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Cabanting vs BPI

(GR 201927 February 17, 2016 Case Digest)


Facts:
Cabanting bought from Diamond Motors / BPI a car on installment basis for which a promissory note
with chattel mortgage was executed. One of the stipulations was that any failure to pay an amount
on schedule will make the entire outstanding sum to become due and payable without prior notice
and demand. When the two Cabantings failed to pay some monthly amortizations, BPI sued them
for replevin and damages. Decision was rendered ordering them to pay the cars unpaid value with
damages. The respondents appealed the decision claiming that there has been no proof of prior
demand and that the stipulation on its waiver must be deemed invalid for being a contract of
adhesion.

Issue 1: W/N a stipulation waiving the necessity of notice and demand is valid
Held:
Yes. Article 1169 of the Civil Code provides that one incurs in delay or is in default from the time the
obligor demands the fulfillment of the obligation from the obligee. However, Article 1169 (1) also
expressly provides that demand is not necessary under certain circumstances, and one of these
circumstances is when the parties expressly waive demand.

Issue 2: W/N a contract of adhesion such assun life in this case is valid
Held:
Yes. A contract of adhesion is just as binding as ordinary contracts. Such are not invalid per se and
are not entirely prohibited because the one who adheres to the contract is in reality free to reject it
entirely. If the other party adheres, he gives his consent.

The court may strike down such contracts as void when the weaker party is deprived of the
opportunity to bargain at an equal footing. Here, there is no proof that petitioners were
disadvantaged, uneducated or utterly inexperienced in dealing with financial institutions; thus, there
is no reason for the court to step in and protect the interest of the supposed weaker party.

Issue 3: W/N a prior demand is required in actions for replevin


Held:
No. Prior demand is not a condition precedent to an action for a writ of replevin, since there is
nothing in Section 2, Rule 60 of the Rules of Court that requires the applicant to make a demand on
the possessor of the property before an action for a writ of replevin could be filed.

SECOND DIVISION

G.R. No. 201264, January 11, 2016

FLORANTE VITUG, Petitioner, v. EVANGELINE A. ABUDA201927, Respondent.


DECISION

LEONEN, J.: chanRoblesvirtualLawlibrary

Parties who have validly executed a contract and have availed themselves of its benefits may not, to escape
their contractual obligations, invoke irregularities in its execution to seek its invalidation.

This is a Petition for Review on Certiorari under Rule 45 assailing the Court of Appeals' October 26, 2011
Decision and its March 8, 2012 Resolution. The Court of Appeals affirmed the Regional Trial Court's
December 19, 2008 Decision upholding the validity of the mortgage contract executed by petitioner Florante
Vitug (Vitug) and respondent Evangeline A. Abuda (Abuda).

On March 17, 1997, Abuda loaned P250,000.00 to Vitug and his wife, Narcisa Vitug. 1 As security for the
loan, Vitug mortgaged to Abuda his property in Tondo Foreshore along R-10, Block A-50-3, Del Pan to
Kagitingan Streets, Tondo, Manila.2 The property was then subject of a conditional Contract to Sell between
the National Housing Authority and Vitug. Pertinent portions of the mortgage deed reads

That, Mortgagor, is the owner, holder of a Conditional Contract to Sell of the National Housing Authority
(NHA) over a piece of property located at the Tondo Foreshore along R-10, Block "A-50-3, Delpan to
Kagitingan Streets in the district of Tondo, Manila;

That, with the full consent of wife Narcisa Vitug, hereby mortgage to Evangeline A. Abuda, with full consent
of husband Paulino Abuda, said property for TWO HUNDRED FIFTY THOUSAND PESOS ONLY (P250,000.00),
in hand paid by Mortgagee and in hand received to full satisfaction by Mortgagor, for SIX MONTHS (6) within
which to pay back the full amount plus TEN PERCENT (10%) agreed interest per month counted from the
date stated hereon;

That, upon consummation and completion of the sale by the NHA of said property, the title-award thereof,
shall be received by the Mortgagee by virtue of a Special Power of Attorney, executed by Mortgagor in her
favor, authorizing Mortgagee to expedite, follow-up, cause the release and to received [sic] and take
possession of the title award of the said property from the NHA, until the mortgage amount is fully paid for
and settled[.]3
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On November 17, 1997, the parties executed a "restructured" 4 mortgage contract on the property to secure
the amount of P600,000.00 representing the original P250,000.00 loan, additional loans, 5 and subsequent
credit accommodations6 given by Abuda to Vitug with an interest of five (5) percent per month. 7 By then,
the property was covered by Transfer Certificate of Title No. 234246 under Vitug's name. 8

Spouses Vitug failed to pay their loans despite Abuda's demands. 9

On November 21, 2003, Abuda filed a Complaint for Foreclosure of Property before the Regional Trial Court
of Manila.10

On December 19, 2008, the Regional Trial Court promulgated a Decision in favor of Abuda.11The dispositive
portion of the Decision reads

WHEREFORE, judgment is rendered in favor of the plaintiffs [sic] and against the defendant

1. Ordering the defendant to pay unto the court and/or to the judgment debtor within the reglementary
period of Ninety (90) days the principal sum of P600,000.00 with interest at 5% per month from May 31,
2002 to actual date of payment plus P20,000.00 as and for attorney's fees;

2. Upon default of the defendant to fully pay the aforesaid sums, the subject mortgaged property shall be
sold at public auction to pay off the mortgage debt and its accumulated interest plus attorney's fees,
expenses and costs; and

3. After the confirmation of the sale, ordering the defendant and all persons claiming rights under her [sic]
to immediately vacate the subject premises.

