Beruflich Dokumente
Kultur Dokumente
The Facts On June 24, 1996, respondents filed their answer with
compulsory counterclaim. They countered that the
subject property was properly transferred to Conrado
The subject property is a parcel of land with an area under TCT No. 35282, and, thereafter, in the names
of 572 square meters located in Brgy. Sto. Domingo, of the heirs of Conrado under TCT No. T-114352.
Biñan, Laguna. It was registered in the name of Respondents averred that the imputation of fraud on
Aquilina Martinez (Aquilina) under Transfer Certificate the part of Conrado in the registration of the subject
of Title (TCT) No. T-18729 by the Register of Deeds of property was baseless and this assertion of fraud was
Laguna on July 29, 1939.4 not transmissible from Conrado to his heirs, who
merely acquired the property through succession.10
After the liberation of Manila from the Japanese
military occupation in 1945, Aquilina and her maternal Respondents raised some special and affirmatives
grandmother, Leoncia Almendral (Leoncia), learned defenses, among others, that the complaint stated no
that their house on Zabala Street, Tondo, Manila, was cause of action and was barred by prescription. A
ruined by the war. To rebuild their house, they preliminary hearing for the said defenses was set by
borrowed money from their relative, Conrado the RTC.11 In the Order,12 dated May 27, 1999, the
Almazora (Conrado). Thus, their house was RTC ruled that the complaint stated a cause of action.
reconstructed. In return, Leoncia entrusted to
Contrado the owner’s duplicate copy of TCT No. T-
18729 covering the subject property in Biñan, Laguna. Respondents filed a petition for certiorari 13 to assail
Consequently, Conrado and his family remained in the the said interlocutory order of the RTC before the CA.
said property. In its Decision,14 dated February 24, 1999, the CA
denied the same and held that the complaint stated a
cause of action, which was an action for damages
Following the death of Aquilina on July 19, 1949, the arising from fraud committed by Conrado, as trustee,
title of the subject property was transferred to Aurora against Aurora, as cestui que trust. The CA further
Morales-Vivar (Aurora), as her sole heir. Accordingly, held that the complaint, on its face, did not show that
TCT No. T-35280 was issued in the name of the action had prescribed.
Aurora5 after TCT No. T-18729 was cancelled. On
February 7, 1972, Conrado passed away.
Meanwhile, the RTC continued the proceedings and
set the case for trial on the merits. After the parties
Sometime in 1994, Aurora learned from Cristina adduced their respective pieces of evidence, the RTC
Almazora (Cristina), the widowed spouse of Conrado, required them to submit their memoranda. Only
that the title of the subject property had long been respondents filed a memorandum.15
transferred in the name of Conrado and that the
subject property had been sold to Fullway
Development Corporation (Fullway) by the heirs of The RTC Ruling
Conrado in consideration of P4,000,000.00.6
In its Decision, dated June 29, 2004, the RTC
dismissed the complaint. The trial court held that,
after a thorough evaluation of the records, Aurora Branch 259 in Civil Case No. 96-0206 is hereby
miserably failed to prove her right to the subject AFFIRMED.
property. It explained that even if Aurora had a claim
on the subject property, she was guilty of laches. For
SO ORDERED.20
many years, Aurora slept on her right over the
questioned property and failed to exhaust all means,
legal or administrative, to retrieve what was rightfully Petitioners moved for reconsideration, but their
hers at the earliest possible time. motion was denied by the CA in the assailed
Resolution, dated February 3, 2012.
The RTC determined that Conrado was able to transfer
the title of the subject property in his name on June Hence, this petition, raising the following
17, 1965 by virtue of a document denominated as
"Adjudication and Absolute Sale of a Parcel of ISSUES
Registered Land,"16dated January 9, 1949, signed by
Aurora and her husband. The signatures of Aurora and
her husband, affixed on the deed of sale, were not I
properly controverted by her. The trial court found
that her allegations of repeated pleas to Conrado to THE COURT OF APPEALS GRAVELY ERRED IN
return the copy of the title deserved scant AFFIRMING THE DECISION OF THE LOWER
consideration. It concluded that Aurora was not COURT DISMISSING THE COMPLAINT FOR
entitled to damages because there were no clear and DAMAGES FILED BY AURORA MORALESVIVAR,
cogent grounds to award the same. The decretal WHICH DECISIONS ARE ALL CONTRARY TO LAW;
portion of the decision reads:
II
WHEREFORE, premises considered, plaintiffs having
failed to prove its case for damages, the same is
hereby ordered DISMISSED for lack of merit. THE COURT OF APPEALS SERIOUSLY ERRED IN
NOT RULING THAT THE ACQUISITION OF
CONRADO ALMAZORA, RESPONDENTS’
SO ORDERED.17 PREDECESSOR-IN-INTEREST, OF THE SUBJECT
PROPERTY, IS INVALID AND PRODUCED NO
Aggrieved, Aurora appealed to the CA. On June 4, EFFECT WHATSOEVER BECAUSE NOT ALL THE
2009, the children of Aurora, namely, Consuelo V. ELEMENTS OF LACHES, AS TO DEPRIVE AURORA
Pangasinan, Lucio M. Vivar and Annabella V. MORALES-VIVAR OF HER OWNERSHIP, ARE
Borromeo (petitioners), filed a motion for substitution PRESENT IN THE CASE AT BAR.21
of party18 after her death on March 26, 2008. In its
Resolution,19 dated July 15, 2010, the CA granted the Petitioners assert that they are not guilty of laches.
motion. When Aurora was told that the subject property was
already in the name of Conrado in April 1994, she
The CA Ruling immediately filed a complaint for damages on May 2,
1996. Petitioners also claim that prescription is not a
valid defense to defeat the title of Aurora. Section 47
In the assailed Decision, dated July 28, 2011, the CA of Presidential Decree (P.D.) No. 1529 states that no
denied the appeal of petitioners. It held that it took title to registered land in derogation of the title of the
Aurora more than 50 years to act on Conrado’s registered owner shall be acquired by prescription or
withholding of the title covering the subject property. adverse possession.
As early as 1945, the title was already in the
possession of Conrado. The CA ruled that petitioners
were barred by laches as Aurora should have been On September 24, 2012, respondents filed their
impervious in asserting her ownership and made Comment,22 arguing that petitioners’ assertions were
judicial demands to return the title and the property. tenuous. Aurora slept on her rights for more than 50
years, impervious in asserting her ownership of the
subject property, thereby losing the same by laches.
The appellate court added that even on the aspect of
prescription of actions, the case would not prosper
either. It explained that the prescriptive period to On December 11, 2012, petitioners filed their
recover property obtained through fraud or mistake Reply,23 claiming that the CA observed that
giving rise to an implied trust under Article 1456 of respondents might have manipulated the said title to
the Civil Code was 10 years, pursuant to Article 1144. their benefit and advantage. Respondents’ hands were
This 10-year prescriptive period began from the time unclean because of their bad faith and
the land was registered on June 17, 1965. misrepresentation.
Accordingly, Aurora had only until June 17, 1975
within which to file her action. Evidently, the suit was The Court’s Ruling
commenced only on May 12, 1996, beyond its
prescription period. The dispositive portion of the
decision states: The petition is bereft of merit.
Petitioners are barred by The contention of petitioners that they were not in
laches delay in claiming their rights over the subject property
is specious. For 50 years, Aurora and her heirs did not
take any legal step to uphold their claim over the
Laches is defined as the failure or neglect for an
subject property, despite being fully aware that
unreasonable and unexplained length of time to do
Conrado and his family were occupying the same for
that which, by exercising due diligence, could or
a very long time. Even petitioner Consuelo Vivar-
should have been done earlier; it is negligence or
Pangasinan testified that Conrado had been using the
omission to assert a right within a reasonable time,
property for 30 years31 and that Aurora had never
warranting a presumption that the party entitled to
shown her any evidence of ownership of the
assert it either has abandoned it or declined to assert
property.32
it.25
xxxx
Petitioner entreats this Court to reverse and set aside
the CA’s assailed decision and attributes the following
errors: (a) Espinosa failed to prove by competent (2) Those who have acquired ownership of private
evidence that the subject property is alienable and lands by prescription under the provision of existing
disposable; (b) jurisprudence dictates that a survey laws.
plan identifies the property in preparation for a judicial
proceeding but does not convert the property into
Obviously, the confusion that attended the lower
alienable, much less, private; (c) under Section 17 of
courts’ disposition of this case stemmed from their
P.D. No. 1529, the submission of the original tracing
failure to apprise themselves of the changes that
cloth plan is mandatory to determine the exact metes
Section 48(b) of the PLA underwent over the years.
and bounds of the property; and (d) a blueprint copy
Section 48(b) of the PLA originally states:
of the survey plan may be admitted as evidence of the
identity and location of the property only if it bears the
approval of the Director of Lands. Sec. 48. The following described citizens of the
Philippines, occupying lands of the public domain or
claiming to own any such lands or an interest therein,
Issues
but whose titles have not been perfected or
completed, may apply to the Court of First Instance of
The resolution of the primordial question of whether the province where the land is located for confirmation
Espinosa has acquired an imperfect title over the of their claims and the issuance of a certificate of title
subject property that is worthy of confirmation and therefor, under the Land Registration Act, to wit:
registration is hinged on the determination of the
following issues:
xxxx
HEIRS OF LEOPOLDO DELFIN AND SOLEDAD In its Answer,16 the National Housing Authority alleged
DELFIN, NAMELY EMELITA D. FABRIGAR AND that the Delfin Spouses' property was part of a military
LEONILO C. DELFIN, Petitioners, v. NATIONAL reservation area.17 It cited Proclamation No. 2151
HOUSING AUTHORITY, Respondent. (actually, Proclamation No. 2143, the National
Housing Authority made an erroneous citation) as
having supposedly reserved the area in which
DECISION property is situated for Iligan City's slum improvement
and resettlement program, and the relocation of
LEONEN, J.: families who were dislocated by the National Steel
Corporation's five-year expansion program.18
Under Commonwealth Act No. 141, a claimant may
According to the National Housing Authority,
acquire alienable and disposable public land upon
Proclamation No. 2151 also mandated it to determine
evidence of exclusive and notorious possession of the
the improvements' valuation.19 Based on the study of
land since June 12, 1945. The period to acquire public
the committee it created, the value of the property
land by acquisitive prescription under Presidential
was supposedly only P4.00 per square meter,
Decree No. 1529 begins to run only after the
regardless of the nature of the improvements on it.20
promulgation of a law or a proclamation by the
President stating that the land is no longer intended
It emphasized that among all claimants, only the
for public use or the development of national wealth.
Delfin Spouses and two others remained unpaid
because of their disagreement on the property's
This resolves a Petition for Review on Certiorari1 under
valuation.21
Rule 45 of the 1997 Rules of Civil Procedure praying
that the assailed February 26, 2010 Decision2 and July
The National Housing Authority failed to appear during
2, 2010 Resolution3 of the Court of Appeals in CA-G.R.
the pre-trial conference.22 Upon the Delfin Spouses'
CV No. 80017 be reversed, and that the May 20, 2002
motion, the Regional Trial Court declared the National
Decision4 of the Regional Trial Court in Civil Case No.
Housing Authority in default.23 The case was set for
II-1801 be reinstated.
the ex-parte reception of the Delfin Spouses'
evidence.24
The Regional Trial Court's May 20, 2002 Decision
awarded compensation to Leopoldo and Soledad
On May 20, 2002, the Regional Trial Court rendered a
Delfin (Delfin Spouses) for an Iligan City property
Decision in favor of the Delfin
subsequently occupied by respondent National
Spouses.25cralawred The dispositive portion of the
Housing Authority.
Decision read:
chanRoblesvirtualLawlibrary
The assailed Court of Appeals Decision reversed the
Regional Trial Court's May 20, 2002 Decision and
dismissed the Delfin Spouses' complaint seeking WHEREFORE, premises considered, and by virtue of
compensation. The assailed Court of Appeals the existence of preponderance of evidence, the Court
Resolution denied their Motion for Reconsideration. hereby enters a judgment in favor of spouses-
plaintiffs Leopoldo Delfin and Soledad Delfin against
defendant National Housing Authority, its agents or
representative/s ordering to pay the former the National Housing Authority already conceded that the
following, to wit: property is disposable public land by citing
Proclamation No. 2151, which characterized the
property as "a certain disposable parcel of public
1) P400,000.00 representing the reasonable land."31However, the Delfin Spouses supposedly failed
market value of a portion of the land taken to establish their possession of the property since June
by the defendant containing an area of 12, 1945, as required in Section 48(b) of the Public
10,000 square meters at the rate of P40.00 Land Act.32
per square meters plus legal interest per
annum from the filing in Court of the During the pendency of their petition before the Court
complaint until fully paid; of Appeals. Both Leopoldo and Soledad Delfin both
passed away. Lepoldo passed away on February 3,
2005 and Soledad on June 22, 2004. Their surviving
heirs, Emelita D. Fabrigar and Leonilo C. Delfin filed a
Motion for Substitution before the Court of Appeals,
2) P13,360.00 representing the value of the
which was not acted upon.33
permanent improvements that were
damaged and destroyed plus legal interest
In its assailed July 2, 2010 Resolution,34 the Court of
per annum from the time of the filing of this
Appeals denied the Motion for Reconsideration filed by
case until fully paid;
the heirs of the Delfin Spouses.
The National Housing Authority filed a Motion for Petitioners also assert that the Court of Appeals
Reconsideration, but this was denied in the Regional disregarded certifications and letters from
trial Court's September 10, 2002 Resolution.28 government agencies, which support their claims,
particularly, their and their predecessors-in-interest's
On the National Housing Authority's appeal, the Court possession since June 12, 1945.38
of Appeals rendered the assailed February 26, 2010
Decision reversing the Regional Trial Court:29 Respondent counters, citing the Court of Appeals
WHEREFORE, the appeal is GRANTED. The assailed Decision, that petitioners cannot rely on'Section 14(2)
Decision is REVERSED and SET ASIDE. Consequently, of Presidential Decree No. 1529 because the property
appellees' complaint for compensation is DISMISSED was not yet declared private land when they filed their
for lack of merit. The property taken by appellant NHA Complaint.39chanroblesvirtuallawlibrary
and for which compensation is sought by appellees is
hereby DECLARED land of the public
II
domain.30ChanRoblesVirtualawlibrary
The Court of Appeals ruled that the characterization of Petitioners are erroneously claiming title based on
the property is no longer an issue because the acquisitive prescription under Section 14(2) of
Presidential Decree No. 1529. public service or for the development of the national
wealth, is patrimonial property;42 it is property owned
Section 14 reads in full: by the State in its private capacity. Provinces, cities,
chanRoblesvirtualLawlibrary and municipalities may also hold patrimonial lands.43
Section 14. Who may apply. The following persons
may file in the proper Court of First Instance an Private property "consists of all property belonging to
application for registration of title to land, whether private persons, either individually or
personally or through their duly authorized collectively,"44 as well as "the patrimonial property of
representatives: the State, provinces, cities, and municipalities."45
Attached to the present Petition was a copy of a May Section 48(b) of the Public Land Act therefore requires
18, 1988 supplemental letter to the Director of the that two (2) requisites be satisfied before claims of
Land Management Bureau.52 This referred to an title to public domain lands may be confirmed: first,
executive order, which stated that petitioners' that the land subject of the claim is agricultural land;
property was no longer needed for any public or quasi- and second, open, continuous, notorious, and
public purposes: exclusive possession of the land since June 12, 1945.
chanRoblesvirtualLawlibrary
That it is very clear in the 4th Indorsement of the The need for the land subject of the claim to have
Executive Secretary dated April 24, 1954 the portion been classified as agricultural is in conformity with the
thereof that will not be needed for any public or quasi- constitutional precept that "[a]lienable lands of the
public purposes, be disposed in favor of the actual public domain shall be limited to agricultural
occupants under the administration of the Bureau of lands."54As explained in this Court's 2013 Resolution
Lands (copy of the Executive Order is herewith in Heirs of Malabanan v. Republic:
attached for ready chanRoblesvirtualLawlibrary
reference)53ChanRoblesVirtualawlibrary Whether or not land of the public domain is alienable
and disposable primarily rests on the classification of
However, a mere indorsement of the executive
public lands made under the Constitution. Under the
secretary is not the law or presidential proclamation
1935 Constitution, lands of the public domain were
required for converting land of the public domain into
classified into three, namely, agricultural, timber and
patrimonial property and rendering it susceptible to
mineral. Section 10, Article XTV of the 1973
prescription. There then was no viable declaration
Constitution classified lands of the public domain into
rendering the Iligan property to have been patrimonial
seven, specifically, agricultural, industrial or
property at the onset. Accordingly, regardless of the
commercial, residential, resettlement, mineral, timber
length of petitioners' possession, no title could vest on
or forest, and grazing land, with the reservation that
them by way of
the law might provide other classifications. The 1987
prescription.chanroblesvirtuallawlibrary
Constitution adopted the classification under the 1935
Constitution into agricultural, forest or timber, and
III mineral, but added national parks. Agricultural lands
may be further classified by law according to the uses
While petitioners may not claim title by prescription, to which they may be devoted. The identification of
they may, nevertheless, claim title pursuant to lands according to their legal classification is done
Section 48 (b) of Commonwealth Act No. 141 (the exclusively by and through a positive act of the
Public Land Act). Executive Department.
Section 48 enabled the confirmation of claims and Based on the foregoing, the Constitution places a limit
issuance of titles in favor of citizens occupying or on the type of public land that may be alienated.
claiming to own lands of the public domain or an Under Section 2, Article XII of the 1987 Constitution,
interest therein. Section 48 (b) specifically pertained only agricultural lands of the public domain may be
to those who "have been in open, continuous, alienated; all other natural resources may not be.
exclusive, and notorious possession and, occupation
of agricultural lands of the public domain, under a Alienable and disposable lands of the State fall into
bona fide claim of acquisition or ownership, since June two categories, to wit: (a) patrimonial lands of the
12, 1945": State, or those classified as lands of private ownership
chanRoblesvirtualLawlibrary under Article 425 of the Civil Code, without limitation;
Sec. 48. The following-described citizens of the and (b) lands of the public domain, or the public lands
Philippines, occupying lands of the public domain or as provided by the Constitution, but with the limitation
claiming to own any such lands or an interest therein, that the lands must only be agricultural.
but whose titles have not been perfected or Consequently, lands classified as forest or timber,
completed, may apply to the Court of First Instance of mineral, or national parks are not susceptible of
the province where the land is located for confirmation alienation or disposition unless they are reclassified as
of their claims and the issuance of a certificate of title agricultural. A positive act of the Government is
necessary to enable such reclassification, and the
exclusive prerogative to classify public lands under compensated for the value of their respective portions
existing laws is vested in the Executive Department, and existing improvements thereon, as may be
not in the courts.55ChanRoblesVirtualawlibrary determined by the National Housing
Authority.61ChanRoblesVirtualawlibrary
As the Court of Appeals emphasized, respondent has
conceded that the Iligan property was alienable and Whatever rights petitioners (and their predecessors-
disposable land: in-interest) may have had over the Iligan property
chanRoblesvirtualLawlibrary was, thus, not obliterated by Proclamation No. 2143.
As to the first requirement: There was no need for On the contrary, the Proclamation itself facilitated
appellees to establish that the property involved was compensation.
alienable and disposable public land. This
characterization of the property is conceded by More importantly, there is documentary evidence to
[respondent] who cites Proclamation No. 2151 as the effect that the Iligan Property was not even within
declaring that the disputed property was a certain the area claimed by respondent. In a letter62 to the
disposable parcel of public Director of Lands, dated December 22, 1987, Deputy
land.56ChanRoblesVirtualawlibrary Public Land Inspector Pio Lucero, Jr. noted that:
chanRoblesvirtualLawlibrary
That the Iligan property was alienable and disposable,
That this land known as Lot No. 5258, Cad. 292, Iligan
agricultural land, has been admitted. What is claimed
Cadastre which portion was claimed also by the
instead is that petitioners' possession is debunked by
Human Settlement and/or National Housing
how the Iligan Property was supposedly part of a
Authority; but the area applied for by Leopoldo Delfin
military reservation area57 which was subsequently
is outside the claim of the said agency as per
reserved for Iligan City's slum improvement and
certification issued dated June 10, 1988; copy of
resettlement program, and the relocation of families
which is herewith attached for ready
who were dislocated by the National Steel
reference;63ChanRoblesVirtualawlibrary
Corporation's five-year expansion program.58
The same letter likewise indicated that the Iligan
Indeed, by virtue of Proclamation No. 2143 Property was already occupied by June 1945 and that
(erroneously referred to by respondent as it had even been released for agricultural purposes in
Proclamation No. 2151) certain parcels of land in favor of its occupants.64 Accordingly, the Deputy
Barrio Suarez, Iligan City were reserved for slum- Public Land Inspector recommended the issuance of a
improvement and resettlement program patent in favor of petitioner Leopoldo Delfin:65
purposes.59 The proclamation characterized the Upon investigation conducted by the undersigned in
covered area as "disposable parcel of public land": the premises of the land, it was found and ascertained
chanRoblesvirtualLawlibrary that the land applied for by Leopoldo Delfrn was first
WHEREAS, a certain disposable parcel of public land entered, occupied, possessed and cultivated by him
situated at Barrio Suarez, Iligan City consisting of one since the year June, 1945 up to the present; he have
million one hundred seventy-four thousand eight already well improved the land and introduced some
hundred fifty-three (1,174,853) square meters, more considerable improvements such as coconut trees and
or less, has been chosen by National Steel Corporation different kinds of fruit trees which are presently all
and the City Government of Iligan with the conformity fruit bearing trees; declared the same for taxation
of the National Housing/Authority, as the most purposes and taxes have been paid every year; and
suitable site for the relocation of the families to be that there is no other person or persons who bothered
affected/dislocated as a result of National Steel him in his peaceful occupation and cultivation
Corporation's program and for the establishment of a thereof;chanrobleslaw
slum improvement and resettlement project in the
City of Iligan;60ChanRoblesVirtualawlibrary Records of this Office show that said land was
surveyed and claimed by the Military Reservation, but
However, even if the Iligan Property was subsumed by
the portion of which has been released in favor of the
Proclamation No. 2143, the same proclamation
actual occupants and the area of Leopoldo Delfin is
recognized private rights, which may have already
one of the portions released for agricultural
attached, and the rights of qualified free patent
purposes;chanrobleslaw
applicants:
chanRoblesvirtualLawlibrary
....
NOW, THEREFORE, I, FERDINAND E. MARCOS,
President of the Philippines, by virtue of the powers
That the applicant caused the survey of the land under
vested in me by law, do hereby reserve for relocation
Sgs-12-000099, approved by the Regional Land
of the families to be affected/dislocated by the 5-year
Director, Region XII, Bureau of Lands, Cotabato City
expansion program of the National Steel Corporation
on April 3, 1979 (see approved plan attached
and for the slum improvement and resettlement
hereof);chanrobleslaw
project of the City of Iligan under the administration
and disposition of the National Housing Authority,
In view hereof, it is therefore respectfully
subject to private rights, if any there be, Lot 5258
recommended that the entry of the application be now
(portion) of the Iligan Cadastre, which parcel of land
confirmed and that patent be yes issued in favor of
is of the public domain, situated in Barrio Suarez, City
Leopoldo Delfin.66ChanRoblesVirtualawlibrary
of Iligan and more particularly described as follows:
A May 18, 1988 supplemental letter to the Director of
.... the Land Management Bureau further stated:
chanRoblesvirtualLawlibrary
This Proclamation is subject to the condition that the That the land applied for by Leopoldo Delfin is a
qualified free patent applicants occupying portions of portion of Lot No. 5258, Cad. 292, Iligan Cadastre
the aforedescribed parcel of land, if any, may be which was entered, occupied and possessed by the
said applicant since the year June 1945 up to the
present; well improved the same and introduced some
considerable improvements such as different kinds of
fruit trees, coconut trees and other permanent Facts
improvements thereon;chanrobleslaw
WHEREFORE, the Petition is GRANTED. The assailed The heirs of Feliciano denied the allegations of the
Court of Appeals Decision dated February 26, 2010 heirs of Hermogenes and claimed that their father,
and Resolution dated July 2, 2010 in CA-G.R. CV No. Feliciano, was in possession of the subject property in
80017 are REVERSED and SET ASIDE. The Regional the concept of owner since time immemorial.
Trial Court's Decision dated May 20, 2002 in Civil Case Accordingly, Feliciano was awarded a free patent
No. II-1801 is REINSTATED. thereon for which Original Certificate of Title (OCT)
No. P-10737 was issued. They also averred that the
SO ORDERED.cralawlawlibrary cause of action in the complaint filed by the heirs of
Hermogenes, which questioned the validity of OCT No.
[ GR No. 194260, Apr 13, 2016 ] P-10737, prescribed after the lapse of one year from
its issuance on November 29, 1989.[6]
HEIRS OF FELICIANO YAMBAO v. HEIRS OF
HERMOGENES YAMBAO +
Ruling of the RTC
RESOLUTION
SO ORDERED.
DECISION
PERALTA, J.:
April 29, 2016
Vicente, he left behind a parcel of land measuring with Counterclaim, herein petitioners filed their
2,950 square meters, more or less, which is located Answer in Intervention with Counterclaim. Like the
at San Isidro Norte, Binmaley, Pangasinan; during the defendants, herein petitioners claimed that their
lifetime of Vicente and through his tolerance, Jaime predecessors-in-interest were the absolute and
and the Spouses Salazar were allowed to stay and exclusive owners of the land in question; that
build their respective houses on the subject parcel of petitioners and their predecessors had been in
land; even after the death of Vicente, herein possession of the subject lot since time immemorial
respondents allowed Jaime and the Spouses Salazar up to the present; they have paid real property taxes
to remain on the disputed lot; however, in 1985, and introduced improvements thereon.6
SO ORDERED.7
Jaime and the Spouses Salazar appealed the Decision Hence, the instant petition based on a sole assignment
Aggrieved, herein respondents filed a petition for authenticity of the deed of sale upon which
review with the CA assailing the Decision of the RTC. respondents' predecessors-in-interest derived their
On June 30, 2006, the CA promulgated its questioned The petition lacks merit.
is factual in nature.
(k) When the CA manifestly
Settled is the rule that questions of fact are not overlooked certain relevant
facts not disputed by the
reviewable in petitions for review on certiorari under parties, which, if properly
considered, would justify a
Rule 45 of the Rules of Court.14 Section 1 of Rule 45
different conclusion.15
states that petitions for review on certiorari shall raise
the subject property as owners, or whether they After a review of the records, however, the Court finds
occupy the same by mere tolerance of respondents, is that the petition must fail as it finds no error in the
a question of fact. Thus, it is not reviewable. findings of fact and conclusions of law of the CA and
the MTC.
exceptions from the abovementioned restriction. Petitioners claim that they have acquired ownership
Among the recognized exceptions are the following: over the disputed lot through ordinary acquisitive
prescription.
(d) When the judgment is based on only be extraordinary in character which requires
a misapprehension of facts;
uninterrupted adverse possession for thirty (30)
(e) When the findings of facts are
conflicting; years.18
(f) When in making its findings the
CA went beyond the issues of
the case, or its findings are
contrary to the admissions of
Possession in good faith consists in the reasonable
both the appellant and the
appellee;
belief that the person from whom the thing is received
(g) When the CAs findings are
contrary to those by the trial has been the owner thereof, and could transmit his
court;
ownership.19 There is just title when the adverse
(h) When the findings are
conclusions without citation of claimant came into possession of the property through
specific evidence on which
they are based; one of the modes recognized by law for the acquisition
(i) When the facts set forth in the of ownership or other real rights, but the grantor was
petition as well as in the
petitioners main and reply not the owner or could not transmit any right.20
briefs are not disputed by the
respondent;
(j) When the findings of fact are
premised on the supposed In the instant case, it is clear that during their
absence of evidence and
contradicted by the evidence possession of the property in question, petitioners
on record; or
acknowledged ownership thereof by the immediate petitioners' possession upon service of summons on
predecessor-in-interest of respondents. This is clearly them.24 Thus, petitioners possession also did not ripen
shown by the Tax Declaration in the name of Jaime for into ownership, because they failed to meet the
the year 1984 wherein it contains a statement required statutory period of extraordinary
prescription.22 Possession, to constitute the Finally, as to the issue of whether the due execution
foundation of a prescriptive right, must be en and authenticity of the deed of sale upon which
concepto de dueo, or, to use the common law respondents anchor their ownership were not proven,
equivalent of the term, that possession should be the Court notes that petitioners did not raise this
adverse, if not, such possessory acts, no matter how matter in their Answer as well as in their Pre-Trial
long, do not start the running of the period of Brief. It was only in their Comment to respondents'
prescription.23 Petition for Review filed with the CA that they raised
prescription. Records show that the earliest Tax Even granting that the issue of due execution and
Declaration in the name of petitioners was in 1974. authenticity was properly raised, the Court finds no
Reckoned from such date, the thirty-year period was cogent reason to depart from the findings of the CA,
notarized document has in its favor the presumption The Spouses Supapo did not reside on the subject lot.
They also did not employ an overseer but they made
of regularity, and to overcome the same, there must sure to visit at least twice a year.8 During one of their
visits in 1992, they saw two (2) houses built on the
be evidence that is clear, convincing and more than subject lot. The houses were built without their
knowledge and permission. They later learned that the
merely preponderant; otherwise, the document Spouses de Jesus occupied one house while Macario
occupied the other one.9
should be upheld. 29
In the instant case, petitioners'
The Spouses Supapo demanded from the respondents
bare denials will not suffice to overcome the
the immediate surrender of the subject lot by bringing
presumption of regularity of the assailed deed of sale. the dispute before the appropriate Lupong
Tagapamayapa. The Lupon issued a Katibayan Upang
Makadulog sa Hukuman (certificate to file action) for
failure of the parties to settle amicably.10
WHEREFORE, the petition is DENIED. The assailed The Spouses Supapo then filed a criminal
case11 against the respondents for violation of
Decision and Resolution of the Court of Appeals in CA- Presidential Decree No. 772 or the Anti-Squatting
Law.12 The trial court convicted the respondents. The
G.R. SP No. 91887 are AFFIRMED. dispositive portion of the decision reads:
The MeTC Ruling23 The CA dismissed the appeal and held that the
complaint for accion publiciana should have been
The MeTC denied the motion to set the affirmative lodged before the RTC and that the period to file the
defenses for preliminary hearing. It ruled that the action had prescribed.
arguments advanced by the respondents are
evidentiary in nature, which at best can be utilized in The dispositive portion of the CA decision reads:
the course of the trial. The MeTC likewise denied the
respondents' motion for reconsideration. WHEREFORE, the appeal is DENIED. The Decision
dated June 30, 2009 and Order dated October 19,
From the MeTC's ruling, the respondents filed a 2009 are AFFIRMED.
petition for certiorari with the RTC.24
SO ORDERED
The RTC Ruling25
The Spouses Supapo moved31 but failed32 to secure a
The RTC granted the petition for certiorari on two
grounds, viz.: (i) the action has prescribed; and
reconsideration of the CA decision; hence, they came resolving the issue of possession, where the issue of
to us through the present petition. ownership is inseparably linked to the issue of
possession. The adjudication of the issue of
The Petition ownership, being provisional, is not a bar to an action
between the same parties involving title to the
In seeking reversal of the CA's ruling, the Spouses property. The adjudication, in short, is not conclusive
Supapo essentially argue that: on the issue of ownership.36
They invoke Article 555 of the Civil Code, which Section 47. Registered land not subject to
states: Art. 555. A possessor may lose his possession: prescriptions. No title to registered land in derogation
of the title of the registered owner shall be acquired
xxxx by prescription or adverse possession.
The concept of "conclusiveness of judgment" does not Before us is a Petition for review on certiorari assailing
require that there is identity of causes of action the Court of Appeals (CA) Decision in CA-G.R. CV No.
provided that there is identity of issue and identity of 63248. The CA reversed the decision of the Regional
parties.65 Trial Court (RTC) of Cebu City, Branch 15 in Civil Case
No. CEB - 17857, and. upheld the validity of Transfer
Under this particular concept of res judicata, any Certificate Title (TCT) No. 571.
right, fact, or matter in issue directly adjudicated or
necessarily involved in the determination of an action Factual Antecedents
before a competent court in which judgment is
rendered on the merits is conclusively settled by the The main issue in the present case involves the title
judgment therein and cannot again be litigated to Lot No. 557, a parcel of land situated in V. Ranudo
between the parties and their privies, whether or not and D. Jakosalem Streets, Cogon Central, Cebu City.
the claim, demand, purpose, or subject matter of the
two actions is the same.66 The petitioners and the respondents are relatives
residing in Lot No. 557.
As already explained, there is no identity of parties
between the criminal complaint under the Anti- Petitioners Filadelfa T. Lausa, Loreta T. Torres,
Squatting law and the civil action for accion Primitivo Tugot, and Anacleto T. Caduhay are the
publiciana. For this reason alone, "collusiveness of cousins of respondents Rodrigo Tugot, Purificacion
judgment" does not apply. Codilla, Teofra Sadaya, and Estrellita Galeos; while
Mauricia Quilaton is the respondents' mother and the
Even if we assume, for the sake of argument, that petitioners' aunt-in-law.
there is identity of parties, "conclusiveness of
judgment" still does not apply because there is no The respondent Rosita T. Lopez, on the other hand,
identity of issues. The issue in the criminal case is acquired the rights of Rodrigo when he mortgaged Lot
whether the respondents (accused therein) committed No. 557-A, a portion of Lot No. 557, to her. Rodrigo
the crime alleged in the information, while the only subsequently defaulted on his loan.
issue in accion publiciana is whether the Spouses
Supapo have a better right than the respondents to The petitioners and respondents, with the exception
possess and occupy the subject property. of Mauricia and Rosita, are all grandchildren of
Alejandro Tugot. Alejandro had possessed Lot No. 557
For all these reasons, the defense of res judicata is since September 13, 1915, after it was assigned to
baseless. him by Martin Antonio.
Final Note Lot No. 557 formed part of the Banilad Friar Estate
Lands, which had been bought by the government
As a final note, we stress that our ruling in this case through Act No. 1120 for distribution to its occupants.
is limited only to the issue of determining who Antonio had initially been Lot No. 557's beneficiary,
between the parties has a better right to possession. but subsequently assigned his rights over Lot No. 557
This adjudication is not a final and binding to Alejandro.
determination of the issue of ownership. As such, this
is not a bar for the parties or even third persons to file Since then, Alejandro possessed Lot No. 557 until his
an action for the determination of the issue of death; thereafter, his children and grandchildren
ownership. continued to reside in the lot. The present controversy
arose when the respondents, claiming to be its
WHEREFORE, premises considered, we GRANT the registered owners, attempted to eject the petitioners
petition, and consequently REVERSE and SET from Lot No. 557.
ASIDE the February 25, 2011 decision and August
25, 2011 resolution of the Court of Appeals in CA-G.R. On January 1993, Mauricia filed before the RTC of
SP No. 111674. Cebu City Branch 17 a petition for the issuance of a
new owner's duplicate of TCT No. 571, which
SO ORDERED. purportedly covers Lot No. 557. Mauricia claimed to
own TCT No. 571, but lost her owner's duplicate for the issuance of a new owner's duplicate, even as
during a strong typhoon sometime in 1946. The RTC, she claimed to have owned the lot since 1946.
after due hearing, granted Quilaton's petition and
directed the issuance of a new owner's duplicate of Fourth, Mauricia failed to present evidence showing
TCT No. 571. how she acquired title to Lot No. 557. If indeed the
land was purchased from Martin Antonio, she could
On September 27, 1994, Mauricia donated Lot No. 557 have secured a copy of its document of sale from the
to her children Rodrigo, Purificacion, Teofra and Archives Office, Manila.
Estrellita. Thus, TCT No. 571 was cancelled, and re-
issued as TCT Nos. 130517, 130518, 130519, 130520 Additionally, the RTC held that the petitioners had
and 130521 in the names of Mauricia's better title to Lot No. 557 than the respondents. The
children.1cralawrednad RTC found that Lot No. 557 had been in the possession
of Alejandro since September 13, 1915, when the lot's
Mauricia's children subsequently performed several owner, Martin Antonio, executed a Deed of
acts of ownership over Lot 571: first, Rodrigo, on Assignment in favor of Alejandro. This conveyance,
March 23, 1995, mortgaged TCT No. 130517 to Lopez together with Alejandro and his heirs' continuous
as security for a loan he obtained from the latter. payment of Lot No. 557's real estate taxes since 1928,
Rodrigo subsequently defaulted on his loan, amounts to more than thirty years of adverse
prompting the foreclosure of TCT No. 130517. The possession, so that ownership over the lot vested in
land covered by TCT No. 130517 was thereafter sold him.
by public auction to Lopez, for which she was issued
TCT No. 143511 on March 31, 1997. As Alejandro's heirs, both the petitioners and
respondents are entitled to a share in Lot No. 557.
Second, Mauricia's children filed a complaint for
ejectment against the petitioners, docketed as Civil Lastly, the RTC declared Lopez's TCT No. 143511,
Case No. R-35137, on August 4, 1995. which she acquired when she purchased TCT No.
130517, to be null and void. TCT No. 130517 covers
In response, the petitioners filed Civil Case No. CEB- Lot No. 557-A, and had been annotated with a Notice
17857 for the annulment of TCT No. 571 and the of Lis Pendens at the time Lopez purchased it. Thus,
subsequent titles that originate from TCT No. 571, as Lopez had knowledge of the dispute over the
well as criminal complaints2 for falsification and ownership of the lot she bought, and could not claim
perjury against the respondents. the defense of a purchaser in good faith. She acquired
no greater title to the lot than Rodrigo, who
The Regional Trial Court's ruling mortgaged TCT No. 130517.
The RTC found TCT No. 571 to be a forgery, and The respondents filed a motion for reconsideration
declared it and all titles originating from it to be null contesting the RTC's decision. After the RTC denial of
and void ab initio. The RTC gave the following reasons the motion, the respondents appealed to the CA.
as basis for this
conclusion:ChanRoblesvirtualLawlibrary The Court of Appeals' ruling
First, the RTC noted several discrepancies in TCT No. The CA reversed the RTC's decision, and upheld the
571 indicating that it is a validity of TCT No. 571 and all the titles originating
forgery, viz.:ChanRoblesvirtualLawlibrary from it.
(i) The TCTs issued before and after TCT No. 571, that In upholding the validity of TCT No. 571 (and all the
is, TCT No. 570 and TCT No. 572, both use a titles originating from it), the CA emphasized the
different and more recent form than TCT No. 571. existence of a copy of TCT No. 571 in the custody of
TCT Nos. 570 and 572 use Judicial Form No. 109, the Office of the Register of Deeds of Cebu City, and
which was issued in June 1945, while TCT No. 571 noted that it is presumed by law to have been issued
uses Judicial Form No. 140-D, which was issued in in a regular manner. The application of this
April 1936. presumption is called for by the purpose of the Torrens
system, which is to promote the stability and integrity
(ii) TCT Nos. 570 and 572 was signed by Martina L. of land titles.
Arnoco as Register of Deeds, while TCT No. 571
was signed by Gervasio Lavilles as Acting Register According to the CA, the petitioners have failed to
of Deeds. disprove this presumption of regularity. The pieces of
evidence that the petitioners presented (i.e., the tax
(iii)There are distinct differences in Lavilles' signature receipts and Antonio's Deed of Assignment of Lot No.
as it appears in TCT No. 571 from his signatures in 557 to Alejandro) do not prove with clear, positive,
other TCTs, such as TCT Nos. 525 and 526. and convincing evidence that TCT No. 571 had been
fraudulently issued. The payment of real estate taxes
Second, Mauricia's previous acts show that she over Lot No. 557 does not prove ownership. The Deed
acknowledged Alejandro's ownership over Lot No. of Assignment, on the other hand, had been
557. Prior to instituting a petition for issuance of a new subsequently cancelled, as shown by the Friar Lands
owner's duplicate in 1993, Mauricia had been paying Sale Certificate Register on file with the DENR. It
Alejandro (and subsequently Aurea) contributions for proves that the lot had been earlier assigned to
the real estate taxes due on Lot No. 557. Alejandro, but because the assignment was canceled,
the ownership of Lot No. 557 remained with Antonio.
Third, Mauricia exercised acts of full ownership over
Lot No. 557 only in 1994, after she had filed a petition The CA also noted that the lot that Alejandro appears
to have owned was not Lot No. 557 but Lot No. 357. although earlier tax declarations indicated the areas
The description of Lot No. 557 - as set forth by the of the lot to be Lot No. 357. This error was corrected
petitioners in their original complaint - substantially in subsequent tax declarations by the City of Cebu
varies from the actual and precise technical Assessor's Office in 1997.
description of Lot No. 557. Additionally, some of the
documentary evidence in the case (such as tax Third, the CA erred in holding that Lopez is an
declarations, tax receipts and notices of tax innocent purchaser in good faith, as she knew that the
delinquency) show that what Alejandro owned was Lot portion of Lot No. 557 being mortgaged to her was in
No. 357, not Lot No. 557. the possession of Filadelfa, and not Rodrigo. She knew
of this possession before she executed the real estate
The CA also pointed out that Alejandro could not have mortgage contract over the property with Rodrigo.
acquired Lot 557 through acquisitive prescription for
two reasons: first, Mauricia had been in possession of Fourth, the CA erred in finding the petitioners' cause
the property since 1946; and second, a lot registered of action barred by prescription and laches, as they
under the Torrens system cannot be acquired through discovered the existence of TCT No. 571 only in
acquisitive prescription. Records show that the lands August 1995, when Mauricia and her children
comprising the Banilad Friar Lands Estate, of which Lot instituted ejectment proceedings against them.
No. 557 was a part, had been brought under the
operation of the Torrens system on September 23, In response, the respondents argue that the
1913. petitioners have no cause of action against them
because Alejandro's tax declarations cover Lot No.
The CA found Lopez to be an innocent purchaser for 357, and not Lot No. 557, which is covered by their
value. Applying the Court's ruling in Bank of the TCTs. They also cited the CA's decision, and argued
Philippine Islands v. Noblejas, the CA held that Lopez's that the CA committed no error of law in upholding the
good faith as a mortgagee extends to her eventual validity of their TCTs.
purchase of the lot during its foreclosure. Since TCT
No. 130517 had no notice of any adverse claim at the Lopez, on the other hand, asserted that her status as
time it was mortgaged to Lopez, then the subsequent an innocent purchaser or mortgagor in good faith had
annotation of Notice of Lis Pendensprior to TCT No. not been included in the petitioners' amended
130517's foreclosure should not affect her status as a complaint including her as an indispensible party, and
mortgagee-in-good-faith. The clean title presented to should thus not have been considered as an issue in
Lopez at the time TCT No. 130517 was mortgaged to the case. In any case, Lopez asserts that her title to
her maintains this status at the time of its foreclosure, Lot No. 557-A is valid because she is an innocent
and cannot be prejudiced by the subsequent purchaser in good faith.
annotation of a claim to it before the lot is foreclosed.
Issues:
Lastly, the CA found that the RTC erred when it did
not immediately dismiss the petitioners' complaint, as The issues, having been properly joined, present to us
their cause of action had been barred by prescription the following questions:ChanRoblesvirtualLawlibrary
and laches. An action for the annulment of title to land
prescribes in ten years. The petitioners filed their
(1)Whether the CA erred in finding that the lot that
complaint only on September 20, 1995, almost fifty
the petitioners claim to own covers Lot No. 357,
years after Mauricia had been issued TCT No. 571 on
and not Lot No. 557;
July 16, 1946. Thus, the petitioners had slept on their
claimed right over Lot 557; consequently, they are
(2)Whether the CA erred in finding that the
now barred by laches from seeking redress before the
respondents, and not the petitioners, are the
courts.
owners and possessors of Lot No. 557;
The petitioners filed a motion for reconsideration
(3)Whether the CA erred in finding Lopez an innocent
assailing the CA's decision, which motion the CA
purchaser in good faith; and
denied. The denial opened the way for the present
petition for review on certiorari before this Court.
(4)Whether the CA erred in finding the petitioners'
cause of action to have been barred by prescription
The present petition
and laches.
In their present petition, the petitioners seek the
The Court's Ruling
reversal of the CA's decision through their assertion
that they have acquired ownership over Lot No. 557
We find the petition meritorious.
by acquisitive prescription.
We note at the outset that the Court is not a trier of
The petitioners claim that the CA committed the
facts, and our jurisdiction in cases brought before us
following errors:ChanRoblesvirtualLawlibrary
from the appellate court is limited to the review of
errors of law.
First, the CA erred in upholding the validity of TCT No.
571, which is a fake and fabricated title;
We have, however, recognized several exceptional
situations that call for a re-evaluation of the CA's
Second, the CA erred in finding that Mauricia owned
factual conclusions, among them, the situation when
and possessed Lot No. 557, as it was Alejandro who
the CA's findings are contrary to that of the trial court,
exercised acts of exclusive ownership and possession
and when the CA manifestly overlooks relevant facts
over the lot since it was assigned to him in 1915. The
not disputed by the parties and which, if properly
lot Antonio assigned to Alejandro covered Lot No. 557,
considered, would lead to a different
conclusion.3cralawrednad executed in Alejandro's favor in 1915. The identity of
the addresses in these two documents show that what
We find these circumstances in the present case, the petitioners intended to pay real property tax for,
prompting us to re-examine the records of the case was the lot covered in the Deed of Assignment, which
and to reverse the CA's decision after due was Lot No. 557. Thus, the tax declarations that
consideration of the records. placed Lot No. 357 under Alejandro's name actually
pertained to the lot covered by Lot No. 557; its
The CA erred in finding that the lot that the designation as covered by Lot No. 357 was an error
petitioners claim to own is Lot No. 357, and not that the Cebu City Assessor's Office eventually
Lot No. 557 discovered and corrected.
The CA, in upholding the validity of Mauricia's title and In the same vein, the court-approved subdivision plan
ownership over Lot No. 557, pointed out that the lot for Lot No. 557 indicated it to be found along
that Alejandro claimed to own was not Lot No. 557, Jakosalem Street, the address of the lot covered by
but Lot No. 357. Alejandro and Aurea's tax declarations. The plan was
commissioned for Alejandro and his children, including
The CA based this conclusion on several tax Romualdo (Mauricia's husband and the father of her
documents in the name of Alejandro Tugot, which children), in 1960. That the address of Lot No. 557 in
indicate that the lot covered is Lot No. 357, and not the subdivision plan is identical to the address in
Lot No. 557. Alejandro and Aurea's tax declarations establishes
that what they actually claim to own is Lot No. 557,
In so doing, the CA overlooked several key pieces of and not Lot No. 357.
evidence presented before the RTC, which had led the
latter to conclude that the designation of Lot No. 357 With this foundation established, we now resolve the
in Alejandro's tax declarations actually pertained to issue of who among them have the better right over
Lot No. 557. These pieces of evidence are as Lot No. 557.
follows:ChanRoblesvirtualLawlibrary
The CA erred in finding that the petitioners failed
First, the testimony of Mr. Antonio Abellana of the to prove that TCT No. 571 is a fabricated title
City of Cebu Assessor's Office established that he
issued a Certification of Correction to change In upholding the validity of Mauricia's TCT No. 571,
Alejandro's tax declarations, which initially covered the CA held that the petitioners failed to overcome the
Lot No. 357, to Lot No. 557. presumption of regularity that attended its issuance.
The CA emphasized that a copy of TCT No. 571 is
According to Abellana, Lot No. 357 is located in a currently with the Register of Deeds, and that the
barangay different from the address found in documents that the petitioners presented do not
Alejandro's tax declaration. The base map of Cebu prove their ownership over the lot.
locates Lot No. 357 to be in Barangay Day-as, almost
five meters from Sikatuna Street, while the address in The CA's conclusion, however, overlooked the
Alejandro's erroneous tax declaration indicates that evidence that the petitioners presented before the
Lot No. 357 is located in Jakosalem Street. RTC to prove that TCT No. 571 is a fabricated title.
These pieces of evidence include the TCTs issued
Second, records of the Cebu City Assessor's Office immediately before and after TCT No. 571; TCT No.
show that Lot No. 357 is covered by another tax 16534 (the TCT from which TCT No. 571 allegedly
declaration with an address corresponding to the city's originated); and several TCTs that contain the
base map. In this tax declaration, Lot No. 357 is signature of the Acting Register of Deeds who signed
owned by a certain Antonio Yap. TCT No. 571. Taken together, all these pieces of
evidence sufficiently prove, by preponderance of
Third, the deed of donation4 of Lot No. 558, which evidence, that TCT No. 571 is a fabricated title.
adjoins Lot Nos. 557 and 559, recognized Alejandro
Tugot as the owner of Lot No. 557. We cite with approval the RTC's factual observations
and conclusions, viz:ChanRoblesvirtualLawlibrary
We find that these pieces of evidence sufficiently
explain that the lot in Alejandro and Aurea's tax First, the text of TCT No. 571 contains glaring
declarations actually covered Lot No. 557, and its discrepancies with TCT No. 16534, the title indicated
initial designation as Lot No. 357 was an error. The in TCT No. 571 as its precursor.
Assessor's Office of Cebu City, which had the
responsibility of classifying, appraising, and assessing TCT No. 16534 covered a different area from TCT No.
real property in Cebu, had acknowledged this 571. TCT No. 16534 covered Lot 7005-E-2, which has
designation to be erroneous, and subsequently made an area of 3,311 square meters, while TCT No. 571
rectification. This acknowledgment is not only entitled covers Lot No. 557 with an area of 525 square meters.
to the presumption of regularity; it is also Too, TCT No. 16534 was issued in September 1957,
corroborated by the Deed of Donation of an adjoining or almost ten years after the title it supposedly gave
lot. rise to was issued in 1946.
Additionally, we also found other pieces of evidence Second, TCT No. 571 contains discrepancies when
supporting the conclusion of the Cebu City Assessor's compared with TCT Nos. 570 and 572, the TCTs that
Office. The tax declarations in Alejandro and were supposedly issued before and after TCT No. 571.
(subsequently) Aurea's names indicate that they These discrepancies are as
covered the same address as the Lot No. 557 follows:ChanRoblesvirtualLawlibrary
described in the Deed of Assignment that Antonio
(i) TCT Nos. 570 and 572 had both been issued on under the Torrens system, in Registry Book No. A-3.
February 26, 1947, almost a year after TCT No.
571 was issued on July 16, 1946. Since TCT No. Registry Book No. A-3 refers to the registry book
571 was an intervening title between TCT No. 570 where OCT No. 251-253 is registered, as indicated in
and 572, then it should have also been issued on TCT No. 571. Thus, the CA concluded that Lot No. 557
February 26, 1947. has been brought under the Torrens system because
TCT No. 571 is already covered by the system. But as
(ii) TCT No. 571 used an old form, Judicial Form No. TCT No. 571 is a fabricated title, the CA erred in
140-D, which was revised in June 1945 by Judicial relying on its contents to conclude that Lot No. 557
Form No. 109. Since TCT No. 571 shows that it was has already been brought under the Torrens system.
issued in 1946, then it should have used Judicial
Form No. 109. Notably, both TCT Nos. 570 and 572 Alejandro Tugot did not acquire Lot No. 557
used the updated Judicial Form No. 109, as they through acquisitive prescription
were issued in 1947.
We agree with the CA's conclusion that Lot No. 557
(iv)TCT Nos. 570 and 572 were signed by Martina L. cannot be acquired through prescription, but for a
Arnoco as Register of Deeds, while TCT No. 571 different reason.
was signed by Gervasio Lavilles as Acting Register
of Deeds. In the present case, the Deed of Assignment between
Antonio and Alejandro was cancelled three months
(v) There are distinct differences in Lavilles' signature after it was executed. The Deed, executed on
as it appears in TCT No. 571, compared with his September 13, 1915, was inscribed with the phrase:
signatures in other TCTs, such as TCT Nos. 525 "Cancelled December 21, 1915. See letter # 12332."
and 526.
Both the trial court and the CA found this inscription
Additionally, we note that Mauricia's claim that she to be sufficient proof that the Deed of Assignment had
bought Lot No. 557 from Antonio is contradicted by been cancelled three months after its execution. As a
the contents of TCT No. 16534. consequence, the Deed of Assignment could not have
vested Antonio's rights over Lot No. 557 to Alejandro.
For a new TCT to be issued, the owner's duplicate of
the seller should have been surrendered to the Thus, Lot No. 557 reverted to its original status after
Registry of Deeds, along with a copy of the TCT's Deed the Deed of Assignment was cancelled. It remained
of Sale. Thus, the seller's TCT would be cancelled, and subject to the conditional sale5 between the
the new TCT of the buyer would indicate the seller's government and Antonio; under the Certificate of Sale
TCT as its TCT of origin. between the Bureau of Lands and Antonio, the
government should transfer title to Lot No. 557 to
The text of TCT No. 571 shows that it originated from Antonio upon full payment of the lot's purchase price.
TCT No. 16534. If indeed TCT No. 571 was issued to
Mauricia because the latter bought Lot No. 557 from The nature of the contract of sale between Antonio
Antonio, then TCT No. 16534 should have reflected and the government is in line with Section 15 of Act
this transaction. No. 1120, which provides for the administration,
temporary lease, and sale of friar lands that the
However, instead of reflecting Antonio's title to Lot No. government bought through sections 63 to 65 of "An
557, TCT No. 16534 shows that it pertained to Act temporarily to provide for the administration of
a different lot, and had been issued ten years the affairs of civil government in the Philippine
after the issuance of TCT No. 571 to a certain Islands, and for other purposes." These friar lands
Crispina Lopez. included the Banilad Estate Friar Lands, from where
Lot No. 557 originated.
The original certificate of title from which TCT No. 571
and TCT No. 16534 originated are also different: TCT Section 15 of Act No. 1120 that applied to Lot No. 557
No. 571 originated from Original Certificate of Title provides:cralawlawlibrary
(OCT) No. 251-253, while TCT No. 16534 originated Sec. 15. The Government hereby reserves the
fromOCTNo. 11375. title to each and every parcel of land sold under
the provisions of this Act until the full payment
These discrepancies, taken together with its variations of all installments or purchase money and
from the other titles issued around the same time and interest by the purchaser has been made, and
Mauricia's failure to present proof of how she acquired any sale or encumbrance made by him shall be invalid
the lot from Antonio, reasonably establish that TCT as against the Government of the Philippine Islands
No. 571 is a fabricated title. and shall be in all respects subordinate to its prior
claim.
We now proceed to determine whether Alejandro was
Lot No. 557's rightful owner. xxxx
The CA erred in relying on a fabricated title as According to jurisprudence, Section 15 of Act No. 1120
basis to deny Alejandro's claim to acquisitive reserves to the government the naked title to the friar
prescription lands, until its beneficiaries have fully paid their
purchase price. Since the intent of Act No. 1120 was
The CA, in reversing the RTC's decision recognizing to transfer ownership of the friar lands to its actual
Alejandro's ownership over Lot No. 571, held that Lot occupants, the equitable and beneficial title to the
No. 557 could no longer be acquired through land passes to them the moment the first installment
prescription because it had already been brought is paid and a certificate of sale is issued. This right is
subject to the resolutory condition that the sale may price, it would have been registered under the Torrens
be rescinded if the agreed price shall not be paid in system, through Section 122 of Act No. 496.
full.
Land registered under the Torrens system cannot be
When the Certificate of Sale was executed, Antonio acquired through prescription. As early as 1902,
obligated himself to pay P9.00 as the final installment Section 46 of Act No. 496 categorically declared that
to purchase Lot No. 557. His previous lease payments lands registered under the Torrens system cannot be
to the lot were applied as initial installments for the acquired by prescription, viz:cralawlawlibrary
payment of the lot's purchase price of PI5.16. Upon Section 46. No title to registered land in derogation to
full payment of the installment and its annual 4% that of the registered owner shall be acquired by
interest, the government was bound to transfer full prescription or adverse possession.
ownership of Lot No. 557 to Antonio under Section 122
Second, Antonio could have failed to complete
of Act No. 496.
payment of Lot No. 557's purchase price; thus, the
naked title to Lot No. 557 remains with the
While the records of the case do not show any
government.
documents or paper trail showing the actions of the
parties to the Certificate of Sale after the Deed of
Under Act No. 1120, the Chief of the Bureau of Public
Assignment was cancelled, we can, with certainty, rule
Lands is required to register title to the friar lands
out the possibility that Alejandro acquired title to it
acquired by the government through Act No. 496.
through prescription.
