted for decision.[4]
1996, and petitioner then padlocked the rooms
vacated by respondents lodgers. In its decision dated 28 March 2000, the trial court
held that the case is not covered by the barangay
On 10 May 1996, respondent filed an action for conciliation process since respondent is a resident of
damages against petitioner. Respondent alleged that Hongkong. The trial court noted that petitioner did not
she lost her income from her lodgers for the months of controvert respondents allegation that petitioner
April, May, and June 1996 totaling P45,000. ejected respondents lodgers sometime in March 1996
Respondent, who worked in Hongkong, also incurred even if the contract of lease would expire only on 7
expenses for plane fares and other travel expenses in July 1996. The trial court found untenable petitioners
coming to the Philippines and returning to Hongkong. contention that subleasing the rented premises
violated the lease contract. The trial court held that
On the other hand, petitioner argued that respondent respondents act of accepting lodgers was in
violated the lease contract when she subleased the accordance with the lease contract which allows the
rented premises. Besides, the lease contract was not lessee to use the premises as a dwelling or as lodging
renewed after its expiration on 7 July 1996; thus, house. Thus, the trial court ordered petitioner to pay
respondent had no more right to stay in the rented respondent actual damages of P45,000 for respondents
premises. Petitioner also moved to dismiss the lost income from her lodgers for the months of April,
complaint in the trial court for failure to comply with May, and June 1996, and attorneys fees of P8,000.
prior barangay conciliation.
Both parties appealed before the Court of Appeals. On
30 September 2003, the Court of Appeals rendered its
During the pre-trial, petitioner moved for the case to decision in favor of respondent and modified the trial
be submitted for judgment on the pleadings courts decision. Aside from actual damages and
considering that the only disagreement between the attorneys fees, the Court of Appeals also ordered
parties was the correct interpretation of the lease petitioner to pay moral and exemplary damages and
contract. Respondent did not object to petitioners the cost of the suit. The dispositive portion of the
motion. The trial court then directed the parties to Court of Appeals decision reads:
which shows bad faith on the part of petitioner. The
WHEREFORE, premises considered, the Court of Appeals also awarded respondent P50,000 as
assailed Decision of the trial court is exemplary damages for petitioners oppressive act.
hereby MODIFIED by ordering defendant-
appellant [Doris U. Sunbanun] to pay The Issues
plaintiff-appellant [Aurora B. Go] the
following amounts: Petitioner raises the following issues:
1. P45,000.00 as compensation for actual damages; I. THE COURT OF APPEALS ERRED
2. P50,000.00 as moral damages; IN AFFIRMING THE AWARD OF
3. P50,000.00 as exemplary damages; ACTUAL DAMAGES BY THE
4. P8,000.00 as Attorneys Fees; TRIAL COURT.
5. Cost of the suit.

The Court of Appeals Ruling IN MODIFYING THE JUDGMENT
The Court of Appeals held that petitioners act of AWARDING MORAL AND
forcibly ejecting respondents lodgers three months EXEMPLARY DAMAGES AND
prior to the termination of the lease contract without COSTS OF SUIT IN FAVOR OF
valid reason constitutes breach of contract. Petitioner RESPONDENT.
also violated Article 1654 of the Civil Code which
states that the lessor is obliged to maintain the lessee III. THE COURT OF APPEALS
in the peaceful and adequate enjoyment of the lease ERRED IN AFFIRMING THE
for the duration of the contract. The Court of Appeals AWARD OF ATTORNEYS FEES
awarded P50,000 as moral damages to respondent for IN FAVOR OF RESPONDENT.[6]
breach of contract and for petitioners act of pre-
terminating the lease contract without valid reason, The Ruling of the Court
from the trial courts Order[9] dated 7 October 1997
We find the petition without merit. which reads:
In this case, the trial court rendered a judgment on the
When this case was called for pre-trial, parties
pleadings. Section 1, Rule 34 of the Rules of Court
appeared together with counsel. Defendant
reads: [Doris U. Sunbanun] moved that considering
that there is no dispute as far as the contract
SECTION 1. Judgment on the pleadings. Where is concerned and the only disagreement
an answer fails to tender an issue, or otherwise between the parties is on the interpretation of
admits the material allegations of the adverse the contract so that the issue boils down on to
partys pleading, the court may, on motion of that which of the parties are correct on their
party, direct judgment on such pleading. interpretation. With the conformity of the
However, in actions for declaration of nullity or plaintiff [Aurora B. Go], this case is therefore
annulment of marriage or for legal separation, considered closed and submitted for judgment
the material facts alleged in the complaint shall on the pleadings. x x x (Emphasis supplied)
always be proved.