SO ORDERED.12 cralawla wlibrary

Vitug appealed the December 19, 2008 Regional Trial Court Decision before the Court of Appeals. 13 He
contended that the real estate mortgage contract he and Abuda entered into was void on the grounds of
fraud and lack of consent under Articles 1318, 1319, and 1332 of the Civil Code. 14 He alleged that he was
only tricked into signing the mortgage contract, whose terms he did not really understand. Hence, his
consent to the mortgage contract was vitiated.15

On October 26, 2011, the Court of Appeals promulgated a Decision, 16 the dispositive portion of which reads

WHEREFORE, the instant appeal is PARTIALLY GRANTED. The Decision of the RTC dated December 19,
2008 in Civil Case No. 03-108470 in favor of the appellee and against the appellant is AFFIRMED with
the MODIFICATION that an interest rate of 1% per month or 12% per annum shall be applied to the
principal loan of P600,000.00, computed from the date of judicial demand, i.e., November 21, 2003; and
12% interest per annum on the amount due from the date of the finality of the Decision until fully paid.

SO ORDERED.17
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The Court of Appeals found that Vitug failed to pay his obligation within the stipulated six-month period
under the March 17, 1997 mortgage contract.18 As a result of this failure, the parties entered into a
restructured mortgage contract on November 17, 1997.19 The new mortgage contract was signed before a
notary public by Vitug, his wife Narcisa, and witnesses Rolando Vitug, Ferdinand Vitug, and Emily Vitug. 20

The Court of Appeals also found that all the elements of a valid mortgage contract were present in the
parties' mortgage contract.21 The mortgage contract was also clear in its termsthat failure to pay the
P600,000.00 loan amount, with a 5% interest rate per month from November 17, 1997 to November 17,
1998, shall result in the foreclosure of Vitug's mortgaged property.22 No evidence on record showed that
Vitug was defrauded when he entered into the agreement with Abuda. 23

However, the Court of Appeals found that the interest rates imposed on Vitug's loan were "iniquitous,
unconscionable[,] and exorbitant."24 It instead ruled that a legal interest of 1% per month or 12% per
annum should apply from the judicial demand on November 21, 2003. 25 cralawre d

Court of Appeals partly granted the Petitioners appeal, ordering to pay with the reduced interest rate of 1%
per month.

On November 23, 2011, Vitug moved for the reconsideration of the Court of Appeals' October 26, 2011
Decision.26 He pointed out that not all the requisites of a valid mortgage contract were present since he did
not have free disposal of his property when he mortgaged it to Abuda. His transfer certificate of title had an
annotation by the National Housing Authority, which restricted his right to dispose or encumber the
property.27 The restriction clause provided that the National Housing Authority's consent must first be
obtained before he may dispose or encumber his property.28

Abuda, according to Vitug, failed to get the National Housing Authority's consent before the property was
mortgaged to him.

Vitug also argued in his Motion for Reconsideration that the property was exempt from execution because it
was constituted as a family home before its mortgage.

Vitug argued that not all the requisites of a valid mortgage contract were present since he did not have free
disposal of his property when he mortgaged it to Abuda. His transfer certificate of title had an annotation by
the National Housing Authority, which restricted his right to dispose or encumber the property.27 The
restriction clause provided that the National Housing Authority's consent must first be obtained before he
may dispose or encumber his property. NHAs consent was not obtained.

In the Resolution promulgated on March 8, 2012,29 the Court of Appeals denied Vitug's Motion for
Reconsideration.

Vitug filed this Petition for Review on Certiorari under Rule 45 to assail the Court of Appeals' October 26,
2011 Decision and its March 8, 2012 Resolution.

Vitug raises the following issues: chanRoble svirtualLawlibrary

First, whether petitioner Florante Vitug may raise in this Petition issues regarding the National Housing
Authority's alleged lack of consent to the mortgage, as well as the exemption of his property from
execution;

Second, whether the restriction clause in petitioner's title rendered invalid the real estate mortgage he and
respondent Evangeline Abuda executed; and

Lastly, whether petitioner's property is a family home that is free from execution, forced sale, or attachment
under the Family Code.30

We deny the Petition.

Petitioner argues that not all the requisites of a valid mortgage are present. 31 A mortgagor must have free
disposal of the mortgaged property.32 The existence of a restriction clause33 in his title means that he does
not have free disposal of his property.34 The restriction clause does not allow him to mortgage the property
without the National Housing Authority's approval.35 Since the National Housing Authority never gave its
consent to the mortgage,36 the mortgage contract between him and respondent is invalid.37

On the other hand, respondent argues that the only issue in this case should be the validity of the real
estate mortgage executed by petitioner in her favor.38 Petitioner raised other issues, such as the alleged lack
of written consent by the National Housing Authority (and the property's exemption from execution), only in
his Motion for Reconsideration before the Court of Appeals. 39

Respondent also argues that the National Housing Authority issued a Permit to Mortgage the property. This
was formally offered in evidence before the Regional Trial Court as Exhibit "E." 40 The National Housing
Authority even accepted respondent's personal checks to settle petitioner's mortgage obligations to the
National Housing Authority.41 The National Housing Authority would have already foreclosed petitioner's
property if not for the loan that respondent extended to petitioner.42

Petitioner counters that the Permit to Mortgage cited by respondent was only valid for 90 days and was
subject to the conditions that respondent failed to fulfill. These conditions are

(1) The Mortgage Contract must provide that

"In the event of foreclosure, the NHA shall be notified of the date, time and place of the auction sale so that
it can participate in the foreclosure sale of the property."
(2) The mortgage contract must be submitted to NHA for verification and final approval[.] 43

Thus, according to petitioner, there was neither written consent nor approval by the National Housing
Authority of the mortgage contracts.44 cralawla wlibrary

