December 2016

[DECEMBER 2016 CASES] 1
FIRST DIVISION
[G.R. No. 223254. December 1, 2016.]
ROSALIE SY AYSON, petitioner, vs. FIL-ESTATE PROPERTIES, INC.,

and FAIRWAYS AND BLUEWATER RESORT AND COUNTRY CLUB,
INC., respondent.
[G.R. No. 223269. December 1, 2016.]
FIL-ESTATE PROPERTIES, INC., and FAIRWAYS & BLUEWATER

RESORT & COUNTRY CLUB, INC., petitioners, vs. ROSALIE SY
AYSON, respondent.
DECISION
PERLAS-BERNABE, J p:
Assailed in these consolidated petitions for review on certiorari 1 are the
Decision 2 dated March 1, 2013 and the Resolution 3 dated February 22, 2016 of
the Court of Appeals (CA) in CA-G.R. CV. No. 03010, which affirmed with
modification the Decision 4 dated March 1, 2004 and the Order 5 dated February
6, 2009 of the Regional Trial Court of Kalibo, Aklan, Branch 9 (RTC) in Civil Case
No. 5627 and, accordingly, ordered Fil-Estate Properties, Inc. (Fil-Estate) and
Fairways & Bluewater Resort & Country Club, Inc. (Fairways) to pay Rosalie Sy
Ayson (Ayson), inter alia, the amount of US$40,000.00 or its Philippine Peso
equivalent, representing the value of the land subject of litigation.
The Facts
The instant case arose from a Complaint 6 for recovery of possession and
damages filed by Ayson against Fil-Estate and Fairways before the RTC, alleging
that she is the registered owner of a 1,000-square meter parcel of land, more or
less, located in Yapak, Malay, Aklan, i.e., the northwestern area of Boracay Island,
denominated as Lot No. 14-S and covered by Transfer Certificate of Title (TCT)
No. T-24562 7 (subject land). Sometime in June 1997, she discovered that Fil-
Estate and Fairways illegally entered into the subject land and included it in the
construction of its golf course without her prior consent and authorization.
Despite receipt of a Notice to Cease and Desist 8 from Ayson, Fil-Estate and
Fairways continued their encroachment and development of the subject land
making it now a part of the entire golf course. Thus, she was constrained to file
the instant complaint. 9
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In their defense, 10 Fil-Estate and Fairways maintain that the subject

land was formerly owned by one Divina Marte Villanueva (Villanueva), with
whom they entered into a Joint Venture Agreement (JVA) for the development of
the Fairways and Bluewater Resort Golf and Country Club. Fil-Estate and
Fairways explained that prior to the JVA, Villanueva sold portions of her
property to various buyers, including Ayson, with the caveat that such portions
may be used in a development project. In this light, Villanueva allegedly
convinced her buyers to agree to a land swap should such development push
through. When the project commenced, the other buyers readily agreed to said
land swaps. Unfortunately, talks with Ayson stalled, prompting Fil-Estate and
Fairways to "exclude" development work on the subject land. Nevertheless, Fil-
Estate and Fairways commenced construction on the subject land, allegedly
relying in good faith upon Villanueva's assurance that her other former
buyers, e.g., Ayson, would eventually agree with the land swap agreements.
According to Fil-Estate and Fairways, Ayson only signified her objection to the
inclusion of the subject land in the development project when construction was
almost finished. Fil-Estate and Fairways further averred that they tried to
remedy the situation by negotiating with Ayson, but to no avail. 11
The RTC Ruling
In a Decision 12 dated March 1, 2004, the RTC ruled in Ayson's favor and,
accordingly, ordered Fil-Estate and Fairways to pay her the following
amounts: (a) US$100,000.00 or its Philippine Peso equivalent, representing the
value of the subject land, plus P50,000.00 monthly rentals for the use and
occupancy of said land starting December 1997 until the aforesaid value has
been fully paid; (b) P900,000.00 as actual damages; (c) P1,000,000.00 as moral
damages; (d) P1,000,000.00 as exemplary damages; (e) P300,000.00 as
attorney's fees and other litigation expenses; and(f) the costs of suit. 13
The RTC found that contrary to Fil-Estate and Fairways' assertions, Ayson
never agreed to any future land swapping arrangement with Villanueva,
considering that Ayson already paid Villanueva the amount of US$20,000.00
representing the purchase price of the subject land way back April 1994 (albeit
the Deed of Sale 14 was only executed on April 15, 1996), while the construction
of the golf course was only conceptualized sometime in early 1995. As such, it
was error for Fil-Estate and Fairways to merely rely on Villanueva's assurance
that she will be able to convince her buyers to enter into a land swapping
arrangement, especially considering that the title to the same was already in
Ayson's name. In this regard, the RTC opined that Fil-Estate and Fairways should
have first secured permission from Ayson to enter into the subject land before
proceeding with the construction of the golf course. Thus, the RTC concluded
that Fil-Estate and Fairways did not exercise the ordinary diligence of a good
father of a family before entering into the subject land, which caused damage to
Ayson for which they should be liable. The foregoing notwithstanding, the RTC
no longer ordered the return of the subject land to Ayson, ratiocinating that its
exclusion from Fil-Estate and Fairways' development project at this late stage
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would lead to major re-planning, re-routing, and relocation works, which in turn,
would massively prejudice the Fil-Estate and Fairways' economic position, and
affect its integrity and reputation. Instead, the RTC ordered Fil-Estate and
Fairways to pay Ayson the purported reasonable value of the subject land, which
it pegged at US$100,000.00, or her acquisition cost multiplied by five, in view of
the rapid increase of real estate properties in Boracay Island for the past few
years. 15 DETACa
Fil-Estate and Fairways moved for reconsideration, 16 which was,
however, denied in an Order 17 dated February 6, 2009. Aggrieved, they
appealed 18 to the CA.
The CA Ruling
In a Decision 19 dated March 1, 2013, the CA affirmed the RTC ruling
with modification reducing the award of damages as follows: (a) US$40,000.00
or its Philippine Peso equivalent, representing the value of the subject land, plus
P1,000.00 monthly rentals for the use and occupancy of said land starting
December 1997 until the aforesaid value has been fully paid; (b)P52,666.00 plus
US$4,316.06 or its Philippine Peso equivalent as actual
damages; (c) P500,000.00 as moral damages; (d) P300,000.00 as exemplary
damages; and (e) P200,000.00 as attorney's fees and other litigation
expenses. 20
The CA held that despite recognizing Ayson as the registered owner of the
subject land, Fil-Estate and Fairways still entered into the same and included it
in its golf course development project without the former's prior knowledge and
consent. In this regard, it held that Fil-Estate and Fairways should not have
relied on Villanueva's assurances that she would secure Ayson's acquiescence to
a land swap arrangement, but instead, exercised due diligence and prudence in
taking steps to ensure that Ayson indeed agreed to the inclusion of her property
in the golf course development project. Further, the CA agreed with the RTC that
the subject land should no longer be returned to Ayson, and that Fil-Estate and
Fairways should pay her its value instead. However, absent any competent
evidence on the valuation of the subject land, the CA fixed its value at
US$40,000.00, or the amount double its acquisition cost, and likewise reduced
the rent to P1,000.00 per month. In the same vein, the CA found it appropriate to
reduce the other awards of damages to Ayson in keeping with the evidence
adduced in the case as well as the prevailing circumstances. 21
Dissatisfied, both parties separately moved for
reconsideration 22 assailing the valuation of the subject land as well as the other
monetary awards. Fil-Estate and Fairways likewise assailed the CA's failure to
expressly state in its Decision that upon full payment of the value of the subject
land, Ayson should surrender her title over the same and that a new title be
issued in their names. 23
In a Resolution 24 dated February 22, 2016, the CA denied the parties'
respective motions, holding that: (a) in pegging the value of the subject land, it
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took judicial notice of the rapid increase and appreciation of the value of the real
estate properties in Boracay Island for the past years; (b) the amounts fixed
representing the awards for damages are correct, fair, and reasonable under the
circumstances; and (c) there is no more necessity to expressly declare that upon
Fil-Estate and Fairways' payment of the value of the subject land, Ayson should
surrender her title over the same and a new title must be issued in their names,
as such is a necessary consequence of its Decision. 25
Hence, these consolidated petitions.
The Issues Before the Court
At the outset, the Court notes that the issues raised in the instant petition
largely pertain only to the propriety of the awards of moral damages, exemplary
damages, and attorney's fees in Ayson's favor and the corresponding amounts
thereof, as well as the correctness of the valuation of the subject land at
US$40,000.00 and the monthly rental therefor. As such, the Court shall limit its
discussion on the foregoing and shall no longer delve on other matters not raised
before it.
Essentially, Fil-Estate and Fairways contend that there is no basis to
award moral damages, exemplary damages, and attorney's fees to Ayson as they
were in good faith in relying on Villanueva's assurances that Ayson will agree on
the land swap arrangement before they proceeded with the golf course
development project. They likewise contend that Ayson never objected to the
construction on the subject land until after the golf course had been
completed. 26 As to the valuation of the subject land, Fil-Estate and Fairways
argue that the CA's appraisal of the same at US$40,000.00 (or even that of the
RTC at US$100,000.00) does not have any basis as no competent evidence on
record supports such estimation. In this regard, Fil-Estate and Fairways insist
that the value of the subject land is only P100,000.00, as stated in the Deed of
Sale 27 executed by Ayson and Villanueva. 28
On the other hand, Ayson disputes the reduction of the amounts of moral
damages, exemplary damages, and attorney's fees awarded to her, justifying the
RTC's higher awards as just, proper, and equitable in light of Fil-Estate's gross
and utter bad faith in entering into her property and making it a part of its golf
course without her knowledge and consent. 29 In the same vein, Ayson assails
CA's reduced valuation of the subject land as well as the monthly rent therefor,
maintaining that the RTC correctly took judicial notice of the rapid valuation of
properties in Boracay Island. 30
The Court's Ruling
The petition is partly meritorious.
I.
To recapitulate, both the RTC and the CA found that Ayson is the
undisputed owner of the subject land, as evidenced by TCT No. T-24562. Despite
such knowledge, Fil-Estate and Fairways nevertheless chose to rely on
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Villanueva's empty assurances that she will be able to convince Ayson to agree
on a land swap arrangement; and thereafter, proceeded to enter the subject land
and introduce improvements thereon. The courts a quo further found that since
such acts were without Ayson's knowledge and consent, she, thus: (a) suffered
sleepless nights and mental anguish knowing that the property she and her
husband had invested for their future retirement had been utilized by Fil-Estate
and Fairways for their own sake; and (b) had to seek legal remedies to vindicate
her rights. Thus, both lower courts concluded that Fil-Estate and Fairways' acts
were done in bad faith and resulted in injury to Ayson; hence, they are liable
for, inter alia, moral damages, exemplary damages, and attorney's fees.
Verily, the finding of Fil-Estate and Fairways' bad faith, 31 as well as their
liability for moral damages, 32 exemplary damages, 33 and attorney's
fees, 34 are all factual matters which are not within the ambit of the instant
petition for review on certiorari under Rule 45 of the Rules of Court. In this
regard, it has long been settled that factual findings of the trial court, affirmed by
the CA, are final and conclusive and may not be reviewed on appeal, 35 save for
certain exceptions, 36 which Fil-Estate and Fairways failed to show in this case
— at least regarding this issue.
Relatedly, the CA correctly reduced the awards for moral damages,
exemplary damages, and attorney's fees to P500,000.00, P300,000.00, and
P200,000.00, respectively, in light of the evidence adduced as well as the
prevailing circumstances of the instant case. It must be stressed that "[m]oral
damages are not meant to be punitive but are designed to compensate and
alleviate the physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar harm unjustly caused to a person."37 Similarly, exemplary damages are
imposed "by way of example or correction for the public good, in addition to the
moral, temperate, liquidated or compensatory damages" and are awarded "only
if the guilty party acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner." 38 Lastly, attorney's fees should be reasonable in all cases
where an award thereof is warranted under the circumstances. 39 aDSIHc
In sum, Fil-Estate and Fairways' liability for moral damages, exemplary
damages, and attorney's fees, as well as the amounts thereof, must be upheld in
light of the surrounding circumstances of this case. In addition, a legal interest at
the rate of six percent (6%) per annum should be imposed on all monetary
awards to Ayson from the time of the finality of this Decision until fully paid. 40
II.
Anent the valuation of the subject land, the RTC deemed the amount of
US$100,000.00 or its Philippine Peso equivalent as its reasonable value
"considering the rapid increase or appreciation of the value of real estate
properties in Boracay Island for the past 10 years." 41 On the other hand, the CA
pegged its value at US$40,000.00, or the amount double the purchase price, "in
consideration and after proper adjustment of the [RTC's] valuation which took
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judicial notice of the rapid increase and appreciation of the value of real estate
properties in Boracay Island for the past years and considering further that the
property is located in the prime tourist destination." 42
After a judicious perusal of the records, the Court views such valuations
as grounded entirely on speculation, surmises, or conjectures as there was no
evidence presented by the parties supporting the same. In fact, even the CA
acknowledged the absence of any piece of evidence that would provide a
competent valuation of the subject land. 43 Undoubtedly, such valuations,
including the amount of monthly rentals that Fil-Estate and Fairways must pay
Ayson for the use of the subject land, must be struck down.
In the same vein, the Court likewise finds untenable Fil-Estate and
Fairways' assertion that the valuation of the subject land is only P100,000.00, as
stated in the Deed of Sale 44 executed by Ayson and Villanueva in 1996. 45 At
the most, the value stated in said Deed would only reflect the market value of the
subject land at the time of its execution and is in no way indicative of the current
market value of the said land, which is the amount that Fil-Estate and Fairways
should pay Ayson. 46
In view of the foregoing circumstances, the Court finds it prudent to
remand the case back to the RTC for the determination of the current market
value of the subject land, as well as the reasonable amount of monthly rental.
Once the current market value as well as the reasonable rent has been
reasonably ascertained, the same shall be subjected to the appropriate interest
rates. 47 Moreover, once the value of the subject land, monthly rentals, and
applicable interests have been fully paid, Ayson should execute the necessary
documents to effectuate the transfer of the property to Fil-Estate and Fairways.
WHEREFORE, the petition is PARTLY GRANTED. The Decision dated
March 1, 2013 and the Resolution dated February 22, 2016 of the Court of
Appeals in CA-G.R. CV. No. 03010 are herebyAFFIRMED with MODIFICATION as
follows:
(a) petitioners Fil-Estate Properties, Inc. and Fairways & Bluewater
Resort & Country Club, Inc. are ORDERED to jointly and
solidarily pay Rosalie Sy Ayson the amounts of P52,666.00
and US$4,316.06 or its Philippine Peso equivalent as actual
damages, P500,000.00 as moral damages, P300,000.00 as
exemplary damages, and P200,000.00 as attorney's fees and
litigation expenses, with legal interest at the rate of six
percent (6%) per annum on all amounts due from finality of
judgment until fully paid;
(b) the issue of the proper valuation of Lot No. 14-S covered by
Transfer Certificate of Title No. T-24562 is REMANDED to
the Regional Trial Court of Kalibo, Aklan, Branch 9 to
determine its current market value, reasonable monthly
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rental, and the applicable interest rate thereon to be paid by

Fil-Estate Properties, Inc. and Fairways & Bluewater Resort &
Country Club, Inc.; and
(c) upon full payment of the ascertained current market value,

monthly rental, and interests, Rosalie Sy Ayson shall execute
the necessary documents to effectuate the transfer of Lot No.
14-S covered by Transfer Certificate of Title No. T-24562 to
Fil-Estate Properties, Inc. and Fairways & Bluewater Resort &
Country Club, Inc.
SO ORDERED.
Sereno, C.J., Leonardo-de Castro, Bersamin and Caguioa, JJ., concur.
||| (Ayson v. Fil-Estate Properties, Inc., G.R. Nos. 223254 & 223269, [December 1,
2016])
Note: as to civil liability
FIRST DIVISION
[G.R. No. 196256. December 5, 2016.]
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. WILLY

VALLAR, HERACLEO VALLAR, JR. (a.k.a. ORACLEO VALLAR, JR.)
DANNY VALLAR, AND EDGARDO MABELIN, accused,
HERACLEO VALLAR, JR. (a.k.a. ORACLEO VALLAR, JR.), accused-

appellant.
DECISION
SERENO, C.J p:
This is an appeal from the Decision 1 of the Court of Appeals (CA)
affirming the Decision 2 of the Regional Trial Court (RTC) of Gingoog City,
Branch 27. The RTC found appellant Oracleo Vallar, Jr. (Oracleo) guilty of the
crime of robbery with homicide, attended by the aggravating circumstance of
employment of disguise and abuse of superior strength.
THE INFORMATION
Criminal Case No. 89-323
That on or about the 21st day of June 1989, at more or less
7:00 o'clock in the evening, at San Isidro, Malibud, Gingoog City,
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Philippines and within the jurisdiction of this Honorable Court, the

above-named accused, conspiring, confederating together and
mutually helping one another, armed with high powered firearms
and bladed weapon with which the accused were conveniently
provided, did then and there wilfully, unlawfully and feloniously
and by means of violence, with intent of gain and against the
consent of the owner, take, steal and carry away cash money
worth Fifteen Thousand (P15,000.00) Pesos belonging to Eugracia
Bagabaldo, to the damage and prejudice of the said owner in the
aforementioned sum of P15,000.00, Philippine currency, and that
on the occasion of said robbery, the said accused in pursuance of
their conspiracy, did then and there unlawfully and feloniously
with treachery and evident premeditation, taking advantage of
their superior number and strength, treacherously attack assault,
shoot and stab the person of Cipriano Opiso, thereby wounding
him on the epigastric area penetrating abdominal cavity and other
parts of his body, and perform all acts of execution which would
have killed said Cipriano Opiso as a consequence thereof, but
nevertheless did not produce it by reason of causes independent of
the will of the accused that is because of the timely and able
medical attendance given to Opiso which prevented his death, and
also the said accused in pursuance of their conspiracy, did then
and there unlawfully and feloniously with treachery and evident
premeditation, taking advantage of their superior number and
strength, treacherously attack, shoot, assault and violate the
person of Eufracio Bagabaldo, without giving Bagabaldo the
chance to defend himself, inflicting upon Bagabaldo gunshot
wounds on the left auxiliary region, left side of the face and other
parts of his body resulting to the instantaneous death of Eufracio
Bagabaldo. That the offense was committed with the aggravating
circumstances of nighttime, band, evident premeditation, use of
disguise, taking advantage of treachery and superior strength to
facilitate the commission of the crime.
Contrary to and in violation of Article 293 in relation to
Article 294 and Article 14, paragraphs 6, 13, 14, 15 and 16 of
the Revised Penal Code. 3
EVIDENCE PRESENTED
According to the prosecution, the robbery incident occurred around
seven o'clock in the evening of 21 June 1989. At the time, Cipriano Opiso (Opiso)
was sitting on a bench alongside the store of Eufracio Bagabaldo (Eufracio),
when the following persons arrived, all wearing masks: Willy Vallar (Willy),
Danny Vallar (Danny), Oracleo and Edgardo Mabelin (Edgardo). 4 Willy pointed
his M14 rifle to the left side of the body of Opiso and said, "Don't move because
this is a robbery." The latter managed to stand up, hold the muzzle of the gun
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and raise it upward, after which it exploded hitting the top of his head. Opiso
continued to grapple for possession of the rifle and, in the process, unmasked
Willy. 5 Suddenly, accused Oracleo moved toward Opiso and stabbed the latter
in the stomach. Willy pushed Opiso, who fell to the bench, pleading "Do not kill
me because I will die with this wound already." 6 Willy and Danny left Opiso and
proceeded into the store. Edgardo and Oracleo remained on the roadside and
served as lookouts. 7 TIADCc
Once inside, Danny and Willy pointed their weapons at the spouses
Eufracio and Pedrita Bagabaldo. Danny fired his pistol into the air and declared,
"Money, this is a robbery." Unnoticed by the accused, Oscar Omac (Omac), the
Bagabaldos' household helper, hid beside a table, from which he witnessed the
entire incident. Meanwhile, Pedrita begged for their lives and placed P15,000
cash on the table upon which Danny put the cash inside a bag. Unsatisfied, he
demanded for more money, but Pedrita explained that it was the only amount
left. 8 Thereafter, he and Willy held Eufracio by his shirt collar and dragged him
outside the store. Pedrita ran to the kitchen to hide. 9
Meanwhile, Opiso was crawling towards the residence of Eufracio for
safety when he heard two gunshots. 10 Pedrita, 11 Omac, 12 and a neighbour —
Paterio Denoso (Denoso) — also heard the gunshots. 13 Denoso immediately
went out to check what happened. On the way, he heard footsteps so he hid
himself behind tall grasses. From his position, he recognized Willy and three
other persons. After the four left, Denoso continued towards the Bagabaldo
residence and found Eufracio lying on the ground dead. 14 The latter's remains
were then brought inside the house, while Opiso was rushed to the hospital. 15
The post-mortem report prepared by the medico-legal officer of Gingoog
City revealed that Eufracio sustained a gunshot wound in the brain. Meanwhile,
the medical examination of Opiso showed that the victim sustained a two-
centimeter stab wound that penetrated his abdominal cavity and would have
caused his death if not for the timely medical treatment. 16
During trial, Opiso claimed that though the other accused wore masks, he
was able to recognize their identity because he had known them personally for
twenty years from the time that they were still students. 17 Omac testified that
he clearly saw Willy's face; recognized Danny based on his stature, voice and
mannerism; and was very familiar with the Vallar brothers, because they were
residents of Malibud. 18 Meanwhile, Candelaria Solijon testified that on the day
of the incident, at around six o'clock in the afternoon, she saw the four accused
walking together. 19
For his defense, Willy denied committing the crime and claimed that he
was working as a farmer at the time of the incident. 20 Danny also denied any
involvement, explaining that he was with his family inside their house at that
time. 21 Meanwhile, Edgardo testified that during the date and time of the
incident, he was in Cagayan de Oro City busy tending the farmland owned by one
Oscar Ramos. 22
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Oracleo likewise invoked the defenses of denial and alibi, averring that he
was at the Gingoog City Junior College attending his classes, at around 5:30 and
7:30 p.m. on the date of the incident. He further asserted that after his last class
on that day, he accompanied his girlfriend-classmate to her residence in Recurro,
Gingoog City, and even met another classmate named Cecilia Bitangcor
(Bitangcor) on the way. He further alleged that after conducting his girlfriend to
her house, he proceeded to his residence at Lapak, Gingoog City. To corroborate
his story, he presented his teacher Sheila Daapong (Daapong) who claimed that
Oracleo attended both classes and even took the quizzes scheduled at 5:30 to
6:30 and at 6:30 to 7:30 p.m. Bitangcor also testified that she met Oracleo and
his girlfriend at around eight o'clock on the date of the incident on Motoomull
Street, Gingoog City. 23
THE RTC RULING
In a Decision dated 20 July 2002, the RTC found Willy, Danny, Oracleo,
and Edgardo guilty of the crime of robbery with homicide and frustrated
homicide attended by the aggravating circumstance of employment of disguise
and commission of the crime by a band. 24 Appellants were sentenced to suffer
the penalty of reclusion perpetua and to indemnify the offended parties —
Pedrita in the amounts of P100,000 as moral damages and P50,000 as
compensatory damages; and to Opiso the amount of P50,000 for actual expenses
and P30,000 for moral damages. 25With respect to Willy who had already died,
his criminal liability was deemed extinguished pursuant to Article 89, par. 1 of
the Revised Penal Code. 26
The trial court gave no credence to the defenses of denial and alibi
proffered by the accused. The RTC reiterated the time-honored principle that the
defense of alibi cannot prevail over the positive declaration of witnesses who
have convincingly identified the accused as the perpetrators of the crime
charged. 27 In particular, with regard to Oracleo's defense, the RTC observed
that the testimony of Daapong was vague, as she admitted that there were errors
in her class record and that, at times, she did not check attendance in her classes.
Furthermore, none of Oracleo's classmates were presented to prove his
allegation, except Bitangcor who was absent from class that evening. 28 The RTC
further noted that the accused Willy, Danny, Oracleo, and Edgar were charged
with robbery in Criminal Case No. 89-395. 29 In sum, the trial court concluded
that the prosecution was able to prove their guilt, and that the offense was
attended by the aggravating circumstance of employment of disguise and
commission of the crime by a band. 30 Thereafter, Edgar and Oracleo elevated
their conviction to the CA. AIDSTE
THE CA RULING
The CA rendered a Decision 31 modifying that of the RTC. The appellate
court found accused-appellants guilty of the crime of robbery with homicide
only, attended by the aggravating circumstances of employment of disguise and
abuse of superior strength. The award of P50,000 compensatory damages was
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deleted; and instead, both accused-appellants were ordered to pay each of the
offended parties P25,000 as temperate damages. The moral damages awarded to
Pedrita were reduced from P100,000 to P50,000. Accused-appellants were
further ordered to pay civil indemnity to Pedrita in the amount of P50,000, as
well as exemplary damages to each of the offended parties in the amount of
P25,000, plus costs of the suit. 32
The CA was convinced that the prosecution witnesses, specifically Opiso,
had positively identified accused-appellants Oracleo and Edgardo as among the
four perpetrators of the crime. 33As for the defense, the CA ruled that the two
accused-appellants had failed to prove that it was physically impossible for them
to have been at or near the scene of the crime. 34
Appellant perfected his appeal to this Court with the timely filing of a
Notice of Appeal. He and the Solicitor General separately manifested that they
would adopt their respective briefs filed before the CA as their supplemental
briefs.
ISSUE
Whether there is proof beyond reasonable doubt that appellant is guilty
of the crime of robbery with homicide, attended by the aggravating
circumstances of employment of disguise and abuse of superior strength.
OUR RULING
We deny the appeal. SDAaTC
There is no merit in the contentions that the testimonies on the exact
participation of accused-appellant were inconclusive and unreliable. 35 A
judicious review of the records shows that the testimonies of the prosecution
witnesses — especially Opiso — were clear, categorical and straightforward.
While it is true that none of the prosecution witnesses directly saw the face of
accused-appellant, Opiso positively identified him because of the latter's utmost
familiarity with appellant's physical build and bodily actions. Opiso had
personally known the four accused for about 20 years, because they were
residents of the same barangay, and they used to buy from the store. 36
Further, there is no merit in the contention of appellant that the
testimony of his teacher substantially corroborated his defense that he was
attending class at the time of the incident. 37We quote with approval the CA's
conclusions:
Appellant Oracleo apparently failed to establish the requisite
physical impossibility of his having been at the locus and tempus of
the crime's commission. The locus criminis was merely five (5)
kilometres away from Gingoog City proper — the place where
appellant claims he was when the crime was committed. It must be
noted that several public utility jeepneys and private motorcycles
are plying the route. Besides, the Barangay of San Isidro, Malibud,
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Gingoog City could be reached in only about thirty (3) minutes

from the City proper.
Furthermore, Sheila Daapong's testimony to the effect that
appellant Oracleo continuously attended her classes on June 21,
1989 from 5:30 p.m. to 7:30 p.m. cannot be heavily relied upon
inasmuch as she herself admitted that she was not checking the
attendance of her students in class. And even assuming that
Oracleo indeed took the quizzes she gave in her two classes, it was
not concretely proven that appellant stayed in school for the
whole period from 5:30 p.m. to 7:30 p.m. As a matter of fact, Ms.
Daapong even declared that her students could very well finish the
examinations in thirty (30) minutes. Given these circumstances, it
is highly probable that appellant had finished the examinations in
the second subject and left the class before 7:00 p.m.
Similarly futile is the testimony of Ma. Cecilia Bitangcor that
she met Oracleo and his girlfriend-classmate, Merlin Lupoy at J.
Motoomull Street, Gingoog City, at around 8:00 o'clock in the
evening of June 21, 1989. Ms. Bitangcor's testimony could not
concretely support appellant's defense of alibi as the robbery-
shooting incident happened at around 7:00 o'clock in the evening.
Appellant failed to establish his physical impossibility of being at
the crime scene an hour before his alleged meeting with Ms.
Bitangor at J. Motoomull Street, Gingoog City. 38
Time and again, We have held that that the factual findings of the trial
court involving the credibility of witnesses are accorded respect especially when
affirmed by the CA. 39 This is clearly because the trial judge was the one who
personally heard the accused and the witnesses and observed their demeanor, as
well as the manner in which they testified during trial. Accordingly, the trial
court is in a better position to assess and weigh the evidence presented during
trial. 40 Here, the trial court and the CA gave full weight to the testimonies of the
prosecution witnesses, and We find no compelling reason to disturb their
assessment.
Appellants were properly convicted
of robbery with homicide
We agree with the CA however, in its modification of the crime to robbery
with homicide:
Concerning the legal characterization of the crime, the
Court finds that its proper designation is not robbery with
homicide and frustrated homicide, as inaccurately labelled by the
prosecution and unwittingly adopted by the trial court, but is
simply one of robbery with homicide. It has been jurisprudentially
settled that the term homicide in Article 294, paragraph 1, of
the Revised Penal Code is to be used in its generic sense, to
CIVIL LAW REVIEW 2

embrace not only acts that result in death, but all other acts
producing any bodily injury short of death. It is thus characterized
as such regardless of the number of homicides committed and the
physical injuries inflicted. 41
We also agree with the CA when it corrected the trial court's appreciation
of the aggravating circumstances present at that time. While both lower courts
properly appreciated the aggravating circumstance of employment of disguise,
the commission of a crime by a band was not established because only Willy,
Danny and Oracleo were proven to have carried arms. 42Nevertheless, the CA
properly appreciated the aggravating circumstance of superior strength,
considering the number of malefactors and the kind of weapons used in
facilitating the commission of the crime. Because the crime was attended by two
aggravating circumstances, the appropriate penalty should be reclusion
perpetua 43 in lieu of death, pursuant to R.A. 9346. 44
Civil Aspect of the Case
In robbery with homicide, civil indemnity and moral damages are
awarded automatically without need of allegation and evidence other than the
death of the victim owing to the crime. 45The CA was correct in granting these
awards, except that for Pedrita, the amount that should be granted is P100,000
in conformity with prevailing jurisprudence. 46 Opiso, as a victim who suffered
mortal or fatal wounds and could have died if not for timely medical
intervention, is also entitled to civil indemnity and moral damages in the amount
of P75,000. 47 acEHCD
The CA further awarded exemplary damages in view of the two
aggravating circumstances of disguise and abuse of superior strength. We,
however, modify the amount that should be awarded from P25,000 to P100,000
for Pedrita, and P25,000 to P75,000 for Opiso. As for temperate damages, the CA
awarded Pedrita and Opiso temperate damages in the amount of P25,000 in lieu
of actual damages, it having been shown that she suffered some pecuniary
losses, though its amount could not be proven with certainty. In line with
prevailing jurisprudence, We increase Pedrita's award of temperate damages to
P50,000. 48
WHEREFORE, the Petition is DENIED. The CA Decision dated 9 December
2010 in CA-G.R. CR-H.C. No. 00158-MIN convicting appellant Heracleo Vallar, Jr.
(a.k.a. Oracleo Vallar, Jr.) of the crime of robbery with homicide is AFFIRMED
with MODIFICATIONS. For Pedrita Bagabaldo: (a) civil indemnity and moral
damages are increased from P50,000 to P100,000, respectively; (b) exemplary
damages are also increased from P25,000 to P100,000; and (c) temperate
damages are likewise increased from P25,000 to P50,000. For Cipriano Opiso: (a)
he is granted civil indemnity in the amount of P75,000; (b) moral damages are
increased from P30,000 to P75,000; and (c) exemplary damages are increased
from P25,000 to P75,000.
SO ORDERED.
CIVIL LAW REVIEW 2

Leonardo-de Castro, Bersamin, Perlas-Bernabe and Caguioa, JJ., concur.

||| (People v. Vallar, Jr., G.R. No. 196256, [December 5, 2016])
THIRD DIVISION
[G.R. No. 195876. December 5, 2016.]
PILIPINAS SHELL PETROLEUM

CORPORATION, petitioner, vs. COMMISSIONER OF
CUSTOMS, respondent.
DECISION
PEREZ, J p:
Before the Court is a Petition for Review on Certiorari seeking to reverse
and set aside the 13 May 2010 Decision 1 and the 22 February 2011
Resolution 2 rendered by the Court of Tax Appeals (CTA) Former En Banc in
C.T.A. EB No. 472 which dismissed petitioner's petition, and accordingly affirmed
with modification as to the additional imposition of legal interest the 19 June
2008 Decision 3 of the CTA Former First Division (CTA in Division) ordering
petitioner to pay the amount of P936,899,883.90, representing the total dutiable
value of its 1996 crude oil importation, which was considered as abandoned in
favor of the government by operation of law.
The Facts
The factual antecedents of the case are as follows:
On 16 April 1996, Republic Act (R.A.) No. 8180, 4 otherwise known as the
"Downstream Oil Industry Deregulation Act of 1996" took effect. It provides,
among others, for the reduction of the tariff duty on imported crude oil from ten
percent (10%) to three percent (3%). The particular provision of which is
hereunder quoted as follows:
Section 5. Liberalization of Downstream
Oil Industry and Tariff Treatment. — . . .
b) Any law to the contrary notwithstanding
and starting with the effectivity of this Act, tariff
shall be imposed and collected on imported crude
oil at the rate of three percent (3%) and imported
refined petroleum products at the rate of seven
percent (7%), except fuel oil and LPG, the rate for
which shall be the same as that for imported crude
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oil Provided, That beginning on January 1, 2004 the

tariff rate on imported crude oil and refined
petroleum products shall be the same: Provided,
further, That this provision may be amended only by
an Act of Congress.
Prior to its effectivity, petitioner's importation of 1,979,674.85 U.S.
barrels of Arab Light Crude Oil, thru the Ex MT Lanistels, arrived on 7 April 1996
nine (9) days earlier than the effectivity of the liberalization provision. Within a
period of three days thereafter, or specifically on 10 April 1996, said shipment
was unloaded from the carrying vessels docked at a wharf owned and operated
by petitioner, to its oil tanks located at Batangas City.
Subsequently, petitioner filed the Import Entry and Internal Revenue
Declaration and paid the import duty of said shipment in the amount of
P11,231,081.00 on 23 May 1996.
More than four (4) years later or on 1 August 2000, petitioner received a
demand letter 5 dated 27 July 2000 from the Bureau of Customs (BOC), through
the District Collector of Batangas, assessing it to pay the deficiency customs
duties in the amount of P120,162,991.00 due from the aforementioned crude oil
importation, representing the difference between the amount allegedly due (at
the old rate of ten percent (10%) or before the effectivity of R.A. No. 8180) and
the actual amount of duties paid by petitioner (on the rate of 3%). CAIHTE
Petitioner protested the assessment on 14 August 2000, 6 to which the
District Collector of the BOC replied on 4 September 2000 7 reiterating his
demand for the payment of said deficiency customs duties.
On 11 October 2000, 8 petitioner appealed the 4 September 2000
decision of the District Collector of the BOC to the respondent and requested for
the cancellation of the assessment for the same customs duties.
However, on 29 October 2001, 9 five years after petitioner paid the
allegedly deficient import duty' it received by telefax from the respondent a
demand letter for the payment of the amount of P936,899,885.90, representing
the dutiable value of its 1996 crude oil importation which had been allegedly
abandoned in favor of the government by operation of law. Respondent stated
that Import Entry No. 683-96 covering the subject importation had been
irregularly filed and accepted beyond the thirty-day (30) period prescribed by
law. Petitioner protested the aforesaid demand letter on 7 November
2001 10 for lack of factual and legal basis, and on the ground of prescription.
Seeking clarification as to what course of action the BOC is taking, and
reiterating its position that the respondent's demand letters dated 29 October
2001 and 27 July 2000 have no legal basis, petitioner sent a letter to the Director
of Legal Service of the BOC on 3 December 2001 for said purpose.
On 28 December 2001, 11 BOC Deputy Commissioner Gil A. Valera sent
petitioner a letter which stated that the latter had not responded to the
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respondent's 29 October 2001 demand letter and demanded payment of the

amount of P936,899,885.90, under threat to hold delivery of petitioner's
subsequent shipments, pursuant to Section 1508 12 of the Tariff and Customs
Code of the Philippines (TCCP), 13 and to file a civil complaint against petitioner.
In reply thereto, petitioner sent a letter dated 4 January 2002 14 to the
BOC Deputy Commissioner and expressed that it had already responded to the
aforesaid demand letter through the letters dated 7 November 2001 and 3
December 2001 sent to respondent and to the Director of Legal Service of the
BOC, respectively.
On 11 April 2002, the BOC filed a civil case for collection of sum of money
against petitioner, together with Caltex Philippines, Inc. as co-party therein,
docketed as Civil Case No. 02103239, before Branch XXV, Regional Trial Court
(RTC), of the City of Manila. 15
Consequently, on 27 May 2002, petitioner filed with the Court of Tax
Appeals (CTA) a Petition for Review, raffled to the Former First Division (CTA in
Division), and docketed as C.T.A. Case No. 6485, upon consideration that the civil
complaint filed in the RTC of Manila was the final decision of the BOC on its
protest. 16
Respondent filed on 2 August 2002 a motion to dismiss the said petition
raising lack of jurisdiction and failure to state a cause of action as its grounds,
which the CTA in Division denied in the Resolution dated 17 January 2003.
Likewise, respondent's motion for reconsideration filed on 14 February 2003
was denied on its 16 June 2003 Resolution. 17
Subsequently, respondent, through the Office of the Solicitor General,
filed on 13 August 2003 before the Court of Appeals (CA) a Petition
for Certiorari and Prohibition with Prayer for the Issuance of a Temporary
Restraining Order and Writ of Preliminary Injunction, docketed as CA-G.R. SP No.
78563, praying for the reversal and setting aside of the CTA in Division's
Resolutions dated 17 January 2003 and 16 June 2003. 18
In the interim, respondent filed his Answer to the petition in C.T.A. Case
No. 6485 on 20 October 2003 which reiterated the lack of jurisdiction and failure
to state a cause of action. Thereafter, trial on the merits ensued.
On 15 February 2007, the Former First Division of the CA dismissed
respondent's petition in CA-G.R. SP No. 78563. Similarly, respondent's motion
for reconsideration of the 15 February 2007 Decision was denied in its 24 July
2007 Resolution. 19
The Ruling of the CTA in Division
In a Decision dated 19 June 2008, 20 the CTA in Division ruled to dismiss
the Petition for Review on C.T.A. Case No. 6485 for lack of merit and accordingly
ordered petitioner to pay the entire amount of P936,899,883.90 21 representing
the total dutiable value of the subject shipment of Arab Light Crude Oil on the
CIVIL LAW REVIEW 2

ground of implied abandonment pursuant to Sections 1801 and 1802 of

the TCCP.
Relevant thereto, the CTA in Division made the following factual and legal
findings: (a) that petitioner filed the specified entry form (Import Entry and
Internal Revenue Declaration) beyond the 30-day period prescribed under
Section 1301 of the TCCP; 22 (b) that for failure to file within the aforesaid 30-
day period, the subject importation was deemed abandoned in favor of the
government in accordance with Sections 1801 and 1802 of the TCCP; 23 (c) that
petitioner's excuses in the delay of filing its Import Entry and Internal Revenue
Declaration were implausible; 24 (d) that since the government became the
owner of the subject shipment by operation of law, petitioner has no right to
withdraw the same and should be held liable to pay for the total dutiable value of
said shipment computed at the time the importation was withdrawn from the
carrying vessel pursuant to Section 204 of the TCCP; 25 (e) that there was fraud
in the present case considering that "the District Collector, in conspiracy with
the officials of Caltex and Shell acted without authority or [with] abused (sic) [of]
authority by giving undue benefits to the importers by allowing the processing,
payment and subsequent release of the shipments to the damage and prejudice
of the government who, under the law is already the owner of the shipments . . .;"
thus, prescription under Section 1603 of the TCCP does not apply herein; 26 and
(f) that the findings of facts of administrative bodies charged with their specific
field of expertise, are afforded great weight by the courts; and in the absence of
substantial showing that such findings are made from an erroneous estimation
of the evidence presented, they are conclusive, and in the interest of stability of
the government structure, should not be disturbed. 27
On 24 February 2009, the CTA in Division denied petitioner's Motion for
Reconsideration for lack of merit citing Section 5 (b), 28 Rule 6 of the 2005
Revised Rules of the CTA, as sole legal basis in considering the Memorandum
dated 2 February 2001 issued by the Customs Intelligence & Investigation
Service, Investigation & Prosecution Division (CIIS-IPD) of the BOC as evidence
to establish fraud, and the case of Chevron Phils., Inc. v. Commissioner of the
Bureau of Customs, 29 as the jurisprudential foundation therein. 30
Aggrieved, petitioner appealed to the CTA Former En Banc by filing a
Petition for Review on 31 March 2009, under Section 3 (b), Rule 8 of the 2005
Revised Rules of the CTA, as amended, in relation to Rule 43 of the 1997 Rules of
Civil Procedure, as amended, docketed as C.T.A. EB No. 472. HEITAD
The Ruling of the CTA Former En Banc
In the 13 May 2010 Decision, 31 the CTA Former En Banc affirmed the
CTA in Division's ruling pertaining to the implied abandonment caused by
petitioner's failure to file the Import Entry and Internal Revenue Declaration
within the 30-day period, and transfer of ownership by operation of law to the
government of the subject shipment in accordance with Sections 1801 and 1802,
in relation to Section 1301, of the TCCP, and with the pronouncements made in
CIVIL LAW REVIEW 2

the Chevron case. Notably however, the ponente of the assailed Decision declared
therein that the existence of fraud is not controlling in the case at bench and
would not actually affect petitioner's liability to pay the dutiable value of its
imported crude oil, pertinent portion of which are quoted hereunder for ready
reference, to wit:
As regards the issue on the existence of
fraud, it should be emphasized that fraud is not
controlling in this case. Even in the absence of
fraud, petitioner Shell is still liable for the
payment of the dutiable value by operation of
law. The liability of petitioner Shell for the payment
of the dutiable value of its imported crude oil arose
from the moment it appropriated for itself the said
importation, which were already a property of the
government by operation of law. Absence of fraud
in this case would not exclude petitioner Shell
from the coverage of Sections 1801 and 1802 of
the TCCP. 32 (Emphasis supplied)
Furthermore, citing the case of Eastern Shipping Lines, Inc. v. Court of
Appeals and Mercantile Insurance Company, Inc., 33 the CTA Former En
Banc imposed an additional legal interest of six percent (6%) per annum on the
total dutiable value of P936,899,883.90, accruing from the date said decision
was promulgated until its finality; and afterwards, an interest rate of twelve
percent (12%) per annum shall be applied until its full satisfaction. 34
Not satisfied, petitioner filed a motion for reconsideration thereof which
was denied in the assailed Resolution dated 22 February 2011.
Consequently, this Petition for Review wherein petitioner seeks the
reversal and setting aside of the aforementioned Decision and Resolution dated
13 May 2010 and 22 February 2011, respectively, and accordingly prays that a
decision be rendered finding: (a) that petitioner has already paid the proper
duties on its importation and therefore not liable anymore; and (b) that
petitioner is not deemed to have abandoned its subject shipment; or, in the
alternative, (c) that respondent's attempt to collect is devoid of any legal and
factual basis considering that the right to collect against petitioner relating to its
subject shipment has already prescribed.
In support of its petition, petitioner posits the following assigned errors:
I
THE CTA FORMER EN BANC ERRED WHEN IT HELD IN THE
QUESTIONED DECISION THAT PETITIONER PSPC IS DEEMED TO
HAVE IMPLIEDLY ABANDONED THE SUBJECT SHIPMENT AND,
THUS, IS LIABLE FOR THE ENTIRE VALUE OF THE SUBJECT
SHIPMENT, PLUS INTEREST, DESPITE THE FACT THAT SUCH
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CLAIM, IF ANY AT ALL, HAS ALREADY PRESCRIBED, ESPECIALLY

BECAUSE PETITIONER PSPC DID NOT COMMIT ANY FRAUD.
II
THE CTA FORMER EN BANC ERRED WHEN IT FAILED TO
RECOGNIZE THAT THE GOVERNMENT DID NOT SUFFER ANY
DAMAGE OR REVENUE LOSS SINCE ALL TARIFF DUTIES
IMPOSABLE ON THE SUBJECT SHIPMENT WERE ALREADY PAID
TO THE GOVERNMENT, SUCH THAT TO ALLOW RESPONDENT
COMMISSIONER TO RECOVER THE ENTIRE VALUE OF THE
SUBJECT SHIPMENT WOULD BE CONFISCATORY AND AMOUNT
TO UNJUST ENRICHMENT ON THE PART OF THE GOVERNMENT.
III
THE CTA FORMER EN BANC ERRED WHEN IT CONSIDERED THE
SUBJECT SHIPMENT AS IMPLIEDLY ABANDONED, DEPRIVING
PETITIONER PSPC OF ITS RIGHT TO DUE PROCESS AND EQUAL
PROTECTION OF THE LAW, CONSIDERING:
A. RESPONDENT COMMISSIONER DID NOT OBSERVE THE DUE
NOTICE REQUIREMENT UNDER SECTION 1801 OF
THE TCCP OR COMPLIED WITH THE RULES THAT BOC HAD
PROMULGATED, WHICH DUE NOTICE IS MANDATORY IN
THE ABSENCE OF FRAUD AS HELD IN THE CHEVRON
CASE. ATICcS
B. THE DUE NOTICE REQUIRED UNDER SECTION 1801 OF
THE TCCP ACTUALLY REFERS TO THE NOTICE TO FILE
ENTRY FOR IMPORTED ARTICLES AND NOT THE ARRIVAL
THEREOF.
C. PETITIONER PSPC's ADVANCE FILING OF ITS IED WHICH, BY
LAW, ALREADY CONSTITUTES A VALID AND EFFECTIVE
IMPORT ENTRY FORM, AND ITS CLEAR ACTUATIONS
SHOWED AN INTENTIONNOT TO ABANDON THE SUBJECT
SHIPMENT, ESPECIALLY SINCE IT HAD
ALREADY FULLY PAID THE TARIFF DUTY DUE ON THE
SHIPMENT IN ADVANCE.
D. RESPONDENT COMMISSIONER DID NOT CONSIDER PETITIONER
PSPC'S REASONABLE AND JUSTIFIABLE REASONS FOR THE
SLIGHT DELAY IN FILING ITS IEIRD.
E. TO SUSTAIN THE CTA FORMER EN BANC IS TO TREAT
PETITIONER PSPC WORSE THAN SMUGGLERS AND
COMMON CRIMINALS, AS TO DEPRIVE IT OF ITS RIGHT TO
EQUAL PROTECTION OF THE LAW.
IV
THE CTA [FORMER] EN BANC ERRED IN FAILING TO RECOGNIZE
THAT THE IMPOSITION OF A NINE HUNDRED THIRTY-SIX
CIVIL LAW REVIEW 2