Section 6 of Act No. 1120, in particular,
provides:cralawlawlibrary
Three scenarios could have happened after the Deed
SECTION 6. The title, deeds and instruments of
of Assignment was cancelled - all of which forego the
conveyance pertaining to the lands in each province,
possibility of acquisitive prescription.
when executed and delivered by said grantors to the
Government and placed in the keeping of the Chief of
First, Antonio could have completed payment of the
the Bureau of Public Lands, as above provided, shall
purchase price of Lot No. 557. Upon full payment, the
be by him transmitted to the register of deeds of each
lot would have then been registered in Antonio's
province in which any part of said lands lies, for
name.
registration in accordance with law. But before
transmitting the title, deeds, and instruments of
The Certificate of Sale between Antonio and the
conveyance in this section mentioned to the register
government requires registration under Section 122 of
of deeds of each province for registration, the Chief of
Act No. 496, or the Land Registration Act of 1902, for
the Bureau of Public Lands shall record all such deeds
the ownership over Lot No. 557 to be transferred to
and instruments at length in one or more books to be
Antonio. Section 122 of Act No. 496
provided by him for that purpose and retained in the
provides:cralawlawlibrary
Bureau of Public Lands, when duly certified by him
Section 122. Whenever public lands in the Philippine
shall be received in all courts of the Philippine Islands
Islands belonging to the Government of the United
as sufficient evidence of the contents of the
States or to the Government of the Philippine Islands
instrument so recorded whenever it is not practicable
are alienated, granted, or conveyed to persons or to
to produce the originals in court.
public or private corporations, the same shall be
brought forthwith under the operation of this Act and The law on land registration at that time was Act No.
shall become registered lands. It shall be the duty of 496, which established the Torrens system in the
the official issuing the instrument of alienation, grant, Philippines. As earlier pointed out, a piece of land,
or conveyance in behalf of the Government to cause once registered under the Torrens system, can no
such instrument, before its delivery to the grantee, to longer be the subject of acquisitive prescription.
be filed with the register of deeds for the province
where the land lies and to be there registered like No certificate of title pertaining to the government's
other deeds and conveyances, whereupon a certificate transfer of ownership of Lot No. 557 was ever
shall be entered as in other cases of registered land, presented in evidence. Assuming, however, that the
and an owner's duplicate certificate issued to the Chief of the Bureau of Public Lands failed to register
grantee. The deed, grant, or instrument of Lot No. 557, the lot could not have been acquired by
conveyance from the Government to the grantee Alejandro through prescription, under the rule that
shall not take effect as a conveyance or bind the prescription does not lie against the government.
land, but shall operate as a contract between the
Government and the grantee and as evidence of Third, Antonio could have sold his rights to Lot No.
authority to the clerk or register of deeds to 557 to another person. Assuming he did, only that
make registration. The act of registration shall person could have stepped into his shoes, and could
be the operative act to convey and affect the have either completed payment of the purchase price
lands, and in all cases under this Act registration of Lot No. 557 and had it registered in his name; or,
shall be made in the office of the register of he could have failed to pay the purchase price in full,
deeds for the province where the land lies. The in which case the naked title to the lot remains
fees for registration shall be paid by the grantee. After government property.
due registration and issue of the certificate and
owner's duplicate such land shall be registered land In all three scenarios, Alejandro could not have
for all purposes under this Act. acquired ownership over Lot No. 557 through
prescription.
Thus, the government could have registered the title
to Lot No. 557 in Antonio's name only after he had
Republic Act No. 9443 and the friar lands
paid the purchase price in full. Had Antonio eventually
completed the payment of Lot No. 557's purchase
The Court is not unaware of the enactment of Republic
Act No. 9443, which confirms the validity of titles Jurisprudence defines innocent purchaser for value as
covering any portion of the Banilad Friar Lands with "one who buys the property of another, without
Certificates of Sale and Assignment of Sale that do not notice that some other person has a right or
contain the signature of the then Secretary of the interest in such property and pays a full price for
Interior and/or Chief of the Bureau of Public Lands. It the same, at the time of such purchase or before
does not apply to TCTs that have been fraudulently he has notice of the claims or interest of some other
issued and registered. person in the property."
Republic Act No. 9443, however, does not validate any PD 1529 has expanded the definition of an innocent
of the parties' claims of ownership over Lot No. 557. purchaser for value to include an innocent lessee,
mortgagee, or other encumbrancer for value.
Mauricia's title, as earlier established, is fabricated;
thus, her situation falls within the exception expressed Neither PD 1529 nor jurisprudence, however, has
under Section 1 of RA No. 9443, viz:cralawlawlibrary included an innocent donee to the definition, and for
This confirmation and declaration of validity shall in all good reason. An innocent purchaser for value pays for
respects be entitled to like effect and credit as a the full price of the property, while a donee receives
decree of registration, binding the land and quieting the property out of the donor's liberality. Additionally,
the title thereto and shall be' conclusive upon and what the law does not include, it excludes, and a
against all persons, including the national government donee is not included in the expansion of the term
and all branches thereof; except when, in a given innocent purchaser for value.
case involving a certificate of title or a
reconstituted certificate of title, there is a clear Applying these principles of law in the case at hand,
evidence that such certificate of title or we hold that the Deed of Donation Mauricia issued in
reconstituted certificate of title was obtained favor of her children immediately after getting a copy
through fraud, in which case the solicitor general or of TCT No. 571 could not have transferred ownership
his duly designated representative shall institute the over Lot No. 557 to her children. Since TCT No. 571 is
necessary judicial proceeding to cancel the certificate a fabricated title, it does not indicate ownership over
of title or reconstituted certificate of title as the case Lot No. 557; thus, the Deed of Donation involving TCT
may be, obtained through such fraud. No. 571 could not have conveyed the ownership of Lot
No. 557 to Mauricia's children.
With respect to Alejandro, his claim to Lot No. 557
rests on the Deed of Assignment executed between
Neither could her children claim the status of an
him and Antonio, which had been cancelled; hence, it
innocent purchaser in good faith, as they received the
cannot be confirmed through Republic Act No. 9443.
property through donation.
Effects of the nullity of TCT No. 571
The TCTs issued to Mauricia's children pursuant to the
donation should thus be cancelled, as they do not
After establishing that neither Mauricia nor Alejandro
signify ownership over Lot No. 557.
has title over Lot No. 557, we now resolve the validity
of the TCTs that originated from TCTNo. 571.
We also note several circumstances that cast doubt
over the ignorance of Mauricia's children regarding the
As a general rule, a person transmits only the rights
fabricated nature of TCT No. 571, viz: (1) the
that he possesses. When innocent third persons,
petitioners are their close relatives, who have been
however, purchase or acquire rights over the property
residing in Lot No. 557 as early as 1928; (2) their
relying on the correctness of its certificate of title,
father, Romualdo, signed and recognized a
courts cannot disregard the rights they acquired and
subdivision plan of Lot No. 557 that would divide the
order the cancellation of the certificate. As the third
lot among all of Alejandro's heirs, including the
paragraph of section 53 of Presidential Decree No.
petitioners; (3) their mother executed the deed of
1529, otherwise known as the Property Registration
donation as soon as she acquired a copy of TCT No.
Decree, provides:cralawlawlibrary
571; (4) their mother's nonpayment of taxes due Lot
Section 53. xxx
No. 557 since 1946; and (5) the payment of real
xxxx
property taxes only to facilitate the subdivision of Lot
No. 557 among them.
In all cases of registration procured by fraud, the
owner may pursue all his legal and equitable remedies
Lopez is not an innocent purchaser for value of
against the parties to such fraud without prejudice,
Lot 5 57-A
however, to the rights of any innocent holder for
value of a certificate of title. After the entry of the
We now determine Lopez's claim that she is an
decree of registration on the original petition or
innocent purchaser for value of Lot No. 557-A, and
application, any subsequent registration procured by
should thus be allowed to keep her title over it.
the presentation of a forged duplicate certificate of
title, or a forged deed or other instrument, shall be
The CA, in affirming Lopez's title over Lot No. 557-A,
null and void.
held that she was an innocent mortgagee for value.
Thus, innocent purchasers in good faith may safely According to the CA, TCT No. 130517 had no
rely on the correctness of the certificate of title issued encumbrances and liens at the time it was mortgaged
therefor, and neither the law nor the courts can oblige to Lopez, and this status extended to the time that
them to go behind the certificate and investigate again TCT No. 130517 was foreclosed to answer for
the true condition of the property. They are only Rodrigo's loan.
charged with notice of the liens and encumbrances on
the property that are noted on the certificate. We cannot agree with the CA's conclusion.
As a general rule, a person dealing with registered That Filadelfa - and not Rodrigo - resided in Lot No.
land has a right to rely on the Torrens certificate of 557-A should have prompted Lopez to make further
title and to dispense with the need of further inquiring inquiries over its status. Further inquiries with the lot
over the status of the lot. owners of surrounding property could have informed
her of its actual status. Instead, she contented herself
Jurisprudence has established exceptions to the with checking the copy of the title to Lot No. 557-A
protection granted to an innocent purchaser for value, against the copy in the Registry of Deeds of Cebu,
such as when the purchaser has actual knowledge of which she had done prior to the actual inspection of
facts and circumstances that would compel a Lot No. 557-A. The law cannot protect Lopez's rights
reasonably cautious man to inquire into the status of to Lot 557-A given her complacency.
the lot; or of a defect or the lack of title in his vendor;
or of sufficient facts to induce a reasonably prudent Further, the status of an innocent-purchaser for value
man to inquire into the status of the title of the or innocent mortgagor for value is established by the
property in litigation. person claiming it, an onus probandi that Lopez failed
to meet.
The presence of anything that excites or arouses
suspicion should then prompt the vendee to look In her memorandum, Lopez urged the Court to
beyond the certificate and investigate the title of the acknowledge her rights over Lot No. 557-A, arguing
vendor appearing on the face of the certificate. One that the declaration of her status as an innocent-
who falls within the exception can neither be purchaser and innocent mortgagor is a non-issue
denominated as innocent purchaser for value nor a because it was never pleaded in her co-respondents'
purchaser in good faith, and hence does not merit the amended complaint. She also pointed out that a valid
protection of the law. title can emerge from a fabricated title, and essentially
invoked the innocent purchaser for value doctrine.
In particular, the Court has consistently held that that
a buyer of a piece of land that is in the actual The amended complaint alleges that Lopez's status as
possession of persons other than the seller must be current owner of Lot 557-A prejudices the rights of the
wary and should investigate the rights of those in petitioners, who are its true owners. The
possession. Without such inquiry, the buyer can circumstances regarding how Lopez acquired
hardly be regarded as a buyer in good faith. ownership over Lot No. 557-A had also been pleaded
therein.
We find that Lopez knew of circumstances that should
have prodded her to further investigate the Lot No. Verily, the amended complaint does not need to allege
557-A's status before she executed a mortgage Lopez's status as an innocent purchaser or mortgagor
contract over it with Rodrigo. in good faith precisely because it was incumbent upon
her to allege and prove this to defend her title to Lot
In the pre-trial brief she submitted before the trial No. 557-A. It merely needed to allege a cause of
court, Lopez made the following action against Lopez, (which it did by alleging the
admissions:cralawlawlibrary circumstances surrounding Lopez's ownership of Lot
xxx Only after these checking did an actual inspection No. 557-A) and that it prejudices the petitioners'
of the properties took (sic) place, but on this occasion, rights as its true owners.
unfortunately, none of the plaintiffs, especially
plaintiff Filadelfa T. Lausa, who is found lately to be Further, Lopez chose to ignore in her Memorandum
residing nearby, furnished her the information of the the petitioners' contention that she knew that Filadelfa
present claims. Lausa, and not Rodrigo, resided in Lot No. 557-A. To
reiterate, Lopez has the burden of proving her status
She likewise made the same admission in an
as an innocent purchaser for value in order to invoke
affidavit, viz:cralawlawlibrary
its application. Failing in this, she cannot avail of the
6. The properties which were mortgaged were
protection the law grants to innocent purchasers for
checked and no one at that time, even plaintiff
value.
Filadelfa T. Lausa who is just residing nearby, disputed
that the absolute owners thereof were the spouses
The CA erred in finding that the petitioners'
Rodrigo and Ligaya Tugot.
claim of ownership over Lot No. 557 had been
While these admissions pertain to the petitioners' act barred by prescription and laches
of not telling Lopez of the status of Lot No. 557-A, it
implies that she had inspected the property, and The outcome of the present case dispenses with the
accordingly found that Rodrigo did not reside in Lot need for a discussion regarding extinctive prescription
No. 557-A. and laches.
Records of the case show that Filadelfa resided in Lot We note, however, that the CA erred in applying the
No. 557-A at the time Lopez executed the real estate principle of prescription and laches to the petitioners'
mortgage with Rodrigo. In August 1995, Rodrigo and cause of action involving Lot No. 557.
his siblings filed an ejectment case against the
petitioners Filadelfa Lausa and Anacleto Caduhay - An action for annulment of title or reconveyance based
Filadelfa resides in Lot No. 557-A while Anacleto's in on fraud is imprescriptible where the plaintiff is in
Lot 557-B. Notably, this ejectment case was filed five possession of the property subject of the fraudulent
months after Lopez had entered into the real estate acts. One who is in actual possession of a piece of land
mortgage contract. Thus, at the time Lopez inspected on a claim of ownership thereof may wait until his
Lot No. 557, she would have found Filadelfa residing possession is disturbed or his title is attacked before
in it, and not Rodrigo. taking steps to vindicate his right.
The records of the case show that the petitioners GRANTED. The Court of Appeals Decision in CA-G.R.
resided in the property at the time they learned about CV No. 63248 is MODIFIED, and the following titles
TCT No. 571. Being in possession of Lot No. 557, their are declared null and void: (1) TCT No. 571 issued to
claim for annulment of title had not expired. Their Mauricia Quilaton; (2) TCT No. 130517 issued to
ownership of Lot No. 571, however, is a different Rodrigo Tugot; (3) TCT No. 130518 issued to
matter. Purificacion Codilla; (4) TCT No. 130519 issued to
Teofra Sadaya; (5) TCT No. 130520 issued to Estrellita
Effects of the Court's decision Galeos; (5) TCT No. 130521 issued to Rodrigo Tugot;
and (6) TCT No. 143511 issued to Rosita Lopez.
Our decision in the present case does not settle the
ownership of Lot No. 557. To recapitulate, our The claim of the petitioners Filadelfa T. Lausa, Loreta
examination of the records and the evidence T. Torres, Primitivo Tugot and Anacleto T. ]Caduhay
presented by the petitioners and the respondents lead for recognition of their ownership over Lot No. 557
us to conclude that neither of them own Lot No. 557. is DENIED.
Despite the intent of Act No. 1120 and Republic Act We DIRECT that a copy of the records of the case be
No. 9443 to transfer ownership of the Banilad Friar transmitted to the Land Management Bureau and the
Estate Lands to its occupants, we cannot settle the Ombudsman for further investigation and appropriate
ownership of Lot No. 557 in the present case. action.
Indeed, the petitioners and the respondents are the SO ORDERED.chanrobles virtuallawlibrary
actual occupants of Lot No. 557, and they and their
families (with the exception of Rosita Lopez) have Carpio, (Chairperson), Del Castillo, Mendoza,
resided in the lot since 1915. and Leonen, JJ., concur.ChanRoblesVirtualawlibrary
DECISION
On December 15, 1995, the trial court through Judge
Pedro S. Espina issued an order dismissing the
KAPUNAN, J.: complaint premised on its finding that the action for
reformation had already prescribed. The order
reads: Scjuris
Reformation of an instrument is that remedy in equity
by means of which a written instrument is made or
construed so as to express or conform to the real ORDER
intention of the parties when some error or mistake
has been committed.[1] It is predicated on the
Resolved here is the defendants
equitable maxim that equity treats as done that which
MOTION TO DISMISS PLAINTIFFS
ought to be done.[2] The rationale of the doctrine is
complaint on ground of prescription
that it would be unjust and unequitable to allow the
of action.
enforcement of a written instrument which does not
reflect or disclose the real meeting of the minds of the
parties.[3] However, an action for reformation must be It is claimed by plaintiff that he and
brought within the period prescribed by law, defendant Bentir entered into a
otherwise, it will be barred by the mere lapse of time. contract of lease of a parcel of land
The issue in this case is whether or not the complaint on May 5, 1968 for a period of 20
for reformation filed by respondent Leyte Gulf years (and renewed for an
Traders, Inc. has prescribed and in the negative, additional 4 years thereafter) with
whether or not it is entitled to the remedy of the verbal agreement that in case
reformation sought.Oldmiso the lessor decides to sell the
property after the lease, she shall
give the plaintiff the right to equal
On May 15, 1992, respondent Leyte Gulf Traders, Inc.
the offers of other prospective
(herein referred to as respondent corporation) filed a
buyers. It was claimed that the
complaint for reformation of instrument, specific
lessor violated this right of first
refusal of the plaintiff when she the action for reformation had not yet prescribed and
sureptitiously (sic) sold the land to the dismissal was "premature and precipitate",
co-defendant Pormida on May 5, denying respondent corporation of its right to
1989 under a Deed of Conditional procedural due process. The order reads: Suprema
Sale. Plaintiffs right was further
violated when after discovery of the
ORDER
final sale, plaintiff ordered to equal
the price of co-defendant Pormida
was refused and again defendant Stated briefly, the principal
Bentir surreptitiously executed a objectives of the twin motions
final deed of sale in favor of co- submitted by the plaintiffs, for
defendant Pormida in December 11, resolution are:
1991.
(1) for the reconsideration of the
The defendant Bentir denies that Order of 15 December 1995 of the
she bound herself to give the Court (RTC, Br. 7), dismissing this
plaintiff the right of first refusal in case, on the sole ground of
case she sells the property. But prescription of one (1) of the five (5)
assuming for the sake of argument causes of action of plaintiff in its
that such right of first refusal was complaint for "reformation" of a
made, it is now contended that contract of lease; and,
plaintiffs cause of action to reform
the contract to reflect such right of (2) for issuance by this Court of an
first refusal, has already prescribed Order prohibiting the defendants
after 10 years, counted from May 5, and their privies-in-interest, from
1988 when the contract of lease taking possession of the leased
incepted. Counsel for defendant premises, until a final court order
cited Conde vs. Malaga, L-9405 July issues for their exercise of dominical
31, 1956 and Ramos vs. Court of or possessory right thereto.
Appeals, 180 SCRA 635, where the
Supreme Court held that the
prescriptive period for reformation The records of this case reveal that
of a written contract is ten (10) co-defendant BENTER (Yolanda)
years under Article 1144 of the Civil and plaintiff Leyte Gulf Traders
Code. Incorporation, represented by
Chairman Benito Ang, entered into
a contract of lease of a parcel of
This Court sustains the position of land, denominated as Lot No. 878-
the defendants that this action for D, located at Sagkahan District,
reformation of contract has Tacloban City, on 05 May 1968, for
prescribed and hereby orders the a period of twenty (20) years, (later
dismissal of the case. renewed for an additional two (2)
years). Included in said covenant of
SO ORDERED.[5] lease is the verbal understanding
and agreement between the
contracting parties, that when the
On December 29, 1995, respondent corporation filed
defendant (as lessor) will sell the
a motion for reconsideration of the order dismissing
subject property, the plaintiff as
the complaint. Juris
(lessee) has the "right of first
refusal", that is, the right to equal
On January 11, 1996, respondent corporation filed an the offer of any other prospective
urgent ex-parte motion for issuance of an order third-party buyer. This agreement
directing the petitioners, or their representatives or (sic) is made apparent by paragraph
agents to refrain from taking possession of the land in 4 of the lease agreement stating:
question.
"4. IMPROVEMENT. The
Considering that Judge Pedro S. Espina, to whom the lessee shall have the right
case was raffled for resolution, was assigned to the to erect on the leased
RTC, Malolos, Bulacan, Branch 19, Judge Roberto A. premises any building or
Navidad was designated in his place. Manikan structure that it may desire
without the consent or
approval of the Lessor x x
On March 28, 1996, upon motion of herein petitioners,
x provided that any
Judge Navidad inhibited himself from hearing the
improvements existing at
case. Consequently, the case was re-raffled and
the termination of the
assigned to RTC, Tacloban City, Branch 8, presided by
lease shall remain as the
herein respondent judge Mateo M. Leanda.
property of the Lessor
without right to
On May 10, 1996, respondent judge issued an order reimbursement to the
reversing the order of dismissal on the grounds that
Lessee of the cost or value Let, therefore, the motion of
thereof." plaintiff to reconsider the Order
admitting the amended answer and
the Motion to Dismiss this case
That the foregoing provision has
(ibid), be set for hearing on May 24,
been included in the lease
1996, at 8:30 oclock in the morning.
agreement if only to convince the
Service of notices must be effected
defendant-lessor that plaintiff
upon parties and counsel as early as
desired a priority right to acquire
possible before said scheduled date.
the property (ibid) by purchase,
upon expiration of the effectivity of
the deed of lease. Concomitantly, the defendants and
their privies-in-interest or agents,
are hereby STERNLY WARNED not
In the course of the interplay of
to enter, in the meantime, the
several procedural moves of the
litigated premises, before a final
parties herein, the defendants filed
court order issues granting them
their motion to admit their amended
dominical as well as possessory
answer to plaintiffs amended
right thereto.
complaint. Correspondingly, the
plaintiff filed its opposition to said
motion. The former court branch To the motion or petition for
admitted the amended answer, to contempt, filed by plaintiff, thru
which order of admission, the Atty. Bartolome C. Lawsin, the
plaintiff seasonably filed its motion defendants may, if they so desire,
for reconsideration. But, before the file their answer or rejoinder
said motion for reconsideration was thereto, before the said petition will
acted upon by the court, the latter be set for hearing. The latter are
issued an Order on 15 December given ten (10) days to do so, from
1995, DISMISSING this case on the the date of their receipt of a copy of
lone ground of prescription of the this Order.
cause of action of plaintiffs
complaint on "reformation" of the
SO ORDERED.[6]
lease contract, without anymore
considering the remaining cause of
action, viz.: (a) on Specific On June 10, 1996, respondent judge issued an order
Performance; (b) an Annulment of for status quo ante, enjoining petitioners to desist
Sale and Title; (c) on Issuance of a from occupying the property.[7]
Writ of Injunction, and (d) on
Damages. Aggrieved, petitioners herein filed a petition
for certiorari to the Court of Appeals seeking the
With due respect to the judicial annulment of the order of respondent court with
opinion of the Honorable Presiding prayer for issuance of a writ of preliminary injunction
Judge of Branch 7 of this Court, the and temporary restraining order to restrain
undersigned, to whom this case was respondent judge from further hearing the case and
raffled to after the inhibition of to direct respondent corporation to desist from further
Judge Roberto Navidad, as acting possessing the litigated premises and to turn over
magistrate of Branch 7, feels not possession to petitioners.
necessary any more to discuss at
length that even the cause of action On January 17, 1997, the Court of Appeals, after
for "reformation" has not, as yet, finding no error in the questioned order nor grave
prescribed. abuse of discretion on the part of the trial court that
would amount to lack, or in excess of jurisdiction,
To the mind of this Court, the denied the petition and affirmed the questioned
dismissal order adverted to above, order.[8] A reconsideration of said decision was,
was obviously premature and likewise, denied on April 16, 1997.[9]
precipitate, thus resulting denial
upon the right of plaintiff that Thus, the instant petition for review based on the
procedural due process. The other following assigned errors, viz:
remaining four (4) causes of action
of the complaint must have been
deliberated upon before that court 6.01 THE COURT OF APPEALS
acted hastily in dismissing this case. ERRED IN HOLDING THAT AN
ACTION FOR REFORMATION IS
PROPER AND JUSTIFIED UNDER
WHEREFORE, in the interest of THE CIRCUMSTANCES OF THE
substantial justice, the Order of the PRESENT CASE;
court, (Branch 7, RTC) dismissing
this case, is hereby ordered
RECONSIDERED and SET ASIDE. 6.02 THE COURT OF APPEALS
ERRED IN HOLDING THAT THE
ACTION FOR REFORMATION HAS Article 1670 of the Civil Code,[14] under which
NOT YET PRESCRIBED; provision, the other terms of the original contract
were deemed revived in the implied new lease.
6.03 THE COURT OF APPEALS
ERRED IN HOLDING THAT AN We do not agree. First, if, according to respondent
OPTION TO BUY IN A CONTRACT OF corporation, there was an agreement between the
LEASE IS REVIVED FROM THE parties to extend the lease contract for four (4) years
IMPLIED RENEWAL OF SUCH after the original contract expired in 1988, then Art.
LEASE; AND, 1670 would not apply as this provision speaks of an
implied new lease (tacita reconduccion) where at the
end of the contract, the lessee continues to enjoy the
6.04 THE COURT OF APPEALS
thing leased "with the acquiescence of the lessor", so
ERRED IN HOLDING THAT A
that the duration of the lease is "not for the period of
STATUS QUO ANTE ORDER IS NOT
the original contract, but for the time established in
AN INJUNCTIVE RELIEF THAT
Article 1682 and 1687." In other words, if the
SHOULD COMPLY WITH THE
extended period of lease was expressly agreed upon
PROVISIONS OF RULE 58 OF THE
by the parties, then the term should be exactly what
RULES OF COURT.[10]
the parties stipulated, not more, not less. Second,
even if the supposed 4-year extended lease be
The petition has merit. Scsdaad considered as an implied new lease under Art. 1670,
"the other terms of the original contract"
The core issue that merits our consideration is contemplated in said provision are only those terms
whether the complaint for reformation of instrument which are germane to the lessees right of continued
has prescribed. Sdaad enjoyment of the property leased.[15] The prescriptive
period of ten (10) years provided for in Art.
1144[16] applies by operation of law, not by the will of
The remedy of reformation of an instrument is the parties. Therefore, the right of action for
grounded on the principle of equity where, in order to reformation accrued from the date of execution of the
express the true intention of the contracting parties, contract of lease in 1968.
an instrument already executed is allowed by law to
be reformed. The right of reformation is necessarily
an invasion or limitation of the parol evidence rule Even if we were to assume for the sake of argument
since, when a writing is reformed, the result is that an that the instant action for reformation is not time-
oral agreement is by court decree made legally barred, respondent corporations action will still not
effective.[11] Consequently, the courts, as the agencies prosper. Under Section 1, Rule 64 of the New Rules of
authorized by law to exercise the power to reform an Court,[17] an action for the reformation of an
instrument, must necessarily exercise that power instrument is instituted as a special civil action for
sparingly and with great caution and zealous care. declaratory relief. Since the purpose of an action for
Moreover, the remedy, being an extraordinary one, declaratory relief is to secure an authoritative
must be subject to limitations as may be provided by statement of the rights and obligations of the parties
law. Our law and jurisprudence set such limitations, for their guidance in the enforcement thereof, or
among which is laches. A suit for reformation of an compliance therewith, and not to settle issues arising
instrument may be barred by lapse of time. The from an alleged breach thereof, it may be entertained
prescriptive period for actions based upon a written only before the breach or violation of the law or
contract and for reformation of an instrument is ten contract to which it refers.[18] Here, respondent
(10) years under Article 1144 of the Civil corporation brought the present action for reformation
Code.[12] Prescription is intended to suppress stale and after an alleged breach or violation of the contract was
fraudulent claims arising from transactions like the already committed by petitioner Bentir. Consequently,
one at bar which facts had become so obscure from the remedy of reformation no longer lies. Ncmmis
the lapse of time or defective memory.[13] In the case
at bar, respondent corporation had ten (10) years We no longer find it necessary to discuss the other
from 1968, the time when the contract of lease was issues raised considering that the same are predicated
executed, to file an action for reformation. Sadly, it upon our affirmative resolution on the issue of the
did so only on May 15, 1992 or twenty-four (24) years prescription of the action for reformation.
after the cause of action accrued, hence, its cause of
action has become stale, hence, time-
WHEREFORE, the petition is hereby GRANTED. The
barred. Sdaamiso
Decision of the Court of Appeals dated January 17,
1997 is REVERSED and SET ASIDE. The Order of the
In holding that the action for reformation has not Regional Trial Court of Tacloban City, Branch 7, dated
prescribed, the Court of Appeals upheld the ruling of December 15, 1995 dismissing the action for
the Regional Trial Court that the 10-year prescriptive reformation is REINSTATED. Scncm
period should be reckoned not from the execution of
the contract of lease in 1968, but from the date of the
SO ORDERED.
alleged 4-year extension of the lease contract after it
expired in 1988. Consequently, when the action for
reformation of instrument was filed in 1992 it was Davide, Jr., C.J., (Chairman), Puno,
within ten (10) years from the extended period of the Pardo, and Ynares-Santiago, JJ., concur.
lease. Private respondent theorized, and the Court of
Appeals agreed, that the extended period of lease was
an "implied new lease" within the contemplation of
conveyances of real property shall be executed
by the co-owners in favor of CRC or its
assignee/s and the same delivered to the latter
G.R. No. 169442, October 14, 2015
together with the original certificate of title upon
payment of the purchase price less the advances
REPUBLIC OF THE PHILIPPINES, REPRESENTED made by CRC in accordance with Paragraphs 2 and 3
BY THE PRIVATIZATION AND MANAGEMENT above; provided, that payment shall be made by
OFFICE (PMO), Petitioner, v. ANTONIO V. BAÑEZ, CRC only upon presentation by the co-owners to
LUISITA BAÑEZ VALERA, NENA BAÑEZ HOJILLA, CRC of certificate/s and/or clearances, with
AND EDGARDO B. HOJILLA, JR., Respondents. corresponding receipts, issued by the
appropriate government office/s or agency/ies
DECISION to the effect that capital gains tax, real estate
taxes on the Property and local transfer tax and
other taxes, fees or charges due on the
PEREZ, J.: transaction and/or on the Property have been
paid.
Assailed and sought to be annulled in this Petition for
Review on Certiorari under Rule 45 of the 1997 Rules 9. This option shall be effective from [the] date of your
of Civil Procedure is the Decision1 of the Court of acceptance as indicated by your conformity below and
Appeals dated 23 August 2005 in CA-G.R. CV No. for a period of one (1) month from and after CRC shall
70137, entitled "Cellophil Resources Corporation v. have been notified in writing by the co-owners that an
Antonio V. Bañez, Luisita Bañez Valera, Nena Bañez original certificate of title has been issued in their
Hojilla and Edgar do B. Hojilla, Jr.," which affirmed the names and that they are ready to execute the xxx
Order2 of the Regional Trial Court (RTC), Branch 1, deed of sale.3
Bangued, Abra, dated 16 August 2000, that dismissed
the complaint of petitioner Republic of the Philippines, Respondents asked for several cash advances which
represented by Privatization and Management Office reached the total amount of, more or less, Two
(PMO), for specific performance, recovery of Hundred Seventeen Thousand Pesos (P217,000.00),
possession, and damages against respondents to be deducted from the purchase price of Four
Antonio V. Bañez, Luisita Bañez Valera, Nena Bañez Hundred Thousand Pesos (P400,000.00). After paying
Hojilla and Edgardo B. Hojilla, Jr., docketed as Civil cash advances to respondents, CRC constructed staff
Case No. 1853. houses and introduced improvements on the subject
property. As respondents would be staying abroad for
The facts as culled from the records are as follows: a time, they executed a Special Power of Attorney
(SPA) in favor of Edgardo B. Hojilla (Hojilla). The SPA
In 1976, Antonio V. Bañez, Luisita Bañez Valera, and authorized Hojilla to perform the following:
Nena Bañez Hojilla (collectively, respondents) offered
for sale a parcel of land (subject property), with an
1. To take all steps necessary to cause a portion of the
area of 20,000 sq m in Barangay Calaba, Bangued,
lot covered by Tax Declaration No. 40185 in the name
Abra to Cellophil Resources Corporation (CRC).
of Urbano Bañez which is the subject of our "Offer to
Pursuant to the offer to sell on 7 December 1981,
Sell" to Cellophil Resources Corporation containing an
respondents executed a Letter Agreement irrevocably
area xxx to be brought under the operation of Republic
giving CRC the option to purchase the subject
Act No. 496, as amended, and to cause the issuance
property, which CRC accepted. The pertinent portion
in our name of the corresponding original certificate of
of the Letter Agreement (hereinafter referred to as
title.
Contract), to wit:
2. To do all acts and things and to execute all papers
1. The purchase price shall be Twenty Pesos xxx per and documents of whatever nature or kind required
square meter or a total amount of Four Hundred for the accomplishments of the aforesaid purpose.
Thousand Pesos (P400,000.00).
HEREBY GRANTING AND GIVING unto our said
2. The co-owners shall take all necessary steps attorney full power and authority whatsoever requisite
to cause the CRC Portion to be brought under the or necessary or proper to be done in or about the
operation of Republic Act No. 496, as amended, premises as fully to all intents and purposes as we
and to cause the issuance in their name of the might or could lawfully do if personally present (with
corresponding original certificate of title, all of power of substitution and revocation), and hereby
the foregoing to be accomplished within a ratifying and confirming all that our said attorney shall
reasonable time from date hereof. xxx do or cause to be done under and by virtue of these
presents.4ChanRoblesVirtualawlibrary
x x x x
7. The co-owners hereby confirm their agreement and However, CRC stopped its operation. The
permission to CRC's entry into, construction of Development Bank of the Philippines and National
building[s] and improvements, and occupancy of, any Development Company took over CRC's operation and
portion of the Property, and xxx waive any right of turned over CRC's equity to Asset Privatization Trust
action they may have against CRC respecting such (APT), which is a government agency created by
entry, construction, or occupancy by the latter of any virtue of Proclamation No. 50, as amended. The APT's
Portion of the Property. function is to take title to and possession of,
provisionally manage and dispose of nonperforming
8. An absolute deed of sale containing the above assets of government financial institutions. Upon the
provisions and standard warranties on expiration of APT's term on 31 December 2000, the
government issued Executive Order (E.O.) No. 323, time, the plaintiff should have demanded compliance
which created the Privatization and Management of defendants' undertakings or initiated any other
Office (PMO). By virtue of E.O. No. 323, the powers, action to protect its interest without waiting for the
functions, and duties of APT were transferred to the statute of limitations to bar their claim.6
PMO. Thus, the original party, CRC, is now
represented by the Republic of the Philippines through
The RTC resolved that because the written contract
the PMO (hereinafter referred to as petitioner), the
was executed on 7 December 1981, then the
successor of the defunct APT.
complaint that was filed more than eighteen (18)
years since the contract was executed was beyond the
As alleged by petitioner, respondents declared
10-year prescriptive period. Within that 18-year
afterwards the subject property as Urbano Bañez
period, there was no act on the part of petitioner,
property, rented out to third parties the staff houses
whether judicial or extrajudicial, to interrupt
petitioner constructed, and ordered its guards to
prescription.
prohibit the petitioner from entering the compound,
which impelled petitioner to file a complaint for
While petitioner paid cash advances to respondents
specific performance, recovery of possession, and
for the processing of the registration of the title,
damages against respondents, including Hojilla, on 10
"which totaled to more or less P217,000.00 as of
April 2000. Among others, the complaint prayed for
September 7, 1984 xxx to the filing of this suit,
respondents to surrender and deliver the title of the
[petitioner] has not demanded compliance by
subject property, and execute a deed of absolute sale
[respondents] of their obligation, that is, the
in favor of petitioner upon full payment. It mentioned
execution of the absolute deed of sale and the delivery
three letters sent to respondents on 29 May 1991, 24
of the Original Certificate of Title to the property to
October 1991, and 6 July 1999.
[petitioner] upon payment of the purchase price
stipulated. There were letters addressed to
In the Complaint, it was alleged that:
[respondents] but these were not demands for
compliance of [respondents'] obligation and which is
"[t]here is no justification, legal or otherwise for the not sufficient under the law to interrupt the
[respondents] to dispossess (sic) the [petitioner] from prescriptive period."7
the subject property. [Petitioner] is more than willing
and able to pay the [respondents] the balance of the The RTC further stated that:
purchase price of the subject parcel of land but its
inability to do so was due to the [respondents'] failure
"[t]he parties could not have contemplated that the
to produce the original certificate of title of the subject
delivery of the property and the payment thereof
parcel of land and to execute the pertinent deed of
could be made indefinitely and render uncertain the
sale, as well as the unjustified occupation by the
status of the land. The failure of either [of the] parties
[respondents] of the property and [of] the staff
to demand performance of the obligation of the other
houses built by [petitioner and that] such actions of
for an unreasonable length of time renders the
the [respondents] are contrary to their undertaking
contract ineffective."8
under condition no. 7 of the subject letter agreement,
that is, for [respondents] to permit [petitioner's] entry
into and occupancy of any portion of the subject The motion for reconsideration was likewise denied in
property and their waiver of any right of action they an Order dated 5 January 2001.
may have against [petitioner] respecting such entry
and occupancy of any portion of the property. And On appeal, petitioner argued that the RTC erred when
despite repeated demands made by [petitioner] upon it dismissed the complaint. Petitioner averred that: (1)
the [respondents] for them to vacate and turnover the its claim was not yet barred by prescription; (2) the
subject parcel of land and the staff houses to period of prescription had been interrupted by
[petitioner], the last of which was in a letter dated July extrajudicial demand; (3) the Statute of Limitation did
6, 1999, the said [respondents] have failed and not run against the State; (4) petitioner's claim not
neglected and still fail and neglect to do so up to the having prescribed, laches could not have set in; (5)
present time."5ChanRoblesVirtualawlibrary the laches of one nullified the laches of the other; and
(6) laches cannot be used to defeat justice or to
perpetuate fraud and injustice.chanrobleslaw
Ruling of the RTC
On 23 June 2000, Hojilla filed a Motion to Dismiss on Ruling of the Court of Appeals
the grounds that he was not a real party-in-interest
and that the action was barred by the Statute of The Court of Appeals affirmed the ruling of the RTC in
Limitations, which Motion the RTC granted in an Order a Decision dated 23 August 2005 on the ground that
dated 16 August 2000 based on Article 1144(1) of the the complaint was barred by the Statute of
Civil Code, which bars actions filed beyond ten (10) Limitations. Contrary to petitioner's arguments, the
years upon the execution of the written contract. Court of Appeals found that the extrajudicial demand
According to the RTC, the letters petitioner sent to to respondents did not serve to toll the running of the
respondents were not demands for respondents to prescriptive period. The Court of Appeals ruled that
comply with their obligation to deliver the title as to the record is bereft of evidence that would attest that
interrupt the running of the prescriptive period. The written extrajudicial demands were sent to
pertinent portion of the RTC Order reads: respondents. While petitioner sent demand letters
dated 29 May 1991 and 24 October 1991, these
demand letters were not considered as demand letters
In the instant case, the defendants were given
because the letters simply called the attention of
[enough] time from December 7, 1981 to comply with
Hojilla to return the properties and unlock the gates.
their obligation, hence, after a reasonable period of
As regards the letter dated 6 July 1999, the Court of Petitioner's Arguments
Appeals ruled that because the letter was addressed
to Hojilla, who was only an attorney-in-fact authorized The petitioner argues that although there is a 10-year
to register the property, it was not binding upon the limitation within which to file a case based on a written
respondents. The Court of Appeals also gave no contract, the period was interrupted due to a written
probative value to the 6 July 1999 letter for having no acknowledgment of respondents' obligation and
proof of service. demand by petitioner. The argument is based on
Article 1155 of the Civil Code, which provides that the
With regard to the issue of running of prescriptive running of the prescriptive period is interrupted when
period against the State, the Court of Appeals opined there is a written extrajudicial demand by the
that because the subject property is a patrimonial creditors, and when there is any written
property of the State when APT became the controlling acknowledgment of the debt by the debtor.
stockholder of CRC, prescription may run against the
State. Thus, the reasonable period within which to The petitioner referred to the letter sent by Hojilla to
register the property is three (3) years. According to the former dated 15 August 1984, and letters given
the Court of Appeals, the cause of action of petitioner by petitioner to Hojilla dated 29 May 1991, 24 October
accrued three (3) years from the time the Contract 1991, and 6 July 1999. In the letter dated 15 August
was executed on 7 December 1981 or, to say the 1984, respondents affirmed their undertaking that
least, on 15 August 1984 when Hojilla sent the they will claim full payment of the property upon
acknowledgment letter dated 15 August 1984, at presentation of a clean title and the execution of the
which time it became clear that respondents could no Absolute Deed of Sale, which reads, "[t]he Bañez heirs
longer fulfill their obligation. will only claim for the full payment of the property
upon presentation of a clean title and execution of a
Hence, petitioner is before us raising the following Deed of Sale signed by the heirs."10
arguments:
Based on Hojilla's representation as stated in the
letter dated 15 August 1984, petitioner argues that
A. The Court of Appeals erred in ruling
Hojilla is estopped by his own acts and for misleading
that the running of the prescriptive
petitioner because "respondents not only failed to
period was not interrupted when
comply with their commitment to deliver a certificate
respondents acknowledged their
of title but where [sic] they also [misled] petitioner
still unfulfilled obligation to initiate
into believing that they were working on the title of
proceedings for the registration of
subject property even as they had[,] at the back of
title of the subject property and at
their mind[s], the running of the statute of limitations
the same time committed that they
as an arsenal once petitioner demands the fulfillment
will only claim the full payment of
of their obligation."11
the property upon presentation of a
clean title and execution of a Deed
The petitioner further added that because there was
of Sale signed by the heirs as stated
no period fixed for the fulfillment or performance of
in the letter dated August 15, 1984.
the obligation to deliver the title, the least the court
should have done was to fix the period pursuant to
B. The Court of Appeals erred in Article 1197 of the Civil Code.
affirming the outright dismissal of
petitioner's suit for specific Finally, the petitioner posits that pursuant to
performance, recovery of paragraph 9 of the Contract, its obligation is
possession and damages on the conditioned upon respondents' obligation, which is to
basis of prescription even as it is deliver the title. Thus, because the respondents failed
evident that there is a need to fix a to deliver such, the obligation of petitioner never
period considering that the ripened.chanrobleslaw
performance of the condition or
obligation is dependent upon the
Respondents' Arguments
will of respondents.
The arguments of respondents, which are aligned with
C. The Court of Appeals erred in the reasons of the lower courts, rely on Article 1144
ignoring certain manifest equitable of the Civil Code, which provides that actions upon a
considerations which militate written contract must be brought within ten (10) years
against a resort to a purely from execution. Because the complaint was filed
mathematical computation of the beyond the 10-year prescriptive period, the action
prescriptive period and in was already barred by the Statute of Limitations.
disregarding the provision of the Further, during such period, petitioner failed to act
irrevocable offer that the option either judicially or extrajudicially to effectively
remains effective for a period of one interrupt the running of the prescriptive period. Thus,
month from and after notice that a the complaint must be dismissed for having been
certificate of title has been issued.9 extinguished by the Statute of
Limitations.chanrobleslaw
The main issue is whether or not the complaint for Our Ruling
specific performance was filed beyond the prescriptive
period.chanrobleslaw We rule in favor of the petitioner.
Petitioner's letters dated 29 May Compared to the letters dated 29 May and 24 October
1991 and 24 October 1991 1991, which demanded Hojilla to surrender
possession of the subject property, this time, in
With regard to the letters petitioner sent to Hojilla petitioner's letter to Hojilla dated 6 July 1999,
dated 29 May 1991 and 24 October 1991, the RTC petitioner demanded Hojilla to produce the title of the
ruled that these letters were insufficient under the law subject property. However, despite the fact that the
to interrupt the prescriptive period because these letter was a clear demand of the nature contemplated
were not demand letters. We lift the pertinent portion by law that would interrupt the prescriptive period, the
from the letter dated 29 May 1991, which demanded Court of Appeals found that (1) the letter did not
respondents to return the properties and to unlock the effectively interrupt the prescriptive period because
gates: the complaint had long prescribed; (2) the letter was
addressed to the wrong party; and, finally, (3) the
Under the agreement to purchase the lot, APT-CRC letter did not bear any proof of service or receipt.
shall pay the whole of the purchase price thereof when
the certificate of title and other documents We do not agree.
enumerated therein are presented to it. Clearly, the
consummation of the sale is within your control, x x x Hojilla's SPA
In view of the foregoing, demand is hereby We refer to the SPA, which granted the authority of
made upon you and your principals, the heirs of Hojilla.
Urbano Bañez, to return the properties
withdrawn and to unlock the gates leading to the When respondents went abroad pending the
staffhouses (sic), within fifteen (15) days from performance of their obligations in the Contract, they
receipt thereof, otherwise we will be authorized Hojilla to register the subject property— a
single obligation in the whole range of obligations in principal, who are herein respondents, with the
the Contract. The SPA appeared to have left no latter's express consent or authority.19 In a contract of
representative to fulfill respondents' obligations in the agency, the agent acts for and in behalf of the
Contract on their behalf except for Hojilla's authority principal on matters within the scope of the authority
to register the subject property. The pertinent portion conferred upon him, such that, the acts of the agent
of the SPA reads: have the same legal effect as if they were personally
done by the principal.20 Because there is an express
1. To take all steps necessary to cause a portion authority granted upon Hojilla to represent the
of the lot covered by Tax Declaration No. 40185 respondents as evidenced by the SPA, Hojilla's actions
in the name of Urbano Baflez which is the bind the respondents.
subject of our "Offer to Sell" to Cellophil
Resources Corporation containing an area xxx to As agent, the representations and guarantees of
be brought under the operation of Republic Act Hojilla are considered representations and guarantees
No. 496, as amended, and to cause the issuance of the principal. This is the principle of agency by
in our name of the corresponding original promissory estoppel. We refer to the evidence on
certificate of title. record. It was Hojilla who administered and/or
managed the subject property.21 Based on Hojilla's
2. To do all acts and things and to execute all papers letter dated 15 August 1984 to petitioner, Hojilla made
and documents of whatever nature or kind required the representation that besides being the attorney-in-
for the accomplishments of the aforesaid purpose. fact of the respondents with limited authority to
register the property, he was also their agent with
HEREBY GRANTING AND GIVING unto our said regard to respondents' other obligations related to the
attorney full power and authority whatsoever requisite Contract. The pertinent portion of the 15 August 1984
or necessary or proper to be done in or about the letter of Hojilla to petitioner reads:
premises as fully to all intents and purposes as we
might or could lawfully do if personally present (with Regarding our loan with the National Electrification
power of substitution and revocation), and hereby Administration (NEA), Hon. Mel Mathay who is helping
ratifying and confirming all that our said attorney shall the Bafiez heirs has initiated negotiations with NEA for
do or cause to be done under and by virtue of these Abreco to purchase our lot in front of the Provincial
presents.18 (Emphasis and underscoring ours) Jail to offset our loan with NEA.22
This was read simply by the lower courts as limiting Also, one glaring fact that cannot escape us is Hojilla's
Hojilla's authority to the registration of the subject representation and guarantee that petitioner's
property under the name of his principal, and all the obligation will only arise upon presentation of a clean
necessary acts for such purpose. It observed that title and execution of a Deed of Sale signed by the
nowhere in the SPA was Hojilla authorized as respondents' heirs, which reads, "[t]he Bañez heirs
administrator or agent of respondents with respect to will only claim for the full payment of the
the execution of the Contract. property upon presentation of a clean title and
execution of a Deed of Sale signed by the
In the case at bar, the reliefs prayed for by petitioner heirs."23
include the execution of the Contract such as delivery
of the subject title, recovery of possession of the If Hojilla knew that he had no authority to execute the
subject property, execution of the deed of sale or Contract and receive the letters on behalf of
transfer of absolute ownership upon full payment of respondents, he should have opposed petitioner's
the balance, and damages for alleged violation of demand letters. However, having received the several
respondents of the Contract for non-delivery of the demand letters from petitioner, Hojilla continuously
title and refusal to vacate the subject property. represented himself as the duly authorized agent of
Indeed, following the reading of the lower courts of respondents, authorized not only to administer and/or
the scope of Hojilla's authority, Hojilla is neither the manage the subject property, but also authorized to
proper party to execute the Contract nor the proper register the subject property and represent the
party to receive the demand letters on behalf of respondents with regard to the latter's obligations in
respondents. the Contract. Hojilla also assured petitioner that
petitioner's obligation to pay will arise only upon
This strict construction of the tenor of the SPA will presentation of the title.
render the obligatory force of the Contract ineffective.
Construction is not a tool to prejudice or commit fraud Clearly, the respondents are estopped by the acts and
or to obstruct, but to attain justice. Ea Est Accipienda representations of their agent. Falling squarely in the
Interpretatio Quae Vitio Caret. To favor the lower case at bar is our pronouncement in Philippine
court's interpretation of the scope of Hojilla's power is National Bank v. IAC (First Civil Cases
to defeat the juridical tie of the Contract— Div.),24 "[h]aving given that assurance, [Hojilla] may
the vinculum juris of the parties. As no one was not turn around and do the exact opposite of what
authorized to represent respondents in the Contract, [he] said [he] would do. One may not take
then petitioner cannot enforce the Contract, as it inconsistent positions. A party may not go back on his
were. This is an absurd interpretation of the SPA. It own acts and representations to the prejudice of the
renders the Contract ineffective for lack of a party to other party who relied upon them."25cralawred
execute the Contract.
Assuming further that Hojilla exceeded his authority,
Contrary to the findings of the lower court, the present the respondents are still solidarity liable because they
case is a case of an express agency, where, Hojilla, allowed Hojilla to act as though he had full powers by
the agent, binds himself to represent another, the impliedly ratifying Hojilia's actions—through action by
omission.26 This is the import of the principle of
agency by estoppel or the doctrine of apparent In the case at bar, the findings of the RTC and the
authority. Court of Appeals are contradictory: the RTC did not
make any finding on the receipt of the demand letters
In an agency by estoppel or apparent authority, "[t]he by Hojilla, while the Court of Appeals resolved that
principal is bound by the acts of his agent with the assuming arguendo that the letters were demand
apparent authority which he knowingly permits the letters contemplated under Article 1155 of the Civil
agent to assume, or which he holds the agent out to Code, the same are unavailing because the letters do
the public as possessing."27 not bear any proof of service of receipt by
respondents.
The respondents' acquiescence of Hojilla's acts was
made when they failed to repudiate the latter's acts. A perusal of the records reveals that only the 24
They knowingly permitted Hojilla to represent them October 1991 letter has no proof of receipt.30 The
and petitioners were clearly misled into believing demand letters dated 29 May 199131 and 6 July
Hojilla's authority. Thus, the respondents are now 199932 contain proofs of receipt.
estopped from repudiating Hojilla's authority, and
Hojilla's actions are binding upon the respondents. Thus, the core issue of whether or not the action has
prescribed.
Receipt of the Letters
An action based on a written contract must be brought
Time and time again, this Court has reiterated it is not within ten (10) years from the time the right of action
a trier of facts and parties may raise only questions of accrued. Accordingly, a cause of action on a written
law. The jurisdiction of the Court is limited to contract accrues only when an actual breach or
reviewing errors of law and findings of fact of the violation thereof occurs.33 A cause of action has three
Court of Appeals are conclusive because it is not the elements, to wit: (1) a right in favor of the plaintiff by
Court's function to review, examine, and evaluate or whatever means and under whatever law it arises or
weigh the evidence all over again.28 The rule, is created; (2) an obligation on the part of the named
however, is not without exceptions, viz.: defendant to respect or not to violate such right; and
(3) an act or omission on the part of such defendant
(1) [W]hen the [conclusion is a finding] grounded violative of the right of the plaintiff or constituting a
entirely on speculations, surmises [and] breach of the obligation of the defendant to the
conjectures;cralawlawlibrary plaintiff.34
(2) [W]hen the inference made is manifestly By the contract between the herein parties, the cause
mistaken, absurd or impossible;cralawlawlibrary of action accrued at the point when the reasonable
time within which to present the title lapsed. The
(3) [W]hen there is grave abuse of parties did not determine the date when the
discretion;cralawlawlibrary respondents must present the title and other
documents to the petitioner. The parties only agreed
(4) [W]hen the judgment is based on a that the respondents must present the same within a
misapprehension of facts;cralawlawlibrary "reasonable time." Reasonable time means "so much
time as is necessary under the circumstances for a
(5) [W]hen the findings of fact are conflicting; reasonably prudent and diligent man to do,
conveniently, what the contract or duty requires that
(6) [W]hen xxx the Court of Appeals[, in making its should be done, having a regard for the rights and
findings,] went beyond the issues of the case [and the possibility of loss, if any, to the other party."35 Such
same is] contrary to the admissions of both the reasonable time was determined by the respondents
appellant and the appellee;cralawlawlibrary through the letter dated 15 August 1984. The
respondents acknowledged their obligation to deliver
(7) [W]hen the findings are contrary to [those] the title and asked for a new period to do so. It states:
of the trial court;
The preparation of the advance survey plan, technical
(8) [W]hen the findings [of fact] are conclusions description and Engineer's Certificate pursuant to
without citation of specific evidence on which they are Land Administrative Order No. 10-4 has been
based;cralawlawlibrary submitted to the Regional Land Office, and approved
by the Regional Director.
(9) [W]hen the facts set forth in the petition as well
as in the petitioner's main and reply briefs are not Arty. Valera is now in the process of preparing the
disputed by the respondents;cralawlawlibrary petition papers of the Calaba property for submission
to the local court.
(10) [w]hen the findings of fact [of the Court of
Appeals] are premised on the supposed absence x x x x
of evidence and contradicted by the evidence on
record and The Bañez heirs will only claim for the full payment of
the property upon presentation of a clean title and
(11) [When] the Court of Appeals manifestly execution of a Deed of Sale signed by the heirs.36
overlooked certain irrelevant facts not disputed by the
parties, which, if properly considered, would justify a
The accrual of the cause of action to demand the titling
different conclusion.29
of the land cannot be earlier than 15 August 1984. So
that, the petitioner can sue on the contract until 15
August 1994. Prior to the expiration of the aforesaid prescribed, is reversed and set aside. Let the records
period, the petitioner sent a demand letter to Hojilla of this case be REMANDED to the court of origin,
dated 29 May 1991. A few months thereafter, which is DIRECTED to admit the Answer with
petitioner sent another demand letter to Hojilla dated Counterclaim of the petitioner for further trial on the
24 October 1991.37 The prescriptive period was merits. The respondents are further ordered to return
interrupted on 29 May 1991. possession of the subject property to petitioner. No
pronouncement as to costs.
The consequence is stated in Article 1155 of the Civil
Code. It states, "[t]he prescription of actions is SO ORDERED.chanroblesvirtuallawlibrary
interrupted when they are filed before the court, when
there is a written extrajudicial demand by the
creditors, and when there is any written
acknowledgment of the debt by the debtor."
[G.R. No. 165420. June 30, 2005]
Following the law, the new ten-year period for the
filing of a case by the petitioner should be counted
from 29 May 1991, ending on 29 May 2001. The
complaint at bar was filed on 10 April 2000, well within CONCEPCION R. AINZA, substituted by her legal
the required period. heirs, DR. NATIVIDAD A. TULIAO,
CORAZON A. JALECO and LILIA A.
Notably, before the expiration of the new prescriptive OLAYON, petitioners, vs. SPOUSES
period, the petitioner again sent a new demand letter ANTONIO PADUA and EUGENIA
on 6 July 1999, which again caused the same to run PADUA, respondents.
anew, which will expire on 6 July 2009. The complaint
filed on 10 April 2000 was timely.
DECISION
The Contract and True Intent of the Parties
YNARES-SANTIAGO, J.:
Based on the stipulation in the Contract, the parties
agreed that payment shall be made only upon This petition for review on certiorari assails the
presentation of the title and other documents of the February 24, 2004 decision of the Court of Appeals in
subject property to petitioner. Paragraph 8 of the CA-G.R. CV No. 70239,[1] and its September 28, 2004
Contract reads: resolution, denying reconsideration thereof.[2]
8. An absolute deed of sale containing the above In her complaint for partition of real property,
provisions and standard warranties on conveyances of annulment of titles with damages,[3] Concepcion Ainza
real property shall be executed by the co-owners in (Concepcion) alleged that respondent-spouses
favor of CRC or its assignee/s and the same delivered Eugenia (Eugenia) and Antonio Padua (Antonio)
to the latter together with the original certificate of owned a 216.40 sq. m. lot with an unfinished
title upon payment of the purchase price less the residential house located at No. 85-A Durian corner
advances made by CRC in accordance with Paragraphs Pajo Sts., Barangay Quirino 2-C, Project 2, Quezon
2 and 3 above; provided, that payment shall be City, covered by Transfer Certificate of Title No.
made by CRC only upon presentation by the co- 271935. Sometime in April 1987, she bought one-half
owners to CRC of certificate/s and/or of an undivided portion of the property from her
clearances, with corresponding receipts, issued daughter, Eugenia and the latters husband, Antonio,
by the appropriate government office/s or for One Hundred Thousand Pesos (P100,000.00).
agency/ies to the effect that capital gains tax, No Deed of Absolute Sale was executed to
real estate taxes on the Property and local evidence the transaction, but cash payment was
transfer tax and other taxes, fees or charges due received by the respondents, and ownership was
on the transaction and/or on the Property have transferred to Concepcion through physical delivery to
been paid.38 (Emphasis and underscoring ours) her attorney-in-fact and daughter, Natividad Tuliao
(Natividad). Concepcion authorized Natividad and the
The true intent of the parties is further enunciated in latters husband, Ceferino Tuliao (Ceferino) to occupy
Hojilla's letter to petitioner dated 15 August 1984, the premises, and make improvements on the
which stated, "[t]he Bañez heirs will only claim for unfinished building.
the full payment of the property upon
Thereafter, Concepcion alleged that without her
presentation of a clean title and execution of a
consent, respondents caused the subdivision of the
Deed of Sale signed by the heirs."39
property into three portions and registered it in their
names under TCT Nos. N-155122, N-155123 and N-
To rule in favor of respondents despite their failure to
155124 in violation of the restrictions annotated at the
perform their obligations is the height of injustice.
back of the title.
Respondents cannot benefit from their own inaction
and failure to comply with their obligations in the On the other hand, Antonio averred that he
Contract and let the petitioner suffer from bought the property in 1980 and introduced
respondents' own default. improvements thereon. Between 1989 and 1990, he
and his wife, Eugenia, allowed Natividad and Ceferino
WHEREFORE, the petition is GRANTED. The to occupy the premises temporarily. In 1994, they
Decision of the Court of Appeals dated 23 August 2005 caused the subdivision of the property and three (3)
in CA-G.R. CV No. 70137, affirming the Order of the separate titles were issued.