Petitioner, in moving for a judgment on the pleadings

The trial court has the discretion to grant a motion for
without offering proof as to the truth of her own
judgment on the pleadings filed by a party if there is
allegations and without giving respondent the
no controverted matter in the case after the answer is
opportunity to introduce evidence, is deemed to have
filed.[7] A judgment on the pleadings is a judgment on
admitted the material and relevant averments of the
the facts as pleaded,[8] and is based exclusively upon
complaint, and to rest her motion for judgment based
the allegations appearing in the pleadings of the
on the pleadings of the parties.[10] As held in Tropical
parties and the accompanying annexes.
Homes, Inc. v. CA:[11]
This case is unusual because it was petitioner, and not As to the amount of damages awarded as a
the claimant respondent, who moved for a judgment consequence of this violation of plaintiffs
on the pleadings during the pre-trial. This is clear rights, the lower court based its award
from the allegations and prayer contained
in the complaint. The defendant, however, contract clearly provides that petitioner leased to
questions this award for the reason that, respondent the ground floor of her residential house
according to the defendant, the plaintiff, in
for a term of one year commencing from 7 July 1995.
moving for judgment on the pleadings, did
not offer proof as to the truth of his own Thus, the lease contract would expire only on 7 July
allegations with respect to the damages 1996. However, petitioner started ejecting respondents
claimed by him, and gave no opportunity lodgers in March 1996 by informing them that the
for the appellant to introduce evidence to lease contract was only until 15 April 1996. Clearly,
refute his claims. We find this objection petitioners act of ejecting respondents lodgers resulted
without merit. It appears that when the in respondent losing income from her lodgers. Hence,
plaintiff moved to have the case decided
on the pleadings, the defendant interposed it was proper for the trial court and the appellate court
no objection and has practically assented to order petitioner to pay respondent actual damages
thereto. The defendant, therefore, is in the amount of P45,000.
deemed to have admitted the allegations of
fact of the complaint, so that there was no We likewise sustain the award of moral damages in
necessity for plaintiff to submit evidence favor of respondent. In this case, moral damages may
of his claim. be recovered under Article 2219 and Article 2220 of
In this case, it is undisputed that petitioner ejected the Civil Code in relation to Article 21. The pertinent
respondents lodgers three months before the provisions read:
expiration of the lease contract on 7 July 1996.
Petitioner maintains that she had the right to terminate Art. 2219. Moral damages may be
recovered in the following and analogous
the contract prior to its expiration because respondent
allegedly violated the terms of the lease contract by xxx
subleasing the rented premises. Petitioners assertion is (10) Acts and actions referred to in articles 21, 26, 27,
belied by the provision in the lease contract[12] which 28, 29, 30, 32, 34, and 35.
states that the lessee can use the premises as a Art. 2220. Wilfull injury to property may
dwelling or as lodging house. Furthermore the lease be a legal ground for awarding moral
damages if the court should find that, fraudulent, reckless, oppressive, or malevolent
under the circumstances, such damages manner which would justify an award of exemplary
are justly due. The same rule applies to damages under Article 2232[14] of the Civil
breaches of contract where the Code.[15] Since the award of exemplary damages is
defendant acted fraudulently or in bad proper in this case, attorneys fees and cost of the suit
faith. (Emphasis supplied) may also be recovered as provided under Article
2208[16] of the Civil Code.[17]
Art. 21. Any person who wilfully causes loss or injury WHEREFORE, the Court DENIES the petition.
to another in a manner that is contrary to morals, good The Court AFFIRMS the 30 September 2003
customs or public policy shall compensate the latter for
Decision and the 18 March 2004 Resolution of the
the damage.
Court of Appeals in CA-G.R. CV No. 67836.

We agree with the appellate court that petitioners act
of ejecting respondents lodgers three months before
the lease contract expired without valid reason
constitutes bad faith. What aggravates the situation
was that petitioner did not inform respondent, who
was then working in Hongkong, about petitioners plan CARPIO, J.,
to pre-terminate the lease contract and evict Chairperson,
- versus -
respondents lodgers. Moral damages may be awarded PEREZ,
when the breach of contract was attended with bad SERENO,
faith.[13] REYES, and
Furthermore, we affirm the award of exemplary
damages and attorneys fees. Exemplary damages may
JERRY D. MONTANEZ, Promulgated:
be awarded when a wrongful act is accompanied by
bad faith or when the defendant acted in a wanton,
January 25, 2012
Block 39 Lot 39 Phase 3, Palmera Spring,
Bagumbong, Caloocan City.
----------------------x Due to the respondents failure to pay the loan,
the petitioner filed a complaint against the respondent
DECISION before the Lupong Tagapamayapa of Barangay San
Jose, Rodriguez, Rizal. The parties entered into
REYES, J.: a Kasunduang Pag-aayos wherein the respondent
agreed to pay his loan in installments in the amount of
Before this Court is a Petition for Review Two Thousand Pesos (P2,000.00) per month, and in
on Certiorari under Rule 45 of the Rules of Court. the event the house and lot given as collateral is sold,
Petitioner Crisanta Alcaraz Miguel (Miguel) seeks the the respondent would settle the balance of the loan in
reversal and setting aside of the September 17, 2009 full. However, the respondent still failed to pay, and
[1] [2]
Decision and February 11, 2010 Resolution of the on December 13, 2004, the Lupong
Court of Appeals (CA) in CA-G.R. SP No. 100544, Tagapamayapa issued a certification to file action in
entitled Jerry D. Montanez v. Crisanta Alcaraz court in favor of the petitioner.
On April 7, 2005, the petitioner filed before the
Antecedent Facts Metropolitan Trial Court (MeTC) of Makati City,
Branch 66, a complaint for Collection of Sum of
On February 1, 2001, respondent Jerry Montanez Money. In his Answer with Counterclaim,[3] the
(Montanez) secured a loan of One Hundred Forty- respondent raised the defense of improper venue
Three Thousand Eight Hundred Sixty-Four Pesos considering that the petitioner was a resident of
(P143,864.00), payable in one (1) year, or until Bagumbong, Caloocan City while he lived in San
February 1, 2002, from the petitioner. The respondent Mateo, Rizal.
gave as collateral therefor his house and lot located at
After trial, on August 16, 2006, the MeTC Decision,[6] the RTC affirmed the MeTC Decision,
rendered a Decision,[4] which disposes as follows: disposing as follows:

WHEREFORE, premises considered[,] WHEREFORE, finding no cogent

judgment is hereby rendered ordering reason to disturb the findings of the court a
defendant Jerry D. Montanez to pay quo, the appeal is hereby DISMISSED,
plaintiff the following: and the DECISION appealed from is
hereby AFFIRMED in its entirety for
1. The amount of being in accordance with law and
[Php147,893.00] evidence.
representing the
obligation with legal SO ORDERED.[7]
rate of interest from
February 1, 2002 which
was the date of the loan Dissatisfied, the respondent appealed to the CA
maturity until the raising two issues, namely, (1) whether or not venue
account is fully paid;
was improperly laid, and (2) whether or not
2. The amount of the Kasunduang Pag-aayos effectively novated the
Php10,000.00 as and by loan agreement. On September 17, 2009, the CA
way of attorneys fees; rendered the assailed Decision, disposing as follows:
and the costs.
WHEREFORE, premises
SO ORDERED. [5] considered, the petition is
hereby GRANTED. The appealed
Decision dated March 14, 2007 of the
On appeal to the Regional Trial Court (RTC) Regional Trial Court (RTC)
of Makati City, Branch 146, the respondent raised the of Makati City, Branch 146,
same issues cited in his Answer. In its March 14, 2007 is REVERSED and SET ASIDE. A new
judgment is entered dismissing in the terms of payment which is not
respondents complaint for collection of incompatible with the old agreement. In
sum of money, without prejudice to her other words, the Kasunduang Pag-
right to file the necessary action to enforce aayos merely supplemented the old
the Kasunduang Pag-aayos. agreement.[9]