MILLION EIGHT HUNDRED EIGHTY-NINE THOUSAND EIGHT

HUNDRED EIGHTY-THREE AND 90/100 PESOS (P936,889,883.90)
PENALTY BY REASON OF IMPLIED ABANDONMENT AGAINST
PETITIONER PSPC, DESPITE ITS FULL PAYMENT OF THE TARIFF
DUTY DUE ON THE SHIPMENT AND THE JUSTIFIABLE SLIGHT
DELAY IN THE LATTER's SUBMISSION OF ITS IEIRD, IS IN
VIOLATION OF INTERNATIONAL LAW UNDER THE REVISED
KYOTO CONVENTION.
V
THE CTA [FORMER] EN BANC ERRED IN FAILING TO RECOGNIZE
THAT THERE IS NO STATUTORY PROVISION EMPOWERING
RESPONDENT COMMISSIONER TO SUBSTITUTE ITS CLAIMS FOR
THE ABANDONED GOODS WITH THE VALUE THEREOF. ETHIDa
VI
THE CTA [FORMER] EN BANC GROSSLY MISAPPRECIATED THE
FACTS AND MISAPPLIED THE RULING OF THE HONORABLE
COURT IN THE CHEVRON CASE WHEN IT HELD THAT
PRESCRIPTION IS NOT A DEFENSE AND THAT THE NOTICE
REQUIREMENT UNDER SECTION 1801 OF THE TCCP AND THE
BOC's OWN RULES AND REGULATIONS DO NOT APPLY EVEN IN
THE ABSENCE OF FRAUD. QUITE THE CONTRARY, THE CHEVRON
CASE CLEARLY RECOGNIZED THAT THE PRESCRIPTIVE PERIOD
OF THE FINALITY OF THE LIQUIDATION UNDER SECTION 1603
OF THE TCCP IS A DEFENSE IN THE ABSENCE OF FRAUD AND
THE NOTICE REQUIREMENT WAS SET ASIDE DUE TO THE
FINDING OF FRAUD AGAINST CHEVRON. MOREOVER, UNLIKE IN
THE CHEVRON CASE WHERE THE HONORABLE COURT FOUND
CHEVRON TO HAVE BENEFITED FROM ITS DELAY AND WAS
GUILTY OF FRAUD, THE
QUESTIONED DECISION AND RESOLUTION BOTH DID NOT FIND
FRAUD ON THE PART OF PETITIONER PRPC. 35
Petitioner asseverates that: (a) in the absence of fraud, the right of
respondent to claim against petitioner, assuming there is any, has already
prescribed since an action involving payment of customs duties demanded after
a period of one (1) year from the date of final payment of duties shall not
succeed, relying on Section 1603 of the TCCP; (b) the alleged Memorandum
dated 2 February 2001 issued by the Investigation and Prosecution Division
(IPD) of the BOC, which served as the court a quo's basis in finding fraud on the
part of petitioner, was never presented, authenticated, marked, identified, nor
formally offered in evidence; hence, inadmissible and cannot be the basis of any
finding of fraud; (c) even if the Memorandum dated 2 February 2001 is legally
admitted in evidence, it still does not constitute clear and convincing proof to
establish any fraud on the part of petitioner since, unlike in the Chevron case, it
CIVIL LAW REVIEW 2

was entitled to avail of the reduced three percent (3%) rate under R.A. No. 8180,
which was already in effect as early as 16 April 1996; thus, petitioner did not
gain any undue advantage or benefit from its justifiable delay in filing the Import
Entry and Internal Revenue Declaration within the 30-day mandatory period;
and (d) the evidence on record and the acts of petitioner [filing of Import Entry
Declaration (IED) and paying advance duties] disclose honest and good faith on
its part showing clear absence of any fraudulent intent to evade the payment of
the proper customs duties and taxes due at the time of the entry of its imported
crude oil in the Philippines. 36
Petitioner further argues that the government suffered or lost nothing
when petitioner filed its Import Entry and Internal Revenue Declaration thirteen
(13) days beyond the period allowed by law, considering that the former did not
lose any tax collection when petitioner had allegedly paid in advance the amount
of P71,923,285.00 for the regular tariff duty of 10% then prevailing,
notwithstanding its entitlement to the reduced 3% rate under RA No. 8180.
Consequently, by ordering petitioner to pay for the entire dutiable value
amounting to P936,899,883.90, the government shall be guilty of unjust
enrichment, and such would result to deprivation of property on the part of
petitioner without due process of law. 37
Moreover, it is petitioner's contention that the principles enunciated in
the Chevron case were misapplied in the case at bench. It explained that the
reason for such ruling establishing the "ipso facto abandonment" doctrine was
because there was a finding of fraud on the part of Chevron, being the importer.
The existence of fraud was a critical and essential fact in the disposition on the
issues in the Chevron case that justified the goods to be deemed impliedly
abandoned in favor of the government. Corollarily, in the absence of fraud, goods
cannot be deemed impliedly abandoned and ipso facto owned by the
government arising from a mere delay in the submission of the Import Entry and
Internal Revenue Declaration, such as in the present case. In other words,
petitioner is convinced that the provisions of Sections 1801 and 1802 cannot be
applied blindly which may cause goods to be impliedly abandoned in favor of the
government, without even recognizing the peculiar circumstances of the case
and without allowing the importer (petitioner herein) to provide justifications
for the delay in the submission of its Import Entry and Internal Revenue
Declaration. Allegedly, both notices to the importer to file entry and for its
failure to file an entry within the non-extendible period of 30 days are essential
before a shipment can be considered impliedly abandoned. Otherwise, to do so
would constitute violation of the basic substantial constitutional rights of
petitioner. cSEDTC
Petitioner explains that, in issuing Customs Administrative Order (CAO)
No. 5-93 dated 1 September 1993 and Customs Memorandum Order (CMO) No.
15-94 dated 29 April 1994, respondent even recognized the significance of the
due notice requirement before any goods may be deemed impliedly abandoned
articles. Such notice purportedly refers to notice to file entry, and not notice of
CIVIL LAW REVIEW 2

arrival as mistakenly interpreted by the CTA Former En Banc. Thus, in the

absence of such notice in the present case, there could have been no implied
abandonment in favor of the government of the said imported crude oil by
petitioner pursuant to Section 1801 of the TCCP.
Lastly, petitioner believes that affirmance of the ruling a quo, would be
tantamount to a clear violation of international laws, i.e. the Revised Kyoto
Convention, which generally prohibit the imposition of substantial penalties for
errors when there is no fraud or gross negligence on the part of an importer.
Consequently, such current and reasonable trend in the international and
uniform application of customs rules and laws shows how unreasonable, unjust,
confiscatory, iniquitous and incongruent the disposition made against petitioner
in the instant case; hence, the very need to set aside the assailed Decision and
Resolution of the CTA Former En Banc in C.T.A. EB No. 472, in order to prevent
the creation of a legal precedent which contravenes State commitments.
Respondent, on the other hand, counters that petitioner's failure to file its
Import Entry and Internal Revenue Declaration within the non-extendible
period of 30 days was fatal to its cause of action. Resultantly, the subject
imported crude oil is deemed abandoned in favor of the government by reason
of such non-filing of the imported entries within said prescriptive period. 38
Our Ruling
The submissions of the parties to this case bring to fore two timelines and
the consequences of the lapse of the prescribed periods. Petitioner appears to be
covered by Section 1801, in relation to Section 1301, which respectively states:
Sec. 1801. Abandonment, Kinds and Effects of.
— An imported article is deemed abandoned under
any of the following circumstances:
(a) When the owner, importer or consignee of the imported article
expressly signifies in writing to the Collector of Customs his
intentions to abandon; or
(b) When the owner, importer, consignee or interested party after
due notice, fails to file an entry within thirty (30)
days, which shall not be extendible, from the date of
discharge of the last package from the vessel or aircraft, or
having filed such entry, fails to claim his importation within
fifteen (15) days which shall not likewise be extendible, from
the date of posting of the notice to claim such importation.
(Emphasis supplied)
Any person who abandons an article or who
fails to claim his importation as provided for in the
preceding paragraph shall be deemed to have
renounced all his interests and property rights
therein.
CIVIL LAW REVIEW 2

xxx xxx xxx

Sec. 1301. Persons Authorized to Make Import
Entry. — Imported articles must be entered in the
customhouse at the port of entry within thirty (30)
discharge of the last package from the vessel or
aircraft either (a) by the importer, being holder of
the bill of lading, (b) by a duly licensed customs
broker acting under authority from a holder of the
bill or (c) by a person duly empowered to act as
agent or attorney-in-fact for each holder: Provided,
That where the entry is filed by a party other than
the importer, said importer shall himself be
required to declare under oath and under the
penalties of falsification or perjury that the
declarations and statements contained in the entry
are true and correct: Provided, further, That such
statements under oath shall constitute prima
facie evidence of knowledge and consent of the
importer of violations against applicable provisions
of this Code when the importation is found to be
unlawful.
Tersely put, when an importer after due notice fails to file an Import Entry and
Internal Revenue Declaration within an unextendible period of thirty (30) days
from the discharge of the last package, the imported article is deemed
abandoned in favor of the government.
Upon the other hand, respondent is covered in a manner likewise
mandatory, by the provisions of Section 1603 which states that:
Sec. 1603. Finality of Liquidation. — When
articles have been entered and passed free of duty
or final adjustment of duties made, with subsequent
delivery, such entry and passage free of duty or
settlement of duties will, after the expiration of
one year, from the date of the final payment of
duties, in the absence of fraud or protest, be final
and conclusive upon all parties, unless the
liquidation of the import entry was merely tentative.
(Emphasis supplied) SDAaTC
We rule that in this case, Section 1603 is squarely applicable. The finality
of liquidation which arises one (1) year after the date of the final payment of
duties, which is in this case 23 May 1996, renders inoperable the provisions of
Section 1801.
Discussion
CIVIL LAW REVIEW 2

At the outset, it bears emphasis that the determination of the issues

presented in this case requires a comprehensive assessment of the
pronouncements made in the case of Chevron Philippines, Inc. v. Commissioner of
the Bureau of Customs; 39 thus, we find it imperative to reproduce hereunder the
points there considered which are germane to the controversy under review.
THE IMPORTATION WERE ABANDONED
IN FAVOR OF THE GOVERNMENT
The law is clear and explicit. It gives a
non-extendible period of 30 days for the
importer to file the entry which we have already
ruled pertains to both the IED and IEIRD. Thus
under Section 1801 in relation to Section 1301,
when the importer fails to file the entry within
the said period, he "shall be deemed to have
renounced all his interests and property rights"
to the importations and these shall be
considered impliedly abandoned in favor of the
government:
Section 1801. Abandonment, Kinds and Effect
of. —
xxx xxx xxx
Any person who abandons an article or
who fails to claim his importation as provided for in
the preceding paragraph shall be deemed to have
renounced all his interests and property rights
therein.
According to petitioner, the shipments
should not be considered impliedly abandoned
because none of its overt acts (filing of the IEDs and
paying advance duties) revealed any intention to
abandon the importations.
Unfortunately for petitioner, it was the
law itself which considered the importation
abandoned when it failed to file the IEIRDs
within the allotted time. Before it was amended,
Section 1801 was worded as follows:
Sec. 1801. Abandonment, Kinds and Effect of. —
Abandonment is express when it is made direct to
the Collector by the interested party in writing and
it is implied when, from the action or omission of
the interested party, an intention to abandon can
be clearly inferred. The failure of any interested
party to file the import entry within fifteen days or
CIVIL LAW REVIEW 2

any extension thereof from the discharge of the

vessel or aircraft, shall be implied abandonment. An
implied abandonment shall not be effective until
the article is declared by the Collector to have
been abandoned after notice thereof is given to
the interested party as in seizure cases.
Any person who abandons an imported
article renounces all his interests and property
rights therein.
After it was amended by RA 7651, there was an indubitable shift in
language as to what could be considered implied abandonment:
Section 1801. Abandonment, Kinds and Effect of. —
An imported article is deemed abandoned under
any of the following circumstances:
a. When the owner, importer, consignee of the imported
article expressly signifies in writing to the Collector of
Customs his intention to abandon;
b. When the owner, importer, consignee or interested
party after due notice, fails to file an entry within
thirty (30) days, which shall not be extendible,
from the date of discharge of the last package from
the vessel or aircraft . . . .
From the wording of the amendment, RA
7651 no longer requires that there be other acts
or omissions where an intent to abandon can be
inferred. It is enough that the importer fails to
file the required import entries within the
reglementary period. The lawmakers could have
easily retained the words used in the old law (with
respect to the intention to abandon) but opted to
omit them. It would be error on our part to continue
applying the old law despite the clear changes
introduced by the amendment. 40 (Emphasis and
underlining supplied) acEHCD
Based on the foregoing, it appears that in the Chevron case, the Court
simply applied the clear provision of Section 1801 (b), in relation to Section
1301, of the TCCP, as amended, which categorically provides that mere failure on
the part of the owner, importer, consignee or interested party, after due notice,
to file an entry within a non-extendible period of 30 days from the date of
discharge of the last package (shipment) from the vessel, would mean that such
owner, importer, consignee or interested party is deemed to have abandoned
said shipment. Consequently, abandonment of such shipment (imported article)
constitutes renouncement of all his interests and property rights therein.
CIVIL LAW REVIEW 2

The rationale of strict compliance with the non-extendible period of 30

days within which import entries (IEIRDs) must be filed for imported articles are
as follows: (a) to prevent considerable delay in the payment of duties and taxes;
(b) to compel importers to file import entries and claim their importation as
early as possible under the threat of having their importation declared as
abandoned and forfeited in favor of the government; (c) to minimize the
opportunity of graft; (d) to compel both the BOC and the importers to work for
the early release of cargo, thus decongesting all ports of entry; (e) to facilitate
the release of goods and thereby promoting trade and commerce; and (f) to
minimize the pilferage of imported cargo at the ports of entry. 41The aforesaid
policy considerations were significant to justify a firm observance of the
aforesaid prescriptive period.
It was observed that it is the law itself that considers an imported article
abandoned for failure to file the corresponding Import Entry and Internal
Revenue Declaration within the allotted time. No acts or omissions to establish
intent to abandon is necessary to effectuate the clear provision of the law. Since
Section 1801 (b) does not provide any qualification as to what may have caused
such failure in filing said import entry within the prescriptive period in order to
render the imported article abandoned, this Court shall likewise make no
distinction and plainly apply the law as clearly stated. Hence, upon the lapse of
the aforesaid non-extendible period of 30 days, without the required import
entry filed by the importer within said period, its imported article is therefore
deemed abandoned.
Moreover, Section 1802 of the same Code states to whom said abandoned
imported articles belong as a consequence of such renouncement by the owner,
importer, consignee or interested party. It provides:
Sec. 1802. Abandonment of Imported
Articles. An abandoned article shall ipso facto be
deemed the property of the Government and
shall be disposed of in accordance with the
provisions of this Code.
xxx xxx xxx (Emphasis supplied)
In the Chevron case, we explained that the term "ipso facto" is defined as
"by the very act itself" or "by mere act." Hence, there is no need for any
affirmative act on the part of the government with respect to abandoned
imported articles given that the law itself categorically provides that said articles
shall ipso facto be deemed the property of the government. By using the term
"ipso facto" in Section 1802 of the TCCP, as amended by R.A. No. 7651, 42 the
legislature removed the need for abandonment proceedings and for any
declaration that imported articles have been abandoned before ownership
thereof can be effectively transferred to the government. In other words,
ownership over the abandoned imported articles is transferred to the
government by operation of law.
CIVIL LAW REVIEW 2

The rulings in Chevron was generously applied by CTA Former En Banc in

the present case. Thus:
Petitioner Shell's failure to file the
required entries, within the prescribed non-
extendible period of thirty (30) days from the
date of discharge of the last package from the
carrying vessel, constitutes implied
abandonment of its oil importation. This means,
that from the precise moment that the non-
extendible thirty-day period had lapsed, the
abandoned shipment was deemed the property
of the government. Therefore, when petitioner
withdrew the oil shipment for consumption, it
appropriated for itself properties which already
belonged to the government. . . .
Petitioner Shell's contention that the belated
filing of its import entries is justified due to the
late arrival of its import documents, which are
necessary for the proper computation of the
import duties, cannot be sustained. SDHTEC
xxx xxx xxx
The [CTA Former En Banc] cannot also accept
such excuses, as the absence of supporting
documents should not have prevented petitioner
Shell from complying with the mandatory non-
extendible period, since the law prescribes an
extremely serious consequence for delayed
filing. If this kind of excuse was to be accepted, then
the collection of customs duties would be at the
mercy of importers, which our lawmakers try to
avoid.
For all the foregoing, we rule that the late
filing of the IEIRDs alone, which constituted implied
abandonment, makes petitioner Shell liable for the
payment of the dutiable value of the imported crude
oil. . . . 43 (Emphasis supplied)
Since it is undisputed that the Import Entry and Internal Revenue
Declaration was belatedly filed by petitioner on 23 May 1996, or more than 30
days from the last day of discharge of its importation counted from 10 April
1996, the importation may be considered impliedly abandoned in favor of the
government. Petitioner argues that before Section 1802 can be applied and
theipso facto provision invoked, the requirement of due notice to file entry and
the determination of the intent of the importer are essential in order to consider
CIVIL LAW REVIEW 2

the subject imported crude oil of petitioner impliedly abandoned in favor of the
government. It further asserts that, in the Chevron case, it was conceded that as a
general rule, due notice is indeed required before any imported article can be
considered impliedly abandoned, but Chevron's non-entitlement to such prior
notice was legally justified because of the finding of fraud established against it,
rendering it impossible for the BOC to comply with the due notice requirement
under the prevailing rules. Consequently, it is petitioner's conclusion that such
finding of fraud is indispensable in order to waive the "due notice requirement,"
that would eventually consider the subject imported crude oil impliedly
abandoned in favor of the government.
In Chevron, we observed that:
The minutes of the deliberations in the
House of Representatives Committee on Ways
and Means on the proposed amendment to
Section 1801 of the TCC show thatthe phrase
"after due notice" was intended for owners,
consignees, importers of the shipments who live
in rural areas or distant places far from the port
where the shipments are discharged, who are
unfamiliar with customs procedures and need
the help and advice of people on how to file an
entry:
xxx xxx xxx
MR. FERIA. 1801, your Honor. The question
that was raised here in the last hearing was whether
notice is required to be sent to the importer. And, it
has been brought forward that we can dispense
with the notice to the importer because
the shipping companies are notifying the
importers on the arrival of their shipment. And,
so that notice is sufficient to . . . sufficient for the
claimant or importer to know that the shipments
have already arrived.
Second, your Honor, the legitimate
businessmen always have . . . they have their
agents with the shipping companies, and so they
should know the arrival of their shipment.
xxx xxx xxx
HON. QUIMPO. Okay. Comparing the two, Mr.
Chairman, I cannot help but notice that in the
substitution now there is a failure to provide the
phrase AFTER NOTICE THEREOF IS GIVEN TO THE
INTERESTED PARTY, which was in the original. Now
in the second, in the substitution, it has been
CIVIL LAW REVIEW 2

deleted. I was first wondering whether this would be

necessary in order to provide for due process. I'm
thinking of certain cases, Mr. Chairman, where
the owner might not have known. This is now on
implied abandonment not the express
abandonment.
xxx xxx xxx
HON. QUIMPO. Because I'm thinking, Mr.
Chairman. I'm thinking of certain situations where
the importer even though, you know, in the normal
course of business sometimesthey fail to keep up
the date or something to that effect.
THE CHAIRMAN. Sometimes their cargoes get
lost.
HON. QUIMPO. So just to, you know . . .
anyway, this is only a notice to be sent to them
that they have a cargo there. AScHCD
xxx xxx xxx
MR. PARAYNO. Your Honor, I think as a
general rule, five days [extendible] to another five
days is a good enough period of time. But we
cannot discount that there are some consignees
of shipments located in rural areas or distant
from urban centers where the ports are located
to come to the [BOC] and to ask for help
particularly if a ship consignment is made to an
individual who is uninitiated with customs
procedures. He will probably have the problem
of coming over to the urban centers, seek the
advice of people on how to file entry. And
therefore, the five day extendible to another five
days might really be a tight period for some. But
the majority of our importers are knowledgeable
of procedures. And in fact, it is in their interest to
file the entry even before the arrival of the shipment.
That's why we have a procedure in the bureau
whereby importers can file their entries even before
the shipment arrives in the country. (Emphasis
supplied)
xxx xxx xxx
Petitioner, a regular, large-scale and
multinational importer of oil and oil products,
fell under the category of a knowledgeable
importer which was familiar with the governing
CIVIL LAW REVIEW 2

rules and procedures in the release of

importations.
Furthermore, notice to petitioner was
unnecessary because it was fully aware that its
shipments had in fact arrived in the Port of
Batangas. The oil shipments were discharged
from the carriers docked in its private pier or
wharf, into its shore tanks. From then on,
petitioner had actual physical possession of its
oil importations. It was thus incumbent upon it
to know its obligation to file the IEIRD within the
30-day period prescribed by law. As a matter of
fact, importers such as petitioner can, under
existing rules and regulations, file in advance an
import entry even before the arrival of the
shipment to expedite the release of the same.
However, it deliberately chose not to comply
with its obligation under Section 1301.
The purpose of posting an "urgent notice
to file entry" pursuant to Section B.2.1 of CMO
15-94 is only to notify the importer of the
"arrival of its shipment" and the details of said
shipment. Since it already had knowledge of
such, notice was superfluous. Besides, the
entries had already been filed, albeit belatedly. It
would have been oppressive to the government
to demand a literal implementation of this notice
requirement. 44 (Emphasis and underlining
supplied)
Therefrom, it is without a doubt that the requirement of due notice
contemplated under Section 1801 (b) of the TCCP, as amended, refers to the
notice to the owner, importer, consignee or interested party of the arrival of its
shipment and details thereof. The legislative intent was clear in emphasizing the
importance of said notice of arrival, which is intended solely to persons not
considered as knowledgeable importers, or those who are not familiar with the
governing rules and procedures in the release of importations. We as much as
said that the due notice requirement under Section 1801 (b), do not apply
to knowledgeable importers, such as Chevron in the above-cited case, for having
been considered as one of the regular, large-scale and multinational importers of
oil and oil products, familiar with said rules and procedures (including the duty
and obligation of filing the IEIRD within a non-extendible period of 30 days) and
fully aware of the arrival of its shipment on its privately owned pier or wharf in
the Port of Batangas. Applying Chevron, the decision assailed here said:
CIVIL LAW REVIEW 2

The due notice required under Section

1301 is the notice of the arrival of the
shipment. In this case, pursuant to the Chevron
case, notice to petitioner Shell is not required under
the peculiar circumstances of the case. Petitioner
Shell, like Chevron, is a regular, large-scale and
multinational importer of oil and oil products,
who falls under the category of a knowledgeable
importer, familiar with the governing rules and
procedures in the release of importations.
More importantly, petitioner Shell even
admitted that it filed an application for Special
Permit to Discharge and paid the corresponding
advance duties on March 22, 1996 (Exhibits "K"
and "P"), which undeniably proved knowledge
on the part of petitioner Shell of the arrival of
the shipment. Likewise, upon arrival of the
shipment, they were unloaded from the carrying
vessels docked at the wharf owned by petitioner
Shell at Tabangao, Batangas City; thus, petitioner
Shell was fully aware that their importation had
already arrived. 45 (Emphasis supplied)
The foregoing having been said, we must with equal concern, go to the
other timeline which is provided for in Section 1603 of the TCCP, to wit:
Sec. 1603. Finality of Liquidation. — When
or final adjustment of duties made, with subsequent
delivery, such entry and passage free of duty or
settlement of duties will, after the expiration of one
year, from the date of the final payment of duties, in
the absence of fraud or protest, be final and
conclusive upon all parties, unless the liquidation of
the import entry was merely tentative. AcICHD
Petitioner insists that, in the absence of fraud, the right of respondent to
claim against it has already prescribed considering that an action involving the
entry and payment of customs duties involving imported articles demanded
after a period of one (1) year from the date of final payment of duties, shall not
succeed, pursuant to the clear provision of Section 1603. It therefore contends
that even if the subject imported crude oil of petitioner is by law deemed
abandoned by operation of law under Sections 1801 (b), in relation to Section
1301, of the Code, respondent's right to claim abandonment had already lapsed
since fraud is wanting in this case. On the other hand, respondent counters that
since there was a factual finding of fraud committed by petitioner in the filing of
its Import Entry and Internal Revenue Declaration beyond the 30-day period
CIVIL LAW REVIEW 2

prescribed under Section 1301 of the TCCP, the 1-year prescriptive period under
Section 1603 therefore does not apply.
At this point, it bears emphasis that in a petition for review
on certiorari under Rule 45 of the Rules of Court, only questions of law may be
raised. 46 The Court is not a trier of facts and does not normally undertake the
re-examination of the evidence presented by the contending parties during the
trial of the case considering that the findings of facts of the CA are conclusive and
binding on the Court 47 — and they carry even more weight when the CA
affirms the factual findings of the trial court. 48 However, it is already a settled
matter that, the Court had recognized several exceptions to this rule, to wit: (1)
when the findings are grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment
is based on a misapprehension of facts; (5) when the findings of facts are
conflicting; (6) when in making its findings the Court of Appeals went beyond
the issues of the case, or its findings are contrary to the admissions of both the
appellant and the appellee; (7) when the findings are contrary to the trial court;
(8) when the findings are conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in the petition as well as in the
petitioner's main and reply briefs are not disputed by the respondent; (10)
when the findings of fact are premised on the supposed absence of
evidence and contradicted by the evidence on record; and (11) when the Court
of Appeals manifestly overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a different
conclusion. 49
Records of this case reveal that the CTA in Division in its 19 June 2008
Decision 50 made a pronouncement that there was indeed fraud committed by
petitioner based on the factual finding contained in the Memorandum dated 2
February 2001 issued by Special Investigator II Domingo B. Almeda and Special
Investigator III Nemesio C. Magno, Jr. of the CIIS-IPD of the BOC. Consequently,
since such memorandum made such factual finding of fraud against petitioner,
the court a quo ruled that prescription does not set in even if respondent's claim
was made beyond the 1-year reglementary period.
Upon an assiduous review of the factual finding of fraud, we find
petitioner's contention meritorious. Hence, the instant case falls among the
exceptions to the general rule previously mentioned which would require this
Court's judicial prerogative to review the court a quo's findings of fact.
Generally, fraud has been defined as "the deliberate intention to cause
damage or prejudice. It is voluntary execution of a wrongful act, or a willful
omission, knowing and intending the effects which naturally and necessarily
arise from such act or omission. 51 For fraud to exist, it must be intentional,
consisting of deception willfully and deliberately done or resorted to in order to
induce another to give up some right. 52 It is never presumed and the burden of
proof to establish lies in the person making such allegation since every person is
CIVIL LAW REVIEW 2

presumed to be in good faith. 53To discharge this burden, fraud must be proven
by clear and convincing evidence. 54 Also, fraud must be alleged and proven as a
fact where the following requisites must concur: (a) the fraud must be
established by evidence; and (b) the evidence of fraud must be clear and
convincing, and not merely preponderant. Upon failure to establish these two (2)
requisites, the presumption of good faith must prevail.
Section 3611 (c) of the TCCP, as amended, defines the term fraud as the
occurrence of a "material false statement or act in connection with the
transaction which was committed or omitted knowingly, voluntarily and
intentionally, as established by clear and convincing evidence." Again, such
factual finding of fraud should be established based on clear, convincing, and
uncontroverted evidence.
Relevant thereto, in the landmark case of Aznar v. Court of Tax
Appeals, 55 we explained the general concept of fraud as applied to tax cases in
the following fashion: TAIaHE
The fraud contemplated by law is actual
and not constructive. It must be intentional
fraud, consisting of deception willfully and
deliberately done or resorted to in order to
induce another to give up some legal
right. Negligence, whether slight or gross, is not
equivalent to the fraud with intent to evade the tax
contemplated by the law. It must amount to
intentional wrong doing with the sole object of
avoiding the tax. It necessarily follows that a mere
mistake cannot be considered as fraudulent
intent, and if both petitioner and respondent
Commissioner of Internal Revenue committed
mistakes in making entries in the returns and in
the assessment, respectively, under the
inventory method of determining tax liability, it
would be unfair to treat the mistakes of the
petitioner as tainted with fraud and those of the
respondent as made in good faith. 56 (Emphasis
supplied)
In the case at bench, a perusal of the records reveals that there is neither
any iota of evidence nor concrete proof offered and admitted to clearly establish
that petitioner committed any fraudulent acts. The CTA in Division relied solely
on the Memorandum dated 2 February 2001 issued by the CIIS-IPD of the BOC in
ruling the existence of fraud committed by petitioner. However, there is no
showing that such document was ever presented, identified, and testified to or
offered in evidence by either party before the trial court.
CIVIL LAW REVIEW 2

Time and again, this Court has consistently declared that cases filed
before the CTA are litigated de novo, party-litigants must prove every minute
aspect of their cases. 57 Section 8 of R.A. No. 1125, 58 as amended by R.A. No.
9282, 59 categorically described the CTA as a court of record. Indubitably, no
evidentiary value can be given to any documentary evidence merely attached to
the BOC Records, as the rules on documentary evidence require that such
documents must be formally, offered before the CTA. Pertinent is Section 34,
Rule 132 of the Rules of Court which reads:
Section 34. Offer of evidence. — The court
shall consider no evidence which has not been
formally offered. The purpose for which the
evidence is offered must be specified.
From the foregoing provision, it is clear that for evidence to be
considered by the court, the same must he formally offered. Corollarily, the mere
fact that a particular document is identified and marked as an exhibit does not
mean that it has already been offered as part of the evidence of a party.
In Interpacific Transit, Inc. v. Aviles, 60 We had the occasion to make a distinction
between identification of documentary evidence and its formal offer as an
exhibit. We said that the first is done in the course of the trial and is
accompanied by the marking of the evidence as an exhibit while the second is
done only when the party rests its case and not before. A party, therefore, may
opt to formally offer his evidence if he believes that it will advance his cause or
not to do so at all. In the event he chooses to do the latter, the trial court is not
authorized by the Rules to consider the same. 61
The Rule on this matter is patent that even documents which are
identified and marked as exhibits cannot be considered into evidence when the
same have not been formally offered as part of the evidence, but more so if the
same were not identified and marked as exhibits, such as in the present case. An
assay of the records reveals that the subject Memorandum dated 2 February
2001 was neither identified nor offered in evidence by respondent during the
entire proceedings before the CTA in Division. Consequently, this is fatal to
respondent's cause in establishing the existence of fraud committed by
petitioner since the burden of proof to establish the same lies with the former
alone. cDHAES
As a matter of fact, even if the aforesaid documentary evidence was
included as part of the BOC Records submitted before the CTA in compliance
with a lawful order of the court, 62 this does not permit the trial court to
consider the same in view of the fact that the Rules prohibit it. The reasoning
forwarded by the CTA in Division in its Resolution dated 24 February 2009, that
the apparent purpose of transmittal of the records is to enable it to appreciate
and properly review the proceedings and findings before an administrative
agency, is misplaced. Unless any of the party formally offered in evidence said
Memorandum, and accordingly, admitted by the court a quo, it cannot be
CIVIL LAW REVIEW 2

considered as among the legal and factual bases in resolving the controversy
presented before it.
By analogy, in Dizon v. CTA, 63 this Court underscored the importance of
a formal offer of evidence and the corresponding admission thereafter. We
quote:
While the CTA is not governed strictly by
technical rules of evidence, as rules of procedure are
not ends in themselves and are primarily intended
as tools in the administration of justice, the
presentation of the BIR's evidence is not a mere
procedural technicality which may be disregarded
considering that it is the only means by which the
CTA may ascertain and verify the truth of BIR's
claims against the Estate. The BIR's failure to
formally offer these pieces of evidence, despite
CTA's directives, is fatal to its cause. Such failure
is aggravated by the fact that not even a single
reason was advanced by the BIR to justify such fatal
omission. This, we take against the BIR.
Per the records of this case, the BIR was
directed to present its evidence in the hearing of
February 21, 1996, but BIR's counsel failed to
appear. The CTA denied petitioner's motion to
consider BIR's presentation of evidence as waived,
with a warning to BIR that such presentation would
be considered waived if BIR's evidence would not be
presented at the next hearing. Again, in the hearing
of March 20, 1996, BIR's counsel failed to appear.
Thus, in its Resolution dated March 21, 1996, the
CTA considered the BIR to have waived presentation
of its evidence. In the same Resolution, the parties
were directed to file their respective memorandum.
Petitioner complied but BIR failed to do so. In all of
these proceedings, BIR was duly notified. Hence, in
this case, we are constrained to apply our ruling
in Heirs of Pedro Pasag v. Parocha:
A formal offer is necessary because judges
are mandated to rest their findings of facts and
their judgment only and strictly upon the
evidence offered by the parties at the trial. Its
function is to enable the trial judge to know the
purpose or purposes for which the proponent is
presenting the evidence. On the other hand, this
allows opposing parties to examine the evidence
CIVIL LAW REVIEW 2

and object to its admissibility. Moreover, it

facilitates review as the appellate court will not
be required to review documents not previously
scrutinized by the trial court.
Strict adherence to the said rule is not a
trivial matter. The Court in Constantino v. Court of
Appeals ruled that the formal offer of one's
evidence is deemed waived after failing to
submit it within a considerable period of time. It
explained that the court cannot admit an offer of
evidence made after a lapse of three (3) months
because to do so would "condone an inexcusable
laxity if not non-compliance with a court order
which, in effect, would encourage needless
delays and derail the speedy administration of
justice."
Applying the aforementioned principle in this
case, we find that the trial court had reasonable
around to consider that petitioners had waived their
right to make a formal offer of documentary or
object evidence. Despite several extensions of time
to make their formal offer, petitioners failed to
comply with their commitment and allowed almost
five months to lapse before finally submitting
it. Petitioners' failure to comply with the rule on
admissibility of evidence is anathema to the
efficient, effective, and expeditious dispensation
of justice. (Emphasis and underlining supplied)
Clearly therefore, evidence not formally offered during the trial cannot be
used for or against a party litigant by the trial court in deciding the merits of the
case. Neither may it be taken into account on appeal. Since the rule on formal
offer of evidence is not a trivial matter, failure to make a formal offer within a
considerable period of time shall be deemed a waiver to submit it. Consequently,
any evidence that has not been offered and admitted thereafter shall be excluded
and rejected. ASEcHI
Moreover, even if not submitted as a contention herein, We find it
apropos to rule that the CTA likewise cannot motu proprio justify the existence of
fraud committed by petitioner by applying the rules on judicial notice.
Judicial notice is the cognizance of certain facts which judges may
properly take and act on without proof because they already know
them. 64 Under the Rules of Court, judicial notice may either be mandatory or
discretionary. Pertinent portions of Rule 129 of the Rules of Court provide as
follows:
RULE 129
CIVIL LAW REVIEW 2

What Need Not Be Proved

Section 1. Judicial notice, when mandatory. —
A court shall take judicial notice, without the
introduction of evidence, of the existence and
territorial extent of states, their political history,
forms of government and symbols of nationality, the
law of nations, the admiralty and maritime courts of
the world and their seals, the political constitution
and history of the Philippines, the official acts of
legislative, executive and judicial departments of the
Philippines, the laws of nature, the measure of time,
and the geographical divisions.
Section 2. Judicial notice, when discretionary.
— A court may take judicial notice of matters which
are of public knowledge, or are capable to
unquestionable demonstration, or ought to be
known to judges because of their judicial functions.
Section 3. Judicial notice, when hearing
necessary. — During the trial, the court, on its own
initiative, or on request of a party, may announce its
intention to take judicial notice of any matter and
allow the parties to be heard thereon.
After the trial, and before judgment or on
appeal, the proper court, on its own initiative or on
request of a party, may take judicial notice of any
matter and allow the parties to be heard thereon if
such matter is decisive of a material issue in the
case.
xxx xxx xxx
In relation thereto, it has been held that the doctrine of judicial notice
rests on the wisdom and discretion of the courts; however, the power to take
judicial notice is to be exercised by the courts with caution; care must be taken
that the requisite notoriety exists; and every reasonable doubt upon the subject
should be promptly resolved in the negative. 65
As a general rule, courts are not authorized to take judicial notice of the
contents of the records of other cases, even when such cases have been tried or
are pending in the same court, and notwithstanding the fact that both cases may
have been tried or are actually pending before the same judge. 66 However, this
rule is subject to the exception that in the absence of objectionand as a matter
of convenience to all parties, a court may properly treat all or any part of the
original record of the case filed in its archives as read into the records of a case
pending before it, when with the knowledge of the opposing party, reference
is made to it, by name and number or in some other manner by which it is
CIVIL LAW REVIEW 2

sufficiently designated. 67 Thus, for said exception to apply, the party concerned
must be given an opportunity to object before the court could take judicial notice
of any record pertaining to other cases pending before it.
Such being the case, it would also be an error for the CTA in Division to
even take judicial notice of the subject Memorandum being merely a part of the
BOC Records submitted before the court a quo, without the same being identified
by a witness, offered in and admitted as evidence, and effectively, depriving
petitioner, first and foremost, an opportunity to object thereto. Hence, the
subject Memorandum should not have been considered by the CTA in Division in
its disposition. ITAaHc
It is well-settled that procedural rules are designed to facilitate the
adjudication of cases. Courts and litigants alike are enjoined to abide strictly by
the rules. While it is true that litigation is not a game of technicalities, it is
equally true that every case must be prosecuted in accordance with the
prescribed procedure to ensure an orderly and speedy administration of justice.
Party litigants and their counsel are well advised to abide by, rather than flaunt,
procedural rules for these rules illumine the path of the law and rationalize the
pursuit of justice. 68
The claim of respondent against petitioner has already prescribed
Since we have already laid to rest the question on whether or not there
was fraud committed by petitioner, the last issue for Our resolution is whether
respondent's claim against petitioner has already prescribed.
This Court rules in the affirmative.
There being no evidence to prove that petitioner committed fraud in
belatedly filing its Import Entry and Internal Revenue Declaration within the 30-
day period prescribed under Section 1301 of the TCCP, as amended,
respondent's rights to question the propriety thereof and to collect the amount
of the alleged deficiency customs duties, more so the entire value of the subject
shipment, have already prescribed. Simply put, in the absence of fraud, the entry
and corresponding payment of duties made by petitioner becomes final and
conclusive upon all parties after one (1) year from the date of the payment of
duties in accordance with Section 1603 of the TCCP, as amended:
Section 1603. Finality of Liquidation. — When
or final adjustments of duties made, with
subsequent delivery, such entry and passage free
of duty or settlements of duties as well, after the
expiration of one (1) year, from the date of the
final payment of duties, in the absence of
fraud or protest or compliance audit pursuant to
the provisions of this Code, be final and
conclusive upon all parties, unless the liquidation
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of the import entry was merely tentative. (Emphasis

and underscoring supplied)
The above provision speaks of entry and passage free of duty or
settlements of duties. Generally, in customs law, the term "entry" has a triple
meaning, to wit: (1) the documents filed at the customs house; (2) the
submission and acceptance of the documents and (3) the procedure of passing
goods through the customs house. 69 As explained in the Chevron case, it
specifically refers to the filing and acceptance of the Import Entry and Internal
Revenue Declaration of the imported article. Simply put, the entry of imported
goods at the custom house consists in submitting them to the inspection of the
revenue officers, together with a statement or description of such goods, and the
original invoices of the same, for the purpose of estimating the duties to be paid
thereon. 70 The term "duty" used therein denotes a tax or impost due to the
government upon the importation or exportation of goods. It means that the
duties on imports signify not merely a duty on the act of importation, but a duty
on the thing imported. It is not confined to a duty levied while the article is
entering the country, but extends to a duty levied after it has entered the
country. 71
Based on the foregoing definitions, it is commonsensical that the finality
of liquidation referred to under Section 1603 covers the propriety of the
submission and acceptance of the Import Entry and Internal Revenue
Declaration covering the imported articles being brought in the country for the
sole purpose of determining whether it is subject to tax or not; and if it is,
whether the computation of the tax or impost to be paid to the government was
properly made. These shall include, among others, the declarations and
statements contained in the entry, made under oath and under the penalties of
falsification or perjury that such declarations and statements contained therein
are true and correct, which shall constitute prima facie evidence of knowledge
and consent of the importer of violation against applicable provisions of
the TCCP when the importation is found to be unlawful. 72 CHTAIc
Indubitably, the matters which become final and conclusive against all
parties include the timeliness of filing the import entry within the period
prescribed by law, the declarations and statements contained therein, and the
payment or non-payment of customs duties covering the imported articles by
the owner, importer, consignee or interested party. Since the primordial issue
presented before us focuses on petitioner's non-compliance in filing its Import
Entry and Internal Revenue Declaration within a non-extendible period of 30
days from the date of discharge of the last package from the vessel, respondent
may only look into it within a limited period of one (1) year in accordance with
the above-quoted provision.
In the case at bench, it is undisputed that petitioner filed its IEIRD and
paid the remaining customs duties due on the subject shipment only on 23 May
1996. Yet, it was only on l August 2000, or more than four (4) years later, that
petitioner received a demand letter from the District Collector of Batangas for
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the alleged unpaid duties covering the said shipment. Thereafter, on 29 October
2001, or after more than five (5) years, petitioner received another demand
letter from respondent seeking to collect for the entire dutiable value of the
same shipment amounting to P936,899,855.90.
Consequently, applying the foregoing provision and considering that we
have determined already that there is no factual finding of fraud established
herein, the liquidation of petitioner's imported crude oil shipment became final
and conclusive on 24 May 1997, or exactly upon the lapse of the 1-year
prescriptive period from the date of payment of final duties. As such, any action
questioning the propriety of the entry and settlement of duties pertaining to
such shipment initiated beyond said date is therefore barred by prescription.
Since time immemorial, this Court has consistently recognized and
applied the statute of limitations to preclude the Government from exercising its
power to assess and collect taxes beyond the prescribed period, and we intend
to abide by our rulings on prescription and to strictly apply the same in the case
of petitioner; otherwise, both the procedural and substantive rights of petitioner
would be violated. After all, prescription is a substantive defense that may be
invoked to prevent stale claims from being resurrected causing inconvenience
and uncertainty to a person who has long enjoyed the exercise. Thus,
symptomatic of the magnitude of the concept of prescription, this Court has
elucidated that:
The law prescribing a limitation of actions for
the collection of the income tax is beneficial both to
the Government and to its citizens; to the
Government because tax officers would be obliged
to act promptly in the making of assessment, and to
citizens because after the lapse of the period of
prescription citizens would have a feeling of
security against unscrupulous tax agents who
will always find an excuse to inspect the books of
taxpayers, not to determine the latter's real
liability, but to take advantage of every
opportunity to molest peaceful, law-abiding
citizens. Without such legal defense taxpayers
would furthermore be under obligation to
always keep their books and keep them open for
inspection subject to harassment by
unscrupulous tax agents. The law on prescription
being a remedial measure should be interpreted in a
way conducive to bringing about the beneficient
purpose of affording protection to the taxpayer
within the contemplation of the Commission which
recommend (sic) the approval of the
law. 73 (Emphasis supplied)
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Basic is the rule that provisions of the law should be read in relation to
other provisions therein. A statute must be interpreted to give it efficient
operation and effect as a whole avoiding the nullification of cognate provisions.
Statutes are read in a manner that makes it wholly operative and effective,
consistent with the legal maxim ut res magis valeat quam pereat. EATCcI
This maxim applied, we read Sections 1301, 1801, and 1802, together
with Section 1603 of the TCCP. Thus, should there be failure on the part of the
owner, importer, consignee or interested party, after due notice of the arrival of
its shipment (except in cases of knowledgeable owners or importers), to file an
entry within the non-extendible period of 30 days from the date of discharge of
the last package (shipment) from the vessel, such owner, importer, consignee or
interested party is deemed to have abandoned said shipment in favor of the
government. As imperative, however, is the strict compliance with Section 1603
of the TCCP, which should be read as we have ruled. Any action or claim
questioning the propriety of the entry and settlement of duties pertaining to
such shipment made beyond the 1-year prescriptive period from the date of
payment of final duties, is barred by prescription. In the present case, the failure
on the part of respondent to timely question the propriety of the entry and
settlement of duties by petitioner involving the subject shipment, renders such
entry and settlement of duties final and conclusive against both parties. Hence,
respondent cannot any longer have any claim from petitioner. Sections 1301,
1801, and 1802 of the TCCP have been rendered inoperable by reason of the
lapse of the period stated in Section 1603 of the same Code.
Indeed, if the prescriptive period of one year specified in Section 1603 of
the TCCP is not applied against the respondent, the reality that the shipment has
been unloaded from the carrying vessels to petitioner's oil tanks and that import
duty in the amount of P11,231,081.00 has been paid would be obliterated by the
application of the principle of deemed abandonment four years after the
occurrence of the facts of possession and payment, as a consequence of which
application, the petitioner would be made to pay the government the entire
value of the shipment it had as vendee of the shipper already paid.
WHEREFORE, the petition is GRANTED. Accordingly, the Decision dated
13 May 2010 and Resolution dated 22 February 2011 of the Court of Tax
Appeals Former En Banc in C.T.A. EB No. 472 are
hereby REVERSED and SET ASIDE on the ground of prescription.
No costs.
SO ORDERED.
Reyes, J., concurs.
Velasco, Jr., J., see concurring opinion.
Peralta, J., pls. see dissenting opinion.
Jardeleza, J., I join the dissent of J. Peralta
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Separate Opinions
VELASCO, JR., J., concurring:
I register my concurrence with the ponencia.
The Latin maxim stare decisis et non quieta movere means stand by the
thing and do not disturb the calm — a bar from any attempt at relitigating the
same issues. It requires that high courts must follow, as a matter of sound policy,
their own precedents, or respect settled jurisprudence absent compelling reason
to do otherwise. 1 As a recognized exception, the salutary doctrine cannot be
invoked when the facts and circumstances in the succeeding case have so
changed as to have robbed the old rule of significant application or justification.
There is truth to the claim that the instant case bears striking
resemblance to that of Chevron Philippines v. Commissioner of the Bureau of
Customs (Chevron). 2 As observed by Associate Justice Diosdado M. Peralta
(Justice Peralta) in his dissent: 3
. . . As in Chevron, the imported crude oil
subject of the present case arrived in the Philippines
and was discharged from the carrying vessels prior
to the effectivity of RA 8180. The import entries in
both cases were filed beyond the 30-day period
required under Section 1301 of the [Tariff and
Customs Code of the Philippines]. In fact, it is on the
bases of the facts obtaining in these importations of
petitioner and Chevron (then known as Caltex Phils.,
Inc.) that only one civil suit for collection of the
dutiable value of the imported articles was filed by
the [Bureau of Customs] against these two
corporations as defendants. It is from this factual
backdrop and the ensuing demand by the [Bureau of
Customs] to collect the dutiable value of the
importations that the case of Chevron reached this
Court and was ultimately decided in favor of the
[Bureau of Customs]. . . .
Notwithstanding these glaring similarities, it cannot hastily be concluded
that Chevron is on all fours with the case at bar; the two cases are
diametrically opposed insofar as the issue of fraud on the part of
the importer is concerned. While the Court's ruling in Chevron was that the
existence of fraud therein was sufficiently established, no clear and convincing
evidence was presented herein to justify arriving at the same conclusion.
Whether or not petitioner Pilipinas Shell Petroleum Corporation
(Pilipinas Shell) defrauded the Bureau of Customs (BOC) becomes pivotal in this
case because of Sec. 1603 of the Tariff and Customs Code (TCC), to wit:
CIVIL LAW REVIEW 2


subsequent delivery, such entry and passage free of
duty or settlements of duties will, after the
expiration of one (1) year, from the date of the
final payment of duties, in the absence of
fraud or protest or compliance audit pursuant to the
provisions of this Code, be final and conclusive
upon all parties, unless the liquidation of the
import entry was merely tentative. (emphasis
added)
Pursuant to the above-quoted provision, the attendance of fraud would
remove the case from the ambit of the statute of limitations, and would
consequently allow the government to exercise its power to assess and collect
duties even beyond the one-year prescriptive period, rendering it virtually
imprescriptible.
Exhaustively discussed by the ponencia was that no scintilla of proof was
ever offered in evidence by respondent Commissioner of Customs to reinforce
the claim that Pilipinas Shell acted in bad faith, then a fortiori, in a fraudulent
manner, in its settlement of duties on its imported crude oil. The February 2,
2001 Memorandum on which the Court of Tax Appeals (CTA), both in division
and en banc, chiefly anchored the finding of fraudulent intent was never
formally offered, but was instead merely included in the records of the
proceedings before the Bureau of Customs. CAacTH
Respondent was remiss in presenting this crucial piece of evidence in
the de novo proceeding before the CTA. Much has already been said by
the ponencia about the adverse effect of the procedural lapse on the
admissibility of the Memorandum and on its probative value. If I may inject:
regardless of whether the document adverted to was marked during pre-trial, or
was otherwise identified during trial proper, it cannot be accorded any
evidentiary weight in finally resolving the case. As held in Heirs of Pasag v. Sps.
Parocha: 4
. . . Documents which may have been
identified and marked as exhibits during pre-trial or
trial but which were not formally offered in
evidence cannot in any manner be treated as
evidence. Neither can such unrecognized proof
be assigned any evidentiary weight and value. It
must be stressed that there is a significant
distinction between identification of documentary
evidence and its formal offer. The former is done in
the course of the pre-trial, and trial is accompanied
by the marking of the evidence as an exhibit; while
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the latter is done only when the party rests its

case. The mere fact that a particular document is
identified and marked as an exhibit does not
mean that it has already been offered as part of
the evidence. It must be emphasized that any
evidence which a party desires to submit for the
consideration of the court must formally be
offered by the party; otherwise, it is excluded
and rejected. (emphasis added)
It is this lack of proof of fraud that substantially alters the terrain of the
case, thereby precluding the applicability of the doctrine of stare decisis. Though
the circumstance appears to be merely tangential, it is nevertheless the critical
element in resolving the issue on prescription. Absent fraud, the government,
through the BOC, is under legal compulsion to assess and collect customs duties
within a strict one-year period. As brought to fore by the ponencia, respondent
was regrettably remiss in complying with the statutory mandate of Sec. 1603 of
the TCC: 5
It is undisputed that petitioner filed its
[Import Entry and Internal Revenue Declaration]
and paid the remaining customs duties on the
subject shipment only on 23 May 1996. Yet, it was
only on 1 August 2000, or more than four (4)
years later, that petitioner received a demand letter
from the District Collector of Batangas for the
alleged unpaid duties covering the said shipment.
Thereafter, on 29 October 2001, or after more
than five (5) years, petitioner received another
demand letter from respondent seeking to collect
for the entire dutiable value of the same shipment
amounting to P936,899,855.90. (emphasis added)
Upon expiration of the prescriptive period, respondent was barred from
further collecting from petitioner the dutiable value of its imported crude oil.
The hands of the Court are then constrained. There is no other course of action
for us to take other than to grant the instant petition.
Notably, Justice Peralta never questioned the finding of the ponencia as
regards respondent's procedural lapse. However, it is his postulation that the
presence or even the absence of fraud is irrelevant since Sec. 1603 of
the TCC does not find application in cases wherein the government exercises its
right over abandoned imported articles, rather than its power to assess and
collect taxes.
Unfortunately, I cannot join the dissent. I am perplexed at the
contradiction of how the argument is raised in the same breath as the invocation
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of stare decisis. The irony lies in the discussion in Chevron of the very same issue
of prescription and the coverage of Sec. 1603.
Aside from the presence or absence of fraud, it is admitted that there is
significant identity as to the factual milieu of Chevron and the case at bar. Both
are concerned with the treatment of abandoned imported articles, and the
collection by the Commissioner of Customs of the dutiable value pertaining
thereto. In Chevron, we have categorically ruled that "due to the presence of
fraud, the prescriptive period of the finality of liquidation under Section 1603 was
inapplicable." The converse should, therefore, likewise hold true — in the
absence of fraud, the one-year prescriptive period under Sec. 1603 shall find
application. Hence, even if stare decisis is then to be applied, it could only operate
to sustain the dismissal of the case on the ground of prescription. Only then
could the ruling of the ponencia not possibly be considered as a deviation from a
settled norm.
PERALTA, J., dissenting:
The doctrine of stare decisis is one of policy grounded on the necessity for
securing certainty and stability of judicial decisions. 1 Under this doctrine, when
the Supreme Court has once laid down a principle of law as applicable to a
certain state of facts, it will adhere to that principle, and apply it to all future
cases. 2 With all due respect to my colleagues, it is on this settled principle and
in this context that I register my dissent from the ponencia.
At the outset, a brief account of the undisputed factual and procedural
antecedents that transpired and led to the filing of this case is in order.
Petitioner Pilipinas Shell Petroleum Corporation is a domestic
corporation engaged in the business of importing crude oil, of processing it into
different finished petroleum products and, thereafter, distributing and
marketing these finished products.
On April 7, 1996, petitioner's importation of 1,979,674.85 US barrels of
Arab Light Crude Oil arrived in the Philippines through vessels which docked at
a wharf it owns and operates.
On April 10, 1996, three days after the arrival of its importation, the
shipments were unloaded and brought to petitioner's oil tanks in Batangas City.
On May 23, 1996, forty-three (43) days from the date of discharge of its
importation, petitioner filed the required Import Entry and Internal Revenue
Declaration (IEIRD) and paid import duty in the amount of P11,231,081.00.
In the meantime, on April 16, 1996, Republic Act No. 8180 (RA 8180),
otherwise known as the Downstream Oil Industry Deregulation Act of 1996, took
effect, which, among others, provided for the reduction of the tariff duty on
imported crude oil from ten percent (10%) to three percent (3%).
On August 1, 2000, petitioner received a demand letter from the Bureau
of Customs (BOC), coursed through the District Collector of Batangas, assessing it
CIVIL LAW REVIEW 2

the amount of P120,162,991.00, representing deficiency customs duties

resulting from the difference between the customs duties due computed at the
old rate of 10% (prior to the effectivity of RA 8180) and the actual amount of
duties paid by petitioner at the rate of 3%. CTIEac
Petitioner protested the assessment but was denied by the District
Collector. Petitioner appealed the District Collector's decision to herein
respondent Commissioner of Customs.
Thereafter, on October 29, 2001, petitioner received from respondent a
demand letter for the payment of the amount of P936,899,885.90, representing
the dutiable value of the subject crude oil importation which was held to be
abandoned for petitioner's failure to file the required import entry on time.
On November 7, 2001, petitioner filed a protest contending that the
demand letter has no factual and legal basis, and that such demand has already
prescribed.
Subsequently, on April 11, 2002 the BOC filed a civil action for collection
of a sum of money against petitioner and Caltex Philippines, Inc., which also
made crude oil importations like petitioner, for their refusal to pay the dutiable
value of their importations which they have consumed. 3
On May 27, 2002, petitioner filed a petition for review with the Court of
Tax Appeals (CTA) questioning the BOC's demand letters which required
petitioner to pay deficiency customs duties as well as the dutiable value of its
1996 crude oil importation. The case was raffled to the CTA First Division.
On June 19, 2008, the CTA First Division promulgated its
Decision 4 dismissing petitioner's petition for review for lack of merit.
Petitioner's motion for reconsideration was denied in a Resolution 5 issued by
the CTA First Division on February 24, 2009.
Petitioner then filed a petition for review with the CTA Former En Banc.
On May 13, 2010, the CTA Former En Banc promulgated its
Decision 6 dismissing petitioner's petition for review and affirming with
modification the CTA First Division's assailed Decision and Resolution by
imposing 6% interest on the sum awarded from the date of promulgation until
finality of the decision and 12% interest from finality of the decision until full
satisfaction.
Aggrieved, petitioner filed a motion for reconsideration which was,
however, denied for lack of merit by the CTA Former En Banc in its
Resolution 7 dated February 22, 2011.
Hence, the present petition for review on certiorari.
The basic issue that needs to be resolved in the instant petition is
whether or not respondent may still recover from petitioner the dutiable value
of the latter's crude oil importation which it has consumed despite its having
been deemed abandoned by operation of law.
CIVIL LAW REVIEW 2