Petitioner further contends that the alleged lack of NHA consent on the mortgage (and, being a family home,
his property's exemption from execution) was raised in his Answer to respondent's complaint for foreclosure
filed before the Regional Trial Court, thus
20. Similarly, defendant has constituted their family home over said mortgage property and should that
property be sold, defendant and his family will be left with no place to reside with [sic] within Metro Manila,
hence, for humanitarian reason[s], the defendant prayed that he be given ample time within which to settle
his obligation with the plaintiff;

21. Lastly, the Memorandum of Encumbrances contained at the back of defendant's title prohibits her from
selling, encumbering, mortgaging, leasing, sub-leasing or in any manner altering or disposing the lot or
right thereon, in whole or in part within the period often (10) years from the time of issuance of said title
without first obtaining the consent of the NHA. As reflected in the title, the same was issued on 25 June
1997 hence, the mortgage executed even prior to the issuance of said title should be declared void. 45
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Due process46 dictates that arguments not raised in the trial court may not be considered by the reviewing
court.47

Petitioner may raise in his Petition the issues of lack of the National Housing Authority's consent to the
mortgage and his property's alleged exemption from execution.

The records show that petitioner mentioned these issues as early as in his Answer to respondent's
Complaint48 and Pre-trial Brief.49 The trial court acknowledged these issues, but found that his defenses
based on these grounds could not be given credence

The defendant further stated that he is willing to pay the obligation is unconscionable. Further, the said
property constituted their family home. The defendant claimed that Memorandum of Encumbrance prohibits
her from selling, encumbering, mortgaging, leasing, subleasing or in any manner altering or disposing the
lot or right thereon in whole or in part within ten (10) years from the time of issuance of the said title
without obtaining the consent of the NHA.

. . . The court opines that the defendant has failed to raise a legitimate and lawful ground in order to bar the
herein plaintiff from asserting its lawful right under the law.

The contention of the defendant that the subject mortgaged property is their family home is irrelevant as
the debt secured by mortgages on the premises before or after the constitution of the family home does not
exempt the same from execution (Rule 106 of the Rules of Court).50 cralawlawlibrary

Whether these arguments seasonably raised are valid is, however, a different matter.

II

All the elements of a valid mortgage contract were present. For a mortgage contract to be valid, the
absolute owner of a property must have free disposal of the property.51 That property must be used to
secure the fulfillment of an obligation.52 Article 2085 of the Civil Code provides

Art. 2085. The following requisites are essential to contracts of pledge and mortgage

(1) That they be constituted to secure the fulfillment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in
the absence thereof, that they be legally authorized for the purpose.
....
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Petitioner, who held under his name a transfer certificate of title to the property, mortgaged the property to
respondent to secure the payment of his loan of P600,000.00.

Petitioner claims that he only borrowed P250,000.00 and that he was only made to sign another mortgage
contract whose terms he did not agree to.

These claims were already found by the trial court and the Court of Appeals to be unsupported by evidence.
Petitioner's consent to the mortgage contract dated November 17, 1997 was not vitiated. He voluntarily
signed it in the presence of a notary public, his wife, and other witnesses. 53

Further, the amount of P600,000.00 under the November 17, 1997 mortgage contract represented the initial
loan of P250,000.00 and the subsequent loan amounts, which were found to have been actually released to
petitioner. The November 17, 1997 mortgage contract reflected the changes in the parties' obligations after
they executed the March 17, 1997 mortgage contract.

This court is not a trier of facts. As a general rule, findings of fact of the lower court and of the Court of
Appeals are not reviewable and are binding upon this court 54 unless the circumstances of the case are shown
to be covered by the exceptions.55 Petitioner failed to show any ground for this court to review the trial
court's and the Court of Appeals' finding that petitioner mortgaged his property in consideration of a loan
amounting to P600,000.00.

Petitioner's undisputed title to and ownership of the property is sufficient to give him free disposal of it. As
owner of the property, he has the right to enjoy all attributes of ownership including jus disponendi or the
right to encumber, alienate, or dispose his property "without other limitations than those established by
law."56

Petitioner's claim that he lacks free disposal of the property stems from the existence of the restrictions
imposed on his title by the National Housing Authority. These restrictions were annotated on his title, thus

Entry No. 4519/V-013/T-234246 -RESTRICTION-that the Vendee shall not sell, encumber, mortgage, lease,
sub-let or in any manner, alter or dispose the lot or right therein at any time, in whole or in part without
obtaining the written consent of the Vendor. Other restrictions set forth in Doc. No. 287; Page No. 59; Book
No. 250; SERIES of 1997 of Notary Public for Quezon City, Liberty S. Perez.

Date of instrument - June 24, 1997


Date of inscription- June 25, 1997- 11:39 a.m.57
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The National Housing Authority's restrictions were provisions in a contract it executed with petitioner. This
contract bound petitioner to certain conditions before transferring or encumbering the property. Specifically,
when the National Housing Authority sold the property to petitioner, petitioner became obligated not to sell,
encumber, mortgage, lease, sublease, alter, or dispose the property without the National Housing Authority's
consent.

These restrictions do not divest petitioner of his ownership rights. They are mere burdens or limitations on
petitioner's jus disponendi. Thus, petitioner may dispose or encumber his property. However, the disposition
or encumbrance of his property is subject to the limitations and to the rights that may accrue to the National
Housing Authority. When annotated to the title, these restrictions serve as notice to the whole world that the
National Housing Authority has claims over the property, which it may enforce against others.