The CA went on saying that since the parties
entered into a Kasunduang Pag-aayos before
Anent the issue of whether or not there is the Lupon ng Barangay, such settlement has the force
novation of the loan and effect of a court judgment, which may be
contract, the CA ruled in the negative. It ratiocinated enforced by execution within six (6) months from the
as follows: date of settlement by the Lupon ng Barangay, or by
court action after the lapse of such
Judging from the terms of
time.[10]Considering that more than six (6) months had
the Kasunduang Pag-aayos, it is clear that
no novation of the old obligation has taken elapsed from the date of settlement, the CA ruled that
place. Contrary to petitioners assertion, the remedy of the petitioner was to file an action for
there was no reduction of the term or the execution of the Kasunduang Pag-aayos in court
period originally stipulated. The original and not for collection of sum of
period in the first agreement is one (1) year [11]
money. Consequently, the CA deemed it
to be counted from February 1, 2001, or unnecessary to resolve the issue on venue.[12]
until January 31, 2002. When the
complaint was filed before
the barangay on February 2003, the period The petitioner now comes to this Court.
of the original agreement had long expired
without compliance on the part of Issues
petitioner. Hence, there was nothing to
reduce or extend. There was only a change
(1) Whether or not a complaint for sum of petitioner can
money is the proper remedy for the petitioner, insist on his
notwithstanding the Kasunduang Pag-aayos;[13] and original
Perforce, the
complaint for
(2) Whether or not the CA should have decided collection of
the case on the merits sum of money
rather than remand the case for the enforcement of is the proper
the Kasunduang Pag-aayos.[14] remedy.