The ponencia rules that "there being no evidence to prove that petitioner
committed fraud in belatedly filing its [Import Entry and Internal Revenue
Declaration] (IEIRD) within the 30-day period prescribed under Section 1301 of
the [Tariff and Customs Code of the Philippines] (TCCP), as amended,
respondent's right to question the propriety thereof and to collect the amount of
the alleged deficiency customs duties, more so the entire value of the subject
shipment, have already prescribed." 8
I take exception to the above pronouncement as it is my considered view
that it runs counter to the pertinent provisions of the TCCP and of this Court's
ruling in the leading case of Chevron Philippines, Inc. v. Commissioner of the
Bureau of Customs (Chevron). 9
It bears stressing that the basic facts of the present case and those
of Chevron, which the Court follows as precedent, are practically the same. As
in Chevron, the imported crude oil subject of the present case arrived in the
Philippines 10 and was discharged from the carrying vessels prior to the
effectivity of RA 8180. 11 The import entries in both cases were filed beyond the
30-day period required under Section 1301 of the TCCP. In fact, it is on the basis
of the facts obtaining in these importations of petitioner and Chevron (then
known as Caltex Phils., Inc.) that only one civil suit for collection of the dutiable
value of the imported articles was filed by the BOC against these two
corporations as defendants. It is from this factual backdrop and the ensuing
demand by the BOC to collect the dutiable value of the importations that the case
of Chevron reached this Court and was ultimately decided in favor of the BOC.
Thus, since the present case and the case ofChevron basically arise from the same
factual circumstances, it is the Court's duty to apply the ruling in Chevron to the
present case. In Chinese Young Men's Christian Association of the Philippine
Islands v. Remington Steel Corporation, 12 this Court ruled as follows: SaCIDT
Time and again, the Court has held that it is a
very desirable and necessary judicial practice that
when a court has laid down a principle of law as
applicable to a certain state of facts, it will adhere to
that principle and apply it to all future cases in
which the facts are substantially the same. Stare
decisis et non quieta movere. Stand by the decisions
and disturb not what is settled. Stare decisis simply
means that for the sake of certainty, a conclusion
reached in one case should be applied to those that
follow if the facts are substantially the same, even
though the parties may be different. It proceeds
from the first principle of justice that, absent any
powerful countervailing considerations, like cases
ought to be decided alike. Thus, where the same
questions relating to the same event have been put
forward by the parties similarly situated as in a
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previous case litigated and decided by a competent

court, the rule of stare decisis is a bar to any attempt
to relitigate the same issue. 13
Nonetheless, petitioner contends that the ruling in Chevron does not
apply to the present case and relies on the provisions of Section 1603 of
the TCCP, which provides as follows:
subsequent delivery, such entry and passage free of
duty or settlements of duties will, after the
expiration of one (1) year, from the date of the final
payment of duties, in the absence of fraud or protest
or compliance audit pursuant to the provisions of
this Code, be final and conclusive upon all parties,
unless the liquidation of the import entry was
merely tentative.
On the other hand, Sections 1301, 1801 and 1802 of the TCCP, as
amended by Republic Act No. 7651 (RA 7651), 14 also provide:
Section 1301. Persons Authorized to Make
Import Entry. — Imported articles must be
entered in the customhouse at the port of entry
within thirty (30) days, which shall not be
extendible, from date of discharge of the last
package from the vessel or aircraft either (a) by
the importer, being holder of the bill of lading, (b) by
a duly licensed customs broker acting under
authority from a holder of the bill or (c) by a person
duly empowered to act as agent or attorney-in-fact
for each holder: Provided, That where the entry is
filed by a party other than the importer, said
importer shall himself be required to declare under
oath and under the penalties of falsification or
perjury that the declarations and statements
contained in the entry are true and correct:
Provided, further, That such statements under oath
shall constitute prima facie evidence of knowledge
and consent of the importer of violation against
applicable provisions of this Code when the
importation is found to be unlawful.
Section 1801. Abandonment, Kinds and Effect
of. — An imported article is deemed abandoned
under any of the following circumstances:
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a. When the owner, importer, consignee of the imported article

expressly signifies in writing to the Collector of Customs his
intention to abandon; or
b. When the owner, importer, consignee or interested party
after due notice, fails to file an entry within thirty (30)
discharge of the last package from the vessel or
aircraft, or having filed such entry, fails to claim his
importation within fifteen (15) days which shall not likewise
be extendible, from the date of posting of the notice to claim
such importation.
Any person who abandons an article or
who fails to claim his importation as provided
for in the preceding paragraph shall be deemed
to have renounced all his interests and property
rights therein.
Section 1802. Abandonment of Imported
Articles. — An abandoned article shall ipso
facto be deemed the property of the Government
and shall be disposed of in accordance with the
provisions of this Code.
xxx xxx xxx 15
It is clear that, under the abovequoted provisions of Section 1301, in
relation to Sections 1801 and 1802, when the importer fails to file the entry
within the required 30-day period, he shall be deemed to have renounced all his
interests and property rights to the importations, and these shall be considered
impliedly abandoned in favor of the government.
From the wording of the above provisions of Section 1801, as amended
by RA 7651, it was held in Chevron that the law "no longer requires that there be
other acts or omissions where an intent to abandon can be inferred. It is enough
that the importer fails to file the required import entries within the
reglementary period. The lawmakers could have easily retained the words used
in the old law (with respect to the intention to abandon) but opted to omit them.
It would be error on our part to continue applying the old law despite the clear
changes introduced by the amendment." 16 cHECAS
From these pronouncements, it is clear that abandonment sets in once an
importer fails to file the required import entry within the 30-day period
provided by law after due notice of the arrival of its shipment (except in cases of
knowledgeable owners or importers), without regard to any other act which
may or may not have been committed by such importer with respect to the entry
of and payment of duties of the imported articles.
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The necessary consequence of such abandonment is the transfer of

ownership of the imported articles in favor of the government. Thus, as quoted
above, Section 1802 of the TCCPprovides as follows:
Section 1802. Abandonment of Imported
Articles. An abandoned article shall ipso facto be
deemed the property of the Government and
shall be disposed of in accordance with the
provisions of this Code. 17
Chevron ruled that, "[n]o doubt, by using the term ipso facto in Section
1802 as amended by RA 7651, the legislature removed the need for
abandonment proceedings and for a declaration that the imported articles
have been abandoned before ownership thereof can be transferred to the
government." 18
It was also held in the same case that "[p]etitioner's failure to file the
required entries within a non-extendible period of thirty days from date of
discharge of the last package from the carrying vessel constituted implied
abandonment of its oil importations. This means that from the precise moment
that the non-extendible thirty-day period lapsed, the abandoned shipments were
deemed, ipso facto, (that is, they became) the property of the government." 19
The term ipso facto is defined as by the very act itself or by mere act.
Probably a closer translation of the Latin term would be by the fact itself. Thus,
there was no need for any affirmative act on the part of the government
with respect to the abandoned imported articles since the law itself
provides that the abandoned articles shall ipso facto be deemed the
property of the government. Ownership over the abandoned importation was
transferred to the government by operation of law under Section 1802 of
the TCC[P], as amended by RA 7651. Therefore, when petitioner withdrew
the oil shipments for consumption, it appropriated for itself properties
which already belonged to the government. Accordingly, it became liable
for the total dutiable value of the shipments of [its] imported crude oil. 20
It becomes apparent from the above discussions, that the issue of
whether or not an importer is guilty of fraud in the filing of its import entry is
immaterial insofar as its liability for the payment of the dutiable value of its
abandoned importation is concerned. As applied to the present case, petitioner
becomes liable to pay the dutiable value of its importation, regardless of whether
or not it is guilty of fraud, especially since it consumed or used its imported
crude oil despite losing ownership thereof. Thus, the CTA Former En
Banc correctly held that:
As regards the issue on the existence of fraud,
it should be emphasized that fraud is not controlling
in this case. Even in the absence of fraud, petitioner
Shell is still liable for the payment of the dutiable
value by operation of law. The liability of petitioner
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Shell for the payment of the dutiable value of its

imported crude oil arose from the moment it
appropriated for itself the said importation, which
were already a property of the government by
operation of law. Absence of fraud in this case would
not exclude petitioner Shell from the coverage of
Sections 1810 and 1802 of the TCCP. 21
The ponencia sustains petitioner's contention and rules that the
provisions of Sections 1301, 1801 and 1802 of the TCCP should be read in
relation to Section 1603 to make the whole statute wholly operative and
effective. I agree that a statute must be read or construed as a whole or in its
entirety and that all parts, provisions, or sections, must be read, considered or
construed together, and each must be considered with respect to all others, and
in harmony with the whole. 22 However, it would be error to rely on petitioner's
fallacious premise that, under Section 1603 of the TCCP, the government's right
to claim abandonment and recover the dutiable value of the abandoned
importation is dependent on whether or not it (petitioner) is guilty of fraud, and
its subsequent position that, if it is not guilty of fraud, the government's right to
claim abandonment will lapse after a period of one (1) year. How can the
government's right to claim abandonment lapse if the government's ownership
over the abandoned articles is already transferred to it by operation of law from
the moment that petitioner failed to file its import entry within the non-
extendible 30-day period? In other words, after the expiration of the 30-day
period, the government, ipso facto, becomes the owner of the abandoned articles
and, being the owner, the government's exercise of its rights of ownership
over the abandoned imported article, which includes the right to recover
the value of such abandoned article, which was already consumed by the
importer, is not conditioned upon any prior act or proceeding nor is it
subject to the prescriptive period provided under Section 1603.
Contrary to what has been stated in the ponencia, the government, in the
present case, is not exercising its power to assess and collect taxes. What it
exercises is its right of ownership over abandoned imported articles. AHDacC
Petitioner's strained and stretched interpretation of Section 1603, as
maintained by the ponencia, to the effect that it would preclude the government
from exercising its right of ownership over the abandoned imported articles,
would, in effect, render the provisions of Section 1801 and 1802 nugatory. A
careful reading of the provisions of Sections 1801 and 1802, as well as the
Congressional deliberations on policy considerations 23 for the non-extendible
30-day period for the filing of the import entry in Section 1301, do not make any
mention of nor reference to the provisions of Section 1603 as an exception to the
application of the provisions of Sections 1801 and 1802. Particularly, the law
does not make the absence of fraud on the part of the importer, nor questions or
issues regarding the propriety of the importer's entry and settlement of duties,
as factors which would prevent the government from subsequently considering
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the imported article as abandoned and of recovering its value in case the said
article is consumed by the importer despite losing ownership thereof.
If the Court were to follow petitioner's interpretation, it would, in effect,
impose an additional condition on the government's right to exercise its
ownership over the abandoned imported article, a condition which is not
provided by law.
Also, insofar as petitioner's liability for the payment of the dutiable value
of its imported crude oil is concerned, the provisions of Section 1603 of
the TCCP are not applicable. Aside from the reasons discussed above, it is
observed that Section 1603 falls under Part V, Title IV of the TCCP which is
entitled "Liquidation of Duties." A cursory reading of the related Sections (1601,
1602 and 1604), which fall under this heading, would show that what becomes
final and conclusive after the expiration of one (1) year from the final payment of
duties is only the determination of the total amount and settlement as well as
adjustment of duties, taxes, surcharges, wharfage, and/or other charges to be
paid on entries. Nothing in the provisions under this heading excuses an
importer from its liability to pay the dutiable value of the importation it
consumed despite having abandoned the same in the eyes of the law.
Moreover, as discussed above, it would be grossly disadvantageous to the
government if the Court were to follow petitioner's interpretation that, in the
absence of fraud and after the lapse of one (1) year from the date of its payment
of duties, the government is already precluded from recovering the dutiable
value of the subject imported crude oil which the government already owns by
operation of law but which was, nonetheless, appropriated and consumed by
petitioner.
To recapitulate, the ruling in Chevron is clear and simple. There, it was
held that the petitioner's failure to file the required entries within a non-
extendible period of thirty (30) days from date of discharge of the last package
from the carrying vessel constituted implied abandonment of its oil
importations, which means that from the precise moment that the non-
extendible thirty-day period lapsed, the abandoned shipments became the
property of the government. As a consequence, when the petitioner withdrew
the oil shipments for consumption, it appropriated for itself properties which
already belonged to the government and, thus, became liable for the total
dutiable value of the shipments of imported crude oil, without regard to whether
or not the importer was guilty of fraud in filing its import entries and in the
settlement of its duties pertaining to such importation.
In addition, it is not amiss to point out that in Chevron, the Court ruled
that the importer's liability to pay the total dutiable value of its shipments of
imported crude oil should be reduced by the total amount of duties it had paid
thereon. I submit that the same rule should be applied in the present case.
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Finally, it is my opinion that this case should have been referred to the
Court en banc as the ruling in this case runs contrary to the principle established
in Chevron.
Accordingly, I vote to DENY the petition and AFFIRM the Decision dated
May 13, 2010 and Resolution dated February 22, 2011 of the CTA Former En
Banc in C.T.A. EB No. 472, subject to the modification that petitioner should be
made to pay the total dutiable value of its shipment of imported crude oil
reduced by the total amount of duties it had already paid to the government for
such importation.
||| (Pilipinas Shell Petroleum Corp. v. Commissioner of Customs, G.R. No. 195876,
[December 5, 2016])
THIRD DIVISION
[G.R. No. 204014. December 5, 2016.]
PHILIPPINE STOCK EXCHANGE, INC., petitioner, vs. ANTONIO K.

LITONJUA 1 AND AURELIO K. LITONJUA, JR., respondents.
DECISION
PEREZ, J p:
Before this Court is a Petition for Review on Certiorari filed by the
Philippine Stock Exchange, Inc. (PSE) seeking to annul the 23 May 2012
Decision 2 and 17 October 2012 Resolution 3 of the Court of Appeals (CA)
upholding the 22 February 2010 Decision 4 of the Pasig City Regional Trial Court
(RTC), Branch 154, granting the claim for refund of Antonio K. Litonjua and
Aurelio K. Litonjua, Jr. (Litonjua Group). 5
Antecedent Facts
On 20 April 1999, the Litonjua Group wrote a letter-agreement to
Trendline Securities, Inc. (Trendline) through its President Priscilla D. Zapanta
(Zapanta), confirming a previous agreement for the acquisition of the 85%
majority equity of Trendline's membership seat in PSE, a domestic stock
corporation licensed by the Securities and Exchange Commission (SEC) to
engage in the business of operating a market for the buying and selling of
securities. 6 The salient features of the agreement are as follow:
1. The sale of majority equity Membership/Seat equivalent to eighty-five
percent (85%) of the value, to Antonio and Aurelio K. Litonjua, Jr.,
and/or assignees and immediate members of their family
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(Litonjua Group). The balance of the fifteen percent (15%) equity

to be retained by you and/or immediate members of your family;
2. The aggregate price for the Membership/Seat is Twenty-three million
Pesos (P23,000,000.00) broken down as follows:

a. Litonjua Group - 85% equity P19,555,000.00
b. Zapanta - 15% equity P3,445,000.00
–––––––––––––
Total Equity: P23,000,000.00
=============
3. Terms of Payment
1. On account of the outstanding claims of the Philippine
Stock Exchange (PSE), the Litonjua Group is willing to
pay in advance direct to PSE the present claims of
P18,547,643.81 with the following conditions:

a. That the amount of P18,547,643.81 is the entire
obligation of Trendline Securities, Inc., i.e., as
full settlement of all claims and outstanding
obligations including interest;

b. Upon acceptance of payment and approval of PSE
board, PSE will lift the suspension and allow
the Litonjua Group to resume the normal
trading operation of the Membership/Seat;

c. That PSE will agree and accept nominations of our
assignee for the Membership/Seat subject to
PSE rules, regulations and criteria for accepting
a new member or nominee;

d. That should the new membership be organized, PSE
will approve and register the new member
subject to rules, regulations and criteria for
accepting a new member corporations.

2. The balance of P1,007,356.19 will be paid after
incorporation of the new company to which the
membership/seat will be transferred. HSAcaE
The letter was conformed to by Zapanta for and on behalf of Trendline. 7
In a letter-confirmation dated 21 April 1999, the Litonjua Group
undertook to pay the amount of P18,547,643.81 directly to PSE within three
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working days upon confirmation that it will be for the full settlement of all
claims and outstanding obligations including interest of Trendline to lift its
membership suspension and the resumption to normal trading operation.
Further in the letter, Trendline was obligated to secure the approval and written
confirmation of PSE for a new corporation to be incorporated that will own a
seat. 8
On 26 April 1999, Trendline, in compliance with the conditions set forth
in the 20 April 1999 letter-agreement, advised PSE of the salient terms and
conditions imposed upon it for the acquisition of the membership/seat. 9
On 29 April 1999, the PSE, through Atty. Ruben L. Almadro (Atty.
Almadro), Vice-President for Compliance and Surveillance Department, sent a
letter 10 to Trendline advising the latter that the Business Conduct and Ethics
Committee (BCEC) of PSE has resolved to accept the amount of P19,000,000.00
as full and final settlement of its outstanding obligations to be paid not later than
13 May 1999, broken down as follows:
Unpaid PSE Advances to Clearing House P15,918,744.14
Compromise Fines/Penalties 3,081,255.86
–––––––––––––
P19,000,000.00
============
Trendline was further advised that failure to pay the said amount by 13
May 1999 will result to collection in full of imposable fines/penalties and
enforcement of payment by selling its seat at public auction.
On 3 May 1999, Trendline sent a reply-letter to PSE acknowledging its
receipt of the 29 April 1999 letter and its assurance that the Litonjua Group will
comply with the terms of the agreement. 11
In compliance, the Litonjua Group in a letter dated 12 May 1999,
delivered to PSE through Atty. Almadro three check payments, 12 all dated 13
May 1999 and payable to PSE, totaling to an amount of P19,000,000.00 broken
down as follow:

Bank Check No. Amount

1. Metro Bank 0127631 P1,700,000.00
2. Standard Chartered 0000062 P1,350,000.00
3. Standard Chartered 0000064 P15,950,000.00
–––––––––––––
P19,000,000.00
===========

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The letter, as conformed to by Trendline, indicated that the above

payment represents the advance payment of the Litonjua Group for the
acquisition of the seat/membership with the PSE and as full settlement of the
outstanding obligation of Trendline. 13
The letter and checks were received by the PSE from Trendline on 13 May
1999 as evidenced by Official Receipt Number 42264. It bore an annotation that
the checks were received as an advance payment for full settlement of
Trendline's outstanding obligation to PSE. 14
Trendline, on its part, also sent a letter dated 13 May 1999 advising PSE
of the payment of penalties and interest and reactivation of its suspension to
seat/membership. Further, PSE was informed that Zapanta had already resigned
as Trendline's nominee and in lieu of the position, nominate Aurelio K. Litonjua,
Jr. as the new nominee to the seat/membership. 15
Despite several exchange of letters of conformity and delivery of checks
representing payment of full settlement of Trendline's obligations, PSE failed to
lift the suspension imposed on Trendline's seat. 16 HESIcT
On 30 July 2006, the Litonjua Group, through a letter, requested PSE to
reimburse the P19,000,000.00 it had paid with interest, upon knowledge that
the specific performance by PSE of transferring the membership seat under the
agreement will no longer be possible. 17
PSE, however, refused to refund the claimed amount as without any legal
basis. As a result, the Litonjua Group on 10 October 2006 filed a Complaint for
Collection of Sum of Money with Damages against PSE before the RTC of Pasig
City. 18
PSE presented its version of the facts.
Prior to its re-organization in 2001, PSE was organized as a non-stock
corporation with 200 members, one of which was Trendline. As a member,
Trendline owns a trading seat with a right to conduct trading activities in the
PSE. 19
During the course of its trading activities, Trendline violated some PSE
rules in trading and failed to pay its cash settlement payables to the Securities
Clearing Corporation of the Philippines in the amount of P113.7 Million. As a
result, PSE was compelled to assume Trendline's obligation. PSE, in turn,
suspended Trendline's trading privileges. 20
On 30 October 1998, Zapanta negotiated for an extension period until 31
July 1999 to settle its obligations with PSE. In reply, BCEC advised Trendline that
it has until 31 March 1999 to settle its obligations to the PSE. 21
Prior to the expiration of the deadline, Trendline and the Litonjua Group
were already negotiating for the purchase of the former's membership/seat.
Accordingly, a letter-agreement dated 20 April 1999 was issued by the Group
providing for the terms of acquisition, without, however, securing the consent of
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PSE for approval. This letter-agreement, was confirmed by Trendline through

the approval of Zapanta. 22
On 12 May 1999, PSE received three checks amounting to P19,000,000.00
for the full settlement of Trendline's outstanding obligation. Trendline, and not
the Litonjua Group, was the one indicated as the payor of the obligation. 23
On 26 August 1999, PSE's Compliance and Surveillance Group (CSG)
discovered during a follow-up audit that Trendline had a considerable amount of
shortfalls and outstanding obligations to its clients, in addition to its unsettled
and unliquidated accounts. 24
Despite the outstanding obligations due to PSE, Zapanta, on 1 March
2004, requested the PSE's Compliance and Surveillance Group, for an audit of
accounts preparatory to the issuance of clearance to transfer their corporate
membership seat to the Litonjua Group. 25
Granting the request, the CSG on 8 March 2004 conducted a special audit
of Trendline's books and records. It was then confirmed that Trendline was not
financially liquid to settle all its outstanding obligations to its clients. 26
On 3 January 2006, Atty. Sixto Jose C. Antonio (Atty. Antonio) sent a letter
to PSE informing the latter that Trendline has filed for a petition for corporate
rehabilitation before the Regional Trial Court of Manila and that he has been
appointed by the court as the rehabilitation receiver. 27
In reply, PSE in a letter dated 6 February 2006 informed Atty. Antonio
that 85% of Trendline's membership seat is being claimed by the Litonjua Group.
Further, PSE enumerated the names of individuals who have a pending claims
against Trendline totaling to P19,600,000. 28
On 30 July 2006, PSE received a demand letter from the Litonjua Group
requesting for a reimbursement of its paid P19,000,000.00 with interest
reckoned from 13 May 1999.
Declining reimbursement, PSE in its Answer Ad Cautelam raised primarily
that it received the amount not from the Litonjua Group but from Trendline as a
settlement of its obligation. It insisted that the cause of action of the Litonjua
Group is against Trendline and not the exchange, the latter being a non-party to
the letter agreement. 29
After conclusion of trial, the trial court rendered a decision granting that
the Litonjua Group is entitled to claim a refund from PSE. The dispositive
portions reads:
WHEREFORE, premises considered, decision is rendered in
favor of the plaintiffs and against the defendant PSE ordering the
defendant PSE to pay the plaintiffs the amount of:
(1) [P]19,000,000.00 plus interest thereon at 12% per
annum from July 30, 2006;
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(2) Exemplary damages in the amount of [P]1,000,000.00;

(3) Attorney's fees in the amount of [P]100,000.00, and
(4) Cost of suit. 30
The decision is anchored on the principle of solutio indebiti as defined in
Article No. 2154 of the New Civil Code. If something is received when there is no
right to demand it, and it was unduly delivered through mistake, the obligation to
return it arises. 31 caITAC
The trial court clarified that Litonjua's cause of action is not founded on
the 20 April 1999 letter-agreement but on the mistake on the part of the Litonjua
Group when it delivered the P19,000,000.00 to PSE on the notion that amount
was for the consideration of the trading seat of Trendline. PSE's insistence that it
was not a privy to the letter-agreement only bolstered the fact that it was devoid
of any right to receive the payment. 32
In addition to the refund, legal interest was likewise imposed from the
date of demand reckoned from 30 July 2006 at twelve percent (12%) per annum.
Also, exemplary damages were imposed due to the continuous refusal of PSE to
refund the P19,000,000.00 despite the fact that it received the amount without
any right to receive it. Such conduct of PSE was characterized by the trial court
as wanton, oppressive and malevolent in nature as defined under Article
2232 33 of the New Civil Code justifying the award of exemplary damages.
Finally, attorney's fees were awarded in view of the grant of exemplary damages
and to the fact that the Litonjua Group was forced to litigate in court to assert its
right. 34
Aggrieved, PSE filed an appeal before the CA alleging errors on the part of
the trial court when it ruled that (1) the cause of action of the Litonjua Group is
based on quasi-contract; (2) in not finding that the party liable for refund is
Trendline pursuant to Article 1236 35 of the New Civil Code; and lastly, in
granting the award of exemplary damages.
On 23 May 2012, the CA affirmed, in the result, the challenged decision of
the trial court. The appellate court principally relied on the principle of
constructive trust instead of solutio indebitias an appropriate remedy against the
unjust enrichment of PSE. It was held that:
We strongly believe that if we will not allow the recovery of
the amount of Nineteen Million Pesos (P19,000,000.00), there will
be unjust enrichment on the part of the PSE. This We cannot
tolerate[;] thus, the application here of the principles of the law on
trust. In particular, constructive trust which is a class of implied
trust.

A constructive trust is substantially an appropriate remedy
against unjust enrichment. It is raised by equity in respect of
property, which has been acquired by fraud, or where although
CIVIL LAW REVIEW 2

acquired originally without fraud, it is against equity that it should

be retained by the person holding it.
xxx xxx xxx
Certainly, constructive trust is the formula through which
the conscience of equity finds expression . . . . Applying the same in
the instant case, as the money involved here — which amounts to
millions — was actually acquired under the circumstance where
the beneficial interest cannot be retained in good conscience, the
equity converts PSE into a trustee. . . . The PSE, without a doubt, as
the trustee of a constructive trust, has the obligation to convey or
deliver back to the Litonjua Group the amount subject of the
dispute. The money rightfully belongs to the latter there being no
contract existing where PSE can base its right to receive the
amount. 36
As to the issue of the applicability of Article 1236, the CA ruled in the
negative. According to the law: 37
The Creditor is not bound to accept the payment or performance by a
third person who has no interest in the fulfillment of the obligation
unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has
paid, except that if he paid without the knowledge or against the
will of the debtor, he can recover only insofar as the payment has
been beneficial to the debtor.
However, the provision must be read in relation to the provision on
novation of contract provided by Article 1293 which states that, novation which
consists in substituting a new debtor in the place of the original one, may be made
even without the knowledge or against the will of the latter, but not without the
consent of the creditor. Payment of the new debtor gives him the rights mentioned
in Art. 1236 and 1237. (Emphasis ours)
It also ruled that the acts of PSE subsequent to the execution of the 20
April 1999 letter-agreement were tantamount to consent, only for it to retract
later and claim that it never issued any Board Resolution authorizing PSE to bind
itself to the terms and obligations of the letter-agreement. These acts, if not
fraudulent, were made with recklessness, hence, the justification of the
exemplary damages.
Before this Court, PSE posits the following issues: (1) The
contemporaneous and subsequent acts of the PSE are not tantamount to
rendering the PSE a party to the letter-agreement; (2) the case of Smith, Bell and
Co. is not applicable to the present case; (3) the provision of Article 1236 should
not be read together with Article 1293; (4) Trendline should be considered as an
indispensable party; (5) PSE was not unjustly enriched by its receipt of the
amount of P19,000,000.00; (6) no constructive trust exists between the PSE and
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the Litonjua Group; and finally (7) the Litonjua Group is not entitled to
exemplary damages.
In its Comment, the Litonjua Group countered that since PSE insists that
there is no contract to speak of due to absence of consent, it is only equitable to
return the money paid. The money was conditionally delivered by the Litonjua
Group based on its belief that PSE had already approved of the transaction and
the obligations imposed upon it by the letter-agreement. In view of the fact that
the money was acquired through mistake, PSE, by force of law, is now
considered as a trustee of an implied trust for the benefit of the Litonjua
Group. 38
We deny the petition. ICHDca
After review of the records, we summarize the issues, thus: First, is PSE
considered a party to the letter-agreement; Second, against whom should the
Litonjua Group seek reimbursement;Third, is PSE liable to return the payment
received; and lastly, whether the PSE is liable to pay exemplary damages.
PSE asserts that it is not a party in the letter-agreement due to the
absence of any board resolution authorizing the corporation to be bound by the
terms of the contract between Trendline and the Litonjua Group. In essence, it
avers that no consent was given to be bound by the terms of the letter-
agreement. We agree.
According to Article 1305 of the Civil Code, "a contract is a meeting of
minds between two persons whereby one binds himself, with respect to the
other, to give something or render some service." For a contract to be binding:
there must be consent of the contracting parties; the subject matter of the
contract must be certain; and the cause of the obligation must be
established. 39Consent, as a requisite to have a valid contract, is manifested by
the meeting of the offer and the acceptance upon the thing and the cause which
are to constitute the contract. The offer must be certain and acceptance absolute.
A qualified acceptance constitutes a counter offer. 40
In corporations, consent is manifested through a board resolution since
powers are exercised through its board of directors. The mandate of Section 23
of the Corporation Code is clear that unless otherwise provided in the Code, "the
corporate powers of all corporations shall be exercised, all business conducted
and all property of such corporations controlled and held by the board of
directors or trustees. . ."
Further, as a juridical entity, a corporation may act through its board of
directors, which exercises almost all corporate powers, lays down all corporate
business policies and is responsible for the efficiency of management. As a
general rule, in the absence of authority from the board of directors, no person,
not even its officers, can validly bind a corporation. This is so because a
corporation is a juridical person, separate and distinct from its stockholders and
members, having powers, attributes and properties expressly authorized by law
or incident to its existence. 41
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Admittedly in this case, no board resolution was issued to authorize PSE

to become a party to the letter-agreement. This fact was confirmed by PSE's
Corporate Secretary Atty. Aissa V. Encarnacion in her direct testimony by way of
judicial affidavit. 42 She testified that based on her review of the meetings of the
PSE Board of Directors from 1998 to July 2009, there was no record of any board
resolution authorizing PSE to bind itself to the said obligations under the letter-
agreement or to lift the suspension over Trendline's PSE seat in accordance with
the terms and conditions of the said letter-agreement. PSE was never authorized
by the Board to be bound by the obligations stated therein. This fact was
confirmed by Antonio K. Litonjua himself when he admitted during cross-
examination that he failed to ask from PSE for any board resolution authorizing
itself to be bound by the terms of the letter-agreement. 43
From the foregoing, PSE is not considered as a party to the letter-
agreement.
Following this precept, PSE maintains that the proper recourse of
Litonjua Group is to demand reimbursement from Trendline following the
provision of Article 1236. We disagree.
Reiterating Article 1236, the Creditor is not bound to accept the payment
or performance by a third person who has no interest in the fulfillment of the
obligation unless there is a stipulation to the contrary. Whoever pays for another
may demand from the debtor what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor.
Contrary to the argument of PSE, we find inapplicable the provision of
Article 1236 allowing the demand by the payor from the debtor of what was
paid. It is correct that PSE is not bound to accept the payment of a third person
who has no interest in the fulfillment of the obligation. 44 However, the Litonjua
Group is not a disinterested party. Since the inception of the initial meeting
between the Litonjua Group, PSE and Trendline, there was already a clear
understanding that the Litonjua Group has the intention to settle the outstanding
obligation of Trendline in consideration of its acquisition of 85% seat ownership
and PSE's lifting of suspension of trading seat.
The next question now is, can PSE, though not a party to the agreement,
be still held liable to return the money it received? We answer in the affirmative.
This is pursuant to the principles of unjust enrichment and estoppel; it is only
but rightful to return the money received since PSE has no intention from the
beginning to be a party to the agreement.
PSE insists that there is no unjust enrichment when it received the
P19,000,000.00 since it has every right to accept the amount which was
voluntarily and knowingly paid by the Litonjua Group to discharge Trendline
from its obligations to the corporation. Following this premise, it is not obligated
to return the money. Again, we disagree.
CIVIL LAW REVIEW 2

The principle of unjust enrichment is embodied by the letter of Article 22

of the Civil Code:
Article 22. Every person who through an act of performance by another,
or any other means, acquires or comes into possession of
something at the expense of the latter without just or legal ground,
shall return the same to him. TCAScE
There is unjust enrichment when a person unjustly retains a benefit to
the loss of another, or when a person retains money or property of another
against the fundamental principles of justice, equity and good
conscience. 45 The principle of unjust enrichment requires two conditions: (1)
that a person is benefited without a valid basis or justification, and (2) that such
benefit is derived at the expense of another. 46
The main objective of the principle against unjust enrichment is to
prevent one from enriching himself at the expense of another without just cause
or consideration. 47
Applying law and jurisprudence, the principle of unjust enrichment
requires PSE to return the money it had received at the expense of the Litonjua
Group since it benefited from the use of it without any valid justification.
In addition, principle of estoppel finds merit.
Estoppel has its roots in equity. It is a response to the demands of moral
right and natural justice. For estoppel to exist, it is indispensable that there be a
declaration, act or omission by the party who is sought to be bound. It is equally
a requisite that he, who would claim the benefits of such a principle, must have
altered his position, having been so intentionally and deliberately led to comport
himself; thus, by what was declared or what was done or failed to be done. 48
In Philippine National Bank v. The Honorable Intermediate Appellate Court
(First Civil Cases Division) and Romeo Alcedo, 49 estoppel is further elucidated in
this wise:
The doctrine of estoppel is based upon the grounds of
public policy, fair dealing, good faith and justice, and its purpose is
to forbid one to speak against its own act, representations, or
commitments to the injury of one to whom they were directed and
who reasonably relied thereon. Said doctrine springs from
equitable principles and the equities in the case. It is designed to
aid the law in the administration of justice where without its aid
injustice might result. 50
In this case, the Litonjua Group was led to believe that the payment of
P19,000,000.00 will be the full settlement of all the obligations due, including the
penalties and interests, in order to effect the lifting of the suspension of the
seat/membership. This is apparent from the April 29, 1999 letter of Atty.
Almadro to Trendline. According to its terms, the Business Conduct and Ethics
Committee of PSE resolved to accept the amount of Nineteen Million Pesos
CIVIL LAW REVIEW 2

(P19,000,000.00) as full and final settlement of its outstanding obligations to be

paid not later than 13 May 1999. Trendline was further advised that failure to
pay the said amount by 13 May 1999 will result to collection in full of imposable
fines/penalties and enforcement of payment by selling its seat at public auction.
In turn, Trendline assured PSE that the Litonjua Group will pay the required
amount. The Litonjua Group, before the turnover of the checks, even took a
further step and sent a letter to Atty. Almadro indicating that the payment will
be the full satisfaction for the acquisition of the seat/membership Trendline.
Upon receipt of the checks, an annotation was indicated by PSE that the checks
were received as advance payment for full settlement of Trendline's outstanding
obligation. PSE became an active participant in all the transactions between the
Litonjua Group and Trendline. By accepting Litonjua's payment, PSE is now
estopped from claims that Trendline still has a penalty obligation that must be
settled before the transfer of the seat.
PSE cannot assert to be a non-party to the letter-agreement and at the
same time claim a right to receive the money for the satisfaction of the obligation
of Trendline. PSE must not be allowed to contradict itself. A position must be
made. PSE must either consider itself a party to the letter agreement and assume
the all rights and obligations flowing from the transaction or disavow its consent
derivative from its participation. Since, it is already made clear that it is not a
party due to its lack of consent, it is now estopped from claiming the right to be
paid.
Finally, PSE insists that the appellate court erred when it awarded
exemplary damages to the Litonjua Group due to the corporation's recklessness
in its business dealings. When it accepted the payment, PSE contends that it was
merely exercising its right to be paid. We again disagree. cTDaEH
In contracts and quasi-contracts, the court may award exemplary
damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner. 51 Exemplary damages cannot be recovered as a matter of
right; the court will decide whether or not they should be adjudicated. 52 While
the amount of the exemplary damages need not be proven, the plaintiff must
show that he is entitled to moral, temperate or compensatory damages before
the court may consider the question of whether or not exemplary damages
should be awarded. 53
In Arco Pulp and Paper Co., Inc. v. Dan T. Lim, 54 the Court reiterated the
ratio behind the award:
Also known as 'punitive' or 'vindictive' damages, exemplary
or corrective damages are intended to serve as a deterrent to
serious wrong doings, and as a vindication of undue sufferings and
wanton invasion of the rights of an injured or a punishment for
those guilty of outrageous conduct. These terms are generally, but
not always, used interchangeably. In common law, there is
preference in the use of exemplary damages when the award is to
CIVIL LAW REVIEW 2

account for injury to feelings and for the sense of indignity and
humiliation suffered by a person as a result of an injury that has
been maliciously and wantonly inflicted, the theory being that
there should be compensation for the hurt caused by the highly
reprehensible conduct of the defendant — associated with such
circumstances as willfulness, wantonness, malice, gross negligence
or recklessness, oppression, insult or fraud or gross fraud — that
intensifies the injury. The terms punitive or vindictive damages
are often used to refer to those species of damages that may be
awarded against a person to punish him for his outrageous
conduct. In either case, these damages are intended in good
measure to deter the wrongdoer and others like him from similar
conduct in the future. 55
PSE, despite demands by the Litonjua Group, continuously refused to
return the money received despite the fact that it received it without any legal
right to do so. This conduct, as found by the trial court, falls within the purview
of wanton, oppressive and malevolent in nature. Further, we find the words of
the appellate court on its justification of the award meritorious:
We cannot blame the Litonjua Group for believing that the
actions of the PSE are as good as giving consent to the subject
agreement. And, it surely came as a surprise on the part of the
Litonjua Group to know that none of the PSE's dealings can be
considered as approval of the agreement. It appears that these
actions of the PSE, if it cannot be considered fraudulent, were
definitely made with recklessness. As huge amount of money (P19
Million) were involved, the PSE could have been more cautious or
wary in dealing with the Litonjua Group. It should have avoided
making actions that would send wrong signal to the other party
with which it was transacting. Hence, we have no choice but to
conclude that PSE acted with recklessness that would warrant an
award of exemplary damages in favor of the Litonjua Group. 56
Thus, absent any other compelling reason to overturn the findings, we
uphold the award of exemplary damages.
Finally, a note on the legal interest.
Pursuant to Circular No. 799 of Monetary Board of the Bangko Sentral ng
Pilipinas dated 21 June 2013, the rate of interest for the loan or forbearance of
any money, goods or credits and the rate allowed in judgments, in the absence of
an express contract as to such rate of interest, shall be six percent (6%) per
annum. Therefore, the rate of interest imposed the trial court in its judgment, as
affirmed by the ruling of the CA, will be at 12% interest per annum from 30 July
2006 to 30 June 2013 and 6% interest per annum 1 July 2013 until full
satisfaction.
CIVIL LAW REVIEW 2

WHEREFORE, the petition is DENIED. Accordingly, the Decision and

Resolution of the Court of Appeals dated 23 May 2012 and 17 October 2012
respectively, upholding the 22 February 2010 Decision of the Regional Trial
Court of Pasig City are hereby AFFIRMED WITH MODIFICATION. Philippine
Stock Exchange is hereby ordered to pay the Litonjua Group the following
amounts:
1. As to the imposition of legal interest to be imposed to the
P19,000,000.00 from 12% to 6% per annum reckoned from the
date of demand on 30 July 2006;
2. Exemplary damages in the amount of P1,000,000.00;
3. Attorney's fees in the amount of P100,000.00; and
4. Cost of suit. cSaATC
SO ORDERED.
||| (Philippine Stock Exchange, Inc. v. Litonjua, G.R. No. 204014, [December 5, 2016])
THIRD DIVISION
[G.R. No. 204719. December 5, 2016.]
POWER SECTOR ASSETS and LIABILITIES MANAGEMENT

CORPORATION, petitioner, vs. SEM-CALACA POWER
CORPORATION, respondent.
DECISION
PERALTA, J p:
Before the Court is a petition for review on certiorari under Rule 45 of
the Rules of Court seeking to annul and set aside the Court of Appeals
Decision 1 dated September 4, 2012 and Resolution 2 dated November 27, 2012
in CA-G.R. SP No. 123997, which affirmed the rulings of the Energy Regulatory
Commission (ERC) specifying respondent's capacity allocation as a power
producer.
The facts of the case follow.
The Electric Power Industry Reform Act of 2001 (EPIRA), or Republic
Act (R.A.) No. 9136, which was signed into law by then President Gloria
Macapagal-Arroyo on June 8, 2001, was intended to provide a framework for the
restructuring of the electric power industry, including the privatization of the
assets of the National Power Corporation (NPC), the transition to the desired
competitive structure and the definition of the responsibilities of the various
CIVIL LAW REVIEW 2

government agencies and private entities with respect to the reform of the
electric power industry. 3
The EPIRA also provided for the creation of petitioner Power Sector
Assets and Liabilities Management Corporation (PSALM), a government-owned
and controlled corporation which took over ownership of the generation assets,
liabilities, independent power producer (IPP) contracts, real estate and other
disposable assets of the NPC. 4 PSALM's principal purpose under the law is to
"manage the orderly sale, disposition, and privatization of NPC generation
assets, real estate and other disposable assets, and IPP contracts with the
objective of liquidating all NPC financial obligations and stranded contract costs
in an optimal manner." 5
Among the assets put on sale by PSALM was the 600-MW Batangas Coal-
Fired Thermal Power Plant in Calaca, Batangas (Calaca Power Plant). 6 In July
2009, DMCI Holdings, Inc. (DMCI) was declared the highest bidder in the
sale. 7 The sale was effected through an Asset Purchase
Agreement (APA) executed by PSALM and DMCI on July 29, 2009, and became
effective on August 3, 2009. 8
On December 2, 2009, DMCI transferred all of its rights and obligations
under the APA and the Land Lease Agreement (also called Final Transaction
Documents) to herein respondent SEM-Calaca Power Corporation (SCPC) by
entering into an Amendment, Accession and Assumption Agreement that was
signed by PSALM, DMCI and SCPC. 9 Under the agreement, SCPC took over all the
rights and obligations of DMCI under the said documents. SCPC also alleged that
on that same date, it took over the physical possession, operation and
maintenance of the Calaca Power Plant. 10
Also on the same date, SCPC started providing electricity to customers
listed in Schedule W of the APA, among which is MERALCO. 11
Schedule W is partially reproduced hereunder: cHDAIS
SCHEDULE W 12 POWER SUPPLY CONTRACTS
Part I: Description of the PSC