Contracts entered into in violation of restrictions on a property owner's rights do not always have the effect
of making them void ab initio.58 This has been clarified as early as 1956 in Municipality of Camiling v.
Lopez.59

The Municipality of Camiling sought to collect from Diego Z. Lopez payments for the lease of "certain
fisheries." As. a defense, Diego Z. Lopez invoked the alleged nullity of the lease contract he entered into
with the Municipality of Camiling.
Citing Municipality of Hagonoy v. Evangelista,60 the trial court ruled that the lease contract between the
Municipality of Camiling and Diego Z. Lopez was void since it "was not approved by the provincial governor
in violation of section 2196 of the Revised Administrative Code." 61 This court reversed the trial court's
Decision and noted the incorrect interpretation in Municipality of Hagonoy of the term "nulos" under Article 4
of the then Civil Code: "Son nulos los actos ejecutados contra lo dispuesto en la ley, salvo los casos en que
la naisma ley or dene su validez."62

In Municipality of Camiling, this court explained that void acts declared in Article 4 of the Old Civil
Code63 refer to those made in violation of the law. Not all those acts are void from the beginning. Void acts
may be "those that are ipso facto void and those which are merely voidable."64

The lease contract executed by the Municipality of Camiling and Diego Z. Lopez was not treated as ipso
facto void. Section 2196 of the Administrative Code required the provincial governor's approval before the
municipal council entered into contracts. However, the same provision did not prohibit the municipal council
from entering into contracts involving the properties of the municipality.65 The municipal council's exercise of
power to enter into these contracts might have been limited, but its power was recognized. This court found
that aside from the lack of approval, the contract had no badge of illegality that would make it ipso
facto void. The execution of the contract was not tainted with violation of public order, morality, or public
policy. The contract could have been ratified. Hence, this court said that it was "merely voidable at the
option of the party who in law is granted the right to invoke its invalidity." 66

The same doctrine was repeated in Sarmiento v. Salud,67 which involved a property in Kamuning, Quezon
City. The property was sold by Philippine Homesite and Housing Corp. to Spouses Francisco and Marcelina
Sarmiento. The transfer certificate of title that covered the property contained an annotation stating that the
property was sold on the condition that it could not be resold within 25 years from contract date. Sale could
be made within the period only to People's Homesite and Housing Corporation. 68 Spouses Sarmiento later
mortgaged the property to Jorge Salud. Because Spouses Sarmiento failed to redeem the property, the
sheriff auctioned and sold the property to Jorge Salud, who was issued a certificate of sale.

Spouses Sarmiento sought to prevent the foreclosure of the property by filing an action for annulment of the
foreclosure proceedings, sale, and certificate of sale on the ground that the prohibition against sale of the
property within 25 years was violated.

This court did not declare the contract void for violating the condition that the property could not be resold
within 25 years. Instead, it recognized People's Homesite and Housing Corporation's right to cause the
annulment of the contract. Since the condition was made in favor of People's Homesite and Housing
Corporation, it was the Corporation, not Spouses Sarmiento, who had a cause of action for annulment. 69 In
effect, this court considered the contract between Spouses Sarmiento and Jorge Salud as merely voidable at
the option of People's Homesite and Housing Corporation.

Thus, contracts that contain provisions in favor of one party may be void ab initio or voidable. 70Contracts
that lack consideration,71 those that are against public order or public policy,72 and those that are attended
by illegality73 or immorality74 are void ab initio.

Contracts that only subject a property owner's property rights to conditions or limitations but otherwise
contain all the elements of a valid contract are merely voidable by the person in whose favor the conditions
or limitations are made.75

The mortgage contract entered into by petitioner and respondent contains all the elements of a valid
contract of mortgage. The trial court and the Court of Appeals found no irregularity in its execution. There
was no showing that it was attended by fraud, illegality, immorality, force or intimidation, and lack of
consideration.

At most, therefore, the restrictions made the contract entered into by the parties voidable 76 by the person in
whose favor they were madein this case, by the National Housing Authority.77 Petitioner has no actionable
right or cause of action based on those restrictions. 78

Having the right to assail the validity of the mortgage contract based on violation of the restrictions, the
National Housing Authority may seek the annulment of the mortgage contract. 79 Without any action from the
National Housing Authority, rights and obligations, including the right to foreclose the property in case of
non-payment of the secured loan, are still enforceable between the parties that executed the mortgage
contract.

The voidable nature of contracts entered into in violation of restrictions or conditions necessarily implies that
the person in whose favor the restrictions were made has two (2) options. It may either: (1) waive 80 its
rights accruing from such restrictions, in which case, the duly executed subsequent contract remains valid;
or (2) assail the subsequent contract based on the breach of restrictions imposed in its favor.

In Sarmiento, this court recognized that the right to waive follows from the right to invoke any violation of
conditions under the contract. Only the person who has the right to invoke this violation has the cause of
action for annulment of contract. The validity or invalidity of the contract on the ground of the violation is
dependent on whether that person will invoke this right. Hence, there was effectively a waiver on the part of
People's Homesite and Housing Corporation when it did not assail the validity of the mortgage in that case

It follows that on the assumption that the mortgage to appellee Salud and the foreclosure sale violated the
condition in the Sarmiento contract, only the PHHC was entitled to invoke the condition aforementioned, and
not the Sarmientos. The validity or invalidity of the sheriffs foreclosure sale to appellant Salud thus
depended exclusively on the PHHC; the latter could attack the sale as violative of its right of exclusive
reacquisition; but it (PHHC) also could waive the condition and treat the sale as good, in which event, the
sale can not be assailed [for] breach of the condition aforestated. Since it does not appear anywhere in the
record that the PHHC treated the mortgage and foreclosure sale as an infringement of the condition, the
validity of the mortgage, with all its consequences, including its foreclosure and sale thereat, can not be an
issue between the parties to the present case. In the last analysis, the appellant, as purchaser at the
foreclosure sale, should be regarded as the owner of the lot, subject only to the right of PHHC to have his
acquisition of the land set aside if it so desires. 81
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There is no showing that the National Housing Authority assailed the validity of the mortgage contract on the
ground of violation of restrictions on petitioner's title. The validity of the mortgage contract based on the
restrictions is not an issue between the parties. Petitioner has no cause of action against respondent based
on those restrictions. The mortgage contract remains binding upon petitioner and respondent.