Regional Trial Court, which ruled that the action has
Thereafter, Antonio requested Natividad to property to Concepcion, who accepted the offer and
vacate the premises but the latter refused and claimed agreed to pay P100,000.00 as consideration. The
that Concepcion owned the property. Antonio thus contract of sale was consummated when both parties
filed an ejectment suit on April 1, 1999. Concepcion, fully complied with their respective obligations.
represented by Natividad, also filed on May 4, 1999 a Eugenia delivered the property to Concepcion, who in
civil case for partition of real property and annulment turn, paid Eugenia the price of One Hundred Thousand
of titles with damages. Pesos (P100,000.00), as evidenced by the receipt
which reads:
Antonio claimed that his wife, Eugenia, admitted
that Concepcion offered to buy one third (1/3) of the
property who gave her small amounts over several RECEIPT
years which totaled P100,000.00 by 1987 and for
which she signed a receipt. Received the amount of ONE HUNDRED THOUSAND
PESOS (P100,000.00) as payment for the lot on 85-A
On January 9, 2001, the Regional Trial Court of Durian St., Project 2, Quezon City, from Mrs.
Quezon City, Branch 85, rendered judgment[4] in favor Concepcion R. Ainza, on April, 1987.
of Concepcion, the dispositive portion of which states:
____
WHEREFORE, premises considered, judgment is ___(
hereby rendered in favor of the plaintiff and against Sgd.
the defendants and ordering: )___
___
1. the subdivision of the subject property
between the said plaintiff and Mrs..
defendants in equal shares with one- Euge
half of the property, including the nia
portion occupied by the spouses A.
Severino and Natividad Tuliao to be Padu
awarded to the plaintiff; a[8]
2. the cancellation of Transfer Certificates
of Title Nos. N-155122, N-155123, N- The verbal contract of sale between Eugenia and
155124 of the Registry of Deeds of Concepcion did not violate the provisions of the
Quezon City; Statute of Frauds that a contract for the sale of real
property shall be unenforceable unless the contract or
3. the defendants to pay to the plaintiff some note or memorandum of the sale is in writing
P50,000.00 as attorneys fees. and subscribed by the party charged or his
agent.[9] When a verbal contract has been completed,
SO ORDERED.[5] executed or partially consummated, as in this case, its
enforceability will not be barred by the Statute of
Frauds, which applies only to an executory
The trial court upheld the sale between Eugenia
agreement.[10] Thus, where one party has performed
and Concepcion. It ruled that the sale was
his obligation, oral evidence will be admitted to prove
consummated when both contracting parties complied
the agreement.[11]
with their respective obligations. Eugenia transferred
possession by delivering the property to Concepcion In the instant case, the oral contract of sale
who in turn paid the purchase price. It also declared between Eugenia and Concepcion was evidenced by a
that the transfer of the property did not violate the receipt signed by Eugenia. Antonio also stated that his
Statute of Frauds because a fully executed contract wife admitted to him that she sold the property to
does not fall within its coverage. Concepcion.
On appeal by the respondents, the Court of It is undisputed that the subject property was
Appeals reversed the decision of the trial court, and conjugal and sold by Eugenia in April 1987 or prior to
declared the sale null and void. Applying Article 124 the effectivity of the Family Code on August 3, 1988,
of the Family Code, the Court of Appeals ruled that Article 254 of which repealed Title V, Book I of the
since the subject property is conjugal, the written Civil Code provisions on the property relations
consent of Antonio must be obtained for the sale to be between husband and wife. However, Article 256
valid. It also ordered the spouses Padua to return the thereof limited its retroactive effect only to cases
amount of P100,000.00 to petitioners plus interest.[6] where it would not prejudice or impair vested or
acquired rights in accordance with the Civil Code or
The sole issue for resolution in this petition for
other laws. In the case at bar, vested rights of
review is whether there was a valid contract of sale
Concepcion will be impaired or prejudiced by the
between Eugenia and Concepcion.
application of the Family Code; hence, the provisions
A contract of sale is perfected by mere consent, of the Civil Code should be applied.
upon a meeting of the minds on the offer and the
In Felipe v. Heirs of Aldon, et al.,[12] the legal
acceptance thereof based on subject matter, price and
effect of a sale of conjugal properties by the wife
terms of payment.[7]
without the consent of the husband was clarified, to
In this case, there was a perfected contract of wit:
sale between Eugenia and Concepcion. The records
show that Eugenia offered to sell a portion of the
The legal ground which deserves attention is the legal The consent of both Eugenia and Antonio is
effect of a sale of lands belonging to the conjugal necessary for the sale of the conjugal property to be
partnership made by the wife without the consent of valid. Antonios consent cannot be
the husband. presumed.[13] Except for the self-serving testimony of
petitioner Natividad, there is no evidence that Antonio
participated or consented to the sale of the conjugal
It is useful at this point to re-state some elementary
property. Eugenia alone is incapable of giving consent
rules: The husband is the administrator of the
to the contract. Therefore, in the absence of Antonios
conjugal partnership. (Art. 165, Civil Code) Subject to
consent, the disposition made by Eugenia is
certain exceptions, the husband cannot alienate or
voidable.[14]
encumber any real property of the conjugal
partnership without the wifes consent. (Art. The contract of sale between Eugenia and
166, Idem.) And the wife cannot bind the conjugal Concepcion being an oral contract, the action to annul
partnership without the husbands consent, except in the same must be commenced within six years from
cases provided by law. (Art. 172, Idem.). the time the right of action accrued.[15] Eugenia sold
the property in April 1987 hence Antonio should have
In the instant case, Gimena, the wife, sold lands asked the courts to annul the sale on or before April
belonging to the conjugal partnership without the 1993. No action was commenced by Antonio to annul
consent of the husband and the sale is not covered by the sale, hence his right to seek its annulment was
the phrase except in cases provided by law. The Court extinguished by prescription.
of Appeals described the sale as invalid a term which
is imprecise when used in relation to contracts Even assuming that the ten (10)-year
because the Civil Code uses specific names in prescriptive period under Art. 173 should apply,
designating defective contracts, Antonio is still barred from instituting an action to
namely: rescissible (Arts. 1380 et annul the sale because since April 1987, more than
seq.), voidable (Arts. 1390 et ten (10) years had already lapsed without any such
seq.), unenforceable (Arts. 1403, et seq.), and void action being filed.
or inexistent (Arts. 1409 et seq.). In sum, the sale of the conjugal property by
Eugenia without the consent of her husband is
The sale made by Gimena is certainly a defective voidable. It is binding unless annulled. Antonio failed
contract but of what category? The answer: it is to exercise his right to ask for the annulment within
a voidable contract. the prescribed period, hence, he is now barred from
questioning the validity of the sale between his wife
and Concepcion.
According to Art. 1390 of the Civil Code, among the
voidable contracts are [T]hose where one of the WHEREFORE, the petition is GRANTED. The
parties is incapable of giving consent to the contract. decision dated February 24, 2004 of the Court of
(Par. 1.) In the instant case Gimena had no capacity Appeals in CA-G.R. CV No. 70239 and its resolution
to give consent to the contract of sale. The capacity to dated September 28, 2004 are REVERSED and SET
give consent belonged not even to the husband alone ASIDE. The decision dated January 9, 2001 of the
but to both spouses. Regional Trial Court of Quezon City, Branch 85, in Civil
Case No. Q-99-37529, is REINSTATED.
The view that the contract made by Gimena is a
SO ORDERED.
voidable contract is supported by the legal
provision that contracts entered by the husband
without the consent of the wife when such
consent is required, are annullable at her
instance during the marriage and within ten [ GR No. 190828, Mar 16, 2015 ]
years from the transaction questioned. (Art.
173, Civil Code).
ONOFRE V. MONTERO v. TIMES TRANSPORTATION
CO. +
Gimenas contract is not rescissible for in such a
contract all the essential elements are untainted but
Gimenas consent was tainted. Neither can the DECISION
contract be classified as unenforceable because it does
not fit any of those described in Art. 1403 of the Civil
Code. And finally, the contract cannot be void or
inexistent because it is not one of those mentioned in
Art. 1409 of the Civil Code. By process of elimination,
it must perforce be a voidable contract. REYES, J.:
In like manner, while the filing of the complaint for Before the Court is a petition for review
illegal dismissal before the LA interrupted the running on certiorari seeking the reversal and setting aside of
of the prescriptive period, its voluntary withdrawal left the Decision1 and Resolution2 of the Court of
the petitioners in exactly the same position as though Appeals (CA), dated September 21, 2006 and
December 11, 2006, respectively, in CA-G.R. CV No.
no complaint had been filed at all. The withdrawal of
81079. The assailed Decision affirmed the Decision of
their complaint effectively erased the tolling of the
the Regional Trial Court (RTC) of Makati City, Branch
reglementary period. 135, in Civil Case No. 01-1332, while the questioned
Resolution denied petitioners' Motion for
A prudent review of the antecedents of the claim Reconsideration.
reveals that it has in fact prescribed due to the
petitioners' withdrawal of their labor case docketed as The pertinent factual and procedural antecedents of
NLRC RAB-I-01-1007.[40] Hence, while the filing of the the case are as follows:chanRoblesvirtualLawlibrary
said case could have interrupted the running of the
four-year prescriptive period, the voluntary On December 18, 2000, herein petitioner corporation,
withdrawal of the petitioners effectively cancelled the United Alloy Philippines
tolling of the prescriptive period within which to file Corporation (UNIALLOY) applied for and was granted
a credit accommodation by herein respondent United
their illegal dismissal case, leaving them in exactly the
Coconut Planters Bank (UCPB) in the amount of
same position as though no labor case had been filed
PhP50,000,000.00, as evidenced by a Credit
at all. The running of the four-year prescriptive period Agreement.3 Part of UNIALLOY's obligation under the
not having been interrupted by the filing of NLRC RAB- Credit Agreement was secured by a Surety
I-01-1007, the petitioners' cause of action had already Agreement,4 dated December 18, 2000, executed by
prescribed in four years after their cessation of UNIALLOY Chairman, Jakob Van Der Sluis (Van Der
employment on October 26, 1997 and November 24, Sluis), UNIALLOY President, David Chua and his
1997. Consequently, when the petitioners filed their spouse, Luten Chua (Spouses Chua), and one Yang
complaint for illegal dismissal, separation pay, Kim Eng (Yang). Six (6) Promissory Notes,5were later
retirement benefits, and damages in 2002, their executed by UNIALLOY in UCPB's favor, to
claim, clearly, had already been barred by wit:chanRoblesvirtualLawlibrary
prescription.[41]
1) #8111-00-20031-1, executed on December 18,
Sadly, the petitioners have no one but themselves to 2000, in the amount of US$110,000.00;
blame for their own predicament. By their own 2) #8111-00-00110-6, executed on December 18,
allegations in their respective complaints, they have 2000, in the amount of PhP6,000,000.00;
3) #8111-00-00112-2, executed on December 27,
barred their remedy and extinguished their right of
2000, in the amount of PhP3,900,000.00;
action. Although the Constitution is committed to the
4) #8111-01-20005-6, executed on February 7, 2001,
policy of social justice and the protection of the in the amount of US$320,000.00;
working class, it does not necessary follow that every 5) #8111-01-00009-0, executed on February 26,
labor dispute will be automatically decided in favor of 2001, in the amount of PhP1,600,000.00;
6) #8111-01-00030-8, executed on April 30, 2001, in
the amount of PhP16,029,320.88. SO ORDERED.11
In addition, as part of the consideration for the credit Thereafter, on motion, the RTC of CDO issued an
accommodation, UNIALLOY and UCPB also entered Order of Execution, dated September 14, 2001,
into a "lease-purchase" contract wherein the former directing UNIALLOY to tum over to UCPB the property
assured the latter that it will purchase several real subject of their lease-purchase agreement.
properties which UCPB co-owns with the Development
Bank of the Philippines. UNIALLOY then filed a petition
for certiorari and mandamus with the CA questioning
Subsequently, UNIALLOY failed to pay its loan the September 13 and September 14, 2001 Orders of
obligations. As a result, UCPB filed against UNIALLOY, the RTC of CDO. UNIALLOY also prayed for the
the spouses Chua, Yang and Van Der Sluis an action issuance of a writ of preliminary injunction. The case
for Sum of Money with Prayer for Preliminary was docketed as CA G.R. SP. No. 67079.
Attachment6 on August 27, 2001. The collection case
was filed with the Regional Trial Court of Makati On February 18, 2002, the CA promulgated a
City (RTC of Makati) and docketed as Civil Case No. Resolution12 granting UNIALLOY's prayer for the
01-1332. Consequently, UCPB also unilaterally issuance of a writ of preliminary injunction. UCPB
rescinded its lease-purchase contract with UNIALLOY. questioned the above CA Resolution by filing a petition
for certiorariwith this Court, which was docketed as
On the other hand, on even date, UNIALLOY filed G.R. No. 152238. On March 18, 2002, this Court
against UCPB, UCPB Vice-President Robert Chua and issued a Resolution which restrained the CA from
Van Der Sluis a complaint for Annulment and/or enforcing its February 18, 2002 Resolution.
Reformation of Contract with Damages, with Prayer
for a Writ of Preliminary Injunction or Temporary On January 28, 2005, this Court, rendered its Decision
Restraining Order.7 Claiming that it holds office and in G.R. No. 152238 denying UCPB's petition
conducts its business operations in Tagoloan, Misamis for certiorari and affirming the CA Resolution granting
Oriental, UNIALLOY filed the case with the Regional the writ of preliminary injunction.
Trial Court of Cagayan De Oro City (RTC of CDO) and
was docketed as Civil Case No. 2001-219. UNIALLOY Thereafter, on August 17, 2007, the CA promulgated
contended that Van Der Sluis, in cahoots with UCPB a Decision dismissing UNIALLOY's certiorari petition
Vice-President Robert Chua, committed fraud, and affirming the September 13 and September 14,
manipulation and misrepresentation to obtain the 2001 Orders of the RTC of CDO. UNIALLOY then filed
subject loan for their own benefit. UNIALLOY prayed, a petition for review on certiorari challenging the
among others, that three (3) of the six (6) Promissory above CA Decision. The case was docketed as G.R. No.
Notes it executed be annulled or reformed or that it 179257.
be released from liability thereon.
On November 23, 2015, this Court promulgated a
On September 12, 2001, UNIALLOY filed an Urgent Decision in G.R. No. 179257 denying UNIALLOY's
Motion to Dismiss8 the collection case (Civil Case No. petition. This Court held that the CA did not err in
01-1332) filed by UCPB on the ground of litis affirming the dismissal of UNIALLOY's complaint on
pendentia and forum shopping. UNIALLOY contended the grounds of improper venue, forum shopping and
that its complaint for annulment of contract (Civil Case for being a harassment suit. This Court also ruled that
No. 2001-219) and the collection case filed by UCPB the August 17, 2007 Decision of the CA neither
involves the same parties and causes of action. On violated this Court's January 28, 2005 Decision in G.R.
October 31, 2001, the RTC of Makati issued an No. 152238 nor contradicted the CA's February 18,
Order9denying UNIALLOY's motion to dismiss. 2002 Resolution granting the preliminary injunction
prayed for by UNIALLOY because the dismissal of
In the meantime, UCPB and its co-defendants also UNIALLOY's main action carried with it the dissolution
filed a Motion to Dismiss UNIALLOY's complaint for of any ancillary relief previously granted in the said
annulment of contract on the grounds of improper case, such as the abovementioned preliminary
venue, forum shopping, litis pendentia, and injunction. Subsequently, this Court's Decision in G.R.
harassment or nuisance suit. On September 13, 2001, No. 179257 became final and executory per Entry of
the RTC of CDO issued an Order10 dismissing Judgment dated January 20, 2016.
UNIALLOY's complaint for annulment of contract. The
dispositive portion of the Order reads, Meanwhile, on March 15, 2002, UNIALLOY filed with
thus:chanRoblesvirtualLawlibrary the RTC of Makati an omnibus motion praying for the
suspension of the proceedings of the collection case in
ACCORDINGLY, finding meritorious that the venue is the said court on the ground of pendency of
improperly laid and the complain[ant] engaged in the certiorari petition it filed with this
forum-shopping and harassment of defendant Jakob Court.13 However, the RTC denied UNIALLOY's motion
Van Der Sluis, this case is hereby DISMISSED in its Order14dated August 19, 2002.
rendering the prayer for issuance of a writ of
preliminary injunction moot and academic, and Subsequently, on June 17, 2003, the RTC of Makati
ordering plaintiff to turn over possession of the subject rendered Judgment in the collection case in favor of
premises of the properties in question at Barangay UCPB. The dispositive portion of the RTC Decision
Gracia, Tagoloan, Misamis Oriental to defendant reads, thus:chanRoblesvirtualLawlibrary
United Coconut Planters Bank.
WHEREFORE, premises considered, judgment is the instant petition basically hinges on the outcome of
hereby rendered in favor of plaintiff. Defendants are the petition filed under G.R. No. 179257. Considering
hereby ordered to pay plaintiff the that the promissory notes subject of G.R. No. 179257
following:chanRoblesvirtualLawlibrary are among the promissory notes which are also
involved in the present case, petitioner contends that
a. The sum of US DOLLARS: (US$435,494.44) with a judgment by this Court in G.R. No. 179257 that
interest and penalty charges from August 1, 2001 until reverses the Decision of the RTC of Cagayan de Oro
fully paid. City, which in effect would declare the nullity of the
subject promissory notes, may conflict with the
b. The sum of P26,940,950.80 with interest and Decision of this Court in the present petition, which
penalty charges from August 1, 2001 until fully paid. involves the collection of the sum being represented
in the same promissory notes. Thus, petitioner prays
c. Attorney's fees in the amount of P1,000,000.00. for the dismissal of the collection case (Civil Case No.
01-1332) filed by UCPB or the suspension of
d. Costs of suit. proceedings therein pending resolution of its petition
in G.R. No. 179257.
SO ORDERED.15
However, as mentioned above, on November 23,
2015, the 2nd Division of this Court already came up
with a Decision in G.R. No. 179257 which affirmed the
UNIALLOY appealed the above RTC Decision with the
RTC's dismissal of UNIALLOY's complaint. Pertinent
CA.
portions of the said Decision read as
follows:chanRoblesvirtualLawlibrary
On September 21, 2006, the CA rendered its assailed
judgment denying UNIALLOY's appeal and affirming
the questioned RTC Decision. CA CDO did not err in affirming the
dismissal of UniAiloy's Complaint on the
Hence, the instant petition raising the following grounds of improper venue, forum shopping
issues:chanRoblesvirtualLawlibrary and for being a harassment suit
Section 4.01. This SURETY AGREEMENT shall The Court, thus, finds it proper to modify the interest
except upon the other SURETIES, if any whose rates imposed on respondents' obligation. Pursuant to
liability(ies) is/are extinguished by way of compromise the ruling in Nacar v. Gallery Frames, et. al.,25 the
or otherwise be binding upon the SURETIES, their sums of US$435,494.44 and PhP26,940,950.80 due
heirs and successors in interest and shall inure to the to UCPB shall earn interest at the rate of 12% per
benefit of and be enforceable by the BANK, its assigns annum from the date of default, on August, 1, 2001,
and successors in interest. For this purpose, until June 30, 2013 and thereafter, at the rate of 6%
the SURETIES have agreed, as they hereby agree, per annum, from July 1, 2013 until finality of this
that an extinguishment of liability(ies) of any of Decision. The total amount owing to UCPB as set forth
the SURETIES shall not be an obstacle to in this Decision shall further earn legal interest at the
the BANK from demanding payment from the rate of 6% per annum from its finality until full
other SURETIES, if any, so long as payment thereof, this interim period being deemed to
the Accommodation has not been fully collected. be by then an equivalent to a forbearance of credit.
On December 6, 2006, the RTC issued another Order It is readily apparent from the facts at hand that the
denying PNB’s motion for reconsideration and status of PNB’s lien on the subject lot has already been
reiterating the directives in its Order dated September settled by the RTC in its Decision dated June 2, 2006
8, 2006.21 where it was adjudged as a mortgagee in good faith
whose lien shall subsist and be respected. The
decision lapsed into finality when neither of the parties
Aggrieved, PNB sought recourse with the CA via a
moved for its reconsideration or appealed.
petition for certiorari and mandamus22 claiming that
as the lawful owner of the subject lot per the RTC’s
judgment dated June 2, 2006, it is entitled to the fruits Being a final judgment, the dispositions and
of the same such as rentals paid by tenants hence, the conclusions therein have become immutable and
ruling that "the real estate mortgage lien of the PNB unalterable not only as against the parties but even
registered on the title of Lot No. 177-A-1 Bacolod the courts. This is known as the doctrine of
immutability of judgments which espouses that a
judgment that has acquired finality becomes simply resolved on the basis of such pronouncement.
immutable and unalterable, and may no longer be However, the application of related legal principles
modified in any respect even if the modification is ought to be clarified in order to settle the intervening
meant to correct erroneous conclusions of fact or law right of PNB as a mortgagee in good faith.
and whether it will be made by the court that rendered
it or by the highest court of the land.27 The
The protection afforded to PNB as a mortgagee in good
significance of this rule was emphasized in Apo Fruits
faith refers to the right to have its mortgage lien
Corporation v. Court of Appeals,28 to wit:
carried over and annotated on the new certificate of
title issued to Spouses Marañon35 as so adjudged by
The reason for the rule is that if, on the application of the RTC. Thereafter, to enforce such lien thru
one party, the court could change its judgment to the foreclosure proceedings in case of non-payment of the
prejudice of the other, it could thereafter, on secured debt,36 as PNB did so pursue. The principle,
application of the latter, again change the judgment however, is not the singular rule that governs real
and continue this practice indefinitely. The equity of a estate mortgages and foreclosures attended by
particular case must yield to the overmastering need fraudulent transfers to the mortgagor.
of certainty and unalterability of judicial
pronouncements.
Rent, as an accessory follow the principal.37 In fact,
when the principal property is mortgaged, the
The doctrine of immutability and inalterability of a mortgage shall include all natural or civil fruits and
final judgment has a two-fold purpose: (1) to avoid improvements found thereon when the secured
delay in the administration of justice and thus, obligation becomes due as provided in Article 2127 of
procedurally, to make orderly the discharge of judicial the Civil Code, viz:
business and (2) to put an end to judicial
controversies, at the risk of occasional errors, which
Art. 2127. The mortgage extends to the natural
is precisely why courts exist. Controversies cannot
accessions, to the improvements, growing fruits, and
drag on indefinitely. The rights and obligations of
the rents or income not yet received when the
every litigant must not hang in suspense for an
obligation becomes due, and to the amount of the
indefinite period of time. The doctrine is not a mere
indemnity granted or owing to the proprietor from the
technicality to be easily brushed aside, but a matter
insurers of the property mortgaged, or in virtue of
of public policy as well as a time-honored principle of
expropriation for public use, with the declarations,
procedural law.29 (Citations omitted)
amplifications and limitations established by law,
whether the estate remains in the possession of the
Hence, as correctly argued by PNB, the issue on its mortgagor, or it passes into the hands of a third
status as a mortgagee in good faith have been person.
adjudged with finality and it was error for the CA to
still delve into and, worse, overturn, the same. The CA
Consequently, in case of non-payment of the secured
had no other recourse but to uphold the status of PNB
debt, foreclosure proceedings shall cover not only the
as a mortgagee in good faith regardless of its defects
hypothecated property but all its accessions and
for the sake of maintaining stability of judicial
accessories as well. This was illustrated in the early
pronouncements. "The main role of the courts of
case of Cu Unjieng e Hijos v. Mabalacat Sugar
justice is to assist in the enforcement of the law and
Co.38 where the Court held:
in the maintenance of peace and order by putting an
end to judiciable controversies with finality. Nothing
better serves this role than the long established That a mortgage constituted on a sugar central
doctrine of immutability of judgments."30 includes not only the land on which it is built but also
the buildings, machinery, and accessories installed at
the time the mortgage was constituted as well as the
Further, it must be remembered that what reached
buildings, machinery and accessories belonging to the
the CA on certiorari were RTC resolutions issued long
mortgagor, installed after the constitution thereof x x
after the finality of the Decision dated June 2, 2006.
x .39
The RTC Orders dated September 8, 2006 and
December 6, 2006 were implements of the
pronouncement that Spouses Marañon are still the Applying such pronouncement in the subsequent case
rightful owners of the subject lot, a matter that has of Spouses Paderes v. Court of Appeals,40 the Court
been settled with finality as well. This declared that the improvements constructed by the
notwithstanding, the Court agrees with the ultimate mortgagor on the subject lot are covered by the real
outcome of the CA’s assailed resolutions. estate mortgage contract with the mortgagee bank
and thus included in the foreclosure proceedings
instituted by the latter.41
Rent is a civil fruit31 that belongs to the owner of the
property32 producing it by right of accession33.34 The
rightful recipient of the disputed rent in this case However, the rule is not without qualifications. In
should thus be the owner of the subject lot at the time Castro, Jr. v. CA42 the Court explained that Article
the rent accrued. It is beyond question that Spouses 2127 is predicated on the presumption that the
Marañon never lost ownership over the subject lot. ownership of accessions and accessories also belongs
This is the precise consequence of the final and to the mortgagor as the owner of the principal. After
executory judgment in Civil Case No. 7213 rendered all, it is an indispensable requisite of a valid real estate
by the RTC on June 3, 2006 whereby the title to the mortgage that the mortgagor be the absolute owner
subject lot was reconveyed to them and the cloud of the encumbered property, thus:
thereon consisting of Emilie’s fraudulently obtained
title was removed. Ideally, the present dispute can be
All improvements subsequently introduced or owned judgment. This is the clear import of the ruling in
by the mortgagor on the encumbered property are Unionbank of the Philippines v. Court of Appeals:45
deemed to form part of the mortgage. That the
improvements are to be considered so incorporated
This is because as purchaser at a public auction,
only if so owned by the mortgagor is a rule that can
UNIONBANK is only substituted to and acquires the
hardly be debated since a contract of security,
right, title, interest and claim of the judgment debtors
whether, real or personal, needs as an indispensable
or mortgagors to the property at the time of levy.
element thereof the ownership by the pledgor or
Perforce, the judgment in the main action for
mortgagor of the property pledged or mortgaged. x x
reconveyance will not be rendered ineffectual by the
x.43 (Citation omitted)
consolidation of ownership and the issuance of title in
the name of UNIONBANK.46 (Citation omitted)
Otherwise stated, absent an adverse claimant or any
evidence to the contrary, all accessories and
Nonetheless, since the present recourse stemmed
accessions accruing or attached to the mortgaged
from a mere motion claiming ownership of rent and
property are included in the mortgage contract and
not from a main action for annulment of the
may thus also be foreclosed together with the
foreclosure sale or of its succeeding incidents, the
principal property in case of non-payment of the debt
Court cannot proceed to make a ruling on the bearing
secured.
of the CA's Decision dated June 18, 2008 to PNB's
standing as a purchaser in the public auction. Such
Corollary, any evidence sufficiently overthrowing the matter will have to be threshed out in the proper
presumption that the mortgagor owns the mortgaged forum.
property precludes the application of Article 2127.
Otherwise stated, the provision is irrelevant and
All told, albeit the dispositive portions of the assailed
inapplicable to mortgages and their resultant
CA decision and resolution are differently premised,
foreclosures if the mortgagor is later on found or
they ought to be upheld as they convey the similar
declared to be not the true owner of the property, as
conclusion that Spouses Marañon are the rightful
in the instant case.1âwphi1
owners of the rent earned by the building on the
subject lot.
It is beyond question that PNB’s mortgagors, Spouses
Montealegre, are not the true owners of the subject
WHEREFORE, foregoing considered, the petition is
lot much less of the building which produced the
hereby DENIED. The Decision dated June 18, 2008
disputed rent. The foreclosure proceedings on August
and Resolution dated August 10, 2009 of the Court of
16, 1991 caused by PNB could not have, thus,
Appeals in CA-G.R. SP No. 02513 are AFFIRMED.
included the building found on the subject lot and the
rent it yields. PNB’s lien as a mortgagee in good faith
pertains to the subject lot alone because the rule that SO ORDERED.
improvements shall follow the principal in a mortgage
under Article 2127 of the Civil Code does not apply
under the premises. Accordingly, since the building
was not foreclosed, it remains a property of Spouses
Marañon; it is not affected by non-redemption and is [ G.R. No. 187013, April 22, 2015 ]
excluded from any consolidation of title made by PNB
over the subject lot. Thus, PNB’s claim for the rent
SPOUSES MAGDALINO AND CLEOFE BADILLA,
paid by Tolete has no basis.
PETITIONERS, VS. FE BRAGAT, RESPONDENT.
Bragat filed her Complaint for Recovery of Posession IN THE LIGHT OF THE FOREGOING, by preponderance
and Damages against the spouses Magdalino and of evidence, judgment is hereby rendered in favor of
Cleofe Badilla on June 5, 1992, alleging therein that Spouses Fe Bragat and Florito Bragat and against
she is the absolute owner of Lot No. 19986, covered Spouses Magdalino and Cleofe Badilla and dismissing
by TCT No. T-47759. She claimed to have purchased Civil Case No. 92-287 for failure of Spouses Magdalino
the property, first, from Eustaquio Ledesma, Jr., but and Cleofe Badilla to substantiate their complaint and
later, when she found out that Ledesma was for lack of merit and ordering defendants Cleofe
"unauthorized" to sell, she again allegedly made Badilla and Magdalino Badilla in Civil Case No. 92-273:
another purchase of the same property from Azur
to vacate immediately the 152-square-meter 1985.[25]
a) property they are occupying as shown in Exh. N-2-
A, P; In her Comment, Bragat claims that the sale of
October 2, 1987 was only a "re-execution" of the sale
to pay Twenty Thousand Pesos (P20,000.00) by of May 5, 1984, in order to avoid tax
b)
way of moral damages; surcharges.[26] Further, she alleges that the Badillas1
documentary evidence were all executed only after
to pay a reasonable rental of One Hundred Pesos
she had the property titled to her name.[27]
c) (P100.00) a month from March 1, 1991 at 6% legal
interest until they vacate the premises;
The Court resolves to GRANT the petition.
to reimburse Ten Thousand Pesos (P10,000.00)
attorney's fees and Five Thousand Pesos The issue is one of ownership of the subject property.
d)
(P5,000.00) as expenses for litigation as part of
consequential damages; and This Court notes that the arguments raised call for a
re-examination of the factual findings of the trial court
e) pay the costs. and the appellate court. It must be stressed that it is
a time-honored rule that in a petition for review
SO ORDERED.[19] on certiorari under Rule 45, only questions of law may
be raised.[28] Certainly, it is equally observed that
Upon appeal to the CA, the appellate court affirmed
factual findings of the Court of Appeals, affirming
the RTC's decision but modified the same on a finding
those of the trial court, are binding on this Court.[29]
that Ledesma sold only 991 sq. of the property to
Bragat in 1978; hence, it held that the remaining 24
However, these rules admit of certain exceptions,
sq. of the 1,015-sq.-m. property was validly sold to
such as when the judgment of the Court of Appeals is
the Badillas in 1991 and, therefore, must be
premised on a misapprehension of facts, or is belied
reconveyed to the latter.[20] It also removed the award
by the evidence on record, or fails to notice certain
of damages. The dispositive portion of the CA's
relevant facts which, if properly considered, will justify
decision is as follows:
a different conclusion.[30] After a thorough
examination of the findings of the trial court and Court
WHEREFORE, the instant appeal is PARTIALLY of Appeals, this Court concludes that the case falls
GRANTED. The January 14, 2001 Judgment (of the under these exceptional situations. Such findings
RTC) is MODIFIED in that: must be reversed.
"4. Ordering the defendant to pay to plaintiff In time, petitioner Leaño appealed the decision to the
the costs of the suit in Civil Case No. 1680 Court of Appeals.24 On January 22, 1997, Court of
aforementioned. Appeals promulgated a decision affirming that of the
Regional Trial Court in toto.25 On February 11, 1997,
"SO ORDERED. petitioner Leaño filed a motion for
reconsideration.26 On April 18, 1997, the Court of
Appeals denied the motion.27
"Malolos, Bulacan, February 6, 1995.
The Issues
"(sgd.) DANILO A. MANALASTAS
Judge"17
The issues to be resolved in this petition for review are
(1) whether the transaction between the parties in an
On February 21, 1995, respondent Fernando filed a absolute sale or a conditional sale; (2) whether there
motion for reconsideration18 and the was a proper cancellation of the contract to sell; and
supplement thereto. The trial court increased the
19
(3) whether petitioner was in delay in the payment of
amount of P103,090.70 to P183,687.00 and ordered the monthly amortizations.
petitioner Leaño ordered to pay attorney's fees.20
HEIRS OF LUIS BACUS, namely: CLARA RESMA Having failed to reach an agreement before
BACUS, ROQUE R. BACUS, SR., the Lupon, on April 27, 1990, private respondents
SATURNINO R. BACUS, PRISCILA VDA. filed a complaint for specific performance with
DE CABANERO, CARMELITA B. SUQUIB, damages against petitioners before the Regional Trial
BERNARDITA B. CARDENAS, RAUL R. Court, praying that the latter, (a) execute a deed of
BACUS, MEDARDO R. BACUS, ANSELMA sale over the subject property in favor of private
B. ALBAN, RICARDO R. BACUS, respondents; (b) receive the payment of the purchase
FELICISIMA B. JUDICO, and price; and (c) pay the damages.
DOMINICIANA B. TANGAL, petitioners,
vs. HON. COURT OF APPEALS and On the other hand, petitioners alleged that
SPOUSES FAUSTINO DURAY and before Luis Bacus death, private respondents
VICTORIANA DURAY, respondents. conveyed to them the formers lack of interest to
exercise their option because of insufficiency of funds,
but they were surprised to learn of private
DECISION respondents demand. In turn, they requested private
respondents to pay the purchase price in full but the
QUISUMBING, J.:
latter refused. They further alleged that private
respondents did not deposit the money as required by
This petition assails the decision dated the Lupon and instead presented a bank certification
November 29, 1996, of the Court of Appeals in CA- which cannot be deemed legal tender.
G.R. CV No. 37566, affirming the decision dated
August 3, 1991, of the Regional Trial Court of Cebu On October 30, 1990, private respondents
City, Branch 6, in Civil Case No. CEB-8935. manifested in court that they caused the issuance of
a cashiers check in the amount of P650,000[6] payable
The facts, as culled from the records, are as to petitioners at anytime upon demand.
follows:
On August 3, 1991, the Regional Trial Court
On June 1, 1984, Luis Bacus leased to private ruled in favor of private respondents, the dispositive
respondent Faustino Duray a parcel of agricultural portion of which reads:
land in Bulacao, Talisay, Cebu.Designated as Lot No.
3661-A-3-B-2, it had an area of 3,002 square meters,
Premises considered, the court finds for the plaintiffs
covered by Transfer Certificate of Title No. 48866. The
and orders the defendants to specifically perform their
lease was for six years, ending May 31, 1990. The
obligation in the option to buy and to execute a
contract contained an option to buy clause. Under said
document of sale over the property covered by
option, the lessee had the exclusive and irrevocable
Transfer Certificate of Title # T-63269 upon payment
right to buy 2,000 square meters of the property
by the plaintiffs to them in the amount of Six Hundred
within five years from a year after the effectivity of
Seventy-Five Thousand Six Hundred Seventy-Five
the contract, at P200 per square meter. That rate shall
(P675,675.00) Pesos within a period of thirty (30)
be proportionately adjusted depending on the peso
days from the date this decision becomes final.
rate against the US dollar, which at the time of the
execution of the contract was fourteen pesos. [1]
SO ORDERED.[7]
Close to the expiration of the contract, Luis
Bacus died on October 10, 1989. Thereafter, on March
15, 1990, the Duray spouses informed Roque Bacus, Unsatisfied, petitioners appealed to the
one of the heirs of Luis Bacus, that they were willing respondent Court of Appeals which denied the appeal
and ready to purchase the property under the option on November 29, 1996, on the ground that the private
to buy clause. They requested Roque Bacus to prepare respondents exercised their option to buy the leased
the necessary documents, such as a Special Power of property before the expiration of the contract of
Attorney authorizing him to enter into a contract of lease. It held:
sale,[2] on behalf of his sisters who were then abroad.
... After a careful review of the entire records of this
On March 30, 1990, due to the refusal of case, we are convinced that the plaintiffs-appellees
petitioners to sell the property, Faustino Durays validly and effectively exercised their option to buy the
adverse claim was annotated by the Register of Deeds subject property. As opined by the lower court, the
of Cebu, at the back of TCT No. 63269, covering the readiness and preparedness of the plaintiff on his part,
segregated 2,000 square meter portion of Lot No. is manifested by his cautionary letters, the prepared
3661-A-3-B-2-A.[3] bank certification long before the date of May 31,
Subsequently, on April 5, 1990, Duray filed a 1990, the final day of the option, and his filing of this
complaint for specific performance against the heirs of suit before said date. If the plaintiff-appellee Francisco
Luis Bacus with the Lupon Tagapamayapa of Duray had no intention to purchase the property, he
Barangay Bulacao, asking that he be allowed to would not have bothered to write those letters to the
purchase the lot specifically referred to in the lease defendant-appellants (which were all received by
contract with option to buy. At the hearing, Duray them) and neither would he be interested in having
presented a certification[4] from the manager of his adverse claim annotated at the back of the T.C.T.
Standard Chartered Bank, Cebu City, addressed to of the subject property, two (2) months before the
Luis Bacus, stating that at the request of Mr. Lawrence expiration of the lease. Moreover, he even went to the
extent of seeking the help of the Lupon 45, the same must be denied for the Court of Appeals
Tagapamayapa to compel the defendants-appellants has correctly determined that they had validly
to recognize his right to purchase the property and for exercised their option to buy the leased property
them to perform their corresponding obligation.[8] before the contract expired.
Corollary, private respondents did not incur in (Tanseco) entered into a Contract to Buy and Sell[1] a
delay when they did not yet deliver payment nor make
a consignation before the expiration of the 224 square-meter (more or less) condominium unit at
contract. In reciprocal obligations, neither party
a pre-selling project, The Salcedo Park, located along
incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is Senator Gil Puyat Avenue, Makati City.
incumbent upon him. Only from the moment one of
the parties fulfills his obligation, does delay by the
other begin.[15]
The purchase price was P16,802,037.32, to be paid as
In this case, private respondents, as early as
March 15, 1990, communicated to petitioners their follows: (1) 30% less the reservation fee of P100,000,
intention to buy the property and they were at that
time undertaking to meet their obligation before the or P4,940,611.19, by postdated check payable on July
expiration of the contract on May 31, 1990. However,
petitioners refused to execute the deed of sale and it 14, 1995; (2) P9,241,120.50 through 30 equal
was their demand to private respondents to first
deliver the money before they would execute the monthly installments of P308,037.35 from August 14,
same which prompted private respondents to institute
a case for specific performance in the Lupong 1995 to January 14, 1998; and (3) the balance
Tagapamayapa and then in the RTC. On October 30,
of P2,520,305.63 on October 31, 1998, the stipulated
1990, after the case had been submitted for decision
but before the trial court rendered its decision, private delivery date of the unit; provided that if the
respondents issued a cashiers check in petitioners
favor purportedly to bolster their claim that they were construction is completed earlier, Tanseco would pay
ready to pay the purchase price. The trial court
considered this in private respondents favor and we the balance within seven days from receipt of a notice
believe that it rightly did so, because at the time the
check was issued, petitioners had not yet executed a of turnover.
deed of sale nor expressed readiness to do so.
Accordingly, as there was no compliance yet with what
was incumbent upon petitioners under the option to
Section 4 of the Contract to Buy and Sell provided for
buy, private respondents had not incurred in delay
when the cashiers check was issued even after the the construction schedule as follows:
contract expired.
31, 1998 or April 30, 1999, the last day of the six-
On appeal by Tanseco, the HLURB Board of
month grace period.
Commissioners, by Decision of November 28,
The appellate court held that under Article 1169 of the However, the demand by
the creditor shall not be necessary
Civil Code, no judicial or extrajudicial demand is in order that delay may exist:
needed to put the obligor in default if the contract, as (1) When the obligation or
the law expressly so declares; or
in the herein parties contract, states the date when
the obligation should be performed; that time was of (2) When from the nature
and the circumstances of the
the essence because Tanseco relied on Megaworlds obligation it appears that the
designation of the time when the
promise of timely delivery when she agreed to part thing is to be delivered or the
service is to be rendered was a
with her money; that the delay should be reckoned controlling motive for the
establishment of the contract; or
from October 31, 1998, there being no force
(3) When demand would
majeure to warrant the application of the April 30,
be useless, as when the obligor has
1999 alternative date; and that specific performance rendered it beyond his power to
perform.
could not be ordered in lieu of rescission as the right
Its Motion for Reconsideration having been denied by contains reciprocal obligations, i.e., to complete and
Resolution of January 8, 2008,[14] Megaworld filed the deliver the condominium unit on October 31, 1998 or
present Petition for Review on Certiorari, echoing its six months thereafter on the part of Megaworld, and
position before the HLURB, adding that Tanseco had to pay the balance of the purchase price at or about
not shown any basis for the award of damages and the time of delivery on the part of
price. Megaworld having failed to comply with its circumspect weighing of equitable considerations thus
obligation under the contract, it is liable therefor.[17] tilts the scale of justice in favor of Tanseco.
turnover preceded Tansecos demand for refund does No. 957 [21]
which reads:
WHEREFORE, the challenged Decision of the been reached in consultation before the case was
Court of Appeals is, in light of the foregoing, assigned to the writer of the opinion of the Courts
Decision reads:
CERTIFICATION
The July 7, 1995 Contract
to Buy and Sell between the parties
is cancelled. Petitioner, Megaworld
Globus Asia, Inc., is directed to pay Pursuant to Section 13, Article VIII of the Constitution,
respondent, Mila S. Tanseco, the
amount of P14,281,731.70, to and the Division Chairpersons Attestation, I certify
bear 6% interest per annum
starting May 6, 2002 and 12% that the conclusions in the above decision had been
interest per annum from the time
the judgment becomes final and reached in consultation before the case was assigned
executory; and to pay P200,000
attorneys to the writer of the opinion of the Courts Division.
fees, P100,000 exemplary
damages, and costs of suit.
ANTONIO T. CARPIO
Acting Chief Justice
On August 24, 1989, General Milling Corporation Spouses Ramos that GMC would institute foreclosure
(GMC) entered into a Growers Contract with spouses proceedings on their mortgaged property.[4]
Under the contract, GMC was to supply broiler On May 7, 1997, GMC filed a Petition for Extrajudicial
chickens for the spouses to raise on their land Foreclosure of Mortgage. On June 10, 1997, the
guarantee full compliance, the Growers Contract was sold by public auction to GMC after the required
accompanied by a Deed of Real Estate Mortgage over posting and publication.[5] It was foreclosed for PhP
a piece of real property upon which their conjugal 935,882,075, an amount representing the losses on
home was built. The spouses further agreed to put up chicks and feeds exclusive of interest at 12% per
a surety bond at the rate of PhP 20,000 per 1,000 annum and attorneys fees.[6] To complicate matters,
chicks delivered by GMC. The Deed of Real Estate on October 27, 1997, GMC informed the spouses that
Mortgage extended to Spouses Ramos a maximum its Agribusiness Division had closed its business and
The Deed of Real Estate Mortgage contained the for Annulment and/or Declaration of Nullity of the
all the requirements of posting and publication of 4. The claims for moral
and exemplary damages are denied
notices under Act No. 3135.[11] for lack of merit.
The Ruling of the Trial Court
IT IS SO ORDERED.[13]
Holding in favor of Spouses Ramos, the trial court
even if its term was not fixed. Since the duration of The Ruling of the Appellate Court
will of the debtors-spouses, the trial court cited On appeal, GMC argued that the trial court erred in:
jurisprudence and said that the obligation is not due (1) declaring the extrajudicial foreclosure proceedings
and payable until an action is commenced by the null and void; (2) ordering GMC to pay Spouses
mortgagee against the mortgagor for the purpose of Ramos attorneys fees; and (3) not awarding damages
having the court fix the date on and after which the in favor of GMC.
in pursuance thereto.[12] The CA sustained the decision of the trial court but
The trial court held that the action of GMC in moving the findings of the trial court, the CA ruled that the
for the foreclosure of the spouses properties was requirements of posting and publication of notices
premature, because the latters obligation under their under Act No. 3135 were complied with. The CA,
contract was not yet due. however, still found that GMCs action against Spouses
The trial court awarded attorneys fees because of the when the action was filed on May 7, 1997.[14]
The CA ruled:
According to the CA, however, the RTC erroneously Can the CA consider matters not alleged?
presumption of good faith on the part of GMC was not GMC asserts that since the issue on the existence of
overturned. the demand letter was not raised in the trial court, the
In spite of the lack of demand made on the spouses, In turn, whether or not demand was made is a
however, GMC proceeded with the foreclosure question of fact.[23] This petition filed under Rule 45 of
proceedings. Neither was there any provision in the the Rules of Court shall raise only questions of law.
Deed of Real Estate Mortgage allowing GMC to For a question to be one of law, it must not involve an
extrajudicially foreclose the mortgage without need of examination of the probative value of the evidence
demand. presented by the litigants or any of them. The
Those obliged to deliver or to do a trier of facts.[25] We will defer to the factual findings
something incur in delay from the
time the obligee judicially or of the trial court, because petitioner GMC has not
extrajudicially demands from them
shown any circumstances making this case an
the fulfilment of their obligation.
However, the demand by the exception to the rule.
creditor shall not be necessary in
order that delay may exist:
G.R. No. 191431 March 13, 2013 On appeal, the CA affirmed the RTC decision, but
reduced the interest rate to 12% per annum pursuant
to the Joint Affidavit of Undertaking.7 It declared that
RODOLFO G. CRUZ and ESPERANZA
despite its title, the Joint Affidavit of Undertaking is a
IBIAS, Petitioners,
contract, as it has all the essential elements of
vs.
consent, object certain, and consideration required
ATTY. DELFIN GRUSPE, Respondent.
under Article 1318 of the Civil
DECISION
Code. The CA further said that Cruz and Leonardo
failed to present evidence to support their contention
BRION, J.: of vitiated consent. By signing the Joint Affidavit of
Undertaking, they voluntarily assumed the obligation
Before the Court is the petition for review on for the damage they caused to Gruspe’s car;
certiorari1 filed under Rule 45 of the Rules of Court, Leonardo, who was not a party to the incident, could
assailing the decision2 dated July 30, 2009 and the have refused to sign the affidavit, but he did not.
resolution3 dated February 19, 2010 of the Court of
Appeals (CA) in CA-G.R. CV No. 86083. The CA rulings THE PETITION
affirmed with modification the decision dated
September 27, 2004 of the Regional Trial Court (RTC)
In their appeal by certiorari with the Court, Cruz and
of Bacoor, Cavite, Branch 19, in Civil Case No. BCV-
Esperanza assail the CA ruling, contending that the
99-146 which granted respondent Atty. Delfin Grupe’s
Joint Affidavit of Undertaking is not a contract that can
claim for payment of sum of money against petitioners
be the basis of an obligation to pay a sum of money
Rodolfo G. Cruz and Esperanza Ibias.4
in favor of Gruspe. They consider an affidavit as
different from a contract: an affidavit’s purpose is
THE FACTUAL BACKGROUND simply to attest to facts that are within his knowledge,
while a contract requires that there be a meeting of
The claim arose from an accident that occurred on the minds between the two contracting parties.
October 24, 1999, when the mini bus owned and
operated by Cruz and driven by one Arturo Davin Even if the Joint Affidavit of Undertaking was
collided with the Toyota Corolla car of Gruspe; considered as a contract, Cruz and Esperanza claim
Gruspe’s car was a total wreck. The next day, on that it is invalid because Cruz and Leonardo’s consent
October 25, 1999, Cruz, along with Leonardo Q. Ibias thereto was vitiated; the contract was prepared by
went to Gruspe’s office, apologized for the incident, Gruspe who is a lawyer, and its contents were never
and executed a Joint Affidavit of Undertaking explained to them. Moreover, Cruz and Leonardo were
promising jointly and severally to replace the Gruspe’s simply forced to affix their signatures, otherwise, the
damaged car in 20 days, or until November 15, 1999, mini van would not be released.
of the same model and of at least the same quality;
or, alternatively, they would pay the cost of Gruspe’s
Also, they claim that prior to the filing of the complaint
car amounting to ₱350,000.00, with interest at
for sum of money, Gruspe did not make any demand
upon them. Hence, pursuant to Article 1169 of the
12% per month for any delayed payment after Civil Code, they could not be considered in default.
November 15, 1999, until fully paid.5 When Cruz and Without this demand, Cruz and Esperanza contend
Leonardo failed to comply with their undertaking, that Gruspe could not yet take any action.
Gruspe filed a complaint for collection of sum of
money against them on November 19, 1999 before
THE COURT’S RULING
the RTC.
Admittedly, as found by both the respondent appellate Even if malice or bad faith was not sufficiently proved
court and the trial court, petitioner bank had in the instant case, the fact remains that petitioner
committed a mistake.1âwphi1.nêt It misposted has committed a serious mistake. It dishonored the
private respondent's check deposit to another account check issued by the private respondent who turned
and delayed the posting of the same to the proper out to have sufficient funds with petitioner. The bank's
account of the private respondent. The mistake negligence was the result of lack of due care and
resulted to the dishonor of the private respondent's caution required of managers and employees of a firm
check. The trial court found "that the misposting of engaged in so sensitive and demanding business as
plaintiff's check deposit to another account and the banking. Accordingly, the award of moral damages by
delayed posting of the same to the account of the the respondent Court of Appeals could not be said to
plaintiff is a clear proof of lack of supervision on the be in error nor in grave abuse of its discretion.
part of the defendant bank."6 Similarly, the appellate
court also found that "while it may be true that the
There is no hard-and-fast rule in the determination of
bank's negligence in dishonoring the properly funded
what would be a fair amount of moral damages since
check of appellant might not have been attended with
each case must be governed by its own peculiar facts.
malice and bad faith, as appellee [bank] submits,
The yardstick should be that it is not palpably and
nevertheless, it is the result of lack of due care and
scandalously excessive. In our view, the award of
caution expected of an employee of a firm engaged in
P100,000.00 is reasonable, considering the reputation
so sensitive and accurately demanding task as
and social standing of private respondent Leticia T.
banking."7
Valenzuela.9
WHEREFORE, premises considered, judgment is Meanwhile, the Bank's Manifestation and Motion for
hereby rendered as follows: Clarification remained unresolved despite the lapse of
five (5) months from the date of filing. This prompted
the Bank to secure a certified true copy of the Arbiter's
Decision from the HLURB.[31]
1. Declaring the mortgage over the
condominium unit No. 2308-B2 covered by
On January 16, 2003, the Bank filed a Petition for
Condominium Certificate of Title No. 2383 in
Review with the HLURB Board of Commissioners
favor of respondent Bank as null and void for
(HLURB Board) alleging, among others, that it had
violation of Section 18 of Presidential Decree
been deprived of due process when the Arbiter
No. 957[;]
rendered a decision without affording the Bank the
opportunity to submit its position paper and draft
2. Ordering respondent Bank to cancel the
decision.
mortgage on the subject condominium unit,
and accordingly, release the title thereof to
The HLURB Board modified the Arbiter's Decision by:
the complainant;
(i) reducing the award for moral damages from
P100,000.00 to P50,000.00, (ii) deleting the award for
3. Ordering respondents to pay jointly and
exemplary damages, (iii) reducing the award for
severally the complainant the following
attorney's fees from P50,000.00 to P20,000.00, and
sums:
(iv) directing Golden Dragon to pay the Bank all the
damages the latter is directed to pay thereunder, and
settle the mortgage obligation corresponding to Unit
a. P100,000.00 as moral damages,
2308-B2.[32]
b. P100,000.00 as exemplary
Anent the issue of due process, the HLURB Board held,
damages,
as follows:
c. P50,000.00 as attorney's fees,
x x x x
d. The costs of litigations (sic), and
With respect to the first issue, we find the same
untenable. Records show that prior to the rendition of
e. An administrative fine of TEN
its decision, the office below has issued and duly sent
THOUSAND PESOS (P10,000.00)
an Order to the parties declaring respondent GDREC
payable to this Office fifteen (15)
in default and directing respondent Bank to submit its
days upon receipt of this decision,
position paper. x x x[33] (Underscoring omitted)
for violation of Section 18 in relation
to Section 38 of PD 957; Proceedings before the Office of the President
Section 18 of PD 957, requires prior written authority On May 6, 2010, the Bank filed the instant Petition.
of the HLURB before the owner or developer of a
subdivision lot or condominium unit may enter into a Rapanot filed his Comment to the Petition on
contract of mortgage. Hence, the jurisdiction of the September 7, 2010.[40] Accordingly, the Bank filed its
HLURB is broad enough to include complaints for Reply on January 28, 2011.[41]
annulment of mortgage involving violations of PD 957.
(1) when the findings are grounded entirely on RULE VI - PRELIMINARY CONFERENCE AND
speculation, surmises or conjectures; (2) when the RESOLUTION
inference made is manifestly mistaken, absurd
or impossible; (3) when there is grave abuse of x x x x
discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of Section 4. Position Papers. - If the parties fail to settle
facts are conflicting; (6) when in making its findings within the period of preliminary conference, then
the Court of Appeals went beyond the issues of the they will be given a period of not more than
case, or its findings are contrary to the admissions of thirty (30) calendar days to file their respective
both the appellant and the appellee; (7) when the verified position papers, attaching thereto the
findings are contrary to the trial court; (8) when the affidavits of their witnesses and documentary
findings are conclusions without citation of specific evidence.
evidence on which they are based; (9) when the facts
set forth in the petition as well as in the petitioner's In addition, as provided for by Executive Order
main and reply briefs are not disputed by the No. 26, Series of 1992, the parties shall be
respondent; (10) when the findings of fact are required to submit their respective draft
premised on the supposed absence of evidence and decisions within the same thirty (30)-day
contradicted by the evidence on record; and period.
(11) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed Said draft decision shall state clearly and distinctly the
by the parties, which, if properly considered, findings of facts, the issues and the applicable law and
would justify a different conclusion. x x jurisprudence on which it is based. The arbiter may
x[45] (Emphasis supplied) adopt in whole or in part either of the parties' draft
decision, or reject both and prepare his own decision.
The Bank avers that the second, fourth and eleventh
exceptions above are present in this case. However, The party who fails to submit a draft decision shall be
after a judicious examination of the records of this fined P2,000.00.
case and the respective submissions of the parties,
the Court finds that none of these exceptions apply. Section 5. Summary Resolution - With or without
the position paper and draft decision[,] the
The Bank was not deprived of due process before the Arbiter shall summarily resolve the case on the
HLURB. basis of the verified pleadings and pertinent
records of the Board.(Emphasis and underscoring
The Bank asserts that it never received the April2002 supplied)
Order. It claims that it was taken by surprise on July
25, 2002, when it received a copy of Rapanot's Clearly, the Arbiter cannot be faulted for rendering his
Manifestation alluding to the issuance of the Arbiter's Decision, since the rules then prevailing required him
Decision on July 3, 2002. Hence, the Bank claims that to do so.
it was deprived of due process, since it was not able
to set forth its "valid and meritorious" defenses for the The Bank cannot likewise rely on the absence of proof
Arbiter's consideration through its position paper and of service to further its cause. Notably, while the Bank
draft decision.[46] firmly contends that it did not receive the copy of the
April 2002 Order, it did not assail the veracity of the
The Court finds these submissions untenable. notation "refused to receive" inscribed on the
envelope bearing said order. In fact, the Bank only
"The essence of due process is to be heard."[47] In offered the following explanation respecting said
administrative proceedings, due process entails "a fair notation:
and reasonable opportunity to explain one's side, or
an opportunity to seek a reconsideration of the action 9. The claim that the Bank "refused to receive" the
or ruling complained of. Administrative due process envelope that bore the Order cannot be given
cannot be fully equated with due process in its strict credence and is belied by the Bank's act of
judicial sense, for in the former a formal or trial-type immediately manifesting before the Housing Arbiter
hearing is not always necessary, and technical rules of that it had not yet received an order for filing the
procedure are not strictly applied."[48] position paper and draft decision.[52]
As correctly pointed out by the CA in the questioned This is specious, at best. More importantly, the
Decision, the Bank was able to set out its position by records show that the Bank gained actual notice of the
participating in the preliminary hearing and the Arbiter's directive to file their position papers and draft
scheduled conferences before the Arbiter.[49] The Bank decisions as early as May 22, 2002, when it was
was likewise able to assert its special and affirmative personally served a copy of Rapanot's position paper
defenses in its Answer to Rapanot's Complaint.[50] which made reference to the April 2002 Order.[53] This
shows as mere pretense the Bank's assertion that it
The fact that the Arbiter's Decision was rendered learned of the Arbiter's Decision only through
Rapanot's Manifestation.[54] Worse, the Bank waited Philippines, Inc. v. Board of Commissioners-HLURB.[61]
until the lapse of five (5) months before it took steps
to secure a copy of the Arbiter's Decision directly from Thus, the Mortgage Agreement cannot have the effect
the HLURB for the purpose of assailing the same of curtailing Rapanot's right as buyer of Unit 2308-B2,
before the OP. precisely because of the Bank's failure to comply with
PD 957.
The Mortgage Agreement is null and void as against
Rapanot, and thus cannot be enforced against him. Moreover, contrary to the Bank's assertions, it cannot
be considered a mortgagee in good faith. The Bank
The Bank avers that contrary to the CA's conclusion in failed to ascertain whether Golden Dragon secured
the questioned Decision, it exercised due diligence HLURB's prior written approval as required by PD 957
before it entered into the Mortgage Agreement with before it accepted Golden Dragon's properties as
Golden Dragon and accepted Unit 2308-B2, among collateral. It also failed to ascertain whether any of the
other properties, as collateral.[55] The Bank stressed properties offered as collateral already had
that prior to the approval of Golden Dragon's loan, it corresponding buyers at the time the Mortgage
deployed representatives to ascertain that the Agreement was executed.
properties being offered as collateral were in order.