CUSTOMERS POWER SUPPLY CONTRACT REMAINING CONTRACT
VOLUME as of 26 June 2009
Contract Duration Monthly
Average
Effectivity Expiration Energy Demand Energy Demand Average
(MWh) (kW) (Mwh) (kW) (MWh/mo)
Meralco (10.841%) 6 Nov 25 Nov 69,256 169,000 1,517,414 169,000 69,256
2006 2011
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PEZA-Cavite 26 June 25 June 34,038 55,420 623,320 80,800 24,933

Ecozone 2006 2011
BATELEC I 26 Dec 25 Dec. 16,450 42,000 334,586 42,000 17,610
2006 2010
Sunpower 18 Aug 17 Aug 5,500 8,955 676,500 8,970 5,500
Philippines 2004 2019
Steel Asia 26 Mar 25 Dec 5,263 8,000 57,770 10,000 8,253
2008 2009
SteelCorp 26 June 25 Dec 2,500 8,000 15,000 8,320 2,500
2009 2009
Puyat Steel Corp. 26 Nov 25 Nov 194 1,300 3,260 2,150 543
2008 2009
ECSCO, Inc. 26 Dec 25 Dec 206 450 4,445 440 234
2005 2010
Lipa Ice Plant 26 Jan. 25 Jan. 220 400 4,650 520 245
2005 2010
BCFTPP Contractor
SemiraraMining NA NA 291 1450 NA NA Actual
Consumption
PozzoIanicIndustries, NA NA 11 50 NA NA Actual
Inc. Consumption
TOTAL MWh 703,506 3,236,945 129,056
MW 295 322

Notes:
• All figures mentioned above are only indicative and will be
based on the hourly/daily/monthly nominated
volume as per average monthly contract level. A
typical hourly customer's load profile for Calaca is
demonstrated in the attached Figure 1 of this
Schedule J (sic) (Power Supply Contract).
• The special conditions governing the assumption by the
Buyer of the assignment of a portion of the Contract
Energy under Meralco TSC are contained in Part II of
this Schedule J (sic)(Power Supply Contract).
xxx xxx xxx
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Furthermore, in the event that the Purchased Assets (sic) is

not able to supply the contracted power under the
aforesaid contracts due to the unavailability of coal or
other causes, the Buyer may enter into a back-to-back
supply contract with other generators or buy directly
from the market for the deficiency.
Part II: Special Conditions of the MERALCO TSC
The following conditions, unique to the MERALCO-NPC contract, shall
apply to the assigned portion of the Contract Energy from the MERALCO TSC.
1. Neither the MERALCO TSC nor any portion thereof shall
be assigned to the Buyer. It is the Contract Energy specified in part
I that is the subject of the assignment.
xxx xxx xxx
SCPC contends that it is obliged to supply 10.841% of MERALCO's total
requirement but not to exceed 169,000 kW in any hourly interval. 13 However,
PSALM holds a different view and contends that SCPC is bound to supply the
entire 10.841% of what MERALCO requires, without regard to any cap or
limit. 14
Thus, during a period of high demand, specifically in the summer of the
year 2010, when SCPC fell short of supplying the entire 10.841% of MERALCO's
requirements, the deficiency was filled by supply from the Wholesale Electricity
Spot Market (WESM). 15 SCPC contends that this was the consequence of NPC's
and PSALM's nominations in excess of what SCPC claims to be the 169,000 kW
cap or limit in its supply. 16 PSALM disputes that there is such a cap or limit,
noting that SCPC was obligated to supply the entire 10.841% under Schedule W
of the APA. 17 Thus, NPC and PSALM, who contend that they were merely
following the Transition Supply Contract (TSC) with MERALCO, billed the latter
for the electricity delivered by SCPC and that supplied through WESM. 18 SCPC
claims, however, that PSALM withheld MERALCO's payments even for the
electricity that SCPC supplied without the latter's knowledge nor
consent. 19 NPC also allegedly replaced SCPC Power Bills to MERALCO with
PSALM Power Bills, with instructions that payments be remitted directly to
PSALM instead of SCPC. 20 ISHCcT
On March 16, 2010, SCPC wrote a letter to PSALM insisting that the
169,000 kW supplied to MERALCO "should be treated as the maximum limit of
the MERALCO allocation which SCPC is bound to supply under the APA in
accordance with Schedule W." 21 On April 20, 2010, SCPC wrote a demand letter
formally asking both PSALM and NPC to release MERALCO's payments for the
period of January 26, 2010 to February 25, 2010 amounting to
Php451,450,889.13 and to directly remit to SCPC all subsequent amounts due
from MERALCO. 22
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On May 13, 2010, PSALM replied through a letter reiterating that SCPC
assumed the obligation to supply 10.841% of MERALCO's TSC and that the
latter's payments would be remitted to SCPC only after deducting the cost of
power supplied by WESM. 23
Thus, PSALM proceeded to deduct from its remittances to SCPC the cost
of the power that NPC allegedly purchased from WESM. 24 SCPC claims that for
the months of January 2010 to June 2010, the amounts due it was
Php1,894,028,305.00. Instead, PSALM paid it the amount of only
Php934,114,678.04, or short of Php959,913,626.96, which allegedly represents
the cost of electricity that PSALM charged against SCPC representing the power
NPC supposedly obtained from WESM to fill the alleged deficiency in SCPC's
supply to MERALCO. 25
Eventually, following negotiations between the parties, PSALM agreed,
through a letter dated June 21, 2010, to cap MERALCO's nominations from the
Calaca Power Plant "in any hour up to 169MWh or 10.841% of each hourly
energy nomination submitted by MERALCO to NPC under the MERALCO TSC
effective June 26, 2010." 26
However, as SCPC was insisting that the MERALCO cap should have taken
effect much earlier, or on December 2, 2009, i.e., the date of effectivity of the
APA, and as the parties failed to execute the Implementation, Agreement and
Protocol (Implementation Agreement) covering the parties' responsibilities with
regards to the supply of power to MERALCO, SCPC made an offer to PSALM for
the issues to be brought to the ERC for arbitration. 27 The proposal, however,
was rejected by PSALM. 28
Hence, SCPC initiated the instant case by filing a Petition for Dispute
Resolution (with Prayer for Provisional Remedies) before the Energy Regulatory
Commission (ERC) against NPC and PSALM. 29
In its Decision 30 dated July 6, 2011, the ERC ruled in favor of SCPC and
against NPC and PSALM, with the following dispositive portion:
WHEREFORE, the foregoing premises considered, the
Commission hereby resolves the issues raised in this instant
dispute as follows:
1. SCPC's obligation under Schedule W of the APA is to
deliver 10.841% of MERALCO's energy requirements
but not to exceed 169,000 kW capacity allocation, at
any given hour;
2. The obligation to deliver 10.841% of MERALCO's energy
requirements, but not to exceed 169,000 kW capacity,
at any given hour, shall commence from December 2,
2009 when the physical possession, occupation and
operation of the Calaca Power Plant was formally
turned over to SCPC;
CIVIL LAW REVIEW 2

3. The NPC and PSALM have no basis, in fact and in law, to

charge against SCPC the nominations beyond the
169,000 kW capacity which NPC allegedly purchased
for MERALCO from the WESM. There being no basis to
charge SCPC, PSALM must return all the payments of
MERALCO which were withheld by PSALM, including
the amount representing the cost of electricity
nominated and purchased by NPC beyond the 169,000
kW from the WESM for the period January 2010 to
June 25, 2010;
4. The payment of interests on the amount to be returned by
PSALM to SCPC is in order. However, in the absence of
a stipulation, the amount of interest shall be pegged at
6% per annum; and CAacTH
5. NPC shall continue to nominate for MERALCO's energy
requirements, in accordance with the TSC between
them. However, in nominating for MERALCO's
contract energy under the APA, NPC shall consider the
169,000 kW capacity limit, in accordance with
Schedule W of the APA, considering the generating
capacity of the Calaca Power Plant. In the absence of
an Implementation Agreement and Protocol, all
nominations made for MERALCO by SCPC in
accordance with the APA, shall henceforth be billed
through NPC and payment thereof shall be collected
directly from MERALCO by SCPC.
Accordingly, the NPC is hereby enjoined from making
nominations beyond the 169,000 kW of MERALCO's allocation. On
the other hand, PSALM is hereby directed to (1) refrain from
charging against SCPC the cost of power beyond the 169,000 kW of
MERALCO's allocation and to (2) refrain from withholding all
MERALCO payments for electricity supplied by SCPC.
The NPC, PSALM and SCPC are further directed to account
for and reconcile the amounts charged against the SCPC by PSALM,
on account of the NPC's nominations and purchases from the
WESM beyond the 169,000 kW capacity allocation during the
period January 2010 to June 25, 2010. Thereafter, the parties are
directed to submit to the Commission the reconciled computation
of the over-nominations and other MERALCO payments withheld
by PSALM for the said period, within ten (10) days from receipt of
this Decision. Further, PSALM is hereby directed to return to SCPC,
the amount as computed and reconciled, including the interests
thereon at the rate of 6% per annum, within ten (10) days from
the parties' submission of the reconciled computation to the
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Commission. Finally, the parties are directed to submit their

Compliance with the foregoing dispositions within thirty (30) days
from receipt of this Decision.
SO ORDERED. 31
PSALM filed a motion for reconsideration of the above decision. However, in an
Order 32 dated February 13, 2012, the ERC denied the said motion.
Aggrieved, PSALM filed a Petition for Review of the ERC decision to the
Court of Appeals (CA). 33
In its assailed Decision 34 dated September 4, 2012, the CA denied
PSALM's petition and upheld the findings of the ERC. The dispositive portion of
the decision states:
WHEREFORE, premises considered, the petition is DENIED.
The Decision dated July 6, 2011 and the Order dated February 13,
2012 of the Energy Regulatory Commission in ERC Case No. 2010-
058 are hereby AFFIRMED.
SO ORDERED. 35
The CA sustained the ERC's interpretation of the APA that SCPC's obligation was
to supply 10.841% of MERALCO's energy requirement, but not to exceed
169,000 kW at any given hour, as such interpretation would reconcile the
presence of the two figures in Schedule W and harmonize the provisions of the
said contract. 36 Likewise, the appellate court upheld ERC in explaining why a
cap of 169,000 kW is placed on SCPC's obligation to supply electricity to
MERALCO, the explanation being: unlike before the privatization when NPC, with
all its generation assets, was the sole supplier of MERALCO and, therefore, could
obtain electricity from any of those assets, in the current situation, SCPC is just
one of many suppliers and SCPC's asset is only the Calaca Power Plant, which has
a limited capacity. 37 The CA likewise stated that the findings of administrative
or regulatory agencies on matters within their technical area of expertise are
generally accorded not only respect but finality if such findings are supported by
substantial evidence. 38
PSALM filed a Motion for Reconsideration of the decision above, but the
same was likewise denied in a Resolution of the CA, dated November 27,
2012. 39
Hence, PSALM goes to this Court via the present Petition for Review
on Certiorari.
PSALM contends that the CA erred in placing a cap of 169,000 kW on
SCPC's obligation to supply 10.841% of MERALCO's requirement. It insists that
SCPC stepped into the shoes of NPC and PSALM in terms of the fulfillment of the
obligation of the latter to supply 10.841% of MERALCO's nominated
volume. 40 In PSALM's view, SCPC is deemed to have assumed PSALM's rights
CIVIL LAW REVIEW 2

and obligations under the Power Supply Contracts (PSCs) subject to the
conditions specified in Schedule W. 41 IAETDc
Further, it adds that Schedule W is unambiguous and requires no
construction or interpretation. 42 Allegedly, the figure 169,000 kW is not meant
to qualify the 10.841% of MERALCO's energy requirement; instead, Schedule
W's "Notes" portion supposedly explains that 169,000 kW and all the other
figures mentioned therein are only "indicative" and the supply of MERALCO's
energy requirement "will still be based on the hourly/daily/monthly nominated
volume per average monthly contract level." 43 Thus, for PSALM, it was error for
the ERC and CA to conclude that a cap exists as to the 10.841% energy
requirement of MERALCO. 44
Petitioner PSALM additionally holds that the ERC erred in harmonizing
only two figures in Schedule W: the 10.841% and the 169,000 kW, since it claims
that such figures are not the only stipulations in the said Schedule, there being
special conditions such as the Notes which, had it been read together with the
rest of the conditions, should have led the ERC to a different
conclusion. 45 PSALM also cites additional stipulations such as the so-called
Special Conditions of the MERALCO TSC, the Calaca Typical Hourly Customer's
Load Profile and the Nomination Protocol between MERALCO and NPC of TSC
Contract Energy. 46 Then, there is also a provision supposedly in Schedule W in
which SCPC has the option to enter into back-to-back supply contracts with
other generators or purchase directly from the market should it become unable
to supply the contracted power under the contracts in Schedule W. 47 According
to PSALM, these are clear indications that a cap on SCPC's supply had not been
intended by the parties. 48
PSALM also poses that even granting that Schedule W is ambiguous, the
CA's and ERC's interpretations were restrictive and incorrect. 49 It also accuses
the ERC of erroneously resorting to extrinsic evidence in its interpretation, a
method also erroneously concurred in by the CA. 50 Allegedly, this was done
when the ERC cited the testimony of a witness in interpreting Schedule
W. 51From the testimony, the ERC supposedly inferred that "prior to
privatization, NPC did not take into account the capacities of its assets" in
relation to its supply contract with MERALCO, meaning that before, NPC was the
sole supplier and could make its various assets generate the supply needed,
unlike at present, where SCPC is just one of many suppliers with a single
generating asset, with a limited capacity. 52 Allegedly, this led the ERC and the
CA to erroneously conclude that a cap of 169,000 kW in SCPC's supply
obligations was indeed intended. 53
Thus, according to PSALM, given the allegedly erroneous rulings, the CA
should not have relied on the principle of upholding the findings of fact of
administrative agencies, like the ERC, and instead, should have reversed the
latter's findings. 54
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In its Comment, SCPC writes that PSALM's own interpretation, while also
self-serving and inconsistent, would render the implementation of Schedule W
impossible and absurd. 55 For one, SCPC posits that the figure 10.841%, when
observed alone and literally applied, provides no meaningful reference, because
Schedule W itself does not state that the figure refers to 10.841% of the actual
volume nominated for MERALCO. 56 It has no base value and is an incomplete
mathematical statement. 57 Further, SCPC claims that observing the figure
10.841% alone disregards all the other figures that appear in Schedule W,
including the 169,000 kW which in fact appears twice in the said
schedule. 58 And finally, it argues that mainly relying on the Notes and its
statement that the figures in the schedule are "indicative" would render all the
figures in Schedule W insignificant, as if concluding that SCPC's supply
obligations are unlimited. 59
SCPC maintains that such interpretation by PSALM has no support from
any principle of contract interpretation, while it was the ERC and the CA that
applied the correct rule of interpretation, such as one found in the Civil Code, to
wit: 60
Art. 1374. The various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense
which may result from all of them taken jointly.
SCPC also touts the ERC's reason for not applying the Notes' statement
that the figures were "indicative," or mere estimates of the true value. The
reason is that such would lead to an absurdity as it would allocate more than
169,000 kW for MERALCO despite the limited actual generating capacity of the
Calaca Power Plant. 61 Instead, the ERC allegedly employed the principle of
"reasonableness of results" in contract interpretation to avoid an unreasonable
or absurd outcome. 62
As for the other clause in the Notes which grants SCPC the option to enter
into back-to-back supply contracts with other suppliers in order to fulfill its
MERALCO obligations, SCPC again quotes the ERC in stating that it is, in fact,
NPC's responsibility to fill any shortfall in supply to MERALCO, and that the
back-to-back supply contracts to be entered into by SCPC only refer to when the
latter is unable to supply MERALCO to the extent of 169,000 kW, which is the cap
in its obligation; shortages due to nominations by NPC in excess of 169,000 kW
are no longer the contractual obligation of SCPC. 63 DcHSEa
Further, SCPC states that the ERC sufficiently explained the implications
of the Special Conditions of the MERALCO TSC, clarifying that "NPC's and
PSALM's obligation to supply the entire energy contract to MERALCO, including
the obligation to replace any curtailed energy, was not passed on or assigned to
SCPC," rather, only such portion as defined in Part I of Schedule W was assigned
to SCPC, as clearly provided for under Part II of Schedule W. 64 As for the Calaca
Typical Hourly Customer's Load Profile and Nomination Protocol, ERC explained
that previously, when NPC was the sole supplier and had other existing assets,
CIVIL LAW REVIEW 2

even if a particular allocation exceeded a plant's capacity, NPC could obtain

supply from its other generating assets. 65 ERC stated that such is no longer the
situation in the case at bar, where supply is supposed to come from a specific
plant — the Calaca Power Plant — which has a limited capacity. 66
SCPC argues that the CA correctly considered the circumstances
surrounding the execution of the APA in interpreting Schedule W, i.e., the poor
condition of the Calaca Power Plant which, at that time only had a dependable
capacity of 330 MW out of its 600 MW rated capacity. 67 SCPC narrates that the
low dependable capacity is the reason why the contracted demand levels for
various customers listed in Schedule W were pegged at 322 MW only and, with a
reserve of only eight (8) MW, the plant is well short of providing NPC's excess
nominations which allegedly went up to 25,531.93 kWh (25MW) during one
billing period. 68 SCPC asserts that DMCI, the original purchaser of the Calaca
Power Plant, then knew of the plant's dependable capacity, which it saw as
consistent with the total demand listed in Schedule W, which was what
prompted it to naturally assume only the obligations spelled out in the said APA
and Schedule W. 69 Thus, SCPC states that PSALM's claim that the buyer also
assumed "the risk of supplying energy considering the diminishing capacity of
the other plants" is absurd and unreasonable, as these could not have been
known despite the buyer's due diligence. 70 Besides, SCPC argues that any
ambiguity should be interpreted against PSALM, the seller and the party who
prepared the APA. 71
Lastly, SCPC contends that the witness, whose testimony was considered
by the ERC in ruling that the actual capacity of a power plant is material in
determining its allocation, was PSALM's own witness, therefore, the latter party
may not disavow her testimony. 72
The singular issue now before the Court is: whether there was error in
the CA's affirmation of the ERC's interpretation of Schedule W of the so-called
Asset Purchase Agreement (APA), i.e., the contract between the parties PSALM
and SCPC, to mean that SCPC's obligation thereunder is to deliver 10.841% of
MERALCO's energy requirements but not to exceed 169,000 kW capacity
allocation, at any given hour.
We resolve to deny the petition. No error attended the CA's affirmation of
the ruling of the ERC.
It is general practice among the courts that the rulings of administrative
agencies like the ERC are accorded great respect, owing to a traditional
deference given to such administrative agencies equipped with the special
knowledge, experience and capability to hear and determine promptly disputes
on technical matters. 73 Factual findings of administrative agencies that are
affirmed by the Court of Appeals are generally conclusive on the parties and not
reviewable by this Court. 74 Although there are instances when such a practice
is not applied, such as when the board or official has gone beyond its/his
statutory authority, exercised unconstitutional powers or clearly acted
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arbitrarily without regard to its/his duty or with grave abuse of discretion, or

when the actuation of the administrative official or administrative board or
agency is tainted by a failure to abide by the command of the law, 75 none of
such instances obtain in the present case which would prompt this Court to
reverse the findings of the tribunal below.
On the contrary, We find the ERC to have acted within its statutory
powers as defined in Section 43 (u), RA 9136, or the EPIRA Law, which grants it
original and exclusive jurisdiction "over all cases involving disputes between and
among participants or players in the energy sector." 76 Jurisprudence also states
that administrative agencies like the ERC, which were created to address the
complexities of settling disputes in a modern and diverse society and economy,
count among their functions the interpretation of contracts and the
determination of the rights of parties, which traditionally were the exclusive
domain of the judicial branch. 77 Such broadened quasi-judicial powers of
administrative agencies are explained in the case of Antipolo Realty Corporation
v. NHA, 78 which states:
In this era of clogged court dockets, the need for specialized
administrative boards or commissions with the special knowledge,
experience and capability to hear and determine promptly
disputes on technical matters or essentially factual matters,
subject to judicial review in case of grave abuse of discretion, has
become well nigh indispensable. Thus, in 1984, the Court noted
that "between the power lodged in an administrative body and a
court, the unmistakable trend has been to refer it to the former. . . .
." SCaITA
xxx xxx xxx
In general, the quantum of judicial or quasi-judicial powers
which an administrative agency may exercise is defined in the
enabling act of such agency. In other words, the extent to which an
administrative entity may exercise such powers depends largely, if
not wholly, on the provisions of the statute creating or
empowering such agency. In the exercise of such powers, the
agency concerned must commonly interpret and apply
contracts and determine the rights of private parties under
such contracts. One thrust of the multiplication of
administrative agencies is that the interpretation of contracts
and the determination of private rights thereunder is no
longer a uniquely judicial function, exercisable only by our
regular courts.
As the foregoing imply, the ERC merely performed its statutory function of
resolving disputes among the parties who are players in the industry, and
exercised its quasi-judicial and administrative powers as outlined in
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jurisprudence by interpreting the contract between the parties in the present

dispute, the so-called APA and specifically its Schedule W.
As for the correctness of the ERC's interpretation and finding, this Court
examined the records and found no reason to depart from the rule that
especially when supported by substantial evidence and affirmed by the Court of
Appeals, the findings of a quasi-judicial body like the ERC deserve the highest
respect, if not finality. 79
The petitioner PSALM assails ERC's holding that SCPC's obligation is "to
deliver 10.841% of MERALCO's energy requirements but not to exceed 169,000
kW capacity allocation, at any given hour," which the ERC based on its
interpretation of the figures 169,000 kW and 10.841% found in three columns of
Schedule W.
We affirm the ERC's interpretation, as upheld by the CA.
Among the key principles in the interpretation of contracts is that
espoused in Article 1370, paragraph 1, of the Civil Code, quoted as
follows: cHECAS
Art. 1370. If the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control.
The rule means that the contract's meaning should be determined from its clear
terms without reference to extrinsic facts or aids. 80 The intention of the parties
must be gathered from the contract's language, and from that language
alone. 81 Stated differently, where the language of a written contract is clear and
unambiguous, the contract must be taken to mean that which, on its face, it
purports to mean, unless some good reason can be assigned to show that the
words should be understood in a different sense. 82
Thus, conversely, when the terms of the contract are unclear or are
ambiguous, interpretation must proceed beyond the words' literal meaning.
Paragraph 2 of the same Article 1370 provides:
If the words appear to be contrary to the evident intention
of the parties, the latter shall prevail over the former.
Discerning the parties' true intent requires the application of other principles of
contract interpretation. Jurisprudence dictates that when the intention of the
parties cannot be discerned from the plain and literal language of the contract,
or where there is more than just one way of reading it for its meaning, the court
must make a preliminary inquiry of whether the contract before it is an
ambiguous one. 83 A contract provision is ambiguous if it is susceptible of two
reasonable alternative interpretations. 84 In such case, its interpretation is left
to the court, or another tribunal with jurisdiction over it. 85 More simply,
"interpretation" is defined as the act of making intelligible what was before not
understood, ambiguous, or not obvious; it is a method by which the meaning of
language is ascertained. 86 The "interpretation" of a contract is the
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determination of the meaning attached to the words written or spoken which

make the contract. 87
In the case at bar, the Court finds that ambiguity indeed surrounds the
figures 10.841% and 169,000 kW found in the contract, the former because it
does not indicate a base value with a specific quantity and a definite unit of
measurement and the latter because there is uncertainty as to whether it is a cap
or limit on the party's obligation or not. These were similarly the findings of both
the ERC and the appellate court. Even to the casual observer, it is obvious that
the plain language alone of Schedule W does not shed light on these figures.
The ERC correctly explained and interpreted these provisions, in this
wise:
It is worthy to note that Schedule W of the APA indicates
the value "10.841%," which is enclosed in parenthesis, under the
name of MERALCO in the first column, without any reference as to
its base value. The figure 10.841% simply written as it is (without
reference on the base value), is an incomplete mathematical
sentence and, therefore, is susceptible to several interpretations.
For instance, it can be construed as 10.841% of the entire SCPC
capacity (10.841% of 322 MW) or it can also be taken to mean that
169,000 kW represents 10.841% of MERALCO's contract energy. A
close scrutiny of Schedule W, however, indicates that 10.841% is
not synonymous to 169,000 kW, i.e., 169,000 kW does not
represent 10.841% of MERALCO's energy requirement. To
complete its meaning, the figure 10.841% should have been
followed by a reference value and should have been written as
"10.841% of . . ." a specific base reference. Thus, to use 10.841% as
the reference value alone for MERALCO's contract energy at any
given hour would not be appropriate under the circumstances
because SCPC would not have an idea of how much energy
MERALCO would need at any given time and the capacity that the
power plant can generate may not match with it.
On the other hand, to use the nominal figure 169,000 kW
alone in reference to MERALCO's contract energy would likewise
not be appropriate under the circumstances because the
"10.841%" value written in parenthesis underneath the name
"MERALCO" in the first column of Schedule W cannot just simply
be ignored.
To synthesize, the Commission believes that neither of the
figures (10.841% or 169,000 kW) taken alone should be
controlling in reference to MERALCO's contract energy under the
APA. The 10.841% value should be read and harmonized with the
nominal figure 169,000 kW in order to give meaning to both,
consistent with and in relation to the APA. In giving meaning to the
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words and intention of Schedule W, the Commission abides by the

law stipulated under Article 1374 of the New Civil Code, which
provides: AHDacC
ART. 1374. The various stipulations of a
contract shall be interpreted together, attributing to
the doubtful ones that sense which may result from
all of them taken jointly. 88
The ambiguity in Schedule W partly lies in the figure "10.841%," which
lacks a base value and is bereft of any specific quantity or number (in kilowatts
or any other unit) to represent the generated electricity that SCPC was obliged to
deliver to MERALCO. A mere percentage below MERALCO's name without
indicating what it is and what its base value is amounts to an incomplete
numerical statement. Then, on the right columns, specific quantities, including
the "160,000 kW," are laid down which seem to correspond or add up to SCPC's
generating capacity but which, in the "Notes" section of the schedule, are
confusingly referred to as merely "indicative," i.e., estimates, which do not help
reduce the uncertainty.
Such a lack of clarity results in a perplexing situation wherein the
obligation to deliver could be interpreted as open-ended by one party — the
obligee, but could be argued as "capped" or "limited" by the other party — the
obligor. Obviously, such divergence needed to be addressed by a disinterested
third party like the ERC.
Although how such confusion came about despite the presumed
knowledge of both parties of both the high and low ranges of MERALCO's
projected requirements, at any given time, as well as the limited generating
capacity of the Calaca Power Plant, the supplier's sole generating asset, is
beyond the subject of this review, what is certain is that there is an ambiguity
that, if left to stand or to remain unresolved, would inevitably lead to
interminable disputes. Thus, the Court sustains the ERC's decision to interpret
the contract as well as its resulting interpretation and explanation.
The ERC correctly cited another principle under the Civil Code in contract
interpretation which states,
Art. 1374. The various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense
which may result from all of them taken jointly. 89
Additionally, under the Rules on Evidence, it is required that:
RULE 130
xxx xxx xxx
Sec. 11. Instrument construed so as to give effect to all
provisions. — In the construction of an instrument where there are
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several provisions or particulars, such a construction is, if possible,

to be adopted as will give effect to all.
Then, case law is also settled on the rule that contracts should be so construed as
to harmonize and give effect to its different provisions. 90 The legal effect of a
contract is not determined alone by any particular provision disconnected from
all others, but from the whole read together. 91
Following the above rules and principles, the ERC correctly interpreted
the ambiguity in Schedule W in a way that would render all of the contracts'
provisions effectual. Although there was ambiguity, as earlier stated, in the
figures 10.841% and 169,000 kW that appear on the said schedule, the ERC
properly harmonized both provisions. It did not just disregard or dispense with
either of the figures as such would have violated the principles that the "various
stipulations of the contract shall be interpreted together" and that the "doubtful
provisions shall be attributed with the sense which may result from all of them
taken jointly." Instead, it interpreted both in a way that they would be preserved
and work together. The parties clearly intended for the figures to be in the
contract and bestowed such with meanings which the ERC had no power to just
ignore or remove.
As stated by the ERC, the 10.841% without any base reference is
mathematically incomplete and therefore opens itself up to various
interpretations; thus, it is ambiguous. On the other hand, the 169,000 kW, which
appears twice in Schedule W, if treated as merely "indicative" or just an
"estimate," as PSALM alleges, would be rendered insignificant or as if it was not
even written in the contract, and the same could be said of all the other figures in
the schedule including the 10.841%. Clearly, this was not the intention of the
parties. The parties clearly assigned a common meaning to the figures and they
were not mere estimates nor insignificant because, otherwise, the contract
would be ineffectual and without these figures, the contract would not have even
been signed in the first place.
It bears emphasis as well that the contract APA and its Schedule W
appear to have been prepared by PSALM, so that the interpretation of any
obscure or ambiguous words or stipulations therein should not favor it, as it is
presumed to have caused such obscurity or ambiguity. 92
Moreover, overturning the ERC's and the CA's interpretation would result
in the absurd scenario of requiring SCPC to supply more than 169,000kW for
MERALCO despite the fact that its contracted demand levels for various
customers listed in Schedule W were pegged at 322 MW only and its dependable
capacity is only 330 MW. As this Court has verified in the records, the ERC
correctly explained that the Calaca Power Plant only produces up to 322 MW in
electricity net of plant use; out of such produced, MERALCO obtains the biggest
allocation of 169,000 kW (169 MW), whereas the rest of the customers share
153,000 kW (153MW). 93 It would be highly unreasonable to require SCPC to
allocate even a marginal increase from 169,000 kW for MERALCO when such
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would cause it to renege on its obligations to supply its other customers. Such an
interpretation that would lead to an unreasonableness which is frowned upon,
for another oft-cited rule in the interpretation of contracts is that "the
reasonableness of the result obtained, after analysis and construction of the
contract, must also be carefully considered." 94
PSALM also contends that other stipulations in the contract such as the
Special Conditions of the MERALCO TSC, as well as SCPC's option to enter into
back-to-back supply contracts with other generators (or to purchase directly
from the market), should it become unable to supply the contracted power
under Schedule W, clearly are indications that there is no cap in SCPC's supply
obligations. The contention, however, has no merit and, upon this Court's own
examination of the contracts, affirms as correct the ERC's explanation in its
Order 95 dated March 12, 2012 dismissing PSALM's motion for reconsideration,
to wit:
A. NPC/PSALM's OBLIGATION UNDER THE TSC
Under the TSC contracted between MERALCO and NPC, the
latter is obliged to deliver MERALCO's total energy requirements.
As such, NPC is required to exhaust all means to find other sources
of power to replace any curtailed energy at no extra cost to
MERALCO. Simply put, NPC is directly responsible to make up
for any shortfall under the MERALCO TSC. In fact, in its "Motion
for Reconsideration," PSALM mentioned that "Undeniably,
Respondent PSALM under the MERALCO TSC is obligated to deliver
the entire contracted energy as stated therein. . . ." and
that"Respondent PSALM's obligation is to keep MERALCO whole."
It must be emphasized that NPC and PSALM's obligation
to supply the entire energy contract to MERALCO, including
the obligation to replace any curtailed energy, was not passed
on or assigned to SCPC. Only the portion of the contract energy as
defined in Part I of Schedule W was assigned to SCPC. Such is clear
under Part II of Schedule W, which states: HCaDIS
"Part II. Special Conditions of the MERALCO TSC
The following conditions, unique to the MERALCO-NPC
contract, shall apply to the assigned portion of the Contract Energy
from the MERALCO TSC.
1. Neither the MERALCO TSC nor any portion thereof shall be
assigned to the Buyer. It is the Contract Energy specified in part I
that is the subject of the assignment."
B. SCPC's OBLIGATION UNDER SCHEDULE W OF THE APA
On the other hand, under Schedule W of the APA, SCPC is
legally obligated to deliver 10.841% of MERALCO's energy
requirements but not to exceed 169,000 kW capacity allocation at
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any given hour. Accordingly, SCPC is responsible for any shortfall

and is under obligation to provide and make up for curtailed
energy if it fails to produce up to 169,000 kW capacity, at any
given hour. 96
The above explanation by the ERC states, in simple terms, that SCPC is not
accountable for any shortfall once it had delivered 169,000 kW at any given
hour, the same being the responsibility of NPC. SCPC becomes liable only
whenever it fails to deliver whichever is lower of 169,000 kW or 10.841% of
MERALCO's requirements, at any given hour. The Court has exhaustively
examined the contract between the parties, including the so-called Special
Conditions of the MERALCO TSC, 97 the Calaca Typical Hourly Customer's Load
Profile 98 and the Nomination Protocol between MERALCO and NPC of TSC
Contract Energy, 99 as cited by PSALM in its petition, and specifically the
provisions thereof quoted by the ERC, and found the same to be consistent with
the above conclusions of the said agency. As such, the Court will not interfere
with the same, mindful of the principle that actions of an administrative agency
may not be disturbed nor set aside by the judicial department sans any error of
law, grave abuse of power or lack of jurisdiction, or grave abuse of discretion
clearly conflicting with either the letter or spirit of the law. 100
WHEREFORE, the petition is DENIED. The Court of Appeals' Decision
dated September 4, 2012 and Resolution dated November 27, 2012 in CA-G.R. SP
No. 123997 are AFFIRMED. Costs against the petitioner.
SO ORDERED.
||| (Power Sector Assets and Liabilities Management Corp. v. Sem-Calaca Power Corp.,
G.R. No. 204719, [December 5, 2016])
THIRD DIVISION
[G.R. No. 221513. December 5, 2016.]
SPOUSES LUISITO PONTIGON and LEODEGARIA SANCHEZ-

PONTIGON, petitioners, vs. HEIRS OF MELITON SANCHEZ, namely:
APOLONIA SANCHEZ, ILUMINADA SANCHEZ (deceased), MA.
LUZ SANCHEZ, AGUSTINA SANCHEZ, AGUSTIN S. MANALANSAN,
PERLA S. MANALANSAN, ESTER S. MANALANSAN, GODOFREDO
S. MANALANSAN, TERESITA S. MANALANSAN, ISRAELITA S.
MANALANSAN, ELOY S. MANALANSAN, GERTRUDES S.
MANALANSAN, represented by TERESITA SANCHEZ
MANALANSAN, respondents.
DECISION
CIVIL LAW REVIEW 2

PEREZ, J p:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules
of Court seeking the reversal of the March 26, 2015 Decision 1 and September
14, 2015 Resolution 2 of the Court of Appeals (CA) in CA-G.R. CV No.
100188. 3 The assailed rulings affirmed the trial court judgment that declared
Transfer Certificate of Title (TCT) No. 162403-R, under the name of petitioners,
null and void because of the fraud and irregularities that allegedly attended its
issuance.
The Facts
Meliton Sanchez (Meliton) had been the owner of a 24-hectare parcel of

land situated in Gutad, Floridablanca, Pampanga. Said property was duly-
registered in his name under Original Certificate of Title (OCT) No. 207 issued on
October 15, 1938. 4
On August 11, 1948, Meliton died intestate, leaving the subject property
to his surviving heirs, his three children, namely: Apolonio, Flaviana, and Juan, all
surnamed Sanchez. Petitioner Leodegaria Sanchez-Pontigon (Leodegaria) is the
daughter of Juan and petitioner Luisito Pontigon (Luisito) is the husband of
Leodegaria. The respondents herein, who are all represented by Teresita S.
Manalansan (Teresita), are Meliton's grandchildren with Flaviana.
On September 17, 2000, the respondents filed a Complaint for
Declaration of Nullity of Title and Real Estate Mortgage with Damages 5 against
petitioners, docketed as Civil Case No. G-06-3792 before the Regional Trial Court
(RTC), Branch 49 of Guagua, Pampanga. 6 Respondents posited that the property
in issue had never been partitioned among the heirs of Meliton, but when
respondents verified with the Register of Deeds of Pampanga (RD) the status of
the parcels of land sometime in August 2000, they discovered that OCT No. 207
was nowhere to be found — what was only with the RD's custody was the
owner's copy of OCT No. 207, fee of any annotation of cancellation or description
of any document that could have justified the transfer of the property covered.
Despite this fact, petitioners, even without any document of conveyance, were
able to transfer the title of the subject lot to their names, resulting in the
issuance of Transfer Certificate of Title (TCT) No. 162403-R on May 21, 1980
covering the same parcel of land. Hence, respondents, argued that the transfer of
title to petitioners was fraudulent and invalid, and that petitioners merely held
title over the subject property in trust for Meliton's heirs. 7
It was further averred that post-transfer, petitioners unlawfully and
fraudulently obtained a loan from, and mortgaged the subject property to,
Quedan and Rural Credit Guarantee Corporation (Quedancor) — an additional
defendant in Civil Case No. G-06-3792. Quedancor allegedly did not take the
necessary steps to verify the title over and the true ownership of the subject
property. 8 CAIHTE
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Deprived of their inheritance over the subject property, to their damage

and prejudice, respondents prayed that TCT No. 162403-R be declared null and
void; that the real estate mortgage in favor of Quedancor likewise be nullified;
that OCT No. 207 registered under Meliton's name be reinstated; and that
damages be awarded in their favor. 9
In their Answer, petitioners denied the material allegations in the
Complaint. They countered that the conveyance in their favor is evidenced by an
Extra-judicial Settlement of Estate of Meliton Sanchez and Casimira Baluyut with
Absolute Sale (Extrajudicial Settlement) that was prepared and notarized by
Atty. Emiliano Malit on November 10, 1979. In fact, Apolonio, Juan, and Flaviana
filed before Branch 2 of the then Court of First Instance (CFI) of Pampanga a
Petition for Approval of the Extrajudicial Partition (Petition for Approval).
Petitioners further alleged that on December 29, 1979, a Decision was rendered
granting the petition adverted to, which ruling became final and executory based
on a certification dated February 15, 1980 issued by the then clerk of court. 10
Petitioners also raised the following affirmative defenses: that
respondents had no cause of action against petitioners, Quedancor, and the RD;
that respondent Teresita Sanchez Manalansan (Teresita) had no authority to
represent all the respondents in the case; and that twenty (20) years had already
passed from the issuance of TCT No. 162403-R on May 21, 1980 before
respondents lodged their Complaint. Petitioners would file on October 10, 2002
a motion to dismiss reiterating the defense that respondents' action is already
barred by prescription. 11
For its part, Quedancor explained that petitioners mortgaged to it the
parcel of land covered by TCT No. 162403-R as security for a PhP6,617,000.00
loan extended in their favor. It claimed that the mortgage was approved in good
faith since it verified with the RD the veracity of petitioners' title. Moreover, by
way of affirmative defense, Quedancor maintained that respondents have no
cause of action against it. It then prayed that respondents be ordered to pay the
corporation damages and attorney's fees. 12
With the issues joined, trial on the merits ensued.
During trial, respondent Teresita, attorney-in-fact of her co-parties,
testified that the subject property was merely held in trust by her uncle Juan,
Meliton's son and petitioner Leodegaria's father, who had been paying the taxes
on the property since he is the most educated and successful of the three
siblings; and, that she was the one who verified with the RD and discovered that
only the owner's copy of OCT No. 207 was in the office's custody sans any
annotation of cancellation or encumbrance. 13 Myrna Guinto, a Record Officer at
the RD and witness for the respondents, testified that the duplicate owner's copy
adverted to indeed bears no indication that it had been cancelled or otherwise
encumbered. 14
On the other hand, petitioner Luisito testified that even though he and his
wife do not particularly like the location of the lots in issue, they accepted Juan,
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Apolonio, and Flaviana's offer to sell to them Meliton's erstwhile property due to
sentimental reasons. The Extrajudicial Settlement was then executed and the
Petition for Approval filed to effect the transfer in petitioners' name. The petition
for approval, according to Luisito, was favorably acted upon by the CFI of
Pampanga on November 30, 1979, which ruling allegedly became final and
executory. 15
Leodegaria corroborated Luisito's testimony that they were constrained
to purchase the lot for its emotional attachment to them. She revealed that it was
her father Juan who hired a lawyer, Atty. Malit, to effect the transfer, and that she
was present when the Extrajudicial Settlement was executed by the three
siblings, with Lucita Jalandoni and Agustin Manalansan as instrumental
witnesses. Atty. Malit deposited into Flaviana's account the payments of the
purchase price. And since then, petitioners occupied and developed the disputed
lot. 16
Atty. Lorna Salangsang-Dee (Atty. Dee), the Register of Deeds for
Pampanga, likewise took the witness stand to explain that all documents relative
to titles issued prior to October 1995 were destroyed by the lahar and flash
floods that inundated their office. She further testified, on cross-examination,
that she concluded that the owner's duplicate certificate of OCT No. 207 appears
in their records because there was a transaction that warranted its surrender to
the Registry. 17
In rebuttal, respondent Teresita was recalled as witness. She claimed that
the first time she saw the Extrajudicial Settlement was when it was presented in
court. She brought to the court's attention the fact that the document was
allegedly executed on November 10, 1979, when her mother, Flaviana, was
already 69 years of age. It was Teresita's contention that Flaviana, in her
advanced age, was already senile during the date material and, thus, could not
have validly consented to the sale of her property. Teresita admitted, though,
that she has no document to prove the status of her mother's then mental
condition. 18
The second rebuttal witness, Thiogenes Manalansan Ragos, Jr.
(Thiogenes), son of respondent Perla Manalansan and grandson of Flaviana,
claimed that on November 7, 1979, between 2:00-3:00 p.m., Juan, Luisito, and
Leodegaria arrived at the house of Flaviana to coerce her into signing a
document. Because Flaviana refused to affix her signature, she was forcibly
taken by the three. Thereafter, Thiogenes accompanied his mother, Perla, to the
police station to report the incident. There, he allegedly saw Perla file a
complaint stating, among others, that Juan was persuading Flaviana to sign a
document of sale. 19
Ruling of the Regional Trial Court
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During the course of the trial, the RTC issued its Order dated May 28,
2003 denying petitioners' motion to dismiss, ruling that respondents' cause of
action has not yet prescribed. The RTC ratiocinated that by filing a motion to
dismiss, petitioners hypothetically admitted the allegations in the complaint that
they and respondents are co-owners of the subject property, being the heirs of
Meliton. Having fraudulently obtained title over the subject property to the
prejudice of respondents, a trust relation was created by operation of law,
whereby petitioners merely held the subject property in trust for and in behalf
of their co-owners. As held, an action based on this trust relation could not be
barred by prescription. 20
Subsequently, on June 28, 2012, the RTC promulgated a Decision 21 in
favor of respondents. The dispositive portion of the Decision states: 22
WHEREFORE, premises considered, judgment is hereby
rendered:
1. Declaring null and void Transfer Certificate of Title No. 162403-
R registered in the name of defendants-spouses Luisito Pontigon
and Leodegaria Sanchez and declaring herein plaintiffs
represented by Teresita Sanchez Manalansan as rightful co-
owners to a one-third portion of the property embraced in said
title previously registered in the name of Meliton Sanchez per
Original Certificate of Title No. 207; DETACa
2. Ordering the Register of Deeds of Pampanga to cancel TCT No.
162403-R and issue a new title in favor of the Heirs of Meliton
Sanchez, upon payment of the necessary taxes and lawful fees;
3. Upholding the validity of the real estate mortgage constituted on
TCT No. 162403-R and setting aside the writ of preliminary
injunction issued against defendant Quedancor without prejudice
to the rights of herein plaintiffs as co-owners of the mortgaged
property;
4. Denying plaintiff's claim for damages and attorney's fees as well
as defendant's counterclaims for lack of merit.
SO ORDERED.
The RTC maintained that the transfer of title of the subject property to
petitioners was tainted with irregularities. While the trial court took judicial
notice of the floods and lahar that inundated the Provincial Capitol, it found
strange that the owner's duplicate certificate, but not the original copy, of OCT
No. 207, would remain with the RD, clean of any annotation or marking at
that. 23
Anent the Petition for Approval, the RTC noted that the pleading filed
before the CFI was verified by Juan alone; that the court order setting it for
hearing was not signed by the then presiding judge; and that the certification of
the CFI judgment granting the Petition for Approval was a mere photocopy and
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does not satisfy the best evidence rule. Additionally, the RTC weighed against
petitioners the fact that the Petition for Approval was prepared earlier than the
Extrajudicial Settlement sought to be approved. The Extrajudicial Settlement
was dated November 10, 1979, while the Petition for Approval was dated
November 9, 1979, albeit filed on November 12, 1979. 24
Taking substantial consideration of the "damning rebuttal evidence" of
respondents, 25 the trial court deemed implausible petitioners' postulation that
they purchased the subject property for sentimental reasons. It further held the
petitioners did not particularly dispute that respondents are heirs of Meliton.
Thus, upon Meliton's death, co-ownership existed among the siblings, Juan,
Apolonio and Flaviana. Finally, the RTC held that the subject property should
then be divided equally among the three (3) heirs. 26
Petitioners filed a Motion for Reconsideration, 27 but their contentions
were rejected by the RTC anew. 28 Aggrieved, they elevated the case to the
CA via appeal.
Ruling of the Court of Appeals
Through its assailed Decision, the appellate court affirmed the findings of
the RTC and disposed of the case in the following wise: 29
WHEREFORE, the instant appeal is DENIED. The Decision
dated June 29, 2012 of Branch 49, Regional Trial Court of Guagua,
Pampanga in Civil Case No. G-06-3792 is hereby AFFIRMED.
SO ORDERED.
At the outset, the CA ruled that petitioners' appeal was procedurally
infirm. Citing Sec. 1 (f), Rule 50 30 of the Rules of Court, the CA held that failure
of petitioners to submit a subject index is fatal to the appeal and warrants the
outright denial of their plea. 31
Even if the absence of the subject index were to be excused, the appellate
court nevertheless found no cogent reason to disturb the trial court's ruling. The
CA explained that the Extrajudicial Settlement cannot be considered a public
document because it was not properly notarized. It could not then bind third
persons, including respondents, according to the appellate court. 32 Moreover,
the CA ruled that the document adverted to is bereft of any probative value for
failure on the part of petitioners to comply with the rules on the admissibility of
private documents as proof. 33 It also shared the RTC's observations as regards
the Petition for Approval. 34 Given the irregularities attending the execution and
approval of the Extrajudicial Settlement, the CA concluded that it could not have
conveyed title to petitioners, and that TCT No. 162403-R, consequently, is a
nullity. 35
From the date of their receipt of the adverse ruling, petitioners had until
May 9, 2015 within which to move for reconsideration therefrom. It would be on
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May 4, 2015 when petitioners would interpose their Motion for

Reconsideration 36 and Entry of Appearance 37 of Atty. Roniel Dizon Muñoz
(Atty. Muñoz). Atty. Juvy Mell Sanchez-Malit (Atty. Malit), the counsel who
previously represented the petitioners in the earlier proceedings, never
informed the court that she is withdrawing from the case.
On October 2, 2015, petitioners received a copy of the Notice of
Resolution 38 with Entry of Judgment 39 dated September 14, 2015, which
provides thusly: 40
WHEREFORE, premises considered, the Court resolves as
follows:
1. The Entry of Appearance as Counsel for Defendants-Appellants
Spouses Pontigon filed by Atty. Roniel Dizon Muñoz is
simply NOTED WITHOUT ACTION; and
2. The Motion for Reconsideration filed by Atty. Dizon Muñoz is
hereby EXPUNGED from the rollo of this case, being a mere scrap
of paper with no remedial value for having been filed by
unauthorized counsel.
Accordingly, the Division Clerk of Court is
hereby DIRECTED to issue an Entry of Judgment in consonance
with Section 3 (b), Rule IV and Section 1, Rule VII of the IRCA, as
amended.
SO ORDERED.
In fine, the CA treated the Motion for Reconsideration as a mere scrap of
paper since it was allegedly not filed by petitioners' counsel of record. Atty.
Muñoz was not vested with the authority to file the pleading in their behalf since
the manner by which petitioners substituted their counsel is not consistent with
Sec. 26, Rule 138 of the Rules of Court. 41 Citing Ramos v. Potenciano, 42 the CA
held that no substitution of attorneys will be allowed unless the following
requisites concur: there must be (1) a written application for substitution; (2)
written consent of the client to the substitution; and (3) written consent of the
attorney to be substituted, if such consent can be obtained. . . . 43
Unless these formalities are complied with, no substitution may be
permitted and the attorney who appeared last in the case before such
application for substitution would be regarded as the attorney of record and
would be held responsible for the conduct of the case. 44 aDSIHc
Unfazed, petitioners again filed a Motion for Reconsideration, 45 this
time from the September 14, 2015 Resolution. The said motion remains pending
with the CA to date. In the interim, the appellate court remanded the folders of
this case to the court of origin.
Hence, the instant recourse.
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The Issues
The pivotal issues of the current controversy are as follows:

I. Whether or not the CA is correct in ruling that Atty. Muñoz did
not have the authority to file the Motion for Reconsideration in
behalf of the petitioners, rendering it a mere scrap of paper;
II. Whether or not respondents' cause of action is barred by
prescription;
III. Whether or not the appellate court correctly held that the
Extrajudicial Settlement does not bind the respondents;
IV. Whether or not the Extrajudicial Settlement is admissible as
evidence;
V. Whether or not the CA erred in ruling that TCT No. 162403-R is
a nullity because of the irregularities that attended its issuance;
VI. Whether or not a relaxation of the procedural rules is
warranted in this case.
The Court's Ruling
The Court finds merit in the petition. The resolution of the issues raised
herein shall be discussed seriatim, beginning with the procedural aspect of the
case.
The CA erred in denying the Motion
for Reconsideration for want of
authority of counsel
Oft cited, but rarely applied, is that technical rules may be relaxed only for
the furtherance of justice and to benefit the deserving. 46 This controversy
before us, however, is one of the exceptional instances wherein the proverb can
properly be invoked.
We entertain this petition notwithstanding the finality of the judgment
because fault here lies with the CA for its unjustified denial of the first Motion for
Reconsideration filed by Atty. Muñoz, and for its refusal to resolve the still
pending second Motion for Reconsideration in CA-G.R. CV No. 100188. It was
plain error for the appellate court to have treated the first Motion for
Reconsideration as a sham pleading for allegedly not having been filed by the
counsel of record.
The September 14, 2015 Resolution of the appellate court is premised on
the alleged failed substitution of counsel. Premised on the immediate
assumption that Atty. Muñoz was intended as a replacement for Atty. Sanchez-
Malit, the CA concluded that non-observance of Sec. 26, Rule 138 of the Rules of
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Court rendered Atty. Muñoz's filing of the first Motion for Reconsideration to be
wanting of authority.
The theory of the CA is flawed.
Apropos herein is the Court's teaching in Land Bank of the Phils. v.
Pamintuan Dev. Co., 47 to wit:
[A] substitution cannot be presumed from the mere
filing of a notice of appearance of a new lawyer and that the
representation of the first counsel of record continuous until a
formal notice to change counsel is filed with the court. Thus,
absent a formal notice of substitution, all lawyers who appeared
before the court or filed pleadings in behalf of the client are
considered counsels of the latter. All acts performed by them are
deemed to be with the clients' consent. (Emphasis supplied)
Applying the afore-quoted doctrine, it is imperative that the intention of
the petitioners to replace their original counsel, Atty. Sanchez-Malit, be evidently
clear before substitution of counsel can be presumed. The records readily evince,
however, that herein petitioners did not manifest even the slightest of such
intention. No inference of an intent to replace could be drawn from the tenor of
either the first Motion for Reconsideration or in Atty. Muñoz's Entry of
Appearance.
To dispel any lingering doubt as to the true purpose of Atty. Muñoz's
entry, worthy of note is that he indicated in his Entry of Appearance that his
office address is "Sanchez-Malit Building" in Dinalupihan, Bataan. 48 More, both
counsels signed the present petition for review on certiorari, indicating only one
address, the very same building of Atty. Sanchez-Malit, for where court
processes shall be served. Indubitably, the Entry of Appearance by the new
lawyer, Atty. Muñoz, ought then be construed as a collaboration of counsels,
rather than a substitution of the prior representation. Consequently, the CA
should have entertained and resolved the Motions for Reconsideration filed by
petitioners through Atty. Muñoz, despite Atty. Sanchez-Malit's non-withdrawal
from the case.
Verily, it was wrong for the CA to have denied outright petitioners' first
Motion for Reconsideration, and to have directed the post-haste issuance of the
Entry of Judgment. These haphazard actions resulted in the deprivation of
petitioners of a guaranteed remedy under the rules. But more than the need to
rectify the CA's procedural miscalculation, the liberal application of the rules is
justified under the circumstances in order to obviate the frustration of
substantive justice.
Respondents' action is already
barred by prescription
The May 28, 2003 Order of the RTC denying petitioners' motion to
dismiss on the ground of prescription cannot be sustained. To recall, the RTC
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held that as co-owners of the subject property, a trust relation was established
between the parties when petitioners fraudulently obtained title over the
same. 49 An action anchored on this relation of trust is imprescriptible, or so the
RTC ruled.
We find this ruling of the RTC not in accord with law and jurisprudence.
Under the Torrens System as enshrined in P.D. No. 1529, 50 the decree of
registration and the certificate of title issued become incontrovertible upon the
expiration of one (1) year from the date of entry of the decree of registration,
without prejudice to an action for damages against the applicant or any person
responsible for the fraud. 51 However, actions for reconveyance based on
implied trusts may be allowed beyond the one-year period. As elucidated
in Walstrom v. Mapa, Jr.: 52 ETHIDa
[N]otwithstanding the irrevocability of the Torrens title
already issued in the name of another person, he can still be
compelled under the law to reconvey the subject property to the
rightful owner. The property registered is deemed to be held in
trust for the real owner by the person in whose name it is
registered. After all, the Torrens system was not designed to shield
and protect one who had committed fraud or misrepresentation
and thus holds title in bad faith.
In an action for reconveyance, the decree of registration is
respected as incontrovertible. What is sought instead is the
transfer of the property, in this case the title thereof, which has
been wrongfully or erroneously registered in another person's
name, to its rightful and legal owner, or to one with a better right.
This is what reconveyance is all about. Yet, the right to seek
reconveyance based on an implied or constructive trust is not
absolute nor is it imprescriptible. An action for reconveyance
based on an implied or constructive trust must perforce prescribe
in ten years from the issuance of the Torrens title over the
property. (Emphasis supplied)
Thus, an action for reconveyance of a parcel of land based on implied or
constructive trust prescribes in ten (10) years, the point of reference being the
date of registration of the deed or the date of the issuance of the certificate of
title over the property. 53
By way of additional exception, the Court, in a catena of cases, 54 has
permitted the filing of an action for reconveyance despite the lapse of more than
ten (10) years from the issuance of title. The common denominator of these
cases is that the plaintiffs therein were in actual possession of the disputed land,
converting the action from reconveyance of property into one for quieting of
title. Imprescriptibility is accorded to cases for quieting of title since the plaintiff
has the right to wait until his possession is disturbed or his title is questioned
before initiating an action to vindicate his right. 55
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A perusal of respondents' Complaint, 56 though, reveals that the

allegations contained therein do not include possession of the contested
property as an ultimate fact. As such, the present case could only be one for
reconveyance of property, not for quieting of title. Accordingly, respondents
should have commenced the action within ten (10) years reckoned from May 21,
1980, the date of issuance of TCT No. 162403-R, instead of on September 17,
2000 or more than twenty (20) years thereafter.
The Extrajudicial Settlement is a
private document that is binding on
the respondents
The appellate court did not err in ruling that the Extrajudicial Settlement
was not properly notarized given the absence of Flaviana's residence certificate
number. As it appears, no identification was ever presented by Flaviana when
the document was notarized. Be that as it may, the irregularity in the
notarization is not fatal to the validity of the Extrajudicial Settlement. For even
the absence of such formality would not necessarily invalidate the transaction
embodied in the document — the defect merely renders the written contract a
private instrument rather than a public one.
While Art. 1358 of the New Civil Code seemingly requires that contracts
transmitting or extinguishing real rights over immovable property should be in a
public document, 57 hornbook doctrine is that the embodiment of certain
contracts in a public instrument is only for convenience. 58 It is established in
jurisprudence that non-observance of the prescribed formalities does not
necessarily excuse the contracting parties from complying with their respective
obligations under their covenant, and merely grants them the right to compel
each other to execute the proper deed. 59 A contract of sale has the force of law
between the contracting parties and they are expected to abide, in good faith, by
their respective contractual commitments 60 notwithstanding their failure to
comply with Art. 1358.
As similarly observed by the appellate court, the Extrajudicial Settlement
is not a nullity, but a valid document, albeit a private one. The CA never declared
the document as void, but only that it cannot be considered as binding on third
parties. It added, however, that respondents fall within the category of "third
persons" against whom the stipulations in the private document can never be
invoked. 61 On this point, we digress.
The principle of relativity of contracts dictates that contractual
agreements can only bind the parties who entered into them, and cannot favor
or prejudice third persons, even if he is aware of such contract and has acted
with knowledge thereof. 62 The doctrine finds statutory basis under Art. 1311 of
the New Civil Code, which provides:
Article 1311. Contracts take effect only between the parties,
their assigns and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by their
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nature, or by stipulation or by provision of law. . . . (Emphasis

supplied)
The law is categorical in declaring that as a general rule, the heirs of the
contracting parties are precluded from denying the binding effect of the valid
agreement entered into by their predecessors-in-interest. This is so because they
are not deemed "third persons" to the contract within the contemplation of law.
Additionally, neither the provision nor the doctrine makes a distinction on
whether the contract adverted to is oral or written, and, even more so, whether
it is embodied in a public or private instrument. It is then immaterial that the
Extrajudicial Settlement executed by Flaviana was not properly notarized for the
said document to be binding on her heirs, herein respondents.
Reliance by the trial court on the so-called "damning rebuttal evidence" is
misplaced and cannot be countenanced. Said evidence contradicts the very
allegations in their Complaint. It effectively modifies the respondents' theory of
the case and transforms the action so as to include a collateral attack on the deed
of conveyance. It cannot escape the attention of the court that despite alleging in
their Complaint and in their initial presentation of evidence that there was no
document of conveyance that justifies the issuance of TCT No. 162403-R,
respondents made a complete turnabout and virtually admitted the existence of
the Extrajudicial Settlement on rebuttal, but nevertheless argued against its
validity.
To review, Thiogenes, son of respondent Perla Manalansan, testified that
on November 7, 1979, Juan, Luisito, and Leodegaria forcibly took Flaviana and
coerced the latter to execute the sale in favor of petitioners. If this version of the
facts were to be believed, this could only mean: (a) that the Extrajudicial
Settlement existed, (b) that Flaviana's heirs knew of its existence; and (c) that
Flaviana's consent was vitiated through force and intimidation. Noteworthy, too,
is that Agustin Manalansan, one of the respondents in this case, even signed the
deed as an instrumental witness to the execution of the deed. Yet, he did not
testify to disavow the signature appearing above his name in the Extrajudicial
Settlement. cSEDTC
The above circumstances render the Extrajudicial Settlement voidable,
not void. 63 Under the law, a voidable contract retains the binding effect of a
valid one unless otherwise annulled. 64And as prescribed, the action for
annulment shall be brought within four (4) years, in cases of intimidation,
violence or undue influence, from the time the defect of the consent
ceases. 65Unfortunately for respondents, the prescriptive period for annulment
had long since expired before they filed their Complaint. They cannot be
permitted to circumvent the law by belatedly attacking, collaterally and as an
afterthought at that, the validity of the erstwhile voidable instrument in the
present action for declaration of nullity of title.
The validity of the Extrajudicial Settlement cannot then be gainsaid.
Ratified by their inaction, the document of conveyance, as well as the
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consequences of its registration, would then bind the respondents. This still
holds true notwithstanding the glaring irregularities in the Petition for Approval.
Obvious to the eye and intellect as the errors may be, they are of no moment
since the Extrajudicial Settlement, a private writing and unpublished as it were,
nevertheless remains to be binding upon any person who participated thereon
or had notice thereof. 66
Petitioners complied with the rules
on authentication of private
documents
Likewise, the CA erroneously ruled that the Extrajudicial Settlement is
bereft of probative value because of petitioners' alleged failure to comply with
the rules on the admissibility of evidence set forth under Rule 132, Sec. 20 of
the Rules of Court, viz.:
Section 20. Proof of private document. — Before any
private document offered as authentic is received in evidence, its
due execution and authenticity must be proved either:
(a) By anyone who saw the document executed or
written; or
(b) By evidence of the genuineness of the signature or
handwriting of the maker.
Any other private document need only be identified as that
which it is claimed to be
Contrary to the CA's ruling, petitioners complied with the foregoing
authentication requirements. Pertinent hereto is petitioner Leodegaria's
testimony on January 13, 2009: 67
Atty. Malit
So what is the document they executed?
Witness
Then they executed a deed of sale, after that the lawyer took over
the required documents to this effect like this extrajudicial
settlement, that is one, and two, that is to pay all the taxes for
more than fifty (50) years, Ma'am. After that the deed of sale
then the extra-judicial settlement and after the [extra
judicial] settlement they signed in front of the lawyer and
after that publication in a newspaper of general circulation.
Atty. Malit
Now you mentioned that a document entitled extra-judicial
settlement, if that copy will be shown to you, would you be
able to identify it?
Witness
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Yes Ma'am
Atty. Malit
I am showing to you a document entitled extra-judicial settlement
of the estate of deceased spouses Meliton Sanchez and
Casimira Baluyot, will you please go over this document.
Which consists of two (2) pages and tell us if this is the one
executed by Juan, Flaviana, and Apolonia?
Witness
Yes Ma'am
Atty. Malit
Above the names of Juan, Flaviana and Apolonio (sic) are
signatures, do you know whose signatures are these?
Witness
These are the signatures of Juan, Flaviana and Apolonio, Ma'am.
Atty. Malit
Why do you know that these are the signatures of Juan,
Flaviana, and Apolonio?
Witness
Because I was present with my lawyer, Ma'am.
Atty. Malit
On the second page of the document you are holding [two] (2)
witnesses whose signatures appear on said document can
you recall whose signatures are these?
Witness
The signatures of Lucita Jardinas and Agustin Manalansan, Ma'am.
Atty. Malit
Who is this Lucita Jalandoni?
Witness
Lucita is the witness from the office of Atty. Malit, Ma'am.
Atty. Malit
How about the other signature, Agustin Manalansan?
Witness
Agustin Manalansan is the son of Flaviana Sanchez, Ma'am.
Atty. Malit SDAaTC
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Is he the same person who is one of the plaintiffs in this case?

Witness
Yes, sir (sic). (Emphasis supplied)
As can be gleaned from the transcripts, the contents of petitioner
Leodegaria's testimony satisfy the rules pertaining to the admissibility of
documentary evidence. Her claim that she was present at the time the
Extrajudicial Settlement was executed is competent proof of the said document's
authenticity and due execution. To be sure, neither the RTC nor the CA held that
the credibility of petitioner Leodegaria was impeached; the adverse findings
against her and her husband were predicated mainly on the erroneous
perception that her evidence-in-chief is inadmissible.
Irregularities in the issuance of TCT
No. 162403-R would not necessarily
invalidate the same
Proceeding now to the issue on whether or not the nullification of TCT
No. 162403-R is warranted, it must be borne in mind that the assailed document
of title, as a government issuance, enjoys the presumption of regularity. 68 It
was then incumbent upon the respondents to prove, by preponderant evidence,
that the issuance of TCT No. 162403-R on May 21, 1980 was attended by fraud
as they claim.
Respondents endeavored to overcome the burden of evidence in proving
their allegation of fraud by presenting as witness Myrna Guinto, an employee of
the RD of Pampanga, who testified that the original copy of OCT No. 207, the
parent title of TCT No. 162403-R, is not in their custody as it is missing in their
vault, and that the owner's duplicate certificate in its stead does not bear any
annotation of cancelation or encumbrance.
We are inclined, however, to give more credence to the explanation given
by the Registrar of Deeds, Lorna Salangsang-Dee, that the presence of the
owner's duplicate certificate in their vault signifies that there was most likely a
transaction registered with the office concerning the same. Indeed, there could
not be any other plausible reason except that it was as a result of the transaction
that owner's duplicate certificate was surrendered to the RD.
In any event, even if we were to assume for the sake of argument that the
issuance of TCT No. 162403-R was marred by irregularities, this would not
necessarily impair petitioners' right of ownership over the subject lot. As held
in Rabaja Ranch Development Corporation v. AFP Retirement and Separation
Benefits System: 69
. . . justice and equity demand that the titleholder should
not be made to bear the unfavorable effect of the mistake or
negligence of the State's agents, in the absence of proof of his
complicity in a fraud or of manifest damage to third
persons. The real purpose of the Torrens system is to quiet title to
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land and put a stop forever to any question as to the legality of the
title, except claims that were noted in the certificate at the time of
the registration or that may arise subsequent thereto. Otherwise,
the integrity of the Torrens system shall forever be sullied by the
ineptitude and inefficiency of land registration officials, who are
ordinarily presumed to have regularly performed their duties.
(Emphasis supplied)
Respondents, in the instant case, miserably failed to prove that
petitioners were parties to the perceived fraud. Basic are the tenets that he who
alleges must prove, and that mere allegation is not evidence and is not
equivalent to proof. Here, the allegations relating to petitioners' participation to
the fraud were nothing more than general averments that were never fleshed
out to more specific fraudulent acts, let alone substantiated by the evidence on
record.
To clarify, what was only established was that there were lapses in the
observance of the standard operating procedure of the RD in its issuance of
titles, based on the loss of the original title and the absence of an annotation of
cancellation even on the duplicate owner's original. The performance or non-
performance of these acts, however, cannot be attributed to herein petitioners,
as registrants, for these are within the ambit of the duties and responsibilities of
the officers of the RD. 70 All the registrant was required to do was to surrender
the duplicate owner's original, 71 which petitioners accomplished in the case at
bar.
Worth recalling, too, is that contrary to respondents' claim, there was a
valid document of conveyance that could justify the issuance of TCT No. 162403-
R in petitioners' favor. In view of the validity of the Extrajudicial Settlement, the
Court hesitates to conclude that the challenged TCT was fraudulently issued. At
most, there appears to be, in this case, lapses in the standard operating
procedure of the RD, which do not and could not automatically impair
petitioners' ownership rights and title, but merely expose the negligent officers
to possible liability.
Succinctly, we conclude from the foregoing disquisitions that:
respondents' action has already prescribed; the Extrajudicial Settlement, though
a private instrument, is nevertheless valid and binding on the heirs of the
contracting parties; the Extrajudicial Settlement is admissible in evidence; and
absent proof of complicity in the alleged fraud that attended the issuance of TCT
No. 162403-R, petitioners' rights under the said document of title cannot be
impaired. These corrections in judgment, to our mind, are considerations that
severely outweigh and excuse petitioners' procedural transgressions.
WHEREFORE, premises considered, the instant petition is
hereby GRANTED. The Entry of Judgment September 14, 2015 in CA-G.R. CV No.
100188 is hereby LIFTED. The March 26, 2015 Decision and September 14,
2015 Resolution of the Court of Appeals in CA-G.R. CV No. 100188, as well as the
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Decision dated June 28, 2012 and the Order dated December 14, 2012 in Civil
Case No. G-06-3792 before the Regional Trial Court, Branch 49 of Guagua,
Pampanga, are hereby REVERSED and SET ASIDE. Let a new judgment be
issued:
1. Upholding the validity of Transfer Certificate of Title No. 162403-R
registered in the name of petitioners Luisito and Leodegaria
Pontigon; and
2. Dismissing the Complaint for Declaration of Nullity of Title and Real
Estate Mortgage for lack of merit.
SO ORDERED.
Velasco, Jr., Reyes and Jardeleza, JJ., concur.
Peralta, J., pls. see dissenting opinion.

Separate Opinions

PERALTA, J., dissenting:
With all due respect to my esteemed colleagues, I register my dissent
from the majority decision on the following grounds:
First, both the RTC and the CA found that the execution and approval of
the Extrajudicial Settlement with Sale and the subsequent transfer of title of the
subject property to petitioners were tainted with irregularities, among which are
the following:
1. Despite the loss of the original copy of the Original Certificate of Title
(OCT) in the custody of the Registrar of Deeds (RD) for Pampanga, the latter still
issued a TCT in the name of petitioners merely on the basis of the owner's
duplicate copy of the OCT which does not contain any annotation of cancellation;
2. The TCT in petitioner's name was issued based only on the
Extrajudicial Settlement with Sale, which is a private document;
3. The Petition for Approval of the Extrajudicial Settlement with Sale,
dated November 9, 1979 was prepared earlier than the Extra Judicial Settlement
sought to be approved, which was dated November 10, 1979;
4. Copies of the Petition for Approval of the Extrajudicial Settlement with
Sale as well as the Certification which attests to the existence of a CFI Decision
which supposedly granted the said Petition were mere photocopies;
5. The alleged Order issued by the CFI which set the hearing for and
publication of the Petition for Approval of the Extrajudicial Settlement with Sale
was not signed by the Presiding Judge.
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The Court has repeatedly held that it is not necessitated to examine,

evaluate or weigh the evidence considered in the lower courts all over
again. 1 This is especially true where the trial court's factual findings are
adopted and affirmed by the CA as in the present case. 2 Factual findings of the
trial court, affirmed by the CA, are final and conclusive and may not be reviewed
on appeal. 3 Based on these irregularities, the RTC and the CA are justified in
concluding that the subject Extrajudicial Settlement with Sale could not have
validly conveyed title to petitioners and that the TCT which was issued in their
favor is null and void.
Indeed, the irregularities attendant in the present case do not indicate a
mere lapse on the part of the RD in the issuance of the disputed TCT. SDHTEC
Considering that the owner's duplicate copy of the OCT in the custody of
the RD does not contain any annotation of its cancellation, it is a grievous error
on the part of the RD to consider such duplicate copy as basis in cancelling the
OCT and issuing a new TCT in petitioners' favor.
In the first place, there is no OCT to cancel as the original copy which is in
the custody of the RD has been destroyed. Thus, the proper procedure that
should have been followed was to reconstitute first the lost or destroyed OCT, in
accordance with Section 110 4 of PD 1529. The reconstitution of a certificate of
title denotes restoration in the original form and condition of a lost or destroyed
instrument attesting the title of a person to a piece of land. 5 The purpose of the
reconstitution of title is to have, after observing the procedures prescribed by
law, the title reproduced in exactly the same way it has been when the loss or
destruction occurred. 6 The lost or destroyed document referred to is the one
that is in the custody of the Register of Deeds. When reconstitution is ordered,
this document is replaced with a new one that basically reproduces the
original. 7 After the reconstitution, the owner is issued a duplicate copy of
thereconstituted title. 8 It is from this reconstituted title that a new TCT may be
derived. Thus, it is error on the part of the RD to have issued the disputed TCT in
favor of petitioners in the absence of a duly reconstituted OCT.
The irregularity in the issuance of the contested TCT is also highlighted
by the fact that the supposed Order which set the hearing for and publication of
the Petition for Approval of the Extrajudicial Settlement with Sale was not signed
by the Presiding Judge. In addition, copies of the Petition for Approval of the
Extrajudicial Settlement with Sale, as well as the Certification which attests to
the existence of a CFI Decision which supposedly granted the said Petition, were
mere photocopies. In this regard, the CA was correct in ruling that mere
photocopies of documents, being secondary evidence, are inadmissible as
evidence unless it is shown that their originals are unavailable.
The ponencia also holds that respondents' action is already barred by
prescription by restating the rule that an action for reconveyance of a parcel of
land based on implied or constructive trust prescribes in ten (10) years,
reckoned from the date of registration or the date of the issuance of the
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certificate of title over the property; that, as an added exception, this Court has
permitted the filing of an action for reconveyance even beyond the 10-year
period in cases where the plaintiffs therein were in actual possession of the
disputed land, thereby converting the action from reconveyance of property into
one for quieting of title. Applying the above rule to the present case,
the ponencia holds that since respondents' complaint did not allege their
possession of the contested property as an ultimate fact, it follows that the case
could only be one for reconveyance of property, not for quieting of title. Thus,
respondents should have commenced their action within ten (10) years from
May 21, 1980, the date of the issuance of the Transfer Certificate of Title (TCT) in
petitioners' favor. However, since respondents only filed their Complaint on
September 17, 2000, or more than twenty (20) years thereafter, their action has
already prescribed.
I beg to disagree.
Whether an action for reconveyance prescribes or not is determined by
the nature of the action, that is, whether it is founded on a claim of the existence
of an implied or constructive trust, or one based on the existence of a void or
inexistent contract. 9 It is true that an action for reconveyance based on an
implied trust ordinarily prescribes in ten (10) years, subject to the exception
mentioned above. However, in actions for reconveyance of the property
predicated on the fact that the conveyance complained of was null and void ab
initio, a claim of prescription of action would be unavailing. 10 The action or
defense for the declaration of the inexistence of a contract does not
prescribe. 11 In the instant case, the action filed by respondents is essentially an
action for reconveyance based on their allegation that the title over the subject
property was transferred in petitioners' name without any valid document of
conveyance. Since respondents' complaint was based on the allegation of the
inexistence of a valid contract, which would have lawfully transferred ownership
of the subject property in petitioners' favor, such complaint is, therefore,
imprescriptible.
Lastly, the ponencia rules that the Extrajudicial Settlement with Sale was
not properly notarized; thus, rendering the written contract a private
instrument which, nonetheless, binds respondents. This notwithstanding, it is
my considered opinion that the above document, being a private instrument, is
not a sufficient basis to convey title over the disputed property in favor of
petitioners. In this regard, the case of Gallardo v. Intermediate Appellate
Court 12 is instructive, to wit:
xxx xxx xxx
Petitioners claim that the sale although not in a public
document, is nevertheless valid and binding citing this Court's
rulings in the cases of Cauto v. Cortes, 8 Phil. 459, 460; Guerrero v.
Miguel, 10 Phil. 52, 53; Bucton v. Gabar, 55 SCRA 499 wherein this
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Court ruled that even a verbal contract of sale of real estate

produces legal effects between the parties.
The contention is unmeritorious.
As the respondent court aptly stated in its decision:
True, as argued by appellants, a private
conveyance of registered property is valid as
between the parties. However, the only right the
vendee of registered property in a private document
is to compel through court processes the vendor to
execute a deed of conveyance sufficient in law for
purposes of registration. Plaintiffs-appellants'
reliance on Article 1356 of the Civil Code is
unfortunate. The general rule enunciated in said Art.
1356 is that contracts are obligatory, in whatever
form they may have been entered, provided all the
essential requisites for their validity are present.
The next sentence provides the exception, requiring
a contract to be in some form when the law so
requires for validity or enforceability. Said law is
Section 127 of Act 496 which requires, among other
things, that the conveyance be executed "before the
judge of a court of record or clerk of a court of
record or a notary public or a justice of the peace,
who shall certify such acknowledgment
substantially in form next hereinafter
stated." AScHCD
Such law was violated in this case. The action
of the Register of Deeds of Laguna in allowing the
registration of the private deed of sale was
unauthorized and did not lend a bit of validity to the
defective private document of sale.
With reference to the special law, Section 127 of the Land
Registration Act, Act 496 (now Sec. 112 of P.D. No. 1529) provides:
Sec. 127. Deeds of Conveyance, . . . affecting
lands, whether registered under this act or
unregistered shall be sufficient in law when made
substantially in accordance with the following
forms, and shall be as effective to convey, encumber,
. . . or bind the lands as though made in accordance
with the more prolix forms heretofore in use:
Provided, That every such instrument shall be
signed by the person or persons executing the same,
in the presence of two witnesses, who shall sign the
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instrument as witnesses to the execution

thereof,and shall be acknowledged to be his or their
free act and deed by the person or persons executing
the same, before the judge of a court of record or clerk
of a court of record, or a notary public, or a justice of
the peace, who shall certify to such acknowledgement
substantially in the form next hereinafter stated.
(Emphasis supplied).
It is therefore evident that Exhibit "E" in the case at bar is
definitely not registerable under the Land Registration Act.
Likewise noteworthy is the case of Pornellosa and Angels v.
Land Tenure Administration and Guzman, 110 Phil. 986, where the
Court ruled:
The deed of sale (Exhibit A), allegedly
executed by Vicente San Jose in favor of Pornellosa
is a mere private document and does not
conclusively establish their right to the parcel of
land. While it is valid and binding upon the parties
with respect to the sale of the house erected
thereon, yet it is not sufficient to convey title or any
right to the residential lot in litigation. Acts and
contracts which have for their object the creation,
transmission, modification or extinguishment of real
rights over immovable property must appear in a
public document.
xxx xxx xxx
Thus, Section 57 of Presidential Decree 1529 13 (PD 1529) provides:
Section 57. Procedure in registration of conveyances. — An owner
desiring to convey his registered land in fee simple shall
execute and register a deed of conveyance in a form sufficient
in law. The Register of Deeds shall thereafter make out in the
registration book a new certificate of title to the grantee and shall
prepare and deliver to him an owner's duplicate certificate. The
Register of Deeds shall note upon the original and duplicate
certificate the date of transfer, the volume and page of the
registration book in which the new certificate is registered and a
reference by number to the last preceding certificate. The original
and the owner's duplicate of the grantor's certificate shall be
stamped "canceled.'' The deed of conveyance shall be filled and
indorsed with the number and the place of registration of the
certificate of title of the land conveyed. 14
In relation to the above provision, Section 112 of the same Decree
provides for the "Forms Used in Land Registration and Conveyancing," to wit:
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Section 112. Forms in conveyancing. — The Commissioner of Land

Registration shall prepare convenient blank forms as may be
necessary to help facilitate the proceedings in land registration
and shall take charge of the printing of land title forms.
Deeds, conveyances, encumbrances, discharges, powers of
attorney and other voluntary instruments, whether affecting
registered or unregistered land, executed in accordance with
law in the form of public instruments shall be registrable:
Provided, that, every such instrument shall be signed by the
person or persons executing the same in the presence of at
least two witnesses who shall likewise sign thereon, and shall
acknowledged to be the free act and deed of the person or
persons executing the same before a notary public or other
public officer authorized by law to take
acknowledgment. Where the instrument so acknowledged
consists of two or more pages including the page whereon
acknowledgment is written, each page of the copy which is to be
registered in the office of the Register of Deeds, or if registration is
not contemplated, each page of the copy to be kept by the notary
public, except the page where the signatures already appear at the
foot of the instrument, shall be signed on the left margin thereof by
the person or persons executing the instrument and their
witnesses, and all the ages sealed with the notarial seal, and this
fact as well as the number of pages shall be stated in the
acknowledgment. Where the instrument acknowledged relates to
a sale, transfer, mortgage or encumbrance of two or more parcels
of land, the number thereof shall likewise be set forth in said
acknowledgment. 15
Based on the above discussions and provision of law, it is clear that the
subject Extrajudicial Settlement with Sale may not be used as a valid basis for
the issuance of the questioned TCT in the name of petitioners.
Accordingly, I vote to DENY the petition and AFFIRM the Decision dated
March 26, 2015 and Resolution dated September 14, 2015 of the Court of
Appeals in CA-G.R. CV No. 100188. AcICHD
||| (Spouses Pontigon v. Heirs of Sanchez, G.R. No. 221513, [December 5, 2016])
SECOND DIVISION
[G.R. No. 219638. December 7, 2016.]
MARCELINO REPUELA and CIPRIANO REPUELA, substituted by

CARMELA REPUELA, MERLINDA R. VILLARUEL, WILLIAM
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REPUELA, ROSITA P. REPUELA, CRISTINA R. RAMOS, ORLANDO

REPUELA, JUNNE REPUELA, and OSCAR
REPUELA, petitioners, vs. ESTATE OF THE SPOUSES OTILLO
LARAWAN and JULIANA BACUS, represented by NANCY
LARAWAN MANCAO, GALILEO LARAWAN and SOCRATES
LARAWAN, respondents.
DECISION
MENDOZA, J p:
This Petition for Review on Certiorari under Rule 45 of the Rules of
Court assails the May 29, 2014 Decision 1 and the June 10, 2015 Resolution 2 of
the Court of Appeals (CA) in CA-G.R. CV No. 03976, which reversed and set aside
the February 23, 2011 Decision 3 of the Regional Trial Court (RTC), Seventh
Judicial Region, Branch 7, Cebu City, in Civil Case No. CEB-28524, a case for
Annulment of Documents, Quieting of Title, Redemption, Damages, and
Attorneys Fees. HTcADC
The Antecedents
Spouses Lorenzo and Magdalena Repuela owned Lot No. 3357 (subject
property), situated in Lawaan III, Talisay City, Cebu, and covered by Transfer
Certificate of Title (TCT) No. 5154. After they had passed away, their children
Marcelino Repuela (Marcelino) and Cipriano Repuela (Cipriano) succeeded them
as owners of the subject property. 4
Cipriano and Marcelino (Repuela brothers) claimed that sometime in July
1963, after the death of their parents, they went to the house of Otillo
Larawan (Otillo) to borrow P200.00 for Marcelino's fare to Iligan City; that to
secure the loan, the spouses Otillo and Juliana Larawan (Spouses
Larawan) required them to turn over the certificate of title for Lot No. 3357; that
they were made to sign a purported mortgage contract but they were not given a
copy of the said document; that Cipriano affixed his signature while Marcelino,
being illiterate, just placed his thumb mark on the document; that they remained
in possession of the land despite the mortgage and had been planting bamboos,
corn, bananas, and papayas thereon and sharing the produce between them; and
that they also paid the taxes due on the property. 5
In October 2002, as recalled by Cipriano's daughter, Cristina Repuela
Ramos (Cristina), she went to the City Treasurer's Office of Talisay City, upon the
request of her father, to verify whether Spouses Larawan were paying the realty
taxes on the mortgaged property. She learned that Spouses Larawan did not pay
the taxes and the tax declaration on the subject property was already in their
names as early as 1964; that in the Registry of Deeds of Cebu, TCT No. 5154 was
already cancelled and a new certificate of title, TCT No. 10506, had been issued
to Otillo; that Spouses Larawan were able to transfer the certificate of title to
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their names by virtue of the Extrajudicial Declaration of Heirs and Sale bearing
the signature of her father Cipriano and the thumb mark of her uncle Marcelino;
and that her father and uncle remembered that they were made to sign a blank
document.
On January 17, 2003, Cipriano and Marcelino, on account of this
predicament, were compelled to file a complaint before the RTC for the
annulment of the Extrajudicial Declaration of Heirs and Sale and the cancellation
of TCT No. 10506. During the trial, Catalina Burlas (Burlas), who lived next to the
subject property, and Alma Abellanosa (Abellanosa), City Assessor of Talisay
City, were also presented as witnesses for the Repuela brothers. 6
Burlas testified that the Repuela brothers confided in her about
Marcelino's desire to go to Iligan City but they had no money for his fare; that
another neighbor referred the Repuela brothers to Otillo, who could lend them
P200.00 but only upon the signing of a deed of mortgage and the surrender of
the certificate of title as collateral; that Marcelino was able to leave for Iligan but
he came back after three months to help Cipriano in cultivating the land; that she
did not see any other person till the land except the Repuela brothers; and that
she could not recall a time when Otillo, whom she personally knew, ever visited
or cultivated the subject property. 7 aScITE
Abellanosa, as City Assessor, stated that based on the records of her
office, Lot No. 3357 was declared for taxation purposes for the first time in 1961
when Tax Declaration No. 12543 was issued in the name of Lorenzo Repuela;
that in 1964, Tax Declaration No. 24112 was issued in the name of Spouses
Larawan on the basis of a deed of sale; and that the subsequent tax declarations
had Spouses Larawan as the owners. 8
For the Estate of Spouses Larawan, on the other hand, the transaction
between the Repuela brothers and Otillo was a sale and not a mortgage of a
parcel of land. The Estate also invoked laches on the part of the Repuela brothers
for failing to file a complaint during the lifetime of Spouses Larawan. Galileo
Larawan (Galileo), son of Spouses Larawan and the sole witness for the Estate,
testified that he knew of the transaction between his father and the Repuela
brothers because his father brought him along to the office of Atty. Celestino
Bacalso (Atty. Bacalso), where the document entitled Extrajudicial Declaration of
Heirs and Sale was prepared; that the said document was signed by Cipriano and
thumbmarked by Marcelino which was witnessed by Hilario Bacalso and
Fernando Abellanosa; that he witnessed the Repuela brothers affix their
signature and thumbmark after Atty. Bacalso read and explained to them the
contents of the document in the Cebuano dialect; that after the document was
notarized, his father handed P2,000.00 to the Repuela brothers as consideration
for the sale; and that he was only six (6) years old when these all happened. 9
Galileo also pointed out that the new certificate of title, TCT No. 10506, in
the name of Spouses Larawan, was issued by the Register of Deeds on August 20,
1963; that his mother paid the real estate taxes during her lifetime and, after her
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death, he himself made the payments; that he secured the tax declaration for the
subject property from the office of the Talisay City Assessor; that their family
had been in possession of the subject property and they had harvested and
enjoyed the produce of the land such as bamboos, jackfruit and 100 coconut
trees; and that there were no other persons claiming ownership over the land, as
the Repuela brothers never offered to redeem the subject property from their
family. 10
The Ruling of the RTC
After the trial, the RTC decided in favor of the Repuela brothers. It held
that the transaction between the parties was not a sale but an equitable
mortgage. The testimony of Galileo for the respondent, who was admittedly just
six (6) years old then, was "likely colored by the lens of adult perspective and
self-interest." It believed the claim of Cipriano, who only had the benefit of a
Grade One education, and the illiterate Marcelino, that they merely signed a
document without knowing its nature. The trial court gave more credence to the
claim of possession of the Repuela brothers because the same was affirmed by a
disinterested person, Burlas, who had been living in the area since she was small
and whose lot adjoined the subject property. According to her, only Cipriano and
Marcelino cultivated the land and she never saw anyone, not even Otillo, work
on the land. 11 HEITAD
Moreover, it was the trial court's opinion that the evidence of possession
weighed more on the side of the Repuela brothers than that of the Estate of
Spouses Larawan. Their assertion of possession was bolstered by the fact that
they too paid taxes on the property, an indication that they were still in
possession of the subject property. Considering that they still possessed the
subject property even after the execution of the sale, in the concept of an owner
and continued paying the land taxes thereon, the RTC was of the view that the
contract, entered into by the Repuela brothers and Otillo, was an equitable
mortgage under Article 1602 of the Civil Code.12 Thus, the RTC disposed:
Hence, the Court:
1. Declares the sale in the document, "Extrajudicial Declaration of
Heirs and Sale," signed by Cipriano and Marcelino Repuela in favor
of Otillo Larawan and spouse on July 1, 1963, as in effect an
equitable mortgage;
2. Gives Cipriano and Marcelino Repuela thirty (30) days from the
finality of this decision to redeem the property in the amount of
Two Thousand Pesos (P2,000.00), with interest at the legal rate
computed from the date of the filing of the Complaint; and
3. Directs defendants to pay plaintiffs:
a. P20,000.00, as attorney's fees, and
b. P20,000.00, as litigation expenses.
Costs are assessed against the defendants.
SO ORDERED. 13
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Not in conformity, the Estate of Spouses Larawan appealed the case to the
CA.
The Ruling of the CA
On May 29, 2014, the CA reversed and set aside the February 23, 2011
Decision of the RTC for the following reasons:
1. The Repuela brothers failed to present any direct and positive
proof to rebut the presumption of the document's due execution.
They failed to prove any factual circumstance to point that the
transaction covered therein was one of mortgage, or at the least,
that such was their intention; ATICcS
2. The Repuela brothers had not proven continued possession of
the subject property which would have given the impression that
it was not sold but merely mortgaged;
3. None of the enumerated circumstances in Article 1602 of
the Civil Code was present in order for the presumption of
equitable mortgage to apply. Contrary to the factual finding of the
trial court, the evidence did not show that they were still in
possession of the property even after the execution of the
document and that they continued paying the taxes on the
property immediately after the execution of the deed; and,
4. Granting arguendo that the transaction was a mortgage, their
cause of action was already barred by laches as 39 years had
already elapsed before they asserted their rights over the subject
property. 14
The decretal portion of the CA decision reads:
WHEREFORE, premises considered, the instant appeal
is GRANTED. The February 23, 2011 Decision of the RTC Branch 7
of Cebu City in Civil Case No. CEB-28524 is REVERSED and SET
ASIDEand the complaint for Annulment of Documents, Quieting of
Title, Redemption, Damages and Attorney's Fees is DISMISSED.
SO ORDERED. 15
After their motion for reconsideration was denied by the CA in its
Resolution, dated June 10, 2015, the heirs of the Repuela
brothers (petitioners) filed the subject petition.
Issue
Whether the Extrajudicial Declaration of Heirs

and Sale amounted to an equitable mortgage.
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Petitioners explain that the Repuela brothers only filed the case in 2003
because they found no urgency to file it as there were no indications that their
title and possession over the subject property were threatened. They claim that
their predecessors-in-interest were in peaceful, open, continuous, and public
possession as owners of the subject property from the time of the transaction in
1963 until the time when they decided to partition their property and learned, in
the process, that the tax declaration and title of their lot were already
transferred in the name of Spouses Larawan. They argue that considering that
they, who were claiming to be the owners thereof, were in actual possession of
the property, their right to seek reconveyance, which in effect sought to quiet the
title to the property, never prescribed. 16
Petitioners further argue that the existence of the Extrajudicial
Declaration of Heirs and Sale was not enough proof that the Repuela brothers
really intended to sell the property, and that the stipulations in the contract
should be construed together with the parties' contemporaneous and
subsequent acts as regards the execution of the contract. The same was true with
the issuance of a new owner's TCT in favor of Spouses Larawan. It neither
imports conclusive evidence of ownership nor proves that the agreement
between the parties was one of sale. A conveyance by registration in the name of
the transferee and the issuance of a new certificate is not secured from the
operation of the equitable doctrine, to the effect that any conveyance intended as
security for a debt would be held in effect to be a mortgage, than most informal
conveyance that could be devised. 17 TIADCc
The CA, according to petitioners, should have given more credence to the
testimonies of the Repuela brothers, as corroborated and affirmed by the
disinterested witness, Burlas, over that of Galileo, the lone witness for the
respondent. As correctly observed by the trial court, Galileo was just six (6)
years old when he supposedly witnessed the alleged transaction in the office of
Atty. Bacalso, and so he could not have possibly known the nature of the
executed contract. Echoing the RTC, they pointed out that a six-year-old boy's
curiosity and concerns could not have extended to things of this nature and that
his recollection of events was likely colored by the lens of adult perspective and
self-interest, as Galileo himself admitted that he did not read the document. 18
Finally, they stress that the Repuela brothers remained in possession of
the subject property even after the transaction and they also paid the taxes
thereon for the years 1985 to 2002 on December 18, 2002. These circumstances
surrounding the transaction entered into by and between the Repuela brothers
and Otillo would naturally lead anyone to infer that this instance was espoused
in Article 1602 of the Civil Code.This is in line with jurisprudence consistently
holding that the presence of one, and not the confluence of several
circumstances, is sufficient to prove that a contract of sale is one of an equitable
mortgage. 19
The Position of Respondent
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In its Comment, 20 dated December 28, 2015, respondent Estate of

Spouses Larawan (respondent) averred that the extrajudicial settlement and sale
executed by the parties could not be presumed as an equitable mortgage. First,
the said contract was "not a sale with right to repurchase" and the price of the
sale was not unusually inadequate. Second, there is no documentary evidence
that would support the claim of possession by the Repuela brothers, as lessee or
otherwise, continuously from the execution of the document of sale until the
filing of the case. Third, the third situation (when upon or after the expiration of
the right to repurchase, another instrument extending the period of redemption
or granting a new period was executed) wherein a contract shall be presumed to
be an equitable mortgage is not applicable in the instant case. The Extrajudicial
Declaration of Heirs and Sale did not provide for a right to repurchase. As such,
there was no period of redemption to be extended or a new period to be
executed. Fourth, there was no showing that Otillo, as purchaser, retained for
himself a part of the purchase price. He paid the amount of P2,000.00 as sale
consideration to the Repuela brothers. 21 Fifth, there was no agreement in the
contract of sale that the Repuela brothers, as vendors, bound themselves to pay
the taxes on the thing sold. And finally, the Extrajudicial Declaration of Heirs and
Sale was quite clear and specific that what was involved was a sale of the subject
property. From the terms of the contract, no inference could be made that the
real intention of the parties was to secure the payment of a debt or the
performance of any other obligation. AIDSTE
The Court's Ruling
The Court finds merit in the petition.