Our Ruling
The petitioner contends that the CA erred in
Because the ruling that she should have followed the procedure for
respondent enforcement of the amicable settlement as provided in
failed to the Revised Katarungang Pambarangay Law, instead
comply with of filing a collection case. The petitioner points out
the terms of that the cause of action did not arise from
the Kasunduan the Kasunduang Pag-aayos but on the respondents
g Pag-aayos,
breach of the original loan agreement.[15]
agreement is
deemed This Court agrees with the petitioner.
pursuant to It is true that an amicable settlement reached at
Article 2041 of the barangay conciliation proceedings, like
the New Civil the Kasunduang Pag-aayos in this case, is binding
Code and the between the contracting parties and, upon its
perfection, is immediately executory insofar as it is
not contrary to law, good morals, good Under the first remedy, the proceedings are
customs, public order and public policy.[16] This is in covered by the Local Government Code and
accord with the broad precept of Article 2037 of the the Katarungang Pambarangay Implementing Rules
Civil Code, viz: and Regulations. The Punong Barangay is called upon
during the hearing to determine solely the fact of non-
A compromise has upon the parties compliance of the terms of the settlement and to give
the effect and authority of res judicata; but the defaulting party another chance at voluntarily
there shall be no execution except in
complying with his obligation under the settlement.
compliance with a judicial compromise.
Under the second remedy, the proceedings are
governed by the Rules of Court, as amended. The
Being a by-product of mutual concessions and cause of action is the amicable settlement itself,
good faith of the parties, an amicable settlement has which, by operation of law, has the force and effect of
the force and effect of res judicata even if not a final judgment.[20]
judicially approved.[17] It transcends being a mere
contract binding only upon the parties thereto, and is It must be emphasized, however, that
akin to a judgment that is subject to execution in enforcement by execution of the amicable settlement,
accordance with the Rules.[18] Thus, under Section 417 either under the first or the second remedy, is only
of the Local Government Code,[19] such amicable applicable if the contracting parties have not
settlement or arbitration award may be enforced by repudiated such settlement within ten (10) days from
execution by the Barangay Lupon within six (6) the date thereof in accordance with Section 416 of the
months from the date of settlement, or by filing an Local Government Code. If the amicable settlement is
action to enforce such settlement in the appropriate repudiated by one party, either expressly or impliedly,
city or municipal court, if beyond the six-month the other party has two options, namely, to enforce the
period. compromise in accordance with the Local
Government Code or Rules of Court as the case may
be, or to consider it rescinded and insist upon his the party concerned, not a "cause" for
original demand. This is in accord with Article 2041 rescission, or the right to "demand" the
rescission of a compromise, but the
of the Civil Code, which qualifies the broad
authority, not only to "regard it as
application of Article 2037, viz: rescinded", but, also, to "insist upon his
original demand". The language of this
If one of the parties fails or refuses Article 2041, particularly when
to abide by the compromise, the other contrasted with that of Article 2039,
party may either enforce the compromise denotes that no action for rescission is
or regard it as rescinded and insist upon required in said Article 2041, and that
his original demand. the party aggrieved by the breach of a
compromise agreement may, if he
chooses, bring the suit contemplated or
In the case of Leonor v. Sycip,[21] the Supreme involved in his original demand, as if
Court (SC) had the occasion to explain this provision there had never been any compromise
of law. It ruled that Article 2041 does not require an agreement, without bringing an action
action for rescission, and the aggrieved party, by the for rescission thereof. He need not seek
a judicial declaration of rescission, for
breach of compromise agreement, may just consider it he may "regard" the compromise
already rescinded, to wit: agreement already
"rescinded". (emphasis supplied)
It is worthy of notice, in this
connection, that, unlike Article 2039 of the
same Code, which speaks of "a cause of As so well stated in the case of Chavez v. Court
annulment or rescission of the of Appeals,[23] a party's non-compliance with the
compromise" and provides that "the
compromise may be annulled or
amicable settlement paved the way for the application
rescinded" for the cause therein specified, of Article 2041 under which the other party may
thus suggesting an action for annulment or either enforce the compromise, following the
rescission, said Article 2041 confers upon procedure laid out in the Revised Katarungang
Pambarangay Law, or consider it as rescinded and before the Office of
insist upon his original demand. To quote: the Barangay Captain had the force and
effect of a final judgment of a court,
petitioner's non-compliance paved the
In the case at bar, the Revised
way for the application of Art. 2041
Katarungang Pambarangay Law provides
under which respondent may either
for a two-tiered mode of enforcement of an
enforce the compromise, following the
amicable settlement, to wit: (a) by
procedure laid out in the Revised
execution by the Punong Barangay which
Katarungang Pambarangay Law, or
is quasi-judicial and summary in nature on
regard it as rescinded and insist upon
mere motion of the party entitled thereto;
his original demand. Respondent chose
and (b) an action in regular form, which
the latter option when he instituted Civil
remedy is judicial. However, the mode of
Case No. 5139-V-97 for recovery of
enforcement does not rule out the right of
unrealized profits and reimbursement of
rescission under Art. 2041 of the Civil
advance rentals, moral and exemplary
Code. The availability of the right of
damages, and attorney's fees. Respondent
rescission is apparent from the wording of
was not limited to claiming P150,000.00
Sec. 417 itself which provides that the
because although he agreed to the amount
amicable settlement "may" be enforced by
in the "Kasunduan," it is axiomatic that a
execution by the lupon within six (6)
compromise settlement is not an admission
months from its date or by action in the
of liability but merely a recognition that
appropriate city or municipal court, if
there is a dispute and an impending
beyond that period. The use of the word
litigation which the parties hope to prevent
"may" clearly makes the procedure
by making reciprocal concessions,
provided in the Revised Katarungang
adjusting their respective positions in the
Pambarangay Law directory or merely
hope of gaining balanced by the danger of
optional in nature.
losing. Under the "Kasunduan," respondent
was only required to execute a waiver of
Thus, although the "Kasunduan"
all possible claims arising from the lease
executed by petitioner and respondent
contract if petitioner fully complies with
his obligations thereunder. It is undisputed rescinded by
that herein petitioner did not.[24] (emphasis the non-
supplied and citations omitted) compliance of
the respondent
of the terms
In the instant case, the respondent did not thereof,
comply with the terms and conditions of remanding the
the Kasunduang Pag-aayos. Such non-compliance case to the
may be construed as repudiation because it denotes trial court for
that the respondent did not intend to be bound by the the
enforcement of
terms thereof, thereby negating the very purpose for
which it was executed. Perforce, the petitioner has the agreement is
option either to enforce the Kasunduang Pag- clearly
aayos, or to regard it as rescinded and insist upon his unwarranted.
original demand, in accordance with the provision of
Article 2041 of the Civil Code. Having instituted an
action for collection of sum of money, the petitioner The petitioner avers that the CA erred in
obviously chose to rescind the Kasunduang Pag- remanding the case to the
aayos. As such, it is error on the part of the CA to rule trial court for the enforcement of the Kasunduang
that enforcement by execution of said agreement is the Pag-aayos as it prolonged the process, thereby putting
appropriate remedy under the circumstances. off the case in an indefinite pendency.[25] Thus, the
petitioner insists that she should be allowed to
Considering ventilate her rights before this Court and not to repeat
that the same proceedings just to comply with the
the Kasunduan enforcement of the Kasunduang Pag-aayos, in order
g Pag-aayos is to finally enforce her right to payment.[26]
Branch 146, Makati City, dated March 14, 2007
The CA took off on the wrong premise that is REINSTATED.
enforcement of the Kasunduang Pag-aayos is the
proper remedy, and therefore erred in its conclusion SO ORDERED.
that the case should be remanded to the trial court. The MA. TERESA VIDAL, LULU MARQUEZ, and
fact that the petitioner opted to rescind CARLOS SOBREMONTE, petitioners, vs.
the Kasunduang Pag-aayos means that she is insisting MA. TERESA O. ESCUETA, represented
upon the undertaking of the respondent under the by HERMAN O. ESCUETA, respondent.
original loan contract. Thus, the CA should have
decided the case on the merits, as an appeal before it,
and not prolong the determination of the issues by
remanding it to the trial court. Pertinently, evidence This is a petition for review of the
abounds that the respondent has failed to comply with Decision dated July 23, 2002 of the Court of

his loan obligation. In fact, the Kasunduang Pag- Appeals in CA-G.R. SP NO. 68895 which affirmed
aayos is the well nigh incontrovertible proof of the the decision of the Regional Trial Court (RTC)

respondents indebtedness with the petitioner as it was of Mandaluyong City, Branch 208, which reversed
and set aside the decision of the Metropolitan

executed precisely to give the respondent a second

Trial Court of Mandaluyong City (MTC), Branch 60;
chance to make good on his undertaking. And since and granted the motion for execution filed by
the respondent still reneged in paying his private respondent Ma. Teresa O. Escueta in Civil
indebtedness, justice demands that he must be held Case No. 17520.
answerable therefor. The petition at bar stemmed from the following
WHEREFORE, the petition is GRANTED.
When Abelardo Escueta died intestate
The assailed decision of the Court of Appeals is SET on December 3, 1994, he was survived by his
ASIDE and the Decision of the Regional Trial Court, widow Remedios Escueta and their six children,
including Ma. Teresa O. Escueta and her brother Second payment - TEN MILLION EIGHT HUNDRED
Herman O. Escueta. Part of his estate was a THOUSAND (P10,800,000.00) after publication of the
parcel of land located at No. 14 Sierra Madre Extra-Judicial Settlement of the Estate of the late
corner Kanlaon Streets, Barangay Highway Abelardo Escueta and payment of the taxes with the
Hills, Mandaluyong City, covered by Transfer Bureau of Internal Revenue by the Attorney-in-Fact;
Certificate of Title (TCT) No. (77083) - 27568, and and
the house thereon. The property was leased to
Rainier Llanera, who sublet the same to 25 The balance of ONE MILLION (P1,000,000.00) upon
persons. The heirs executed an extra-judicial vacation of all the occupants of the subject property
settlement of estate over the property. They also within SIX (6) months from date hereof. [7]