Moreover, it confirmed that the titles corresponding to The Bank cannot harp on the fact that the Mortgage
the properties offered as collateral were free from Agreement was executed before the Contract to Sell
existing liens, mortgages and other and Deed of Absolute Sale between Rapanot and
encumbrances.[56]Proceeding from this, the Bank Golden Dragon were executed, such that no amount
claims that the CA overlooked these facts when it of verification could have revealed Rapanot's right
failed to recognize the Bank as a mortgagee in good over Unit 2308-B2.[62] The Court particularly notes
faith. that Rapanot made his initial payment for Unit 2308-
B2 as early as May 9, 1995, four (4) months prior to
The Court finds the Bank's assertions indefensible. the execution of the Mortgage Agreement. Surely, the
Bank could have easily verified such fact if it had
First of all, under Presidential Decree No. 957 (PD simply requested Golden Dragon to confirm if Unit
957), no mortgage on any condominium unit may be 2308-B2 already had a buyer, given that the nature of
constituted by a developer without prior written the latter's business inherently involves the sale of
approval of the National Housing Authority, now condominium units on a commercial scale.
HLURB.[57] PD 957 further requires developers to
notify buyers of the loan value of their corresponding It bears stressing that banks are required to exercise
mortgaged properties before the proceeds of the the highest degree of diligence in the conduct of their
secured loan are released. The relevant provision affairs. The Court explained this exacting requirement
states: in the recent case of Philippine National Bank v.
Vila,[63] thus:
Section 18. Mortgages. - No mortgage on any unit or
lot shall be made by the owner or developer without In Land Bank of the Philippines v. Belle Corporation,
prior written approval of the Authority. Such approval the Court exhorted banks to exercise the highest
shall not be granted unless it is shown that the degree of diligence in its dealing with properties
proceeds of the mortgage loan shall be used for the offered as securities for the loan obligation:
development of the condominium or subdivision
project and effective measures have been provided to When the purchaser or the mortgagee is a bank, the
ensure such utilization. The loan value of each lot or rule on innocent purchasers or mortgagees for value
unit covered by the mortgage shall be determined and is applied more strictly. Being in the business of
the buyer thereof, if any, shall be notified before the extending loans secured by real estate mortgage,
release of the loan. The buyer may, at his option, pay banks are presumed to be familiar with the rules on
his installment for the lot or unit directly to the land registration. Since the banking business is
mortgagee who shall apply the payments to the impressed with public interest, they are expected to
corresponding mortgage indebtedness secured by the be more cautious, to exercise a higher degree of
particular lot or unit being paid for, with a view to diligence, care and prudence, than private individuals
enabling said buyer to obtain title over the lot or unit in their dealings, even those involving registered
promptly after full payment thereof. lands. Banks may not simply rely on the face of the
certificate of title. Hence, they cannot assume that, x
In Far East Bank & Trust Co. v. Marquez,[58] the Court x x the title offered as security is on its face free of
clarified the legal effect of a mortgage constituted in any encumbrances or lien, they are relieved of the
violation of the foregoing provision, thus: responsibility of taking further steps to verify the title
and inspect the properties to be mortgaged. As
The lot was mortgaged in violation of Section 18 of PD expected, the ascertainment of the status or condition
957. Respondent, who was the buyer of the property, of a property offered to it as security for a loan must
was not notified of the mortgage before the release of be a standard and indispensable part of the bank's
the loan proceeds by petitioner. Acts executed against operations. x x x (Citations omitted)
the provisions of mandatory or prohibitory laws shall
be void. Hence, the mortgage over the lot is null We never fail to stress the remarkable
and void insofar as private respondent is significance of a banking institution to
concerned.[59] (Emphasis supplied) commercial transactions, in particular, and to
the country's economy in general. The banking
The Court reiterated the foregoing pronouncement in system is an indispensable institution in the
the recent case of Philippine National Bank v. modern world and plays a vital role in the
Lim[60] and again in United Overseas Bank of the economic life of every civilized nation. Whether
as mere passive entities for the safekeeping and representation of the mortgagor that the latter
saving of money or as active instruments of had secured all requisite permits and licenses
business and commerce, banks have become an from the government agencies concerned. The
ubiquitous presence among the people, who former should have required the submission of
have come to regard them with respect and even certified true copies of those documents and
gratitude and, most of all, confidence. verified their authenticity through its own
Consequently, the highest degree of diligence is independent effort.
expected, and high standards of integrity and
performance are even required, of Having been negligent in finding out what
it.[64] (Emphasis and underscoring supplied) respondent's rights were over the lot, petitioner
must be deemed to possess constructive
In loan transactions, banks have the particular knowledge of those rights. (Emphasis supplied)
obligation of ensuring that clients comply with all the
documentary requirements pertaining to the approval The Court can surely take judicial notice of the fact
of their loan applications and the subsequent release that commercial banks extend credit accommodations
of their proceeds.[65] to real estate developers on a regular basis. In the
course of its everyday dealings, the Bank has surely
If only the Bank exercised the highest degree of been made aware of the approval and notice
diligence required by the nature of its business as a requirements under Section 18 of PD 957. At this
financial institution, it would have discovered that (i) juncture, this Court deems it necessary to stress that
Golden Dragon did not comply with the approval a person who deliberately ignores a significant fact
requirement imposed by Section 18 of PD 957, and (ii) that could create suspicion in an otherwise reasonable
that Rapanot already paid a reservation fee and had person cannot be deemed a mortgagee in good
made several installment payments in favor of Golden faith.[68] The nature of the Bank's business precludes
Dragon, with a view of acquiring Unit 2308-B2.[66] it from feigning ignorance of the need to confirm that
such requirements are complied with prior to the
The Bank's failure to exercise the diligence required of release of the loan in favor of Golden Dragon, in view
it constitutes negligence, and negates its assertion of the exacting standard of diligence it is required to
that it is a mortgagee in good faith. On this point, this exert in the conduct of its affairs.
Court's ruling in the case of Far East Bank & Trust Co.
v. Marquez[67] is instructive: Proceeding from the foregoing, we find that neither
mistake nor misapprehension of facts can be ascribed
Petitioner argues that it is an innocent mortgagee to the CA in rendering the questioned Decision. The
whose lien must be respected and protected, since the Court likewise finds that contrary to the Bank's claim,
title offered as security was clean of any encumbrance the CA did not overlook material facts, since the
or lien. We do not agree. questioned Decision proceeded from a thorough
deliberation of the facts established by the
"x x x As a general rule, where there is nothing on the submissions of the parties and the evidence on record.
certificate of title to indicate any cloud or vice in the
ownership of the property, or any encumbrance For these reasons, we resolve to deny the instant
thereon, the purchaser is not required to explore Petition for lack of merit.
further than what the Torrens Title upon its face
indicates in quest for any hidden defect or inchoate WHEREFORE, premises considered, the Petition for
right that may subsequently defeat his right thereto. Review on Certiorari is DENIED. The Decision dated
This rule, however, admits of an exception as where November 18, 2009 and Resolution dated March 17,
the purchaser or mortgagee has knowledge of a defect 2010 of the Court of Appeals in CA-G.R. SP No. 93862
or lack of title in the vendor, or that he was aware of are hereby AFFIRMED.
sufficient facts to induce a reasonably prudent man to
inquire into the status of the property in litigation." SO ORDERED.
A Yes.
A In fact I told
him (Manager)
now I am by- Q Did you ask
passed passenger them to help you
here which is not regarding any
my destination offer of
what can you transportation or
offer me. Then of any other
they answered, matter asked of
"it is not my fault. them?
Let us forget
that." A Yes, he (PAL
PERSONNEL) said
Q In other words what is? It is not
when the our fault.
Manager told you
that offer was Q Are you not
there a vehicle aware that one
ready? fellow passenger
even claimed that
A Not yet. Not he was given
long after that the Hotel
Ford Fiera loaded accommodation
with PAL because they
personnel was have no money?
passing by going
to the City of xxx xxx xxx
Cotabato and I
stopped it to take
me a ride because A No, sir, that was
there was no never offered to
more available me. I said, I tried
transportation to stop them but
but I was not they were already
accommodated. riding that PAL
pick-up jeep, and
I was not
Significantly, PAL did not seem to mind the accommodated.
introduction of evidence which focused on its alleged
negligence in caring for its stranded passengers. Well-
settled is the rule in evidence that the protest or Having joined in the issue over the alleged lack of care
objection against the admission of evidence should be it exhibited towards its passengers, PAL cannot now
presented at the time the evidence is offered, and that turn around and feign surprise at the outcome of the
the proper time to make protest or objection to the case. When issues not raised by the pleadings are
admissibility of evidence is when the question is tried by express or implied consent of the parties, they
presented to the witness or at the time the answer shall be treated in all respects as if they had been
thereto is given. 16 There being no objection, such raised in the pleadings. 19
evidence becomes property of the case and all the
parties are amenable to any favorable or unfavorable With regard to the award of damages affirmed by the
effects resulting from the evidence. 17 appellate court, PAL argues that the same is
unfounded. It asserts that it should not be charged
PAL instead attempted to rebut the aforequoted with the task of looking after the passengers' comfort
testimony. In the process, it failed to substantiate its and convenience because the diversion of the flight
counter allegation for want of concrete proof 18 — was due to a fortuitous event, and that if made liable,
an added burden is given to PAL which is over and
beyond its duties under the contract of carriage. It
Atty. Rubin O. submits that granting arguendo that negligence
Rivera — PAL's exists, PAL cannot be liable in damages in the absence
counsel: of fraud or bad faith; that private respondent failed to
apprise PAL of the nature of his trip and possible
Q You said PAL business losses; and, that private respondent himself
refused to help is to be blamed for unreasonably refusing to use the
you when you free ticket which PAL issued.
The contract of air carriage is a peculiar one. Being accommodated. It appears that
imbued with public interest, the law requires common plaintiff had to leave on the next
carriers to carry the passengers safely as far as flight 2 days later. If the cause of
human care and foresight can provide, using the non-fulfillment of the contract is due
utmost diligence of very cautious persons, with due to a fortuitous event, it has to be the
regard for all the circumstances. 20 In Air France sole and only cause (Art. 1755 CC.,
v. Carrascoso, 21 we held that — Art. 1733 C.C.) Since part of the
failure to comply with the obligation
of common carrier to deliver its
A contract to transport passengers
passengers safely to their
is quite different in kind and degree
destination lay in the defendant's
from any other contractual relation.
failure to provide comfort and
And this, because of the relation
convenience to its stranded
which an air carrier sustains with
passengers using extra-ordinary
the public. Its business is mainly
diligence, the cause of non-
with the travelling public. It invites
fulfillment is not solely and
people to avail of the comforts and
exclusively due to fortuitous event,
advantages it offers. The contract of
but due to something which
air carriage, therefore, generates a
defendant airline could have
relation attended with a public duty
prevented, defendant becomes
. . . . ( emphasis supplied).
liable to plaintiff. 23
A Yes.
Admittedly, private respondent's insistence on being
given priority in accommodation was unreasonable
COURT: considering the fortuitous event and that there was a
sequence to be observed in the booking, i.e., in the
order the passengers checked-in at their port of
Q What do you
origin. His intransigence in fact was the main cause
mean by "yes"?
for his having to stay at the airport longer than was
You meant you
necessary.
were not
informed?
Atty. Rivera:
A Yes, I was not
informed of their Q And, you were
decision, that saying that
they will only despite the fact
accommodate that according to
few passengers. your testimony
there were at
least 16
Q Aside from you
passengers who
there were many
were stranded
other stranded
there in Cotabato
passengers?
airport according
to your
A I believed, yes. testimony, and
later you said that
Q And you want there were no
us to believe that other people left
PAL did not there at that
explain (to) any time, is that
of these correct?
passengers about
the decision A Yes, I did not
regarding those see anyone there
who will board the around. I think I
aircraft back to was the only
Cebu? civilian who was
left there.
A No, Sir.
Q Why is it that it
Q Despite these took you long
facts Mr. Zapatos time to leave that
did any of the place?
other passengers
complained (sic) A Because I was
regarding that arguing with the
incident? PAL personnel. 26
Anent the plaint that PAL employees were Antonio N. Gerona for private respondents.
disrespectful and inattentive toward private
respondent, the records are bereft of evidence to
Romeo N. Gumba for Sto. Tomas.
support the same. Thus, the ruling of respondent
Court of Appeals in this regard is without basis. 27 On
the contrary, private respondent was attended to not
only by the personnel of PAL but also by its
Manager." 28 REGALADO, JR.:
In the light of these findings, we find the award of Petitioner seeks the review of the decision of the Court
moral damages of Fifty Thousand Pesos (P50,000.00) of Appeals, 1 promulgated on April 25, 1979 in CA-
unreasonably excessive; hence, we reduce the same G.R. Nos. 58345-46-R, affirming with modifications
to Ten Thousand Pesos (P10,000.00). Conformably the decision of the Court of First Instance of
herewith, the award of exemplary damages is also Camarines Sur, Branch 1, under the following decretal
reduced to five Thousand Pesos (5,000.00). Moral portion:
damages are not intended to enrich the private
respondent. They are awarded only to enable the
injured party to obtain means, diversion or WHEREFORE, the dispositive part of
amusements that will serve to alleviate the moral the decision appealed from is
suffering he has undergone by reason of the modified as follows:
defendant's culpable action. 29
WHEREFORE, judgment is hereby
With regard to the award of actual damages in the rendered:
amount of P5,000.00 representing private
respondent's alleged business losses occasioned by (A) Defendant Philippine Airlines,
his stay at Cotabato City, we find the same Inc. in Civil Case No. 7047, is
unwarranted. Private respondent's testimony that he ordered to pay the plaintiffs, Adelina
had a scheduled business "transaction of shark liver Bagadiong and Rosario Sto. Tomas,
oil supposedly to have been consummated on August the sum of P30,000.00, Philippine
3, 1975 in the morning" and that "since (private Currency, each, as moral damages
respondent) was out for nearly two weeks I missed to and exemplary damages; and the
buy about 10 barrels of shark liver oil,"30 are purely sum of P6,000.00, Philippine
speculative. Actual or compensatory damages cannot Currency, as attorney's fees;
be presumed but must be duly proved with reasonable
degree of certainty. A court cannot rely on
speculation, conjecture or guesswork as to the fact (B) Defendant Philippine Airlines,
and amount of damages, but must depend upon Inc. in Civil Case No. 7307 is
competent proof that they have suffered and on ordered to pay the plaintiff Ladislao
evidence of the actual amount thereof. 31 Santos the sum of P30,000.00,
Philippine Currency, as moral
damages and exemplary damages;
WHEREFORE the decision appealed from is AFFIRMED and the sum of P6,000.00,
with modification however that the award of moral Philippine Currency, as attorney's
damages of Fifty Thousand Pesos (P50,000.00) is fees;
reduced to Ten Thousand Pesos (P10,000.00) while
the exemplary damages of Ten Thousand Pesos
(P10,000.00) is also reduced to Five Thousand Pesos (C) To pay the plaintiffs the interest
(P5,000.00). The award of actual damages in the at the legal rate of 6% per annum
amount Five Thousand Pesos (P5,000.00) on moral and exemplary damages
representing business losses occasioned by private aforestated, from the date of this
respondent's being stranded in Cotabato City is amended decision until said
deleted. damages are fully paid;
PHILIPPINE AIRLINES, INC., petitioner, On December 11, 1970, private respondents Adelina
Bagadiong and Rosario Sto. Tomas, filed an action for
vs. damages against petitioner in the Court of First
Instance of Camarines Sur, docketed therein as Civil
Case No. 7047. On May 18, 1972, a similar action,
COURT OF APPEALS, ADELINA BAGADIONG and Civil Case No. 7307, was filed in the same court by the
ROSARIO STO. TOMAS, respondents. other private respondent, Ladislao Santos. On
February 9, 1973, considering that these two cases
Ricardo V. Puno, Jr., Wilfredo M. Chato & Marceliano arose from the same incident and involved the same
C. Calica for petitioner. defendant and counsel for plaintiffs in both cases, a
joint hearing of these cases was ordered and expenses of litigation including
conducted by the lower court upon motion of both attorney's fees.
parties. 3
In Civil Case No. 7307, the
Considering the significant role of evidentially- complaint alleges, among others,
supported factual findings of the lower courts in the that on November 24, 1970, when
decisional processes of appellate courts, we find it plaintiff Ladislao Santos, now
necessary to reproduce the same, as reported in these appellee, bought a plane ticket at
cases by respondent court, together with the the branch station of defendant in
proceedings in the court a quo: Naga City for Flight 296 from Naga
to Manila scheduled on the
afternoon of November 26, 1970,
The amended complaint in Civil
he was assured by the employees of
Case No. 7047 alleges, inter alia,
defendant that his reservation for
that on November 16, 1970,
the flight was confirmed; that at two
plaintiffs Adelina Bagadiong and
o'clock in the afternoon of
Rosario Sto. Tomas, now appellees,
November 29, 1970, one hour and
made reservations with, and bought
forty minutes before the scheduled
two plane tickets from, defendant
departure time of Fligth 296,
(Naga City branch station), now
plaintiff checked in at the Pili airport
appellant, a common carrier
counter and then and there the
engaged in the business of
employees of defendant asked for
transporting passengers by air for
his ticket, allegedly for the purpose
compensation, for Naga-Manila
of issuing to him a boarding pass;
flight on November 26, 1970; that
that about three minutes before
on November 24, 1970, plaintiffs
departure of Flight 296, the ticket
went back to defendant Naga City
was returned to plaintiff by
branch station and paid the fare for
defendants employee, informing
two round trip tickets; that plaintiffs
him that there was no more seat
were not only issued their round
available and he could not ride on
trips tickets, but also their
that flight to Manila; that the
reservation in defendant's 3:40
employees of the defendant acted
o'clock afternoon Naga-Manila flight
rudely and discourteously to his
on November 26, 1970 were
embarrassment in the presence of
expressly confirmed by the Naga
so many people who were at the
City branch station; that at three
airport at that time; that it was very
o'clock in the afternoon of
important and urgent for plaintiff to
November 26, 1970, or forty-five
be in Manila on the afternoon of
minutes before the scheduled
November 26, 1970, because he
departure time of the Naga-Manila
had an appointment with an eye
flight, plaintiffs checked in at the Pili
specialist for medical treatment of
airport counter of defendant and
his eye and he and his brother were
there the latter's agent or
"to close a contract they entered
employees got the tickets of the
into to supply shrimps to some
plaintiffs allegedly for the purpose
restaurants and market vendors in
of issuing to them a boarding pass;
Manila; and that he and his brother
that few minutes before departure
failed to close the contract to supply
time, plaintiffs' luggage was loaded
shrimps, as it was on December 1,
to (sic) the plane, but plaintiffs were
1970, that he was finally able to
not given back their tickets and
reach Manila by train.
were not allowed by defendant's
agent or employees to board the
plane; and that after the plane had Likewise, claiming that defendant
taken off from the Pili airport with acted in bad faith in the breach of
the luggage of plaintiffs, in spite of its contract with him, plaintiff
their complaint, all that defendant's Ladislao Santos has claimed for
agent or employees did at the Naga moral damages "in the amount of no
City branch station was to refined less than P70,000.00," exemplary
plaintiffs' fares. damages and actual damages in
"the sum of P20,000.00 . . . which
include(s) attorney's fees and
Contending that defendant common
expenses of litigation."
carrier acted in bad faith in the
breach of its contract with them,
plaintiffs claimed for moral damages In its answer to the amended
"in the amount of no less than complaint, as well as to the
P10,000.00 each," exemplary complaint of other plaintiff-
damages and actual damages. It is appellee, defendant-appellant
prayed that defendant be ordered to common carrier interposed, among
pay plaintiffs, among others, "the others, the following common
sum of P20,000.00 for moral special and affirmative defenses:
damages" and P6,000.00 by way of that the aircraft used for Flight
296R/26 November 1970 (Virac- the defendant the same would still
Naga-Manila) is a 44-seater; that amount to negligence so gross and
due to the cancellation of its reckless as to amount to malice
morning flight from Virac, some of and/or bad faith.
its passengers for said flight took
Flight 296R; that on the
(d) Due to the acts of the employees
representations of Governor Alberto
of the defendant in "bumping off the
of Catanduanes, one of those
plaintiffs, the latter suffered
manifested in the cancelled morning
embarrassment and humiliations,
flight, its (defendant's) employees
thereby causing them mental
at its Virac station were constrained
anguish, serious anxiety, wounded
"to allow the Governor to take Flight
feeling and social humiliation,
296R together with several
resulting in moral damages.
companions" with the assurance of
the Governor that two (2) of his
companions would deplane in Naga; WHEREFORE, judgment is hereby
that on arrival in Naga, the two entered:
companions of the Governor refused
to deplane despite repeated pleas (a) Ordering the defendant in Civil
and entreaties of its employees; Case No. 7047 to pay plaintiff
that unable to persuade the two Adelina Bagadiong the sum of
Virac passengers to deplane in Naga P10,000.00, as moral damages; to
and "compelled by a reasonable and pay plaintiff Rosario Sto. Tomas the
well-grounded fear that an sum of P10,000.00 as moral
untoward incident may ensue damages; to pay each plaintiff the
should the two (2) be forced to sum of P10,000.00 by way of
leave the aircraft," its employee exemplary damages, and the sum
"had to act in a manner dictated by of P6,000.00 as attorney's fees;
the circumstances and by reasons of
safety both of the passenger and
the aircraft and crew;" that its (b) Ordering the defendant in Civil
failure to carry plaintiffs on board Case No. 7307 to pay plaintiff
the plane "was necessitated by Ladislao Santos the sum of
reason of safety and/or compliance P60,000.00 for moral damages;
with applicable lawsregulations, or P20,000.00 by way of actual
orders, and the same are valid damages; the sum of P10,000.00 as
grounds for refusal to carry plaintiffs exemplary damages and P6,000.00
in accordance with its Domestic for attorney's fees;
Passenger Tariff No. 2 (Section A,
Rule 8[a]) which is incorporated by (c) Interest at the legal rate of 6%
reference into the conditions of per annum on the moral and
carriage as expressly provided for in exemplary damages aforestated,
plaintiffs" plane tickets; and that from the date of this decision until
the error of its employees was an said damages are fully paid;
honest mistake or constitutes
excusable negligence.
(d) Ordering the defendant to pay
the costs of these suits.
After trial on the merits, specifically Counterclaim of the defendant in
on June 25, 1975, the lower court both cases are hereby dismissed.
rendered a decision which, in part,
is herein reproduced as follows:
SO ORDERED.
(A) Defendant Philippine Airlines, We have constantly ruled in a number of cases that
Inc., in Civil Case No. 7047, is moral damages are recoverable in a breach of contract
ordered to pay the plaintiffs, Adelina of carriage where the air carrier through its agents
Bagadiong and Rosario Sto. Tomas, acted fraudulently or in bad faith. 6 In the case at bar,
the sum of P60,000.00, Philippine the trial court and the Court of Appeals are in
Currency, each as moral damages; agreement that petitioner through its agents acted in
the sum of P60,000.00, Philippine bad faith in "bumping off" private respondents. As
Currency, each, by way of aptly found by the Court of Appeals, the failure of
exemplary damages, and the sum petitioner to accommodate private respondents was
of P10,000.00, Philippine Currency, not the result of an honest mistake, because its
as attorney's fees; employees knew and were aware that what they were
doing was wrong. Hence, respondent court held that
(B) Defendant Philippine Airlines, there was a "dishonest purpose" and "conscious doing
Inc., in Civil Case No. 7307 is of wrong" on the part of petitioner's employees in
ordered to pay the plaintiff Ladislao "bumping off" private respondents from the flight; and
Santos the sum of P60,000.00, that the lower court did not err in holding that the
Philippine Currency, as moral failure of petitioner to accommodate private
damages; the sum of P20,000.00, respondents on Flight 296R was attended by bad
Philippine Currency, by way of faith. 7
actual damages; the sum of
P60,000.00, Philippine Currency, as The said pronouncement was based on the following
exemplary damages, and the sum findings in the decision of the trial court, which we are
of P10,000.00, Philippine Currency, not inclined to disturb, the same having evidentiary
as attorney's fees; foundation:
(C) To pay the plaintiffs the interest The employees of the defendant
at the legal rate of 6% per annum knew that there was a heavy
booking of passengers on November defendant had with the plaintiffs.
26, 1970 because of the coming of Even granting all the mistakes
the Pope. Why did the Virac station advanced by the defendant, still
overbooked (sic) two passengers, there would at least be negligence
Gov. Alberto and Mayor Antonio, on so gross and reckless that it
Flight 296R, knowing all the time amounts to malice or bad faith in its
that these two passengers could not breach of contract with the plaintiffs
possibly obtain confirmed (Lopez, et al. versus Pan American
reservations in Naga? Knowing World Airways, No. L-22415, March
further the political stature of Gov. 30, 1966, citing Fores vs. Miranda
Alberto, Mr. Borjal, the branch L-12163, March 4, 1959; Necesito
supervisor of Virac, should had (sic) vs. Paras, L-10605, June 30, 1958
foreseen that should Gov. Alberto 16 SCRA 431).
and Mayor Antonio refuse to
deplane in Naga, should they failed
The argument that the Sorsogon
to obtain confirmed reservations he,
passengers arrived first and
(Borjal) would create a situation
checked in earlier than the plaintiffs
wherein the defendant would be
at the airport ticket counter of the
placed in a position to violate its
defendant is not a valid reason to
contract of carriage with passengers
give them preference over the
with confirmed reservations who
plaintiffs considering that the latter
would not be accommodated
had confirmed reservations and
because of Gov. Alberto and Mayor
they arrived on time at the airport
Antonio. This whole incident could
and checked in at the defendant's
have been avoided had Borjal not
ticket counter. If issuance of tickets
recklessly took (sic) a chance on the
duly paid for and with confirmed
two overbooked passengers in
reservations is no guarantee that
getting confirmed reservation in
the passengers to whom it is (sic)
Naga.
issued would be accommodated,
then air passengers would be placed
The situation was, however, in the hollow of the hands of the
aggravated by the employees of the airlines and its employees. What
defendant at Pili airport, particularly security then can a passenger have?
Mr. Azuela who seemed to be the . . .8
one who was making decisions at
the airport. Knowing already that
In the case of Korean Airlines, Co., Ltd. vs. Hon. Court
Flight 296R was overbooked by two
of Appeals, et al., 9 with a similar factual setting, we
passengers and the allocations in
held:
Legaspi and Naga were also fully
booked of passengers with
confirmed reservations and We are satisfied from the findings of
plaintiffs were begging and pleading the respondent court (and of the
to be allowed to take Flight 296R as trial court) that the private
they had confirmed reservations respondent was, in the language of
and the luggage of Mrs. Bagadiong the airline industry, "bumped off".
and Miss Sto. Tomas were already She had a confirmed ticket. She
loaded in the plane, Mr. Azuela and arrived at the airport on time.
his co- employees still allowed and However, she was not allowed to
gave preference to the two board because her seat had already
passengers (Fr. Laban and Miss been given to another passenger.
Franca) to board and take Flight As a result, she suffered damages
296R notwithstanding the fact that for which the petitioner should be
Mr. Azuela and his co-employees at held liable.
the airport knew and was (sic)
aware at that time that the A contract to transport passengers is quite different in
Sorsogon branch had no allocation kind and degree from any other contractual relation.
in Flight 296R and that the flight of And this, because of the relation which an air-carrier
the Sorsogon passengers was with the public. Its business is mainly with the
already cancelled earlier. The travelling public. It invites people to avail of the
employees of the defendant comforts and advantages it offers. The contract of air
knowingly and deliberately carriage, therefore, generates a relation attended with
disregarded the rights of the a public duty. Neglect or malfeasance of the carrier's
plaintiffs to board the plane and employees naturally could give ground for an action
took (sic) Flight 296R by virtue of for damages. 10
their being holders of tickets duly
issued and paid for with confirmed
reservations on Flight 296R. The The operation of a common carrier is a business
employees of the defendant knew affected with public interest and must be directed to
that by not allowing the plaintiffs to serve the comfort and convenience of the passengers.
take Flight 296R they were violating In case of breach in bad faith of a contract of carriage,
the contract of carriage the award of damages is in order. We have ruled that bad
faith which would justify an award of moral and violence they employed is sufficient
exemplary damages for breach of contract of carriage to produce in the mind of their
means a breach of a known duty through some motive victims real, imminent or
of interest or illwill. 11 That pronouncement is reasonable fear. As correctly
applicable to these cases. observed by the lower court from
the evidence of record, defendant-
appellant's employees "bumped off
The contention of petitioner that its failure to
plaintiffs from the flight in their
accommodate private respondents was due to the
desire" "to cater to the good graces
unlawful acts of third persons and, constitutes caso
of a politico" (Governor Alberto). 14
fortuito, is untenable. To constitute a caso
fortuito that would exempt a person from
responsibility, it is essential that (a) the event must Petitioner's agents, by giving permission to board
be independent of the will of the obligor; (b) it must Flight 296R to persons who were not among those
be either unforseeable or inevitable; (c) its occurrence with valid confirmations and who consequently had no
renders it impossible for the obligor to fulfill his right to be given preference in taking said flight,
obligation in a normal manner; and (d) the obligor deliberately created a situation that would place, as it
must be free from any participation in the aggravation did place, petitioner in arrant violation of its contract
of the injury resulting to the obligee or creditor. 12 with private respondents who were "bumped off" by
reason thereof. Petitioner, having unlawfully deprived
private respondents of their seats, without any regard
One essential characteristic of a fortuitous event is
at all to their feelings and convenience just so it could
that it was independent of the will of the obligor or of
accommodate other persons who had no better right
his employees, which fact is lacking in this case. The
thereto, cannot now relieve itself from liability by
alleged fortuitous event, supposedly consisting of the
invoking a fortuitous event, a defense as erroneous as
unlawful acts of Governor Alberto and Mayor Antonio,
it is contrived.
is not independent of the will of herein petitioner as
the obligor but was caused by the very act of its
agents in allowing the governor and the mayor to As we stressed in Ortigas, Jr. vs. Lufthansa German
board Flight 296R in excess of the number of Airlines.15
passengers allotted to them and with full knowledge
that the said flight for Manila was fully booked. The
. . . Nobody, much less a common
impossibility of their being accommodated was
carrier who is under constant
necessarily forseeable. The claim of petitioner that
special obligation to give utmost
there was a prior arrangement between its agent in
consideration to the convenience of
Virac and the governor and the mayor that the latter
its customers, may be permitted to
would be accommodated only up to Naga is belied by
relieve itself from any difficult
the passengers' manifest wherein it is stated that the
situation created by its own lack of
place of destination of both the governor and the
diligence in the conduct of its affairs
mayor was Manila . 13
in a manner prejudicial to such
customers. It is Our considered view
Again, we quote respondent Court of Appeals: that when it comes to contracts of
common carriage, inattention and
lack of care on the part of the carrier
The fear spoken of by witness
resulting in the failure of the
Azuela is speculative, fanciful and
passengers to be accommodated in
remote. The statement attributed to
the class contracted for amounts to
Governor Alberto and/or the
bad faith or fraud which entitles the
mayors, that "if we cannot board
passengers to the award of moral
the plane there will be something
damages in accordance with Article
that will happen," is vague. The
2220 of the Civil Code. . . .
threat, if ever it was, was not of
such a serious character and
imminence as to create in the mind We, therefore, find no error on the part of respondent
of defendant-appellant's employees Court of Appeals in awarding moral and exemplary
fear of greater injury if they would damages as well as attorney's fees. The findings that
not allow Governor Alberto and the petitioner had breached its contract of carriage in bad
mayors to remain in the plane which faith and in wanton disregard of private respondents'
was then scheduled to fly to Manila. rights as passengers lay the basis and justification for
It is difficult to believe that such awards. The imposition of exemplary damages is
Governor Alberto and the mayors necessary to deter petitioner or other airlines from
would make any threat or committing similar breaches of contract in the future,
intimidation to keep their seats in although there are still reported instances thereof.
the plane. They were provincial and
municipal executives with a
With respect to the third issue, we also find the same
common duty to maintain peace
to be without merit for being based on specious and
and order and to prevent the
strained reasoning. The fact that respondent
commission of crimes. The cited
Bagadiong relinquished her seat in favor of her son is
cases involving Hukbalahaps and
of no moment, considering that her son was also a
robbers are misplaced, because
confirmed passenger who had a right to demand
they are known to be ruthless
accommodation from petitioner. As noted by
killers, whose intimidation or the
respondent court, the act of respondent Bagadiong
was motivated solely by her concern for her son who [G.R. No. 126389. July 10, 1998]
also risked being denied accommodation but who was
then returning to school in Manila. Such sacrifice was
not voluntary on her part, and her inability to take the
fligth was the consequence of the wrongful act of
petitioner's employees for which it has to answer. 16 SOUTHEASTERN COLLEGE, INC., petitioner,
vs. COURT OF APPEALS, JUANITA DE
JESUS VDA. DE DIMAANO, EMERITA
On the last issue regarding the propriety of the lower DIMAANO, REMEDIOS DIMAANO,
court's increasing the award of damages it awarded in CONSOLACION DIMAANO and
the original decision, petitioner's allegation that MILAGROS DIMAANO, respondents.
respondent court passed upon the matter sub
silentio is not correct.
DECISION
I
5. Whether or not petitioner is liable for damage
THE TRIAL COURT ERRED IN HOLDING caused to others by typhoon Saling being an act of
THAT TYPHOON SALING, AS AN ACT OF God.
GOD, IS NOT THE SOLE AND ABSOLUTE
REASON FOR THE RIPPING-OFF OF THE 6. Whether or not the issuance of a writ of execution
SMALL PORTION OF THE ROOF OF pending appeal, ex-parte or without hearing, has
SOUTHEASTERNS FOUR (4) STOREY support in law.
SCHOOL BUILDING.
In light of the foregoing, we find no clear and [G.R. No. 147334. May 25, 2004]
convincing evidence to sustain the judgment of the
appellate court. We thus hold that petitioner has not
been shown negligent or at fault regarding the
construction and maintenance of its school building in
question and that typhoon Saling was the proximate GLOBE TELECOM, INC., petitioner,
cause of the damage suffered by private respondents vs. PHILIPPINE COMMUNICATION
house. SATELLITE CORPORATION, respondent.
Neither party shall be held liable or deemed to be in WHEREFORE, premises considered, judgment is
default for any failure to perform its obligation under hereby rendered as follows:
this Agreement if such failure results directly or
indirectly from force majeure or fortuitous
1. Ordering the defendant to pay the withdrawal of all US military forces and personnel
plaintiff the amount of Ninety from Cubi Point, which prevented further use of the
Two Thousand Two Hundred earth station under the Agreement.
Thirty Eight US Dollars
(US$92,238.00) or its However, the Court of Appeals ruled that
equivalent in Philippine although Globe sought to terminate Philcomsats
Currency (computed at the services by 08 November 1992, it is still liable to pay
exchange rate prevailing at rentals for the December 1992, amounting to
the time of compliance or US$92,238.00 plus interest, considering that the US
payment) representing rentals military forces and personnel completely withdrew
for the month of December from Cubi Point only on 31 December 1992.[10]
1992 with interest thereon at
Both parties filed their respective Petitions for
the legal rate of twelve percent
Review assailing the Decision of the Court of Appeals.
(12%) per annum starting
December 1992 until the In G.R. No. 147324,[11] petitioner Philcomsat
amount is fully paid; raises the following assignments of error:
2. Ordering the defendant to pay the
plaintiff the amount of Three A. THE HONORABLE COURT OF APPEALS ERRED
Hundred Thousand IN ADOPTING A DEFINITION OF FORCE
(P300,000.00) Pesos as and MAJEURE DIFFERENT FROM WHAT ITS
for attorneys fees; LEGAL DEFINITION FOUND IN ARTICLE
1174 OF THE CIVIL CODE, PROVIDES,
3. Ordering the DISMISSAL of SO AS TO EXEMPT GLOBE TELECOM
defendants counterclaim for FROM COMPLYING WITH ITS
lack of merit; and OBLIGATIONS UNDER THE SUBJECT
AGREEMENT.
4. With costs against the defendant.
In its Comment, Philcomsat claims that Globes A fortuitous event under Article 1174 may either
petition should be dismissed as it raises a factual issue be an act of God, or natural occurrences such as floods
which is not cognizable by the Court in a petition for or typhoons,[24] or an act of man, such as riots, strikes
review on certiorari.[21] or wars.[25]
On 15 August 2001, the Court issued Philcomsat and Globe agreed in Section 8 of the
a Resolution giving due course to Agreement that the following events shall be deemed
Philcomsats Petition in G.R. No. 147324 and events constituting force majeure:
required the parties to submit their respective
memoranda.[22] 1. Any law, order, regulation, direction or
request of the Philippine
Similarly, on 20 August 2001, the Court issued
Government;
a Resolution giving due course to the Petition filed by
Globe in G.R. No. 147334 and required both parties
to submit their memoranda.[23] 2. Strikes or other labor difficulties;
Clearly, the foregoing are either unforeseeable, Resolution No. 141 of the Philippine Senate and the
or foreseeable but beyond the control of the Note Verbale of the Philippine Government to the US
parties. There is nothing in the enumeration that runs Government are acts, direction or request of the
contrary to, or expands, the concept of a fortuitous Government of the Philippines and circumstances
event under Article 1174. beyond the control of the defendant. The formal order
from Cdr. Walter Corliss of the USN, the letter
Furthermore, under Article 1306[26] of the Civil notification from ATT and the complete withdrawal of
Code, parties to a contract may establish such all the military forces and personnel from Cubi Point
stipulations, clauses, terms and conditions as they in the year-end 1992 are also acts and circumstances
may deem fit, as long as the same do not run counter beyond the control of the defendant.
to the law, morals, good customs, public order or
public policy.[27]
Considering the foregoing, the Court finds and so
Article 1159 of the Civil Code also provides that holds that the afore-narrated circumstances
[o]bligations arising from contracts have the force of constitute force majeure or fortuitous event(s) as
law between the contracting parties and should be defined under paragraph 8 of the Agreement.
complied with in good faith.[28] Courts cannot stipulate
for the parties nor amend their agreement where the From the foregoing, the Court finds that the defendant
same does not contravene law, morals, good customs, is exempted from paying the rentals for the facility for
public order or public policy, for to do so would be to the remaining term of the contract.
alter the real intent of the parties, and would run
contrary to the function of the courts to give force and
effect thereto.[29] As a consequence of the termination of the RP-US
Military Bases Agreement (as amended) the continued
Not being contrary to law, morals, good stay of all US Military forces and personnel from Subic
customs, public order, or public policy, Section 8 of Naval Base would no longer be allowed, hence,
the Agreement which Philcomsat and Globe freely plaintiff would no longer be in any position to render
agreed upon has the force of law between them.[30] the service it was obligated under the Agreement. To
put it blantly (sic), since the US military forces and
In order that Globe may be exempt from non- personnel left or withdrew from Cubi Point in the year
compliance with its obligation to pay rentals under end December 1992, there was no longer any
Section 8, the concurrence of the following elements necessity for the plaintiff to continue maintaining the
must be established: (1) the event must be IBS facility. [32] (Emphasis in the original.)
independent of the human will; (2) the occurrence
must render it impossible for the debtor to fulfill the
obligation in a normal manner; and (3) the obligor The aforementioned events made impossible the
must be free of participation in, or aggravation of, the continuation of the Agreement until the end of its five-
injury to the creditor.[31] year term without fault on the part of either party. The
Court of Appeals was thus correct in ruling that the
The Court agrees with the Court of Appeals and happening of such fortuitous events rendered Globe
the trial court that the abovementioned requisites are exempt from payment of rentals for the remainder of
present in the instant case. Philcomsat and Globe had the term of the Agreement.
no control over the non-renewal of the term of the RP-
US Military Bases Agreement when the same expired Moreover, it would be unjust to require Globe to
in 1991, because the prerogative to ratify the treaty continue paying rentals even though Philcomsat
extending the life thereof belonged to the Senate. cannot be compelled to perform its corresponding
Neither did the parties have control over the obligation under the Agreement. As noted by the
subsequent withdrawal of the US military forces and appellate court:
personnel from Cubi Point in December 1992:
We also point out the sheer inequity of PHILCOMSATs
Obviously the non-ratification by the Senate of the RP- position. PHILCOMSAT would like to charge GLOBE
US Military Bases Agreement (and its Supplemental rentals for the balance of the lease term without there
Agreements) under its Resolution No. 141. (Exhibit 2) being any corresponding telecommunications service
on September 16, 1991 is beyond the control of the subject of the lease. It will be grossly unfair and
parties. This resolution was followed by the sending iniquitous to hold GLOBE liable for lease charges for a
on December 31, 1991 o[f] a Note Verbale (Exhibit service that was not and could not have been rendered
3) by the Philippine Government to the US due to an act of the government which was clearly
Government notifying the latter of the formers beyond GLOBEs control. The binding effect of a
termination of the RP-US Military Bases Agreement contract on both parties is based on the principle that
(as amended) on 31 December 1992 and that the obligations arising from contracts have the force
accordingly, the withdrawal of all U.S. military forces of law between the contracting parties, and there
from Subic Naval Base should be completed by said must be mutuality between them based essentially on
date. Subsequently, defendant [Globe] received a their equality under which it is repugnant to have one
formal order from Cdr. Walter F. Corliss II Commander party bound by the contract while leaving the other
USN dated July 31, 1992 and a notification from ATT party free therefrom (Allied Banking Corporation v.
dated July 29, 1992 to terminate the provision of T1s Court of Appeals, 284 SCRA 357).[33]
services (via an IBS Standard B Earth Station)
effective November 08, 1992. Plaintiff [Philcomsat]
With respect to the issue of whether Globe is AUSTRIA-MARTINEZ, J.:
liable for payment of rentals for the month of
December 1992, the Court likewise affirms the
Before the Court is a petition for review on certiorari
appellate courts ruling that Globe should pay the
of the Decision1 dated October 11, 2000 of the Court
same.
of Appeals (CA) in CA-G.R. CV No. 61848 which set
Although Globe alleged that it terminated the aside the Decision dated August 31, 1998 of the
Agreement with Philcomsat effective 08 November Regional Trial Court, Branch 138, Makati (RTC) in Civil
1992 pursuant to the formal order issued by Cdr. Case No. 92-322 and upheld the causes of action for
Corliss of the US Navy, the date when they actually damages of Insurance Company of North America
ceased using the earth station subject of the (respondent) against Gaisano Cagayan, Inc.
Agreement was not established during the (petitioner); and the CA Resolution dated April 11,
trial.[34] However, the trial court found that the US 2001 which denied petitioner's motion for
military forces and personnel completely withdrew reconsideration.
from Cubi Point only on 31 December 1992.[35] Thus,
until that date, the USDCA had control over the earth The factual background of the case is as follows:
station and had the option of using the
same. Furthermore, Philcomsat could not have
Intercapitol Marketing Corporation (IMC) is the maker
removed or rendered ineffective said communication
of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc.
facility until after 31 December 1992 because Cubi
(LSPI) is the local distributor of products bearing
Point was accessible only to US naval personnel up to
trademarks owned by Levi Strauss & Co.. IMC and
that time. Hence, the Court of Appeals did not err
LSPI separately obtained from respondent fire
when it affirmed the trial courts ruling that Globe is
insurance policies with book debt endorsements. The
liable for payment of rentals until December 1992.
insurance policies provide for coverage on "book debts
Neither did the appellate court commit any error in connection with ready-made clothing materials
in holding that Philcomsat is not entitled to attorneys which have been sold or delivered to various
fees and exemplary damages. customers and dealers of the Insured anywhere in the
Philippines."2 The policies defined book debts as the
The award of attorneys fees is the exception "unpaid account still appearing in the Book of Account
rather than the rule, and must be supported by of the Insured 45 days after the time of the loss
factual, legal and equitable justifications.[36] In covered under this Policy."3 The policies also provide
previously decided cases, the Court awarded for the following conditions:
attorneys fees where a party acted in gross and
evident bad faith in refusing to satisfy the other partys
1. Warranted that the Company shall not be
claims and compelled the former to litigate to protect
liable for any unpaid account in respect of the
his rights;[37] when the action filed is clearly
merchandise sold and delivered by the
unfounded,[38] or where moral or exemplary damages
Insured which are outstanding at the date of
are awarded.[39] However, in cases where both parties
loss for a period in excess of six (6) months
have legitimate claims against each other and no
from the date of the covering invoice or
party actually prevailed, such as in the present case
actual delivery of the merchandise whichever
where the claims of both parties were sustained in
shall first occur.
part, an award of attorneys fees would not be
warranted.[40]
2. Warranted that the Insured shall submit to
Exemplary damages may be awarded in cases the Company within twelve (12) days after
involving contracts or quasi-contracts, if the erring the close of every calendar month all amount
party acted in a wanton, fraudulent, reckless, shown in their books of accounts as unpaid
oppressive or malevolent manner.[41] In the present and thus become receivable item from their
case, it was not shown that Globe acted wantonly or customers and dealers. x x x4
oppressively in not heeding Philcomsats demands for
payment of rentals. It was established during the trial
of the case before the trial court that Globe had valid xxxx
grounds for refusing to comply with its contractual
obligations after 1992. Petitioner is a customer and dealer of the products of
IMC and LSPI. On February 25, 1991, the Gaisano
WHEREFORE, the Petitions are DENIED for lack Superstore Complex in Cagayan de Oro City, owned
of merit. The assailed Decision of the Court of Appeals by petitioner, was consumed by fire. Included in the
in CA-G.R. CV No. 63619 is AFFIRMED. items lost or destroyed in the fire were stocks of
SO ORDERED. ready-made clothing materials sold and delivered by
IMC and LSPI.
On October 19, 1987, two armed men entered the pawned jewelry and payment of actual, moral and
pawnshop and took away whatever cash and jewelry exemplary damages as well as attorney's fees. The
were found inside the pawnshop vault. The incident case was docketed as Civil Case No. 88-2035.
District, Paraaque Police Station as follows: Petitioner Sicam filed his Answer contending that he is
Respondents subsequently filed an Amended a Decision dated March 31, 2003, the CA reversed the
Complaint to include petitioner corporation. RTC, the dispositive portion of which reads as follows:
respondents complaint as well as petitioners In finding petitioner Sicam liable together with
counterclaim. The RTC held that petitioner corporation, the CA applied the doctrine of
petitioner Sicam could not be made personally liable piercing the veil of corporate entity reasoning that
for a claim arising out of a corporate respondents were misled into thinking that they were
transaction; that in the Amended Complaint of dealing with the pawnshop owned by
respondents, they asserted that plaintiff pawned petitioner Sicam as all the pawnshop tickets issued to
assorted jewelries in defendants' pawnshop; and that them bear the words Agencia de R.C. Sicam; and that
as a consequence of the separate juridical personality there was no indication on the pawnshop tickets that
of a corporation, the corporate debt or credit is not the it was the petitioner corporation that owned the
since it had not been rebutted by respondents that the The CA further held that the corresponding diligence
loss of the pledged pieces of jewelry in the possession required of a pawnshop is that it should take steps to
of the corporation was occasioned by armed robbery; secure and protect the pledged items and should take
that robbery is a fortuitous event which exempts the steps to insure itself against the loss of articles which
victim from liability for the loss, citing the case are entrusted to its custody as it derives earnings from
of Austria v. Court of Appeals;[7] and that the parties the pawnshop trade which petitioners failed to do;
transaction was that that Austria is not applicable to this case since the
of a pledgor and pledgee andunder Art. 1174 of the robbery incident happened in 1961 when the
Civil Code, the pawnshop as a pledgee is not criminality had not as yet reached the levels attained
responsible for those events which could not be in the present day; that they are at least guilty of
evidence adduced by the parties in the court a Central Bank, expressly referred to
quo.[12] This rule, however, is not without exceptions, petitioner Sicam as the proprietor of the pawnshop
such as where the factual findings of the Court of notwithstanding the alleged incorporation in April
Appeals and the trial court are conflicting or
1987.
contradictory[13] as is obtaining in the instant case.
We also find no merit in petitioners' argument that
However, after a careful examination of the records, since respondents had alleged in their Amended
petitioner Sicam from liability. owner of the pawnshop, the CA is bound to decide the
fiction and adjudged petitioner Sicam liable together Section 4 Rule 129 of the Rules of Court provides that
with petitioner corporation. The rule is that the veil of an admission, verbal or written, made by a party in
corporate fiction may be pierced when made as a the course of the proceedings in the same case, does
shield to perpetrate fraud and/or confuse legitimate not require proof. The admission may be contradicted
issues. [14]
The theory of corporate entity was not only by showing that it was made through palpable
conclusive upon the party making it and does not loss of their pawned jewelry.
through palpable mistake, and (2) when it is shown Markedly, respondents, in their Opposition to
that no such admission was in fact made. The latter petitioners Motion to Dismiss Amended Complaint,
exception allows one to contradict an admission insofar as petitioner Sicam is concerned, averred as
Clearly, in view of the alleged incorporation of the impossible to avoid; (c) the occurrence must be such
pawnshop, the issue of whether petitioner Sicam is as to render it impossible for the debtor to fulfill
personally liable is inextricably connected with the obligations in a normal manner; and, (d) the obligor
determination of the question whether the doctrine of must be free from any participation in the aggravation
piercing the corporate veil should or should not apply of the injury or loss. [23]
to the case. The burden of proving that the loss was due to a
The next question is whether petitioners are liable for in order for a fortuitous event to exempt one from
the loss of the pawned articles in their possession. liability, it is necessary that one has committed no
Petitioners insist that they are not liable since robbery the loss. [25]
We are not persuaded. to protect a person who has failed to take steps to
Article 1174 of the Civil Code provides: loss. One's negligence may have concurred with an act
of carnapping, does not
of God in producing damage and injury to another; automatically give rise to a
fortuitous event. To be
nonetheless, showing that the immediate or considered as
such, carnapping entails more
proximate cause of the damage or injury was a
than the mere forceful taking
fortuitous event would not exempt one from liability. of another's property. It must
be proved and established that
When the effect is found to be partly the result of a the event was an act of God or
was done solely by third
person's participation -- whether by active parties and that neither the
claimant nor the person
intervention, neglect or failure to act -- the whole alleged to be negligent has any
participation. In accordance
occurrence is humanized and removed from the rules with the Rules of Evidence, the
burden of proving that the loss
applicable to acts of God. [26]
was due to a fortuitous event
rests on him who invokes it
which in this case is the private
Petitioner Sicam had testified that there was a respondent. However, other than
the police report of the
security guard in their pawnshop at the time of the alleged carnapping incident, no
other evidence was presented by
robbery. He likewise testified that when he started the private respondent to the effect
that the incident was not due to its
pawnshop business in 1983, he thought of opening a fault. A police report of an alleged
crime, to which only private
vault with the nearby bank for the purpose of respondent is privy, does not
suffice to establish the carnapping.
safekeeping the valuables but was discouraged by the Neither does it prove that there
was no fault on the part of private
Central Bank since pawned articles should only be
respondent notwithstanding the
stored in a vault inside the pawnshop. The very parties' agreement at the pre-trial
that the car
measures which petitioners had allegedly adopted was carnapped. Carnapping does
not foreclose the possibility of fault
show that to them the possibility of robbery was not or negligence on the part of private
respondent.[28]
only foreseeable, but actually foreseen and
Just like in Co, petitioners merely presented
anticipated. Petitioner Sicams testimony, in effect,
the police report of the Paraaque Police Station on the
contradicts petitioners defense of fortuitous event.
robbery committed based on the
to pawnshops and other establishments which are Petitioner Sicam testified, thus:
father of a family. This means that petitioners must Q. I am asking you how were the
robbers able to enter despite the
take care of the pawns the way a prudent person
fact that there was a security
guard?
would as to his own property.
A. At the time of the incident which
happened about 1:00 and
2:00 o'clock in the afternoon
In this connection, Article 1173 of the Civil Code and it happened on a Saturday
and everything was quiet in the
further provides: area BF Homes Paraaque they
pretended to pawn an article in
the pawnshop, so one of my
Art. 1173. The fault or negligence of employees allowed him to come
the obligor consists in the omission in and it was only when it was
of that diligence which is required by announced that it was a hold up.
the nature of the obligation and
corresponds with the circumstances Q. Did you come to know how the
of the persons, of time and of the vault was opened?
place. When negligence shows bad A. When the pawnshop is official
faith, the provisions of Articles 1171 (sic) open your honor the
and 2201, paragraph 2 shall apply. pawnshop is partly open. The
combination is off.
If the law or contract does
not state the diligence which is to be Q. No one open (sic) the vault for the
observed in the performance, that robbers?
which is expected of A. No one your honor it was open at
a good father of a family shall be the time of the robbery.
required.
that the alleged security guard exercised all that was Regulation Act, it is provided that pawns pledged must
corroborate petitioner Sicam's claim; not However, this Section was subsequently amended by
one of petitioners' employees who were present CB Circular No. 764 which took effect on October 1,
exonerated from liability, find no application to the negligence per se and would not exempt her from
In Austria, Maria Abad received from happened ten years previously; i.e., 1961, when
Guillermo Austria a pendant with diamonds to be sold criminality had not reached the level of incidence
subsequently return because of a robbery committed In contrast, the robbery in this case took place in 1987
upon her in 1961. The incident became the subject of when robbery was already prevalent and petitioners
a criminal case filed against several in fact had already foreseen it as they wanted to
persons. Austria filed an action against Abad and her deposit the pawn with a nearby bank for safekeeping.
husband (Abads) for recovery of the pendant or its Moreover, unlike in Austria, where no negligence was
value, but the Abads set up the defense that the committed, we found petitioners negligent in securing
robbery extinguished their obligation. The RTC ruled their pawnshop as earlier discussed.
robbery; or, if committed, that Maria Abad was guilty In Hernandez, Teodoro Hernandez was the OIC and
of negligence. The CA, however, reversed the RTC special disbursing officer of the Ternate Beach Project
decision holding that the fact of robbery was duly of the Philippine Tourism in Cavite. In the morning
established and declared the Abads not responsible of July 1, 1983, a Friday, he went
for the loss of the jewelry on account of a fortuitous to Manila to encash two checks covering the wages of
event. We held that for the Abads to be relieved from the employees and the operating expenses of the
the civil liability of returning the pendant under Art. project. However for some reason, the processing of
1174 of the Civil Code, it would only be sufficient that the check was delayed and was completed at about 3
the unforeseen event, the robbery, took place without p.m. Nevertheless, he decided to encash the check
any concurrent fault on the debtors part, and this can because the project employees would be waiting for
be done by preponderance of evidence; that to be free their pay the following day; otherwise, the workers
from liability for reason of fortuitous event, the debtor would have to wait until July 5, the earliest time, when
must, in addition to the casus itself, be free of any the main office would open. At that time, he had two
concurrent or contributory fault or negligence.[38] choices: (1) return to Ternate, Cavite that same
We found in Austria that under the circumstances money with him to his house in Marilao, Bulacan,
prevailing at the time the Decision was promulgated spend the night there, and leave for Ternate the
in 1971, the City of Manila and its suburbs had a high following day. He chose the second option, thinking it
incidence of crimes against persons and property that was the safer one. Thus, a little past 3 p.m., he took
rendered travel after nightfall a matter to be a passenger jeep bound for Bulacan. While the jeep
sedulously avoided without suitable precaution and was on Epifanio de los Santos Avenue, the jeep was
protection; that the conduct of Maria Abad in held up and the money kept by Hernandez was taken,
returning alone to her house in the evening carrying and the robbers jumped out of the jeep and ran.
Hernandez chased the robbers and caught up with one
robber who was subsequently charged with robbery In Cruz, Dr. Filonila O. Cruz, Camanava District
and pleaded guilty. The other robber who held the Director of Technological Education and Skills
stolen money escaped. The Commission on Audit Development Authority (TESDA), boarded the Light
brought the cash proceeds of the checks to his office from Sen. Puyat Avenue to Monumento when her
in Ternate, Cavite for safekeeping, which is the handbag was slashed and the contents were stolen by
normal procedure in the handling of funds. We held an unidentified person. Among those stolen were her
that Hernandez was not negligent in deciding wallet and the government-issued cellular phone. She
to encash the check and bringing it home then reported the incident to the police
to Marilao, Bulacan instead of Ternate, Cavite due to authorities; however, the thief was not located, and
the lateness of the hour for the following reasons: (1) the cellphone was not recovered. She also reported
he was moved by unselfish motive for his co- the loss to the Regional Director of TESDA, and she
employees to collect their wages and salaries the requested that she be freed from accountability for
following day, a Saturday, a non-working, because the cellphone. The Resident Auditor denied her
to encash the check on July 5, the next working day request on the ground that she lacked the diligence
after July 1, would have caused discomfort to laborers required in the custody of government property and
who were dependent on their wages for sustenance; was ordered to pay the purchase value in the total
and (2) that choosing Marilao as a safer destination, amount of P4,238.00. The COA found no sufficient
being nearer, and in view of the comparative hazards justification to grant the request for relief from
in the trips to the two places, said decision seemed accountability. We reversed the ruling and found that
logical at that time. We further held that the fact that riding the LRT cannot per se be denounced as a
two robbers attacked him in broad daylight in the jeep negligent act more so because Cruzs mode of transit
while it was on a busy highway and in the presence of was influenced by time and money
other passengers could not be said to be a result of considerations; that she boarded the LRT to be able to
his imprudence and negligence. arrive in Caloocan in time for her 3 pm meeting; that
Unlike in Hernandez where the robbery happened in a circumstance can reasonably be expected to do the
public utility, the robbery in this case took place in the same; that possession of a cellphone should not
pawnshop which is under the control of petitioners. hinder one from boarding the LRT coach as Cruz did
Petitioners had the means to screen the persons who considering that whether she rode a jeep or bus, the
were allowed entrance to the premises and to protect risk of theft would have also been present; that
itself from unlawful intrusion. Petitioners had failed to because of her relatively low position and pay, she
exercise precautionary measures in ensuring that the was not expected to have her own vehicle or to ride a
robbers were prevented from entering taxicab; she did not have a government assigned
the pawnshop and for keeping the vault open for the vehicle; that placing the cellphone in a bag away from
day, which paved the way for the robbers to easily covetous eyes and holding on to that bag as she did
cart away the pawned articles. is ordinarily sufficient care of a cellphone while
On various dates and for different amounts, Metro
traveling on board the LRT; that the records did not Concast, a corporation duly organized and existing
under and by virtue of Philippine laws and engaged in
show any specific act of negligence on her part and the business of manufacturing steel,5 through its
officers, herein individual petitioners, obtained several
negligence can never be presumed.
loans from Allied Bank. These loan transactions were
covered by a promissory note and separate letters of
credit/trust receipts, the details of which are as
Unlike in the Cruz case, the robbery in this follows:
were negligent in not exercising the precautions justly December Promissory Note
13, 1996 No. 96-213016 ₱2,000,000.00
demanded of a pawnshop.