An equitable mortgage is one which, although lacking in some formality,
or form, or words, or other requisites demanded by a statute, reveals the
intention of the parties to charge real property as security for a debt, and
contains nothing impossible or contrary to law. 22
For a presumption of an equitable mortgage to arise, two requisites must
first be satisfied, namely: that the parties entered into a contract denominated as
a contract of sale and that their intention was to secure an existing debt by way
of mortgage. 23 There is no single conclusive test to determine whether a deed
of sale, absolute on its face, is really a simple loan accommodation secured by a
mortgage. Article 1602, in relation to Article 1604 of the Civil Code, however,
enumerates several instances when a contract, purporting to be, and in fact
styled as, an absolute sale, is presumed to be an equitable mortgage. Thus:
ART. 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is
unusually inadequate;
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(2) When the vendor remains in possession as lessee or

otherwise;
(3) When upon or after the expiration of the right to
repurchase another instrument extending the period
of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the
purchase price;
(5) When the vendor binds himself to pay the taxes on the
thing sold;
(6) In any other case where it may be fairly inferred that
the real intention of the parties is that the
transaction shall secure the payment of a debt or
the performance of any other obligation.
In any of the foregoing case, any money, fruits, or other
benefit to be received by the vendee as rent or otherwise shall be
considered as interest which shall be subject to the usury laws.
xxx xxx xxx
ART. 1604. The provisions of Article 1602 shall also
apply to a contract purporting to be an absolute
sale. [Emphases and underscoring supplied] AaCTcI
Evident from Article 1602, the presence of any of the circumstances set
forth therein suffices for a contract to be deemed an equitable mortgage. No
concurrence or an overwhelming number is needed. 24 In other words, the fact
that some or most of the circumstances mentioned are absent in a case will not
negate the existence of an equitable mortgage.
In this case, it appears that two (2) instances enumerated in Article 1602
— possession of the subject property and inference that the transaction was in
fact a mortgage attended the assailed transaction.
Possession as Lessee or
otherwise
Article 1602 (2) of the Civil Code provides that when the supposed
vendor remains in possession of the property even after the conclusion of the
transaction, the purported contract of sale is presumed to be an equitable
mortgage. In general terms, possession is the holding of a thing or the enjoyment
of a right, whether by material occupation or by the fact that the right is
subjected to the will of the claimant. The gathering of the products of and the act
of planting on the land constitute occupation, possession and cultivation. 25
In this case, petitioners insist that the Repuela brothers remained in
possession of the subject property after the transaction, as was corroborated by
a disinterested person, Burlas, who lived in the adjoining lot from the time she
was a child. According to her, it was only the Repuela brothers who tilled the
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land and planted corn, bananas and camote. She never saw Otillo, whom she also
knew, till or work on the land.
The respondent's claim of possession, as supported by a transfer
certificate of title and tax declaration of the subject property, both in the name of
Spouses Larawan is, to the Court's mind, not persuasive. These documents do
not prove actual possession. They do not rebut the overwhelming evidence of
the Repuela brothers that they were in actual possession. The fact of registration
in the name of Spouses Larawan does not change the picture. A conveyance of
land, accompanied by registration in the name of the transferee and the issuance
of a new certificate, is no more secured from the operation of this equitable
doctrine than the most informal conveyance that could be devised. In an
equitable mortgage, title to the property in issue, which has been transferred to
the respondents actually remains or is transferred back to the petitioner as
owner-mortgagor, conformably to the well-established doctrine that the
mortgagee does not become the owner of the mortgaged property because the
ownership remains with the mortgagor pursuant to Article 2088, of the Civil
Code.26
Inference can be made
that the transaction was
an equitable mortgage EcTCAD
From the attending circumstances of the case, it can be inferred that the
real intention of the Repuela brothers was to secure their indebtedness from
Spouses Larawan. They needed money for Marcelino's fare so they went to the
house of Otillo to borrow P200.00. Considering that Spouses Larawan would
only agree to extend the loan if they would surrender their certificate of title
over the subject property, they obliged in the belief that its purpose was only to
secure their loan. In other words, they surrendered the title to Spouses Larawan
as security to obtain the much needed loan. It was never their intention to sell
the subject property.
As held in Banga v. Sps. Bello, 27 in determining whether a deed, absolute
in form, is a mortgage, the court is not limited to the written memorials of the
transaction. "The decisive factor in evaluating such agreement is the intention of
the parties, as shown not necessarily by the terminology used in the contract but
by all the surrounding circumstances, such as the relative situation of the parties
at that time, the attitude, acts, conduct, declarations of the parties, the
negotiations between them leading to the deed, and generally, all pertinent facts
having a tendency to fix and determine the real nature of their design and
understanding." 28
There is a presumption of
mistake
Granting that indeed Cipriano and Marcelino, signed and thumbmarked,
respectively, the Extrajudicial Declaration of Heirs and Sale, there is still reason
to believe that they did so without understanding the real nature, effects and
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consequences of what they did as they were never explained to them. Cipriano,
who only finished Grade One, and Marcelino, an illiterate, were in dire need of
money. As such, the possibility that they affixed their conformity to the onerous
contract to their detriment just to get the loan was not remote. In dire need as
they were, they signed a document despite knowing that it did not express their
real intention. "Necessitous men are not, truly speaking, free men; but to answer a
present emergency, will submit to any terms that the crafty may impose upon
them." 29 For this reason, the Repuela brothers should be given the protection
afforded by the Civil Code provisions on equitable mortgage.
As aptly explained in Cruz v. Court of Appeals, 30 the Court held:
Vendors covered by Art. 1602 usually find themselves in an
unequal position when bargaining with the vendees, and will
readily sign onerous contracts to get the money they need.
Necessitous men are not really free men in the sense that to
answer a pressing emergency they will submit to any terms that
the crafty may impose on them. This is precisely the evil that Art.
1602 seeks to guard against. The evident intent of the provision is
to give the supposed vendor maximum safeguards for the
protection of his legal rights under the true agreement of the
parties. 31 HSAcaE
Besides, where a party is unable to read or when the contract is in a
language not understood by a party and mistake or fraud is alleged, the
obligation to show that the terms of the contract had been fully explained to the
said party who is unable to read or understand the language of the contract
devolves on the party seeking to enforce it. Indeed, that burden to show that the
other party fully understood the contents of the document rests upon the party
who seeks to enforce the contract. If he fails to discharge this burden, the
presumption of mistake, if not, fraud, stands unrebutted and
controlling. 32 Respondent failed to overcome this burden.
In the case at bench, Galileo's testimony that he had witnessed the
Repuela brothers affix their conformity after Atty. Bacalso read and explained to
them the contents of the document in the Cebuano dialect, fail to convince this
Court. As keenly observed by the RTC, Galileo was just six (6) years old when he
witnessed the transaction in the office of Atty. Bacalso. To the Court's mind,
Galileo could not have possibly known the nature of the purported contract,
much less, perceived with certainty if the Repuela brothers were indeed
apprised of the true nature of the said contract before they were made to sign
and thumbmark it. For this reason, the presumption of mistake, if not fraud, shall
remain.
Furthermore, it must be pointed out that the law accords the equitable-
mortgage presumption in situations when doubt exists as to the true intent of
the parties to the contract, 33 as in this case. Courts are generally inclined to
CIVIL LAW REVIEW 2

construe one purporting to be a sale as an equitable mortgage, which involves a

lesser transmission of rights and interests over the property in controversy.34
There was no prescription
or laches
Contrary to the findings of the CA that petitioners' cause of action was
already barred by laches because of the 39 years that had already lapsed before
they asserted their rights over the property, the Court holds otherwise.
In Inamarga v. Alano, 35 the Court considered the deed of sale as equitable
mortgage and wrote:
xxx Where there is no consent given by one party in a
purported contract, such contract was not perfected; therefore,
there is no contract to speak of. The deed of sale relied upon by
petitioner is deemed a void contract. This being so, the action
based on said deed of sale shall not prescribe in accordance with
Article 1410 of the Civil Code.36 [Emphasis supplied]
Legal Interest
In the case of Muñoz v. Ramirez, 37 the Court stated that where it was
established that the reciprocal obligations of the parties were under an equitable
mortgage, reconveyance of the property should be ordered to the rightful owner
therein upon the payment of the loan within 90 days from the finality of that
decision. 38 HESIcT
In the case at bench, the RTC ordered the Repuela brothers to pay their
loan amounting to P2,000.00 with interest at the legal rate computed from the
date of the filing of the complaint in order for them to repair the property.
In determining the legal rate applicable in this case, Circular No. 799,
series of 2013, issued by the Office of the Governor of the Bangko Sentral ng
Pilipinas on June 21, 2013, which was the basis of the Court in Nacar v. Gallery
Frames, 39 provides that effective July 1, 2013, the rate of interest for the loan or
forbearance of any money, goods or credits and the rate allowed in judgments, in
the absence of an express contract as to such rate of interest, shall be six percent
(6%) per annum. Applying the foregoing, the rate of interest of 12% per annum
on the obligation of the Repuela brothers shall apply from the date of the filing of
the complaint on January 17, 2003 until June 30, 2013 only. From July 1, 2013
until fully paid, the legal rate of 6% per annum shall be applied to their unpaid
obligation.
WHEREFORE, the petition is GRANTED. The assailed May 29, 2014
Decision and the June 10, 2015 Resolution of the Court of Appeals in CA-G.R. CV
No. 03976 are SET ASIDE. The February 23, 2011 Decision of the Regional Trial
Court, Cebu City, Seventh Judicial Region, Branch 7 in Civil Case No. CEB-28524
is REINSTATED with MODIFICATION in that the 12% interest per annum shall
only apply from January 17, 2003 until June 30, 2013 only, after which date and
CIVIL LAW REVIEW 2

until fully paid, the mortgage indebtedness of Cipriano Repuela and Marcelino
Repuela shall earn interest at 6% per annum.
SO ORDERED.
||| (Repuela v. Estate of Spouses Larawan, G.R. No. 219638, [December 7, 2016])
FIRST DIVISION
[G.R. No. 196403. December 7, 2016.]
ARSENIO TABASONDRA, FERNANDO TABASONDRA, CORNELIO

TABASONDRA, JR., MIRASOL TABASONDRA-MARIANO, FAUSTA
TABASONDRA-TAPACIO, GUILLERMO TABASONDRA, MYRASOL
TABASONDRA-ROMERO, and MARLENE TABASONDRA-
MANIQUIL, petitioners, vs. SPOUSES CONRADO CONSTANTINO
and TARCILA TABASONDRA-CONSTANTINO, * PACITA
ARELLANO-TABASONDRA and HEIRS OF SEBASTIAN
TABASONDRA, respondents.
DECISION
BERSAMIN, J p:
This case for partition and accounting concerns a property owned in
common, and focuses on the right of two of the co-owners to alienate their
shares before the actual division of the property. HTcADC
The Case
Under appeal is the adverse decision promulgated on November 30,

2010, 1 whereby the Court of Appeals (CA) modified the judgment rendered on
September 22, 2008 by the Regional Trial Court (RTC), Branch 64, in Tarlac City
ordering the partition of all the three parcels of land owned in common among
the parties. 2 The modification by the CA, which expressly recognized the
alienation by the two co-owners of their shares, consisted in limiting the
partition of the property owned in common to only the unsold portion with an
area of 33,450.66 square meters.
Antecedents
The parties herein were the children of the late Cornelio Tabasondra
from two marriages. The respondents Tarcila Tabasondra-Constantino and the
CIVIL LAW REVIEW 2

late Sebastian Tabasondra were the children of Cornelio by his first wife,
Severina; the petitioners, namely: Arsenio Tabasondra, Fernando Tabasondra,
Cornelio Tabasondra, Jr., Mirasol Tabasondra-Mariano, Fausta Tabasondra-
Tapacio, Myrasol Tabasondra-Romero, Marlene Tabasondra-Maniquil, and
Guillermo Tabasondra, were children of Cornelio by his second wife, Sotera.
The CA summarized the undisputed factual findings and procedural
antecedents as follows:
Cornelio, Valentina, and Valeriana, all surnamed
Tabasondra, were siblings. They were also the registered owners
of the three (3) parcels of land located at Dalayap, Tarlac City,
identified as Lot No. 2536, containing an area of seventy-seven
thousand one hundred and forty-seven (77,147) sq. m.; Lot No.
3155, with an area of thirteen thousand six hundred fifty-nine
(13,659) sq. m.; and, Lot No. 3159, with an area of nine thousand
five hundred forty-six (9,546) sq. m., covered by Transfer
Certificate of Title (TCT) No. 106012. aScITE
xxx xxx xxx
Cornelio died on March 15, 1991, while Valentina and
Valeriana both died single on August 19, 1990 and August 4, 1998,
respectively. They all died intestate and without partitioning the
property covered by TCT No. 106012. Thus, the Plaintiffs-
Appellees and the Defendants-Appellants, as descendants of
Cornelio, possessed and occupied the property.
The Controversy:
On August 22, 2002, the Plaintiffs-Appellees filed the
complaint below against the Defendants-Appellants. In essence,
they claimed that the parcels of land are owned in common by
them and the Defendants-Appellants but the latter does not give
them any share in the fruits thereof. Hence, they asked for
partition but the Defendants-Appellants refused without valid
reasons. They maintained that they tried to amicably settle the
dispute before the Lupon, but to no avail. Thus, their filing of the
suit praying that the subject land be partitioned, that new titles be
issued in their respective names, that the Defendants-Appellants
be ordered to render an accounting on the fruits thereon, and that
such fruits also be partitioned.
In their Answer, the Defendants-Appellants averred that
they do not object to a partition provided that the same should be
made only with respect to Cornelio's share. They contended that
they already own the shares of Valentina and Valeriana in the
subject land by virtue of the Deed of Absolute Sale that the said
sisters executed in their favor on August 18, 1982. Moreover, they
alleged that the Plaintiffs-Appellees are the ones who should
CIVIL LAW REVIEW 2

account for the profits of the property because it is the latter who
enjoy the fruits thereof. By way of counterclaim, they, thus, prayed
that the Plaintiffs-Appellees be ordered to render an accounting
and to pay for damages.
After the issues were joined and the pre-trial conference
was conducted, a full blown trial followed in view of the parties'
failure to settle amicably. HEITAD
On September 22, 2008, the RTC rendered the assailed
disposition, the fallo of which reads:
WHEREFORE, on the basis of the foregoing
considerations, judgment is hereby rendered in favor
of the plaintiffs, ordering [the] partition of the three
(3) parcels of land covered by TCT No. 16012 among
the compulsory and legal heirs of Cornelio, Valentia[,]
and Valeriana, all surnamed Tabasondra. Sotero
Duenas Tabasondra shall be entitled to 3,040 square
meters while plaintiffs and defendants shall be
entitled to 6,690 square meters each.
SO ORDERED. 3
Dissatisfied, the respondents appealed the judgment of the RTC to the CA,
assigning the following as the reversible errors, to wit:
I.
THE HONORABLE COURT A-[sic] QUO GRAVELY ERRED
AND COMMITTED A REVERSIBLE ERROR IN NOT CONSIDERING
AND APPRECIATING THE FACT THAT THE DEED OF ABSOLUTE
SALE EXECUTED BY THE DECEASED VALENTINA TABASONDRA
AND VALERIANA TABASONDRA, IN FAVOR OF DEFENDANTS
TARCILA TABASONDRA AND SEBASTIAN TABASONDRA, WAS
VALID AND SUBSISTING AT THE TIME THE COURT CONSIDERED
IT TO HAVE NO VALID LEGAL FORCE AND EFFECT[.]
II.
THE HONORABLE COURT A-[sic] QUO GRAVELY ERRED
AND COMMITTED A REVERSIBLE ERROR IN ORDERING FOR THE
PARTITION OF THE PROPERTY IN QUESTION WITHOUT ANY
LEGAL AND VALID GROUNDS[.] 4
On November 30, 2010, the CA promulgated the decision under
review, 5 disposing:
WHEREFORE, the appeal is GRANTED. The assailed
disposition is AFFIRMED with MODIFICATION in that the
partition and the accounting is ordered to be made only with
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respect to a thirty-three thousand four hundred fifty point sixty-

six (33,450.66) sq.m. portion of the property. With costs. ATICcS
SO ORDERED. 6
The petitioners moved for reconsideration, 7 but the CA denied their
motion on April 4, 2011. 8
Hence, this appeal.
Issues
The petitioners submit in support of their appeal:

1. THAT THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO EXCESS OR LACK OF
JURISDICTION IN SUMMARILY DISMISSING THE NEW
MATTERS OF SUBSTANCE RAISED IN MOTION FOR
RECONSIDERATION;
2. THAT THE COURT OF APPEALS IN SUMMARILY DISMISSING
MOTION FOR RECONSIDERATION OF PLAINTIFFS-
PETITIONERS RENEGED IN ITS DUTY TO RESOLVE LEGAL
AND FACTUAL ISSUES OF SUBSTANCE IN A WAY NOT
PROBABLY IN ACCORD WITH LAW OR APPLICABLE
DECISIONS OF THE SUPREME COURT;
3. THAT THE COURT OF APPEALS DECISION IN DECLARING THE
QUESTIONED DEED OF SALE VALID AND IN SUMMARILY
DISMISSING PLAINTIFFS-PETITIONERS['] MOTION FOR
RECONSIDERATION RAISING NEW ARGUMENTS AND
MATTERS OF SUBSTANCE NOT RAISED IN THE APPEAL BY
DEFENDANTS-RESPONDENTS, ARE CONTRARY TO LAW,
JURISPRUDENCE, ADMISSIONS OF FACTS/TESTIMONY OF
TARCILA TABASONDRA, ONLY WITNESS FOR DEFENDANTS-
RESPONDENTS AND EVIDENCE PRESENTED BY
PLAINTIFFS-PETITIONERS AT THE TRIAL; TIADCc
4. THAT SUCH COURSE OF ACTION TAKEN BY THE COURT OF
APPEALS OR DEPARTURE THEREFROM IN EXERCISING OR
FAILING TO EXERCISE ITS POWER OF JUDICIAL REVIEW
CERTAINLY CALLS FOR THE EXERCISE BY THE SUPREME
COURT OF ITS POWER OF JUDICIAL REVIEW TO AFFORD
COMPLETE RELIEF TO PARTIES IN THIS CASE AND TO
AVOID MULTIPLICITY OF SUITS. 9
In other words, did the CA correctly order the partition and accounting
with respect to only 33,450.66 square meters of the property registered under
TCT No. 10612?
CIVIL LAW REVIEW 2

Ruling of the Court
The appeal lacks merit.

There is no question that the total area of the three lots owned in
common by Cornelio, Valentina and Valeriana was 100,352 square meters; and
that each of the co-owners had the right to one-third of such total area.
It was established that Valentina and Valeriana executed the Deed of
Absolute Sale, 10 whereby they specifically disposed of their shares in the
property registered under TCT No. 10612 in favor of Sebastian Tabasondra and
Tarcila Tabasondra as follows:
NOW, THEREFORE, for and in consideration of the sum of
TEN THOUSAND PESOS (P10,000.00), Philippine Currency, to us in
hand paid, receipt whereof is hereby acknowledged in full to our
entire satisfaction, by SEBASTIAN TABASONDRA and TARCILA
TABASONDRA, married to Pacita Arellano and Conrado
Constantino, respectively, both of legal ages, Filipinos, and
residents of Dalayap, Tarlac, Tarlac, we do hereby SELL, CEDE,
TRANSFER and CONVEY, by way of ABSOLUTE SALE, unto the said
Sebastian Tabasondra and Tarcila Tabasondra, their heirs and
assigns, all our shares, rights, interests and participations in
the above-described parcel of land free from liens and
incumbrances. That we hereby certify that the herein VENDEES
are the actual tillers or tenants of the above-described parcel of
land subject matter of this deed of absolute sale and, as such, have
the prior right of pre-emption and redemption, under the Land
Reform Code. (Bold underscoring supplied for emphasis)
We uphold the right of Valentina and Valeriana to thereby alienate
their pro indiviso shares to Sebastian and Tarcila even without the knowledge or
consent of their co-owner Cornelio because the alienation covered the
disposition of only their respective interests in the common property. According
to Article 493 of the Civil Code, each co-owner "shall have the full ownership of his
part and of the fruits and benefits pertaining thereto, and he may therefore
alienate, assign or mortgage it, and even substitute another person in its
enjoyment, except when personal rights are involved," but "the effect of the
alienation or the mortgage, with respect to the co-owners, shall be limited to the
portion which may be allotted to him in the division upon the termination of the
co-ownership." Hence, the petitioners as the successors-in-interest of Cornelio
could not validly assail the alienation by Valentina and Valeriana of their shares
in favor of the respondents. 11
Accordingly, the Court declares the following disposition by the CA to be
correct and in full accord with law, to wit:
x x x [T]here is no dispute that the subject property was
owned in common by the siblings Cornelio, Valentina, and Valeria.
CIVIL LAW REVIEW 2

Corollarily, the records at bench glaringly show that the

genuineness and due execution of the Deed of Absolute Sale
executed by Valeriana and Valentina in favor of the Defendants-
Appellants was not rebutted by the Plaintiffs-Appellees. A fortiori,
such deed is prima facie evidence that a contract of sale was,
indeed, entered into and consummated between Valeriana and
Valentina as sellers and the Defendants-Appellants as
vendors. AaCTcI
The foregoing facts, juxtaposed with the laws and the
jurisprudential precepts mentioned elsewhere herein, lead to no
other conclusion but that the sale by Valeriana and Valentina of
theirpro indiviso shares in favor of the Defendants-Appellants is
valid. As enunciated by the Supreme Court in Alejandrino v. CA, et
al.:
x x x Under a co-ownership, the ownership
of an undivided thing or right belongs to different
persons. Each co-owner of property which is held
pro indiviso exercises his rights over the whole
property and may use and enjoy the same with no
other limitation than that he shall not injure the
interests of his co-owners. The underlying rationale
is that until a division is made, the respective share of
each cannot be determined and every co-owner
exercises, together with his co-participants, joint
ownership over the pro indiviso property, in addition
to his use and enjoyment of the same.
Although the right of a heir over the
property of the decedent is inchoate as long as the
estate has not been fully settled and partitioned,
the law allows a co-owner to exercise rights of
ownership over such inchoate right. Thus, the Civil
Code provides:
Art. 493. Each co-owner shall have
the full ownership of his part and of the
fruits and benefits pertaining thereto, and
he may therefore alienate, assign or
mortgage it, and even substitute another
person in its enjoyment, except when personal
rights are involved. But the effect of the
alienation or the mortgage, with respect to
the co-owners, shall be limited to the
portion which may be allotted to him in the
division upon the termination of the co-
ownership. EcTCAD
CIVIL LAW REVIEW 2

With respect to properties shared in common

by virtue of inheritance, alienation of a pro indiviso
portion thereof is specifically governed by Article
1088 that provides:
Art. 1088. Should any of the heirs sell
his hereditary rights to a stranger before
the partition, any or all of the co-heirs may
be subrogated to the rights of the
purchaser by reimbursing him for the price
of the sale, provided they do so within the
period of one month from the time they
were notified in writing of the sale by the
vendor.
In the instant case, Laurencia was within her
hereditary rights in selling her pro indiviso share in
Lot No. 2798. However, because the property had not
yet been partitioned in accordance with the Rules of
Court, no particular portion of the property could be
identified as yet and delineated as the object of the
sale. Thus, interpreting Article 493 of the Civil
Code providing that an alienation of a co-owned
property "shall be limited to the portion which may be
allotted to (the seller) in the division upon the
termination of the co-ownership, the Court said":
. . . (p)ursuant to this law, a co-owner
has the right to alienate his pro-indiviso
share in the co-owned property even
without the consent of the other co-owners.
x x x
Using the foregoing disquisitions as guidelines, there is no
denying that the RTC erred in granting the complaint and ordering
a partition without qualifying that such should not include the
shares previously pertaining to Valeria and Valentina. Simply put,
since the aggregate area of the subject property is one hundred
thousand three hundred fifty-two (100,352) sq.m., it follows that
Cornelio, Valentina, and Valeriana each has a share equivalent to
thirty-three thousand four hundred fifty point sixty-six
(33,450.66) sq. m. portion thereof. Accordingly, when Valentina
and Valeriana sold their shares, the Defendants-Appellants
became co-owners with Cornelio. Perforce, upon Cornelio's death,
the only area that his heirs, that is, the Plaintiffs-Appellees and the
Defendants-Appellants, are entitled to and which may be made
subject of partition is only a thirty-three thousand four hundred
CIVIL LAW REVIEW 2

fifty point sixty-six (33,450.66) sq.m. portion of the

property. AcICHD
All told, finding the RTC's conclusions to be not in accord
with the law and jurisprudence, necessarily, the same cannot be
sustained. 12
As a result of Valentina and Valeriana's alienation in favor of Sebastian
and Tarcila of their pro indiviso shares in the three lots, Sebastian and Tarcila
became co-owners of the 100,352-square meter property with Cornelio (later
on, with the petitioners who were the successors-in-interest of Cornelio). In
effect, Sebastian and Tarcila were co-owners of two-thirds of the property, with
each of them having one-third pro indiviso share in the three lots, while the
remaining one-third was co-owned by the heirs of Cornelio, namely, Sebastian,
Tarcila and the petitioners.
Nonetheless, we underscore that this was a case for partition and
accounting. According to Vda. de Daffon v. Court of Appeals, 13 an action for
partition is at once an action for declaration of co-ownership and for segregation
and conveyance of a determinate portion of the properties involved. If the trial
court should find after trial the existence of co-ownership among the parties, it
may and should order the partition of the properties in the same action. 14
Although the CA correctly identified the co-owners of the three lots, it did
not segregate the 100,352-square meter property into determinate portions
among the several co-owners. To do so, the CA should have followed the manner
set in Section 11, Rule 69 of the Rules of Court, to wit:
Section 11. The judgment and its effect; copy to be recorded
in registry of deeds. — If actual partition of property is made, the
judgment shall state definitely, by metes and bounds and adequate
description, the particular portion of the real estate assigned to
each party, and the effect of the judgment shall be to vest in each
party to the action in severalty the portion of the real estate
assigned to him. xxxs (Bold emphasis supplied.)
Accordingly, there is a need to remand the case to the court of origin for
the purpose of identifying and segregating, by metes and bounds, the specific
portions of the three lots assigned to the co-owners, and to effect the physical
partition of the property in the following proportions: Tarcila, one-third; the
heirs of Sebastian, one-third; and the petitioners (individually), along with
Tarcila and the heirs of Sebastian (collectively), one-third. That physical
partition was required, but the RTC and the CA uncharacteristically did not
require it. Upon remand, therefore, the RTC should comply with the express
terms of Section 2, Rule 69 of the Rules of Court, which provides: TAIaHE
Section 2. Order for partition, and partition by agreement
thereunder. — If after the trial the court finds that the plaintiff has
the right thereto, it shall order the partition of the real estate
among all the parties in interest. Thereupon the parties may, if
CIVIL LAW REVIEW 2

they are able to agree, make the partition among themselves

by proper instruments of conveyance, and the court shall
confirm the partition so agreed upon by all the parties, and
such partition, together with the order of the court
confirming the same, shall be recorded in the registry of
deeds of the place in which the property is situated. (2a)
A final order decreeing partition and accounting may be
appealed by any party aggrieved thereby. (n)
Should the parties be unable to agree on the partition, the next step for
the RTC will be to appoint not more than three competent and disinterested
persons as commissioners to make the partition, and to command such
commissioners to set off to each party in interest the part and proportion of the
property as directed in this decision. 15
Moreover, with the Court having determined that the petitioners had no
right in the two-thirds portion that had been validly alienated to Sebastian and
Tarcila, the accounting of the fruits shall only involve the one-third portion of the
property inherited from Cornelio. For this purpose, the RTC shall apply the
pertinent provisions of the Civil Code, particularly Article 500 and Article 1087 of
the Civil Code, viz.:
Article 500. Upon partition, there shall be a mutual
accounting for benefits received and reimbursements for expenses
made. Likewise, each co-owner shall pay for damages caused by
reason of his negligence or fraud. (n) cDHAES
Article 1087. In the partition the co-heirs shall reimburse
one another for the income and fruits which each one of them may
have received from any property of the estate, for any useful and
necessary expenses made upon such property, and for any damage
thereto through malice or neglect. (1063)
WHEREFORE, the Court AFFIRMS WITH MODIFICATION the decision of
the Court of Appeals promulgated on November 30, 2010 in CA-G.R. CV No.
92920 in that the accounting is to be made only with respect to the fruits of the
one-third portion of the property still under the co-ownership of all the
parties; REMANDS the case to the Regional Trial Court, Branch 64, in Tarlac City
for further proceedings in accordance with this decision, and to determine the
technical metes and bounds and description of the proper share of each co-
owner of the property covered by Transfer Certificate of Title No. 10612,
including the improvements thereon, in accordance with the Civil Code and Rule
69 of the Rules of Court; and ORDERS the petitioners to pay the costs of suit.
SO ORDERED.
||| (Tabasondra v. Spouses Constantino, G.R. No. 196403, [December 7, 2016])
CIVIL LAW REVIEW 2

THIRD DIVISION
[G.R. No. 186976. December 7, 2016.]
PRYCE PROPERTIES CORPORATION, petitioner, vs. SPOUSES

SOTERO OCTOBRE, JR. and HENRISSA A. OCTOBRE, and CHINA
BANKING CORPORATION, respondents.
DECISION
JARDELEZA, J p:
The primary question is whether a breach of contract automatically
triggers the award of actual or compensatory damages.
I
On July 22, 1997, respondent Spouses Sotero Octobre, Jr. and Henrissa A.
Octobre (Spouses Octobre) signed a Reservation Agreement with petitioner
Pryce Properties Corporation (Pryce) for the purchase of two lots with a total of
742 square meters located in Puerto Heights Village, Puerto Heights, Cagayan de
Oro City. 1 The parties subsequently executed a Contract to Sell over the lot for
the price of P2,897,510.00 on January 7, 1998. 2
On February 4, 2004, Pryce issued a certification that Spouses Octobre
had fully paid the purchase price and amortization interests, as well as the
transfer fees and other charges in relation to the property, amounting to a total
of P4,292,297.92. 3 But Pryce had yet to deliver the certificates of title, which
prompted Spouses Octobre to formally demand its delivery. Despite repeated
demands, Pryce failed to comply. 4 Thus, on May 18, 2004, Spouses Octobre filed
a complaint before the Housing and Land Use Regulatory Board (HLURB),
Regional Office No. 10 for specific performance, revocation of certificate of
registration, refund of payments, damages and attorney's fees. 5
It appears that the reason why Pryce was unable to deliver the titles to
Spouses Octobre is because it had previously transferred custody of the titles,
along with others pertaining to the same development project, to China Banking
Corporation (China Bank) as part of the Deed of Assignment 6 executed on June
27, 1996. 7 Under this deed, Pryce agreed to assign and transfer its accounts
receivables, in the form of contracts to sell, in the Puerto Heights development
project to China Bank as security for the P200 Million credit facility extended by
the latter. Pryce obligated itself to deliver to China Bank the "contracts to sell
and the corresponding owner's duplicate copies of the transfer certificates of
title, tax declaration, real estate tax receipts and all other documents and
papers" 8 relating to the assigned receivables until such receivables are paid or
repurchased by Pryce. The titles to the lots purchased by Spouses Octobre were
CIVIL LAW REVIEW 2

among those held in custody by China Bank. 9 When Pryce defaulted in its loan
obligations to China Bank sometime in May 2002, China Bank refused to return
the titles to Pryce. 10 For this reason, China Bank was also impleaded in the
HLURB complaint.
The HLURB Arbiter rendered a Decision 11 dated March 31, 2005 finding
that Spouses Octobre had no cause of action against China Bank and rescinding
the contract between Pryce and Spouses Octobre. It ordered Pryce to refund the
payments made by the spouses with legal interest and to pay the latter
compensatory damages amounting to P30,000.00, attorney's fees and costs of
suit. 12
On appeal, the HLURB Board of Commissioners modified the Decision by
ordering Pryce to pay the redemption value to China Bank so that the latter may
release the titles covering the lots purchased by Spouses Octobre. In default
thereof, Pryce shall refund the payments with legal interest. The HLURB Board
upheld the grant of compensatory damages, attorney's fees and costs to Spouses
Octobre. 13 Pryce moved for reconsideration and to stay the proceedings on
account of Pryce's ongoing corporate rehabilitation. 14 The HLURB Board,
however, denied Pryce's motion considering that the stay order of the
rehabilitation court had already been reversed by the Court of Appeals. 15
Thereafter, Pryce appealed the case to the Office of the President, which
affirmed 16 in full the HLURB Board's Decision. Undeterred, Pryce elevated the
case to the Court of Appeals which denied the petition for review and affirmed
the Office of the President's Decision. The Court of Appeals found that Pryce
acted in bad faith because it "did not disclose [that the titles were in the custody
of China Bank] to respondents Spouses Octobre until the latter demanded
delivery of the titles." 17 The Court of Appeals held that Pryce's contractual
breach justified the award of compensatory damages as well as the payment of
attorney's fees and costs of suit. 18 cSaATC
Pryce is now before this Court primarily arguing that the Court of Appeals
erred in upholding the award of compensatory damages because Spouses
Octobre failed to present competent proof of the actual amount of loss. 19 It also
questions the award of attorney's fees and litigation costs because there was
allegedly no finding of bad faith. 20 Additionally, as side issues, Pryce questions
the Court of Appeals' finding that the stay order had been reversed and its
decision to uphold the finding by the HLURB Board and Office of the President
that the subject properties were mortgaged to China Bank. 21
In response, Spouses Octobre maintain that the award of compensatory
damages, attorney's fees and costs were proper because they were forced to
litigate to enforce their contractual right as a result of Pryce's breach. 22 With
respect to the stay order, Spouses Octobre cite this Court's February 4, 2008
Decision in G.R. No. 172302 23 which affirmed the appellate court's reversal of
the stay order. Finally, Spouses Octobre note that the characterization of the
Deed of Assignment as a mortgage came from Pryce's own appeal memorandum
CIVIL LAW REVIEW 2

filed with the HLURB Board, and that, in any event, whether it is an assignment
or mortgage, the decisive fact is that the titles were delivered by Pryce to China
Bank. 24
In its comment, China Bank insists that Pryce only has itself to blame for
failing to comply with its obligation to remit the payments received from the
various contracts to sell, including its obligation to Spouses Octobre. Under the
Deed of Assignment, China Bank is entitled to hold custody of the titles
surrendered by Pryce until the assigned receivables are paid or repurchased by
Pryce, which to date the latter has failed to do. 25
II
Article 2199 of the Civil Code defines actual or compensatory
damages: 26
Art. 2199. Except as provided by law or by stipulation, one
is entitled to an adequate compensation only for such pecuniary
loss suffered by him as he has duly proved. Such compensation is
referred to as actual or compensatory damages. (Emphasis
supplied.)
To be entitled to compensatory damages, the amount of loss must
therefore be capable of proof and must be actually proven with a reasonable
degree of certainty, premised upon competent proof or the best evidence
obtainable. The burden of proof of the damage suffered is imposed on the party
claiming the same, who should adduce the best evidence available in support
thereof. 27 Its award must be based on the evidence presented, not on the
personal knowledge of the court; and certainly not on flimsy, remote, speculative
and non-substantial proof. 28
It is clear that the amount paid by Spouses Octobre to Pryce as purchase
price for the lots has been adequately proved. There is no dispute that Spouses
Octobre are entitled to such amount with legal interest. The issue being raised by
Pryce is only with respect to the P30,000.00 awarded as compensatory
damages. 29
The records of this case are bereft of any evidentiary basis for the award
of P30,000.00 as compensatory damages. When the HLURB Arbiter initially
awarded the amount, it merely mentioned that "[Spouses Octobre] are entitled
to compensatory damages, which is just and equitable in the circumstances, even
against an obligor in good faith since said damages are the natural and probable
consequences of the contractual breach committed." 30 On the other hand, the
Court of Appeals justified the award of compensatory damages by stating that "it
is undisputed that petitioner Pryce committed breach of contract in failing to
deliver the titles to respondents [Spouses] Octobre which necessitated the
award of compensatory damages." 31 In their comment, Spouses Octobre
emphasized that they were "forced to litigate and seek the intervention of the
courts because of Pryce's failure to comply with its contractual and legal
CIVIL LAW REVIEW 2

obligation" 32 without so much as mentioning any proof that would tend to

prove any pecuniary loss they suffered.
In the absence of adequate proof, compensatory damages should not have
been awarded. Nonetheless, we find that nominal damages, in lieu of
compensatory damages, are proper in this case. Under Article 2221, nominal
damages may be awarded in order that the plaintiff's right, which has been
violated or invaded by the defendant, may be vindicated or recognized, and not
for the purpose of indemnifying the plaintiff for any loss suffered. Nominal
damages are "recoverable where a legal right is technically violated and must be
vindicated against an invasion that has produced no actual present loss of any
kind or where there has been a breach of contract and no substantial injury or
actual damages whatsoever have been or can be shown." 33 So long as there is a
violation of the right of the plaintiff — whether based on law, contract, or other
sources of obligations 34 — an award of nominal damages is proper. 35 Proof of
bad faith is not required.36 The HLURB Arbiter and the Court of Appeals appear
to have confused nominal damages with compensatory damages, since their
justifications more closely fit the former. cHDAIS
It is undisputed that Pryce failed to deliver the titles to the lots subject of
the Contract to Sell even as Spouses Octobre had already fully settled the
purchase price. Its inability to deliver the titles despite repeated demands
undoubtedly constitutes a violation of Spouses Octobre's right under their
contract. That Pryce had transferred custody of the titles to China Bank pursuant
to a Deed of Assignment is irrelevant, considering that Spouses Octobre were not
privy to such agreement.
In fine, contractual breach is sufficient to justify an award for nominal
damages but not compensatory damages.
III
Pryce questions the award of attorney's fees and costs of suit because no
exemplary damages were awarded. This contention, however, is clearly
unmeritorious because under Article 2208,37 the award of exemplary damages
is just one of 11 instances where attorney's fees and expenses of litigation are
recoverable.
Article 2208 (2) allows the award of attorney's fees when the defendant's
act or omission has compelled the plaintiff to litigate with third persons or to
incur expenses to protect his interest. The Court has interpreted that this
provision requires a showing of bad faith and not mere erroneous conviction of
the righteousness of a defendant's cause. 38 In this case, the Court of Appeals
found that Pryce acted in bad faith when it did not disclose to Spouses Octobre
the fact that the certificates of title to the properties purchased were in the
custody of China Bank until Spouses Octobre had fully paid the price and had
demanded delivery of the titles. We agree with this finding and therefore sustain
the award of attorney's fees and costs of suit in favor of Spouses Octobre.
IV
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The other side issues raised by Pryce shall be disposed of swiftly since
they have no substantial bearing on the merits of this case. As admitted by Pryce
itself; "it is not the entire Decision that is being assailed" 39 but only the portion
regarding the award of compensatory damages, attorney's fees and costs of suit.
When the stay order being invoked by Pryce was reversed and set aside
at the first instance by the Court of Appeals in CA-G.R. SP No. 88479, that stay
order was automatically deemed vacated. 40 By reversing the stay order of the
rehabilitation court, the Court of Appeals effectively enjoined the execution of
such order as allowed by the 2000 Interim Rules of Procedure on Corporate
Rehabilitation 41 (which was then in effect when Pryce filed its petition for
rehabilitation in 2004). We affirmed the Court of Appeals' decision to set aside
the stay order in the Decision dated February 4, 2008 42 and Resolution dated
June 16, 2008. 43 Although we later reconsidered the Decision on February 18,
2014, 44 the same does not affect the validity of the proceedings already
conducted before the HLURB, Office of the President, and Court of Appeals
during the intermediate period that the stay order was vacated. Neither does it
affect our resolution of this petition for review because under the Financial
Rehabilitation and Insolvency Act of 2010 45 (FRIA), the stay order shall not
apply to cases already pending appeal in the Supreme Court. 46 Section 146 of
the FRIA expressly allows the application of its provisions to pending
rehabilitation cases, except to the extent that their application would not be
feasible or would work injustice. 47
B
The characterization of the Deed of Assignment between Pryce and China
Bank as either an assignment of receivables or a mortgage of real property is
irrelevant to Pryce's obligation to Spouses Octobre. The principal reason why
Pryce raises this argument is to elude the applicability of Section 18
of Presidential Decree No. 957. 48 But Spouses Octobre's claim is precisely
premised on its contract with Pryce, not this specific provision of law. Hence,
even if the provision is inapplicable, Pryce's contractual liability to deliver the
titles to Spouses Octobre remains.
WHEREFORE, the petition is DENIED. The assailed Decision and
Resolution of the Court of Appeals in CA-G.R. SP No. 103615 are MODIFIED in
that nominal damages in the amount of P30,000.00 are awarded in lieu of
compensatory damages.
SO ORDERED. ISHCcT
||| (Pryce Properties Corp. v. Spouses Octobre, G.R. No. 186976, [December 7, 2016])
THIRD DIVISION
CIVIL LAW REVIEW 2

[G.R. No. 192948. December 7, 2016.]
B.F. CORPORATION and HONORIO PINEDA, petitioners, vs. FORM-

EZE SYSTEMS, INC., respondent.
DECISION
PEREZ, J p:
This petition for review assails the 15 January 2010 Decision 1 and 13
July 2010 Resolution 2 of the Court of Appeals in CA-G.R. SP No. 102007 which
affirmed the Final Award rendered by the Construction Industry Arbitration
Commission (CIAC) Arbitral Tribunal on 7 December 2007.
FACTUAL ANTECEDENTS
Petitioner B.F. Corporation (BFC) is a corporation engaged in general
engineering and civil works construction. Petitioner Honorio H. Pineda (Pineda)
is the President of BFC. Respondent Form-Eze Systems, Inc. (Form-Eze) is a
corporation engaged in highway and street construction.
On 29 August 2006, SM Prime Holdings, Inc. awarded the contract for
general construction of the SM City-Marikina mall (the Project) to BFC whereby
the latter undertook to supply materials, labor, tools, equipment and supervision
for the complete construction of the Project. 3 In turn, BFC engaged Form-Eze
for the lease of formwork system and related equipment for and needed by the
Project. Accordingly, five (5) contracts and two (2) letter-agreements were
executed by the BFC, represented by its President Pineda, and Form-Eze,
represented by its President, James W. Franklin. These contracts and their
salient provisions are provided in the following table:
CONTRACT NO. 1: Contract for the Lease of the Equipment for the Beam and Slab
Hardware for the Formwork on SM Marikina Mall Project dated 20 December 2006 4
Obligations of Form-Eze 1. Furnish all hardware required in the formwork
system for the poured in place beam and slab concrete
decks excluding the scaffoldings and accessories required
to support the system; and
2. Provide consumable beam ties and steel accessories
needed to maintain the rigidity and alignment of the
plywood formed surfaces.
Obligations of BFC 1. Furnish all scaffoldings as required to support the
system at no cost to Form-Eze;
2. Furnish all plywood and lumber as required in the
formwork operation as no cost to Form-Eze;
3. Purchase materials for the formwork as requested by
Form-Eze. The direct cost of materials shall be deducted
CIVIL LAW REVIEW 2

from the contract and the balance paid to Form-Eze; and

4. Responsible for the freight of the equipment to and fro
the Marikina jobsite and the Form-Eze warehouse in
Cainta, Rizal.
Work Specifications The amount of hardware to be furnished is sufficient to
provide 7,000 contact square meters of formwork.
Contract Price Total contract amount for the equipment: 126,000
contact square meters (equipment to be used) x
P225.00/contact square meter (cost per use of the
hardware for forming the elevated beam and slab) =
P28,350,000.00.
Terms of Payment 1. 15% down payment or P4,252,500.00 paid to Form-
Eze on or before pick up of equipment;
2. When concrete is placed on the slab forms, the
equipment rental per contact square meter is due and
payable is Form-Eze and shall be paid on the first day of
the following month;
3. All equipment purchased by BFC as requested by
Form-Eze shall be prorated and deducted equally in the
first 4-month duration of the equipment lease; and
4. Monthly progress payments for the equipment lease
shall be made timely.
CONTRACT NO. 2: Contract for Stripping and Moving Form-Eze Systems, Inc. Equipment
from Location to Location on SM Marikina Mail Project dated 20 December 2006 5
Obligations of Form-Eze 1. Furnish forklift for the movement of the deck forms
and related hardware of the forming system from
location to location;
2. Strip all formwork from under the poured concrete
slab and beam deck. Move all equipment to the next
location where it will be reset by BFC; and
3. Assist BFC in setting the deck forms to the proper
grade and locations provided that BFC has laid out the
grid lines as needed for placing the scaffoldings under the
deck forms and provided the scaffoldings is readily
available for placement under the deck forms.
Obligations of BFC 1. Furnish additional hoisting; and
2. Provide all labor requested by Form-Eze and
deducted from the contract at P60.00 per carpenter man-
hour.
Contract Price Total contract amount for moving equipment: 126,000 x
P50.00/contact square meter (cost for stripping and
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movement of the equipment, excluding cost of resetting

to grade, cleaning plywood surfaces and applying release
agent) = P6,300,000.00.
Terms of Payment 1. 15% down payment or P945,000.00 paid to Form-Eze
on or before pick up of equipment; and
2. Monthly progress billing will coincide with the contact
square meters formed with the Form-Eze equipment.
CONTRACT NO. 3: Contract for Column Formwork on the SM Marikina Mall Project
dated 20 December 2006 6
Obligations of Form-Eze 1. Furnish sufficient number of built up column forms as
required to complete 6 poured in place full height
concrete columns per day provided the installation of the
rebar and the placement of the concrete can maintain
that schedule of performance;
2. Provide supervision for the column formwork
operation;
3. Responsible for bracing the columns to maintain them
plumb when poured;
4. Correct any defects in the poured column due to
failure in the formwork. (Not responsible for air
entrapment or aggregate separation caused by improper
placement or improper vibration of the concrete; and
5. Furnish chamfer and form release agent
Obligations of BFC 1. Furnish all hoisting and moving of the columns;
2. Responsible for installation of the rebar and
placement of the concrete;
3. Furnish labor as required by Form-Eze for forming
columns and will deduct from Form-Eze P60.00 per man-
hour for each carpenters for the column framework; and
4. Responsible for all column grid lay-out and
establishing elevations on the columns
Terms of Payment 1. Total Contract Amount: 9,100 contact square meters
of formwork x P355.00/contact square meter =
P3,230,500.00;
2. Downpayment of P484,575.00 (15%) on or before
pick up of equipment;
3. BFC agrees to purchase all materials for the formwork
as required by Form-Eze and the direct cost of those
materials will be deducted from this contract and the
balance paid to Form-Eze; and
4. When columns are poured and stripped, P355.00 per
contact square meter is due and payable at that time.
Progress payments will be made for the work completed
CIVIL LAW REVIEW 2

in a particular month and paid on the first day of the

following month. Any materials or equipment purchased
by BFC at the request of Form-Eze shall be deducted from
this contract and prorated equally over a 4-month period.
CONTRACT NO. 4: Contract for the Lease of the Heavy Duty Galvanized Scaffold Frames
and Related Accessories on SM Marikina Mall Project dated 29 January 2007 7
Obligations of BFC 1. Manufacture heavy duty galvanized scaffoldings and
certain accessories for Form-Eze. The scaffoldings and
accessories will be manufactured exactly as per the
drawings and samples given to BFC by Form-Eze,
provided the equipment produced is of excellent quality
and to the exact specification specified by Form-Eze;
2. The agreement is for 1,500 pieces of heavy duty
galvanized 6-ft frames and related accessories (3,000 pcs
of 14-inch adjustable u-heads and 3,000 pcs heavy duty
base plates); and
3. BFC will deduct P6,352,500.00 from Form-Eze
equipment leased contract (all equipment must be in
good condition and turned over to Form-Eze at the end of
project). Form-Eze will own the equipment.
Obligations of Form-Eze 1. Form-Eze will credit BFC with P4,235.00 per frame
and related accessories; and
2. Form-Eze will accept all frames in good condition up
to a maximum of 1,500 frames and related accessories.
Agreement is contingent upon parties entering into an exclusive licensing agreement with
BFC for the manufacture of Form-Eze equipment.
CONTRACT NO. 5: Contract for the Purchase and Lease of the Heavy Duty Galvanized X-
Bracing on SM Marikina Mall Project dated 29 January 2007 8
Obligations of BFC Manufacture heavy duty galvanized x-bracing.
Obligations of Form-Eze Credit BFC with P400.00 per x-brace. If the x-bracing is
not manufactured exactly as specified by Form-Eze, credit
is P300.00 per x-brace.
Agreement is contingent upon parties entering into an exclusive licensing agreement for the
manufacturing of Form-Eze equipment.
MEMORANDUM OF AGREEMENT dated 5 January 2007 9
BFC will manufacture Form-Eze equipment and will sell exclusively to Form-Eze.
LETTER-AGREEMENT dated 5 January 2007 10
Changes to Contract No. 4
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1. The 18-inch adjustable u-head will be changed to a 14-inch adjustable u-head.