executed a special power of attorney authorizing

Ma. Teresa Escueta to sell the said property.[4] The parties further agreed that:
Sometime in 1999, Ma. Teresa Escueta, as a Ms. Maria Teresa Escueta shall deliver unto the
co-owner of the property, filed an ejectment case BUYER the Owners Duplicate Copy of the title upon
against Llanera and the sub-lessees before receipt of the down payment while the original copies of
the Lupon of Barangay Highway Hills, docketed as the Special Power of Attorney shall be delivered upon
Barangay Case No. 99-09. [5]
payment of the Second Payment stated above.
In the meantime, on April 15, 1999, the heirs of
Abelardo Escueta executed a deed of conditional The ATTORNEY-IN-FACT-SELLER shall be
sale over the property including the house
[6] responsible for the ejectment of all the tenants in the
thereon, to Mary Liza Santos for P13,300,000.00 said subject property.
payable as follows:
Down payment ONE MILLION FIVE HUNDRED estate tax, capital gains tax and documentary stamp tax
THOUSAND (P1,500,000.00) which the HEIRS- including the telephone, water and Meralco bills and the
SELLERS acknowledged receipt thereof with complete publication for the Extra-Judicial Settlement of the
and full satisfaction; estate of the late ABELARDO ESCUETA while the
registration and transfer fees shall be shouldered by the
BUYER. [8]
On May 5, 1999, Escueta and Llanera, and the purchase price of P1,000,000.00 because the
sub-lessees, executed an Amicable respondents were still in the property.
Settlement, where they agreed that (a) the owners

Llanera vacated the leased premises. Later,

of the property would no longer collect the rentals
twenty of the sub-lessees also vacated the
due from the respondents therein (lessee and sub-
property. By January 2000, five sub-lessees,
lessees) starting May 1999, with the concomitant
namely, Ma. Teresa Vidal, Lulu Marquez, Marcelo
obligation of the respondents to vacate the
Trinidad, Carlos Sobremonte, and Jingkee

property on or before December 1999; (b) time

Ang remained in the property, and requested
was the essence of the agreement, and that
Escueta for extensions to vacate the
consequently, if the lessee and sub-lessees fail or
property. Escueta agreed, but despite the lapse of
refuse to vacate the property on or before
the extensions granted them, the five sub-lessees
December 1999, the barangay chairman was
refused to vacate the property.
authorized without any court order to cause the
eviction and removal of all the respondents on the Escueta opted not to have the sub-lessees
property. The amicable settlement was attested
[10] evicted through the Punong Barangay as provided
by Pangkat Chairman Jose Acong. The parties did for in the amicable settlement. Neither did she file
not repudiate the amicable settlement within ten a motion with the Punong Barangay for the
days from the execution thereof. Neither did any of enforcement of the settlement. Instead, she filed
the parties file any petition to repudiate the on May 12, 2000, a verified Motion for Execution
settlement. against the recalcitrant sub-lessees with the MTC
for the enforcement of the amicable settlement and
The vendees having paid the down payment
the issuance of a writ of execution. The pleading
and second installment of the price of the property,
was docketed as Civil Case No. 17520, with
the vendors caused the cancellation on December
Teresa Escueta as plaintiff, and the sub-lessees as
17, 1999, of TCT No. 27568 and the issuance
defendants. [13]

of TCT No. 15324 to and under the names of the

vendees Mary Liza Santos, Susana Lim and The defendants opposed the motion alleging

Johnny Lim. However, Escueta and the other

[11] that they were enveigled into executing the
vendors had yet to receive the balance of the amicable settlement despite the fact that they had
not violated any of the terms and conditions of the
verbal lease of the property; they were coerced Law (P.D. No. 1517). For her part, the plaintiff
and forced to enter into such amicable settlement asserted that there having been no execution of
as it was the only way of prolonging their stay in the amicable settlement on or before November 6,
the leased premises; and that they had been 1999 by the Lupon, the settlement may now be
paying faithfully and religiously the monthly rentals enforced by action in the proper city or municipal
in advance. court.
They also contended that the plaintiff came to On February 22, 2001, the court issued an
court with unclean hands, as the property had Order denying the Motion for Execution. The