November 7, Trust Receipt No.
1995 96-2023657 ₱608,603.04
WHEREFORE, except for the insurance May 13, Trust Receipt No.
1996 96-9605228 ₱3,753,777.40
aspect, the Decision of the Court of Appeals May 24, Trust Receipt No.
1996 96-9605249 ₱4,602,648.08
dated March 31, 2003 and its Resolution dated August
March 21, Trust Receipt No.
8, 2003, are AFFIRMED. 1997 97-20472410 ₱7,289,757.79
PERLAS-BERNABE, J.:
The interest rate under Promissory Note No. 96-21301
was pegged at 15.25% per annum (p.a.), with penalty
Assailed in this petition for review on certiorari1 are
charge of 3% per month in case of default; while the
the Decision2 dated February 12, 2007 and the
twelve (12) trust receipts uniformly provided for an
Resolution3dated May 10, 2007 of the Court of Appeals
interest rate of 14% p.a. and 1% penalty charge. By
(CA) in CA-G.R. CV No. 86896 which reversed and set
way of security, the individual petitioners executed
aside the Decision4 dated January 17, 2006 of the
several Continuing Guaranty/Comprehensive Surety
Regional Trial Court of Makati, Branch 57 (RTC) in Civil
Agreements19 in favor of Allied Bank. Petitioners failed
Case No. 00-1563, thereby ordering petitioners Metro
to settle their obligations under the aforementioned
Concast Steel Corporation (Metro Concast), Spouses
promissory note and trust receipts, hence, Allied
Jose S. Dychiao and Tiu Oh Yan, Spouses Guillermo
Bank, through counsel, sent them demand
and Mercedes Dychiao, and Spouses Vicente and
letters,20 all dated December 10, 1998, seeking
Filomena Duchiao (individual petitioners) to solidarily
payment of the total amount of ₱51,064,093.62, but
pay respondent Allied Bank Corporation (Allied Bank)
to no avail. Thus, Allied Bank was prompted to file a
the aggregate amount of ₱51,064,094.28, with
applicable interests and penalty charges. complaint for collection of sum of money21 (subject
complaint) against petitioners before the RTC,
docketed as Civil Case No. 00-1563. In their
The Facts second22 Amended Answer,23petitioners admitted
their indebtedness to Allied Bank but denied liability
for the interests and penalties charged, claiming to only the two (2) checks and ₱1,500,000.00
have paid the total sum of ₱65,073,055.73 by way of in cash to the wife of Jose Dychiao.30
interest charges for the period covering 1992 to
1997.24
Claiming that the subject complaint was falsely and
maliciously filed, petitioners prayed for the award of
They also alleged that the economic reverses suffered moral damages in the amount of ₱20,000,000.00 in
by the Philippine economy in 1998 as well as the favor of Metro Concast and at least ₱25,000,000.00
devaluation of the peso against the US dollar for each individual petitioner, ₱25,000,000.00 as
contributed greatly to the downfall of the steel exemplary damages, ₱1,000,000.00 as attorney’s
industry, directly affecting the business of Metro fees, ₱500,000.00 for other litigation expenses,
Concast and eventually leading to its cessation. including costs of suit.
Hence, in order to settle their debts with Allied Bank,
petitioners offered the sale of Metro Concast’s
The RTC Ruling
remaining assets, consisting of machineries and
equipment, to Allied Bank, which the latter, however,
refused. Instead, Allied Bank advised them to sell the After trial on the merits, the RTC, in a Decision31 dated
equipment and apply the proceeds of the sale to their January 17, 2006, dismissed the subject complaint,
outstanding obligations. Accordingly, petitioners holding that the "causes of action sued upon had been
offered the equipment for sale, but since there were paid or otherwise extinguished." It ruled that since
no takers, the equipment was reduced into ferro scrap Allied Bank was duly represented by its agent, Atty.
or scrap metal over the years. In 2002, Peakstar Oil Saw, in all the negotiations and transactions with
Corporation (Peakstar), represented by one Crisanta Peakstar – considering that Atty. Saw
Camiling (Camiling), expressed interest in buying the
scrap metal. During the negotiations with Peakstar, (a) drafted the MoA,
petitioners claimed that Atty. Peter Saw (Atty. Saw),
a member of Allied Bank’s legal department, acted as
the latter’s agent. Eventually, with the alleged (b) accepted the bank guarantee issued by
conformity of Allied Bank, through Atty. Saw, a Bankwise, and
Memorandum of Agreement25 dated November 8,
2002 (MoA) was drawn between Metro Concast, (c) was apprised of developments regarding
represented by petitioner Jose Dychiao, and Peakstar, the sale and disposition of the scrap metal –
through Camiling, under which Peakstar obligated then it stands to reason that the MoA
itself to purchase the scrap metal for a total between Metro Concast and Peakstar was
consideration of ₱34,000,000.00, payable as follows: binding upon said bank.
xxx xxx xxx "Upon the effectivity of this Act, any sale disposition,
lease, management contract or transfer of possession
of private lands executed by the original landowner in
WHEREAS, the VENDEES offered to repurchase and
violation of this act shall be null and void; Provided,
the VENDOR agreed to sell the above-described
however, that those executed prior to this act shall be
property, subject to the terms and stipulations as
valid only when registered with the Register of Deeds
hereinafter stipulated, for the sum of SEVENTY THREE
after the effectivity of this Act. Thereafter, all Register
THOUSAND SEVEN HUNDRED ONLY (P73,700.00),
of Deeds shall inform the DAR within 320 days of any
with a down payment of P8,900.00 and the balance
transaction involving agricultural lands in excess of
of P64,800 shall be payable in six (6) years on equal
five hectares."
quarterly amortization plan at 18% interest per
annum. The first quarterly amortization of P4,470.36
shall be payable three months from the date of the while Sec. 1 of E.O. 407 states that:
execution of the documents and all subsequent
amortization shall be due and payable every quarter
"Sec. 1. All government instrumentalities but not
thereafter.
limited to x x x financial institutions such as the DBP
x x x shall immediately execute deeds of transfer in
xxx xxx xxx favor of the Republic of the Philippines as represented
by the Department of Agrarian Reform and surrender
to the department all landholdings suitable for
That, upon completion of the payment herein
agriculture."
stipulated and agreed, the Vendor agrees to deliver to
the Vendee/s(,) his heirs, administrators and
assigns(,) a good and sufficient deed of conveyance The court a quo noted that Sec. 6 of Rep. Act
covering the property, subject matter of this deed of 6657, taken in its entirety, is a provision dealing
conditional sale, in accordance with the provisions of primarily with retention limits in agricultural land
law." (Exh. "A", p. 5, Records)[2] allowed the landowner and his family and that the
fourth paragraph, which nullifies any sale x x x by In the present petition for review on certiorari,
the original landowner in violation of the Act, does not petitioner still insists on its position that Rep. Act
cover the sale by petitioner (not the original land 6657, E.O. 407 and DBP Circular No. 11 rendered its
owner) to private respondents. obligation to execute a Deed of Sale to private
respondents "a legal impossibility."[5] Petitioner also
On the other hand, according to the trial court, questions the award of attorney's fees, nominal
E.O. 407 took effect on 10 June 1990. But private damages, and costs in favor of private respondents,
respondents completed payment of the price for the as not in accord with law and the evidence.[6]
property, object of the conditional sale, as early as 6
April 1990. Hence, with the fulfillment of the condition We rule in favor of private respondents.
for the sale, the land covered thereby, was detached
from the mass of foreclosed properties held by DBP, In conditional obligations, the acquisition of
and, therefore, fell beyond the ambit or reach of E.O. rights, as well as the extinguishment or loss of those
407. already acquired, shall depend upon the happening of
the event which constitutes the condition.[7]
Dissatisfied, petitioner appealed to the Court of
Appeals (CA), still insisting that its obligation to The deed of conditional sale between petitioner
execute a Deed of Sale in favor of private respondents and private respondents was executed on 6 April
had become a legal impossibility and that the non- 1984. Private respondents had religiously paid the
impairment clause of the Constitution must yield to agreed installments on the property until they
the demands of police power. completed payment on 6 April 1990. Petitioner, in
fact, allowed private respondents to fulfill the
On 28 February 1994, the CA rendered condition of effecting full payment, and invoked
judgment dismissing petitioner's appeal on the basis Section 6 of Rep. Act 6657 only afterprivate
of the following disquisitions: respondents, having fully paid the repurchase price,
demanded the execution of a Deed of Sale in their
favor.
"It is a rule that if the obligation depends upon a
suspensive condition, the demandability as well as the It will be noted that Rep. Act 6657 was enacted
acquisition or effectivity of the rights arising from the on 10 June 1988. Following petitioner's argument in
obligation is suspended pending the happening or this case, its prestation to execute the deed of sale
fulfillment of the fact or event which constitutes the was rendered legally impossible by Section 6 of said
condition. Once the event which constitutes the law. In other words, the deed of conditional sale was
condition is fulfilled resulting in the effectivity of the extinguished by a supervening event, giving rise to an
obligation, its effects retroact to the moment when the impossibility of performance.
essential elements which gave birth to the obligation
have taken place (8 Manresa, 5th Ed. Bk. We reject petitioner's contention as we rule - as
1, pa. 33). Applying this precept to the case, the full the trial court and CA have correctly ruled - that
payment by the appellee on April 6, 1990 retroacts to neither Sec. 6 of Rep. Act 6657 nor Sec. 1 of E.O. 407
the time the contract of conditional sale was executed was intended to impair the obligation of contract
on April 6, 1984. From that time, all elements of the petitioner had much earlier concluded with private
contract of sale were present. Consequently, the respondents.
contract of sale was perfected. As such, the said sale
does not come under the coverage of R.A. 6657. More specifically, petitioner cannot invoke the
last paragraph of Sec. 6 of Rep. Act 6657 to set aside
its obligations already existing prior to its
It is likewise interesting to note that despite the enactment. In the first place, said last paragraph
mandate of Sec. 1, R.A. 6657, appellant continued to clearly deals with "any sale, lease, management
accept the payments made by the appellee until it was contract or transfer or possession of private lands
fully paid on April 6, 1990. All that the appellant has executed by the original land owner." The original
to do now is to execute the final deed of sale in favor owner in this case is not the petitioner but the private
of the appellee. To follow the line of argument of the respondents. Petitioner acquired the land through
appellant would only result in an unconscionable foreclosure proceedings but agreed thereafter to
injury to the appellee. Obligations arising from reconvey it to private respondents, albeit
contracts have the force of law between the conditionally.
contracting parties and should be complied with in
good faith (Flavio Macasaet & Associates, Inc. vs. As earlier stated, Sec. 6 of Rep. Act 6657 in its
Commission on Audit, 173 SCRA 352). entirety deals with retention limits allowed by law to
small landowners. Since the property here involved is
Going now to E.O. 407, We hold that the same can more or less ten (10) hectares, it is then within the
neither affect appellant's obligation under the deed of jurisdiction of the Department of Agrarian Reform
conditional sale. Under the said law, appellant is (DAR) to determine whether or not the property can
required to transfer to the Republic of be subjected to agrarian reform. But this necessitates
the Philippines 'all lands foreclosed' effective June 10, an entirely different proceeding.
1990. Under the facts obtaining, the subject property The CARL (Rep. Act 6657) was not intended to
has ceased to belong to the mass of foreclosed take away property without due process of law. Nor is
property falling within the reach of said law. As earlier it intended to impair the obligation of contracts. In the
explained, the property has already been sold to same manner must E.O. 407 be regarded. It was
herein appellees even before the said E.O. has been enacted two (2) months after private respondents had
enacted. On this same reason, We therefore need not legally fulfilled the condition in the contract of
delve on the applicability of DBP Circular No. 11."[4] conditional sale by the payment of all installments on
their due dates. These laws cannot have retroactive
effect unless there is an express provision in them to
that effect.[8]
Petitioner appealed to the Court of Appeals which on The claim of petitioner that prescription bars the
18 June 1993 ruled that the annotations at the back instant action of private respondents is unavailing.
of petitioner's certificate of title were resolutory
conditions breach of which should terminate the rights
The condition imposed by the donor, i.e., the
of the donee thus making the donation revocable.
building of a medical school upon the land
donated, depended upon the exclusive will of
The appellate court also found that while the first the donee as to when this condition shall be
condition mandated petitioner to utilize the donated fulfilled. When petitioner accepted the
property for the establishment of a medical school, the donation, it bound itself to comply with the
donor did not fix a period within which the condition condition thereof. Since the time within
must be fulfilled, hence, until a period was fixed for which the condition should be fulfilled
the fulfillment of the condition, petitioner could not be depended upon the exclusive will of the
considered as having failed to comply with its part of petitioner, it has been held that its absolute
the bargain. Thus, the appellate court rendered its acceptance and the acknowledgment of its
decision reversing the appealed decision and obligation provided in the deed of donation
remanding the case to the court of origin for the were sufficient to prevent the statute of
determination of the time within which petitioner limitations from barring the action of private
should comply with the first condition annotated in the respondents upon the original contract which
certificate of title. was the deed of donation.6
Petitioner now alleges that the Court of Appeals erred: Moreover, the time from which the cause of action
(a) in holding that the quoted annotations in the accrued for the revocation of the donation and
certificate of title of petitioner are onerous obligations recovery of the property donated cannot be
and resolutory conditions of the donation which must specifically determined in the instant case. A cause of
be fulfilled non-compliance of which would render the action arises when that which should have been done
donation revocable; (b) in holding that the issue of is not done, or that which should not have been done
prescription does not deserve "disquisition;" and, (c) is done.7 In cases where there is no special provision
in remanding the case to the trial court for the fixing for such computation, recourse must be had to the
of the period within which petitioner would establish a rule that the period must be counted from the day on
medical college.2 which the corresponding action could have been
instituted. It is the legal possibility of bringing the
action which determines the starting point for the
We find it difficult to sustain the petition. A clear
computation of the period. In this case, the starting
perusal of the conditions set forth in the deed of
point begins with the expiration of a reasonable period
donation executed by Don Ramon Lopez, Sr., gives us
and opportunity for petitioner to fulfill what has been
no alternative but to conclude that his donation was
charged upon it by the donor.
onerous, one executed for a valuable consideration
which is considered the equivalent of the donation
itself, e.g., when a donation imposes a burden The period of time for the establishment of a medical
equivalent to the value of the donation. A gift of land college and the necessary buildings and
to the City of Manila requiring the latter to erect improvements on the property cannot be quantified in
schools, construct a children's playground and open a specific number of years because of the presence of
streets on the land was considered an onerous several factors and circumstances involved in the
donation.3 Similarly, where Don Ramon Lopez erection of an educational institution, such as
donated the subject parcel of land to petitioner but government laws and regulations pertaining to
imposed an obligation upon the latter to establish a education, building requirements and property
medical college thereon, the donation must be for an restrictions which are beyond the control of the donee.
onerous consideration.
Thus, when the obligation does not fix a period but
Under Art. 1181 of the Civil Code, on conditional from its nature and circumstances it can be inferred
obligations, the acquisition of rights, as well as the that a period was intended, the general rule provided
extinguishment or loss of those already acquired, shall in Art. 1197 of the Civil Code applies, which provides
depend upon the happening of the event which that the courts may fix the duration thereof because
constitutes the condition. Thus, when a person the fulfillment of the obligation itself cannot be
donates land to another on the condition that the demanded until after the court has fixed the period for
latter would build upon the land a school, the condition compliance therewith and such period has arrived.8
imposed was not a condition precedent or a
suspensive condition but a resolutory one.4 It is not
This general rule however cannot be applied
correct to say that the schoolhouse had to be
considering the different set of circumstances existing
constructed before the donation became effective,
in the instant case. More than a reasonable period of
that is, before the donee could become the owner of
fifty (50) years has already been allowed petitioner to
the land, otherwise, it would be invading the property
avail of the opportunity to comply with the condition
rights of the donor. The donation had to be valid
even if it be burdensome, to make the donation in its
before the fulfillment of the condition.5 If there was no
favor forever valid. But, unfortunately, it failed to do
fulfillment or compliance with the condition, such as
so. Hence, there is no more need to fix the duration
what obtains in the instant case, the donation may
of a term of the obligation when such procedure would
now be revoked and all rights which the donee may
be a mere technicality and formality and would serve First of all, may I point out an inconsistency in the
no purpose than to delay or lead to an unnecessary majority opinion's description of the donation in
and expensive multiplication of suits. 9 Moreover, question. In one part, it says that the donation in
under Art. 1191 of the Civil Code, when one of the question is onerous. Thus, on page 4 it states:
obligors cannot comply with what is incumbent upon
him, the obligee may seek rescission and the court
We find it difficult to sustain the
shall decree the same unless there is just cause
petition. A clear perusal of the
authorizing the fixing of a period. In the absence of
conditions set forth in the deed of
any just cause for the court to determine the period
donation executed by Don Ramon
of the compliance, there is no more obstacle for the
Lopez, Sr., give us no alternative
court to decree the rescission claimed.
but to conclude that his donation
was onerous, one executed for a
Finally, since the questioned deed of donation herein valuable consideration which is
is basically a gratuitous one, doubts referring to considered the equivalent of the
incidental circumstances of a gratuitous contract donation itself, e.g., when a
should be resolved in favor of the least transmission donation imposes a burden
of rights and interests. 10Records are clear and facts equivalent to the value of the
are undisputed that since the execution of the deed of donation . . . . (emphasis supplied)
donation up to the time of filing of the instant action,
petitioner has failed to comply with its obligation as
Yet, in the last paragraph of page 8 it states
donee. Petitioner has slept on its obligation for an
that the donation is basically a gratuitous
unreasonable length of time. Hence, it is only just and
one. The pertinent portion thereof reads:
equitable now to declare the subject donation already
ineffective and, for all purposes, revoked so that
petitioner as donee should now return the donated Finally, since the questioned deed of
property to the heirs of the donor, private respondents donation herein is basically a
herein, by means of reconveyance. gratuitous one, doubts referring to
incidental circumstances of
a gratuitous contract should be
WHEREFORE, the decision of the Regional Trial Court
resolved in favor of the least
of Iloilo, Br. 34, of 31 May 1991 is REINSTATED and
transmission of rights and interest .
AFFIRMED, and the decision of the Court of Appeals of
. . (emphasis supplied)
18 June 1993 is accordingly MODIFIED. Consequently,
petitioner is directed to reconvey to private
respondents Lot No. 3174-B-1 of the subdivision plan Second, the discussion on conditional obligations is
Psd-1144 covered by Transfer Certificate of Title No. unnecessary. There is no conditional obligation to
T-3910-A within thirty (30) days from the finality of speak of in this case. It seems that the "conditions"
this judgment. imposed by the donor and as the word is used in the
law of donations is confused with "conditions" as used
in the law of obligations. In his annotation of Article
Costs against petitioner.
764 of the Civil Code on Donations, Arturo M.
Tolentino, citing the well-known civilists such as
SO ORDERED. Castan, Perez Gonzalez and Alguer, and Colin &
Capitant, states clearly the context within which the
term "conditions" is used in the law of donations, to
Quiason and Kapunan, JJ., concur.
wit:
Third, I cannot subscribe to the view that the [that] this action [for the revocation
provisions of Article 1197 cannot be applied here. The of the donation] is prescriptible,
conditions/obligations imposed by the donor herein there is no doubt. There is no legal
are subject to a period. I draw this conclusion based provision which excludes this class
on our previous ruling which, although made almost of action from the statute of
90 years ago, still finds application in the present limitations. And not only this, the
case. In Barretto vs. City of Manila,5 we said that law itself recognizes the
when the contract of donation, as the one involved prescriptibility of the action for the
therein, has no fixed period in which the condition revocation of a donation, providing
should be fulfilled, the provisions of what is now Article a special period of [four] years for
1197 (then Article 1128) are applicable and it is the the revocation by the subsequent
duty of the court to fix a suitable time for its birth of children [Art. 646, now Art.
fulfillment. Indeed, from the nature and 763], and . . . by reason of
circumstances of the conditions/obligations of the ingratitude. If no special period is
present donation, it can be inferred that a period was provided for the prescription of the
contemplated by the donor. Don Ramon Lopez could action for revocation for
not have intended his property to remain idle for a noncompliance of the conditions of
long period of time when in fact, he specifically the donation [Art. 647, now Art.
burdened the donee with the obligation to set up a 764], it is because in this respect
medical college therein and thus put his property to the donation is considered onerous
good use. There is a need to fix the duration of the and is governed by the law of
time within which the conditions imposed are to be contracts and the general rules of
fulfilled. prescription.7
It is also important to fix the duration or period for the More recently, in De Luna v. Abrigo,8 this Court
performance of the conditions/obligations in the reiterated the ruling in Parks and said that:
It is true that under Article 764 of Yet, in the last paragraph of page 8 it states
the New Civil Code, actions for the that the donation is basically a gratuitous
revocation of a donation must be one. The pertinent portion thereof reads:
brought within four (4) years from
the non-compliance of the
Finally, since the questioned deed of
conditions of the donation.
donation herein is basically a
However, it is Our opinion that said
gratuitous one, doubts referring to
article does not apply to onerous
incidental circumstances of
donations in view of the specific
a gratuitous contract should be
provision of Article 733 providing
resolved in favor of the least
that onerous donations are
transmission of rights and interest .
governed by the rules on contracts.
. . (emphasis supplied)
First of all, may I point out an inconsistency in the The conditions imposed by the donor Don Ramon
majority opinion's description of the donation in Lopez determines neither the existence nor the
question. In one part, it says that the donation in extinguishment of the obligations of the donor and the
question is onerous. Thus, on page 4 it states: donee with respect to the donation. In fact, the
conditions imposed by Don Ramon Lopez upon the
We find it difficult to sustain the donee are the very obligations of the donation — to
petition. A clear perusal of the build the medical college and use the property for the
conditions set forth in the deed of purposes specified in the deed of donation. It is very
donation executed by Don Ramon clear that those obligations are unconditional, the
Lopez, Sr., give us no alternative fulfillment, performance, existence or extinguishment
but to conclude that his donation of which is not dependent on any future or uncertain
was onerous, one executed for a event or past and unknown event, as the Civil Code
valuable consideration which is would define a conditional obligation.2
considered the equivalent of the
donation itself, e.g., when a Reliance on the case of Parks vs. Province of
donation imposes a burden Tarlac3 as cited on page 5 of the majority opinion is
equivalent to the value of the erroneous in so far as the latter stated that the
donation . . . . (emphasis supplied)
condition in Parks is a resolutory one and applied this donee was not meant to and does not have absolute
to the present case. A more careful reading of this control over the time within which it will perform its
Court's decision would reveal that nowhere did we obligations. It must still do so within a reasonable
say, whether explicitly or impliedly, that the donation time. What that reasonable time is, under the
in that case, which also has a condition imposed to circumstances, for the courts to determine. Thus, the
build a school and a public park upon the property mere fact that there is no time fixed as to when the
donated, is a resolutory condition.4 It is incorrect to conditions of the donation are to be fulfilled does
say that the "conditions" of the donation there or in not ipso facto mean that the statute of limitations will
the present case are resolutory conditions because, not apply anymore and the action to revoke the
applying Article 1181 of the Civil Code, that would donation becomes imprescriptible.
mean that upon fulfillment of the conditions, the rights
already acquired will be extinguished. Obviously, that
Admittedly, the donation now in question is an
could not have been the intention of the parties.
onerous donation and is governed by the law on
contracts (Article 733) and the case of Osmeña, being
What the majority opinion probably had in mind was one involving a contract, may apply. But we must not
that the conditions are resolutory because if they lose sight of the fact that it is still a donation for which
are notcomplied with, the rights of the donee as such this Court itself applied the pertinent law to resolve
will be extinguished and the donation will be revoked. situations such as this. That the action to revoke the
To my mind, though, it is more accurate to state that donation can still prescribe has been the
the conditions here are not resolutory conditions but, pronouncement of this Court as early as 1926 in the
for the reasons stated above, case of Parks which, on this point, finds relevance in
are the obligations imposed by the donor. this case. There, this Court said,
Third, I cannot subscribe to the view that the [that] this action [for the revocation
provisions of Article 1197 cannot be applied here. The of the donation] is prescriptible,
conditions/obligations imposed by the donor herein there is no doubt. There is no legal
are subject to a period. I draw this conclusion based provision which excludes this class
on our previous ruling which, although made almost of action from the statute of
90 years ago, still finds application in the present limitations. And not only this, the
case. In Barretto vs. City of Manila,5 we said that law itself recognizes the
when the contract of donation, as the one involved prescriptibility of the action for the
therein, has no fixed period in which the condition revocation of a donation, providing
should be fulfilled, the provisions of what is now Article a special period of [four] years for
1197 (then Article 1128) are applicable and it is the the revocation by the subsequent
duty of the court to fix a suitable time for its birth of children [Art. 646, now Art.
fulfillment. Indeed, from the nature and 763], and . . . by reason of
circumstances of the conditions/obligations of the ingratitude. If no special period is
present donation, it can be inferred that a period was provided for the prescription of the
contemplated by the donor. Don Ramon Lopez could action for revocation for
not have intended his property to remain idle for a noncompliance of the conditions of
long period of time when in fact, he specifically the donation [Art. 647, now Art.
burdened the donee with the obligation to set up a 764], it is because in this respect
medical college therein and thus put his property to the donation is considered onerous
good use. There is a need to fix the duration of the and is governed by the law of
time within which the conditions imposed are to be contracts and the general rules of
fulfilled. prescription.7
It is also important to fix the duration or period for the More recently, in De Luna v. Abrigo,8 this Court
performance of the conditions/obligations in the reiterated the ruling in Parks and said that:
donation in resolving the petitioner's claim that
prescription has already barred the present action. I
It is true that under Article 764 of
disagree once more with the ruling of the majority that
the New Civil Code, actions for the
the action of the petitioners is not barred by the
revocation of a donation must be
statute of limitations. There is misplaced reliance
brought within four (4) years from
again on a previous decision of this Court in Osmeña
the non-compliance of the
vs. Rama.6 That case does not speak of a deed of
conditions of the donation.
donation as erroneously quoted and cited by the
However, it is Our opinion that said
majority opinion. It speaks of a contract for a sum of
article does not apply to onerous
money where the debtor herself imposed a condition
donations in view of the specific
which will determine when she will fulfill her obligation
provision of Article 733 providing
to pay the creditor, thus, making the fulfillment of her
that onerous donations are
obligation dependent upon her will. What we have
governed by the rules on contracts.
here, however, is not a contract for a sum of money
but a donation where the donee has not imposed any
conditions on the fulfillment of its obligations. In the light of the above, the rules
Although it is admitted that the fulfillment of the on contracts and the general rules
conditions/obligations of the present donation may be on prescription and not the rules on
dependent on the will of the donee as to when it will donations are applicable in the case
comply therewith, this did not arise out of a condition at bar.
which the donee itself imposed. It is believed that the
The law applied in both cases is Article 1144(1). It occupants of the joint venture property, subject to
refers to the prescription of an action upon a written reimbursement by the owner;7 and that the developer
contract, which is what the deed of an onerous would deposit the initial amount of P10,000,000.00 to
donation is. The prescriptive period is ten years from defray the expenses for the relocation and settlement,
the time the cause of action accrues, and that is, from and the costs for obtaining from the Government the
the expiration of the time within which the donee must exemptions and conversion permits, and the required
comply with the conditions/obligations of the clearances.8chanroblesvirtuallawlibrary
donation. As to when this exactly is remains to be
determined, and that is for the courts to do as reposed On September 24, 1994, the developer and owner
upon them by Article 1197. agreed, through the addendum to the JVA,9 to
increase the initial deposit for the settlement of claims
and the relocation of the tenants from P10,000,000.00
For the reasons expressed above, I register my
to P60,000,000.00.
dissent. Accordingly, the decision of the Court of
Appeals must be upheld, except its ruling that the
On October 27, 1994, the developer, by deed of
conditions of the donation are resolutory.
assignment,10 transferred, conveyed and assigned to
Empire East Land Holdings, Inc. (developer/assignee)
Padilla, J., dissents all its rights and obligations under the JVA including
the addendum.
G.R. No. 169694, December 09, 2015
On February 29, 2000, the owner filed in the RTC a
complaint for specific performance with damages
MEGAWORLD PROPERTIES AND HOLDINGS, against the developer, the developer/assignee, and
INC., EMPIRE EAST LAND HOLDINGS, INC., AND respondent Andrew Tan, who are now the petitioners
ANDREW L. TAN, Petitioners, v. MAJESTIC herein. The complaint, docketed as Civil Case No.
FINANCE AND INVESTMENT CO., INC., RHODORA 67813, was mainly based on the failure of the
LOPEZ-LIM, AND PAULINA CRUZ, Respondents. petitioners to comply with their obligations under the
JVA,11 including the obligation to maintain a strong
DECISION security force to safeguard the entire joint venture
property of 215 hectares from illegal entrants and
occupants.
BERSAMIN, J.:
Following the joinder of issues by the petitioners'
This case arises from a dispute on whether either answer with counterclaim, and by the respondents'
party of a joint venture agreement to develop reply with answer to the counterclaim, the RTC set the
property into a residential subdivision has already pre-trial of the case. At the conclusion of the pre-trial
performed its obligation as to entitle it to demand the conference, the presentation of the owner's evidence
performance of the other's reciprocal was suspended because of the parties' manifestation
obligation.chanRoblesvirtualLawlibrary that they would settle the case amicably. It appears
that the parties negotiated with each other on how to
The Case implement the JVA and the addendum.
Under review is the decision promulgated on April 27, On September 16, 2002, the owner filed in the RTC a
2005,1 whereby the Court of Appeals (CA) upheld the manifestation and motion,12 praying therein that the
order issued on November 5, 2002 by the Regional petitioners be directed to provide round-the-clock
Trial Court, Branch 67, in Pasig City (RTC) in Civil Case security for the joint venture property in order to
No. 67813 directing the defendants (petitioners defend and protect it from the invasion of
herein) to perform their obligation to provide round- unauthorized persons. The petitioners opposed the
the-clock security for the property under manifestation and motion,13 pointing out that: (1) the
development.2 Also appealed is the resolution move to have them provide security in the properties
promulgated on September 12, 2005 denying the was premature; and (2) under the principle of
petitioners' motion for reciprocal obligations, the owner could not compel
reconsideration.3chanRoblesvirtualLawlibrary them to perform their obligations under the JVA if the
owner itself refused to honor its obligations under the
JVA and the addendum.
Antecedents
On November 5, 2002, the RTC issued its first assailed
On September 23, 1994, Megaworld Properties and
order,14 directing the developer to provide sufficient
Holdings, Inc. (developer) entered into a Joint Venture
round-the-clock security for the protection of the joint
Agreement (JVA)4 with Majestic Finance and
venture property, as follows:
Investment Co., Inc. (owner) for the development of
the residential subdivision located in Brgy. Alingaro,
General Trias, Cavite. According to the JVA, the For consideration is a "Manifestation and Motion" filed
development of the 215 hectares of land belonging to by plaintiff, through counsel, defendants having filed
the owner (joint venture property) would be for the their Opposition thereto, the incident is now ripe for
sole account of the developer;5 and that upon resolution.
completion of the development of the subdivision, the
owner would compensate the developer in the form of After a careful examination of the records of this case,
saleable residential subdivision lots.6 The JVA further the Court believes that the defendants should provide
provided that the developer would advance all the security for the 215 hectares land subject of the joint
costs for the relocation and resettlement of the venture agreement to protect it from unlawful
elements as well as to avoid undue damage which may
be caused by the settling of squatters. As specified in obviously belie their contention that the respondent
Article III par. (j) of the joint venture agreement judge's order to provide security for the property is
which was entered into by plaintiffs and defendants, premature at this stage. The petitioner's obligation to
the latter shall at its exclusive account and sole secure the property under the JVA arose upon the
expense secure the land in question from the influx of execution of the Agreement, or as soon as the
squatters and/or unauthorized settlers, occupants, petitioners acquired possession of the joint venture
tillers, cultivators and the likes from date of execution property in 1994, and is therefore already
of this agreement. demandable. The settled rule is that "contracts are the
laws between the contracting parties, and if their
WHEREFORE, and as prayed for, the Court hereby terms are clear and leave no room for doubt as to their
directs the defendants to provide sufficient round the intentions, the contracts are obligatory no matter
clock security for the protection of the 215 hectares what their forms may be, whenever the essential
land subject of the joint venture agreement during the requisites for their validity are present." Thus, unless
pendency of this case. the existence of this particular obligation - i.e., to
secure the joint venture property - is challenged,
SO ORDERED. petitioners are bound to respect the terms of the
Agreement and of his obligation as the law between
them and MAJESTIC.
The petitioners sought the reconsideration of the
November 5, 2002 order,15 but the RTC denied the
We stress along this line that the complaint MAJESTIC
motion on May 19, 2003,16 observing that there was
filed below is for specific performance and is not for
no reason to reverse the order in question considering
rescission of contract. The complaint presupposes
that the allegations in the motion for reconsideration,
existing obligations on the part of the petitioners that
being a mere rehash of those made earlier, had
MAJESTIC seeks to be carried out in accordance with
already been passed upon.
the terms of the Agreement. Significantly, MAJESTIC
did not pray in the complaint that petitioners be
On August 4, 2003, the petitioners instituted a special
ordered to secure the area from the influx of illegal
civil action for certiorari in the CA,17 claiming therein
settlers and squatters because petitioner's obligation
that the RTC thereby gravely abused its discretion
in this regard commenced upon the execution of the
amounting to lack or excess of jurisdiction in issuing
JVA and hence, is already an existing obligation. What
the order of November 5, 2002, specifying the
it did ask is for the petitioners to maintain a strong
following grounds, namely:
security force at all times over the area, in keeping
with their commitment to secure the area from the
THE PUBLIC RESPONDENT GRAVELY ABUSED HIS influx of illegal settlers and occupant. To be sure, to
DISCRETION AMOUNTING TO LACK OR EXCESS OF "maintain" means "to continue", "to carry on", to "hold
JURISDICTION IN DIRECTING PETITIONERS TO or keep in any particular state or condition" and
PROVIDE ROUND THE CLOCK SECURITY GUARDS ON presupposes an obligation that already began. Thus,
THE SUBJECT PROPERTIES. contrary to petitioner's submissions, the question of
whether or not they have the obligation to provide
I. THE PUBLIC RESPONDENT ARBITRARILY AND security in the area is not at all an issue in the case
PREMATURELY DISPOSED OF ONE OF THE RELIEF[S] below. The issue MAJESTIC presented below is
PRAYED FOR BY PRIVATE RESPONDENTS IN THEIR whether or not petitioner should be ordered to
COMPLAINT WHEN TRIAL HAS NOT EVEN STARTED. maintain a strong security force within the joint
venture property. Hence, in issuing the assailed
II. PUBLIC RESPONDENT ARBITRARILY orders, the public respondent prejudged no issue that
DISREGARDED THE FACT THAT THE PARTIES ARE is yet to be resolved after the parties shall have
DISCUSSING HOW TO PURSUE THE JVA. presented their evidence.
III. PUBLIC RESPONDENT ARBITRARILY Our conclusion (that the petitioner's obligation to
DISREGARDED THE PRINCIPLE OF "RECIPROCAL secure and protect the joint venture property is a non-
OBLIGATIONS" UNDER THE CIVIL CODE. issue in the case below) necessarily explains why the
first assailed order -although not in the form of a
On April 27, 2005, the CA promulgated its assailed preliminary mandatory injunction -is nonetheless
decision dismissing the petitioner's petition legally justified. As an established and undisputed
for certiorari,18 ruling thusly: interim measure pending the resolution of the case on
the merits, we do not see its enforcement as
hindrance to whatever negotiations the parties may
On the merits of the petition, our examination of the
undertake to settle their dispute.
records shows nothing whimsical or arbitrary in the
respondent judge's order directing the petitioners to
Nor do we find the principle of reciprocal obligations a
provide security over the joint venture property. Like
justification for petitioner's refusal to perform their
the respondent judge, we believe that the obligation
commitment of safeguarding the joint venture
of the petitioners under the JVA to provide security in
property. For, while it is true that the JVA gives rise to
the area, as spelled out under Article II, par. (c) and
reciprocal obligations from both parties, these
Article III, paragraphs (h) and (j), is well established,
obligations are not necessarily demandable at the
thus:
same time. MAJESTIC's initial obligation under the JVA
is to deliver or surrender to the petitioners the
x x x x
possession of the joint venture property -an obligation
it fulfilled upon the execution of the Agreement.
These clear and categorical provisions in the JVA -
MAJESTIC's obligation under the JVA to deliver to the
which petitioners themselves do not question -
petitioners the titles to the joint venture property and
to reimburse them for tenant-related expenses are first and second assailed orders in
demandable at later stages of the contract or upon clear disregard of the mandatory
completion of the development, and therefore may requirements of Rule 58 of
not be used by the petitioners as an excuse for not the Rules of
complying with their own currently demandable Court.22chanroblesvirtuallawlibrary
obligation.
When the obligee accepts the Lastly, petitioners argue that there was no valid
performance, knowing its tender of payment nor consignation of the sum of
incompleteness or irregularity, and P18,520.00 which they acknowledge to have been
without expressing any protest or deposited in court on January 22, 1981 five years after
objection, the obligation is deemed the amount of P27,000.00 had to be paid (p. 23,
fully complied with. Memorandum for Petitioners; p. 162, Rollo). Again
this suggestion ignores the fact that consignation
considering that the heirs of Juan Galicia, Sr. alone produced the effect of payment in the case at
accommodated private respondent by accepting the bar because it was established below that two or more
latter's delayed payments not only beyond the grace heirs of Juan Galicia, Sr. claimed the same right to
periods but also during the pendency of the case for collect (Article 1256, (4), Civil Code; pp. 4-5, Decision
specific performance (p. 27, Memorandum for in Civil Case No. 681-G; pp. 67-68, Rollo). Moreover,
petitioners; p. 166, Rollo). Indeed, the right to rescind petitioners did not bother to refute the evidence on
is not absolute and will not be granted where there hand that, aside from the P18,520.00 (not P18,500.00
has been substantial compliance by partial payments as computed by respondent court) which was
(4 Caguioa, Comments and Cases on Civil Law, First consigned, private respondent also paid the sum of
Ed. [1968] p. 132). By and large, petitioners' P13,908.25 (Exhibits "F" to "CC"; p. 50, Rollo). These
actuation is susceptible of but one construction — that two figures representing private respondent's
they are now estopped from reneging from their payment of the fourth condition amount to
commitment on account of acceptance of benefits P32,428.25, less the P3,778.77 paid by petitioners to
arising from overdue accounts of private respondent. the bank, will lead us to the sum of P28,649.48 or a
refund of P1,649.48 to private respondent as
overpayment of the P27,000.00 balance.
Now, as to the issue of whether payments had in fact
been made, there is no doubt that the second
installment was actually paid to the heirs of Juan WHEREFORE, the petition is hereby DISMISSED and
Galicia, Sr. due to Josefina Tayag's admission in the decision appealed from is hereby AFFIRMED with
judicio that the sum of P10,000.00 was fully the slight modification of Paragraph 4 of the
liquidated. It is thus erroneous for petitioners to dispositive thereof which is thus amended to read:
suppose that "the evidence in the records do not
support this conclusion" (p. 18, Memorandum for 4. ordering the withdrawal of the
Petitioners; p. 157, Rollo). A contrario, when the court sum of P18,520.00 consigned with
of origin, as well as the appellate court, emphasized the Regional Trial Court, and that
the frank representation along this line of Josefina the amount of P16,870.52 be
Tayag before the trial court (TSN, September l, 1983, delivered by private respondent
pp. 3-4; p. 5, Decision in CA-G.R. CV No. 13339, p. with legal rate of interest until fully
50, Rollo; p. 3, Decision in Civil Case No. 681-G, p. paid to the heirs of Juan Galicia, Sr.
66, Rollo), petitioners chose to remain completely as balance of the sale including
mute even at this stage despite the opportunity reimbursement of the sum paid to
accorded to them, for clarification. Consequently, the the Philippine Veterans Bank, minus
prejudicial aftermath of Josefina Tayag's spontaneous the attorney's fees and damages
awarded in favor of private and the Philippine National Construction Corporation
respondent. The excess of (PNCC).9
P1,649.48 shall be returned to
private respondent also with legal
Galleon experienced financial difficulties and had to
interest until fully paid by
take out several loans from different sources such as
petitioners. With costs against
foreign financial institutions, its shareholders (Sta.
petitioners.
Ines, Cuenca Investment, Universal Holdings, Cuenca,
and Tinio), and other entities "with whom it had
SO ORDERED. ongoing commercial relationships."10
A condition shall be deemed fulfilled when the obligor WHEREAS, Galleon Shipping Corporation is presently
voluntarily prevents its fulfilment and a debtor loses in a distressed state in view of the unfavorable
the right to make use of the period when a condition developments in the liner shipping business;
is violated, making the obligation immediately
demandable.1
WHEREAS, the exposure of the Philippine government
financial institutions is substantial;
This resolves the consolidated Petitions for Review
filed by the Development Bank of the Philippines
WHEREAS, it is a policy of government to provide a
(DBP)2 and the National Development Corporation
reliable liner service between the Philippines and its
(NDC)3 assailing the Court of Appeals Decision4 dated
major trading partners;
March 24, 2010 and Court of Appeals
Resolution5 dated July 21, 2010, which affirmed with
modifications the Decision6 dated September 16, WHEREAS, it is a policy to have a Philippine national
2003 of Branch 137, Regional Trial Court of Makati flag liner service to compete with other heavily
City.7 subsidized national shipping companies of other
countries;
Sometime in 1977, National Galleon Shipping
Corporation (Galleon), "formerly known as Galleon NOW, THEREFORE, I, FERDINAND E. MARCOS,
Shipping Corporation, was organized to operate a liner President of the Philippines, do hereby direct the
service between the Philippines and its ... trading following:
partners."8 Galleon's major stockholders were
respondents Sta. Ines Melale Forest Products
1. NDC shall acquire 100% of the
Corporation (Sta. Ines), Cuenca Investment
shareholdings of Galleon Shipping
Corporation (Cuenca Investment), Universal Holdings
Corporation from its present owners
Corporation (Universal Holdings), Galleon's President
for the amount of P46. 7 million
Rodolfo M. Cuenca (Cuenca), Manuel I. Tinio (Tinio),
which is the amount originally Minister Roberto V. Ongpin (hereinafter called
contributed by the present "Buyer").
shareholders, payable after five
years with no interest cost.
WITNESSETH: That-
(signed)
These instructions are to take effect immediately.30
RODOLFO M. CUENCA
NATIONAL DEVELOPMENT COMPANY
On April 22, 1985, respondents Sta. Ines, Cuenca,
Tinio, Cuenca Investment and Universal Holdings filed
By:
a Complaint with Application for the Issuance of a
Temporary Restraining Order or Writ of Preliminary
(signed) Injunction.31 The Complaint was amended several
ROBERTO V. ONGPIN25 times to imp lead new parties and to include new
claims/counterclaims.32
Acting as Galleon's guarantor, DBP paid off Galleon's
debts to its foreign bank creditor and, on January 25, In their Complaint, Sta. Ines, Cuenca, Tinio, Cuenca
1982, pursuant to the Deed of Undertaking, Galleon Investment, and Universal Holdings alleged that NDC,
executed a mortgage contract26 over seven of its "without paying a single centavo, took over the
vessels in favor of DBP. complete, total, and absolute ownership,
management, control, and operation of defendant
NDC took over Galleon's operations "even prior to the [Galleon] and all its assets, even prior to the formality
signing of a share purchase agreement."27 However, of signing a share purchase agreement, which was
despite NDC's takeover, the share purchase held in abeyance because the defendant NDC was
agreement was never formally executed.28 verifying and confirming the amounts paid by plaintiffs
to Galleon, and certain liabilities of Galleon to
plaintiffs[.]"33
On February 10, 1982, or barely seven months from
the issuance of Letter of Instructions No. 1155,
President Marcos issued Letter of Instructions No. Sta. Ines, Cuenca, Tinio, Cuenca Investment, and
1195,29 which reads: Universal Holdings also alleged that NDC tried to delay
"the formal signing of the share purchase agreement
in order to interrupt the running of the 5-year period
TO : Development Bank of the Philippines to pay ... the purchase of the shares in the amount of
National Development Company ₱46,740,755[.00] and the execution of the negotiable
promissory notes to secure payment[.]"34
RE : Galleon Shipping Corporation
As for DBP, Sta. Ines, Cuenca, Tinio, Cuenca
WHEREAS, NDC has assumed management of Investment, and Universal Holdings claimed that "DBP
Galleon's operations pursuant to LOI No. 1155; can no longer go after [them] for any deficiency
judgment [since] NDC had been subrogated [in their
place] as borrower[s], hence the Deed of Undertaking
WHEREAS, the original terms under which Galleon between [Sta. Ines, Cuenca Investment, Universal
acquired or leased the vessels were such that Galleon Holdings, Cuenca, and Tinio and DBP] had been
would be unable to pay from its cash flows the extinguished and novated[.]"35
resulting debt service burden;
I
g) consider for priority in the repayment of
accounts, Galleon's valid and duly authorized
When the "terms of a contract are clear and leave no liabilities which are the subject of meritorious
doubt upon the intention of the contracting parties, lawsuit or which have been arranged and
the literal meaning of its stipulations shall control."71 guaranteed by Cuenca. While respondents,
Galleon's stockholders, as the Sellers,
undertook to:
a) implement Letter of Instructions No. 1155 covering 100% of the shareholdings of Sellers in GSC
by allowing NDC to purchase 100% of their to be transferred to Buyer, i.e. 10,000,000 fully paid
shareholdings; common shares of the par value of ₱1.00 per share
and subscription of an additional 100,000,000
common shares of the par value of ₱1.00 per share of
b) consent for NDC to assume actual control
which ₱36,740,755.00 has been paid, but not yet
over Galleon's management and operations
issued.
prior to the execution of a formal share
purchase agreement and prior to the transfer
to NDC of Galleon's shareholdings; The second paragraph of clause 4 likewise makes the
execution of a share purchase agreement a condition
before the purchase price can be paid to respondents,
c) elect NDC's designated five persons to
since the payment of the purchase price becomes due
Galleon's Board of Directors;
only after five years from the date of execution of the
share purchase agreement:
d) warrant that ₱46,740,755.00 had been
actually paid to Galleon, representing
4. Sellers hereby warrant that ₱46,740,755[.00] had
payment of 46,740,755 common shares to
been actually paid to Galleon Shipping Corporation,
Galleon;
which amount represents payment of Sellers for
46,740,755 common shares of said Corporation. This
e) deliver to NDC, upon signing of the share warranty shall be verified by Buyer, the results of
purchase agreement, 10,000,000 common which will determine the final purchase price to be
shares of Galleon, duly and validly endorsed paid to Sellers.
for transfer, free from any and all liens and
encumbrances whatsoever; and
The purchase price directed by LOI 1155 to be paid to
Sellers shall be paid after five (5) years from date of
f) make special warranties under clause 8. the share purchase agreement with no interest cost to
buyer. (Emphasis supplied)
As parties to the Memorandum of Agreement, NDC
and respondents jointly undertook to: NDC asserts that the Memorandum of Agreement was
only a preliminary agreement between Galleon,
a) immediately implement Letter of represented by Cuenca, and NDC, represented by
Instructions No. 1155; Ongpin, for the intended purchase of Galleon's equity
pursuant to Letter of Instructions No. 1155,77 thus:
The law is categorical that "various stipulations of a NDC's assertion that the Memorandum of Agreement
contract shall be interpreted together, attributing to was merely a preliminary agreement that was
the doubtful ones that sense which may result from all separate and distinct from the share purchase
of them taken jointly."74 Fernandez v. Court of agreement, finds support in clause 7 of the
Appeals75further emphasizes that " [t]he important Memorandum of Agreement, which lists down the
task in contract interpretation is always the terms and conditions to be included in the share
ascertainment of the intention of the contracting purchase agreement as follows:
parties and that task is of course to be discharged by
looking to the words they used to project that
intention in their contract, all the words not just a 7. The stock purchase agreement to be prepared and
particular word or two, and words in context not signed by the parties within sixty (60) days from date
words standing alone."76 hereof shall contain, among other things:
The Court of Appeals found that the Memorandum of (a) standard warranties of seller including, but not
Agreement between NDC and Galleon was a perfected limited to, warranties pertaining to the accuracy of
contract for NDC to purchase 100% of Galleon's financial and other statements of GSC; disclosure of
shareholdings. However, a careful reading of the liabilities; payment of all taxes, duties, licenses and
Memorandum of Agreement shows that what the fees; non-encumbrance of corporate assets; valid
parties agreed to was the execution of a share contracts with third parties, etc. including an
purchase agreement to effect the transfer of 100% of indemnity clause covering any breach thereof.
Galleon's shareholdings to NDC, as seen in clause 3:
(b) provisions that Buyer shall retain 2
3. As soon as possible, but not more than 60 days representatives of Sellers in the board of GSC only for
after the signing hereof, the parties shall endeavor to as long as Sellers have not been paid, or have not
prepare and sign a share purchase agreement
negotiated or discounted any of the promissory notes itself voluntarily prevented the execution of a share
referred to in clause 5 above. purchase agreement when it reneged on its various
obligations under the Memorandum of
Agreement. The evidence on record show that the
(c) provisions whereby Construction Development
share purchase agreement was not formally executed
Corporation of the Philippines, Sta. Ines Melale Forest
because then Minister Roberto Ongpin claimed that
Products Corporation, Mr. Rodolfo M. Cuenca and Mr.
the accounts of defendant Galleon had to be reviewed
Manuel I. Tinio shall be released from counter-
and cleared up before the share purchase agreement
guarantees they have issued in favor of DBP and other
is signed. While defendant Galleon made its financial
financial institutions in connection with GSC's various
records available to defendant-appellant NDC for their
credit accommodations.
review, the latter never made any serious effort to
review the financial accounts of the defendant
(d) provisions for arbitration as a means of settling Galleon, hence, effectively preventing the execution of
disputes and differences of opinion regarding the the share purchase agreement. Consequently, the
stock purchase agreement. condition for the running of the period for the payment
of the purchase price of the shares of stocks in
Under clause 7 of the Memorandum of Agreement, defendant Galleon by the defendant-appellant
NDC and respondents agreed to include in the still-to- NDC, i.e., the execution of the Share Purchase
be-executed share purchase agreement, provisions Agreement, was deemed fulfilled as it was the
on: (a) standard warranties, including warranties on defendant-appellant NDC itself which prevented it
the accuracy of Galleon's financials, disclosure of from happening. Under Article 1186 of the Civil Code,
liabilities, etc; (b) the retention of Galleon's a "condition shall be deemed fulfilled when the obligor
representatives in Galleon's board of directors prior to voluntarily prevents its fulfilment." This applies in the
the payment of the share purchase price; (c) the instant case.79 (Emphasis supplied)
release of respondents from the counter-guarantees
they made in favor of DBP and other financial The Regional Trial Court likewise found that
institutions in connection with Galleon's various credit respondent Cuenca, as Galleon's representative,
accommodations; and (d) arbitration as a means of initiated moves for the preparation and execution of
settling disputes and differences of opinion regarding the share purchase agreement and NDC's takeover of
the stock purchase agreement. Galleon.80 Nonetheless, despite Cuenca's efforts, the
share purchase agreement was never formally
Taking the provisions of the Memorandum of executed:
Agreement as a whole, it is clear that while there was
an intention to follow the directives of Letter of Assuming that the share purchase agreement was a
Instructions No. 1155, the transfer of shares from condition for the effectivity of the Memorandum of
respondents to NDC was to be effected only with the Agreement (dated 10 August 1981 ), said condition is
execution of the share purchase agreement, the terms deemed fulfilled by virtue of Art. 1186 of the Civil
and conditions of which were laid out in the Code, which provides that "the condition shall be
Memorandum of Agreement. deemed fulfilled when the obligor voluntarily prevents
its fulfillment." Plaintiff Cuenca, as representative of
NDC and the respondents undertook to prepare and the former shareholders of defendant Galleon, in order
sign a share purchase agreement over 100% of to clear up the accounts preparatory to the execution
respondents' shares in Galleon not more than sixty of the share purchase agreement, created a team to
days after the signing of the Memorandum of prepare a statement of defendant Galleon's
Agreement: outstanding accounts which statement of account was
intended to be included as part of the annexes of the
said share purchase agreement. Another team with
3. As soon as possible, but not more than 60 days representatives from both parties, that is, the former
after the signing hereof, the parties shall endeavor to stockholders of defendant Galleon and defendant
prepare and sign a share purchase agreement NDC, had to be created for a smoother turnover.
covering 100% of the shareholdings of Sellers in GSC However, despite said efforts done by plaintiff Cuenca
to be transferred to Buyer, i.e. 10,000,000 fully paid the share purchase agreement was not formally
common shares of the par value of ₱1.00 per share executed.81 (Emphasis in the original)
and subscription of an additional 100,000,000
common shares of the par value of ₱1.00 per share of
which ₱36,740,755.00 has been paid, but not yet NDC denies that it caused the delay in the execution
issued. of the share purchase agreement and argues that it
was Cuenca who caused the delay for insisting on the
payment first of the advances made in Galleon's favor
The execution of a share purchase agreement was a before executing the share purchase agreement and
condition precedent to the transfer of Galleon's shares relinquishing control over Galleon.82
to NDC. However, the Court of Appeals found that the
NDC prevented its execution by deliberately delaying
its review of Galleon's financial accounts: NDC's bare denials cannot succeed in light of the
preponderance of evidence submitted by respondents.
Upon receiving Galleon's outstanding accounts, NDC (5) When the debtor attempts to abscond. (Emphasis
and Sta. Ines, Cuenca, Tinio, Cuenca Investment and supplied)
Universal Holdings should have initiated the execution
of the share purchase agreement. However, the share
Well-settled is the rule that findings of fact made by a
purchase agreement was never executed, through no
trial court and the Court of Appeals are accorded the
fault of Galleon's stockholders.
highest degree of respect by this Court, and, absent a
clear disregard of the evidence before it that can
In clause 4 of the Memorandum of Agreement, NDC otherwise affect the results of the case, those findings
as the buyer was to verify the warranty of the Galleon should not be ignored.88
shareholders that ₱46,740,755.00 was paid for
Ga1leon's 46,740,755 common shares with par value
II
of ₱1.00 per share. The results of the verification
would have determined the final purchase price to be
paid to the Galleon shareholders. Nonetheless, despite The Regional Trial Court found that the advances
the verification still to be done, both parties agreed to made by respondents in Galleon's behalf covered
execute the share purchase agreement as soon as legitimate expenses in the ordinary course of
possible but not more than sixty days from the signing business,89 making NDC liable under clause 9 of the
of the Memorandum of Agreement. Memorandum of Agreement, which states:
We uphold the Court of Appeals' finding that the 9. Valid and duly authorized liabilities of GSC which
failure to execute the share purchase agreement was are the subject of a meritorious lawsuit, or which have
brought about by NDC's delay in reviewing the been arranged and guaranteed by Mr. Rodolfo M.
financial accounts submitted by Galleon's Cuenca, may be considered by Buyer for priority in the
stockholders. The Memorandum of Agreement was repayment of accounts, provided that, upon review,
executed on August 10, 1981, giving the parties no the Buyer shall determine these to be legitimate and
were validly incurred in the ordinary course of GSC's right that he had before the novation, which waiver
principal business. must be express under the principle that renuntiatio
non prcesumitur, recognized by the law in declaring
that a waiver of right may not be performed unless
NDC's liability for the advances made in Galleon's
the will to waive is indisputably shown by him who
behalf was upheld by the Court of Appeals, which held
holds the right.96 (Emphasis supplied)
that the advances made were valid and authorized
liabilities incurred by Galleon in the course of its
business, thus: The Court of Appeals erred when it ruled that DBP was
privy to the Memorandum of Agreement since Ongpin
was concurrently Governor of DBP and chairman of
In the instant case, the advances being claimed by
NDC Board of Directors at the time the Memorandum
[respondents] are in the nature of guarantee fees in
of Agreement was signed.97
consideration for the personal undertakings of the
[respondents] to secure the potential liabilities of
defendant-appellant DBP in favor of defendant The general rule is that, "[i]n the absence of an
Galleon's foreign creditors, advances to cover authority from the board of directors, no person, not
payments of interest, security and management fees even the officers of the corporation, can validly bind
arising out of a mortgage contract, charter line the corporation."98 A corporation is a juridical person,
payments, bare boat hire payments, fuel and ship separate and distinct from its stockholders and
franchise payments, salaries and wages and members, having "powers, attributes and properties
advertising expenses[. ]90 expressly authorized by law or incident to its
existence."99
Ordinary and necessary business expenses are those
that are "directly attributable to, the development, Section 23100 of the Corporation Code provides that
management, operation and/or conduct of the trade, "the corporate powers of all corporations ... shall be
business or exercise of a profession[.]"91 exercised, all business conducted and all property of
such corporations [shall] be controlled and held by the
board of directors[.]"