2. The threading of the heavy duty screw will be accomplished in segments and then
machined.
3. Form-Eze will send to the jobsite all 18-inch and 24-inch adjustable u-heads available in its
current stock in order to start forming the project while BFC is fabricating the 14-inch
adjustable u-heads. When the 3.000 pieces 14-inch u-heads are completed and are on the
jobsite, Form-Eze will take back the 18-inch and 24-inch adjustable u-heads that were
temporarily in use at the jobsite.
4. The creditable amount for the purchase of the 6-foot heavy duty galvanized scaffolding
and related accessories is changed to P4,235.00 per 6-foot heavy duty galvanized frames,
adjustable u-heads and heavy duty base plate.
On 30 March 2007, Form-Eze filed a Request for Arbitration 11 before the

CIAC. In its Complaint, Form-Eze alleged that BFC has an unpaid obligation
amounting to P9,189,024.58; that BFC wanted to re-negotiate the equipment
leases; and that it was not complying with the contractual and supplemental
agreements in effect. Form-Eze prayed for the following relief: CAIHTE
1. [For BFC] to pay the current monthly equipment rentals;
2. Provisions made to guarantee the earned monthly equipment
leased amounts are paid timely;
3. To legislate provisions to ensure the lease contracts are not
breached during the construction of the SM Marikina Mall;
4. Provisions made to guarantee the performance of [BFC] for the
manufacturing of the shoring equipment purchased by Form-
Eze from BFC;
5. Provisions made to guarantee the return of all Form-Eze
equipment when the concrete structure is completed and all
lost and damaged equipment has been paid for by [BFC]; and
6. All cost related to Arbitration. 12
In its Amended Answer with Counterclaim, BFC sought for reformation of
Contract #1 to incorporate a provision that BFC shall deduct from said billing the
cost of labor supplied by it for the fabrication and assembly of the forming
system and for the stripping, cleaning, resetting thereof at the rate of P60.00 per
man-hour. BFC also demanded the refund of P5,773,440.00 as expenses for the
manufacture of additional hardware to complete the 7,000 square meters of
formwork required in Contract #1. BFC explained that Form-Eze had only
furnished 4,682.4 square meters of formwork. 13
The CIAC appointed a 3-member Arbitral Tribunal (CIAC Arbitral
Tribunal), composed of Atty. Custodio O. Parlade, Atty. Alfredo F. Tadiar and
Engineer Romeo C. David, to adjudicate Form-Eze's claims.
Under the Terms of Reference, the parties made the following
admissions:
CIVIL LAW REVIEW 2

1. The existence of five contracts, a memorandum of agreement and

a supplemental contract.
2. BFC renegotiated Contract #1 but it did not result in a separate
written contract.
3. Under Contract #1, BFC is willing and ready to pay Form-Eze the
amount of P3,515,003.59, which amount shall be deducted
from the amount of the latter's claim.
4. Under Contract #2, BFC is willing and ready to pay Form-Eze the
amount of P675,788.97, which amount shall be deducted
from the amount of the latter's claim.
5. BFC admits that it has the obligation to return to Form-Eze
equipment furnished them under Contracts #1, 2, and 3, and
all heavy duty galvanized scaffold frames and related
accessories, heavy duty galvanized x-bracing and adjustable
U-heads and base plates fabricated and manufactured by BFC
under Contracts #4, 5 and letters dated 5 January 2007. 14
The claims 15 of the parties are summarized, as follow:
FORM-EZE's CLAIMS As of 7/19/2007 From 7/20/2007 to end of
contract based on agreed
minimum contact sq.m. of
126,000
Arrears on Contract No. 1 P26,310,476.29 P11,489,523.71
- 3,515,003.59
–––––––––––––
22,795,472.70
Arrears on Contract No. 2 4,771.723.63 1,528,276.37
-675,788.97
–––––––––––––
4,095,934.66
Arrears on Contract No. 3 2,099,825.00 1,130,675.00
Arrears on Letter dated 1/5/07 740,600.00 483,000.00
P29,731,832.36 P14,631,475.08
Attorney's Fees 300,000.00
TOTAL SUM IN DISPUTE: P44,663,307.44

BFC's COUNTERCLAIM

Cost of labor, helmet & expenses for x-
bracing for the assembly of the form P812,791.09
system under Contract #1
Cost of stripping, petroleum, oil, & helmet 1,391,086.02
CIVIL LAW REVIEW 2

under Contract #2
Attorney's Fees 300,000.00
Total Counterclaims P2,503,877.11
TOTAL SUM IN DISPUTE P46,867,184.55
The total arbitration fees amounted to P616,393.73.
CIAC Arbitral Tribunal was tasked to resolve the following issues, to wit:
1. Is Claimant entitled to its total claim of P34,284,996.41
representing the alleged arrear on equipment rental under
Contract #1?
2. Is Claimant entitled to its claim of P5,624,211.03 representing the
alleged arrears under Contract #2?
alleged arrears under Contract #3?
rental fees under Letter dated 5 January 2007?
5. Is Claimant entitled to its claim for the reformation of the subject
Contracts to include the following:
a. Contract #1 — Provisions to guarantee the earned monthly
equipment leased amounts are paid timely;
b. Contract #1 — Provision to ensure that the lease contracts
are not breached during the construction of the SM
Marikina Mall;
c. Contracts #4 and 5 — Provision to guarantee the
performance of [BFC] for the manufacturing of the
shoring equipment purchased by Form-Eze from BF
Corp.;
d. Contracts #1, 2, 3, 4 and 5 — Provision for [BFC] to pay for
the lost and damaged equipment furnished them by
the [Form-Eze]; and
e. Contract #1 — Provision in the Contract to include the P75
per contact sq.m. for labor guarantee.
6. Is [BFC] #1 entitled to the reformation of Contract #1 to include a
provision that [BFC] #1 shall deduct from [Form-Eze's]
billing the cost of labor, helmet and expenses for x-bracing
supplied by it for the assembly of the form system amounting
to P812,791.09, to deduct from the billing under Contract #2
the cost of labor for the stripping thereof, the costs of
petroleum, oil and lubricant and helmet of the said laborers
up to the end of the contract in the sum of P1,391,086.02 and
from the billing under Contract #3, the cost of labor for the
CIVIL LAW REVIEW 2

installation and forming of the built up column forms from

June 19, 2007 up to the end of the project in the sum of
P273,240.00? 16
7. Is it proper to include Mr. Honorio Pineda as Respondent No. 2?
8. Does the Arbitral Tribunal have the jurisdiction to award claims
that accrued after the filing of the Request for Arbitration or
does the Claimant have a cause of action for claims that
accrued during the same period? DETACa
9. Who between the parties is entitled to attorney's fees?
10. Who between the parties should bear the arbitration costs? 17
FINAL AWARD BY CIAC
On 7 December 2007, the CIAC Arbitral Tribunal rendered a Final Award
in favor of Form-Eze. The dispositive portion reads:
WHEREFORE, award is hereby made in favor of Claimant
and against [BFC], ordering the latter to pay the former the
following amounts:
a) On Contracts No. 1 P28,350,000.00
Less: Payments already made 7,700,000.00
–––––––––––––
TOTAL P20,650,000.00
b) On Contract No. 2 P6,300,000.00
Less: Payments already made 990,000.00
Less: Cost of labor 60,000.00
–––––––––––––
TOTAL P5,250,000.00
c) On Contract No. 3 P2,153,166.67
Less: cost of labor 96,915.00
–––––––––––––
TOTAL P2,056,751.67
On Letter Agreement of January 5, 2008 to December 8, 2007
P560,000.00
IN SUM THE FOLLOWING AWARDS ARE MADE:
Contract No. 1 P20,650,000.00
Contract No. 2 5,250,000.00
Contract No. 3 2,056,751.67
Letter Agreement of January 5, 2007 560,000.00
–––––––––––––
GRAND TOTAL P28,517,251.67
============

CIVIL LAW REVIEW 2

The Tribunal further awards in favor of [Form-Eze] and

against [BFC] and [Pineda] who are ordered, jointly and severally
to pay [Form-Eze] P300,000.00 as attorney's fees, and to
indemnify [Form-Eze's] cost of arbitration paid to CIAC.
The Tribunal likewise disposes of the remaining issues as
follows:
a) The claims under Issues No. 5 and 6 for reformation of
Contracts No. 1, 2, 3, 4 and 5 are denied for lack of
merit.
b) The inclusion of Mr. Honorio Pineda in the Complaint as
additional respondent is proper.
c) The Tribunal has jurisdiction over the claims of [Form-
Eze] and finds that the Complaint states a cause of
action as to claims that accrued after the filing of the
Complaint.
d) All other claims and counterclaims submitted pursuant to
the definition of issues in the Terms of Reference, not
otherwise disposed of or resolved above, are
dismissed for lack of merit. All claims and
counterclaims peripherally discussed in these
proceedings which are outside the scope of the
definition of issues in the Terms of Reference are
likewise outside the scope of this Final Award.
e) The net award in favor of [Form-Eze] amounting to
P28,517,251.67 shall earn interest at the rate of 6%
per annum from the date of this Final Award, and 12%
from the date the Final Award becomes final and
executory until the same is fully paid. 18
BFC filed a Motion for Correction of the Final Award. Form-Eze asserted
that the calculations made on the total quantity of deckforms supplied to be used
under Contract No. 1 is erroneous because the quantity of the accessories that
were delivered together with the loose truss chords and assembled trusses that
were backloaded were ignored in the computation. BFC explained that the
hardware supplied must be assembled first into deckforms since what is actually
rented under Contract No. 1 are the deckforms, and not the hardware, thus:
Evidently, in the computation thereof, the total quantity of
the accessories that were delivered together with the said loose
truss chords and assembled trusses, both of which are shown in
the same delivery receipts, and the total length of the loose truss
chords and assembled trusses that were backloaded, were not
considered and totally ignored.
CIVIL LAW REVIEW 2

Needless to state, these accessories, such as joist and beam

hanger, just like the chords and the trusses, are component and
indispensable parts of a deckform without which it can not be
completely assembled to be used for the purpose intended. In the
case of a deckform 44 ft. in length, it will need, for it to be
completely assembled, 34 pieces of joists and 68 pieces of beam
hangers, as shown in the herewith attached Annex "A" hereof.
Therefore, to form 87 completely assembled deckforms of
44 ft. in length out of/from the delivered chords and trusses, it will
require 2,958 pieces of joist and 5,916 pieces of beam hangers.
However, as show in Exhibits "C-9(5)", "C-9(11)", "C-
9(15)", "C-9(18)", "C-9(21)" "C-9(25)", "C-9(27)", "C-9(30)", and
"C-9(31)", only 2,512 pieces of joists and in Exhibits "C-9(8)", "C-
9(15)", "C-9(16)", "C-9(18)", "C-9(21)", "C-9(27)", "C-9(32)", "C-
9(34)", "C-9(35)", "C-9(37)" "C-9(38)", "C-9(41)", "C-9(35)", "C-
9(38)", "C-9(40)", and "C-9(41)", only 3,626 pieces of beam
hangers, the very documents on which this Commission/Tribunal
anchored its finding now sought to be corrected, were actually
delivered by the Claimant.
Accordingly, 87 deckforms of 44 ft. in length can not be
completely assembled from the delivered chords and trusses
because the quantity of the delivered accessories is insufficient for
the purpose. To be precise, only 53 deckforms of 44 ft. in length
can be completely assembled out of the total length of the chords
and trusses with the use of 1,802 pieces of joists and 3,604 pieces
of beam hangers (with an excess of 22 pieces of beam hangers, 710
pieces of joists and 2,720 ft of chords and trusses) which are
sufficient to provide only 4,441.73 contact sq.m. of formworks.
To therefore conclude that 87 deckforms of 44 ft. in length
can be completely assembled with the use of/out of 2,512 pieces of
joists and 3,626 pieces of beam hangers, is an evident
miscalculation.
xxx xxx xxx
In as much as only 3,626 pieces of beam hangers were
actually delivered, which, when used with the delivered quantity
of joists and length of the delivered chords and trusses in
completely assembling 53 deckforms of 44 ft. in length, is
sufficient to provide only 4,441.73 contact sq.m. of formworks, the
minimum rental amount stipulated under Contract No. 1 should
correspondingly be reduced to only Php17,989,006.50, less
payment of Php7,700,000.00 = Php10,829,006.50 as the net
amount of rent due the Claimant thereunder, as shown in the
herewith attached Annex "B" hereof. aDSIHc
CIVIL LAW REVIEW 2

On the same ground, the minimum contact amount

stipulated under Contract No. 2 should also be proportionately
reduced to Php3,997,557.00, less payment of Php990,000.00 +
cost of labor of Php60,000.00 = Php2,947,557.00 as the net
amount due the Claimant thereunder. 19
The CIAC Arbitral Tribunal denied the motion prompting BFC to file a
petition for review before the Court of Appeals.
While the case was pending before the Court of Appeals, Form-Eze filed a
Motion with Leave to Direct BFC to return pieces of equipment on 14 July 2009.
On 15 January 2010, the Court of Appeals dismissed the petition for lack
of merit. The Court of Appeals heavily relied on factual findings of the CIAC
Arbitral Tribunal.
THE PETITION
BFC filed a motion for reconsideration but it was denied by the Court of
Appeals in a Resolution dated 13 July 2010. Hence, the present petition. BFC, in
its Memorandum, raised the following issues for our resolution:
I.
Whether or not the Court of Appeals committed a
reversible error in affirming the CIAC's ruling that BFC is liable to
pay rent to the [Form-Eze] under Contract Nos. 1, 2, and 3 even for
portions where the latter's supplied formwork system were not
used.
II.
reversible error in affirming the CIAC's conclusion that [Form-Eze]
was able to supply BFC with such quantity of deckforms sufficient
to provide the stipulated 7,000 contact square meter of formworks
as to entitle said [Form-Eze] to the stipulated minimum contract
rental price of Php28,350,000.00 under Contract No. 1 and
consequently to Php6,300,000.00 under Contract No. 2, when,
based on the quantity of the delivered accessories, which are
component parts of deckform system, but which the CIAC totally
ignored, [Form-Eze] can only provide 4,441.73 contact square
meters of formworks that will entitle it to only Php17,989,006.05
and Php3,997,557.00, respectively thereunder.
III.
Whether or not the Court of Appeals committed reversible
error in affirming the CIAC's ruling that [Form-Eze] is entitled to
two/thirds of the stipulated minimum contract amount of
Php3,230,500.00 or Php2,153,666.67 under Contract No. 3,
considering that CIAC did not state the factual and legal basis of
CIVIL LAW REVIEW 2

said ruling and despite its contrary factual finding that [Form-Eze]
failed to supply the minimum required columnforms.
IV.
reversible error in affirming the CIAC's ruling against the
reformation of Contract No. 1 to include a provision that BFC shall
furnish the labor needed by [Form-Eze] in assembling the
deckforms and that it shall deduct therefrom the agreed cost of
labor at Php60.00 per man hour, since it has been the true
intention and real agreement of the parties thereto.
V.
reversible error in affirming the CIAC when it did not deduct the
following costs incurred by BFC from the minimum contract
amounts due:
(1) under Contract No. 1 for the cost of labor in assembling
the deckforms, the cost of helmets of said laborers,
and the expenses for x-bracing supplied by BFC for the
assembly of said forms in the total amount of
Php812,791.09;
(2) under Contract No. 2 for the cost of labor in the stripping
of said deckforms, the cost of petroleum, oil and
lubricant and helmet up to the end of the contract in
the sum total of Php1,391,086.02; and
(3) under Contract No. 3 for the cost of labor in installing and
forming the built up columnforms from 25 June 2007
up to the end of the contract in the sum total of
Php273,240.00, when BFC is legally entitled thereto.
VI.
reversible error in affirming the CIAC in ordering BFC to pay rental
fees under letter dated 5 January 2007, covering the period from
25 June 2007 to 17 December 2007 in the sum total of
Php560,000.00 at Php96,000.00 a month, when the acquisition
cost of the pieces of u-heads and plates referred to therein is
allegedly only Php96,000.00, and there is evidence presented to
show that these items were purchased at Php96,000.00 and there
is no evidence to show the prevailing rate of rent for the same
items.
VII.
CIVIL LAW REVIEW 2


reversible error in affirming the CIAC in ruling that Respondent
Pineda can be held as co-respondent (in the arbitration case)
when he is not a party to the contracts and agreements involved in
this case, as well as the arbitration agreement, and he did not
voluntarily submit himself to arbitration in this case.
VIII.
reversible error when it ruled that the attorney's fees and cost of
arbitration shall be for the account of Petitioners, considering that
[Form-Eze] failed to supply the minimum required equipment
under the contracts and when the root cause of the dispute is the
imprecision of the language and the incompleteness of the
contracts and agreements, which were prepared by the
Respondents. 20
BFC prays for a modification of the Final Award to read:
a. On Contract No. 1 Php17,989,006.50
Less:
Payments already made Php7,700,000.00
Payment made on Billing 487,828.05
No. 1
Cost of labor in assembling
Deckforms, expenses for x-
Bracings and cost of helmet 812,791.90 9,000,619.95
SUBTOTAL Php8,988,386.55
b. On Contract No. 2 Php3,997,557.50
Less:
Payments already made Php990,000.00
Costs of labor in stripping
And moving of the same
Deckforms, petroleum, oil
And lubricant and helmet 1,304,036.82 Php2,294,036.82
SUBTOTAL Php1,702,520.68
c. On Contract No. 3 Php538,417.87
Less:
Cost of labor in the installation
and removal of the
Columnforms 96,915.00
SUBTOTAL Php441,502.87
d. On Letter Agreement dated Php70,000.00
5 January 2007
e. The award of attorney's fees be deleted; and
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f. The award for cost of arbitration fees be deleted.21

THE COURT'S RULING
The Final Award of CIAC is subject
to review by the Court of Appeals.
BFC first asserts that the Court of Appeals has the power and the duty to
review the factual findings made by CIAC and that the Court of Appeals should
not be bound by the factual findings of the construction arbitrators.
The case of Asian Construction and Dev't. Corp. v. Sumimoto
Corporation 22 summarized the development of the principle that the final
award of CIAC may be still be subject to judicial review, thus:
To begin, Executive Order No. (EO) 1008, which vests upon
the CIAC original and exclusive jurisdiction over disputes arising
from, or connected with, contracts entered into by parties involved
in construction in the Philippines, plainly states that the arbitral
award "shall be final and inappealable except on questions of law
which shall be appealable to the Court." Later, however, the Court,
in Revised Administrative Circular (RAC) No. 1-95, modified this
rule, directing that the appeals from the arbitral award of the CIAC
be first brought to the CA on "questions of fact, law or mixed
questions of fact and law." This amendment was eventually
transposed into the present CIAC Revised Rules which direct that
"a petition for review from a final award may be taken by any of
the parties within fifteen (15) days from receipt thereof in
accordance with the provisions of Rule 43 of the Rules of Court."
Notably, the current provision is in harmony with the Court's
pronouncement that "despite statutory provisions making the
decisions of certain administrative agencies 'final,' the Court still
takes cognizance of petitions showing want of jurisdiction, grave
abuse of discretion, violation of due process, denial of substantial
justice or erroneous interpretation of the law" and that, in
particular, "voluntary arbitrators, by the nature of their functions,
act in a quasi-judicial capacity, such that their decisions are within
the scope of judicial review." 23
Factual findings of construction arbitrators may be reviewed by the Court
in cases where: (1) the award was procured by corruption, fraud or other undue
means; (2) there was evident partiality or corruption of the arbitrators or any of
them; (3) the arbitrators were guilty of misconduct in refusing to hear evidence
pertinent and material to the controversy; (4) one or more of the arbitrators
were disqualified to act as such under Section nine of Republic Act (R.A.) No.
876 and willfully refrained from disclosing such disqualifications or of any other
misbehavior by which the rights of any party have been materially prejudiced;
(5) the arbitrators exceeded their powers, or so imperfectly executed there, that
a mutual, final and definite award upon the subject matter submitted to them
CIVIL LAW REVIEW 2

was not made; (6) when there is a very clear showing of grave abuse of
discretion resulting in lack or loss of jurisdiction as when a party was deprived
of a fair opportunity to present its position before the Arbitral Tribunal or when
an award is obtained through fraud or the corruption of arbitrators; (7) when
the findings of the Court of Appeals are contrary to those of the CIAC, and (8)
when a party is deprived of administrative due process. 24 ETHIDa
While this rule, which limits the scope of the review of CIAC findings,
applies only to the Supreme Court, the Court of Appeals nonetheless is not
precluded from reviewing findings of facts, it being a reviewer of facts. By
conveniently adopting the CIAC's decision as its own and refusing to delve into
its factual findings, the Court of Appeals had effectively turned a blind eye to the
evidentiary facts which should have been the basis for an equitable and just
award.
While factual findings are not within the purview of a petition for review
before this Court, we take exception in this case on the ground of the appellate
court's refusal to delve into the findings of facts of the CIAC Arbitral Tribunal.
Under Contract No. 1, Form-Eze
was not able to supply BFC with
deckforms sufficient to provide
7,000 contact square meter of
formworks.
The CIAC Arbitral Tribunal conducted its own study and came up with the
following findings:
The receipted hardware deliveries made by [Form-Eze]
show that the total length of loose truss chords delivered was
11,912 lineal feet and the length of the truss chords from the
assembled trusses delivered was 2,052 lineal feet or a total
available length of trusses of 13,964 lineal feet. By an iterative
process of selection and elimination, 175 units of 44' long trusses
could be assembled, equivalent to 87 deckforms of 44 feet in
length. The assembled 87-44' deckforms can provide 7,268.58
square meters of contact area, broken down as follows:
Contact Area (%)

Interior & Near Column Slabs = 4,156.89 sq.m. (57.19%)
Grid Beams (B-1) = 740.37 sq.m. (10.19%)
Interior Beams (B-2) = 1,663.20 sq.m. (22.88%)
Grid Girders (G-2) = 708.12 sq.m. (9.74%)
Total = 7,268.58 sq.m. (100%)
The resulting contact area of 7,628.58 sq.m. is 3.94% over
the 7,000 sq.m. requirement of the contract. But the former figure
includes the contact area of girders which according to
CIVIL LAW REVIEW 2

[petitioners] should not be included. As shown in ANNEX "A",

sheets 5 & 6 of 6, the contact area contributed by the girders is
only 708.12 sq.m., and if this is deducted from the computed total
contact area, the remaining available contact area would be
6,560.46 sq.m. or 93.72%. The fact, however, is that the non-
inclusion of the contact area provided by the girders would be a
violation of the letter-contract dated 8 February 2007, paragraph
9 of which provides that: "[Form-Eze] offered to install beam
hangers and ledger angles in order to support the moment beam
from column to column and thereby save BFC considerable labor
and eliminate the use of BFC's light duty scaffolding underneath
and beam. By doing that it will also speed up the forming
operation and save BFC labor. The only light duty scaffolding that
BFC will be installing is that under the girder which supports
tremendous loading during the stressing of the beams prior to it
being stressed. By forming the girder in this manner, [Form-Eze] is
not involved in the tripping or resetting of the girder formwork.
However, [Form-Eze] is has purchased and furnished considerable
forming hardware and consumables (tie rods, pvc sleeves, pvc
cones, whaler clips and brackets and wing-nuts) which are being
used on girders and the beams. [Form-Eze] will give the
ownership of this equipment to BFC and BFC will buy all
additional consumables and hardware (as needed) directly from
Comer. In return, [Form-Eze] will include the contact square
meters of formwork in the girders in its billing for both the
equipment lease and for the moving contract." This letter-contract,
Exhibit C-12, binds [BFC] to pay Claimant for the girder formworks
contact area for both Contract No. 1 and Contract No. 2.
Petitioners argued that the formwork of the girder (or large
beam) is independent of the deck form system and so should not
be counted in favor of [Form-Eze]. The Tribunal does not agree.
How could the girder formwork be considered independent from
the deckform system when both sides of the girder formworks are
held stiff together by "tie rods, pvc sleeves (to make the tie rods
reusable), pvc cones, whaler clips and brackets and wing-nuts"
supplied by the [Form-Eze] and pressed between deckforms
preparatory to concrete pouring? The girder cannot be considered
structurally independent of the deck slabs because it is the
requirement of design and the National Building Code and its
reference code the American Concrete Institute Code (ACI Code)
that the girders are to be poured monolithically with the slabs and
beams up to L/3 or 1/3 of the floor span (the point of infection and
location of the construction joint where the bending moment is the
least or zero), as is clearly shown on the floor concrete pouring
schedule plans.
CIVIL LAW REVIEW 2

Conclusion of Tribunal
In view of the above, it is the finding of the Arbitral
Tribunal that [Form-Eze] had been able to furnish the amount of
hardware that was sufficient to provide 7,000 contact square
meters of formwork, all in accordance to Contract No. 1. Thus, the
remaining question to resolve is the area of the project covered by
the formwork equipment in contact square meters. 25
BFC accuses the CIAC of coming up with its own biased computation of
the contact area of the hardware supplied by Form-Eze under Contract No. 1.
According to BFC, Form-Eze had furnished only 53 completely assembled
deckforms of 44 ft. in length which correspond to only 4,441.73 contact square
meters of formworks, while CIAC found that Form-Eze had delivered truss
chords equivalent to 87 deckforms which can provide 7,268.58 contact square
meters. BFC maintains that Contract No. 1 is clear that the object is the supply of
the complete deckform system and not unassembled hardware such as loose
truss chords. BFC adds that Form-Eze judicially admitted that it is only claiming
equipment rentals for the areas that its equipment are being used. BFC reiterates
that based on the provisions of Contract No. 1 on the contemporaneous and
subsequent acts of the parties, as well as application of principles of contract
interpretation, the inclusion of loose truss chords in the computation of the
quantity of hardware supplied by Form-Eze is an erroneous interpretation by
CIAC. BFC also claims that the CIAC wrongfully included the contact area of
girders in the computation of the sufficiency of equipment supplied by Form-
Eze. BFC contends that the girders are not part of the deckforms contemplated in
Contract No. 1. BFC offers to compensate Form-Eze to the extent that its supplied
deckforms were used under the principle of quantum meruit. BFC submits that
4,441.73 contact square meters or 63.45% of the 7,000 minimum contact area
required under Contract No. 1 is a reasonable computation.
We reverse the finding of the CIAC on this point as it is contrary to the
evidence on record.
We agree with BFC that the CIAC should not have included the
unassembled truss chords in theoretically forming deckforms. We subscribe to
BFC's submission that the object of Contract No. 1 is the deckforms and not just
the hardware that make up the formwork. Contract No. 1, in itself, is clear that
"F-E has agreed to furnish all hardware required in the formwork system for the
poured in place beam and slab concrete decks . . . ." In fact, the equipment rental
is only due and payable to Form-Eze when the concrete is placed on the slab
forms, which provision is based on the premise that the hardware had already
been assembled into deckforms ready for concrete pouring. Moreover, the
Proposed SM Marikina Mall Project Elevated Beam and Slab Formwork dated 7
December 2006, which document has been admitted by the parties in the Term
of Reference, provides that Form-Eze will furnish sufficient deckforms to
produce 1/2 floor each month on the project. cSEDTC
CIVIL LAW REVIEW 2

BFC had also explained to our satisfaction that loose truss chords alone
could not be assembled into deckforms, to wit:
To try to assemble truss chords alone into a deckform is
like taking three two-foot round pegs, trying to stand them
upright, then balancing twelve-inch round wooden slab on top,
and expect it to be a stool capable of supporting a person. Joist,
beam hangers and other component parts fix the truss chords into
place for the structural integrity of a deckform. In the case of a
deckform 44 ft. in length, it will need, for it to be completely
assembled, 34 pieces of joists and 68 pieces of beam hangers as
illustrated in the Petitioner's Motion for Correction of Final Award.
Thus, assembling 87 deckforms of 44 ft. in length would
require 2,958 pieces of joist and 5,916 pieces of beam hangers to
assemble such 87 44-foot deckforms. However, as show in the
same documents that CIAC anchored its theoretical findings, only
2,512 pieces of joists and only 3,626 pieces of beam hangers were
actually delivered by [Form-Eze]. 26
BFC's computation of the total contact area covered by the deckforms
furnished by Form-Eze is backed by delivery receipts of the joists and beam
hangers while CIAC's computation is more theoretical than it is actual.
The inclusion of the additional contact area of the grid girders in the
calculation of the total contact area of the equipment supplied by Form-Eze
under Contract No. 1, however, should be upheld. Paragraph 9 of the Letter
dated 8 February 2007, which was also admitted by the parties, clearly provides:
[Form-Eze] offered to install beam hangers and ledger
angles in order to support the moment beam from column to
column and thereby save BFC considerable labor and eliminate the
use of BFC's light duty scaffolding underneath that beam. By doing
that it will also speed up the forming operation and save BFC
labor. The only light duty scaffolding that BFC will be installing is
under the girder which supports tremendous loading during the
stressing for the beams prior to it being stressed. By forming the
girder in this manner F-E is not involved in the stripping or re-
setting of the girder formwork. However, [Form-Eze] has
purchased and furnished considerable forming hardware and
consumables (tie rods, pvc sleeves, pvc cones, whaler clips and
brackets and wing-nuts) which are being used on the girders and
the beams. [Form-Eze] will give ownership to this equipment to
BFC and BFC will buy all additional consumables and hardware (as
needed) directly from Comer. In return [Form-Eze] will include
the contact square meters of formwork in the girders in its billing
for both the equipment lease and for the moving contract. 27
CIVIL LAW REVIEW 2

BFC cannot claim that this provision does not refer to Contract No. 1. Said
provision mentions beam hangers and ledger angles which are used to support
the beams forming the deckform and to eliminate the use of light duty
scaffolding on the part of BFC which it had initially obligated to provide under
Contract No. 1. More pertinently, the inclusion of the contact square meters of
formwork in the girders is a mere application of one of the provisions in
Contract No. 1, i.e., "BFC agrees to purchase materials for the formwork as
requested by F-E and the direct cost of those materials will be deducted from
this contract and the balance paid to [Form-Eze]." Form-Eze is giving ownership
of the forming hardware and consumables which are used on the girders and
beams to BFC. Instead of deducting the cost of these materials from the contract,
Form-Eze will instead include the contact square meters of formwork in the
girder in its billing for the lease of the deckforms.
As agreed upon by the parties, the 708.12 sq.m. contact area covered by
the grid girders should be included in the billing. Taking into account this
contact area corresponding the grid girders and the 4,441.73 contact square
meter assembled deckforms, the total contact area is only 5,149.85, which still
falls short of the 7,000 contact area requirement.
To award the full contract price to Form-Eze in Contract No. 1 is
tantamount to unjust enrichment. There is unjust enrichment under Article 22 of
the Civil Code when (1) a person is unjustly benefited, and (2) such benefit is
derived at the expense of or with damages to another. The principle of unjust
enrichment essentially contemplates payment when there is no duty to pay, and
the person who receives the payment has no right to receive it. 28 By requiring
BFC to pay the full contract price when it only supplied deckforms which
covered only 5,149.85 contact square meters of formworks, the CIAC Arbitral
Tribunal is essentially unjustly giving unwarranted benefit to Form-Eze by
allowing it to earn more than it legally and contractually deserved. It is also
worth mentioning that Form-Eze had in fact only been claiming for the contact
area where its equipment was used.
Therefore, using the computation of BFC, the amount of contact square
meters that the delivered hardware and deckforms can handle is:
126,000 sq. m. x Y = 92,696.40 contact sq.m.
–––––––––––– ––––––––––––––––
7,000 sq. m. 5,149.85 sq.m.
deckforms delivered

Contract No. 1 be reformed to include
a labor guarantee provision.
An action for reform a contract is grounded on Article 1359 of the New
Civil Code which provides:
CIVIL LAW REVIEW 2

ARTICLE 1359. When, there having been a meeting of the minds of

the parties to a contract, their true intention is not expressed in
the instrument purporting to embody the agreement, by reason of
mistake, fraud, inequitable conduct or accident, one of the parties
may ask for the reformation of the instrument to the end that such
true intention may be expressed.
xxx xxx xxx
Reformation is a remedy in equity, whereby a written instrument is made
or construed so as to express or conform to the real intention of the parties,
where some error or mistake has been committed. In granting reformation, the
remedy in equity is not making a new contract for the parties, but establishing
and perpetuating the real contract between the parties which, under the
technical rules of law, could not be enforced but for such reformation. 29
In order that an action for reformation of instrument may prosper, the
following requisites must concur: (1) there must have been a meeting of the
minds of the parties to the contract; (2) the instrument does not express the true
intention of the parties; and (3) the failure of the instrument to express the true
intention of the parties is due to mistake, fraud, inequitable conduct or
accident. 30
In the instant case, the question to be resolved is whether the contract
expressed their true intention; and, if not, whether it was due to mistake, fraud,
inequitable conduct or accident. While intentions involve a state of mind which
may sometimes be difficult to decipher, subsequent and contemporaneous acts
of the parties as well as the evidentiary facts as proved and admitted can be
reflective of one's intentional. 31
BFC relies on the Form-Eze Proposed SM Marikina Mall Project Elevated
Beam and Slab Formwork dated 7 December 2006 32 to support its contention
that Contract No. 1 should have a provision on the cost of labor. Indeed, in the
aforementioned proposal, BFC has agreed "to furnish the labor required for
fabrication and assembly of the forming equipment" and that "BFC will deduct
from the total contract amount P50.00 per man-hour each carpenter or laborer
supplied to Form-Eze. Notably, Contracts No. 2 and 3 contain labor-guarantee
provisions considering that BFC has committed to provide the necessary labor
for both contracts. SDAaTC
As initially agreed upon, BFC hired workers for the assembly of the
deckforms since Form-Eze only undertook to supervise the installation of the
deckforms. This was evident during the cross-examination of Mr. Romano
Clemente (Mr. Clemente) who admitted that no workers of Form-Eze were
employed for the installation of the deckforms, thus:
ATTY. D. MORGA, JR. (COUNSEL-RESPONDENT):
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Since it is the obligation of the Claimant to assemble the hardware

into deckform, how many workers were employed for the
purpose.
MR. R.V. CLEMENTE (CLAIMANT):
We are only supplier sir. We supervise the guys in the jobsite for
tem to install all these deckforms.
Ano?
To install the guys in the jobsite like for example your laborers
carpenters to install this deckforms. We just only supply one
supervisor in the jobsite for him to supervise the installation
of this form.
You mean BF Corporation has the expertise to assemble this.
No, we will supervise your guys for them to assemble this.
Do you know if BF has the expertise to assemble this?
That is why we were there in your jobsite. If they don't have really
the expertise we are the one who supervise them to install
the deckforms. Supervise them to install the deckforms
You mean no former workers of the Claimant were employed for
the purpose.
No. 33
Obviously, BFC would want to be compensated for the labor it provided
to Form-Eze as shown in Contracts No. 2 and 3.
As a matter of fact, Mr. James Franklin, the President of Form-Eze
conceded that Contract No. 1 should be modified to include a labor-guarantee
provision, to wit:
Q: Mr. Witness, respondent [BFC], in their counterclaims, would like
this Commission to reform Contract No. 1 to include a
provision that it should deduct from your billing the cost of
CIVIL LAW REVIEW 2

labor, helmet and expense for x-bracing supplied by it for the

assembly of the form system, what can you say?
A: [BFC] is allowed to deduct the cost of the x-bracing purchase from
Comer that was used in the FORM-EZE deck assemblies.
[BFC] is allowed to deduct the cost of the assembly labor for
the deck forms which is included in the Labor Guarantee.
These deductions have been reflected in all our billings
where the P75.00 Labor Guarantee has been applied. The
cost of helmet is not included and should not be included.
Contract No. 1 is only a lease contract but it was modified to
include a Labor Guarantee. For the [BFC] to deduct from our
billing the cost of labor, etc. which allegedly they supplied for
the use of our said equipment for the assembly thereof is
included in the Labor Guarantee. They should be allowed to
do so in conformance with the Labor Guarantee but definitely
the cost of helmet and their other claims of deductions would
not have any basis at all since these have not been agreed
upon both in the original contract and in the subsequent
agreement as contain (sic) in the February 8, 2007 signed
letter. 34
This admission by Form-Eze bolsters the conclusion that the parties
intended to include a labor-guarantee provision in Contract No. 1. Both
Contracts No. 2 and 3 set the labor rate at P60.00 per carpenter man-hour. BFC
fixed the cost of labor at P453,294.50.
Considering that both parties admitted that there should be a labor-
guarantee clause in Contract No. 1, it can be reasonably inferred that the failure
to include said provision was due to mistake. A reformation is in order to include
a cost of labor provision in Contract No. 1.
Expenses for x-bracing and the
cost of labor should be deducted
under Contracts No. 2 and 3.
Except for the expenses for x-bracing used in deck assemblies which had
been admitted by Form-Eze President James Franklin, BFC is not entitled to be
reimbursed for the cost of helmets, petroleum, and oil lubricants in the absence
of any stipulations in the contracts. The cost of labor, on the other hand, should
be deducted pursuant to the labor-guarantee provisions in Contracts No. 2 and 3.
The cost for x-bracing amounts to P358,250.00 as evidenced by the
receipt issued by Comer. 35
The costs of labor are as follow:
Contract No. 1 = P453,294.50
Contract No. 2 = P1,373,634.60
CIVIL LAW REVIEW 2

Contract No. 3 = P273,240.00

Obligation of BFC under Contract No. 1:
92,696.40 contact square meters x P225.00 = P20,856,690.00
Less: Amount paid 7,700,000.00
Payment for billing for Pour 1 487,828.05
Cost of labor 453,294.50
Cost of X-bracing 358,250.00
–––––––––––––
P11,857,317.45
============

The Memorandum of Agreement
dated 5 January 2007 is an exclusive
licensing agreement.
BFC avers that CIAC erred when it stated the BFC was given the exclusive
license to manufacture Form-Eze's equipment consisting of scaffoldings and
accessories and they became part of that provided by Form-Eze to BFC.
At the outset, we agree that the subsequent Memorandum of Agreement
executed by the parties on 5 January 2007 is an exclusive licensing agreement. It
was signed by both parties wherein BFC has agreed to sell the scaffolding frames
and accessories it manufactured to Form-Eze at the end of the project. This
Agreement was incorporated in Contract No. 4 wherein BFC will be allowed to
deduct P6,352,500.00 from the equipment lease contract, which is presumably
Contract No. 1. At this point, Contract No. 4 is deemed to have novated the
obligation of BFC with respect to furnishing all scaffoldings. Contract No. 1 states
that BFC shall furnish the scaffoldings at no cost to Form-Eze. On the other hand,
Contract No. 4 requires BFC to sell the scaffoldings to Form-Eze at the end of the
project and deduct the cost of the same from the contract price of Contract No. 1.
This setup cannot in any way be interpreted as part of the deckform supplied by
Form-Eze. As pointed out by BFC, the scaffoldings and accessories were the
responsibility of BFC under Contract No. 1. Thus, the manufactured hardware
under Contract No. 4 could not have added to the deckform system because they
are not the equipment of Form-Eze had obligated itself to supply under Contract
No. 1.
Obligation of BFC under Contract
No. 2
BFC maintains that since Form-Eze failed to meet the minimum
conditions under Contract No. 1 where the minimum 126,000 contact square
meters were not reached, then the forklifts under Contract No. 2 were also not
used for a minimum of 126,000 contact square meters.
CIVIL LAW REVIEW 2

We agree. BFC is liable only to pay the amount proportionate to

92,696.40 contact square meters at P50.00 per contact square meter, the rental
rate for the forklifts. Thus:
92,696.40 contact square meters x P50.00
P4,634,820.00
=
Less: Payments made 990,000.00
Cost of Labor 1,286,377.50
––––––––––––
SUBTOTAL P2,358,442.50
===========
Obligation of BFC under Contract
No. 3.
The CIAC had correctly noted the ambiguity in Contract No. 3, particularly
the "sufficient number of column forms as required to complete six (6) poured in
place columns per day." For BFC, the sufficient number of column forms is 12
sets a day while Form-Eze considered its supply of six (6) full height built up
column forms as sufficient. The CIAC found that Form-Eze failed to comply with
the requirements under Contract No. 3, hence it merely awarded Form-Eze 2/3
of the minimum contract amount at P2,153,666.67. EcTCAD
We find that the CIAC's award lacked bases. It gave credence to the
methodology used by Form-Eze and noted that the latter had supplied six (6) full
height built-up columnforms, albeitinsufficient. We hold the contrary. The
methodology used by BFC, which involves "columnforms with window openings
and that from its installation, alignment, bracing, inspection, approval of
alignment, verticality and rigidity of the erected columnforms, pouring, drying
and removal of the forms, it will require twelve (12) column forms a day, should
have been considered. The CIAC itself had already ruled that the ambiguity in
Contract No. 3 should not favor Form-Eze, the party who prepared the contract.
Thus, it is only logical that the methodology employed by BFC should be
credited.
Using 12 column forms as the minimum requisite and Form-Eze having
supplied only four (4) usable column forms, it can be established that the
delivered column forms can only be used for 1/3 portion of the 9,100 contact
square meters or 3,033.33 contact square meters. It was further proven by BFC
that about 50% of the column form requirements of the project were already
completed with the use of their own equipment. Thus, it is but equitable that the
3,033.33 contact square meters be further reduced by 50% or 1,516.67 contact
square meters. BFC is then liable to pay P441,502.87 broken down as follows:
1,516.67 x P355.00 = P538,417.85
Less: Cost of Labor 96,915.00
–––––––––––
SUBTOTAL: P441,502.87
CIVIL LAW REVIEW 2

==========
BFC is obliged to pay rental for
u-heads under Letter-Agreement
dated 5 January 2007.
Under the letter dated 8 February 2007, "BFC has completed fabrication
on a sufficient quantity of u-heads with screw assemblies and heavy duty bases
so that BFC can immediately start returning the 24 inch and 18 inch u-head
assemblies (561 pcs) and heavy duty bases (483 pcs) which were on temporary
loan to BFC by [Form-Eze] until BFC could manufacture their own equipment.
The temporary loan was expected to be approximately [two] (2) weeks and the
equipment was picked-up January 9th, 2007 and still in used today." 36 It is
understood that upon expiration of the two-week temporary loan and upon
failure by BFC to return the equipment, it is then liable to pay for rent. We find
that the monthly rental amount of P96,600.00 was substantiated by Form-Eze.
483 pieces of 24 inch and 18 inch galvanized adjustable heads and 483 pieces of
galvanized heavy duty plates were indeed delivered to BFC as evidenced by the
delivery receipts. 37 According to Mr. Clemente, Form-Eze's Sales Engineer, the
rental amount for adjustable u-heads are fixed at P160.00 per unit, while the
galvanized heavy duty plates are at P40.00 per unit. 38 By agreeing to the terms
of the 8 February 2007 Letter, BFC is deemed to have acquiesced to the rental
fee in case it failed to return the u-heads and plates on time. Therefore, we affirm
the CIAC's ruling that BFC is liable to pay rental of the equipment in the amount
of P96,000.00 per month until the equipment leased is fully returned to Form-
Eze.
BFC President should not be included
as party to this case?
Section 4 of Executive Order No. 1008 vests jurisdiction on CIAC over
disputes disputes arising from, or connected with, contracts entered into by
parties involved in construction in the Philippines, whether the dispute arises
before or after the completion of the contract, or after the abandonment or
breach thereof. Moreover, the party involved must agree to submit to voluntary
arbitration. In other words, anyone who is not a party to the contract in his
personal capacity is not subject to the jurisdiction of the CIAC. In this case,
Pineda signed the challenged contracts in his capacity as President of BFC. There
is no indication that he voluntarily submitted himself as a party to the
arbitration case. In fact, he has been consistently contesting his inclusion as a
respondent in the CIAC proceedings. CIAC however considered Pineda as a joint
tortfeasor, thus justifying his joinder as a co-defendant.
We do not consider the imputed acts of Pineda as an indicia of bad faith to
classify him as a joint tortfeasor. First, it was proven that Form-Eze is not
entitled to all its monetary claims under the contract. Second, we have also
subscribed to BFC's position that Contract No. 1 should have included a labor
guarantee provision and that it was by mistake that said clause was excluded.
CIVIL LAW REVIEW 2

Third, BFC's alleged refusal to return the u-head assemblies and heavy duty
bases was meted with a heavy penalty in the form of a huge rental fee. BFC had,
as a matter of fact, admitted to owing Form-Eze rental payment. Fourth, the
claim of threat against Form-Eze's President is unsubstantiated and
uncorroborated.
Attorney's Fees and Costs of Arbitration.
The controversy essentially boils down to the interpretation and factual
application of the existing contracts. Neither party was able to prove bad faith in
their dealing with each other. Under Article 2208 of the Civil Code, attorney's
fees may, among others, be recovered where defendant acted in gross and
evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and
demandable claim. We observe that in filing the complaint against BFC, Form-
Eze was merely seeking payment for its service under the contract. BFC had
admitted to its obligation. The problem lies only on the amount to be paid. This
is not tantamount to bad faith.
Finally, both parties should equally share the costs of arbitration since
their prayers were only partially granted. 39
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated
15 January 2010 and Resolution dated 13 July 2010 are MODIFIED. Petitioner
B.F. Corporation is ordered to pay respondent Form-Eze Systems, Inc. the
following amounts: HSAcaE
Under Contract No. 1: P11,857,317.45
Under Contract No. 2: 2,358,442.50
Under Contract No. 3: 441,502.87
Under Letter-Agreement
dated 7 January 2007: 560,000.00
–––––––––––––
GRAND TOTAL: P15,217,262.82
============
and 50% of the Cost of Arbitration.
SO ORDERED.
Velasco, Jr., Del Castillo, * Reyes and Jardeleza, JJ., concur.
||| (B.F. Corp. v. Form-Eze Systems, Inc., G.R. No. 192948, [December 7, 2016])
THIRD DIVISION
[G.R. No. 208672. December 7, 2016.]
PHILIPPINE NATIONAL BANK, petitioner, vs. PABLO V.

RAYMUNDO, respondent.
CIVIL LAW REVIEW 2

DECISION
PERALTA, J p:
This is a petition for review on certiorari under Rule 45 of the Rules of
Court, seeking to reverse and set aside the Decision 1 dated May 31, 2013 and
the Resolution dated August 14, 2013 of the Court of Appeals (CA) in CA-G.R. CV
No. 96760. The CA denied the appeal of Philippine National Bank (PNB) 2 from
the civil aspect of the Decision dated December 4, 2009 3 of the Regional Trial
Court (RTC) of San Pedro Laguna, Branch 93, which acquitted Pablo V.
Raymundo of the charge of violation of Section 3 (e) of Republic Act (RA) No.
3019, otherwise known as the Anti-Graft and Corrupt Practices Act, in Criminal
Case No. 0414-SPL.
The CA summarized the facts as follows. 4
On July 30, 1993, accused-appellee Pablo V. Raymundo (Raymundo), then
Department Manager of PNB San Pedro Branch, approved for deposit a foreign
draft check dated June 23, 1993, in the amount of $172,549.00 issued by
Solomon Guggenheim Foundation, drawn against Morgan Guaranty Company of
New York, payable to Merry May Juan (Ms. Juan) in the opening of the latter's
checking account with PNB San Pedro Branch. Consequent to the approval for
deposit of the foreign draft check, Checking Account No. 447-810168-1 and a
check booklet were issued to Ms. Juan. On even date, Ms. Juan drew six (6) PNB
Checks, five (5) of which were made payable to C&T Global Futures and one (1)
payable to "CASH", all in the aggregate amount of FOUR MILLION PESOS
(P4,000,000.00). The six (6) checks were negotiated by Ms. Juan and were
approved for payment on the same day by Raymundo, without waiting for the
foreign draft check, intended to fund the issued check, to be cleared by the PNB
Foreign Currency Clearing Unit.
On August 2, 1993, the PNB Foreign Checks Unit and Clearing Services
received the foreign draft check for negotiation with Morgan Trust Company of
New York, through PNB's correspondent bank in New York, the Banker's Trust
Co. of New York (BTCNY_for brevity).
On August 6, 1993 and within the clearing period of twenty-one (21) days
for foreign draft checks, the PNB received a telex message from BTCNY that the
foreign draft check was dishonored for being fraudulent. Subsequent to the said
telex message, a letter dated August 20, 1993 was sent by BTCNY to the PNB
Corporate Auditor stating the same reason for such dishonor.
On September 9, 1993, Mr. Emerito Sapinoso, Department Manager II of
the PNB Foreign Currency Clearing Unit, sent a memorandum to Raymundo, as
then Manager of PNB San Pedro, and informed the latter of the return and
dishonor of the foreign currency draft and the corresponding debit of the PNB's
account to collect the proceeds of the erroneously paid foreign draft check.
CIVIL LAW REVIEW 2

For irregularly approving the payment of the six (6) checks issued by Ms.
Juan, without waiting for the foreign draft check to be cleared, Raymundo, as
then Department Manager of PNB San Pedro Branch, was administratively
charged by PNB for Conduct Prejudicial to the Interest of the Service and/or
Gross Violation of Bank's Rules and Regulations.
Accused Pablo V. Raymundo denied the allegations that he committed
acts which defrauded the PNB of the sum of P4,000,000.00. Outlining the
procedure from the time the check was presented to the PNB San Pedro Laguna
Branch where he worked as Branch Manager up to the time it is paid or
dishonored, he noted that the check will pass through the bookkeeper, Ms.
Leonida Moredo, who would determine if the check is funded or not. If the check
is not funded, the bookkeeper will accomplish a check return slip and will stamp
the back and front of the check that it has no funds and thereafter give it to the
accountant, Rodrigo Camello, to verify if indeed the check is not funded. After the
receipt of the check, the accountant will check the ledger and the circumstances
of the return and thereafter forward the same to the branch manager, or in his
absence, the cashier. Upon receipt of the check deposit slip, the branch manager,
if there is no return slip, would automatically sign the check because the absence
of a return slip is his guide that the check is good. He noted that it is the duty of
the bookkeeper to go over the records of the account of each particular client.
When he came to know that withdrawals had been made on a deposited check
which had no funds, he immediately instructed bookkeeper Leonila Moredo and
accountant Rodrigo Camello to hold further withdrawals on the account. He
likewise filed criminal charges against Merry May Juan. The case was decided in
his favor and the accused therein was made to pay him and the bank the amount
of the check. There was no actual payment made however.
In an Information dated September 27, 1996, the Office of the
Ombudsman charged Raymundo with violation of Section 3 (e) of RA No. 3019,
to wit:
That on or about August 3, 1993, or subsequent thereto, in
San Pedro, Laguna, Philippines and within the jurisdiction of this
Honorable Court, accused Pablo V. Raymundo, then the Assistant
Department Manager of PNB, San Pedro Branch, Laguna, and a
public officer, while in the performance and taking advantage of
his official function as manager, with evident bad faith, manifest
partiality, and gross inexcusable negligence, did then and there
willfully and unlawfully approve/allow the encashment of a total
of six (6) checks drawn against an uncleared foreign checks in
complete disregard of existing banking regulations, that was
subsequently returned by the drawee bank as a fraudulent foreign
check, thus causing undue injury to complainant PNB in the total
sum of P4,000,000.00.
CONTRARY TO LAW.
CIVIL LAW REVIEW 2

Upon arraignment, Raymundo entered a plea of not guilty to the charge.