In any case, there was at least substantial compliance with the consent requirement given the National
Housing Authority's issuance of a Permit to Mortgage. The Permit reads

25 November 1997

MR. FLORANTE VITUG


901 Del Pan Street
Tondo, Manila

PERMIT TO MORTGAGE

Dear Mr. Vitug,

Please be informed that your request dated 20 November 1997 for permission to mortgage Commercial Lot
5, Block 1, Super Block 3, Area I, Tondo Foreshore Estate Management Project covered by TCT No. 234246
is hereby GRANTED subject to the following terms and conditions

1. The Mortgage Contract must provide that

"In the event of foreclosure, the NHA shall be notified of the date, time and place of the auction sale so that
it can participate in the foreclosure sale of the property."

2. The mortgage contract must be submitted to NHA for verification and final approval; and
3. This permit shall be good only for a period of ninety (90) days from date of receipt hereof.

Very truly yours,


(Signed)
Mariano M. Pineda
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General Manager82

Petitioner insists that the Permit cannot be treated as consent by the National Housing Authority because of
respondent's failure to comply with its conditions.

However, a reading of the mortgage contract executed by the parties on November 17, 1997 shows
otherwise. The November 17, 1997 mortgage contract had references to the above conditions imposed by
the National Housing Authority, thus

It is the essence of this Contract, that if and should the Mortgagor fails to comply and pay the principal
obligations hereon within the period of the Contract, the Mortgage shall be foreclosed according to law and
in which case the NHA shall be duly notified of the matter.

That this mortgage contract shall be submitted to the NHA for verifixation [sic] and final approval in
accordance with NHA permit to mortgage the property.83(Emphasis supplied) cralawlawlibrary

Assuming there was non-compliance with the conditions set forth in the Permit, petitioner cannot blame
respondent. The restrictions were part of the contract between the National Housing Authority and
petitioner. It was petitioner, not respondent, who had the obligation to notify and obtain the National
Housing Authority's consent within the prescribed period before sale or encumbrance of the property.

Petitioner cannot invoke his own mistake to assail the validity of a contract he voluntarily entered into. 84

III

Even if the mortgage contract were illegal or wrongful, neither of the parties may assail the contract's
validity as against the other because they were equally at fault. 85 This is the principle of in pari delicto(or in
delicto) as embodied in Articles 1411 and 1412 of the Civil Code

Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act
constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other,
and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects or
instruments of a crime shall be applicable to the things or the price of the contract.

This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he
has given, and shall not be bound to comply with his promise.

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense,
the following rules shall be observed

(1) When the fault is on the part of both contracting parties, neither may recover what he has given by
virtue of the contract, or demand the performance of the other's undertaking;

(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of
the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may
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Under this principle, courts shall not aid parties in their illegal acts. 86 The court shall leave them as they
are.87 It is an equitable principle that bars parties from enforcing their illegal acts, assailing the validity of
their acts, or using its invalidity as a defense.88

In the 1906 case of Batarra v. Marcos,89 this court declared that a person cannot enforce a promise to marry
based on the consideration of "carnal connection." This court ruled that whether or not such consideration
was a crime, neither of the parties can recover because the acts "were common to both parties." 90

In Bough v. Cantiveros,91 this court refused to enforce in favor of the guilty parties a contract of sale that
was not only simulated but also executed to defeat any attempt by a husband to recover properties from his
wife.

Another case, Liguez v. Court of Appeals,92 involves a party's claim over a property based on a deed of
donation executed in her favor when she was 16 years old. The heirs of the donor assailed the donation on
the ground of having an illicit causa.

The donor in that case was found to have had sexual relations with the claimant. The donation was done to
secure the claimant's continuous cohabitation with the donor, as well as to gratify the donor's sexual
impulses. At the time of the donation, the donor was married to another woman. The donated property was
part of their conjugal property.

This court held that the donation was founded on an illicit causa. While this court found the principle of in
pari delicto inapplicable in that case given the claimant's minority at the time of donation, it had the
occasion to say that the parties were barred "from pleading the illegality of the bargain either as a cause of
action or as a defense."93 The claimant was declared entitled to the donated property, without prejudice to
the share and legitimes of the donor's forced heirs.

In the later case of Villegas v. Rural Bank of Tanjay, Inc.,94 this court ruled that the petitioners in that case
were not entitled to relief because they did not come to court with clean hands.

This court found that they "readily participated in a ploy to circumvent the Rural Banks Act and offered no
objection when their original loan of P350,000.00 was divided into small separate loans not exceeding
P50,000.00 each."95 They and respondent bank were in pari delicto. They could not be given affirmative
relief against each other.96 Hence, Spouses Villegas may not seek the annulment of the loan and mortgage
contracts they voluntarily executed with respondent bank on the ground that these contracts were simulated
to make it appear that the loans were sugar crop loans, allowing respondent bank to approve it pursuant to
Republic Act No. 720, otherwise known as the Rural Banks Act.