In Carpio's Memorandum to Ongpin dated April 26,
1982, he recommended that the guarantee fees being
claimed by Galleon's stockholders should not be paid. Peoples Aircargo and Warehousing Co. Inc. v. Court of
Carpio also questioned the ₱1,400,000.00 interest Appeals101 explains that under Section 23 of the
being charged by Sta. Ines from the ₱6,650,000.00 Corporation Code, the power and responsibility to bind
cash advances it made in Galleon's behalf. Carpio a corporation can be delegated to its officers,
likewise questioned the charge of ₱600,000.00 being committees, or agents. Such delegated authority is
claimed as Galleon's share for the Construction derived from law, corporate bylaws, or authorization
Development Corporation of the Philippine's from the board:
basketball team with the Philippine Basketball
Association.92
Under this provision, the power and the responsibility
to decide whether the corporation should enter into a
We see no reason to disturb the findings of fact made contract that will bind the corporation is lodged in the
by the trial court and the Court of Appeals considering board, subject to the articles of incorporation, bylaws,
that the same are duly supported by substantial or relevant provisions of law. However, just as a
evidence. natural person may authorize another to do certain
acts for and on his behalf, the board of directors may
validly delegate some of its functions and powers to
III
officers, committees or agents. The authority of such
individuals to bind the corporation is generally derived
Novation is a mode of extinguishing an obligation by from law, corporate bylaws or authorization from the
"[c]hanging [its] object or principal conditions[,] board, either expressly or impliedly by habit, custom
[s]ubstituting the person of the debtor [or] or acquiescence in the general course of
[s]ubrogating a third person in the rights of the business, viz.:
creditor."93 While novation, "which consists in
substituting a new debtor in the place of the original
"A corporate officer or agent may represent and bind
one may be made even without the knowledge or
the corporation in transactions with third persons to
against the will of the latter, [it must be with] the
the extent that [the] authority to do so has been
consent of the creditor."94
conferred upon him, and this includes powers which
have been intentionally conferred, and also such
Testate Estate of Mota v. Serra95 instructs that for powers as, in the usual course of the particular
novation to have legal effect, the creditor must business, are incidental to, or may be implied from,
expressly consent to the substitution of the new the powers intentionally conferred, powers added by
debtor: custom and usage, as usually pertaining to the
particular officer or agent, and such apparent powers
It should be noted that in order to give novation its as the corporation has caused persons dealing with
legal effect, the law requires that the creditor should the officer or agent to believe that it has
consent to the substitution of a new debtor. conferred."102 (Emphasis supplied)
This consent must be given expressly for the reason
that, since novation extinguishes the personality of Aside from Ongpin being the concurrent head of DBP
the first debtor who is to be substituted by new one, and NDC at the time the Memorandum of Agreement
it implies on the part of the creditor a waiver of the was executed, there was no proof presented that
Ongpin was duly authorized by the DBP to give Tinio, Cuenca Investment, and Universal Holdings,
consent to the substitution by NDC as a co-guarantor amounts to forbearance of money.
of Galleon's debts. Ongpin is not DBP, therefore, it is
wrong to assume that DBP impliedly gave its consent
Sunga-Chan v. Court of Appeals,111 citing Eastern
to the substitution simply by virtue of the personality
Shipping Lines, Inc. v. Court of Appeals,112 reiterated
of its Governor.
the rule on application of interest:
SO ORDERED.
On August 8, 1986, a Deed of Sale with Assumption
of Mortgage (Exh. A; Exh. 1, pp. 11-12, Record) was
executed by defendant David Raymundo, as vendor,
in favor of plaintiff Avelina Velarde, as vendee, with
the following terms and conditions:
As above-quoted, the consideration for the The court shall decree the rescission claimed, unless
house and lot stated in the Deed of Sale with there be just cause authorizing the fixing of a period.
Assumption of Mortgage is P250,000.00, plus the
assumption of the balance of the mortgage loan with Rescission will not be permitted for a slight or
NHMFC. However, after going over the record of the casual breach of the contract. Rescission may be had
case, more particularly the Answer of respondents- only for such breaches that are substantial and
spouses, the evidence shows the consideration fundamental as to defeat the object of the parties in
therefor is P120,000.00, plus the payment of the making the agreement.[36] The question of whether a
breach of contract is substantial depends upon the property in question, but still, petitioners refused to
attending circumstances[37] and not merely on the fulfill their obligations under the Deed of Sale with
percentage of the amount not paid. Assumption of Mortgage. Sometime in March 1993,
due to the fact that full payment has not been paid
In the case at bar, we find petitioners failure to and that the monthly amortizations with the NHMFC
pay the remaining balance of P45,000.00 to be have not been fully updated, she made her intentions
substantial. Even assuming arguendo that only said clear with petitioner Leticia Cannu that she will rescind
amount was left out of the supposed consideration or annul the Deed of Sale with Assumption of
of P250,000.00, or eighteen (18%) percent thereof, Mortgage.
this percentage is still substantial. Taken together
with the fact that the last payment made was on 28 We likewise rule that there was no waiver on the
November 1991, eighteen months before the part of petitioners to demand the rescission of the
respondent Fernandina Galang paid the outstanding Deed of Sale with Assumption of Mortgage. The fact
balance of the mortgage loan with NHMFC, the that respondents-spouses accepted, through their
intention of petitioners to renege on their obligation is attorney-in-fact, payments in installments does not
utterly clear. constitute waiver on their part to exercise their right
to rescind the Deed of Sale with Assumption of
Citing Massive Construction, Inc. v. Mortgage. Adelina Timbang merely accepted the
Intermediate Appellate Court,[38] petitioners ask that installment payments as an accommodation to
they be granted additional time to complete their petitioners since they kept on promising they would
obligation. Under the facts of the case, to give pay. However, after the lapse of considerable time (18
petitioners additional time to comply with their months from last payment) and the purchase price
obligation will be putting premium on their blatant was not yet fully paid, respondents-spouses exercised
non-compliance of their obligation. They had all the their right of rescission when they paid the
time to do what was required of them (i.e., pay the outstanding balance of the mortgage loan with
P45,000.00 balance and to properly assume the NHMFC. It was only after petitioners stopped paying
mortgage loan with the NHMFC), but still they failed that respondents-spouses moved to exercise their
to comply. Despite demands for them to pay the right of rescission.
balance, no payments were made.[39]
Petitioners cite the case of Angeles v.
The fact that petitioners tendered a Managers Calasanz[46] to support their claim that respondents-
Check to respondents-spouses Galang in the amount spouses waived their right to rescind. We cannot apply
of P278,957.00 seven months after the filing of this this case since it is not on all fours with the case before
case is of no moment. Tender of payment does not by us. First, in Angeles, the breach was only slight and
itself produce legal payment, unless it is completed by casual which is not true in the case before us. Second,
consignation.[40] Their failure to fulfill their obligation in Angeles, the buyer had already paid more than the
gave the respondents-spouses Galang the right to principal obligation, while in the instant case, the
rescission. buyers (petitioners) did not pay P45,000.00 of the
P120,000.00 they were obligated to pay.
Anent the second assigned error, we find that
petitioners were not religious in paying the We find petitioners statement that there is no
amortization with the NHMFC. As admitted by them, evidence of prejudice or damage to justify rescission
in the span of three years from 1990 to 1993, their in favor of respondents-spouses to be unfounded. The
payments covered only thirty months.[41] This, indeed, damage suffered by respondents-spouses is the effect
constitutes another breach or violation of the Deed of of petitioners failure to fully comply with their
Sale with Assumption of Mortgage. On top of this, obligation, that is, their failure to pay the remaining
there was no formal assumption of the mortgage P45,000.00 and to update the amortizations on the
obligation with NHMFC because of the lack of approval mortgage loan with the NHMFC. Petitioners have in
by the NHMFC[42] on account of petitioners non- their possession the property under litigation. Having
submission of requirements in order to be considered parted with their house and lot, respondents-spouses
as assignees/successors-in-interest over the property should be fully compensated for it, not only
covered by the mortgage obligation.[43] monetarily, but also as to the terms and conditions
agreed upon by the parties. This did not happen in the
On the third assigned error, petitioners claim
case before us.
there was no clear evidence to show that respondents-
spouses Galang demanded from them a strict and/or Citing Seva v. Berwin & Co., Inc.,[47] petitioners
faithful compliance of the Deed of Sale with argue that no rescission should be decreed because
Assumption of Mortgage. there is no evidence on record that respondent
Fernandina Galang is ready, willing and able to comply
We do not agree.
with her own obligation to restore to them the total
There is sufficient evidence showing that payments they made. They added that no allegation
demands were made from petitioners to comply with to that effect is contained in respondents-spouses
their obligation. Adelina R. Timbang, attorney-in-fact Answer.
of respondents-spouses, per instruction of respondent
We find this argument to be misleading.
Fernandina Galang, made constant follow-ups after
the last payment made on 28 November 1991, but First, the facts obtaining in Seva case do not fall
petitioners did not pay.[44] Respondent Fernandina squarely with the case on hand. In the former, the
Galang stated in her Answer[45] that upon her arrival failure of one party to perform his obligation was the
from America in October 1992, she demanded from fault of the other party, while in the case on hand,
petitioners the complete compliance of their obligation failure on the part of petitioners to perform their
by paying the full amount of the consideration obligation was due to their own fault.
(P120,000.00) or in the alternative to vacate the
Second, what is stated in the book of Justice pay the balance of P45,000.00 to respondents-
Edgardo L. Paras is [i]t (referring to the right to spouses and their failure to update their amortizations
rescind or resolve) can be demanded only if the with the NHMFC.
plaintiff is ready, willing and able to comply with his
own obligation, and the other is not. In other words, Petitioners maintain that inasmuch as
if one party has complied or fulfilled his obligation, and respondents-spouses Galang were not granted the
the other has not, then the former can exercise his right to unilaterally rescind the sale under the Deed of
right to rescind. In this case, respondents-spouses Sale with Assumption of Mortgage, they should have
complied with their obligation when they gave the first asked the court for the rescission thereof before
possession of the property in question to petitioners. they fully paid the outstanding balance of the
Thus, they have the right to ask for the rescission of mortgage loan with the NHMFC. They claim that such
the Deed of Sale with Assumption of Mortgage. payment is a unilateral act of rescission which violates
existing jurisprudence.
On the fourth assigned error, petitioners, relying
on Article 1383 of the Civil Code, maintain that the In Tan v. Court of Appeals,[50] this court said:
Court of Appeals erred when it failed to consider that
the action for rescission is subsidiary. . . . [T]he power to rescind obligations is implied in
reciprocal ones in case one of the obligors should not
Their reliance on Article 1383 is misplaced.
comply with what is incumbent upon him is clear from
The subsidiary character of the action for a reading of the Civil Code provisions. However, it is
rescission applies to contracts enumerated in Articles equally settled that, in the absence of a stipulation to
1381[48] of the Civil Code. The contract involved in the the contrary, this power must be invoked judicially; it
case before us is not one of those mentioned therein. cannot be exercised solely on a partys own judgment
The provision that applies in the case at bar is Article that the other has committed a breach of the
1191. obligation. Where there is nothing in the contract
empowering the petitioner to rescind it without resort
In the concurring opinion of Justice Jose B.L. to the courts, the petitioners action in unilaterally
Reyes in Universal Food Corp. v. Court of terminating the contract in this case is unjustified.
Appeals,[49] rescission under Article 1191 was
distinguished from rescission under Article 1381. It is evident that the contract under
Justice J.B.L. Reyes said: consideration does not contain a provision authorizing
its extrajudicial rescission in case one of the parties
. . . The rescission on account of breach of stipulations fails to comply with what is incumbent upon him. This
is not predicated on injury to economic interests of the being the case, respondents-spouses should have
party plaintiff but on the breach of faith by the asked for judicial intervention to obtain a judicial
defendant, that violates the reciprocity between the declaration of rescission. Be that as it may, and
parties. It is not a subsidiary action, and Article 1191 considering that respondents-spouses Answer (with
may be scanned without disclosing anywhere that the affirmative defenses) with Counterclaim seeks for the
action for rescission thereunder is subordinated to rescission of the Deed of Sale with Assumption of
anything other than the culpable breach of his Mortgage, it behooves the court to settle the matter
obligations by the defendant. This rescission is a once and for all than to have the case re-litigated
principal action retaliatory in character, it being unjust again on an issue already heard on the merits and
that a party be held bound to fulfill his promises when which this court has already taken cognizance of.
the other violates his. As expressed in the old Latin Having found that petitioners seriously breached the
aphorism: Non servanti fidem, non est fides servanda. contract, we, therefore, declare the same is rescinded
Hence, the reparation of damages for the breach is in favor of respondents-spouses.
purely secondary.
As a consequence of the rescission or, more
accurately, resolution of the Deed of Sale with
On the contrary, in the rescission by reason Assumption of Mortgage, it is the duty of the court to
of lesion or economic prejudice, the cause of action is require the parties to surrender whatever they may
subordinated to the existence of that prejudice, have received from the other. The parties should be
because it is the raison d tre as well as the measure restored to their original situation.[51]
of the right to rescind. Hence, where the defendant
makes good the damages caused, the action cannot The record shows petitioners paid respondents-
be maintained or continued, as expressly provided in spouses the amount of P75,000.00 out of the
Articles 1383 and 1384. But the operation of these two P120,000.00 agreed upon. They also made payments
articles is limited to the cases of rescission to NHMFC amounting to P55,312.47. As to the
for lesion enumerated in Article 1381 of the Civil Code petitioners alleged payment to CERF Realty of
of the Philippines, and does not apply to cases under P46,616.70, except for petitioner Leticia Cannus bare
Article 1191. allegation, we find the same not to be supported by
competent evidence. As a general rule, one who
pleads payment has the burden of proving
From the foregoing, it is clear that rescission
it.[52] However, since it has been admitted in
(resolution in the Old Civil Code) under Article 1191 is
respondents-spouses Answer that petitioners shall
a principal action, while rescission under Article 1383
assume the second mortgage with CERF Realty in the
is a subsidiary action. The former is based on breach
amount of P35,000.00, and that Adelina Timbang,
by the other party that violates the reciprocity
respondents-spouses very own witness,
between the parties, while the latter is not.
testified[53] that same has been paid, it is but proper
In the case at bar, the reciprocity between the to return this amount to petitioners. The three
parties was violated when petitioners failed to fully
amounts total P165,312.47 -- the sum to be returned Forest Hills denied transacting business with Vertex
to petitioners. and claimed that it was not a party to the sale of the
share; FELI claimed the same defense. While
WHEREFORE, premises considered, the admitting that no stock certificate was issued, FEGDI
decision of the Court of Appeals is hereby AFFIRMED alleged that Vertex nonetheless was recognized as a
with MODIFICATION. Spouses Gil and Fernandina stockholder of Forest Hills and, as such, it exercised
Galang are hereby ordered to return the partial rights and privileges of one. FEGDI added that during
payments made by petitioners in the amount of the pendency of Vertex's action for rescission, a stock
P165,312.47. With costs. certificate was issued in Vertex's name,7 but Vertex
refused to accept it.
SO ORDERED.
The Facts
Vertex appealed the RTC's dismissal of its complaint.
In its February 22, 2012 decision,10 the CA reversed
Petitioner Forest Hills Golf & Country Club (Forest the RTC. It declared that "in the sale of shares of
Hills) is a domestic non-profit stock corporation that stock, physical delivery of a stock certificate is one of
operates and maintains a golf and country club facility the essential requisites for the transfer of ownership
in Antipolo City. Forest Hills was created as a result of of the stocks purchased."11 It based its ruling on
a joint venture agreement between Kings Properties Section 63 of the Corporation Code,12 which requires
Corporation (Kings) and Fil-Estate Golf and for a valid transfer of stock –
Development, Inc. (FEGDI). Accordingly, Kings and
FEGDI owned the shares of stock of Forest Hills,
holding 40% and 60% of the shares, respectively. (1) the delivery of the stock certificate;
In August 1997, FEGDI sold to RS Asuncion (2) the endorsement of the stock certificate
Construction Corporation (RSACC) one (1) Class "C" by the owner or his attorney-in-fact or other
common share of Forest Hills for ₱1.1 million. Prior to persons legally authorized to make the
the full payment of the purchase price, RSACC transfer; and
transferred its interests over FEGDI's Class "C"
common share to respondent Vertex Sales and (3) to be valid against third parties, the
Trading, Inc. (Vertex).4 RSACC advised FEGDI of the transfer must be recorded in the books of the
transfer and FEGDI, in turn, requested Forest Hills to corporation.
recognize Vertex as a shareholder. Forest Hills
acceded to the request, and Vertex was able to enjoy
Without the issuance of the stock certificate and
membership privileges in the golf and country club.
despite Vertex’s full payment of the purchase price,
the share cannot be considered as having been validly
Despite the sale of FEGDI's Class "C" common share transferred. Hence, the CA rescinded the sale of the
to Vertex, the share remained in the name of FEGDI, share and ordered the defendants to return the
prompting Vertex to demand for the issuance of a amount paid by Vertex by reason of the sale. The
stock certificate in its name.5 As its demand went dispositive portion reads:
unheeded, Vertex filed a complaint6 for rescission with
damages against defendants Forest Hills, FEGDI, and
WHEREFORE, in view of the foregoing premises, the
Fil-Estate Land, Inc. (FELI) – the developer of the
appeal is hereby GRANTED and the March 1, 2007
Forest Hills golf course. Vertex averred that the
Decision of the Regional Trial Court, Branch 161, Pasig
defendants defaulted in their obligation as sellers
City in Civil Case No. 68791 is hereby REVERSED AND
when they failed and refused to issue the stock
SET ASIDE. Accordingly, the sale of x x x one (1) Class
certificate covering the Class "C" common share. It
"C" Common Share of Forest Hills Golf and Country
prayed for the rescission of the sale and the return of
Club is hereby rescinded and defendants-appellees
the sums it paid; it also claimed payment of actual
are hereby ordered to return to Vertex Sales and
damages for the defendants’ unjustified refusal to
issue the stock certificate.
Trading, Inc. the amount it paid by reason of the said As correctly pointed out by Forest Hills, it was not a
sale.13 (emphasis ours) party to the sale even though the subject of the sale
was its share of stock. The corporation whose shares
of stock are the subject of a transfer transaction
The CA denied Forest Hills' motion for reconsideration
(through sale, assignment, donation, or any other
in its resolution of May 31, 2012.14
mode of conveyance) need not be a party to the
transaction, as may be inferred from the terms of
The Parties’ Arguments Section 63 of the Corporation Code. However, to bind
the corporation as well as third parties, it is necessary
Forest Hills filed the present petition for review on that the transfer is recorded in the books of the
certiorari to assail the CA rulings. It argues that corporation. In the present case, the parties to the
rescission should be allowed only for substantial sale of the share were FEGDI as the seller and Vertex
breaches that would defeat the very object of the as the buyer (after it succeeded RSACC). As party to
parties making the agreement. the sale, FEGDI is the one who may appeal the ruling
rescinding the sale. The remedy of appeal is available
to a party who has "a present interest in the subject
The delay in the issuance of the stock certificate could matter of the litigation and is aggrieved or
not be considered as a substantial breach, considering prejudiced by the judgment. A party, in turn, is
that Vertex was recognized as, and enjoyed the deemed aggrieved or prejudiced when his interest,
privileges of, a stockholder. recognized by law in the subject matter of the
lawsuit, is injuriously affected by the judgment,
Forest Hills also objects to the CA ruling that required order or decree."17 The rescission of the sale does
it to return the amount paid by Vertex for the share of not in any way prejudice Forest Hills in such a manner
stock. It claims that it was not a party to the contract that its interest in the subject matter – the share of
of sale; hence, it did not receive any amount from stock – is injuriously affected. Thus, Forest Hills is in
Vertex which it would be obliged to return on account no position to appeal the ruling rescinding the sale of
of the rescission of the contract. the share. Since FEGDI, as party to the sale, filed no
appeal against its rescission, we consider as final the
CA’s ruling on this matter.
In its comment to the petition,15 Vertex disagrees and
claims that its compliance with its obligation to pay
the price and the other fees called into action the Ruling on return of amounts paid by
defendants’ compliance with their reciprocal obligation reason of the sale modified
to deliver the stock certificate, but the defendants
failed to discharge this obligation. The defendants’ The CA’s ruling ordering the "return to [Vertex] the
three (3)-year delay in issuing the stock certificate amount it paid by reason of the sale"18 did not specify
justified the rescission of the sale of the share of in detail what the amount to be returned consists of
stock. On account of the rescission, Vertex claims that and it did not also state the extent of Forest Hills,
mutual restitution should take place. It argues that FEGDI, and FELI’s liability with regard to the amount
Forest Hills should be held solidarily liable with FEGDI to be returned. The records, however, show that the
and FELI, since the delay was caused by Forest Hills’ following amounts were paid by Vertex to Forest Hills,
refusal to issue the share of FEGDI, from whom Vertex FEGDI, and FELI by reason of the sale:
acquired its share.
SO ORDERED.
C. ENGINE TELEGRAPH SYSTEM
SERENO, C.J.:
Php
TOTAL COST:
3,800,000.00
Before this Court is a Rule 45 Petition, seeking a
review of the 27 July 2009 Court of Appeals (CA) LESS: OLD MARITIME
Decision in CA-G.R. CV No. 88989,1 which modified EQUIPMENT TRADE-IN VALUE 1,000,000.00
the Regional Trial Court (RTC) Decision of 8 January
2007 in Civil Case No. Q-04-53660.2 The CA held that DISCOUNT 100,000.00
petitioner substantially breached its contracts with
respondent for the installation of an integrated bridge PROJECT COST (MATERIALS & PhP
system (IBS). INSTALLATION) 2,700,000.00
Subsequently, Northwestern paid P1 million as down Accordingly, plaintiff is hereby ordered to restore to
payment to GL Enterprises. The former then assumed the defendant all the equipment obtained by reason of
possession of Northwestern's old IBS as trade-in the First Contract and refund the downpayment
payment for its service. Thus, the balance of the of P1,000,000.00 to the defendant; and for the
contract price remained at P1.97 defendant to return to the plaintiff the equipment and
million.7chanroblesvirtualawlibrary materials it withheld by reason of the non-continuance
of the installation and integration project. In the event
Two months after the execution of the contracts, GL that restoration of the old equipment taken from
Enterprises technicians delivered various materials to defendant's premises is no longer possible, plaintiff is
the project site. However, when they started installing hereby ordered to pay the appraised value of
the components, respondent halted the operations. defendant's old equipment at P1,000,000.00.
GL Enterprises then asked for an Likewise, in the event that restoration of the
explanation.8chanroblesvirtualawlibrary equipment and materials delivered by the plaintiff to
the defendant is no longer possible, defendant is
hereby ordered to pay its appraised value
Northwestern justified the work stoppage upon its at P1,027,480.00.
finding that the delivered equipment were
substandard.9 It explained further that GL Enterprises
violated the terms and conditions of the contracts, Moreover, plaintiff is likewise ordered to restore and
since the delivered components (1) were old; (2) did return all the equipment obtained by reason of the
not have instruction manuals and warranty Second Contract, or if restoration or return is not
certificates; (3) contained indications of being possible, plaintiff is ordered to pay the value thereof
reconditioned machines; and (4) did not meet the IMO to the defendant.
and CHED standards. Thus, Northwestern demanded
compliance with the agreement and suggested that GL SO ORDERED.
Enterprises meet with the former's representatives to
iron out the situation.
Aggrieved, both parties appealed to the CA. With each
of them pointing a finger at the other party as the
Instead of heeding this suggestion, GL Enterprises violator of the contracts, the appellate court ultimately
filed on 8 September 2004 a Complaint10 for breach of determined that GL Enterprises was the one guilty of
contract and prayed for the following sums: P1.97 substantial breach and liable for attorney's fees.
million, representing the amount that it would have
earned, had Northwestern not stopped it from
The CA appreciated that since the parties essentially
performing its tasks under the two contracts; at
sought to have an IBS compliant with the CHED and
least P100,000 as moral damages; at least P100,000
IMO standards, it was GL Enterprises' delivery of
by way of exemplary damages; at least P100,000 as
defective equipment that materially and substantially
attorney's fees and litigation expenses; and cost of
breached the contracts. Although the contracts
suit. Petitioner alleged that Northwestern breached
contemplated a completed project to be evaluated by
the contracts by ordering the work stoppage and thus
CHED, Northwestern could not just sit idly by when it
preventing the installation of the materials for the IBS.
was apparent that the components delivered were
substandard.
Northwestern denied the allegation. In its defense, it
asserted that since the equipment delivered were not
The CA held that Northwestern only exercised
in accordance with the specifications provided by the
ordinary prudence to prevent the inevitable rejection
contracts, all succeeding works would be futile and
of the IBS delivered by GL Enterprises. Likewise, the
would entail unnecessary expenses. Hence, it prayed
appellate court disregarded petitioner's excuse that
for the rescission of the contracts and made a
the equipment delivered might not have been the
compulsory counterclaim for actual, moral, and
components intended to be installed, for it would be
exemplary damages, and attorney's fees.
contrary to human experience to deliver equipment
from Quezon City to Laoag City with no intention to
use it.
This time, applying Article 1191 of the Civil Code, the The question of whether a breach of contract is
CA declared the rescission of the contracts. It then substantial depends upon the attending
proceeded to affirm the RTC's order of mutual circumstances.15chanroblesvirtualawlibrary
restitution. Additionally, the appellate court
granted P50,000 to Northwestern by way of attorney's
In the case at bar, the parties explicitly agreed that
fees.
the materials to be delivered must be compliant with
the CHED and IMO standards and must be complete
Before this Court, petitioner rehashes all the with manuals. Aside from these clear provisions in the
arguments he had raised in the courts a quo.12 He contracts, the courts a quo similarly found that the
maintains his prayer for actual damages equivalent to intent of the parties was to replace the old IBS in order
the amount that he would have earned, had to obtain CHED accreditation for Northwestern's
respondent not stopped him from performing his tasks maritime-related courses.
under the two contracts; moral and exemplary
damages; attorney's fees; litigation expenses; and
According to CHED Memorandum Order (CMO) No. 10,
cost of suit.
Series of 1999, as amended by CMO No. 13, Series of
2005, any simulator used for simulator-based training
Hence, the pertinent issue to be resolved in the instant shall be capable of simulating the operating
appeal is whether the CA gravely erred in (1) finding capabilities of the shipboard equipment concerned.
substantial breach on the part of GL Enterprises; (2) The simulation must be achieved at a level of physical
refusing petitioner's claims for damages, and (3) realism appropriate for training objectives; include the
awarding attorney's fees to Northwestern. capabilities, limitations and possible errors of such
equipment; and provide an interface through which a
trainee can interact with the equipment, and the
RULING OF THE COURT
simulated environment.
A: It is very big problem for my cadets because they Consequently, the CA correctly found substantial
must, to learn into school where is the true North and breach on the part of petitioner.
what is that equipment to be used on board.
In contrast, Northwestern's breach, if any, was
Q: One of the defects is that the steering wheel was characterized by the appellate court as slight or
that of an ordinary automobile. And what is the casual.21By way of negative definition, a breach is
implication of this? considered casual if it does not fundamentally defeat
the object of the parties in entering into an
agreement. Furthermore, for there to be a breach to
A: Because. on board Ma am, we are using the real
begin with, there must be a "failure, without legal
steering wheel and the cadets will be implicated if they
excuse, to perform any promise which forms the
will notice that the ship have the same steering wheel
whole or part of the
as the car so it is not advisable for them.
contract."22chanroblesvirtualawlibrary
In a Decision 8 dated November 21, 2007, the OP, WHEREFORE, premises considered, the instant
through then Deputy Executive Secretary Manuel Motion for Reconsideration is hereby GRANTED. The
Gaite, dismissed petitioner’s appeal on the ground Decision and Resolution of the HLURB Third Division
that it failed to promptly file its appeal before the OP. Board of Commissioners, dated March 30, 2006 and
It held:chanRoblesvirtualLawlibrary June 14, 2007, respectively, are hereby SET ASIDE,
and the HLURB ENCRFO Decision dated October 19,
Records show that [petitioner] received its copy of the 2004 is hereby REINSTATED.
30 March 2006 HLURB Decision on 17 April 2006 and
instead of filing an appeal, it opted first to file a Motion SO ORDERED. 11
cralawred
for Reconsideration on 28 April 2006 or eleven (11) cralawlawlibrary
days thereafter. The said motion interrupted the 15-
day period to appeal.
Respondent sought reconsideration of said resolution,
however, the same was denied by the OP in a
On 23 July 2007, [petitioner] received the HLURB
Resolution 12 dated August 18, 2011.
Resolution dated 14 June 2007 denying the Motion for
Reconsideration.
Consequently, respondent filed an appeal to the CA.
Based on the ruling in United Overseas Bank
In a Decision dated January 24, 2013, the CA granted
Philippines, Inc. v. Ching (486 SCRA 655), the
respondent’s appeal and reversed and set aside the
period to appeal decisions of the HLURB Board of
Order of the OP. The fallo of its decision
Commissioners to the Office of the President is 15
reads:chanRoblesvirtualLawlibrary
days from receipt thereof pursuant to Section 15 of
P.D. No. 957 and Section 2 of P.D. No. 1344 which are
special laws that provide an exception to Section 1 of WHEREFORE, the Petition is hereby GRANTED. The
Administrative Order No. 18. assailed Resolution dated 17 February 2009
and Order dated 18 August 2011 of the Office of the
Corollary thereto, par. 2, Section 1 of Administrative President, in O.P. Case No. 07-H-283, are
Order No. 18, Series of 1987 provides that: hereby REVERSED and SET ASIDE. Accordingly, the
The time during which a motion for reconsideration Decision dated 30 March 2006 and Resolution dated
has been pending with the Ministry/Agency concerned 14 June 2007 of the HLURB Board of Commissioners
shall be deducted from the period of appeal. But in HLURB Case No. REM-A-050127-0014,
where such a motion for reconsideration has been filed are REINSTATED.
during office hours of the last day of the period herein
provided, the appeal must be made within the day SO ORDERED.cralawlawlibrary 13
cralawred
following receipt of the denial of said motion by the cralawlawlibrary
appealing party. (Underscoring supplied)
Petitioner moved for reconsideration, however, the CA
xxxx denied the same in a Resolution dated April 30, 2013.
Accordingly, the [petitioner] had only four (4) days
from receipt on 23 July 2007 of HLURB Resolution Hence, the present petition wherein petitioner raises
dated 14 June 2007, or until 27 July 2007 to file the the following grounds to support its
Notice of Appeal before this Office. However, petition:chanRoblesvirtualLawlibrary
[petitioner] filed its appeal only on 7 August 2007 or
eleven (11) days late. THE COURT OF APPEALS GRAVELY ERRED IN
IGNORING THE LEGAL PRECEPTS THAT:
Thus, this Office need not delve on the merits of the
appeal filed as the records clearly show that the said
1. TECHNICAL RULES ARE NOT
appeal was filed out of time.
BINDING UPON ADMINISTRATIVE
AGENCIES; and
WHEREFORE, premises considered, [petitioner]’s
appeal is hereby DISMISSED, and the HLURB
Decision dated 30 March 2006 and HLURB Resolution 2. RESCISSION WILL BE ORDERED
dated 14 June 2007 are hereby AFFIRMED. ONLY WHERE THE BREACH
COMPLAINED OF IS SUBSTANTIAL
SO ORDERED. 9cralawlawlibrary AS TO DEFEAT THE OBJECT OF THE
PARTIES IN ENTERING INTO THE
AGREEMENT. 14
Immediately thereafter, petitioner filed a motion for
reconsideration against said decision.
cralawlawlibrary
In a Resolution dated February 17, 2009, the OP,
10
through then Executive Secretary Eduardo Ermita, In essence, the issues are: (1) whether petitioner’s
granted petitioner’s motion and set aside Deputy appeal was timely filed before the OP; and (2) whether
Executive Secretary Gaite’s decision. It held that after rescission of the contract is proper in the instant case.
a careful and thorough evaluation and study of the
records of the case, the OP was more inclined to agree We shall resolve the issues in seriatim.
with the earlier decision of the HLURB ENCRFO as it
First, the period to appeal the decision of the HLURB four days from July 23, 2007, or until July 27, 2007,
Board of Commissioners to the Office of the President within which to file its appeal to the OP as the filing of
has long been settled in the case of SGMC Realty the motion for reconsideration merely suspended the
Corporation v. Office of the President, 15 as reiterated running of the 15-day period. However, records reveal
in the cases of Maxima Realty Management and that petitioner only appealed to the OP on August 7,
Development Corporation v. Parkway Real Estate 2007, or eleven days late. Ergo, the HLURB Board of
Development Corporation 16 and United Overseas Commissioners’ decision had become final and
Bank Philippines, Inc. v. Ching. 17cralawred executory on account of the fact that petitioner did not
promptly appeal with the OP.
In the aforementioned cases, we ruled that the period
to appeal decisions of the HLURB Board of In like manner, we find no cogent reason to exempt
Commissioners is fifteen (15) days from receipt petitioner from the effects of its failure to comply with
thereof pursuant to Section 15 18 of PD No. 957 19 and the rules.
Section 2 20 of PD No. 1344 21 which are special laws
that provide an exception to Section 1 of In an avuncular case, we have held that while the
Administrative Order No. 18. Thus, in the SGMC dismissal of an appeal on purely technical grounds is
Realty Corporation v. Office of the President case, the concededly frowned upon, it bears emphasizing that
Court explained:chanRoblesvirtualLawlibrary the procedural requirements of the rules on appeal are
not harmless and trivial technicalities that litigants can
As pointed out by public respondent, the aforecited just discard and disregard at will. Neither being a
administrative order allows aggrieved party to file its natural right nor a part of due process, the rule is
appeal with the Office of the President within thirty settled that the right to appeal is merely a statutory
(30) days from receipt of the decision complained of. privilege which may be exercised only in the manner
Nonetheless, such thirty-day period is subject to the and in accordance with the provisions of the
qualification that there are no other statutory periods law. 24cralawred
of appeal applicable. If there are special laws
governing particular cases which provide for a shorter Time and again, we have held that rules of procedure
or longer reglementary period, the same shall prevail exist for a noble purpose, and to disregard such rules,
over the thirty-day period provided for in the in the guise of liberal construction, would be to defeat
administrative order. This is in line with the rule in such purpose. Procedural rules are not to be disdained
statutory construction that an administrative rule or as mere technicalities. They may not be ignored to suit
regulation, in order to be valid, must not contradict the convenience of a party. 25 The reason for the
but conform to the provisions of the enabling law. liberal application of the rules before quasi-judicial
agencies cannot be used to perpetuate injustice and
We note that indeed there are special laws that hamper the just resolution of the case. Neither is the
mandate a shorter period of fifteen (15) days within rule on liberal construction a license to disregard the
which to appeal a case to public respondent. First, rules of procedure. 26cralawred
Section 15 of Presidential Decree No. 957 provides
that the decisions of the National Housing Authority Thus, while there may be exceptions for the relaxation
(NHA) shall become final and executory after the lapse of technical rules principally geared to attain the ends
of fifteen (15) days from the date of receipt of the of justice, petitioner’s fatuous belief that it had a fresh
decision. Second, Section 2 of Presidential Decree No. 15-day period to elevate an appeal with the OP is not
1344 states that decisions of the National Housing the kind of exceptional circumstance that merits
Authority shall become final and executory after the relaxation.
lapse of fifteen (15) days from the date of its receipt.
The latter decree provides that the decisions of the Second, Article 1191 of the Civil Code sanctions the
NHA is appealable only to the Office of the President. right to rescind the obligation in the event that specific
Further, we note that the regulatory functions of NHA performance becomes impossible, to
relating to housing and land development has been wit:chanRoblesvirtualLawlibrary
transferred to Human Settlements Regulatory
Commission, now known as HLURB. x x Article 1191. The power to rescind obligations is
x 22cralawlawlibrary implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
Records show that petitioner received a copy of the
The injured party may choose between the fulfillment
HLURB Board of Commissioners’ decision on April 17,
and the rescission of the obligation, with the payment
2006. Correspondingly, it had fifteen days from April
of damages in either case. He may also seek
17, 2006 within which to file its appeal or until May 2,
rescission, even after he has chosen fulfillment, if the
2006. However, on April 28, 2006, or eleven days
latter should become impossible.
after receipt of the HLURB Board of Commissioner’s
decision, it filed a Motion for Reconsideration, instead
The court shall decree the rescission claimed, unless
of an appeal.
there be just cause authorizing the fixing of a period.
Concomitantly, Section 1 of Administrative Order No.
This is understood to be without prejudice to the rights
18 23 provides that the time during which a motion for
of third persons who have acquired the thing, in
reconsideration has been pending with the ministry or
accordance with Articles 1385 and 1388 and the
agency concerned shall be deducted from the period
Mortgage Law.cralawlawlibrary
for appeal. Petitioner received the HLURB Board
Resolution denying its Motion for Reconsideration on
July 23, 2007 and filed its appeal only on August 7, Basic is the rule that the right of rescission of a party
2007. Consequently therefore, petitioner had only to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party who f. At the time of inspection,
violates the reciprocity between them. The breach amenities such as
contemplated in the said provision is the obligor’s swimming pool and change
failure to comply with an existing obligation. When the room are seen at the
obligor cannot comply with what is incumbent upon it, 31st floor only. These
the obligee may seek rescission and, in the absence amenities are reflected on
of any just cause for the court to determine the period the 27th floor plan of the
of compliance, the court shall decree the approved condominium
rescission. 27cralawred plans. Health spa for men
and women, Shiatsu
In the instant case, the CA aptly found that the Massage Room, Two-Level
completion date of the condominium unit was Sky Palace Restaurant and
November 1998 pursuant to License No. 97-12-3202 Hall for games and
dated November 2, 1997 but was extended to entertainments, replete
December 1999 as per License to Sell No. 99-05-3401 with billiard tables, a bar,
dated May 8, 1999. However, at the time of the ocular indoor golf with
inspection conducted by the HLURB ENCRFO, the unit spectacular deck and
was not yet completely finished as the kitchen karaoke rooms were not
cabinets and fixtures were not yet installed and the yet provided by the
agreed amenities were not yet available. Said [petitioner].
inspection report states:chanRoblesvirtualLawlibrary
g. The [master’s] bedroom
1. The unit of the [respondent] is Unit door bore sign of poor
3007, which was labeled as P2-07, quality of workmanship as
at the Palace of Makati, located at seen below.
the corner of P. Burgos Street and
Caceres Street, Poblacion, Makati h. The stairs have been
City. Based on the approved plans, installed in such manner
the said unit is at the 26thFloor. acceptable to the
2. During the time of inspection, the undersigned.
said unit appears to be completed
except for the installation of kitchen i. Bathrooms and powder
cabinets and fixtures. room have been installed
in such manner acceptable
3. Complainant pinpointed to the to the undersigned. 28
undersigned the deficiencies as
follows:
cralawlawlibrary
5
Id. at 66-68. We resolve in this petition for review on certiorari1 the
challenge to the September 16, 2008 decision2 and
6
Id. at 67-68. the December 8, 2008 resolution3 of the Court of
Appeals (CA) in CA-G.R. CV No. 88396.
7
Id. at 71-73.
These assailed CA rulings annulled the June 27, 2006
8
Id. at 80-82. decision4 and October 30, 2006 order5 of the Regional
Trial Court of Makati, Branch 64 (trial court), which
9
Id. at 81-82. (Emphasis in the original) directed respondent Jose V. Dueñas (Dueñas) to pay
Five Million Pesos (P5 Million) to petitioner George C.
10
Id. at 56-61. Fong (Fong), and imposed a six percent (6%) annual
interest on this amount.
11
Id. at 61. (Emphasis in the original)
Factual Antecedents
12
Id. at 62-64.
Dueñas is engaged in the bakery, food manufacturing,
13
Id. at 51. (Emphasis in the original) and retailing business, which are all operated under
his two companies, D.C. DANTON, Inc. (Danton) and
14
Id. at 23. Bakcom Food Industries, Inc. (Bakcom). He was an
old acquaintance of Fong as they were former
15
393 Phil. 697 (2000). schoolmates at the De La Salle
University.6chanrobleslaw
16
467 Phil. 190 (2004).
Sometime in November 1996, Dueñas and Fong
17
521 Phil. 146 (2006). entered into a verbal joint venture contract where
they agreed to engage in the food business and to
18
Section 15. Decision. The case shall be decided incorporate a holding company under the name
within thirty (30) days from the time the same is Alliance Holdings, Inc. (Alliance or the proposed
submitted for decision. The Decision may order the corporation). Its capitalization would be Sixty Five
revocation of the registration of the subdivision or Million Pesos (P65 Million), to which they would
condominium project, the suspension, cancellation, or contribute in equal parts.7chanrobleslaw
revocation of the license to sell and/or forfeiture, in
whole or in part, of the performance bond mentioned The parties agreed that Fong would contribute Thirty
in Section 6 hereof. In case forfeiture of the bond is Two Million and Five Hundred Thousand Pesos (P32.5
ordered, the Decision may direct the provincial or city Million) in cash while Dueñas would contribute all his
engineer to undertake or cause the construction of Danton and Bakcom shares which he valued at P32.5
roads and other requirements for the subdivision or Million.8 Fong required Dueñas to submit the financial
condominium as stipulated in the bond, chargeable to documents supporting the valuation of these shares.
the amount forfeited. Such decision shall be
immediately executory and shall become final after On November 25, 1996, Fong started remitting in
the lapse of 15 days from the date of receipt of the tranches his share in the proposed corporation’s
Decision. capital. He made the remittances under the
impression that his contribution would be applied as
REGULATING THE SALE OF SUBDIVISION LOTS AND
19
his subscription to fifty percent (50%) of Alliance’s
CONDOMINIUMS, PROVIDING PENALTIES FOR total shareholdings. On the other hand, Dueñas
VIOLATIONS THEREOF. started processing the Boboli9international license
that they would use in their food business. Fong’s cash
20
Section 2. The decision of the National Housing contributions are summarized below.10cralawred
Authority shall become final and executory after the Date Amount
lapse of fifteen (15) days from the date of its receipt. November 25, 1996 P1,980,475.20
It is appealable only to the President of the Philippines
January 14, 1997 P1,000,000.00
and in the event the appeal is filed and the decision is
not reversed and/or amended within a period of thirty February 8, 1997 P500,000.00
(30) days, the decision is deemed affirmed. Proof of March 7, 1997 P100,000.00
the appeal of the decision must be furnished the April 28, 1997 P500,000.00
National Housing Authority. June 13, 1997 P919,524.80
Total P5,000,000.00
On June 13, 1997, Fong sent a letter to Dueñas venture agreement.13 Thus, on October 30, 1997,
informing him of his decision to limit his total Fong wrote Dueñas informing him of his decision to
contribution from P32.5 Million to P5 cancel the joint venture agreement. He also asked for
Million. This letter reads:chanRoblesvirtualLawlibrary the refund of the P5 Million that he advanced.14In
June 13, 1997 response, Dueñas admitted that he could not
immediately return the money since he used it
Mr. Jose Dueñas to defray the business expenses of Danton and
c/o Camira Industries Bakcom.15chanrobleslaw
Re: Proposed JV in Bakcom, D.C. Danton and Boboli To meet Fong’s demand, Dueñas proposed several
schemes for payment of the P5 Million.16 However,
Dear Jojit, Fong did not accept any of these proposed schemes.
On March 25, 1998, Fong wrote a final letter of
Enclosed is our check for P919,534.80 representing demand17informing Dueñas that he would file a
our additional advances to subject company in judicial action against him should he still fail to pay
process of incorporation. This will make our total after receipt of this written demand.
advances to date amounting to P5 million.
Since Dueñas did not pay, Fong filed a complaint
Since we agreed in principal late last year to pursue against him for collection of a sum of money and
subject matter, the delays in implementing the joint damages18on April 24, 1998.
venture have caused us to rethink our position. First,
we were faced with the ‘personal’ factor which was The Trial Court’s Ruling
explained to you one time. This has caused us to turn
down a number of business opportunities. Secondly, In its June 27, 2006 decision, the trial court ruled in
since last year, the operation of Century 21 has been favor of Fong and held that a careful examination of
taking more time from us than anticipated. That is the complaint shows that although it was labeled as
why we decided to relinquish our original plan to an action for collection of a sum of money, it was
manage and operate ‘Boboli’ knowing this limitation. actually an action for rescission.19chanrobleslaw
For us, it does not make sense anymore to go for a
significant shareholding when we cannot be hands on The trial court noted that Dueñas’ failure to furnish
and participate actively as originally planned. For your Fong with the financial documents on the valuation of
information, we will probably be giving up our subway the Danton and Bakcom shares, as well as the almost
franchise too. one year delay in the incorporation of Alliance, caused
Fong to rescind the joint venture
Together with our business advisers and legal agreement.20 According to the trial court, these are
counsel, we came to a decision to hold our adequate and acceptable reasons for rescission.
commitment (from advances to investment) at
P5 million only for now from the original plan of The trial court also held that Dueñas erroneously
P32.5 million, if this is acceptable to you. invested Fong’s cash contributions in his two
companies, Danton and Bakcom. The signed
We know that our decision will somewhat upset the receipts,21 presented as evidence, expressly provided
overall plans. But it will probably be more problematic that each remittance should be applied as
for us in the long run if we continue full speed. We advance subscription to Fong’s shareholding in
have put our money down in trust and good faith Alliance. Thus, Dueñas’ investment of the money in
despite the much delayed financials. We continue Danton and Bakcom was clearly unauthorized and
to believe in your game plan and capabilities to contrary to the parties’ agreement.
achieve the desired goals for subject undertaking.
Please permit us instead to be just a modest silent Since Dueñas was unjustly enriched by Fong’s
investor now with a take out plan when time and price advance capital contributions, the trial court ordered
is right. him to return the money amounting to P5 Million and
to pay ten percent (10%) of this amount in attorney’s
Thank you for your kind understanding and fees, as well as the cost of the suit.22chanrobleslaw
consideration.
Fong filed a partial motion for reconsideration from
With best regards. the trial court’s June 27, 2006 decision and asked for
the imposition of a six percent (6%) annual interest,
(Signed) George Fong11 computed from the date of extrajudicial demand until
Fong observed that despite his P5 Million full payment of the award. The trial court granted this
contribution, Dueñas still failed to give him the prayer in its October 30, 2006 order.23chanrobleslaw
financial documents on the valuation of the
Danton and Bakcom shares. Thus, except for The CA’s Ruling
Dueñas’ representations, Fong had nothing to rely on
to ensure that these shares were really valued at Dueñas responded to the trial court’s ruling through
P32.5 Million. Moreover, Dueñas failed to an appeal with the CA, which granted the appeal and
incorporate and register Alliance with the annulled the trial court’s ruling.
Securities and Exchange Commission
(SEC).12chanrobleslaw The CA ruled that Fong’s June 13, 1997 letter
evidenced his intention to convert his cash
These circumstances convinced Fong that Dueñas contributions from “advances” to the proposed
would no longer honor his obligations in their joint corporation’s shares, to mere “investments.” Thus,
contrary to the trial court’s ruling, Dueñas correctly
invested Fong’s P5 Million contribution to Bakcom and complaint, and not its title, determine the nature of an
Danton. This did not deviate from the parties’ original action.31chanrobleslaw
agreement as eventually, the shares of these two
companies would form part of Alliance’s An examination of Fong’s complaint shows
capital.24chanrobleslaw that although it was labeled as an action for a
sum of money and damages, it was actually a
Lastly, the CA held that the June 13, 1997 letter complaint for rescission. The following allegations
showed that Fong knew all along that he could not in the complaint support this
immediately ask for the return of his P5 Million finding:chanRoblesvirtualLawlibrary
investment. Thus, whether the action filed was a 9. Notwithstanding the aforesaid remittances,
complaint for collection of a sum of money, or defendant failed for an unreasonable length of
rescission, it must still fail.25chanrobleslaw time to submit a valuation of the equipment of
D.C. Danton and Bakcom x x x.
The Petition
10. Worse, despite repeated reminders from
Fong submits that the CA erred when it ruled that his plaintiff, defendant failed to accomplish the
June 13, 1997 letter showed his intent to convert his organization and incorporation of the proposed
contributions from advance subscriptions to Alliance’s holding company, contrary to his representation to
shares, to investments in Dueñas’ two companies. promptly do so.
Contrary to the CA’s findings, the receipts and the
letter expressly mentioned that his contributions x x x x
should all be treated as his share subscription to
Alliance.26chanrobleslaw 17. Considering that the incorporation of the
proposed holding company failed to materialize,
Also, Fong argues that Dueñas’ unjustified retention despite the lapse of one year and four months
of the P5 Million and its appropriation to his (Dueñas’) from the time of subscription, plaintiff has
own business, amounted to unjust enrichment; and the right to revoke his pre-incorporation
that he contributed to fund Alliance’s capital and subscription. Such revocation entitles plaintiff to
incorporation, not to pay for Danton and Bakcom’s a refund of the amount of P5,000,000.00 he
business expenses.27chanrobleslaw remitted to defendant, representing advances
made in favor of defendant to be considered as
payment on plaintiff’s subscription to the proposed
The Case for Dueñas
holding company upon its incorporation, plus interest
from receipt by defendant of said amount until fully
Dueñas contends that he could no longer refund the
paid. [Emphasis supplied.]
P5 Million since he had already applied it to his two
companies; that this is proper since Danton and Fong’s allegations primarily pertained to his
Bakcom’s shares would also form part of his capital cancellation of their verbal agreement because
contribution to Alliance.28chanrobleslaw Dueñas failed to perform his obligations to
provide verifiable documents on the valuation of
Moreover, the incorporation did not push through the Danton’s and Bakcom’s shares, and to
because Fong unilaterally rescinded the joint venture incorporate the proposed corporation. These
agreement by limiting his investment from P32.5 allegations clearly show that what Fong sought was
Million to P5 Million.29 Thus, it was Fong who first the joint venture agreement’s rescission.
breached the contract, not he. Consequently, Fong’s
failure to comply with his undertaking disqualified him As a contractual remedy, rescission is available when
from seeking the agreement’s one of the parties substantially fails to do what he has
rescission.30chanrobleslaw obligated himself to perform.32 It aims to address the
breach of faith and the violation of reciprocity between
The Court’s Ruling two parties in a contract.33 Under Article 1191 of the
Civil Code, the right of rescission is inherent in
We resolve to GRANT the petition. reciprocal
obligations, viz:chanRoblesvirtualLawlibrary
At the outset, the Court notes that the parties’ joint The power to rescind obligations is implied in
venture agreement to incorporate a company that reciprocal ones, in case one of the obligors should
would hold the shares of Danton and Bakcom and that not comply with what is incumbent upon him.
would serve as the business vehicle for their food [Emphasis supplied.]
enterprise, is a valid agreement. The failure to reduce Dueñas submits that Fong’s prayer for the return of
the agreement to writing does not affect its validity or his cash contribution supports his claim that Fong’s
enforceability as there is no law or regulation which complaint is an action for collection of a sum of
provides that an agreement to incorporate must be in money. However, Dueñas failed to appreciate that the
writing. ultimate effect of rescission is to restore the
parties to their original status before they
With this as premise, we now address the related entered in a contract. As the Court ruled in Unlad
issues raised by the parties. Resources v. Dragon:34cralawred
Rescission has the effect of “unmaking a contract, or
The body rather than the title of the complaint its undoing from the beginning, and not merely its
determines the nature of the action. termination.” Hence, rescission creates
the obligation to return the object of the
A well-settled rule in procedural law is that the contract. It can be carried out only when the one who
allegations in the body of the pleading or the demands rescission can return whatever he may be
obliged to restore. To rescind is to declare a contract Enclosed is our check for P919,534.80 representing
void at its inception and to put an end to it as though our additional advances to subject company in
it never was. It is not merely to terminate it and process of incorporation. This will make our total
release the parties from further obligations to each advances to date amounting to P5
other, but to abrogate it from the beginning and million.37 [Emphasis supplied.]
restore the parties to their relative positions as if no
Moreover, under the Corporation Code, before a stock
contract has been made.
corporation may be incorporated and registered, it is
required that at least twenty five percent (25%) of its
Accordingly, when a decree for rescission is
authorized capital stock as stated in the articles of
handed down, it is the duty of the court to
incorporation, be first subscribed at the time of
require both parties to surrender that which
incorporation, and at least twenty five percent (25%)
they have respectively received and to place
of the total subscription, be paid upon
each other as far as practicable in his original
subscription.38chanrobleslaw
situation.35 [Emphasis supplied.]
In this light, we rule that Fong’s prayer for the return To prove compliance with this requirement, the SEC
of his contribution did not automatically convert the requires the incorporators to submit a treasurer’s
action to a complaint for a sum of money. The affidavit and a certificate of bank deposit, showing the
mutual restitution of the parties’ original existence of an amount compliant with the prescribed
contributions is only a necessary consequence of capital subscription.39chanrobleslaw
their agreement’s rescission.
In this light, we conclude that Fong’s cash
Rescission under Art. 1191 is applicable in the contributions play an indispensable part in
present case Alliance’s incorporation. The process necessarily
requires the money not only to fund Alliance’s
Reciprocal obligations are those which arise from the registration with the SEC but also its initial capital
same cause, in which each party is a debtor and a subscription. This is evident in the receipts which
creditor of the other, such that the obligation of one is Dueñas himself executed, one of which
dependent on the obligation of the provides:chanRoblesvirtualLawlibrary
other.36chanrobleslaw I, JOSE V. DUEÑAS, hereby acknowledge the receipt
on January 14, 1997 of the amount of One Million
Fong and Dueñas’ execution of a joint venture Pesos (Php 1,000,000.00) Check No. 118 118 7014
agreement created between them reciprocal Metro Bank, Pasong Tamo branch dated January 13,
obligations that must be performed in order to fully 1997 from Mr. George Fong, which amount shall
consummate the contract and achieve the purpose for constitute an advance of the contribution or
which it was entered into. investment of Mr. Fong in the joint venture
which he and I are in the process of organizing.
Both parties verbally agreed to incorporate a company Specifically, this amount will be considered as part of
that would hold the shares of Danton and Bakcom and Mr. Fong’s subscription to the shares of stock of the
which, in turn, would be the platform for their food joint venture company which we will incorporate to
business. Fong obligated himself to contribute half of embody and carry out our joint venture.40 [Emphasis
the capital or P32.5 Million in cash. On the other hand, supplied.]
Dueñas bound himself to shoulder the other half by
Thus, Dueñas erred when he invested Fong’s
contributing his Danton and Bakcom shares, which
contributions in his two companies. This money should
were allegedly also valued at P32.5 Million. Aside from
have been used in processing Alliance’s registration.
this, Dueñas undertook to process Alliance’s
Its incorporation would not materialize if there would
incorporation and registration with the SEC.
be no funds for its initial capital. Moreover, Dueñas
represented that Danton and Bakcom’s shares were
When the proposed company remained
valued at P32.5 Million. If this was true, then there
unincorporated by October 30, 1997, Fong cancelled
was no need for Fong’s additional P5 Million
the joint venture agreement and demanded the return
investment, which may possibly increase the value of
of his P5 Million contribution.
the Danton and Bakcom shares.
For his part, Dueñas explained that he could not
Under these circumstances, the Court agrees with the
immediately return the P5 Million since he had
trial court that Dueñas violated his agreement with
invested it in his two companies. He found nothing
Fong. Aside from unilaterally applying Fong’s
irregular in this as eventually, the Danton and Bakcom
contributions to his two companies, Dueñas also
shares would form part of Alliance’s capital.
failed to deliver the valuation documents of the
Danton and Bakcom shares to prove that the
Dueñas’ assertion is erroneous.
combined values of their capital contributions
actually amounted to P32.5 Million.
The parties never agreed that Fong would invest his
money in Danton and Bakcom. Contrary to Dueñas’
These acts led to Dueñas’ delay in incorporating
submission, Fong’s understanding was that his money
the planned holding company, thus resulting in
would be applied to his shareholdings in Alliance. As
his breach of the contract.
shown in Fong’s June 13, 1997 letter, this fact
remained to be true even after he limited his
On this basis, Dueñas’ breach justified Fong’s
contribution to P5
rescission of the joint venture agreement under Article
Million, viz:chanRoblesvirtualLawlibrary
1191. As the Court ruled in Velarde v. Court of
Dear Jojit,
Appeals:41cralawred
The right of rescission of a party to an obligation substantial reduction of his capital contribution also
under Article 1191 of the Civil Code is predicated on greatly impeded the implementation of their
a breach of faith by the other party who violates agreement to engage in the food business and to
the reciprocity between them. The breach incorporate a holding company for it.
contemplated in the said provision is the obligor’s
failure to comply with an existing obligation. When As both parties failed to comply with their respective
the obligor cannot comply with what is reciprocal obligations, we apply Article 1192 of the
incumbent upon it, the obligee may seek Civil Code, which
rescission and in the absence of any just cause for provides:chanRoblesvirtualLawlibrary
the court to determine the period of compliance, the Art. 1192. In case both parties have committed a
court shall decree the rescission. breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts. If
In the present case, private respondents validly it cannot be determined which of the parties first
exercised their right to rescind the contract, violated the contract, the same shall be deemed
because of the failure of petitioners to comply extinguished, and each shall bear his own
with their obligation to pay the balance of the damages. [Emphasis supplied.]
purchase price. Indubitably, the latter violated the
Notably, the Court is not aware of the schedule of
very essence of reciprocity in the contract of sale, a
performance of the parties’ obligations since the joint
violation that consequently gave rise to private
venture agreement was never reduced to writing. The
respondents’ right to rescind the same in accordance
facts, however, show that both parties began
with law.42 [Emphasis supplied.]
performing their obligations after executing the joint
However, the Court notes that Fong also venture agreement. Fong started remitting his share
breached his obligation in the joint venture while Dueñas started processing the Boboli
agreement. international license for the proposed corporation’s
food business.