been sold by the co-owners thereof on June 8, court held that the plaintiff was not the real party-
1999, without notifying them. The real parties-in- in-interest as the subject property had already
interest as plaintiffs, would be the new owners of been sold and titled to Susana Lim, Johnny Lim
the property, and not the Escuetas. The and Mary Liza Santos. Only the vendees had the
defendants further asserted that the amicable right to demand the ejectment of the defendants
settlement was not elevated to or approved by the from the said property. The court further ruled that
MTC as required by Section 419 of the Local the defendants had the right of first refusal to
Government Code (LGC), nor approved by a purchase the property under Presidential Decree
competent court; hence, there was no judgment to No. 1517. The MTC, however, did not rule on the
enforce by a new motion for a writ of execution. As issue of whether or not the plaintiffs motion for
such, the plaintiffs motion was premature and execution was premature.
procedurally improper. The defendants asserted
Aggrieved, the plaintiff, now the appellant,
that the plaintiff must first secure a certification to
appealed the order to the RTC where she
file action from the barangay and thereafter, file an
contended that:
action for ejectment against them as required by
Section 417 of the LGC. The amicable settlement THE METROPOLITAN TRIAL COURT
of the parties before the Lupon cannot be a COMMITTED THE REVERSIBLE ERROR IN
substitute for an action for ejectment. Finally, they FINDING AND IN CONCLUDING THAT
averred that they had been sub-lessees for more PLAINTIFF IS NO LONGER THE REAL PARTY-IN-
than ten years already; hence, had the right of first INTEREST.
refusal under Section 6 of the Urban Land Reform
THE METROPOLITAN TRIAL COURT plaintiff in the MTC. Moreover, under the deed of
COMMITTED THE REVERSIBLE ERROR IN conditional sale between her and the buyers, it
FINDING AND IN CONCLUDING THAT was stipulated therein that the purchase price
DEFENDANTS CANNOT BE EJECTED AND CAN of P1,000,000.00 would be delivered to the
EXERCISE THE RIGHT OF FIRST REFUSAL. vendors only upon the vacation of all the
occupants of the subject property within six (6)
THE METROPOLITAN TRIAL COURT months from date hereof. She was duty-bound to
COMMITTED THE REVERSIBLE ERROR IN NOT cause the eviction of the defendant from the
FINDING AND IN NOT MAKING THE property; hence, the appellant, as a co-owner, had
CONCLUSION THAT DEFENDANTS HAVE a substantial interest in the property. The MTC
VIOLATED THE FINAL AND EXECUTORY THE further held that the sale, having been executed
WRITTEN AMICABLE SETTLEMENT BETWEEN while the appellants complaint was pending with
PARTIES EXECUTED IN THEIR BARANGAY the Lupon, the action in the MTC may be
CONFRONTATION. continued by the plaintiff-appellant.

THE METROPOLITAN TRIAL COURT As to the right of first refusal being asserted by
COMMITTED THE REVERSIBLE ERROR IN NOT the appellees, the court ruled that there was no
ORDERING THE EJECTMENT OF THE showing that the land leased had been proclaimed
DEFENDANTS AND IN NOT ORDERING SAID to be within a specific Urban Land Reform Zone. In
DEFENDANTS TO PAY THEIR ARREARAGES IN fact, the Housing and Land Use Regulatory Board
RENTAL PAYMENTS FROM MAY 1999 UP TO had certified that the subject property was outside
THE DAY THEY ACTUALLY LEAVE THE the area for priority development; thus, the
PREMISES AS WELL AS ATTORNEYS FEES AND appellees may not claim that they had been
DAMAGES. [16] deprived of their preemptive right when no such
right existed in the first place. The court did not
On August 31, 2001, the RTC rendered a rule on the third and fourth issues on the ground
decision holding that the plaintiff-appellant was still that the said issues were never raised by the
the owner of the property when the ejectment case parties. The decretal portion of the RTC decision
was filed in the office of the barangay captain, and, reads as follows:
as such, was the real party-in-interest as the
PREMISES CONSIDERED, the appeal is GRANTED. the Regional Trial Court of Mandaluyong City, Branch
The Order dated February 2, 2001 issued by 208, rendered in Civil Case No. MC01-333-A,
the Metropolitan Trial Court of Mandaluyong City, dated August 31, 2001 is hereby AFFIRMED.
Branch 60, in Civil Case No. 17520 is hereby
REVERSED and SET ASIDE, and a new one is entered SO ORDERED. [19]

granting the Motion for Execution.

In their petition at bar, the petitioners assert
Let the Record of this case be remanded to the court a that the CA erred as follows: (1) in not applying the
quo for proper disposition. rules of procedure liberally; (2) in declaring that
there was no need for the respondents to file an
ejectment case for the eviction of the petitioners;
(3) that the real parties-in-interest as plaintiffs in
A petition for review under Rule 42 was filed the MTC were the new owners of the property,
with the Court of Appeals by three of the Susana Lim, Johnny Lim and Mary Liza Santos;
appellees, now petitioners Ma. Teresa Vidal, Lulu (4) in not finding that the Amicable Settlement was
Marquez and Carlos Sobremonte. The court, obtained through deceit and fraud; and (5) in ruling
however, dismissed the petition on (1) procedural that the petitioners had no right of first refusal in
grounds, and (2) for lack of merit. [18]
the purchase and sale of the subject property
On procedural grounds, the CA ruled that the under Presidential Decree No. 1517.
petitioners failed to indicate the specific material The petition is bereft of merit.
dates, showing that their petition was filed on time
as required by the rules, and in declaring that they On the procedural issue, the CA dismissed the petition
failed to justify their failure to do so. before it for the petitioners failure to comply with
Section 2, par. 1, Rule 42 of the 1997 Rules of Civil
On the merits of the petition, the appellate
Procedure. The CA ratiocinated that there was no

court upheld the ruling of the RTC. The decretal

justification for a relaxation of the Rules, thus:
portion of the decision of the CA reads:
Petitioners cited decisions of the Supreme Court where
WHEREFORE, the instant petition is hereby
a relaxation of procedural rules was allowed. However,
DISMISSED. The assailed Decision of
a reading of those cases shows that they are not exactly
similar with the present case. In the case of Mactan However, in order to promote their objective of
Cebu International Airport Authority vs. Francisco securing a just, speedy and inexpensive
Cuizon Mangubat, the Supreme Court allowed the late dispensation of every action and proceedings, the
payment of docket fee by the Solicitor General on the Rules are to be liberally construed. Rules of

ground that the 1997 Rules of Civil Procedure regarding procedure are intended to promote, not to defeat
payment of docket fees was still new at that time. The substantial justice and, therefore, should not be
same cannot be said in the present case. The petition applied in a very rigid and technical sense. This
was filed on February 28, 2002, almost five years from Court ruled in Buenaflor vs. Court of Appeals, et
the issuance of the 1997 Rules of Civil Procedure. The al. that appeal is an essential part of our judicial

circumstances of typhoon and holiday for failure to system and trial courts and the Court of Appeals
obtain a certified true copy of the DOJs Decision, in the are advised to proceed with caution so as not to
case of Hagonoy Market Vendor Association deprive a party of the right to appeal and that every
vs. Municipalityof Hagonoy, Bulacan, were present in party litigant should be afforded the amplest
the instant petition. The case of Salazar vs. Court of opportunity for the proper and just disposition of
Appeals is also not similar with the present case.
his cause, free from the constraints of
technicalities. The Court has given due course to
The petitioners aver in this case that the failure petitions where to do so would serve the demands
of their counsel to include the material dates in of substantial justice and in the exercise of its
their petition with the CA was, as stated in their equity jurisdiction. In this case, the Court opts to