The principle of in pari delicto admits exceptions. It does not apply when the result of its application is
clearly against statutory law, morals, good customs, and public policy.97

In Philippine Banking Corporation, representing the Estate of Justina Santos v. Lui She,98 this court refused
to apply the principle of in pari delicto. Applying the principle meant that this court had to declare as valid
between the parties a 50-year lease contract with option to buy, which was executed by a Filipino and a
Chinese citizen. This court ruled that the policy to conserve land in favor of Filipinos would be defeated if the
principle of in pari delicto was applied instead of setting aside the contracts executed by the parties. 99

Petitioner in this case did not come to this court with clean hands. He was aware of the restrictions in his
title when he executed the loan and mortgage contracts with respondent. He voluntarily executed the
contracts with respondent despite this knowledge. He also availed himself of the benefits of the loan and
mortgage contract. He cannot now assail the validity of the mortgage contract to escape the obligations
incurred because of it.100

Petitioner also failed to show that upholding the validity of the mortgage contract would be contrary to law,
morals, good customs, and public policy.

Petitioner's contract with the National Housing Authority is not a law prohibiting the transfer or encumbrance
of his property. It does not render subsequent transactions involving the property a violation of morals, good
customs, and public policy. Violation of its terms does not render subsequent transactions involving the
property void ab initio.101 It merely provides the National Housing Authority with a cause of action to annul
subsequent transactions involving the property.

IV
Petitioner argues that the property should be exempt from forced sale, attachment, and execution, based on
Article 155 of the Family Code.102 Petitioner and his family have been neighbors with respondent since 1992,
before the execution of the mortgage contract.103

Even though petitioner's property has been constituted as a family home, it is not exempt from execution.
Article 155 of the Family Code explicitly provides that debts secured by mortgages are exempted from the
rule against execution, forced sale, or attachment of family home

Art. 155. The family home shall be exempt from execution, forced sale or attachment except

(3) For debts secured by mortgages on the premises before or after such constitution[.] cralawlawlibrary

Since petitioner's property was voluntarily used by him as security for a loan he obtained from respondent, it
may be subject to execution and attachment.

The Court of Appeals correctly found that the interest rates of 5% or 10% per month imposed on petitioner's
loan were unconscionable.

Parties are free to stipulate interest rates in their loan contracts in view of the suspension of the
implementation of the Usury Law ceiling on interest effective January 1, 1983. 104

The freedom to stipulate interest rates is granted under the assumption that we have a perfectly competitive
market for loans where a borrower has many options from whom to borrow. It assumes that parties are on
equal footing during bargaining and that neither of the parties has a relatively greater bargaining power to
command a higher or lower interest rate. It assumes that the parties are equally in control of the interest
rate and equally have options to accept or deny the other party's proposals. In other words, the freedom is
granted based on the premise that parties arrive at interest rates that they are willing but are not compelled
to take either by force of another person or by force of circumstances. 105

However, the premise is not always true. There are imperfections in the loan market. One party may have
more bargaining power than the other. A borrower may be in need of funds more than a lender is in need of
lending them. In that case, the lender has more commanding power to set the price of borrowing than the
borrower has the freedom to negotiate for a lower interest rate.

Hence, there are instances when the state must step in to correct market imperfections resulting from
unequal bargaining positions of the parties.

Article 1306 of the Civil Code limits the freedom to contract to promote public morals, safety, and
welfare106 chanroblesvirtuallawlibrary

Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public
policy. cralawlawlibrary

In stipulating interest rates, parties must ensure that the rates are neither iniquitous nor unconscionable.
Iniquitous or unconscionable interest rates are illegal and, therefore, void for being against public
morals.107 The lifting of the ceiling on interest rates may not be read as "grant[ing] lenders carte
blanche [authority] to raise interest rates to levels which will either enslave their borrowers or lead to a
hemorrhaging of their assets."108

Voluntariness of stipulations on interest rates is not sufficient to make the interest rates valid. 109 In Castro v.
Tan

110
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The imposition of an unconscionable rate of interest on a money debt, even if knowingly and voluntarily
assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an iniquitous deprivation of
property, repulsive to the common sense of man. It has no support in law, in principles of justice, or in the
human conscience nor is there any reason whatsoever which may justify such imposition as righteous and as
one that may be sustained within the sphere of public or private morals. 111cralawlawlibrary

Thus, even if the parties voluntarily agree to an interest rate, courts are given the discretionary power to
equitably reduce it if it is later found to be iniquitous or unconscionable. 112 Courts approximate what the
prevailing market rate would have been under the circumstances had the parties had equal bargaining
power.

An interest rate is not inherently conscionable or unconscionable. Interest rates become unconscionable in
light of the context in which they were imposed or applied. In Medel v. Court of Appeals,113 this Court ruled
that the stipulated interest of 5.5% or 66% per annum was unconscionable and contrary to morals. It was
declared void. This court reduced the interest rate to 1% per month or 12% per annum. 114

This court also ruled that the interest rates of 3%, 5%, and 10% per month were unconscionable, thus
justifying the need to reduce the interest rates to 12% per annum. 115

On the other hand, despite rulings that interest rates of 3% and 5% per month are unconscionable, this
court in Toledo v. Hydenu116 found that the interest rate of 6% to 7% per month was notunconscionable.
This court noted circumstances that differentiated that case from Medel and found that the borrower
in Toledo was not in dire need of money when she obtained a loan; this implied that the interest rates were
agreed upon by the parties on equal footing. This court also found that it was the borrower in Toledo who
was guilty of inequitable acts

Noteworthy is the fact that in Medel, the defendant-spouses were never able to pay their indebtedness from
the very beginning and when their obligations ballooned into a staggering sum, the creditors filed a
collection case against them. In this case, there was no urgency of the need for money on the part of
Jocelyn, the debtor, which compelled her to enter into said loan transactions. She used the money from the
loans to make advance payments for prospective clients of educational plans offered by her employer. In
this way, her sales production would increase, thereby entitling her to 50% rebate on her sales. This is the
reason why she did not mind the 6% to 7% monthly interest. Notably too, a business transaction of this
nature between Jocelyn and Marilou continued for more than five years. Jocelyn religiously paid the agreed
amount of interest until she ordered for stop payment on some of the checks issued to Marilou. The checks
were in fact sufficiently funded when she ordered the stop payment and then filed a case questioning the
imposition of a 6% to 7% interest rate for being allegedly iniquitous or unconscionable and, hence, contrary
to morals.