In his June 13, 1997 letter, Fong expressly informed
Dueñas that he would be limiting his cash contribution The absence of a written contract renders the Court
from P32.5 Million to P5 Million because of the unsure as to whose obligation must be performed
following reasons which we quote first. It is possible that the parties agreed that Fong
verbatim:chanRoblesvirtualLawlibrary would infuse capital first and Dueñas’ submission of
the documents on the Danton and Bakcom shares
would just follow. It could also be the other way
1. First, we were faced with the
around. Further, the parties could have even agreed
‘personal’ factor which was
to simultaneously perform their respective
explained to you one time. This has
obligations.
caused us to turn down a number of
business opportunities;
Despite these gray areas, the fact that both Fong
and Dueñas substantially contributed to the
2. Secondly, since last year, the non-incorporation of Alliance and to the failure
operation of Century 21 has been of their food business plans remains certain.
taking more time from us than
anticipated. That is why we decided As the Court cannot precisely determine who between
to relinquish our original plan to the parties first violated the agreement, we apply the
manage and operate ‘Boboli’ second part of Article 1192 which states: “if it cannot
knowing this limitation. For us, it be determined which of the parties first violated the
does not make sense anymore to go contract, the same shall be deemed
for a significant shareholding when extinguished, and each shall bear his own
we cannot be hands on and damages.”
participate actively as originally
planned.43 x x x. In these lights, the Court holds that the joint venture
agreement between Fong and Dueñas is deemed
Although these reasons appear to be valid, they extinguished through rescission under Article
do not erase the fact that Fong still reneged on 1192 in relation with Article 1191 of the Civil
his original promise to contribute P32.5 Code. Dueñas must therefore return the P5 Million
Million. The joint venture agreement was not reduced that Fong initially contributed since rescission requires
to writing and the evidence does not show if the mutual restitution.44After rescission, the parties
parties agreed on valid causes that would justify the must go back to their original status before they
limitation of the parties’ capital contributions. Their entered into the agreement. Dueñas cannot keep
only admission was that they obligated themselves to Fong’s contribution as this would constitute unjust
contribute P32.5 Million each. enrichment.
Hence, Fong’s diminution of his capital share to No damages shall be awarded to any party in
P5 Million also amounted to a substantial breach accordance with the rule under Article 1192 of the Civil
of the joint venture agreement, which breach Code that in case of mutual breach and the first
occurred before Fong decided to rescind his infractor of the contract cannot exactly be determined,
agreement with Dueñas. Thus, Fong also each party shall bear his own damages.
contributed to the non-incorporation of Alliance that
needed P65 Million as capital to operate. WHEREFORE, premises considered, we
hereby GRANT the petition and reverse the
Fong cannot entirely blame Dueñas since the September 16, 2008 decision and December 8, 2008
resolution of the Court of Appeals in CA-G.R. CV No. action; (c) respondents are not entitled to possess the
88396. Respondent Jose V. Dueñas is ordered subject land until full payment of the purchase price;
to RETURN Five Million Pesos to petitioner George C. (d) petitioners shall transfer the title over the subject
Fong. This amount shall incur an interest of six land from a certain Edilberta N. Santos to petitioners'
percent (6%) per annum from the date of finality of names, and, should they fail to do so, respondents
this judgment until fully paid.45 The parties’ respective may cause the said transfer and charge the costs
claims for damages are incurred against the monthly amortizations; and (e)
deemed EXTINGUISHED and each of them shall upon full payment of the purchase price, petitioners
bear his own damages. shall transfer title over the subject land to
respondents.7 However, respondents sent petitioners
SO ORDERED.cralawlawlibrary a letter8 dated November 7, 2008 seeking to rescind
the subject contract on the ground of financial
difficulties in complying with the same. They also
sought the return of the amount of P12,202,882.00
they had paid to petitioners.9 As their letter went
G.R. No. 210215, December 09, 2015 unheeded, respondents filed the instant
complaint10 for rescission before the RTC.11
ROGELIO S. NOLASCO, NICANORA N. GUEVARA,
LEONARDA N. ELPEDES, HEIRS OF ARNULFO S. In their defense,12 petitioners countered that
NOLASCO, AND REMEDIOS M. NOLASCO, respondents' act is a unilateral cancellation of the
REPRESENTED BY ELENITA M. subject contract as the former did not consent to it.
NOLASCO Petitioners, v. CELERINO S. CUERPO, Moreover, the ground of financial difficulties is not
JOSELITO ENCABO, JOSEPH ASCUTIA, AND among the grounds provided by law to effect a valid
DOMILO LUCENARIO, Respondents. rescission.13
Assailed in this petition for review on certiorari1 are The RTC Ruling
the Decision2 dated June 17, 2013 and the
Resolution3 dated November 19, 2013 of the Court of In a Decision15 dated March 1, 2010, the RTC ruled in
Appeals (CA) in CA-G.R. CV No. 95353, which favor of respondents and, accordingly, ordered: (a)
affirmed in toto the Decision4 dated March 1, 2010 of the rescission of the subject contract; and (b) the
the Regional Trial Court of Quezon City, Branch 81 return of the amounts already paid by respondents to
(RTC) in Civil Case No. Q-08-63860 ordering the petitioners, as well as the remaining post-dated
rescission of the Contract to Sell executed by herein checks issued by respondent Celerino S. Cuerpo
parties and the return of the amounts already paid by representing the remaining monthly amortizations.16
respondents Celerino S. Cuerpo, Joselito Encabo,
Joseph Ascutia, and Domilo Lucenario (respondents) It found petitioners to have substantially breached
to petitioners Rogelio S. Nolasco, Nicanora N. paragraph 7 of the subject contract which states that
Guevara, Leonarda N. Elpedes, Heirs of Arnulfo S. "[t]he [petitioners] shall, within ninety (90) days from
Nolasco, and Remedios M. Nolasco, represented by the signing of [the subject contract] cause the
Elenita M. Nolasco (petitioners), as well as the completion of the transfer of registration of title of the
remaining post-dated checks issued by respondent property subject of [the said contract], from Edilberta
Celerino S. Cuerpo representing the remaining N. Santos to their names, at [petitioners'] own
monthly amortizations, all in connection with the said expense."17 As such, respondents were entitled to
contract. rescission under Article 1191 of the Civil Code.18
4. Ordering the Register of Deeds of Pasig City to On December 28, 1996, Amethyst assigned the
cancel TCT No. PT-105797 and issue a new title over subject property to its sole stockholder, petitioner ASB
the subject property under the name of ORTIGAS & Realty Corporation (the petitioner), under a so-
COMPANY LIMITED PARTNERSHIP. called Deed of Assignment in Liquidation in
consideration of 10,000 shares of the petitioner's
No pronouncement as to cost. outstanding capital stock.9 Thus, the property was
transferred to the petitioner free from any liens or
SO ORDERED.2 encumbrances except those duly annotated on TCT
No. PT-94175.10 The Register of Deeds of Rizal
The petitioner also assails the resolution promulgated cancelled TCT No. PT-94175 and issued TCT No. PT-
105797 in the name of the petitioner with the same
encumbrances annotated on TCT No. PT-94175.11 The term VENDEE in the said restrictions obviously
refer to Amethyst Pearls Corporation considering the
On July 7, 2000, Ortigas filed its complaint for specific fact that the date referred to in Paragraph N thereof
performance against the petitioner,12 which was (Construction and Completion of Building), which is
docketed as Civil Case No. 67978 of the Regional Trial four (4) years from December 31, 1991, obviously
Court (RTC) in Pasig City.13 Ortigas amended the refer to the plaintiffs VENDEE Amethyst Pearl
complaint, and alleged,14 among others, that: Corporation. Definitely, it cannot refer to the
5. Defendant has violated the terms of the Deed of defendant ASB which is not a vendee of the plaintiff.
Absolute Sale (Annex "A") in the following manner: Therefore, all references to VENDEE in the restrictions
a. While the lot may be used only "for office and evidently refer to Amethyst Pearl Corporation, the
residential purposes", defendant introduced VENDEE in the sale from the plaintiff. Such
constructions on the property which are commercial in explanation is more consistent with logic than the
nature, like restaurants, retail stores and the like (see plaintiffs convoluted assertions that the said
par. A, Deed of Absolute Sale, Annex "A"). restrictions apply to the defendant ASB.
It is basic that the party who asserts a fact or the In asserting its right to rescind, Ortigas insists that the
affirmative of an issue has the burden of proving petitioner was bound by the covenants of the Deed of
it.28Here, that party was the petitioner. To comply with Sale annotated on TCT No. PT-10597 in the name of
its burden, it attached to its petition for review the petitioner;38 and that the petitioner's privity to
on certiorari: (1) the affidavit executed by Noel S.R. the Deed of Sale was by virtue of its being the
Rose, Senior Partner of Jose, Mendoza & Associates successor-in-interest or assignee of Amethyst.39
attesting that he had requested the postmaster of the
Mandaluyong City Post Office to certify the date when After evaluating the parties' arguments and the
Jose, Mendoza & Associates had received the copy of records of the case, the Court holds that Ortigas could
the amended decision of the CA;29 and (2) the not validly demand the reconveyance of the property,
certification issued on August 15, 2012 by Postmaster or the demolition of the structures thereon through
Rufino C. Robles, and Letter Carrier, Jojo Salvador, rescission.
both of the Mandaluyong Central Post Office, certifying
that Registered Letter No. MVC 457 containing the The Deed of Assignment in Liquidation executed
copy of the amended decision had been delivered to between Amethyst and the petitioner expressly
and received on January 18, 2012 by Jose, Mendoza stated, in part, that:
& Associates, through Ric Ancheta.30 It thereby sought x x x x [T]he ASSIGNOR hereby assigns,
to prove that it had received the copy of the amended transfers and conveys unto the ASSIGNEE, its
decision only on January 18, 2012, not January 12, successors and assigns, free from any lien or
2012 as stated in the registry return card on record. encumbrance except those that are duly annotated on
Thus, it had until February 2, 2012, or 15 days from the Transfer Certificate of Title (TCT), one parcel of
January 18, 2012, within which to file the same. In real property (with improvements). x x x.
contrast, Ortigas relied only on the copy of the registry
return to refute the petitioner's assertion.31 Under the x x x x
circumstances, the filing on January 30, 2012 of
the Motion for Reconsideration was timely. The ASSIGNEE in turn in consideration of the
foregoing assignment of assets to it, hereby
2. surrenders to ASSIGNOR, Amethyst Pearl
Corporation, Stock Certificate Nos. (006, 007, 008,
Ortigas' action for rescission could not prosper 009, 010, 011), covering a total of TEN THOUSAND
SHARES (10,000) registered in the name of the takes a certificate of title for value in good faith shall
ASSIGNEE and its nominees in the books of hold the same free of all encumbrances except those
ASSIGNOR, receipt of which is hereby acknowledged, noted on said certificate. An encumbrance in the
and in addition hereby releases ASSIGNOR from any context of the provision is "anything that impairs the
and all claims.40ChanRoblesVirtualawlibrary use or transfer of property; anything which constitutes
a burden on the title; a burden or charge upon
The express terms of the Deed of Assignment in
property; a claim or lien upon property."44 It denotes
Liquidation, supra, indicate that Amethyst transferred
"any right to, or interest in, land which may subsist in
to the petitioner only the tangible asset consisting of
another to the diminution of its value, but consistent
the parcel of land covered by TCT No. PT-94175
with the passing of the fee by conveyance."45 An
registered in the name of Amethyst. By no means did
annotation, on the other hand, is "a remark, note,
Amethyst assign the rights or duties it had assumed
case summary, or commentary on some passage of a
under the Deed of Sale. The petitioner thus became
book, statutory provision, court decision, of the like,
vested with the ownership of the parcel of land "free
intended to illustrate or explain its meaning."46 The
from any lien or encumbrance except those that are
purpose of the annotation is to charge the purchaser
duly annotated on the [title]" from the time Amethyst
or title holder with notice of such burden and
executed the Deed of Assignment in Liquidation.
claims.47 Being aware of the annotation, the purchaser
must face the possibility that the title or the real
Although the Deed of Sale stipulated that:
property could be subject to the rights of third
3. The lot, together with any improvements thereon,
parties.48
or any rights thereto, shall not be transferred, sold or
encumbered before the final completion of the
By acquiring the parcel of land with notice of the
building as herein provided unless it is with the prior
covenants contained in the Deed of Sale between the
express written approval of ORTIGAS.41
vendor (Ortigas) and the vendee (Amethyst), the
petitioner bound itself to acknowledge and respect the
x x x x
encumbrance. Even so, the petitioner did not step into
the shoes of Amethyst as a party in the Deed of Sale.
The VENDEE hereby agrees that, for the time being,
Thus, the annotation of the covenants contained in
this Deed will not be registered and that its title shall
the Deed of Sale did not give rise to a liability on the
not be issued until the satisfactory construction of the
part of the petitioner as the purchaser/successor-in-
contemplated Office Building and VENDEE's
interest without its express assumption of the duties
compliance with all conditions herein. x x
or obligations subject of the annotation. As stated, the
x42ChanRoblesVirtualawlibrary
annotation was only the notice to the
Ortigas apparently recognized without any purchaser/successor-in-interest of the burden, claim
reservation the issuance of the new certificate of title or lien subject of the annotation. In that respect, the
in the name of Amethyst and the subsequent transfer Court has observed in Garcia v. Villar:49
by assignment from Amethyst to the petitioner that The sale or transfer of the mortgaged property cannot
resulted in the issuance of the new certificate of title affect or release the mortgage; thus the purchaser or
under the name of the petitioner. As such, Ortigas was transferee is necessarily bound to acknowledge and
estopped from assailing the petitioner's acquisition respect the encumbrance.
and ownership of the property.
x x x x
The application of estoppel was appropriate. The
doctrine of estoppel was based on public policy, fair x x x However, Villar, in buying the subject property
dealing, good faith and justice, and its purpose was to with notice that it was mortgaged, only undertook to
forbid a party to speak against his own act or pay such mortgage or allow the subject property to be
omission, representation, or commitment to the injury sold upon failure of the mortgage creditor to obtain
of another to whom the act, omission, representation, payment from the principal debtor once the debt
or commitment was directed and who reasonably matures. Villar did not obligate herself to replace the
relied thereon. The doctrine sprang from equitable debtor in the principal obligation, and could not do so
principles and the equities in the case, and was in law without the creditors consent. Article 1293 of
designed to aid the law in the administration of justice the Civil Code provides:
where without its aid injustice would result. Estoppel Art. 1293. Novation which consists in substituting a
has been applied by the Court wherever and whenever new debtor in the place of the original one, may be
special circumstances of the case so demanded.43 made even without the knowledge or against the will
of the latter, but not without the consent of the
Yet, the query that persists is whether or not the creditor. Payment by the new debtor gives him the
covenants annotated on TCT No. PT-10597 bound the rights mentioned in articles 1236 and 1237.
petitioner to the performance of the obligations
Therefore, the obligation to pay the mortgage
assumed by Amethyst under the Deed of Sale.
indebtedness remains with the original debtors Galas
and Pingol. x x x
We agree with Ortigas that the annotations on TCT No.
PT-10597 bound the petitioner but not to the extent To be clear, contractual obligations, unlike contractual
that rendered the petitioner liable for the non- rights or benefits, are generally not assignable. But
performance of the covenants stipulated in the Deed there are recognized means by which obligations may
of Sale. be transferred, such as by sub-contract and novation.
In this case, the substitution of the petitioner in the
Section 39 of Act No. 496 (The Land Registration Act) place of Amethyst did not result in the novation of
requires that every person receiving a certificate of the Deed of Sale. To start with, it does not appear
title in pursuance of a decree of registration, and from the records that the consent of Ortigas to the
every subsequent purchaser of registered land who substitution had been obtained despite its essentiality
to the novation. Secondly, the petitioner did not interests of the party plaintiff but on the breach of
expressly assume Amethyst's obligations under faith by the defendant, that violates the reciprocity
the Deed of Sale, whether through the Deed of between the parties. It is not a subsidiary action, and
Assignment in Liquidation or another document. And, Article 1191 may be scanned without disclosing
thirdly, the consent of the new obligor (i.e., the anywhere that the action for rescission thereunder is
petitioner), which was as essential to the novation as subordinated to anything; other than the culpable
that of the obligee (i.e., Ortigas), was not obtained.50 breach of his obligations by the defendant. This
rescission is in principal action retaliatory in character,
Even if we would regard the petitioner as the assignee it being unjust that a party be held bound to fulfill his
of Amethyst as far as the Deed of Sale was concerned, promises when the other violates his, as expressed in
instead of being the buyer only of the subject the old Latin aphorism: "Non servanti fidem, non est
property, there would still be no express or implied fides servanda." Hence, the reparation of damages for
indication that the petitioner had assumed Amethyst's the breach is purely secondary.
obligations. In short, the burden to perform the
covenants under the Deed of Sale, or the liability for On the contrary, in the rescission by reason
the non-performance thereof, remained with of lesion or economic prejudice, the cause of action is
Amethyst. As held in an American case: subordinated to the existence of that prejudice,
The mere assignment of a bilateral executory contract because it is the raison d'etre as well as the measure
may not be interpreted as a promise by the assignee of the right to rescind. Hence, where the defendant
to the assignor to assume the performance of the makes good the damages caused, the action cannot
assignor's duties, so as to have the effect of creating be maintained or continued, as expressly provided in
a new liability on the part of the assignee to the other Articles 1383 and 1384. But the operation of these two
party to the contract assigned. The assignee of the articles is limited to the cases of rescission
vendee is under no personal engagement to the for lesion enumerated in Article 1381 of the Civil Code
vendor where there is no privity between them. of the Philippines, and does not apply to cases under
(Champion v. Brown, 6 Johns. Ch. 398; Anderson v. Article 1191.
N. Y. & H. R. R. Co., 132 App. Div. 183, 187, 188;
Based on the foregoing, Ortigas' complaint was
Hugel v. Habel, 132 App. Div. 327, 328.) The assignee
predicated on Article 1191 of the Civil Code, which
may, however, expressly or impliedly, bind himself to
provides:
perform the assignor's duties. This he may do by
Article 1191. The power to rescind obligations is
contract with the assignor or with the other party to
implied in reciprocal ones, in case one of the obligors
the contract. It has been held (Epstein v. Gluckin, 233
should not comply with what is incumbent upon him.
N. Y. 490) that where the assignee of the vendee
invokes the aid of a court of equity in an action for
The injured party may choose between the fulfillment
specific performance, he impliedly binds himself to
and the rescission of the obligation, with the payment
perform on his part and subjects himself to the
of damages in either case. He may also seek
conditions of the judgment appropriate thereto. "He
rescission, even after he has chosen fulfillment, if the
who seeks equity must do equity." The converse of
latter should become impossible.
the proposition, that the assignee of the vendee would
be bound when the vendor began the action, did not
The court shall decree the rescission claimed, unless
follow from the decision in that case. On the contrary,
there be just cause authorizing the fixing of a period.
the question was wholly one of remedy rather than
right and it was held that mutuality of remedy is
This is understood to be without prejudice to the rights
important only so far as its presence is essential to the
of third persons who have acquired the thing, in
attainment of the ends of justice. This holding was
accordance with articles 1385 and 1388 and the
necessary to sustain the decision. No change was
Mortgage Law.
made in the law of contracts nor in the rule for the
interpretation of an assignment of a contract. Rescission under Article 1191 of the Civil Code is
proper if one of the parties to the contract commits a
A judgment requiring the assignee of the vendee to substantial breach of its provisions. It abrogates the
perform at the suit of the vendor would operate as the contract from its inception and requires the mutual
imposition of a new liability on the assignee which restitution of the benefits received;53 hence, it can be
would be an act of oppression and injustice, unless the carried out only when the party who demands
assignee had, expressly or by implication, entered into rescission can return whatever he may be obliged to
a personal and binding contract with the assignor or restore.
with the vendor to assume the obligations of the
assignor.51ChanRoblesVirtualawlibrary Considering the foregoing, Ortigas did not have a
cause of action against the petitioner for the rescission
Is rescission the proper remedy for Ortigas to recover
of the Deed of Sale. Under Section 2, Rule 2 of
the subject property from the petitioner?
the Rules of Court, a cause of action is the act or
omission by which a party violates a right of another.
The Civil Code uses rescission in two different
The essential elements of a cause of action are: (1) a
contexts, namely: (1) rescission on account of breach
right in favor of the plaintiff by whatever means and
of contract under Article 1191; and (2) rescission by
under whatever law it arises or is created; (2) an
reason of lesion or economic prejudice under Article
obligation on the part of the defendant not to violate
1381. Cogently explaining the differences between the
such right; and (3) an act or omission on the part of
contexts of rescission in his concurring opinion
the defendant in violation of the right of the plaintiff
in Universal Food Corp. v. Court of Appeals,52 the
or constituting a breach of the obligation of the
eminent Justice J.B.L. Reyes observed:
defendant to the plaintiff for which the latter may
x x x The rescission on account of breach of
maintain an action for recovery of damages or other
stipulations is not predicated on injury to economic
relief. It is only upon the occurrence of the last
element that the cause of action arises, giving the The facts of the case as adopted by the respondent
plaintiff the right to file an action in court for the appellant court from herein petitioner's brief before
recovery of damages or other relief.54 said court are as follows:
WHEREFORE, the Court renders judgment for I/We, the undersigned, hereby agree, jointly
the plaintiff and against the defendants and severally with Celia Syjuco Regala to pay
condemning the latter, jointly and severally, the Pacific Banking Corporation upon
to pay said plaintiff the amount of demand any and all indebtedness,
P92,803.98, with interest thereon at 14% obligations, charges or liabilities due and
per annum, compounded annually, from the incurred by said Celia Syjuco Regala with the
time of demand on November 17, 1978 until use of the Pacificard or renewals thereof
said principal amount is fully paid; plus 15% issued in his favor by the Pacific Banking
of the principal obligation as and for Corporation. Any changes of or Novation in
attorney's fees and expense of suit; and the the terms and conditions in connection with
costs. the issuance or use of said Pacificard, or any
extension of time to pay such obligations,
charges or liabilities shall not in any manner
The counterclaim of defendant Roberto
release me/us from the responsibility
Regala, Jr. is dismissed for lack of merit.
hereunder, it being understood that the . . . Any changes of or novation in the terms
undertaking is a continuing one and shall and conditions in connection with the
subsist and bind me/us until all the liabilities issuance or use of said Pacificard, or any
of the said Celia Syjuco Regala have been extension of time to pay such obligations,
fully satisfied or paid. (p. 12, Rollo) charges or liabilities shall not in any manner
release me/us from the responsibility
hereunder, it being understood that the
The undertaking signed by Roberto Regala, Jr.
undertaking is a continuing one and shall
although denominated "Guarantor's Undertaking,"
subsist and bind me/us until all the liabilities
was in substance a contract of surety. As distinguished
of the said Celia Syjuco Regala have been
from a contract of guaranty where the guarantor binds
fully satisfied or paid. (p. 12, supra;
himself to the creditor to fulfill the obligation of the
emphasis supplied)
principal debtor only in case the latter should fail to
do so, in a contract of suretyship, the surety binds
himself solidarily with the principal debtor (Art. 2047, Private respondent Roberto Regala, Jr. had been made
Civil Code of the Philippines). aware by the terms of the undertaking of future
changes in the terms and conditions governing the
issuance of the credit card to his wife and that,
We need not look elsewhere to determine the nature
notwithstanding, he voluntarily agreed to be bound as
and extent of private respondent Roberto Regala, Jr.'s
a surety. As in guaranty, a surety may secure
undertaking. As a surety he bound himself jointly and
additional and future debts of the principal debtor the
severally with the debtor Celia Regala "to pay the
amount of which is not yet known (see Article
Pacific Banking Corporation upon demand, any and all
2053, supra).
indebtedness, obligations, charges or liabilities due
and incurred by said Celia Syjuco Regala with the use
of Pacificard or renewals thereof issued in (her) favor The application by respondent court of the ruling in
by Pacific Banking Corporation." This undertaking was Government v. Tizon, supra is misplaced. It was held
also provided as a condition in the issuance of the in that case that:
Pacificard to Celia Regala, thus:
. . . although the defendants bound
5. A Pacificard is issued to a Pacificard-holder themselves in solidum, the liability of the
against the joint and several signature of a Surety under its bond would arise only if its
third party and as such, the Pacificard holder co-defendants, the principal obligor, should
and the guarantor assume joint and several fail to comply with the contract. To
liabilities for any and all amount arising out paraphrase the ruling in the case of
of the use of the Pacificard. (p. 14, Rollo) Municipality of Orion vs. Concha, the liability
of the Surety is "consequent upon the
liability" of Tizon, or "so dependent on that of
The respondent appellate court held that "all the other
the principal debtor" that the Surety "is
rights of the guarantor are not thereby lost by the
considered in law as being the same party as
guarantor becoming liable solidarily and therefore a
the debtor in relation to whatever is
surety." It further ruled that although the surety's
adjudged, touching the obligation of the
liability is like that of a joint and several debtor, it does
latter"; or the liabilities of the two defendants
not make him the debtor but still the guarantor (or the
herein "are so interwoven and dependent as
surety), relying on the case of Government of the
to be inseparable." Changing the expression,
Philippines v. Tizon. G.R. No. L-22108, August 30,
if the defendants are held liable, their liability
1967, 20 SCRA 1182. Consequently, Article 2054 of
to pay the plaintiff would be solidary, but the
the Civil Code providing for a limited liability on the
nature of the Surety's undertaking is such
part of the guarantor or debtor still applies.
that it does not incur liability unless and until
the principal debtor is held liable.
It is true that under Article 2054 of the Civil Code, "(A)
guarantor may bind himself for less, but not for more
A guarantor or surety does not incur liability unless
than the principal debtor, both as regards the amount
the principal debtor is held liable. It is in this sense
and the onerous nature of the conditions. 2 It is
that a surety, although solidarily liable with the
likewise not disputed by the parties that the credit
principal debtor, is different from the debtor. It does
limit granted to Celia Regala was P2,000.00 per month
not mean, however, that the surety cannot be held
and that Celia Regala succeeded in using the card
liable to the same extent as the principal debtor. The
beyond the original period of its effectivity, October
nature and extent of the liabilities of a guarantor or a
29, 1979. We do not agree however, that Roberto Jr.'s
surety is determined by the clauses in the contract of
liability should be limited to that extent. Private
suretyship(see PCIB v. CA, L-34959, March 18, 1988,
respondent Roberto Regala, Jr., as surety of his
159 SCRA 24).
wife, expressly bound himself up to the extent of the
debtor's (Celia) indebtedness likewise expressly
waiving any "discharge in case of any change or ACCORDINGLY, the petition is GRANTED. The
novation of the terms and conditions in connection questioned decision of respondent appellate court is
with the issuance of the Pacificard credit SET ASIDE and the decision of the trial court is
card." Roberto, in fact, made his commitment as a REINSTATED.
surety a continuing one, binding upon himself until all
the liabilities of Celia Regala have been fully paid. All
SO ORDERED.
these were clear under the "Guarantor's Undertaking"
Roberto signed, thus:
[G.R. No. 101723. May 11, 2000] claims are hereby Dismiss (sic) for
lack of merit. Jjs-c
INDUSTRIAL MANAGEMENT INTERNATIONAL
DEVELOPMENT CORP. (INIMACO), petitioner, "SO ORDERED.
vs. NATIONAL LABOR RELATIONS COMMISSION,
(Fourth Division) Cebu City, and ENRIQUE
"Cebu City, Philippines.
SULIT, SOCORRO MAHINAY, ESMERALDO
PEGARIDO, TITA BACUSMO, GINO NIERE,
VIRGINIA BACUS, ROBERTO NEMENZO, DARIO "10 March 1987."0[1]
GO, and ROBERTO ALEGARBES, respondents.
No appeal was filed within the reglementary period
DECISION thus, the above Decision became final and executory.
On June 16, 1987, the Labor Arbiter issued a writ of
execution but it was returned unsatisfied. On August
BUENA, J.:
26, 1987, the Labor Arbiter issued an Alias Writ of
Execution which ordered thus: Ed-pm-is
This is a petition for certiorari assailing the Resolution
dated September 4, 1991 issued by the National Labor
"NOW THEREFORE, by virtue of the
Relations Commission in RAB-VII-0711-84 on the
powers vested in me by law, you are
alleged ground that it committed a grave abuse of
hereby commanded to proceed to
discretion amounting to lack of jurisdiction in
the premises of respondents
upholding the Alias Writ of Execution issued by the
Antonio Gonzales/Industrial
Labor Arbiter which deviated from the dispositive
Management Development
portion of the Decision dated March 10, 1987, thereby
Corporation (INIMACO) situated at
holding that the liability of the six respondents in the
Barangay Lahug, Cebu City, in front
case below is solidary despite the absence of the word
of La Curacha
"solidary" in the dispositive portion of the Decision,
Restaurant, and/or to Filipinas
when their liability should merely be joint. S-jcj
Carbon and Mining corporation and
Gerardo Sicat at 4th Floor Universal
The factual antecedents are undisputed: Supr-eme RE-Bldg. 106 Paseo de Roxas,
Legaspi Village, Makati Metro Manila
and at Philippine National Bank,
In September 1984, private respondent Enrique Sulit,
Escolta, Manila respectively, and
Socorro Mahinay, Esmeraldo Pegarido, Tita Bacusmo,
collect the aggregate award of ONE
Gino Niere, Virginia Bacus, Roberto Nemenzo,
HUNDRED THIRTY-EIGHT
Dariogo, and Roberto Alegarbes filed a complaint with
THOUSAND FIVE HUNDRED
the Department of Labor and Employment, Regional
EIGHTY-EIGHT PESOS AND THIRTY
Arbitration Branch No. VII in Cebu City against
ONE CENTAVOS (P138,588.31) and
Filipinas Carbon Mining Corporation, Gerardo Sicat,
thereafter turn over said amount to
Antonio Gonzales, Chiu Chin Gin, Lo Kuan Chin, and
complainants ENRIQUE SULIT,
petitioner Industrial Management Development
ESMERALDO PEGARIDO, ROBERTO
Corporation (INIMACO), for payment of separation
NEMENZO AND DARIO GO or to this
pay and unpaid wages. Sc-jj
Office for appropriate disposition.
Should you fail to collect the said
In a Decision dated March 10, 1987, Labor Arbiter sum in cash, you are hereby
Bonifacio B. Tumamak held that: authorized to cause the satisfaction
of the same on the movable or
"RESPONSIVE, to all the foregoing, immovable property(s) of
judgment is hereby entered, respondents not exempt from
ordering respondents Filipinas execution. You are to return this
Carbon and Mining Corp. Gerardo writ sixty (6) (sic) days from your
Sicat, Antonio Gonzales/Industrial receipt hereof, together with your
Management Development Corp. corresponding report.
(INIMACO), Chiu Chin Gin and Lo
Kuan Chin, to pay complainants "You may collect your legal
Enrique Sulit, the total award of expenses from the respondents as
P82,800.00; ESMERALDO provided for by law.
PEGARIDO the full award of
P19,565.00; Roberto Nemenzo the
"SO ORDERED."[2]
total sum of P29,623.60 and DARIO
GO the total award of P6,599.71, or
the total aggregate award of ONE On September 3, 1987, petitioner filed a "Motion to
HUNDRED THIRTY-EIGHT Quash Alias Writ of Execution and Set Aside
THOUSAND FIVE HUNDRED Decision,"[3] alleging among others that the alias writ
EIGHTY-EIGHT PESOS AND 31/100 of execution altered and changed the tenor of the
(P138,588.31) to be deposited with decision by changing the liability of therein
this Commission within ten (10) respondents from joint to solidary, by the insertion of
days from receipt of this Decision the words "AND/OR" between "Antonio
for appropriate disposition. All other Gonzales/Industrial Management Development
Corporation and Filipinas Carbon and Mining Petitioner appealed the above Order of the Labor
Corporation, et al." However, in an order dated Arbiter but this was again dismissed by the
September 14, 1987, the Labor Arbiter denied the respondent NLRC in its Resolution[8] dated September
motion. Mis-oedp 4, 1991 which held that:
In the dispositive portion of the Labor Arbiter, the WHEREFORE, the petition is hereby GRANTED. The
word "solidary" does not appear. The Resolution dated September 4, 1991 of the
said fallo expressly states the following respondents respondent National Labor Relations is hereby
therein as liable, namely: Filipinas Carbon and Mining declared NULL and VOID. The liability of the
Corporation, Gerardo Sicat, Antonio Gonzales, respondents in RAB-VII-0711-84 pursuant to the
Industrial Management Development Corporation Decision of the Labor Arbiter dated March 10, 1987
(petitioner INIMACO), Chiu Chin Gin, and Lo Kuan should be, as it is hereby, considered joint and
Chin. Nor can it be inferred therefrom that the liability petitioners payment which has been accepted
of the six (6) respondents in the case below is considered as full satisfaction of its liability, without
solidary, thus their liability should merely be joint. prejudice to the enforcement of the award, against the
other five (5) respondents in the said case. Sppedsc
Moreover, it is already a well-settled doctrine in this
jurisdiction that, when it is not provided in a judgment SO ORDERED.
that the defendants are liable to pay jointly and
severally a certain sum of money, none of them may
Bellosillo, (Chairman), Mendoza, and Quisumbing,
be compelled to satisfy in full said judgment.
JJ., concur.
In Oriental Commercial Co. vs. Abeto and
Mabanag[13] this Court held:
De Leon, Jr., J., on leave.
"It is of no consequence that, under
the contract of suretyship executed
by the parties, the obligation
contracted by the sureties was joint
and several in character. The final
judgment, which superseded the
action for the enforcement of said
contract, declared the obligation to
[G.R. No. 144134. November 11, 2003]
be merely joint, and the same
cannot be executed otherwise."[14]
DECISION
None of the parties in the case before the Labor
Arbiter appealed the Decision dated March 10, 1987, QUISUMBING, J.:
hence the same became final and executory. It was,
therefore, removed from the jurisdiction of the Labor
Arbiter or the NLRC to further alter or amend it. Thus, For review on certiorari is the
the proceedings held for the purpose of amending or Resolution,[1] dated December 29, 1999, of the Court
altering the dispositive portion of the said decision are of Appeals in CA-G.R. SP No. 55416, which dismissed
null and void for lack of jurisdiction. Also, the Alias outright the petition for certiorari of Mariveles
Writ of Execution is null and void because it varied the Shipyard Corp., due to a defective certificate of non-
tenor of the judgment in that it sought to enforce the forum shopping and non-submission of the required
final judgment against "Antonio Gonzales/Industrial documents to accompany said petition. Mariveles
Management Development Corp. Shipyard Corp., had filed a special civil action
(INIMACO) and/or Filipinas Carbon and Mining Corp. for certiorari with the Court of Appeals to nullify the
resolution[2] of the National Labor Relations
Commission (NLRC), dated April 22, 1999, in NLRC On May 22, 1998, the Labor Arbiter decided
NCR Case No. 00-09-005440-96-A, which affirmed NLRC NCR Case No. 00-09-005440-96-A, to wit:
the Labor Arbiters decision,[3] dated May 22, 1998,
holding petitioner jointly and severally liable with
WHEREFORE, conformably with the foregoing,
Longest Force Investigation and Security Agency,
judgment is hereby rendered ordering the
Inc., for the underpayment of wages and overtime pay
respondents as follows:
due to the private respondents. Likewise challenged in
the instant petition is the resolution[4] of the Court of
Appeals, dated July 12, 2000, denying petitioners 1. DECLARING respondents Longest Force
motion for reconsideration. Investigation & Security Agency, Inc. and Mariveles
Shipyard Corporation jointly and severally liable to
The facts, as culled from records, are as follows: pay the money claims of complainants representing
underpayment of wages and overtime pay in the total
Sometime on October 1993, petitioner Mariveles amount of P2,700,623.40 based on the PADPAO rates
Shipyard Corporation engaged the services of Longest of pay covering the period from October 16, 1993 up
Force Investigation and Security Agency, Inc. to April 29, 1995 broken down as follows:
(hereinafter, Longest Force) to render security
services at its premises. Pursuant to their agreement,
Longest Force deployed its security guards, the UNDERPAYMENT OF WAGES:
private respondents herein, at the petitioners shipyard
in Mariveles, Bataan. PERIOD MONTHLY
COVERED PADPAO ACTUAL UNDERPAYMENT
According to petitioner, it religiously complied
RATES SALARY FOR TH
with the terms of the security contract with Longest
E Wage
Force, promptly paying its bills and the contract rates
(8 hrs.
of the latter. However, it found the services being
duty) RECEIVED PERIO
rendered by the assigned guards unsatisfactory and
D DIFFERENTIALS
inadequate, causing it to terminate its contract with
Longest Force on April 1995.[5] Longest Force, in turn, Oct. 16-
terminated the employment of the security guards it Dec. P5,485.00 P5,000 P 485.00 P970.00
had deployed at petitioners shipyard. 15/93 (2 mos.)
On September 2, 1996, private respondents filed Dec. 16/93-
a case for illegal dismissal, underpayment of wages Mar. 6,630.00 5,000 1,630.00 5,705.00
pursuant to the PNPSOSIA-PADPAO rates, non- 31/94 (3.5 mos.)
payment of overtime pay, premium pay for holiday
and rest day, service incentive leave pay, 13th month Apr. 1-Dec. 7,090.00 5,810 1,280.00 11,520.00
pay and attorneys fees, against both Longest Force 31/94 (9 mos.)
and petitioner, before the Labor Arbiter. Docketed as
NLRC NCR Case No. 00-09-005440-96-A, the case Jan. 1-Apr. 7,220.00 5,810 1,410.00 5,597.70
sought the guards reinstatement with full backwages 29/95 (3.97 mos.)
and without loss of seniority rights.
TOTAL
For its part, Longest Force filed a cross- UNDERPAYMENTS - - - -
claim[6] against the petitioner. Longest Force admitted - - - - - - - - - - -
that it employed private respondents and assigned - P23,792.70
them as security guards at the premises of petitioner
from October 16, 1993 to April 30, 1995, rendering a OVERTIME:
12 hours duty per shift for the said period. It likewise
admitted its liability as to the non-payment of the
alleged wage differential in the total amount Oct. 16-Dec. 15/93 P5,485 x 2 = P 5,485.00
of P2,618,025 but passed on the liability to petitioner (2 mos.) 2
alleging that the service fee paid by the latter to it was
way below the PNPSOSIA and PADPAO rate, thus, Dec. 16/93-Mar. 6,630 x 3.5 = 11,602.50
contrary to the mandatory and prohibitive laws 31/94 (3.5 mos.) 2
because the right to proper compensation and benefits
provided under the existing labor laws cannot be
Apr. 1-Dec. 7,090 x 9 = 31,905.00
waived nor compromised.
31/94 (9 mos.) 2
The petitioner denied any liability on account of
the alleged illegal dismissal, stressing that no Jan. 1-Apr. 7,220 x 3.97 = 14,331.70
employer-employee relationship existed between it 29/95 (3.97 mos.) 2
and the security guards. It further pointed out that it
would be the height of injustice to make it liable again
for monetary claims which it had already paid. Anent TOTAL OVERTIME- - - - - - - -
the cross-claim filed by Longest Force against it, - P63,324.20
petitioner prayed that it be dismissed for lack of merit.
Petitioner averred that Longest Force had benefited Sub-Total of Underpayments and
from the contract, it was now estopped from Overtime P87,116.90
questioning said agreement on the ground that it had
made a bad deal.
1. Luis Regondula (the same) P 87,116.90
2. Manolito Catalan (the same) 87,116.90
3. Oresca Agapito (the same) 87,116.90 TOTAL P 126,684.40[7]
4. Noel Alibadbad (the same) 87,116.90
5. Rogelio Pintuan (the same) 87,116.90
1. Luis Regondula (same) P 126,684.40[8]
6. Danilo Crisostomo (the
2. Manolito Catalan (same) 126,684.40
same) 87,116.90
3. Oresca Agapito (same) 126,684.40
7. Romulo Macalinao (the
4. Noel Alibadbad (same) 126,684.40
same) 87,116.90
5. Rogelio Pintuan (same) 126,684.40
8. Nestor Ferrer (the same) 87,116.90
6. Danilo Crisostomo (same) 126,684.40
9. Ricky Cuesta (the same) 87,116.90
7. Romulo Macalinao (same) 126,684.40
10. Andrada Ricky (the same) 87,116.90
8. Nestor Ferrer (same) 126,684.40
11. Larry Rogola (the same) 87,116.90
9. Ricky Cuesta (same) 126,684.40
12. Francisco Lenogon (the
10. Andrada Rolly (same) 126,684.40
same) 87,116.90
11. Larry Rogola (same) 126,684.40
13. Augosto Quinto (the same) 87,116.90
12. Francisco Lenogon (same) 126,684.40
14. Arfe Beramo (the same) 87,116.90
13. Augosto Quinto (same) 126,684.40
15. Bonifacio Trinidad (the
14. Arfe Beramo (same) 126,684.40
same) 87,116.90
15. Bonifacio Trinidad (same) 126,684.40
16. Alfredo Azcarraga (the
16. Alfredo Azcarraga (same) 126,684.40
same) 87,116.90
17. Ernesto Magno (same) 126,684.40
17. Ernesto Magno (the same) 87,116.90
18. Honario Hortecio (same) 126,684.40
18. Honario Hortecio (the
19. Nelbert Pineda (same) 126,684.40
same) 87,116.90
20. Glen Estipular (same) 126,684.40
19. Nelbert Pineda (the same) 87,116.90
21. Francisco Compuesto (same) 126,684.
20. Glen Estipular (the same) 87,116.90
40
21. Francisco Compuesto (the
22. Isabelito Cortes (same) 126,684.40
same) 87,116.90
23. Maturan Rosauro (same) 126,684.40
22. Isabelito Cortes (the same) 87,116.90
24. Samson Canas (same) 126,684.40
23. Maturan Rosauro (the
25. Febien Isip (same) 126,684.40
same) 87,116.90
26. Jesus Riparip (same) 126,684.40
24. Samson Canas (the same) 87,116.90
27. Alfredo Sienes (same) 126,684.40
25. Febien Isip (the same) 87,116.90
28. Adolar Albert (same) 126,684.40
26. Jesus Riparip (the same) 87,116.90
29. Cabanillas Honesto (same) 126,684.4
27. Alfredo Sienes (the same) 87,116.90
0
28. Adolar Albert (the same) 87,116.90
30. Castillo Amping (same) 126,684.40
29. Cabanillas Honesto (the
31. Revilla Elwin (same) 126,684.40
same) 87,116.90
GRAND TOTAL P3,927,216.40[9]
30. Castillo Amping (the same) 87,116.90
31. Revilla Elwin (the same) 87,116.90
4. ORDERING said Longest Force Investigation &
Security Agency, Inc. to pay attorneys fees equivalent
GRAND TOTAL P 2,700,623.90
to ten (10%) percent of the total award recovered
representing backwages in the amount
2. DECLARING both respondents liable to pay of P392,721.64.[10]
complainants attorneys fees equivalent to ten (10%)
percent of the total award recovered or the sum
5. DISMISSING all other claims for lack of legal basis.
of P270,062.34.
SO ORDERED.[11]
3. ORDERING respondent Longest Force Investigation
& Security Agency, Inc. to reinstate all the herein
complainants to their former or equivalent positions Petitioner appealed the foregoing to the NLRC in
without loss of seniority rights and privileges with full NLRC NCR Case No. 00-09-005440-96-A. The labor
backwages which as computed as of the date of this tribunal, however, affirmed in toto the decision of the
decision are as follows: Labor Arbiter. Petitioner moved for reconsideration,
but this was denied by the NLRC.
Backwages: The petitioner then filed a special civil action
for certiorari assailing the NLRC judgment for having
10/16 12/15/93 =2 mos. been rendered with grave abuse of discretion with the
P 5,485.00 x 2 mos. = P 10,970.00 Court of Appeals, docketed as CA-G.R. SP No. 55416.
The Court of Appeals, however, denied due course to
the petition and dismissed it outright for the following
12/16/93 3/31/94=3.5 mos. reasons:
P 6,630.00 x 3.5 mos. = 23,205.00
1. The verification and certification on non-
4/1 12/31/94 = 9 mos. forum shopping is signed not by duly
P 7,090.00 x 9 mos. = 63,810.00 authorized officer of petitioner
corporation, but by counsel (Section 1,
Rule 65, 1997 Rules of Civil Procedure).
1/1 4/29/95 = 3.97 mos.
P 7,220.00 x 3.97 mos. = 28,663.40 2. The petition is unaccompanied by copies
of relevant and pertinent documents,
particularly the motion for
reconsideration filed before the NLRC with the Court of Appeals is substantial compliance
(Section 1, Rule 65, 1997 Rules of Civil with the requirement. Moreover, petitioner calls our
Procedure).[12] attention to the fact that when it filed its motion for
reconsideration before the Court of Appeals, a joint
The petitioner then moved for reconsideration of verification and certification of non-forum shopping
the order of dismissal. The appellate court denied the duly signed by its Personnel Manager[16] and a copy of
motion, pointing out that under prevailing case law the Motion for Reconsideration[17] filed before the
subsequent compliance with formal requirements for NLRC were attached therein. Thus, petitioner prays
filing a petition as prescribed by the Rules, does that we take a liberal stance to promote the ends of
not ipso facto warrant a reconsideration. In any justice.
event, it found no grave abuse of discretion on the
part of the NLRC to grant the writ of certiorari. Petitioners plea for liberality, however, cannot be
granted by the Court for reasons herein elucidated.
Hence, this present petition before us. Petitioner
submits that THE COURT OF APPEALS GRAVELY It is settled that the requirement in the Rules
ERRED: that the certification of non-forum shopping should be
executed and signed by the plaintiff or the principal
1. .IN DISMISSING THE PETITION AND means that counsel cannot sign said certification
DENYING THE MOTION FOR unless clothed with special authority to do so.[18]The
RECONSIDERATION DESPITE THE FACT reason for this is that the plaintiff or principal knows
THAT PETITIONER SUBSTANTIALLY better than anyone else whether a petition has
COMPLIED WITH THE REQUIREMENTS previously been filed involving the same case or
OF SECTION 1, RULE 65, 1997 RULES substantially the same issues. Hence, a certification
OF CIVIL PROCEDURE. signed by counsel alone is defective and constitutes a
valid cause for dismissal of the petition.[19] In the case
2. .IN RULING THAT PETITIONER WAS NOT
of natural persons, the Rule requires the parties
DENIED DUE PROCESS OF LAW.
themselves to sign the certificate of non-forum
3. .IN AFFIRMING THE DECISION OF THE shopping. However, in the case of the corporations,
NATIONAL LABOR RELATIONS the physical act of signing may be performed, on
COMMISSION THAT LONGEST FORCE behalf of the corporate entity, only by specifically
AND PETITIONER ARE JOINTLY AND authorized individuals for the simple reason that
SEVERALLY LIABLE FOR PAYMENT OF corporations, as artificial persons, cannot personally
WAGES AND OVERTIME PAY DESPITE do the task themselves.[20] In this case, not only was
THE CLEAR SHOWING THAT the originally appended certification signed by
PETITIONER HAVE ALREADY PAID THE counsel, but in its motion for reconsideration, still
SECURITY SERVICES THAT WAS petitioner utterly failed to show that Ms. Rosanna
RENDERED BY PRIVATE Ignacio, its Personnel Manager who signed the
RESPONDENTS. verification and certification of non-forum shopping
attached thereto, was duly authorized for this
4. WHEN IT FAILED TO RULE THAT ONLY purpose. It cannot be gainsaid that obedience to the
LONGEST FORCE SHOULD BE SOLELY requirements of procedural rule is needed if we are to
AND ULTIMATELY LIABLE IN THE expect fair results therefrom. Utter disregard of the
INSTANT CASE.[13] rules cannot justly be rationalized by harking on the
policy of liberal construction.[21]
We find the issues for our resolution to be: (1)
Was it error for the Court of Appeals to sustain its Thus, on this point, no error could be validly
order of dismissal of petitioners special civil action attributed to respondent Court of Appeals. It did not
for certiorari, notwithstanding subsequent compliance err in dismissing the petition for non-compliance with
with the requirements under the Rules of Court by the the requirements governing the certification of non-
petitioner? (2) Did the appellate court err in not forum shopping.
holding that petitioner was denied due process of law
by the NLRC? and (3) Did the appellate court Anent the second issue, petitioner avers that
grievously err in finding petitioner jointly and severally there was denial of due process of law when the Labor
liable with Longest Force for the payment of wage Arbiter failed to have the case tried on the
differentials and overtime pay owing to the private merits. Petitioner adds that the Arbiter did not
respondents? observe the mandatory language of the then Sec. 5(b)
Rule V (now Section 11, per amendment in Resolution
On the first issue, the Court of Appeals in No. 01-02, Series of 2002) of the NLRC New Rules of
dismissing CA-G.R. SP No. 55416 observed that: (1) Procedure which provided that:
the verification and certification of non-forum
shopping was not signed by any duly authorized
If the Labor Arbiter finds no necessity of further
officer of petitioner but merely by petitioners counsel;
hearing after the parties have submitted their position
and (2) the petition was not accompanied by a copy
papers and supporting documents, he shall issue an
of motion for reconsideration filed before the NLRC,
Order to that effect and shall inform the parties,
thus violating Section 1,[14] Rule 65 of the Rules of
stating the reasons therefor. [22]
Court. Hence, a dismissal was proper under Section
3,[15] Rule 46 of the Rules.
Petitioners contention, in our view, lacks
In assailing the appellate courts ruling, the sufficient basis. Well settled is the rule that the
petitioner appeals to our sense of compassion and essence of due process is simply an opportunity to be
kind consideration. It submits that the certification heard, or, as applied to administrative proceedings,
signed by its counsel and attached to its petition filed an opportunity to explain ones side or an opportunity
to seek a reconsideration of the action or ruling responsible with his contractor or subcontractor for
complained of.[23] Not all cases require a trial-type any violation of any provision of this Code. For
hearing. The requirement of due process in labor purposes of determining the extent of their civil
cases before a Labor Arbiter is satisfied when the liability under this Chapter, they shall be considered
parties are given the opportunity to submit their as direct employers.
position papers to which they are supposed to attach
all the supporting documents or documentary
In this case, when petitioner contracted for
evidence that would prove their respective claims, in
security services with Longest Force as the security
the event the Labor Arbiter determines that no formal
agency that hired private respondents to work as
hearing would be conducted or that such hearing was
guards for the shipyard corporation, petitioner
not necessary.[24] In any event, as found by the NLRC,
became an indirect employer of private respondents
petitioner was given ample opportunity to present its
pursuant to Article 107 abovecited. Following Article
side in several hearings conducted before the Labor
106, when the agency as contractor failed to pay the
Arbiter and in the position papers and other
guards, the corporation as principal becomes jointly
supporting documents that it had submitted.We find
and severally liable for the guards wages. This is
that such opportunity more than satisfies the
mandated by the Labor Code to ensure compliance
requirement of due process in labor cases.
with its provisions, including payment of statutory
On the third issue, petitioner argues that it minimum wage. The security agency is held liable by
should not be held jointly and severally liable with virtue of its status as direct employer, while the
Longest Force for underpayment of wages and corporation is deemed the indirect employer of the
overtime pay because it had been religiously and guards for the purpose of paying their wages in the
promptly paying the bills for the security services sent event of failure of the agency to pay them. This
by Longest Force and that these are in accordance statutory scheme gives the workers the ample
with the statutory minimum wage. Also, petitioner protection consonant with labor and social justice
contends that it should not be held liable for overtime provisions of the 1987 Constitution.[27]
pay as private respondents failed to present proof that
Petitioner cannot evade its liability by claiming
overtime work was actually performed. Lastly,
that it had religiously paid the compensation of guards
petitioner claims that the Court of Appeals failed to
as stipulated under the contract with the security
render a decision that finally disposed of the case
agency. Labor standards are enacted by the
because it did not specifically rule on the immediate
legislature to alleviate the plight of workers whose
recourse of private respondents, that is, the matter of
wages barely meet the spiraling costs of their basic
reimbursement between petitioner and Longest Force
needs. Labor laws are considered written in every
in accordance with Eagle Security Agency Inc. v.
contract. Stipulations in violation thereof are
NLRC,[25] and Philippine Fisheries Development
considered null. Similarly, legislated wage increases
Authority v. NLRC.[26]
are deemed amendments to the contract. Thus,
Petitioners liability is joint and several with that employers cannot hide behind their contracts in order
of Longest Force, pursuant to Articles 106, 107 and to evade their (or their contractors or subcontractors)
109 of the Labor Code which provide as follows: liability for noncompliance with the statutory
minimum wage.[28]
ART. 109. SOLIDARY LIABILITY. The provisions of One final point. Upon review of the award of
existing laws to the contrary notwithstanding, every backwages and attorneys fees, we discovered certain
employer or indirect employer shall be held errors that happened in the addition of the amount of
individual backwages that resulted in the erroneous
total amount of backwages and attorneys fees.These Fracture, left tibia mid 3rd
errors ought to be properly rectified now. Thus, the Lacerated wound, chin
correct sum of individual backwages should Contusions with abrasions, left lower leg
be P126,648.40 instead of P126,684.40, while the Fracture, 6th and 7th ribs, right3
correct sum of total backwages awarded and
attorneys fees should
Medical Certificate of Rachel Fletcher
be P3,926,100.40 and P392,610.04, instead
of P3,927,216.40 and P392,721.64, respectively.
Extensive lacerated wounds, right leg
WHEREFORE, the Resolution of the Court of posterior aspect popliteal area
Appeals in CA-G.R. SP No. 55416 is and antero-lateral aspect mid lower leg with
AFFIRMED with MODIFICATION.Petitioner and severance of muscles.
Longest Force are held liable jointly and severally for Partial amputation BK left leg with severance
underpayment of wages and overtime pay of the of gastro-soleus and
security guards, without prejudice to petitioners right antero-lateral compartment of lower leg.
of reimbursement from Longest Force Investigation Fracture, open comminuted, both tibial4
and Security Agency, Inc. The amounts payable to
complaining security guards, herein private
Thereafter, respondents filed a Complaint5 for
respondents, by way of total backwages and
damages against CDCP, BLTB, Espiridion Payunan, Jr.
attorneys fees are hereby set at P3,926,100.40
and Wilfredo Datinguinoo before the Regional Trial
and P392,610.04, respectively. Costs against
Court of Manila, Branch 13. They alleged (1) that
petitioner.
Payunan, Jr. and Datinguinoo, who were the drivers
SO ORDERED. of CDCP and BLTB buses, respectively, were negligent
and did not obey traffic laws; (2) that BLTB and CDCP
did not exercise the diligence of a good father of a
family in the selection and supervision of their
employees; (3) that BLTB allowed its bus to operate
G.R. No. 147791 September 8, 2006 knowing that it lacked proper maintenance thus
exposing its passengers to grave danger; (4) that they
suffered actual damages amounting to P250,000.00
CONSTRUCTION DEVELOPMENT CORPORATION
for Estrella and P300,000.00 for Fletcher; (5) that
OF THE PHILIPPINES, petitioner,
they suffered physical discomfort, serious anxiety,
vs.
fright and mental anguish, besmirched reputation and
REBECCA G. ESTRELLA, RACHEL E. FLETCHER,
wounded feelings, moral shock, and lifelong social
PHILIPPINE PHOENIX SURETY & INSURANCE
humiliation; (6) that defendants failed to act with
INC., BATANGAS LAGUNA TAYABAS BUS CO.,
justice, give respondents their due, observe honesty
and WILFREDO DATINGUINOO, respondents.
and good faith which entitles them to claim for
exemplary damage; and (7) that they are entitled to
DECISION a reasonable amount of attorney's fees and litigation
expenses.
YNARES-SANTIAGO, J.:
CDCP filed its Answer6 which was later amended to
This petition for review assails the March 29, 2001 include a third-party complaint against Philippine
Decision1 of the Court of Appeals in CA-G.R. CV No. Phoenix Surety and Insurance, Inc. (Phoenix).7
46896, which affirmed with modification the February
9, 1993 Decision2 of the Regional Trial Court of Manila, On February 9, 1993, the trial court rendered a
Branch 13, in Civil Case No. R-82-2137, finding decision finding CDCP and BLTB and their employees
Batangas Laguna Tayabas Bus Co. (BLTB) and liable for damages, the dispositive portion of which,
Construction Development Corporation of the states:
Philippines (CDCP) liable for damages.
WHEREFORE, judgment is rendered:
The antecedent facts are as follows:
In the Complaint –
On December 29, 1978, respondents Rebecca G.