Amended Manifestation, because the said counsel apply the rules liberally to enable it to delve into
was suffering from a slight heart attack. The Court and resolve the cogent substantial issues posed by
finds the petitioners pretext flimsy. If the petitioners the petitioners.
counsel was able to prepare their petition despite
We agree with the contention of the petitioners
her condition, there was no valid reason why she
that under Section 416 of the LGC, the amicable
failed to include the material dates required under
the Rules of Court. Besides, the petitioners stated settlement executed by the parties before
the Lupon on the arbitration award has the force
in their petition that they had appended a copy of
and effect of a final judgment of a court upon the
their Amended Manifestation, but failed to do so. If
the rules were to be applied strictly, the CA could expiration of ten (10) days from the date thereof,
unless the settlement is repudiated within the
not be faulted for dismissing the petition.
period therefor, where the consent is vitiated by Section 417 of the Local Government Code
force, violence or intimidation, or a petition to provides a mechanism for the enforcement of a
nullify the award is filed before the proper city or settlement of the parties before
municipal court. The repudiation of the settlement
the Lupon. It provides for a two-tiered mode of
shall be sufficient basis for the issuance of a enforcement of an amicable settlement executed
certification to file a complaint.[26]
by the parties before the Lupon, namely, (a) by
execution of the Punong Barangay which is quasi-
We also agree that the Secretary of
judicial and summary in nature on mere motion of
the Lupon is mandated to transmit the settlement
the party/parties entitled thereto; and (b) by an

to the appropriate city or municipal court within the

action in regular form, which remedy is
time frame under Section 418 of the LGC and to
judicial. Under the first remedy, the proceedings
furnish the parties and the Lupon Chairman with
are covered by the LGC and the Katarungang
copies thereof. The amicable settlement which is

Pambarangay Implementing Rules and

not repudiated within the period therefor may be
Regulations. The Punong Barangay is called upon
enforced by execution by the Lupon through
during the hearing to determine solely the fact of
the Punong Barangay within a time line of six
non-compliance of the terms of the settlement and
months, and if the settlement is not so enforced by
to give the defaulting party another chance at
the Lupon after the lapse of the said period, it may
voluntarily complying with his obligation under the
be enforced only by an action in the proper city or
settlement. Under the second remedy, the
municipal court as provided for in Section 417 of
proceedings are governed by the Rules of Court,
the LGC of 1991, as amended, which reads:
as amended. The cause of action is the amicable
SEC. 417. Execution. The amicable settlement or settlement itself, which, by operation of law, has
arbitration award may be enforced by execution by the the force and effect of a final judgment.
Lupon within six (6) months from the date of the Section 417 of the LGC grants a party a period
settlement. After the lapse of such time, the settlement of six months to enforce the amicable settlement
may be enforced by action in the proper city or by the Lupon through the Punong Barangay before
municipal court. (Underlining supplied). such party may resort to filing an action with the
MTC to enforce the settlement. The raison d
etre of the law is to afford the parties during the
six-month time line, a simple, speedy and less the Lupon, but had to enforce the same through an
expensive enforcement of their settlement before action in the MTC, in derogation of the objective of
the Lupon. Section 417 of the LGC. The law should be
construed and applied in such a way as to reflect
The time line of six months is for the benefit not
the will of the legislature and attain its objective,
only of the complainant, but also of the
and not to cause an injustice. As Justice Oliver
respondent. Going by the plain words of Section
Wendell Holmes aptly said, courts are apt to err by
417 of the LGC, the time line of six months should
sticking too closely to the words of the law where
be computed from the date of settlement.
these words support a policy that goes beyond
However, if applied to a particular case because of
them. The Court should not defer to the latter that
its peculiar circumstance, the computation of the
killeth but to the spirit that vivifieth.

time line from the date of the settlement may be

arbitrary and unjust and contrary to the intent of In light of the foregoing considerations, the time
the law. To illustrate: Under an amicable line in Section 417 should be construed to mean
settlement made by the parties before that if the obligation in the settlement to
the Lupon dated January 15, 2003, the be enforced is due and demandable on the date of
respondents were obliged to vacate the subject the settlement, the six-month period should be
property on or before September 15, 2003. If the counted from the date of the settlement; otherwise,
time line of six months under Section 417 were to if the obligation to be enforced is due and
be strictly and literally followed, the complainant demandable on a date other than the date of the
may enforce the settlement through the Lupon only settlement, the six-month period should be
up to July 15, 2003. But under the settlement, the counted from the date the obligation becomes due
respondent was not obliged to vacate the property and demandable.
on or before July 15, 2003; hence, the settlement
Parenthetically, the Katarungang
cannot as yet be enforced. The settlement could
Pambarangay Implementing Rules and
be enforced only after September 15, 2003, when
Regulations, Rule VII, Section 2 provides:
the respondent was obliged to vacate the
property. By then, the six months under Section SECTION 2. Modes of Execution. - The amicable
417 shall have already elapsed. The complainant settlement or arbitration award may be enforced by
can no longer enforce the settlement through execution by the Lupon within six [6] months from date
of the settlement or date of receipt of the award or from family do not exceed ten thousand (P10,000.00)
the date the obligation stipulated in the settlement or pesos a month if residing in Metro Manila, and five
adjudged in the arbitration award becomes due and thousand (P5,000.00) pesos a month if residing
demandable. After the lapse of such time, the settlement outside Metro Manila, and (b) who do not own real
or award may be enforced by the appropriate local trial property with an assessed value of more than fifty
court pursuant to the applicable provisions of the Rules thousand (P50,000.00) pesos shall be exempt
of Court . An amicable settlement reached in a case from the payment of legal fees. Section 18, Rule
referred by the Court having jurisdiction over the case 141 of the Revised Rules of Court, as amended by
to the Lupon shall be enforced by execution by the said A.M. No. 00-2-01-SC, is hereby further amended
court. (Underlining supplied). accordingly.