He waived his right to a pre-trial, and trial on the merits ensued.
After trial, the RTC rendered the Decision dated December 4, 2009, the
dispositive portion of which reads:
In light of the foregoing, it is very clear that the prosecution
failed to establish the guilt of accused Pablo V. Raymundo beyond
reasonable doubt for the crime charged.
Consequently, accused Pablo V. Raymundo is hereby
acquitted of the charge of Violation of Sec. 3(e), R.A. 3019.
No costs.
SO ORDERED.
The RTC held that it would be too harsh and inequitable to impose
criminal liability upon Raymundo, who approved the withdrawal because of his
belief that the checks were funded, due to the absence of the stamp mark
"Returned Check" on the checks, and check return slips. Considering that
Raymundo's duties as Branch Manager entailed a lot of responsibility, the RTC
found it almost unreasonable to expect him to directly and personally check the
books of accounts of each particular client every time a check is presented to the
bank for payment and for his approval. The RTC stressed that it has been
established that the responsibility to go over the account records of clients falls
on the bookkeeper, and Raymundo's act of relying upon the bookkeeper's
verification that the checks were good cannot be deemed gross and inexcusable
negligence.
Aggrieved, the PNB appealed from the civil aspect of the RTC Decision
which acquitted Raymundo of the charge of violation of Section 3 (e) of R.A. No.
3019.
In a Decision dated May 31, 2013, the CA denied the PNB's appeal for lack
of merit. In a Resolution dated August 14, 2013, it also denied the PNB's motion
for reconsideration for lack of merit. It ruled that Raymundo acted in good faith
in relying upon his subordinates, i.e., the bookkeeper and accountant, who were
primarily assigned with the task of clearing the checks and ensuring that they
are sufficiently funded. It held that he has no duty to go beyond the verification
of the documents submitted by the bookkeeper and the accountant, and to
personally authenticate the procedures taken. It added that considering that his
duties as Branch Manager entails a lot of responsibility, it is unreasonable to
require him to accomplish and direct a personal examination of the records of
the account of each particular client before affixing his signature on the
documents as approving authority.
Dissatisfied, the PNB filed this petition for review on certiorari, arguing
that the CA committed serious errors, namely: (1) when it ruled that the trial
court aptly concluded that there was lack of malice or bad faith, nor negligence
on the part of Raymundo in approving the payment of the checks; (2) when it
CIVIL LAW REVIEW 2

failed to consider Raymundo's negligence and entirely disregarded the

testimonial and documentary evidence of the PNB before the trial court; and (3)
when it ruled that Raymundo is not civilly liable for the offense charged. 5
The petition is meritorious.
The Court explains the two kinds of acquittal recognized by law, as well
their effects on the civil liability of the accused, thus:
Our law recognizes two kinds of acquittal, with different
effects on the civil liability of the accused. First is an acquittal on
the ground that the accused is not the author of the act or
omission complained of. This instance closes the door to civil
liability, for a person who has been found to be not the perpetrator
of any act or omission cannot and can never be held liable for such
act or omission. There being no delict, civil liability ex delicto is out
of the question, and the civil action, if any, which may be instituted
must be based on grounds other than the delict complained of.
This is the situation contemplated in Rule 111 of the Rules of
Court. The second instance is an acquittal based on reasonable
doubt on the guilt of the accused. In this case, even if the guilt of
the accused has not been satisfactorily established, he is not
exempt from civil liability which may be proved by preponderance
of evidence only.
The Rules of Court requires that in case of an acquittal, the
judgment shall state "whether the evidence of the prosecution
absolutely failed to prove the guilt of the accused or merely failed
to prove his guilt beyond reasonable doubt. In either case, the
judgment shall determine if the act or omission from which the
civil liability might arise did not exist." 6
In light of the foregoing, Raymundo can still be held civilly liable for the
charge of violation of Section 3 (e) of R.A. No. 3019 because he was only
acquitted for failure of the prosecution to establish his guilt beyond reasonable
doubt, and the RTC and the CA erroneously determined that no civil liability
might arise from his act of relying on the bookkeeper's verification that the six
(6) checks amounting to P4,000,000.00 were all good, but later turned out to be
drawn against uncollected deposit, i.e., the account has, on its face, sufficient
funds but not yet available to the drawer because the deposit, usually a check,
had not yet been cleared. 7
Factual findings of the appellate court generally are conclusive, and carry
even more weight when said court affirms the findings of the trial court, absent
any showing that the findings are totally devoid of support in the records, or that
they are so glaringly erroneous as to constitute grave abuse of discretion. 8 In
this case, however, both the RTC and the CA totally ignored the testimonial and
documentary evidence of the PNB, showing Raymundo's gross negligence in
approving the payment of six (6) checks negotiated by Ms. Juan on August 3,
CIVIL LAW REVIEW 2

1993 and August 5, 1993, without waiting for the foreign draft check intended to
fund the peso checking account she opened on July 30, 1993, to be cleared by the
PNB Foreign Currency Clearing Unit.
Despite their having been identified 9 and formally offered 10 by PNB,
and admitted in evidence 11 by the trial court, the RTC and the CA failed to give
due credence to Raymundo's affidavits, complaints and testimonies before the
other trial courts in San Pedro, Laguna, where he had filed separate criminal and
civil cases against Ms. Juan and her cohorts in order to recover the value of the
six (6) checks which were encashed despite having been drawn against
uncollected deposit. Contrary to Raymundo's claim, such extra-judicial
admissions do not violate his right against self-incrimination, which simply
proscribes the legal process of extracting from the lips of the accused an
admission of guilt. Suffice it to state that Raymundo's Complaints 12 and
Affidavits 13 in the civil and criminal cases he filed against Ms. Juan contain his
voluntary statements, which were subscribed and sworn to either before the
Assistant Provincial Prosecutor and the Judge or the Notary Public, whereas his
testimonies 14 were given during hearings in the said cases. Clearly, Raymundo
is not being compelled to testify against himself. In the same vein, PNB cannot be
faulted for merely using the documentary and testimonial evidence he willingly
proffered in the cases he had filed to recover the losses incurred by the bank due
to his unauthorized approval for payment of the six (6) checks drawn against the
uncollected deposit.
The circumstances showing Raymundo's gross negligence can be
gathered in the Complaint for sure of money he had filed against Ms. Juan and
her cohorts, to wit:
3. That on July 30, 1993, a group of persons composed of
the above-named defendants [including Ms. Juan] who, for some
time, have been known to the plaintiff [Raymundo] as ranking and
top executives of the herein defendant corporation [payee C&T
Global Futures, Inc.] engaged in the foreign currency trading
business, came to the Office of herein plaintiff. They intimated
their plan of opening a current account with the said San Pedro
Branch of the Philippine National Bank. They let it appear that this
was in line with C&T Global Futures, Inc.'s on-going contest which
the said group wanted to win the first prize which was
purportedly a round-trip ticket to Hong Kong. For this purpose,
they wanted the checking account to be opened immediately in the
name of defendant Mary May M. Juan with the amount of
$172,549.00 (P4,778,744.55) embodied in a Morgan Guaranty and
Trust Company of New York Check No. 069748 as initial deposit.
They further assured the herein plaintiff that some more dollars
are coming in the near future if this transaction would prosper;
4. That at first, plaintiff herein [Raymundo] was a bit
hesitant to immediately accommodate the seemingly hasty
CIVIL LAW REVIEW 2

manner of opening a current account not only on the fact that

the amount involved was quite big but also on account that he
was dealing with a foreign check. But when the group,
particularly defendant "Cleo" Tan, showed to him the record
of a just-concluded overseas call confirming that the said
Morgan Guaranty Company check was good, plaintiff allowed
the issuance of six (6) checks bearing different dates in the
total amount of P4,000,000.00 all payable to herein defendant
corporation upon the undertaking of the group that the same
would not be "traded" or negotiated until the said Morgan
Guaranty Trust Co. check has been finally cleared;
5. That in utter violation of the trust and confidence
reposed in them by the herein plaintiff, defendants went on
negotiating all those six (6) checks until it was discovered that the
said Morgan Guaranty Trust Company Check No. 069748 was
"FRAUDULENT" and from all indications, herein defendants are
parts of the criminal syndicate; 15
Raymundo's gross negligence is likewise underscored in the Affidavit
dated October 25, 1993 he had executed to support his complaint
for estafa against Ms. Juan and her cohorts, thus:
2. That on July 30, 1993, while I was at the office of PNB San
Pedro, Laguna, Cleopatra Tan alias "Cleo", Josefina Resari, and
Merry May M. Juan, representing themselves as department
manager, Vice President and employee, respectively of the C&T
Global Futures, Inc., and some persons whose identities are not yet
known, by false pretenses and fraudulent acts, intimated to me
their plan of opening a current account with the Philippine
National Bank San Pedro Branch;
3. That, they told me of their plan of opening a current
account in line with the C&T Global Futures, Inc.'s on-going contest
with the end in view of winning its hefty first prize trip to Hong
Kong and for that purpose they are ready to make an initial
deposit of US$172,549.00, embodied in a Morgan Guaranty Trust
Company of New York [check];
4. That, because what was shown to me was a foreign
check and involving as it does a huge amount of money, I was
hesitant to accommodate them and made further inquiries
from them until Cleopatra Tan gave me a very strong and
convincing assurance that the Morgan Guaranty Check was
good by way of telling me of a just-concluded overseas call
confirming that said check was good, which facts she further
buttressed later by giving a copy of the bill of the detailed
transaction . . . ; IAETDc
CIVIL LAW REVIEW 2

5. That, not knowing their dirty scheme and desirous to

generate bigger bank deposits, I allowed them to make an initial
deposit of US$172,549.00 embodied as earlier stated in a Morgan
Guaranty Trust Company of New York [check] dated June 29, 1993
bearing No. 069748 with Merry May M. Juan as payee, . . . ;
6. That, having been fully assured that the Morgan
check is good and trusting on their respective representations
that they are top executives of the C&T Global Futures, Inc., I
allowed the issuance of six (6) checks, as follows:
PAYEE AMOUNT CHECK DATE
NO.

C&T Global Futures, Inc. P1,090,000.00 004801 July 30, 1993
C&T Global Futures, Inc. 350,000.00 004802 July 30, 1993
C&T Global Futures, Inc. 350,000.00 004803 July 30, 1993
C&T Global Futures, Inc. 1,000,000.00 004804 July 30, 1993
C&T Global Futures, Inc. 1,000,000.00 004805 July 30, 1993
Cash 300,000.00 004806 August 5, 1993

with a total amount of P4,000,000.00, Philippine Currency . . . ;
7. That I allowed the aforecited checks to be issued on
the strong and collective undertaking of all the accused, that
the same would not be traded until after the Morgan Guaranty
Check shall have been cleared;
8. That, in utter disregard of the trust and confidence I
reposed on all of them, in violation of their undertaking, accused
negotiated all the six (6) checks until it was discovered that the
Morgan Guaranty Check was fraudulent . . . as per memorandum of
the Assistant Department Manager II Clearing Services Group,
Philippine National Bank dated September 9, 1993, . . . ; 16
While his prompt filing of criminal and civil cases against Ms. Juan and
her cohorts for the recovery of the money negates bad faith in causing undue
injury to the PNB, it incidentally revealed Raymundo's gross negligence (1) in
allowing the peso conversion of the foreign check to be credited to her newly-
opened peso checking account, 17 even before the lapse of the 21-day clearing
period, and (2) in issuing her a check booklet, all on the very same day the said
account was opened on July 30, 1993. In his desire to secure bigger bank
deposits, Raymundo disregarded the bank's foreign check clearing policy, and
risked his trust and confidence on Ms. Juan's and her cohorts' assurance that the
foreign check was good and that they would not negotiate any check until the
former check is cleared. DcHSEa
CIVIL LAW REVIEW 2


Since their business and industry are imbued with public interest, banks are
required to exercise extraordinary diligence, which is more than that of a
Roman pater familias or a good father of a family, in handling their
transactions. 18 Banks are also expected to exercise the highest degree of
diligence in the selection and supervision of their employees. 19 By the very
nature of their work in handling millions of pesos in daily transactions, the
degree of responsibility, care and trustworthiness expected of bank employees
and officials is far greater than those of ordinary clerks and
employees. 20 SaCIDT
A bank's disregard of its own banking policy amounts to gross negligence,
which is described as "negligence characterized by the want of even slight care,
acting or omitting to act in a situation where there is duty to act, not
inadvertently but willfully and unintentionally with a conscious indifference to
consequences insofar as other persons may be affected." 21 Payment of the
amounts of checks without previously clearing them with the drawee bank,
especially so where the drawee bank is a foreign bank and the amounts involved
were large, is contrary to normal or ordinary banking practice. 22 Before the
check shall have been cleared for deposit, the collecting bank can only assume at
its own risk that the check would be cleared and paid out. 23 As a bank Branch
Manager, Raymundo is expected to be an expert in banking procedures, and he
has the necessary means to ascertain whether a check, local or foreign, is
sufficiently funded.
Raymundo's act of approving the deposit to Ms. Juan's newly-opened
peso checking account of the peso conversion [P4,752,689.65] 24 of the foreign
check prior to the lapse of the 21-day clearing period is the proximate cause why
the six (6) checks worth P4,000,000.00 were later encashed, thereby causing the
PNB undue injury. Defined as that cause which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces injury and
without which the result would not have occurred, the proximate cause can be
determined by asking a simple question: "If the event did not happen, would the
injury have resulted? If the answer is no, then the event is the proximate
cause." 25 If Raymundo did not disregard the bank's foreign check clearing
policy when he approved crediting of the peso conversion of Ms. Juan's foreign
check in her newly-opened peso checking account, the PNB would not have
suffered losses due to the irregular encashment of the six (6) checks.
It is well settled that actual damages, to be recoverable, must not only be
capable of proof, but must actually be proved with a reasonable degree of
certainty. To justify an award of actual damages, there must be competent proof
of the actual amount of loss, credence can be given only to claims which are duly
supported by receipts, and courts cannot simply rely on speculation, conjecture
or guesswork in determining the fact and amount of damages. 26 While the PNB
claims having suffered damages to the extent of P4,000,000.00 due to the
encashment of checks drawn against uncollected deposit, the testimonial and
CIVIL LAW REVIEW 2

documentary evidence on record show that it only incurred losses in the total
sum of P2,100,882.87. Based on the accounts receivable ledger 27 and the PNB's
letter 28 dated December 5, 1995, Raymundo's account receivable was reduced
to P2,100,882.87 after the application of six (6) check payments aggregating
P1,725,172.03 on October 1, 1993. cHECAS
Confirming the two documentary evidence, Jose Rodrigo Cabello, PNB's
own witness and former accountant of its San Pedro Laguna Branch, has testified
that the bank's losses out of Raymundo's approval of the checks per its accounts
receivable ledger, is around P2,100,000.00:
[Atty. Reyes Geromo, counsel for PNB and for the prosecution]
Q. Mr. Witness, as of today do you know how much is still the bank
loss out of the said approval of withdrawal by the accused?
xxx xxx xxx
[PNB Witness Jose Rodrigo Cabello]

A. Around P2,100,000.00, Sir. I think.
Q. And what was your basis Mr. Witness? Do you have evidence to
show that amount Mr. Witness?
A. Yes, Sir.
Q. What particular document, Mr. Witness?
A. The Accounts receivable ledger, Sir.
Q. When you said accounts receivable ledger, is this the document
previously marked as Exhibit "P", Mr. Witness?
A. Yes, Sir. 29
Cabello's testimony is corroborated by Victor Arapan, PNB's witness and
accountant of its San Pedro Branch as of August 14, 2001, who testified that per
its books of account, the amount of P2,100,882.87 remained unpaid or
uncollected by the bank, and is still lodged as account receivable of "Merry May
Juan c/o Pablo Raymundo," and that as of said date, the damages sustained due
to the fraudulent encashment of the foreign check is P5,524,023.57. 30 However,
considering that it failed to formally offer in evidence or at least attach to the
record the statement of account in order to prove such higher amount of
damages, PNB can only be awarded actual damages in the amount of
P2,100,882.87. AHDacC
Since PNB was unduly deprived of its use of the P2,100,882.87 due to
Raymundo's gross negligence, the Court also finds it proper to impose on such
forbearance of money the following legal interests on the damages
awarded, sans an express contract as to such interest rate, in line with current
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jurisprudence: 31 (1) twelve percent (12%) per annum reckoned from the filing
of the criminal information on May 19, 1997 — which is the making of judicial
demand for his liability — until June 30, 2013; 32 (2) the reduced interest of six
percent (6%) per annum from July 1, 2013 33until finality of this Decision; and
(3) the interest rate of 6% per annum from such finality until fully paid.
WHEREFORE, premises considered, the petition is GRANTED, and the
Decision dated May 31, 2013 and the Resolution dated August 14, 2013 of the
Court of Appeals in CA-G.R. CV No. 96760 are REVERSED and SET ASIDE.
Accordingly, petitioner Pablo V. Raymundo is ordered to pay the Philippine
National Bank actual damages in the amount of P2,100,882.87 with the following
legal interest rates, in line with current jurisprudence: 34 (1) twelve percent
(12%) per annum, reckoned from the filing of the criminal information on May
19, 1997 until June 30, 2013; and (2) six percent (6%) per annum from July 1,
2013 until finality of this Decision; and (3) six percent (6%) per annum from
such finality until fully paid.
SO ORDERED.
Velasco, Jr., Perez, Reyes and Jardeleza, JJ., concur.
||| (Philippine National Bank v. Raymundo, G.R. No. 208672, [December 7, 2016])
SPECIAL FIRST DIVISION
[G.R. No. 189563. December 7, 2016.]
GILAT SATELLITE NETWORKS, LTD., petitioner, vs. UNITED

COCONUT PLANTERS BANK GENERAL INSURANCE CO.,
INC., respondent.
RESOLUTION
SERENO, C.J p:
Before this Court is petitioner's Motion for Partial Reconsideration
and/or for Clarification 1 and respondent's Motion for Reconsideration 2 of this
Court's Decision dated 7 April 2014. 3 The Court reversed the Decision 4 and
Resolution 5 of the Court of Appeals (CA) in CA-G.R. CV No. 89263, ordering
petitioner and One Virtual, Inc., to proceed to arbitration, the outcome of which
shall bind the parties herein.
In Our Decision dated 7 April 2014, We held that as a surety to the
principal contract between petitioner (seller) and One Virtual (buyer),
CIVIL LAW REVIEW 2

respondent was liable to petitioner for the failure of One Virtual to pay for the
equipment delivered to the latter as buyer under the Purchase Agreement. 6
We stressed that respondent cannot invoke as a defense the arbitration
clause in the Purchase Agreement, because the existence of a suretyship
agreement does not give the surety (herein respondent) the right to intervene in
the principal contract. The liability of the surety is direct, primary and absolute,
and it may in fact be sued separately or together with the principal debtor. 7
Consequently, We found respondent liable to petitioner for payment of
the debt under the Surety Bond in the amount of one million two hundred
thousand dollars (USD 1.2 million), and interest at the rate of 6% per annum
from 5 June 2000 until satisfaction of the obligation under the Suretyship
Contract and Purchase Agreement. 8
In its Motion for Reconsideration, respondent argues that while the
liability of a surety is principal and direct, such liability presupposes the
existence of a valid principal obligation. 9 In this case, there is a principal
contract, but the obligations stated therein have not been complied with. There
is allegedly no sufficient evidence on record to prove that petitioner was able to
install and commission the equipment and deliver the software under the
Purchase Agreement. 10 The fulfilment of petitioner's obligation under the
Purchase Agreement would have given rise to the concomitant obligation of the
debtor or surety to pay. 11 Petitioner, therefore, cannot demand payment if it
has not complied with its obligations. 12
Respondent also believes that the surety agreement must be applied and
interpreted together with the principal contract, because the surety is bound by
the terms and conditions thereof. Necessarily therefore, the surety — herein
respondent — can invoke the arbitration clause found in the principal
contract. 13
Anent the awarded interest, respondent avers that the Court erred,
because there is no evidence to prove that the delay caused by respondent in the
payment of the supposed obligation to petitioner is inexcusable. Had the latter
completed the delivery, installation and commissioning of the equipment and
software, One Virtual would have made the proper payments, and respondent
would not have incurred any delay. 14
Likewise, respondent contests the award of attorney's fees, in that the
"mere fact that a party was compelled to litigate to protect its rights will not
justify an award of attorney's fees under Article 2208 of the Civil Code when no
sufficient showing of bad faith would be reflected in the other party's
persistence in a case other than an erroneous conviction of righteousness of his
cause." 15 Here, petitioner allegedly failed to present even "a shred of evidence
to prove that respondent acted in gross and evident bad faith in denying the
claim of petitioner under the Surety Agreement." 16 In fact, the lower court
ruled that the delay incurred by respondent was excusable, because the latter
CIVIL LAW REVIEW 2

received advice from One Virtual that petitioner had breached its obligation
under the Purchase Agreement and should therefore not be paid. 17 CAacTH
On the other hand, in its Motion for Partial Reconsideration and/or
for Clarification, petitioner prays for the "reconsideration and/or clarification
of the Decision with respect to: (i) the rate of legal interest due on the principal
debt of US$1.2 Million; (ii) legal interest due on the accrued interest on the
principal debt as of the filing of the Complaint; and (iii) the legal interest due on
the total award (i.e., principal, interest, interest on interest, and the attorney's
fees and litigation expenses) from finality of the Decision until full payment
thereof." 18
In particular, petitioner insists that while the Court correctly held that
respondent's obligation started to run from 5 June 2000 (the date of the
extrajudicial demand), the imposed legal interest of 6%, by virtue of Bangko
Sentral Circular No. 799 (effective 30 June 2013, series of 2013), must be
imposed prospectively. Accordingly, the legal interest of 12% per annum must
be applied from 5 June 2000 up to 30 June 2013, and 6% per annum from 1 July
2013 until full payment. 19
Petitioner also points out that whatever interest is due shall itself earn
legal interest from the time it is judicially demanded, in accordance with Article
2210 of the Civil Code.20 It then claims "interest on the accrued interest on the
principal debt as of the filing of the Complaint on [23 April 2002] when Gilat
judicially demanded payment of interest due on the principal debt," 21 as
follows: cEaSHC
13. As of [23 April 2002], the accrued interest on the
principal debt of US$1.2 Million (computed from 5 June 2000) is
US$270,270. This is computed as follows: US$1.2 Million x 12% x
1.88 years = US$270,270.
xxx xxx xxx
(a) 12% per annum from [23 April 2002] up to 30 June
2013 (i.e., US$270,270 x 12% x 11.19 years = US$363,522.82); and
(b) 6% per annum on US$270,270 from 1 July 2013 until
finality of judgment. 22
Moreover, petitioner insists that when a monetary judgment becomes
final and executory, it shall earn legal interest from the date of its finality until its
satisfaction. Gilat prays that the "Decision expressly state the legal interest of 6%
shall be due from finality until satisfaction, not only on the principal debt but
also on the accrued interest, interest on interests, and on the award of attorney's
fees and litigation expenses." 23
Overall, the Court is being asked to modify the Decision by ordering
respondent to pay petitioner the following amounts:
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(a) US$1.2 Million representing the principal debt under

the Surety Bond;
(b) US$1,882,080 representing legal interest on the
principal debt of US$1.2 Million computed at 12% per annum from
June 5, 2000 up to June 30, 2013;
(c) Legal interest on the principal debt of US$1.2 Million
computed at 6% per annum from July 1, 2013 until finality of
judgment;
(d) US$363,522.82 representing legal interest on the
accrued interest of US$270,270 (i.e., the accrued interest on the
principal debt as of the date of the filing of the Complaint on April
23, 2002) computed at 12% per annum from April 12, 2002 up to
June 30, 2013;
(e) Legal interest on US$270,270 (i.e., the accrued interest
on the principal debt as of the date of the filing of the Complaint on
April 23, 2002) computed at 6% per annum from July 1, 2014 until
finality of judgment;
(f) US$44,004.04 representing attorney's fees and litigation
expenses; and
(g) Legal interest on the total amount due (i.e., the sum of
all the foregoing) as of the date of finality of judgment computed at
6% per annum from the date of finality until full satisfaction of the
total amount due. 24
We agree with petitioner on all points.
First, We reiterate our ruling that although the contract of a surety is in
essence secondary only to a valid principal obligation, the surety's liability to the
creditor or the "promise" of the principal is direct, primary and absolute. 25 The
surety becomes liable for the debt and duty of the principal obligor, even
without possessing a direct or personal interest in the obligations constituted by
the latter. 26
It bears stressing that petitioner did in fact deliver the equipment and
licensing, but that the commissioning was not completed because One Virtual
was already in default at that time. 27Had the latter paid its obligation on time,
then petitioner would not have been forced to stop the
commissioning. 28 Unfortunately, respondent miserably failed to debunk this
argument when it presented witnesses who had no personal knowledge of
petitioner's alleged breach of contract. 29 The trial court rightly treated these
testimonies as hearsay. 30
Accordingly, respondent cannot invoke the arbitration clause, because it
is not a party to the principal contract: the Purchase Agreement. 31 An
arbitration agreement, being contractual in nature, is binding only on the parties
CIVIL LAW REVIEW 2

thereto, as well as their assigns and heirs. 32 We have explained this

exhaustively in Our Decision dated 7 April 2014, but we deem it necessary to
reiterate the relevant portions, to wit:
First, we have held in Stronghold Insurance Co., Inc. v. Tokyu
Construction Co. Ltd., that "[the] acceptance [of a surety
agreement], however, does not change in any material way the
creditor's relationship with the principal debtor nor does it make
the surety an active party to the principal creditor-debtor
relationship. In other words, the acceptance does not give the
surety the right to intervene in the principal contract. The surety's
role arises only upon the debtor's default, at which time, it can be
directly held liable by the creditor for payment as a solidary
obligor." Hence, the surety remains a stranger to the Purchase
Agreement. We agree with petitioner that respondent cannot
invoke in its favor the arbitration clause in the Purchase
Agreement, because it is not a party to that contract. An
arbitration agreement being contractual in nature, it is binding
only on the parties thereto, as well as their assigns and
heirs. CTIEac
Second, Section 24 of Republic Act No. 9285 is clear in
stating that a referral to arbitration may only take place "if at least
one party so requests not later than the pre-trial conference, or
upon the request of both parties thereafter." Respondent has not
presented even an iota of evidence to show that either petitioner
or One Virtual submitted its contesting claim for arbitration. In no
way can respondent be allowed to hide behind the cloak of the
arbitration agreement, because it is not a party thereto, and there
is no referral to arbitrate.
Third, sureties do not insure the solvency of the debtor, but
rather the debt itself. They are contracted precisely to mitigate
risks of non-performance on the part of the obligor. This
responsibility necessarily places a surety on the same level as that
of the principal debtor. The effect is that the creditor is given the
right to directly proceed to either principal debtor or surety. This
is the reason why excussion cannot be invoked. To require the
creditor to proceed to arbitration would render the very essence
of suretyship nugatory and diminish its value in commerce. At any
rate, as we have held in Palmares v. Court of Appeals, "if the surety
is dissatisfied with the degree of activity displayed by the creditor
in the pursuit of his principal, he may pay the debt himself and
become subrogated to all the rights and remedies of the
creditor." 33 [Emphasis and citation omitted]
Second, on the issue of whether or not there is inexcusable delay, We have
already pointed out that petitioner presented sufficient evidence to prove that it
CIVIL LAW REVIEW 2

had complied with the terms and conditions under the Purchase
Agreement. 34 The deposition of Mr. Erez Antebi, vice president of Gilat,
repeatedly stated that petitioner had delivered all the equipment, including the
licensed software; and that the equipment had been installed and, in fact, gone
into operation. Notwithstanding these compliances, respondent still failed to
pay. 35 Assuming arguendo that the commissioning work was not completed,
respondent has no one to blame but its principal, One Virtual; if only the latter
had paid its obligation on time, petitioner would not have been forced to stop
operations. 36
It may not be amiss to point out that mere advice from buyer One Virtual,
Inc. that petitioner did not complete the installation, testing and commissioning
of the ordered equipment, cannot constitute a solid defense without any effort
on the part of respondent to verify the claim. It would be the height of injustice
to excuse the latter from its liability simply because it received unverified advice
from One Virtual, Inc. — advice that is, at best, self-serving evidence. To accept
respondent's defense would run counter to the purpose of sureties, whose
liability is direct, primary and absolute.
Third, on the interest to be imposed, we agree with petitioner that
interest on legal interest is due and demandable, pursuant to Article 2212 of
the Civil Code.37 We have emphasized this rule in PCI Leasing and Finance, Inc. v.
Trojan Metal Industries, Inc., 38 when we said that Article 2212 had in fact been
"incorporated in the comprehensive summary of existing rules on the
computation of legal interest laid down by the Court in Eastern Shipping Lines,
Inc. v. Court of Appeals," 39 as follows:
In accordance with the rules laid down in Eastern Shipping
Lines, Inc. v. Court of Appeals [citation omitted], we derive the
following formula for the RTC's guidance:
TOTAL AMOUNT DUE = [principal - partial payments made]
+ [interest + interest on interest], where
Interest = remaining balance x 12% per annum x no. of
years from due date (8 December 1998 when demand was made)
until date of sale to a third party
Interest on interest = interest computed as of the filing of
the complaint on 7 May 1999 x 12% x no. of years until date of sale
to a third party. 40
While Bangko Sentral-Monetary Board Circular No. 799 (Series of 2013)
modified the legal interest rate from 12% to 6% per annum, the interest must be
applied prospectively in accordance with the Court's pronouncements in Nacar
v. Gallery Frames. 41
Applying the ruling above, We recompute the interests due petitioner, as
follows:

CIVIL LAW REVIEW 2


1. the amount of USD 1.2 million representing the principal debt under
the Surety Bond;
2. legal interest of 12% per annum of the principal amount of USD 1.2
million reckoned from 5 June 2000 until 30 June 2013;
3. legal interest of 6% per annum on the principal amount of USD 1.2
million from 1 July 2013 to date when this Decision becomes final
and executory;
4. 12% per annum applied to the sum of the interests stated in
paragraphs 2 and 3 from 23 April 2002, the date of judicial
demand, to 30 June 2013, as interest due earning legal interest;
5. 6% per annum applied to the sum of the interests stated in paragraphs
2 and 3 from 1 July 2013 to date, when this Decision becomes final
and executory, as interest due earning legal interest; and
6. interest of 6% per annum on the total of the monetary awards in
paragraphs 1 to 5, from the finality of this Decision until full
payment thereof. SaCIDT
We do not deem it necessary to discuss in detail the award of attorney's
fees and litigation expenses awarded to petitioner, this matter having been
sufficiently threshed out by the trial court as follows:
The court grants the claim of attorney's fees and expenses
in the total amount of Forty Four Thousand Four Dollars and Four
Cents (US$44,004.04) as having been sufficiently established by
the plaintiff (Exhibits "I" to "SS" — "SS-2," and as testified to by
Mr. Rizalino Castillo). 42 [Emphasis theirs]
WHEREFORE, in view of the foregoing, we DENY respondent's Motion for
Reconsideration, GRANT petitioner's Motion for Partial Reconsideration and/or
for Clarification, and AFFIRM WITH MODIFICATION our Decision dated 7 April
2014. Respondent United Coconut Planters Bank General Insurance Co., Inc. is
ordered to pay petitioner Gilat Satellite Networks, Ltd. the following:
CIVIL LAW REVIEW 2

1. The amount of USD 1.2 million representing the principal debt under
the Surety Bond;
2. Legal interest of 12% per annum of the principal amount of USD 1.2
million reckoned from 5 June 2000 until 30 June 2013;
3. Legal interest of 6% per annum of the principal amount of USD 1.2
million from 1 July 2013 to date, when this Decision becomes final
and executory;
4. 12% per annum applied to the sum of the interests stated in
paragraphs 2 and 3 from 23 April 2002, the date of judicial
demand, to 30 June 2013, as interest due earning legal interest;
5. 6% per annum applied to the sum of the interests stated in paragraphs
2 and 3 from 1 July 2013 to date, when this Decision becomes final
and executory, as interest due earning legal interest;
6. Interest of 6% per annum on the total of the monetary awards in
paragraphs 1 to 5, from the finality of this Decision until full
payment thereof; and
7. The amount of forty-four thousand four dollars and four cents
(USD44,004.04) representing attorney's fees and litigation
expenses.
SO ORDERED.
Leonardo-de Castro, Bersamin, Reyes and Caguioa, * JJ., concur.
||| (Gilat Satellite Networks, Ltd. v. United Coconut Planters Bank General Insurance
Co., Inc., G.R. No. 189563 (Resolution), [December 7, 2016])
SECOND DIVISION
[G.R. No. 218014. December 7, 2016.]
EDDIE CORTEL y CARNA and YELLOW BUS

LINE, INC., petitioners, vs. CECILE GEPAYA-LIM, respondent.
DECISION
CARPIO, J p:
The Case
Petitioners Eddie Cortel y Carna (Cortel) and Yellow Bus Line, Inc.
(Yellow Bus Line) assail the 16 October 2014 Decision 1 and 21 April 2015
Resolution 2 of the Court of Appeals Cagayan de Oro City in CA-G.R. CV No.
02980. The Court of Appeals affirmed with modification the Judgment, 3 dated
CIVIL LAW REVIEW 2

27 April 2012, of the Regional Trial Court of Midsayap, Cotabato, Branch 18 (trial
court), finding petitioners jointly and severally liable to the heirs of SPO3 Robert
C. Lim (Lim) for the latter's death. AaCTcI
The Antecedent Facts
The Court of Appeals narrated the facts as follows:

On 29 October 2004, Cortel was driving a bus, operated by Yellow Bus
Line, which was on its way from Marbel, Koronadal to Davao City. At around
9:45 in the evening, as the bus was traversing Crossing Rubber in the
Municipality of Tupi, South Cotabato, Cortel noticed two trucks with glaring
headlights coming from the opposite direction. Cortel stated that he was driving
at a speed of 40 to 50 kilometers per hour. He claimed that upon noticing the
trucks, he reduced his speed to 20 kilometers per hour. However, the bus hit a
black motorcycle which allegedly had no tail light reflectors. The impact dragged
the motorcycle at a distance of three meters before it came to a full stop. Lim,
who was riding the motorcycle, was thrown upward and then slammed into the
bus, hitting the base of its right windshield wiper. The motorcycle got entangled
with the broken bumper of the bus. According to Cortel, Lim was wearing a black
jacket and was riding without a helmet at the time of the accident.
Felix Larang (Larang), the bus conductor, alighted from the bus to aid
Lim. Larang gave instructions to Cortel to move back to release Lim and the
motorcycle from the front bumper of the bus. Two bystanders proceeded to the
scene to assist Lim. After reversing the bus and freeing Lim and the motorcycle,
Cortel drove the bus away and went to a nearby bus station where he
surrendered to authorities. Cortel claimed that he left the scene of the incident
because he feared for his life. EcTCAD
Respondent Cecile Gepaya-Lim, Lim's widow, filed a complaint for
damages against petitioners. The case was docketed as Civil Case No. 05-010.
During trial, SPO4 Eddie S. Orencio (SPO4 Orencio), the officer who
investigated the incident, testified that Lim was driving a DT Yamaha 125 black
motorcycle when the accident took place. Cortel's bus and the motorcycle were
going in the same direction. SPO4 Orencio testified that that the bus bumped the
motorcycle from behind. The motorcycle's engine and chassis were severely
damaged, while its rear rim was totally damaged by the accident.
Yellow Bus Line presented and offered in evidence photographs showing
that the bus' right front windshield and wiper were damaged. The bus' lower
right side bumper was also perforated. During the preliminary conference,
Yellow Bus Line also presented Cortel's certificates showing that he attended the
following seminars; (1) Basic Tire Care Seminar; (2) Basic Tire Knowledge and
Understanding Retreading; and (3) Traffic Rules and Regulations, Defensive
CIVIL LAW REVIEW 2

Driving and Road Courtesy Seminar. However, the certificates were not offered
in evidence during trial.
The Decision of the Trial Court
In its 27 April 2012 Judgment, the trial court established that Cortel was
at fault. The trial court found that the bus was running fast when it bumped the
motorcycle ridden by Lim. The trial court ruled that the accident is the
proximate cause of Lim's death. The trial court also ruled that Yellow Bus Line
failed to present sufficient evidence to prove that it exercised due diligence in
the selection and supervision of Cortel.
The dispositive portion of the trial court's decision reads:
WHEREFORE, premises considered, the Court hereby
renders judgment against Defendants Eddie Cortel y Carna and
likewise against the owners of the Yellow Bus Line, Inc., numbered
bus with Body No. A-96, and bearing Plate No. LWE-614, with PDL
No. L05-30-002730; thus pursuant to [A]rticles 2176 and 2180 of
the Civil Code of the Philippines[,] said Defendants are ordered to
pay jointly and severally to the plaintiffs the following amount:
In favor of the heirs of Robert C. Lim represented by
Cecil[]e Gepaya Lim as the surviving spouse, and with [a] living
child, the death compensation of One Hundred Fifty Thousand
Pesos (P150,000.00), plus . . . [:]
a) Funeral and burial expenses of Fifty Thousand Pesos
(P50,000.00); HSAcaE
b) [C]ompensation for loss of earning capacity in the
amount of P100,000.00;
(c) . . . Damages [to] the motorcycle in the amount of
[Fifteen Thousand Pesos] (P15,000.00);
d) Attorney's fees of Fifteen Thousand Pesos (P15,000.00);
e) Costs of suit.
SO ORDERED. 4
Petitioners appealed from the trial court's decision.
The Decision of the Court of Appeals
In its 16 October 2014 Decision, the Court of Appeals applied the doctrine
of res ipsa loquitor.
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The Court of Appeals ruled that Lim died because of the collision between
the bus driven by Cortel and the motorcycle Lim was riding. The Court of
Appeals ruled that both vehicles were driving in the same lane and were headed
towards the same direction. The Court of Appeals noted that vehicles running on
highways do not normally collide unless one of the drivers is negligent. The
Court of Appeals further ruled that Cortel had exclusive control and
management of the bus he was driving. The Court of Appeals found no evidence
that Lim had any contributory negligence in the accident that resulted to his
death. The Court of Appeals ruled that petitioners failed to prove that the
motorcycle had no headlights or that Lim was not wearing a helmet. The Court of
Appeals stated that even if the motorcycle was black and Lim was wearing a
black jacket, these were not prohibited by traffic rules and regulations. The
Court of Appeals noted that upon impact, Lim's body was thrown upward,
indicating that Cortel was driving at high speed. The damages to the motorcycle
and the bus also disproved Cortel's allegation that he was only driving at the
speed of 20 kilometers per hour.
The Court of Appeals ruled that Yellow Bus Line failed to exercise the care
and diligence of a good father of a family in its selection and supervision of its
employees. The Court of Appeals ruled that the certificates presented by Yellow
Bus Line were not admissible in evidence because the police officer who
allegedly signed them was not presented before the trial court. In addition,
Yellow Bus Line did not offer the certificates as evidence during trial.
The Court of Appeals modified the amount of damages awarded to the
heirs of Lim. Using the formula set by this Court in The Heirs of Poe v. Malayan
Insurance Company, Inc. 5 and Villa Rey Transit, Inc. v. Court of Appeals, 6 the
Court of Appeals recomputed Lim's lost earning capacity, as follows:
Life expectancy = 2/3 x [80 - age of deceased at the time of death]
2/3 x [80-41]
2/3 x [39]
FORMULA — NET EARNING CAPACITY (NEC)
If:
Age at time of death of Robert Lim = 41
Monthly Income at time of death = P13,715.00
Gross Annual Income (GAI) = [(P13,715.00) (12)] = P164,580.00
Reasonable/Necessary Living Expenses (R/NLE) - 50% of GAI = P82,290
NEC = [2/3 (80-41)] [164,580-82,290]
= [2/3 (39)] [82,290]
= [26] [82,290]
= P2,139,540.00 7
CIVIL LAW REVIEW 2

Thus, the Court of Appeals found that the award of P100,000 as death
compensation given by the trial court to the heirs of Lim was inadequate.
However, the Court of Appeals reduced the amount of death indemnity from
P150,000 to P50,000. The Court of Appeals deleted the P15,000 awarded by the
trial court for the damages to the motorcycle for absence of proof but awarded
P25,000 for funeral and burial expenses. In addition, the Court of Appeals
awarded P100,000 as moral damages to the heirs of Lim. The dispositive portion
of the Court of Appeals' decision reads:HESIcT
WHEREFORE, the Judgment dated 27 April 2012 of the
Regional Trial Court (Branch 18), 12th Judicial Region, Midsayap,
Cotabato, is AFFIRMED with MODIFICATION. Defendant[]-
appellants Eddie Cortel and Yellow Bus Line, Inc. are hereby
ordered to pay jointly and severally plaintiff-appellee Cecile
Gepaya-Lim the following:
(1) Funeral and burial expenses of P25,000.00;
(2) Actual damages for loss of earning capacity of P2,139,540.00;
(3) Moral damages amounting to P100,000.00;
(4) Death indemnity of P50,000.00; and
(5) Attorney's fees of P15,000.00
After this decision becomes final and executory, interest at
12% per annum shall additionally be imposed on the total
obligation until full payment.
No costs.
SO ORDERED. 8
Petitioners filed a motion for reconsideration. The Court of Appeals
denied the motion in its 21 April 2015 Resolution.
Hence, the recourse before this Court. caITAC
The Issue
Whether the Court of Appeals committed a reversible error in affirming

with modifications the decision of the trial court.
The Ruling of this Court
We deny the petition.

Petitioners want this Court to review the factual findings of both the trial
court and the Court of Appeals. Petitioners allege that the trial court and the
CIVIL LAW REVIEW 2

Court of Appeals erred in concluding that the bus driven by Cortel was running
fast when the accident occurred and in applying the doctrine of res ipsa
loquitur in this case.
The rule is that the factual findings of the trial court, when affirmed by
the Court of Appeals, are binding and conclusive upon this Court. 9 It is also
settled that questions regarding the cause of vehicular accident and the persons
responsible for it are factual questions which this Court cannot pass upon,
particularly when the findings of the trial court and the Court of Appeals are
completely in accord. 10 While there are exceptions to this rule, the Court finds
no justification that would make the present case fall under the exceptions.
As pointed out by the Court of Appeals, the result of the collision speaks
for itself. If, indeed, the speed of the bus was only 20 kilometers per hour as
Cortel claimed, it would not bump the motorcycle traveling in the same direction
with such impact that it threw its rider upward before hitting the base of its right
windshield wiper. If Cortel was driving at 20 kilometers per hour, the bus would
not drag the motorcycle for three meters after the impact. The Court of Appeals
likewise considered the damages sustained by both the motorcycle and the bus
which indicated that Cortel was driving fast at the time of the accident. As
regards petitioners' allegation that Lim was equally negligent because he was
riding without a helmet and the motorcycle had no tail lights, the Court of
Appeals correctly found that it was self-serving because petitioner did not
present any evidence to prove this allegation.
We agree that res ipsa loquitur applies in this case. The Court explained
this doctrine as follows:
While negligence is not ordinarily inferred or presumed,
and while the mere happening of an accident or injury will not
generally give rise to an inference or presumption that it was due
to negligence on defendant's part, under the doctrine of res ipsa
loquitur, which means, literally, the thing or transaction speaks for
itself, or in one jurisdiction, that the thing or instrumentality
speaks for itself, the facts or circumstances accompanying an
injury may be such as to raise a presumption, or at least permit an
inference of negligence on the part of the defendant, or some other
person who is charged with negligence.
. . . [W]here it is shown that the thing or instrumentality
which caused the injury complained of was under the control or
management of the defendant, and that the occurrence resulting in
the injury was such as in the ordinary course of things would not
happen if those who had its control or management used proper
care, there is sufficient evidence, or, as sometimes stated,
reasonable evidence, in the absence of explanation by the
defendant, that the injury arose from or was caused by the
defendant's want of care.
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xxx xxx xxx
The res ipsa loquitur doctrine is based in part upon the theory that the
defendant in charge of the instrumentality which causes the injury either knows
the cause of the accident or has the best opportunity of ascertaining it and that
the plaintiff has no such knowledge, and therefore is compelled to allege
negligence in general terms and to rely upon the proof of the happening of the
accident in order to establish negligence. The inference which the doctrine
permits is grounded upon the fact that the chief evidence of the true cause,
whether culpable or innocent, is practically accessible to the defendant but
inaccessible to the injured person. 11
The elements of res ipsa loquitur are: (1) the accident is of such character
as to warrant an inference that it would not have happened except for the
defendant's negligence; (2) the accident must have been caused by an agency or
instrumentality within the exclusive management or control of the person
charged with the negligence complained of; and (3) the accident must not have
been due to any voluntary action or contribution on the part of the person
injured. 12
In this case, Cortel had the exclusive control of the bus, including its
speed. The bus and the motorcycle were running in the same traffic direction
and as such, the collision would not have happened without negligence on the
part of Cortel. It was established that the collision between the bus and the
motorcycle caused Lim's death. Aside from bare allegations that petitioners
failed to prove, there was nothing to show that Lim had contributory negligence
to the accident. cDHAES
The rule is when an employee causes damage due to his own negligence
while performing his own duties, there arises a presumption that his employer is
negligent. 13 This presumption can be rebutted only by proof of observance by
the employer of the diligence of a good father of a family in the selection and
supervision of its employees. In this case, we agree with the trial court and the
Court of Appeals that Yellow Bus Line failed to prove that it exercised due
diligence of a good father of a family in the selection and supervision of its
employees. Cortel's certificates of attendance to seminars, which Yellow Bus
Line did not even present as evidence in the trial court, are not enough to prove
otherwise.
We sustain the Court of Appeals in its award of loss of earning capacity
and damages to respondent. The increase in the award for loss of earning
capacity is proper due to the computation of the award in accordance with the
following formula:
Net earning capacity = Life Expectancy x [Gross Annual Income -
Living Expenses (50% of gross annual income)], where life
expectancy = 2/3 (80 - the age of the deceased). 14
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We note that the Court of Appeals clearly intended to award to

respondent temperate damages amounting to P25,000 for burial and funeral
expenses, instead of the P15,000 representing the actual damage to the
motorcycle awarded by the trial court, because no evidence was presented to
prove the same. However, the term "temperate damages" was inadvertently
omitted in the dispositive portion of the Court of Appeals' decision although it
was stated that the amount was for funeral and burial expenses. We reduce the
interest rate to 6% per annum on all damages awarded from the date of finality
of this Decision until fully paid. ASEcHI
WHEREFORE, we DENY the petition.
We AFFIRM with MODIFICATION the 16 October 2014 Decision and 21 April
2015 Resolution of the Court of Appeals Cagayan de Oro City in CA-G.R. CV No.
02980. We ORDER petitioners Eddie Cortel y Carna and Yellow Bus Line, Inc. to
pay jointly and severally respondent Cecile Gepaya-Lim the following:
(1) Award for loss of earning capacity amounting to P2,139,540;
(2) Temperate damages amounting to P25,000;
(3) Death indemnity amounting to P50,000;
(4) Moral damages amounting to P100,000; and
(5) Attorney's fees amounting to P15,000
We impose an interest rate of 6% per annum on all damages awarded
from the date of finality of this Decision until fully paid.
SO ORDERED.
||| (Cortel y Carna v. Gepaya-Lim, G.R. No. 218014, [December 7, 2016])

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[DECEMBER 2016 CASES] 1

[G.R. No. 223254. December 1, 2016.]

ROSALIE SY AYSON, petitioner, vs. FIL-ESTATE PROPERTIES, INC.,

[G.R. No. 223269. December 1, 2016.]

FIL-ESTATE PROPERTIES, INC., and FAIRWAYS & BLUEWATER

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In their defense, 10 Fil-Estate and Fairways maintain that the subject

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rental, and the applicable interest rate thereon to be paid by

(c) upon full payment of the ascertained current market value,

PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. WILLY

HERACLEO VALLAR, JR. (a.k.a. ORACLEO VALLAR, JR.), accused-

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Philippines and within the jurisdiction of this Honorable Court, the

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Gingoog City could be reached in only about thirty (3) minutes

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Leonardo-de Castro, Bersamin, Perlas-Bernabe and Caguioa, JJ., concur.

[G.R. No. 195876. December 5, 2016.]

PILIPINAS SHELL PETROLEUM

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oil Provided, That beginning on January 1, 2004 the

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respondent's 29 October 2001 demand letter and demanded payment of the

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ground of implied abandonment pursuant to Sections 1801 and 1802 of

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CLAIM, IF ANY AT ALL, HAS ALREADY PRESCRIBED, ESPECIALLY

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MILLION EIGHT HUNDRED EIGHTY-NINE THOUSAND EIGHT

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arrival as mistakenly interpreted by the CTA Former En Banc. Thus, in the

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xxx xxx xxx

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At the outset, it bears emphasis that the determination of the issues

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any extension thereof from the discharge of the

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The rationale of strict compliance with the non-extendible period of 30

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The rulings in Chevron was generously applied by CTA Former En Banc in

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deleted. I was first wondering whether this would be

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rules and procedures in the release of

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The due notice required under Section

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