Estrella and her granddaughter, Rachel E. Fletcher,
1. In favor of the plaintiffs and against the
boarded in San Pablo City, a BLTB bus bound for Pasay
defendants BLTB, Wilfredo Datinguinoo,
City. However, they never reached their destination
Construction and Development Corporation
because their bus was rammed from behind by a
of the Philippines (now PNCC) and Espiridion
tractor-truck of CDCP in the South Expressway. The
Payunan, Jr., ordering said defendants,
strong impact pushed forward their seats and pinned
jointly and severally to pay the plaintiffs the
their knees to the seats in front of them. They
sum of P79,254.43 as actual damages and to
regained consciousness only when rescuers created a
pay the sum of P10,000.00 as attorney's fees
hole in the bus and extricated their legs from under
or a total of P89,254.43;
the seats. They were brought to the Makati Medical
Center where the doctors diagnosed their injuries to
be as follows: 2. In addition, defendant Construction and
Development Corporation of the Philippines
and defendant Espiridion Payunan, Jr., shall
Medical Certificate of Rebecca Estrella
pay the plaintiffs the amount of Fifty
Thousand (P50,000.00) Pesos to plaintiff the amount of damages, the dispositive portion of
Rachel Fletcher and Twenty Five Thousand which provides:
(P25,000.00) Pesos to plaintiff Rebecca
Estrella;
WHEREFORE, the assailed decision dated
October 7, 1993 of the Regional Trial Court,
3. On the counterclaim of BLTB Co. and Branch 13, Manila is hereby AFFIRMED with
Wilfredo Datinguinoo – the following MODIFICATION:
Dismissing the counterclaim; 1. The interest of six (6) percent per annum
on the actual damages of P79,354.43 should
commence to run from the time the judicial
4. On the crossclaim against Construction
demand was made or from the filing of the
and Development Corporation of the
complaint on February 4, 1980;
Philippines (now PNCC) and Espiridion
Payunan, Jr. –
2. Thirty (30) percent of the total amount
recovered is hereby awarded as attorney's
Dismissing the crossclaim;
fees;
Footnotes 23
Valenzuela v. Court of Appeals, 323 Phil.
374, 399 (1996).
1
Penned by Associate Justice Remedios A.
Salazar-Fernando and concurred in by 24
ART. 2234. While the amount of the
Associate Justices Romeo A. Brawner and exemplary damages need not be proved, the
Rebecca De Guia-Salvador; rollo, pp. 30-47. plaintiff must show that he is entitled to
moral, temperate or compensatory damages
before the court may consider the question
2
CA rollo, pp. 89-116. Penned by Judge
of whether or not exemplary damages should
Cecilio F. Balagot.
be awarded. In case liquidated damages
have been agreed upon, although no proof of
3
Records, p. 538. loss is necessary in order that such liquidated
damages may be recovered, nevertheless,
4
Id. at 540. before the court may consider the question
of granting exemplary in addition to the
liquidated damages, the plaintiff must show
5
Id. at 3-10. that he would be entitled to moral, temperate
or compensatory damages were it not for the
6
Id. at 30-34. stipulation for liquidated damages.
7
Id. at 70-75.
8
CA rollo, pp. 115-116. G.R. No. 203133, February 18, 2015
9
Id. at 106-107. YULIM INTERNATIONAL COMPANY LTD., JAMES
YU, JONATHAN YU, AND ALMERICK TIENG
LIM, Petitioners, v. INTERNATIONAL EXCHANGE
10
Id. at 108-109. BANK (NOW UNION BANK OF THE
PHILIPPINES), Respondent.
11
Id. at 60-88.
DECISION
12
Rollo, pp. 46-47.
REYES, J.:
13
Art. 2176. Whoever by act or omission
causes damage to another, there being fault In the assailed Decision1 dated February 1, 2012 in
or negligence, is obliged to pay for the CA-G.R. CV No. 95522, the Court of Appeals (CA)
damage done. Such fault or negligence, if modified the Decision2 dated December 21, 2009 of
there is no pre-existing contractual relation the Regional Trial Court (RTC) of Makati City, Branch
between the parties, is called a quasi-delict 145, in Civil Case No. 02-749, holding that James Yu
and is governed by the provisions of this (James), Jonathan Yu (Jonathan) and Almerick Tieng
Chapter. Lim (Almerick), who were capitalist partners in Yulim
International Company Ltd. (Yulim), collectively called
14
Equitable Leasing Corporation v. Suyom, as the petitioners, were jointly and severally liable
437 Phil. 244, 253 (2002). with Yulim for its loan obligations with respondent
International Exchange Bank (iBank).
15
Fabre, Jr. v. Court of Appeals, 328 Phil.
774 (1996). The Facts
SO ORDERED.15
P4,246,310.00 with interest at 16.5% per
Chiefly, the factual issue on appeal to the CA, raised annum from February 28, 2002 until fully paid.
by petitioners James, Jonathan and Almerick, was
whether Yulim’s loans have in fact been extinguished 2. The CA erred in not ordering iBank to pay the
with the execution of a Deed of Assignment of their petitioners moral damages, exemplary damages, and
condominium unit in favor of iBank, while the corollary attorney’s fees.24
legal issue, raised by iBank, was whether they should
be held solidarily liable with Yulim for its loans and
The petitioners insist that they have paid their loan to
other obligations to iBank.
iBank. They maintain that the letter of iBank to them
dated May 4, 2001, which “expressly stipulated that
The CA ruled that the petitioners failed to prove that
the petitioners shall execute a Deed of Assignment
they have already paid Yulim’s consolidated loan
over one condominium unit No. 141, 3rd Floor and a
obligations totaling P4,246,310.00, for which it issued
parking slot located at 20 Landsbergh Place, Tomas
to iBank PN No. SADDK001014188 for the said
Morato Avenue, Quezon City,” was with the
amount. It held that the existence of a debt having
understanding that the Deed of Assignment, which
been established, the burden to prove with legal
they in fact executed, delivering also to iBank all the
certainty that it has been extinguished by payment
pertinent supporting documents, would serve to
devolves upon the debtors who have offered such
totally extinguish their loan obligation to iBank. In
defense. The CA found the records bereft of any
particular, the petitioners state that it was their
evidence to show that Yulim had fully settled its
understanding that upon approval by iBank of their
obligation to iBank, further stating that the so-called
Deed of Assignment, the same “shall be considered as
assignment by Yulim of its condominium unit to iBank
full and final payment of the petitioners’ obligation.”
was nothing but a mere temporary arrangement to
They further assert that iBank’s May 4, 2001 letter
provide security for its loan pending the subsequent
expressly carried the said approval.
execution of a real estate mortgage. Specifically, the
CA found nothing in the Deed of Assignment which
The petitioner invoked Article 1255 of the Civil Code,
could signify that iBank had accepted the said
on payment by cession, which provides:
property as full payment of the petitioners’ loan. The
CA cited Manila Banking Corporation v. Teodoro,
Jr.22 which held that an assignment to guarantee an Art. 1255. The debtor may cede or assign his property
obligation is in effect a mortgage and not an absolute to his creditors in payment of his debts. This cession,
conveyance of title which confers ownership on the unless there is stipulation to the contrary, shall only
assignee. release the debtor from responsibility for the net
proceeds of the thing assigned. The agreements
Concerning the solidary liability of petitioners James, which, on the effect of the cession, are made between
Jonathan and Almerick, the CA disagreed with the trial the debtor and his creditors shall be governed by
court’s ruling that it must first be shown that the special laws.
proceeds of the loan redounded to the benefit of the
family of the individual petitioners before they can be Ruling of the Court
held liable. Article 161 of the Civil Code and Article
121 of the Family Code cited by the RTC apply only The petition is bereft of merit.
where the liability is sought to be enforced against the
conjugal partnership itself. In this case, regardless of Firstly, the individual petitioners do not deny that they
whether the loan benefited the family of the individual executed the Continuing Surety Agreement, wherein
petitioners, they signed as sureties, and iBank sought they “jointly and severally with the PRINCIPAL
to enforce the loan obligation against them as sureties [Yulim], hereby unconditionally and irrevocably
of Yulim. guarantee full and complete payment when due,
whether at stated maturity, by acceleration, or
Thus, the appellate court granted the appeal of iBank, otherwise, of any and all credit accommodations that
and denied that of the petitioners, as follows: have been granted” to Yulim by iBank, including
interest, fees, penalty and other charges.25 Under
WHEREFORE, the foregoing considered, [iBank’s] Article 2047 of the Civil Code, these words are said to
appeal is PARTLY GRANTED while [the petitioners’] describe a contract of suretyship. It states:
appeal is DENIED. Accordingly, the appealed decision
is hereby MODIFIED in that [petitioners] James Yu, Art. 2047. By guaranty a person, called the guarantor,
Jonathan Yu and A[l]merick Tieng Lim are hereby held binds himself to the creditor to fulfill the obligation of
jointly and severally liable with defendant-appellant the principal debtor in case the latter should fail to do
Yulim for the payment of the monetary awards. The so.
rest of the assailed decision is AFFIRMED.
If a person binds himself solidarily with the principal
SO ORDERED.23 debtor, the provisions of Section 4, Chapter 3, Title I
of this Book shall be observed. In such case the
Petition for Review to the Supreme Court contract is called a suretyship.
In the instant petition, the following assigned errors In a contract of suretyship, one lends his credit by
are before this Court: joining in the principal debtor’s obligation so as to
render himself directly and primarily responsible with
1. The CA erred in ordering petitioners James, him without reference to the solvency of the
Jonathan and Almerick jointly and severally liable with principal.26 According to the above Article, if a person
petitioner Yulim to pay iBank the amount of binds himself solidarily with the principal debtor, the
provisions of Articles 1207 to 1222, or Section 4, collaterals provided for the loans, as well as the
Chapter 3, Title I, Book IV of the Civil Code on joint consolidation of the petitioners’ various PN’s under
and solidary obligations, shall be observed. Thus, one PN for their aggregate amount of P4,246,310.00.
where there is a concurrence of two or more creditors The letter goes on to spell out the terms of the new
or of two or more debtors in one and the same PN, such as, that its expiry would be February 28,
obligation, Article 1207 provides that among 2002 or a term of 360 days, that interest would be
them, “[t]here is a solidary liability only when the due every 90 days, and that the rate would be based
obligation expressly so states, or when the law or the on the 91-day Treasury Bill rate or other market
nature of the obligation requires solidarity.” reference.
“A surety is considered in law as being the same party Nowhere can it be remotely construed that the letter
as the debtor in relation to whatever is adjudged even intimates an understanding by iBank that the
touching the obligation of the latter, and their Deed of Assignment would serve to extinguish the
liabilities are interwoven as to be inseparable.”27 And petitioners’ loan. Otherwise, there would have been
it is well settled that when the obligor or obligors no need for iBank to mention therein the three
undertake to be “jointly and severally” liable, it means “collaterals” or “supports” provided by the petitioners,
that the obligation is solidary,28 as in this case. There namely, the Deed of Assignment, the Chattel
can be no mistaking the same import of Article I of the Mortgage and the Continuing Surety Agreement
Continuing Surety Agreement executed by the executed by the individual petitioners. In fact, Section
individual petitioners: 2.01 of the Deed of Assignment expressly
acknowledges that it is a mere “interim security for
ARTICLE I the repayment of any loan granted and those that may
be granted in the future by the BANK to the
LIABILITIES OF SURETIES ASSIGNOR and/or the BORROWER, for compliance
with the terms and conditions of the relevant credit
SECTION 1.01. The SURETIES, jointly and severally and/or loan documents thereof.”30 The condominium
with the PRINCIPAL, hereby unconditionally and unit, then, is a mere temporary security, not a
irrevocably guarantee full and complete payment payment to settle their promissory notes.31
when due, whether at stated maturity, by
acceleration, or otherwise, of any and all credit Even more unmistakably, Section 2.02 of the Deed of
accommodations that have been granted or may be Assignment provides that as soon as title to the
granted, renewed and/or extended by the BANK to the condominium unit is issued in its name, Yulim
PRINCIPAL. shall “immediately execute the necessary Deed of
Real Estate Mortgage in favor of the BANK to secure
The liability of the SURETIES shall not be limited to the loan obligations of the ASSIGNOR and/or the
the maximum principal amount of FIVE MILLION BORROWER.”32 This is a plain and direct
PESOS (P5,000,000.00) but shall include interest, acknowledgement that the parties really intended to
fees, penalty and other charges due thereon. merely constitute a real estate mortgage over the
property. In fact, the Deed of Assignment expressly
SECTION 1.02. This INSTRUMENT is a guarantee of states, by way of a resolutory condition concerning the
payment and not merely of collection and is intended purpose or use of the Deed of Assignment, that after
to be a perfect and continuing indemnity in favor of the petitioners have delivered or caused the delivery
the BANK for the amounts and to the extent stated of their title to iBank, the Deed of Assignment shall
above. then become null and void. Shorn of its legal efficacy
as an interim security, the Deed of Assignment would
The liability of the SURETIES shall be direct, then become functus officio once title to the
immediate and not contingent upon the pursuit of the condominium unit has been delivered to iBank. This is
BANK of whatever remedies it may have against the so because the petitioners would then execute a Deed
PRINCIPAL of the other securities for the of Real Estate Mortgage over the property in favor of
Accommodation.29 iBank as security for their loan obligations.
A: None.33 33
Rollo, p. 427.
CLF 005-93
1. PN No. OACL 634-95, dated April 24,148,255.08 64,461.84 156,541.58 369,258.5
1995, for a loan principal of ₱1,800,000.00,----------------------- ----------------------- ----------------------- ------------
with interest at 23% per annum; the spouses
TOTAL P2,273,255.08 1,284,928.34 1,843,791.58 5,401,975
Manalastas signed alone as makers.7
TOTAL AMOUNT DUE - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,401,975.
2. PN No. OACL 636-95, dated May 23, 1995,
PLUS 10% ATTORNEY’S FEE - - - - - - - - - - - - - - - - - - - - - - - - - - 540,197.50
for a loan principal of 325,000.00, with
------------
interest at 21% per annum; the spouses
Sinamban signed as solidary co-makers;8 5,942,172.
The subject three PNs bear interests ranging G.R. No. 202322, August 19, 2015
from 21% to 23% per annum, exclusive of
penalty of 1% on the overdue amount per
LIGHT RAIL TRANSIT Francisco Mercado, Roberto Reyes, Edgardo Cristobal,
AUTHORITY, Petitioner, v. ROMULO S. MENDOZA, Jr., and Rodolfo Roman.
FRANCISCO S. MERCADO, ROBERTO M. REYES,
EDGARDO CRISTOBAL, JR., AND RODOLFO On April 1, 2001, the METRO Board of Directors
ROMAN, Respondents. authorized the payment of 50 % of the dismissed
employees' separation pay, to be sourced from the
retirement fund. In May 2001, respondents received
DECISION
one half (1/2) of their separation pay. Dissatisfied,
they demanded from LRTA payment of the 50%
BRION, J.: balance of their separation pay, but LRTA rejected the
demand, prompting them to file on August 31, 2004,
For resolution is the present petition for review a formal complaint,7 before the labor arbiter, against
on certiorari1 which seeks the reversal of the January LRTA and METRO.
31, 2012 Decision2 and June 15, 2012 Resolution3 of
the Court of Appeals in CA-G.R. SP No. 109224. LRTA moved to dismiss the complaint on
grounds of absence of employer-employee
relationship with the respondents, lack of
The Antecedents
jurisdiction and of merit, and prescription of
action.
The Light Rail Transit Authority (LRTA) is a
government-owned and -controlled corporation
created under Executive Order No. 603 for the The Compulsory Arbitration Rulings
construction, operation, maintenance, and/or lease of
light rail transit systems in the Philippines. In his decision8 dated August 8, 2005, Labor Arbiter
(LA) Arthur L. Amansec pierced the veil of METRO'S
To carry out its mandate, LRTA entered into a ten-year corporate fiction, invoked the law against labor-only
operations and management (O & M) agreement4with contracting, and declared LRTA solidarity liable with
the Meralco Transit Organization, Inc. (MTOI) from METRO for the payment of the remaining 50% of
June 8, 1984, to June 8, 1994, for an annual fee of respondents' separation pay. On appeal by the LRTA,
P5,000,000.00. Subject to specified conditions, and in the National Labor Relations Commission (NLRC)
connection with the operation and maintenance of the affirmed in its decision9 of December 23, 2008, LA
system not covered by the O & M agreement, LRTA Amansec's ruling, thereby dismissing the appeal. It
undertook to reimburse MTOI such operating also held that the case had not prescribed. LRTA
expenses and advances to the revolving fund. moved for reconsideration, but the NLRC denied the
motion in its resolution10 of March 30, 2009.
"Operating expenses" included "all salaries, wages
and fringe benefits (both direct and indirect) up to the The Case before the CA
rank of manager, and a lump sum amount to be
determined annually as top management LRTA challenged the NLRC decision before the CA
compensation (above the rank of manager up to through a petition for certiorari under Rule 65 of the
president), subject to consultation with the LRTA." Rules of Court, contending that the labor tribunal
MTOI hired the necessary employees for its operations committed grave abuse of discretion when it (1)
and forged collective bargaining agreements (CBAs) assumed jurisdiction over the case; (2) held that it
with the employees' unions, with the LRTA's approval. was an indirect employer of the respondents with
solidary liability for their claim; and (3) took
On June 9, 1989, the Manila Electric Company, who cognizance of the case despite its being barred by
owned 499,990 of MTOI shares of stocks, sold said prescription.
shares to the LRTA. Consequently, MTOI became a
wholly owned subsidiary of LRTA. MTOI changed its LRTA argued that as a government-owned and -
corporate name to Metro Transit Organization, controlled corporation, all actions against it should be
Inc. (METRO), but maintained its distinct and separate brought before the Civil Service Commission, not the
personality. LRTA and METRO renewed the O & M NLRC, pursuant to Article IX-B, Section 2 (1) of the
agreement upon its expiration on June 8, 1994, Constitution, as declared by this Court's decision in
extended on a month-to-month basis.5cralawrednad the consolidated cases of LRTA v. Venus, Jr.,
and METRO v. Court of Appeals (Venus case).11 It
On July 25, 2000, the Pinag-isang Lakas ng further argued that it could not be made solidarity
Manggagawa sa METRO, INC., the rank-and-file union liable with METRO for the respondents' claim since
at METRO, staged an illegal strike over a bargaining METRO is an independent job contractor.
deadlock, paralyzing the operations of the light rail
transport system. On July 28, 2000, the LRTA Board In a different vein, LRTA stressed that its Resolution
of Directors issued Resolution No. 00-446 where LRTA No. 00-44 updating the retirement fund for METRO
agreed to shoulder METRO'S operating expenses for a employees was merely a financial assistance to
maximum of two months counted from August 1, METRO, which neither created an employer-employee
2000. It also updated the Employee Retirement relationship between it and the METRO employees,
Fund. nor did it impose a contractual obligation upon it for
the employees' separation pay. Lastly, it reiterated
Because of the strike, LRTA no longer renewed the O that respondents' claim had already prescribed since
& M agreement when it expired on July 31, 2000, they filed the complaint beyond the three-year period
resulting in the cessation of METRO'S operations and under Article 306 of the Labor Code (formerly Article
the termination of employment of its workforce, 291; re-numbered by R.A. 10151, An Act Allowing
including the respondents Romulo Mendoza, the Employment of Nightworkers).12cralawrednad
The respondents, for their part, prayed for the
dismissal of the petition, relying on an earlier case Also, the CA noted that "METRO'S November 17, 1997
involving the same cause of action decided by the Memorandum further revealed that the LRTA Board
CA, LRTA v. NLRC and Ricardo B. Malanao, et al.,13and approved 'the additional
which had become final and executory on February retirement/resignation benefit of 7.65 days or a total
21, 2006.14 In that case, they pointed out, LRTA was of 1.5 months' salary for every year of service' for
held solidarity liable with METRO, as an indirect METRO'S rank-and-file employees and that lthe
employer, for the payment of the severance pay of granting of 1.5 months' salary for every year of
METRO'S separated employees. service as severance or resignation pay would
effectively amend the existing Employees' Retirement
In the meantime, or on June 3, 2010, LA Amansec Plan."21 This LRTA memorandum, together with its
issued a Writ of Execution15 for his August 8, 2005 July 28, 2000 Resolution No. 00-44, the CA believed,
decision. On August 5, 2010, respondents filed was an indication that LRTA regularly financed the
an Urgent Manifestation16 stating that pursuant to retirement fund.
the labor arbiter's order, LRTA's cash bond covered by
Check No. LB0000007505, dated September 20, Accordingly, the CA stressed, the LRTA cannot argue
2005, for PI,082,929.16 had been released to them. that the retirement fund was not meant to cover the
Thus, they considered the case to have become separation pay of the "terminated" employees of
academic. METRO, and neither can it deny that it is bound to
comply with its undertaking to provide the necessary
The CA Decision funds to cover payment of the respondents' claim.
The CA affirmed the NLRC ruling that LRTA is solidarity The CA brushed aside the prescription issue. It held
liable for the remaining 50% of respondents' that the complaint is not time-barred, citing De
separation pay, but not squarely on the same Guzman v. Court of Appeals,22 where the Court
grounds. Unlike the NLRC, it considered inapplicable affirmed the applicability of Article 1155 of the Civil
the doctrine of piercing the veil of corporate fiction to Code23 to an employee's claim for separation pay in
justify LRTA's solidary liability due to the absence of the absence of an equivalent Labor Code provision for
fraud or wrongdoing on LRTA's part in relation to the determining whether the period for such claim may be
nonpayment of the balance of the respondents' interrupted. It agreed with the NLRC conclusion that
separation pay as this Court had stated in the prescriptive period for respondents' claim for
the Venus case.17cralawrednad separation pay was interrupted by their letters to
LRTA24 (dated September 19, 2002 and October 14,
The CA likewise disagreed with the NLRC's opinion 2002) demanding payment of the 50% balance of
that METRO is a labor-only contractor so as to make their separation pay.
LRTA the respondents' direct employer. It explained
that METRO was a corporation with sufficient capital The Petition
and investment in tools and equipment, and its own
employees (who were even unionized) to undertake Its motion for reconsideration having been denied by
the operation and management of the light rail transit the CA, LRTA now asks the Court for a reversal,
system, for which it was exclusively engaged by LRTA. contending that the appellate court committed a
Neither did LRTA exercise the prerogatives of an serious error of law when it affirmed the NLRC
employer over the METRO employees. It thus decision.
concluded that LRTA's solidary liability as an indirect
employer is limited to the payment of wages, and for It faults the CA for not ruling on the jurisdictional
any violation of the Labor Code,18 excluding question which, it contends, had been settled with
backwages and separation pay which are punitive in finality "in actions similar to the one at
nature.19cralawrednad bar."25cralawredcralawrednad
The CA nonetheless held that LRTA cannot avoid On the merits of the case, LRTA submits that no
liability for respondents' separation pay as it is a liability, from whatever origin or source, was ever
contractual obligation. It agreed with the NLRC attached to it insofar as the respondents' claim is
finding that LRTA provided METRO'S "operating concerned. It disputes the CA opinion that its liability
expenses" which included the employees' wages for 50% of the respondents' separation pay is a
and fringe benefits, and all other general and contractual obligation under METRO'S retirement
administrative expenses relative to the fund. It also assails the CA's reliance on its July 28,
operation of the light rail transit system. 2000 Resolution No. 00-44 as evidence of its
contractual obligation. It asserts it has no such
The CA found additional basis for its ruling in the letter obligation.
to the LRTA, dated July 12, 2001, of then Acting
Chairman of the METRO Board of Directors, Lastly, LRTA contends that while its board of directors
Wilfredo Trinidad, that "Funding provisions for the updated METRO'S retirement fund to cover the
retirement fund have always been considered retirement benefits of METRO'S employees, the
operating expenses of METRO. Pursuant to the O updating was a mere financial assistance or goodwill
& M Agreement, the LRTA had been reimbursing to METRO. It did not execute, it stresses, any deed or
METRO of all operating expenses, including the contract in favor of METRO, Avhich amended the O &
funds set aside for the retirement fund. It M agreement between them, or assumed any
follows—now that circumstances call for Metro to pay obligation in favor of METRO or its employees; thus, it
the full separation benefits—that LRTA should provide has no contractual obligation for the unpaid balance
the necessary funding to completely satisfy these of respondents' separation pay.
benefits."20cralawrednad
The Respondents' Position an original charter.
In their Comment26 dated October 8, 2012, the The Court provided the answer in Phil. National Bank
respondents prayed that the petition be dismissed for v. Pabalan31 where it said: "By engaging in a particular
lack of merit as the CA had committed no error of law business through the instrumentality of a corporation,
when it affirmed the NLRC decision. the government divests itself pro hac vice of its
sovereign character, so as to render the corporation
They stand firm on their position that LRTA is legally subject of the rules governing private
bound to pay the balance of their separation pay as corporations."32cralawrednad
evidenced by its official undertakings such as the Joint
Memorandum, dated June 6, 1989,27 with METRO, its The NLRC accordingly declared: "for having conducted
wholly owned subsidiary, providing, among others, for business through a private corporation, in this case,
the establishment of the Retirement Fund of METRO, respondent METRO, as its business conduit or alter
Inc., Employees; LRTA Board Resolution No. 00-44 of ego, respondent LRTA must submit itself to the
July 28, 2000,28 authorizing the updating of the provisions governing private corporations, including
retirement fund; and approving the collective the Labor Code. Consequently, the Labor Arbiter
bargaining agreements entered into by METRO with its rightfully dismissed the Motion to Dismiss of
unions containing terms and conditions of respondent LRTA."33cralawrednad
employment and benefits for its employees.
In this light, we find no grave abuse of discretion in
They also cite the letter to LRTA,29 dated July 12, the labor tribunals' taking cognizance of the
2001, of the Acting Chairman of the METRO Board of respondents' money claim against LRTA.
Directors stating that funding provisions for the
retirement fund have always been considered The substantive aspect of the case
operating expenses of METRO. In short, they
maintain, LRTA regularly financed the retirement fund The petition is without merit, for the following
intended not only for the retirement benefit, but also reasons:ChanRoblesvirtualLawlibrary
for the severance and/or resignation pay of METRO'S
employees. First. LRTA obligated itself to fund METRO'S
retirement fund to answer for the retirement or
The Court's Ruling severance/resignation of METRO employees as part of
METRO'S "operating expenses." Under Article
The jurisdictional issue 4.05.1 of the O & M agreement34 between LRTA and
Metro, "The Authority shall reimburse METRO for x x
LRTA reiterates its position that the labor arbiter and x "OPERATING EXPENSES x x x" In the letter to
the NLRC had no jurisdiction over it in relation to the LRTA35 dated July 12, 2001, the Acting Chairman of
respondents' claim, quoting the Venus ruling to prove the METRO Board of Directors at the time, Wilfredo
its point, thus: "x x x There should be no dispute Trinidad, reminded LRTA that "funding provisions for
then that employment in petitioner LRTA should the retirement fund have always been considered
be governed only by civil service rules, and not operating expenses of Metro.36 The coverage
the Labor Code and beyond the reach of the of operating expenses to include provisions for the
Department of Labor and Employment, since retirement fund has never been denied by LRTA.
petitioner LRTA is a government-owned and -
controlled corporation with an original charter x In the same letter, Trinidad stressed that as a
x x Petitioner METRO was originally organized consequence of the non-renewal of the O & M
under the Corporation Code, and only became a agreement by LRTA, METRO was compelled to close
government-owned and -controlled corporation its business operations effective September 30,
after it was acquired by petitioner LRTA. Even 2000. This created, Trinidad added, a legal
then, petitioner METRO has no original charter, obligation to pay the qualified employees
hence, it is the Department of Labor and separation benefits under existing company
Employment, and not the Civil Service policy and collective bargaining
Commission, which has jurisdiction over agreements. The METRO Board of Directors
disputes from the employment of its workers x x approved the payment of 50% of the employees'
x."30cralawrednad separation pay because that was only what the
Employees' Retirement Fund could
We disagree. Under the facts of the present labor accommodate.37cralawrednad
controversy, LRTA's reliance on the Venus ruling is
misplaced. The ruling has no bearing on the The evidence supports Trinidad's position. We
respondents' case. As we see it, the jurisdictional refer principally to Resolution No. 00-4438 issued by
issue should not have been brought up in the first the LRTA Board of Directors on July 28, 2000, in
place because the respondents' claim does not involve anticipation of and in preparation for the expiration of
their employment with LRTA. There is no dispute on the O & M agreement with METRO on July 31, 2000.
this aspect of the case. The respondents were hired
by METRO and, were, therefore, its employees. Specifically, the LRTA anticipated and prepared for the
(1) non-renewal (at its own behest) of the agreement,
Rather, the controversy involves the question of (2) the eventual cessation of METRO operations, and
whether LRTA can be made liable by the labor (3) the involuntary loss of jobs of the METRO
tribunals for the respondents' money claim, despite employees; thus, (1) the extension of a two-
the absence of an employer-employee relationship month bridging fund for METRO from August 1,
between them and despite the fact that LRTA is a 2000, to coincide with the agreement's
government-owned and -controlled corporation with expiration on July 31, 2000; (2) METRO'S
cessation of operations—it closed on September
30, 2000, the last day of the bridging fund—and In fine, we find no reversible error in the CA rulings.
most significantly to the employees adversely
affected; (3) the updating of the "Metro, Inc., WHEREFORE, premises considered, the petition for
Employee Retirement Fund with the Bureau of review on certiorari is DISMISSED, for lack of merit.
Treasury to ensure that the fund fully covers all The assailed decision and resolution of the Court of
retirement benefits yay able to the employees of Appeals are AFFIRMED. The decision dated May 8,
Metro, Inc."39cralawrednad 2005, of Labor Arbiter Arthur L. Amansec,
is REINSTATED.
The clear language of Resolution No.00-44, to our
mind, established the LRTA's obligation for the 50% SO ORDERED.chanrobles virtuallawlibrary
unpaid balance of the respondents' separation pay.
Without doubt, it bound itself to provide the necessary
funding to METRO'S Employee Retirement Fund to
fully compensate the employees who had been
involuntary retired by the cessation of operations of January 11, 2016
METRO. This is not at all surprising considering that
METRO was a wholly owned subsidiary of the LRTA. G.R. No. 167615
Department Order No. 18-02, s. 2002, the rules On January 8, 1992, the Lam Spouses and Kodak
implementing Articles 106 to 109 of the Labor Code, Philippines, Ltd. entered into an agreement (Letter
provides in its Section 19 that "the principal shall also Agreement) for the sale of three (3) units of the Kodak
be solidarity liable in case the contract between the Minilab System 22XL6 (Minilab Equipment) in the
principal is preterminated for reasons not attributable amount of ₱1,796,000.00 per unit,7 with the following
to the contractor or subcontractor." terms:
Although the cessation of METRO'S operations was This confirms our verbal agreement for Kodak Phils.,
due to a non-renewal of the O & M agreement and not Ltd. To provide Colorkwik Laboratories, Inc. with three
a pretermination of the contract, the cause of the (3) units Kodak Minilab System 22XL . . . for your
nonrenewal and the effect on the employees are the proposed outlets in Rizal Avenue (Manila), Tagum
same as in the contract pretermination contemplated (Davao del Norte), and your existing Multicolor photo
in the rules. The agreement was not renewed through counter in Cotabato City under the following terms
no fault of METRO, as it was solely at the behest of and conditions:
LRTA. The fact is, under the circumstances, METRO
really had no choice on the matter, considering that it
was a mere subsidiary of LRTA. 1. Said Minilab Equipment packages will avail
a total of 19% multiple order discount based
Nevertheless, whether it is a pretermination or a on prevailing equipment price provided said
nonrenewal of the contract, the same adverse effect equipment packages will be purchased not
befalls the workers affected, like the respondents in later than June 30, 1992.
this case - the involuntary loss of their
employment, one of the contingencies addressed 2. 19% Multiple Order Discount shall be
and sought to be rectified by the rules. applied in the form of merchandise and
delivered in advance immediately after were declared in default.20 Kodak Philippines, Ltd.
signing of the contract. presented evidence ex-parte.21 The trial court issued
the Decision in favor of Kodak Philippines, Ltd.
ordering the seizure of the Minilab Equipment, which
* Also includes start-up packages worth
included the lone delivered unit, its standard
P61,000.00.
accessories, and a separate generator set.22 Based on
this Decision, Kodak Philippines, Ltd. was able to
3. NO DOWNPAYMENT. obtain a writ of seizure on December 16, 1992 for the
Minilab Equipment installed at the Lam Spouses’ outlet
4. Minilab Equipment Package shall be in Tagum, Davao Province.23 The writ was enforced on
payable in 48 monthly installments at December 21, 1992, and Kodak Philippines, Ltd.
THIRTY FIVE THOUSAND PESOS gained possession of the Minilab Equipment unit,
(P35,000.00) inclusive of 24% interest rate accessories, and the generator set.24
for the first 12 months; the balance shall be
re-amortized for the remaining 36 months The Lam Spouses then filed before the Court of
and the prevailing interest shall be applied. Appeals a Petition to Set Aside the Orders issued by
the trial court dated July 30, 1993 and August 13,
5. Prevailing price of Kodak Minilab System 1993. These Orders were subsequently set aside by
22XL as of January 8, 1992 is at ONE the Court of Appeals Ninth Division, and the case was
MILLION SEVEN HUNDRED NINETY SIX remanded to the trial court for pre-trial.25
THOUSAND PESOS.
On September 12, 1995, an Urgent Motion for
6. Price is subject to change without prior Inhibition was filed against Judge Fernando V.
notice. Gorospe, Jr.,26 who had issued the writ of
seizure.27 The ground for the motion for inhibition was
not provided. Nevertheless, Judge Fernando V.
*Secured with PDCs; 1st monthly Gorospe Jr. inhibited himself, and the case was
amortization due 45 days after reassigned to Branch 65 of the Regional Trial Court,
installation[.]8 Makati City on October 3, 1995.28
On January 15, 1992, Kodak Philippines, Ltd. In the Decision dated February 26, 1999, the Regional
delivered one (1) unit of the Minilab Equipment in Trial Court found that Kodak Philippines, Ltd.
Tagum, Davao Province.9 The delivered unit was defaulted in the performance of its obligation under its
installed by Noritsu representatives on March 9, Letter Agreement with the Lam Spouses.29 It held that
1992.10 The Lam Spouses issued postdated checks Kodak Philippines, Ltd.’s failure to deliver two (2) out
amounting to ₱35,000.00 each for 12 months as of the three (3) units of the Minilab Equipment caused
payment for the first delivered unit, with the first the Lam Spouses to stop paying for the rest of the
check due on March 31, 1992.11 installments.30 The trial court noted that while the
Letter Agreement did not specify a period within which
The Lam Spouses requested that Kodak Philippines, the delivery of all units was to be made, the Civil Code
Ltd. not negotiate the check dated March 31, 1992 provides "reasonable time" as the standard period for
allegedly due to insufficiency of funds.12 The same compliance:
request was made for the check due on April 30, 1992.
However, both checks were negotiated by Kodak The second paragraph of Article 1521 of the Civil Code
Philippines, Ltd. and were honored by the depository provides:
bank.13 The 10 other checks were subsequently
dishonored after the Lam Spouses ordered the
depository bank to stop payment.14 Where by a contract of sale the seller is bound to send
the goods to the buyer, but no time for sending them
is fixed, the seller is bound to send them within a
Kodak Philippines, Ltd. canceled the sale and reasonable time.
demanded that the Lam Spouses return the unit it
delivered together with its accessories.15 The Lam
Spouses ignored the demand but also rescinded the What constitutes reasonable time is dependent on the
contract through the letter dated November 18, 1992 circumstances availing both on the part of the seller
on account of Kodak Philippines, Ltd.’s failure to and the buyer. In this case, delivery of the first unit
deliver the two (2) remaining Minilab Equipment was made five (5) days after the date of the
units.16 agreement. Delivery of the other two (2) units,
however, was never made despite the lapse of at least
three (3) months.31
On November 25, 1992, Kodak Philippines, Ltd. filed
a Complaint for replevin and/or recovery of sum of
money. The case was raffled to Branch 61 of the Kodak Philippines, Ltd. failed to give a sufficient
Regional Trial Court, Makati City.17 The Summons and explanation for its failure to deliver all three (3)
a copy of Kodak Philippines, Ltd.’s Complaint was purchased units within a reasonable time.32
personally served on the Lam Spouses.18
The trial court found:
The Lam Spouses failed to appear during the pre-trial
conference and submit their pre-trial brief despite Kodak would have the court believe that it did not
being given extensions.19 Thus, on July 30, 1993, they deliver the other two (2) units due to the failure of
defendants to make good the installments subsequent Philippines, Ltd.37 Thus, the generator set that Kodak
to the second. The court is not convinced. First of all, Philippines, Ltd. wrongfully took from the Lam
there should have been simultaneous delivery on Spouses should be replaced.38
account of the circumstances surrounding the
transaction. . . . Even after the first delivery . . . no
The dispositive portion of the Regional Trial Court
delivery was made despite repeated demands from
Decision reads:
the defendants and despite the fact no installments
were due. Then in March and in April (three and four
months respectively from the date of the agreement PREMISES CONSIDERED, the case is hereby
and the first delivery) when the installments due were dismissed. Plaintiff is ordered to pay the following:
both honored, still no delivery was made.
1) PHP 130,000.00 representing the amount
Second, although it might be said that Kodak was of the generator set, plus legal interest at
testing the waters with just one delivery - determining 12% per annum from December 1992 until
first defendants’ capacity to pay - it was not at liberty fully paid; and
to do so. It is implicit in the letter agreement that
delivery within a reasonable time was of the essence 2) PHP 1,300,000.00 as actual expenses in
and failure to so deliver within a reasonable time and the renovation of the Tagum, Davao and
despite demand would render the vendor in default. Rizal Ave., Manila outlets.
.... SO ORDERED.39
Third, at least two (2) checks were honored. If indeed On March 31, 1999, the Lam Spouses filed their Notice
Kodak refused delivery on account of defendants’ of Partial Appeal, raising as an issue the Regional Trial
inability to pay, non-delivery during the two (2) Court’s failure to order Kodak Philippines, Ltd. to pay:
months that payments were honored is unjustified.33 (1) ₱2,040,000 in actual damages; (2) ₱50,000,000
in moral damages; (3) ₱20,000,000 in exemplary
Nevertheless, the trial court also ruled that when the damages; (4) ₱353,000 in attorney’s fees; and (5)
Lam Spouses accepted delivery of the first unit, they ₱300,000 as litigation expenses.40 The Lam Spouses
became liable for the fair value of the goods received: did not appeal the Regional Trial Court’s award for the
generator set and the renovation expenses.41
On the other hand, defendants accepted delivery of
one (1) unit. Under Article 1522 of the Civil Code, in Kodak Philippines, Ltd. also filed an appeal. However,
the event the buyer accepts incomplete delivery and the Court of Appeals42 dismissed it on December 16,
uses the goods so delivered, not then knowing that 2002 for Kodak Philippines, Ltd.’s failure to file its
there would not be any further delivery by the seller, appellant’s brief, without prejudice to the continuation
the buyer shall be liable only for the fair value to him of the Lam Spouses’ appeal.43 The Court of Appeals’
of the goods received. In other words, the buyer is still December 16, 2002 Resolution denying Kodak
liable for the value of the property received. Philippines, Ltd.’s appeal became final and executory
Defendants were under obligation to pay the amount on January 4, 2003.44
of the unit. Failure of delivery of the other units did
not thereby give unto them the right to suspend In the Decision45 dated March 30, 2005, the Court of
payment on the unit delivered. Indeed, in incomplete Appeals Special Fourteenth Division modified the
deliveries, the buyer has the remedy of refusing February 26, 1999 Decision of the Regional Trial
payment unless delivery is first made. In this case Court:
though, payment for the two undelivered units have
not even commenced; the installments made were for
only one (1) unit. WHEREFORE, PREMISES CONSIDERED, the
Assailed Decision dated 26 February 1999 of the
Regional Trial Court, Branch 65 in Civil Case No. 92-
Hence, Kodak is right to retrieve the unit delivered.34 3442 is hereby MODIFIED. Plaintiff-appellant is
ordered to pay the following:
The Lam Spouses were under obligation to pay for the
amount of one unit, and the failure to deliver the 1. P130,000.00 representing the amount of
remaining units did not give them the right to suspend the generator set, plus legal interest at 12%
payment for the unit already delivered.35 However, per annum from December 1992 until fully
the trial court held that since Kodak Philippines, Ltd. paid; and
had elected to cancel the sale and retrieve the
delivered unit, it could no longer seek payment for any
deterioration that the unit may have suffered while 2. P440,000.00 as actual damages;
under the custody of the Lam Spouses.36
3. P25,000.00 as moral damages; and
As to the generator set, the trial court ruled that
Kodak Philippines, Ltd. attempted to mislead the court 4. P50,000.00 as exemplary damages.
by claiming that it had delivered the generator set
with its accessories to the Lam Spouses, when the
evidence showed that the Lam Spouses had SO ORDERED.46 (Emphasis supplied)
purchased it from Davao Ken Trading, not from Kodak
The Court of Appeals agreed with the trial court’s liable to Kodak in the amount of One Million Five
Decision, but extensively discussed the basis for the Hundred Twenty Six Thousand Pesos
modification of the dispositive portion. (P1,526,000.00), which is payable in several monthly
amortization, pursuant to the Letter
Agreement. However, Sps. Lam admitted that
The Court of Appeals ruled that the Letter Agreement
sometime in May 1992, they had already ordered their
executed by the parties showed that their obligations
drawee bank to stop the payment on all the other
were susceptible of partial performance. Under Article
checks they had issued to Kodak as payment for the
1225 of the New Civil Code, their obligations are
Minilab Equipment delivered to them. Clearly then,
divisible:
Kodak ha[d] the right to repossess the said
equipment, through this replevin suit. Sps. Lam
In determining the divisibility of an obligation, the cannot excuse themselves from paying in full the
following factors may be considered, to wit: (1) the purchase price of the equipment delivered to them on
will or intention of the parties, which may be account of Kodak’s breach of the contract to deliver
expressed or presumed; (2) the objective or purpose the other two (2) Minilab Equipment, as contemplated
of the stipulated prestation; (3) the nature of the in the Letter Agreement.49(Emphasis supplied)
thing; and (4) provisions of law affecting the
prestation.
Echoing the ruling of the trial court, the Court of
Appeals held that the liability of the Lam Spouses to
Applying the foregoing factors to this case, We found pay the remaining balance for the first delivered unit
that the intention of the parties is to be bound is based on the second sentence of Article 1592 of the
separately for each Minilab Equipment to be delivered New Civil Code.50 The Lam Spouses’ receipt and use
as shown by the separate purchase price for each of of the Minilab Equipment before they knew that Kodak
the item, by the acceptance of Sps. Lam of separate Philippines, Ltd. would not deliver the two (2)
deliveries for the first Minilab Equipment and for those remaining units has made them liable for the unpaid
of the remaining two and the separate payment portion of the purchase price.51
arrangements for each of the equipment. Under this
premise, Sps. Lam shall be liable for the entire amount
The Court of Appeals noted that Kodak Philippines,
of the purchase price of the Minilab
Ltd. sought the rescission of its contract with the Lam
Spouses in the letter dated October 14, 1992.52 The
Equipment delivered considering that Kodak had rescission was based on Article 1191 of the New Civil
already completely fulfilled its obligation to deliver the Code, which provides: "The power to rescind
same. . . . obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent
Third, it is also evident that the contract is one that is upon him."53 In its letter, Kodak Philippines, Ltd.
severable in character as demonstrated by the demanded that the Lam Spouses surrender the lone
separate purchase price for each of the minilab delivered unit of Minilab Equipment along with its
equipment. "If the part to be performed by one party standard accessories.54
consists in several distinct and separate items and the
price is apportioned to each of them, the contract will The Court of Appeals likewise noted that the Lam
generally be held to be severable. In such case, each Spouses rescinded the contract through its letter
distinct stipulation relating to a separate subject dated November 18, 1992 on account of Kodak
matter will be treated as a separate Philippines, Inc.’s breach of the parties’ agreement to
contract." Considering this, Kodak's breach of its deliver the two (2) remaining units.55
obligation to deliver the other two (2) equipment
cannot bar its recovery for the full payment of the
As a result of this rescission under Article 1191, the
equipment already delivered. As far as Kodak is
Court of Appeals ruled that "both parties must be
concerned, it had already fully complied with its
restored to their original situation, as far as
separable obligation to deliver the first unit of Minilab
practicable, as if the contract was never entered
Equipment.47 (Emphasis supplied)
into."56 The Court of Appeals ratiocinated that Article
1191 had the effect of extinguishing the obligatory
The Court of Appeals held that the issuance of a writ relation as if one was never created:57
of replevin is proper insofar as the delivered Minilab
Equipment unit and its standard accessories are
To rescind is to declare a contract void in its inception
concerned, since Kodak Philippines, Ltd. had the right
and to put an end to it as though it never were. It is
to possess it:48
not merely to terminate it and to release parties from
further obligations to each other but abrogate it from
The purchase price of said equipment is the beginning and restore parties to relative positions
P1,796,000.00 which, under the agreement is payable which they would have occupied had no contract been
with forty eight (48) monthly amortization. It is made.58
undisputed that Sps. Lam made payments which
amounted to Two Hundred Seventy Thousand Pesos
The Lam Spouses were ordered to relinquish
(P270,000.00) through the following checks:
possession of the Minilab Equipment unit and its
Metrobank Check Nos. 00892620 and 00892621 dated
standard accessories, while Kodak Philippines, Ltd.
31 March 1992 and 30 April 1992 respectively in the
was ordered to return the amount of ₱270,000.00,
amount of Thirty Five Thousand Pesos (P35,000.00)
tendered by the Lam Spouses as partial payment.59
each, and BPI Family Check dated 31 July 1992
amounting to Two Hundred Thousand Pesos
(P200,000.00). This being the case, Sps. Lam are still
As to the actual damages sought by the parties, the defendantsappellants, the Court also ruled that
Court of Appeals found that the Lam Spouses were defendants-appellants should, in turn, relinquish
able to substantiate the following: possession of the Minilab Equipment and the standard
accessories to plaintiff-appellant. Inadvertently, these
material items were not mentioned in the decretal
Incentive fee paid to Mr. Ruales in the amount of
portion of the Decision. Hence, the proper correction
P100,000.00; the rider to the contract of lease which
should herein be made.65
made the Sps. Lam liable, by way of advance
payment, in the amount of P40,000.00, the same
being intended for the repair of the flooring of the The Lam Spouses filed this Petition for Review on April
leased premises; and lastly, the payment of 14, 2005. On the other hand, Kodak Philippines, Ltd.
P300,000.00, as compromise agreement for the pre- filed its Motion for Reconsideration66 before the Court
termination of the contract of lease with Ruales.60 of Appeals on April 22, 2005.
The total amount is ₱440,000.00. The Court of While the Petition for Review on Certiorari filed by the
Appeals found that all other claims made by the Lam Lam Spouses was pending before this court, the Court
Spouses were not supported by evidence, either of Appeals Special Fourteenth Division, acting on
through official receipts or check payments.61 Kodak Philippines, Ltd.’s Motion for Reconsideration,
issued the Amended Decision67 dated September 9,
2005. The dispositive portion of the Decision reads:
As regards the generator set improperly seized from
Kodak Philippines, Ltd. on the basis of the writ of
replevin, the Court of Appeals found that there was no WHEREFORE, premises considered, this Court
basis for the Lam Spouses’ claim for reasonable rental resolved that:
of ₱5,000.00. It held that the trial court’s award of
12% interest, in addition to the cost of the generator
A. Plaintiff-appellant’s Motion for
set in the amount of ₱130,000.00, is sufficient
Reconsideration is hereby DENIED for lack
compensation for whatever damage the Lam Spouses
of merit.
suffered on account of its improper seizure.62
In the Resolution73 dated September 20, 2006, this Petitioners also argue that they are entitled to moral
court deconsolidated G.R No. 167615 from G.R. No. damages more than the ₱50,000.00 awarded by the
169639 and declared G.R. No. 169639 closed and Court of Appeals since respondent’s wrongful act of
terminated since Kodak Philippines, Ltd. failed to file accusing them of non-payment of their obligations
its Petition for Review. caused them sleepless nights, mental anguish, and
wounded feelings.85 They further claim that, to serve
as an example for the public good, they are entitled
II
to exemplary damages as respondent, in making false
allegations, acted in evident bad faith and in a wanton,
We resolve the following issues: oppressive, capricious, and malevolent manner.86
First, whether the contract between petitioners Petitioners also assert that they are entitled to
Spouses Alexander and Julie Lam and respondent attorney’s fees and litigation expenses under Article
Kodak Philippines, Ltd. pertained to obligations that 2208 of the New Civil Code since respondent’s act of
are severable, divisible, and susceptible of partial bringing a suit against them was baseless and
performance under Article 1225 of the New Civil Code; malicious. This prompted them to engage the services
and of a lawyer.87
Second, upon rescission of the contract, what the Respondent argues that the parties’ Letter Agreement
parties are entitled to under Article 1190 and Article contained divisible obligations susceptible of partial
1522 of the New Civil Code. performance as defined by Article 1225 of the New
Civil Code.88 In respondent’s view, it was the intention
Petitioners argue that the Letter Agreement it of the parties to be bound separately for each
executed with respondent for three (3) Minilab individually priced Minilab Equipment unit to be
Equipment units was not severable, divisible, and delivered to different outlets:89
susceptible of partial performance. Respondent’s
recovery of the delivered unit was unjustified.74 The three (3) Minilab Equipment are intended by
petitioners LAM for install[a]tion at their Tagum,
Petitioners assert that the obligations of the parties Davao del Norte, Sta. Cruz, Manila and Cotabato City
were not susceptible of partial performance since the outlets. Each of these units [is] independent from one
Letter Agreement was for a package deal consisting of another, as many of them may perform its own job
three (3) units.75 For the delivery of these units, without the other. Clearly the objective or purpose of
petitioners were obliged to pay 48 monthly payments, the prestation, the obligation is divisible.
the total of which constituted one debt.76 Having relied
on respondent’s assurance that the three units would The nature of each unit of the three (3) Minilab
be delivered at the same time, petitioners Equipment is such that one can perform its own
simultaneously rented and renovated three stores in functions, without awaiting for the other units to
anticipation of simultaneous operations.77 Petitioners perform and complete its job. So much so, the nature
argue that the divisibility of the object does not of the object of the Letter Agreement is susceptible of
necessarily determine the divisibility of the obligation partial performance, thus the obligation is divisible.90
since the latter is tested against its susceptibility to a
partial performance.78 They argue that even if the
With the contract being severable in character,
object is susceptible of separate deliveries, the
respondent argues that it performed its obligation
transaction is indivisible if the parties intended the
when it delivered one unit of the Minilab
realization of all parts of the agreed obligation.79
Equipment.91 Since each unit could perform on its
own, there was no need to await the delivery of the
Petitioners support the claim that it was the parties’ other units to complete its job.92 Respondent then is
intention to have an indivisible agreement by of the view that when petitioners ordered the
asserting that the payments they made to respondent depository bank to stop payment of the issued checks
were intended to be applied to the whole package of covering the first delivered unit, they violated their
three units.80 The postdated checks were also obligations under the Letter Agreement since
intended as initial payment for the whole respondent was already entitled to full payment.93
package.81 The separate purchase price for each item
Respondent also argues that petitioners benefited *Secured with PDCs; 1st monthly
from the use of the Minilab Equipment for 10 months— amortization due 45 days after
from March to December 1992— despite having paid installation[.]98
only two (2) monthly installments.94 Respondent
avers that the two monthly installments amounting to
Based on the foregoing, the intention of the parties is
₱70,000.00 should be the subject of an offset against
for there to be a single transaction covering all three
the amount the Court of Appeals awarded to
(3) units of the Minilab Equipment. Respondent’s
petitioners.95
obligation was to deliver all products purchased under
a "package," and, in turn, petitioners’ obligation was
Respondent further avers that petitioners have no to pay for the total purchase price, payable in
basis for claiming damages since the seizure and installments.
recovery of the Minilab Equipment was not in bad faith
and respondent was well within its right.96
The intention of the parties to bind themselves to an
indivisible obligation can be further discerned through
III their direct acts in relation to the package deal. There
was only one agreement covering all three (3) units of
the Minilab Equipment and their accessories. The
The Letter Agreement contained an indivisible
Letter Agreement specified only one purpose for the
obligation.
buyer, which was to obtain these units for three
different outlets. If the intention of the parties were to
Both parties rely on the Letter Agreement97 as basis have a divisible contract, then separate agreements
of their respective obligations. Written by could have been made for each Minilab Equipment unit
respondent’s Jeffrey T. Go and Antonio V. Mines and instead of covering all three in one package deal.
addressed to petitioner Alexander Lam, the Letter Furthermore, the 19% multiple order discount as
Agreement contemplated a "package deal" involving contained in the Letter Agreement was applied to all
three (3) units of the Kodak Minilab System 22XL, with three acquired units.99 The "no downpayment" term
the following terms and conditions: contained in the Letter Agreement was also applicable
to all the Minilab Equipment units. Lastly, the fourth
This confirms our verbal agreement for Kodak Phils., clause of the Letter Agreement clearly referred to the
Ltd. to provide Colorkwik Laboratories, Inc. with three object of the contract as "Minilab Equipment
(3) units Kodak Minilab System 22XL . . . for your Package."
proposed outlets in Rizal Avenue (Manila), Tagum
(Davao del Norte), and your existing Multicolor photo In ruling that the contract between the parties
counter in Cotabato City under the following terms intended to cover divisible obligations, the Court of
and conditions: Appeals highlighted: (a) the separate purchase price
of each item; (b) petitioners’ acceptance of separate
1. Said Minilab Equipment packages will avail deliveries of the units; and (c) the separate payment
a total of 19% multiple order discount based arrangements for each unit.100 However, through the
on prevailing equipment price provided said specified terms and conditions, the tenor of the Letter
equipment packages will be purchased not Agreement indicated an intention for a single
later than June 30, 1992. transaction. This intent must prevail even though the
articles involved are physically separable and capable
of being paid for and delivered individually, consistent
2. 19% Multiple Order Discount shall be with the New Civil Code:
applied in the form of merchandise and
delivered in advance immediately after
signing of the contract. Article 1225. For the purposes of the preceding
articles, obligations to give definite things and those
which are not susceptible of partial performance shall
* Also includes start-up packages worth be deemed to be indivisible.
P61,000.00.
5. Prevailing price of Kodak Minilab System In Nazareno v. Court of Appeals,101 the indivisibility of
22XL as of January 8, 1992 is at ONE an obligation is tested against whether it can be the
MILLION SEVEN HUNDRED NINETY SIX subject of partial performance:
THOUSAND PESOS.
For the same reason, we would ordinarily disregard The award for moral and exemplary damages also
the petitioner’s allegation as to the propriety of the appears to be sufficient. Moral damages are granted
award of moral damages and attorney’s fees in favor to alleviate the moral suffering suffered by a party due
of the respondent as it is a question of fact. Thus, to an act of another, but it is not intended to enrich
questions on whether or not there was a the victim at the defendant’s expense.127 It is not
preponderance of evidence to justify the award of meant to punish the culpable party and, therefore,
damages or whether or not there was a causal must always be reasonable vis-a-vis the injury
connection between the given set of facts and the caused.128 Exemplary damages, on the other hand,
damage suffered by the private complainant or are awarded when the injurious act is attended by bad
whether or not the act from which civil liability might faith.129 In this case, respondent was found to have
arise exists are questions of fact. misrepresented its right over the generator set that
was seized. As such, it is properly liable for exemplary
Essentially, the petitioner is questioning the award of damages as an example to the public.130
moral damages and attorney’s fees in favor of the
respondent as the same is supposedly not fully However, the dispositive portion of the Court of
supported by evidence. However, in the final analysis, Appeals Amended Decision dated September 9, 2005
the question of whether the said award is fully must be modified to include the recovery of attorney’s
supported by evidence is a factual question as it would fees and costs of suit in favor of petitioners.
necessitate whether the evidence adduced in support In Sunbanun v. Go:131
of the same has any probative value. For a question
to be one of law, it must involve no examination of the
Furthermore, we affirm the award of exemplary
probative value of the evidence presented by the
damages and attorney’s fees. Exemplary damages
litigants or any of them.120 (Emphasis supplied,
may be awarded when a wrongful act is accompanied
citations omitted)
by bad faith or when the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent
The damages awarded by the Court of Appeals were manner which would justify an award of exemplary
supported by documentary evidence.121 Petitioners damages under Article 2232 of the Civil Code. Since
failed to show any reason why the factual the award of exemplary damages is proper in this
determination of the Court of Appeals must be case, attorney’s fees and cost of the suit may also be
reviewed, especially in light of their failure to produce recovered as provided under Article 2208 of the Civil
receipts or check payments to support their other Code.132 (Emphasis supplied, citation omitted)
claim for actual damages.122
Based on the amount awarded for moral and
Furthermore, the actual damages amounting to exemplary damages, it is reasonable to award
₱2,040,000.00 being sought by petitioners123 must be petitioners ₱20,000.00 as attorney’s fees.
tempered on account of their own failure to pay the
rest of the installments for the delivered unit. This
WHEREFORE, the Petition is DENIED. The Amended
failure on their part is a breach of their obligation, for
Decision dated September 9, 2005 is AFFIRMED
which the liability of respondent, for its failure to
with MODIFICATION. Respondent Kodak
deliver the remaining units, shall be equitably
Philippines, Ltd. is ordered to pay petitioners
Alexander and Julie Lam:
SO ORDERED.