By express provision of Section 417 of the In this case, the parties executed their
Amicable Settlement on May 5, 1999. However,
LGC, an action for the enforcement of the
the petitioners were obliged to vacate the property
settlement should be instituted in the proper
municipal or city court. This is regardless of the only in January 2000, or seven months after the
date of the settlement; hence, the respondent may
nature of the complaint before the Lupon, and the
enforce the settlement through the Punong
relief prayed for therein. The venue for such
actions is governed by Rule 4, Section 1 of the Barangay within six months from January 2000 or
until June 2000, when the obligation of the
1997 Rules of Civil Procedure, as amended. An
action for the enforcement of a settlement is not petitioners to vacate the property became due. The
respondent was precluded from enforcing the
one of those covered by the Rules on Summary
settlement via an action with the MTC before June
Procedure in civil cases; hence, the rules on

regular procedure shall apply, as provided for in 2000. However, the respondent filed on May 12,
2000 a motion for execution with the MTC and not
Section 1, Rule 5 of the Rules of Civil Procedure,
with the Punong Barangay. Clearly, the respondent
as amended. [31]

adopted the wrong remedy. Although the MTC

As to the requisite legal fees for the filing of an denied the respondents motion for a writ of
action in the first level court under Section 417 of execution, it was for a reason other than the
the Local Government Code, indigents-litigants (a) impropriety of the remedy resorted to by the
whose gross income and that of their immediate respondent. The RTC erred in granting the
respondents motion for a writ of execution, and the SEC. 2. Parties in interest. - A real party in interest is
CA erred in denying the petitioners petition for the party who stands to be benefited or injured by the
review. judgment in the suit, or the party entitled to the avails of
the suit. Unless otherwise authorized by law or these
Normally, the Court would remand the case to
Rules, every action must be prosecuted or defended in
the Punong Barangay for further
the name of the real party in interest.
proceedings. However, the Court may resolve the
issues posed by the petitioners, based on the
The party-in-interest applies not only to the
pleadings of the parties to serve the ends of plaintiff but also to the defendant. Interest within
justice. It is an accepted rule of procedure for the
the meaning of the rules means material interest,
Court to strive to settle the existing controversy in
an interest in issue and to be affected by the
a single proceeding, leaving no root or branch to decree as distinguished from mere interest in the
bear the seeds of future litigation.[32]
question involved, or a mere incidental interest. A [34]

In this case, there is no question that the real party in interest is one who has a legal
petitioners were obliged under the settlement to right. Since a contract may be violated only by

vacate the premises in January 2000. They the parties thereto as against each other, in an
refused, despite the extensions granted by the action upon that contract, the real parties-in-
respondent, to allow their stay in the property. For interest, either as plaintiff or as defendant, must be
the court to remand the case to the Lupon and parties to the said contract. The action must be

require the respondent to refile her motion for brought by the person who, by substantive law,
execution with the Lupon would be an idle possesses the right sought to be enforced. In this[37]

ceremony. It would only unduly prolong the case, the respondent was the party in the amicable
petitioners unlawful retention of the premises. [33] settlement. She is the real party-in-interest to
enforce the terms of the settlement because
The RTC and the CA correctly ruled that the respondent unless the petitioners vacate the property, the
is the real party-in-interest to enforce amicable respondent and the other vendors should not be
settlement. Rule 3, Section 2 of the Rules of Court, as paid the balance of P1,000,000.00 of the purchase
amended, reads: price of the property under the Deed of Conditional
The petitioners are estopped from assailing the land reform zone ... does not indicate that the barangay
amicable settlement on the ground of deceit and where the subject property is located is included
fraud. First. The petitioners failed to repudiate the therein. This is bolstered by the certification issued by
settlement within the period therefor.Second. The the Housing and Land Regulatory Board to the effect
petitioners were benefited by the amicable that the location of the property is outside the area of
settlement. They were allowed to remain in the Priority Development. It is therefore a reversible error
property without any rentals therefor until for the lower court to conclude that defendants-
December 1998. They were even granted appellees were deprived of their preemptive right when
extensions to continue in possession of the no right exists in the first place.
property. It was only when the respondent filed the
motion for execution that the petitioners alleged for Indeed, before a preemptive right under PD 1517 can be
the first time that the respondents deceived them exercised, the disputed land should be situated in an
into executing the amicable settlement. [38] area declared to be both an APD (Areas for Priority
Development) and a ULRZ (Urban Land Reform
On the petitioners claim that they were entitled Zones). Records show, and as not disputed by the
to the right of first refusal under P.D. No. 1517, we petitioners, the disputed property is not covered by the
agree with the disquisition of the trial court, as aforementioned areas and zones. [39]

quoted by the Court of Appeals:

We likewise find no reversible error on the part of [the]
petition is DENIED. The petitioners and all those
RTC in rejecting that the petitioners have a right of first
acting for and in their behalf are directed to vacate,
refusal in the purchase and sale of the subject
at their own expense, the property covered by
property. As ratiocinated by the court:
Transfer Certificate of Title No. 15324 of the
Register of Deeds of Muntinlupa City and deliver
xxx. Presidential Decree No. 1517 (The Urban Land
possession of the property to the vendees Mary
Reform Law) does not apply where there is no showing
Liza Santos, Susana Lim and Johnny Lim. This is
that the land leased has been proclaimed to be within a
without prejudice to the right of the vendees to
specific Urban Land Reform Zone. In the instant case,
recover from the petitioners reasonable
the annex attached to the Proclamation 1967 creating
compensation for their possession of the property
the areas declared as priority development and urban
from January 2000 until such time that they vacate
the property. Costs against the petitioners.