It was clearly shown that before Jocelyn availed of said loans, she knew fully well that the same carried with
it an interest rate of 6% to 7% per month, yet she did not complain. In fact, when she availed of said loans,
an advance interest of 6% to 7% was already deducted from the loan amount, yet she never uttered a word
of protest.

After years of benefiting from the proceeds of the loans bearing an interest rate of 6% to 7% per month and
paying for the same, Jocelyn cannot now go to court to have the said interest rate annulled on the ground
that it is excessive, iniquitous, unconscionable, exorbitant, and absolutely revolting to the conscience of
man. "This is so because among the maxims of equity are (1) he who seeks equity must do equity, and (2)
he who comes into equity must come with clean hands. The latter is a frequently stated maxim which is also
expressed in the principle that he who has done inequity shall not have equity. It signifies that a litigant may
be denied relief by a court of equity on the ground that his conduct has been inequitable, unfair and
dishonest, or fraudulent, or deceitful as to the controversy in issue."

We are convinced that Jocelyn did not come to court for equitable relief with equity or with clean hands. It is
patently clear from the above summary of the facts that the conduct of Jocelyn can by no means be
characterized as nobly fair, just, and reasonable.This Court likewise notes certain acts of Jocelyn before
filing the case with the RTC. In September 1998, she requested Marilou not to deposit her checks as she can
cover the checks only the following month. On the next month, Jocelyn again requested for another
extension of one month. It turned out that she was only sweet-talking Marilou into believing that she had no
money at that time. But as testified by Serapio Romarate, an employee of the Bank of Commerce where
Jocelyn is one of their clients, there was an available balance of P276,203.03 in the latter's account and yet
she ordered for the stop payments of the seven checks which can actually be covered by the available funds
in said account. She then caught Marilou by surprise when she surreptitiously filed a case for declaration of
nullity of the document and for damages.117 (Emphases supplied, citations omitted) cralawlawlibrary

Under the circumstances of this case, we find no reason to uphold the stipulated interest rates of 5% to
10% per month on petitioner's loan. Petitioner obtained the loan out of extreme necessity. As pointed out by
respondent, the property would have been earlier foreclosed by the National Housing Authority if not for the
loan. Moreover, it would be unjust to impose a heavier burden upon petitioner, who would already be losing
his and his family's home. Respondent would not be unjustly deprived if the interest rate is reduced. After
all, respondent still has the right to foreclose the property. Thus, we affirm the Court of Appeals Decision to
reduce the interest rate to 1% per month or 12% per annum.

However, we modify the rates in accordance with the guidelines set forth in Nacar v. Gallery Frames

118
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II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed, as follows

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6%
per annum to be computed from default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an


interest on the amount of damages awarded may be imposed at the discretion of the court
at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated
claims or damages, except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the
interest
shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169,
Civil Code), but when such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date the judgment of the
court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 6% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall
not be disturbed and shall continue to be implemented applying the rate of interest fixed therein. 119 cralawla wlibrary

Thus, the interest rate for petitioner's loan should be further reduced to 6% per annum from July 1, 2013
until full satisfaction.

WHEREFORE, the Petition is DENIED. The Court of Appeals Decision dated October 26, 2011 and its
Resolution dated March 8, 2012 are AFFIRMED. The interest rate for the loan of P600,000.00 is further
reduced to 6% per annum from July 1, 2013 until fully paid.

SO ORDERED. chanroblesvirtuallawlibrary

Carpio, (Chairperson), Brion, Del Castillo, and Mendoza, JJ., concur.


THIRD DIVISION

G.R. No. 198745, January 13, 2016

BANCO DE ORO UNIBANK, INC. (FORMERLY BANCO DE ORO-EPCI, INC.), Petitioner, v.SUNNYSIDE
HEIGHTS HOMEOWNERS ASSOCIATION, INC., Respondent.

DECISION

REYES, J.:

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court seeking to annul
the Decision2 dated March 11, 2011 of the Court of Appeals (CA) in CA-G.R. SP No. 101740, which affirmed,
with modification, the Decision3 dated November 22, 2007 of the Office of the President (OP) in O.P. Case
No. 97-E-8033, entitled Mover Enterprises, Inc. and Philippine Commercial & International Bank (PCIB) v.
The Housing and Land Use Regulatory Board (HLURB) and Sunnyside Heights Homeowners Association, Inc.

The Facts

Mover Enterprises, Inc. (Mover) is the owner and developer of the Sunnyside Heights Subdivision located in
Batasan Hills, Quezon City. In March 1988, Mover mortgaged Lot 5, Block 10 of Phase I of the said
subdivision containing 5,764 square meters to the Philippine Commercial International Bank (PCIB) to
secure a loan of P1,700,000.00. Mover failed to pay its loan and PCIB foreclosed on the mortgage. After title
was consolidated in PCIB, the Registry of Deeds of Quezon City issued Transfer Certificate of Title (TCT) No.
86389 to the said bank on May 17, 1993.4

Sometime in mid-1994, PCIB advertised the aforesaid lot for sale in the newspapers. This prompted the
Sunnyside Heights Homeowners Association (SHHA) to file before the Housing and Land Use Regulatory
Board (ITLURB) a letter-complaint,5 docketed as ITLURB Case No. REM-091594-6077, to declare the
mortgage between Mover and PCIB void on the ground that the subject property, originally covered by TCT
No. 366219, has been allocated as SHHA's open space pursuant to law. SHHA thus sought reconveyance of
the property.6

In its Answer,7 PCIB maintained that the mortgaged lot is different from the lot referred to in SHHA's
complaint, and moreover, the title to the said mortgaged lot bears no annotation that it has been reserved
as open space. Claiming to be an innocent mortgagee in good faith and for value, PCIB insisted that under
Batas Pambansa Bilang 1298 and Presidential Decree (P.D.) No. 1344,9 the complaint should have been filed
with the regular courts.

On August 28, 1995, the ITLURB Arbiter dismissed SHHA's complaint for lack of cause of action. 10 He found
that, per the records of the ITLURB, the property claimed by SHHA to be an open space is covered by TCT
No. 223475, which is not the same as the property originally covered by TCT No. 366219 in the name of
Mover, and now titled to PCIB, viz: chanRoble svirtualLawlibrary

There is no explanation or allegation, much less proof, that TCT [N]o. 366219 registered in the name of
respondent Mover and subsequently registered as TCT [N]o. 8638[9] in the name of respondent PCIB, and
TCT |N|o. 223475 as identified in the letter of the Technical Services Section of this Office, refer to one and
the same property.

From the foregoing, it has therefore not been established that the property of respondent Mover covered by
TCT [N]o. 366219 which had been mortgaged and been foreclosed by respondent PCIB, is the very same
property identified as Lot 5, Block 10 and covered by TCT No. 223475, that was allocated as open space for
Sunnyside Heights Subdivision. The complaint therefore must necessarily fail as it failed to state a cause of
action x x x.11
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Petition for Review to the HLURB Board of Commissioners

On petition for review to the HLURB Board of Commissioners, 12 SHHA presented a certification from the
HLURB Expanded National Capital Region Field Office showing that on May 18, 1987 the HLURB had
approved an alteration in the subdivision plan whereby the former Block 10, the subdivision's open space,
had been renamed as Block 7, now covered by TCT No. 366219: chanRoblesvirtualLa wlibrary

Upon review of our records on file, lot 5, block 10 was [an] open space covered by TCT No. 223475;
however, in view of the HL[U]RB's grant of Alteration of Plan dated 18 May 1987, on which subject property
was involved, the boundaries of above[-]mentioned open space are [sic] modified resulting to be identified
as Block 7 of consolidation subdivision plan Pcs-000990 covered by TCT No. 366219. x x x. 13
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In its Decision14 dated September 6, 1996, the HLURB Board of Commissioners held that Lot 5, Block 10
(TCT No. 223475), the designated open space in the original subdivision plan, became Block 7 (TCT No.
366219) in the altered plan; that the said new Block 7 was mortgaged to PCIB; that by reason of
foreclosure, PCIB became the owner of Block 7 (now covered by TCT No. 86389 in PCIB's name); that TCT
Nos. 223475, 366219 and 86389 all refer to one and the same property. Concluding that the subject matter
of the mortgage and foreclosure in question was the designated open space of Sunnyside Heights
Subdivision,15 it ruled that the said open space, originally covered by TCT No. 366219, and now registered in
the name of PCIB, can neither be mortgaged nor foreclosed, being inalienable, non-buildable and beyond the
commerce of man. The HLURB Board of Commissioners thus ordered, as follows: chanRoble svirtualLawlibrary

WHEREFORE, the decision of the Office below dated August 28, 1995 is hereby SET ASIDE and a new
decision entered as follows:

1. Declaring subject mortgage and foreclosure as null and void;

2. Declaring Block 7 of Phase I, Sunnyside Heights, Batasan Hills, Quezon City as the
designated open space of the aforesaid project;

3. Ordering the Register of Deeds of Quezon City to cancel TCT No. 8638[9] in the
name of respondent PC IB and to issue a new title in the name of respondent
Mover;

4. Ordering respondent Mover to comply with Section 31 of P.D. 957 as amended by


Section 2 of P.D. 1216; and

5. Ordering respondent Mover to pay back the amount of P1,700,000.00 to


respondent PCIB.

Let a copy of this decision be furnished the Register of Deeds of Quezon City for his/her guidance and
appropriate action.

SO ORDERED.16
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Appeal to the Office of the President

After its motion for reconsideration was denied, PCIB appealed to the OP. Mover did not appeal. 17 In the
Decision18 dated November 22, 2007, the OP found no merit in the appeal, ruling that the HLURB has
jurisdiction over matters related to or connected with the complaint for annulment of mortgage, as in this
case.

Meanwhile, in 2000 PCIB merged with Equitable Banking Corporation to become the Equitable PCI Bank. In
May 2001, it merged with Banco de Oro Universal Bank and became the Banco de Oro-EPCI, Inc.; now it is
known as Banco de Oro Unibank, Inc. (BDO).

Petition for Review to the CA

In the petition for review filed with the CA, 19 Banco de Oro-EPCI, Inc. alleged that: chanRoblesvirtualLa wlibrary

THE [OP] SERIOUSLY ERRED IN DISMISSING THE APPEAL ON THE FOLLOWING GROUNDS:

I. THE [HLURB] HAS NO JURISDICTION OVER ACTIONS FOR ANNULMENT OF TITLE;


II. PCIB IS A MORTGAGEE IN GOOD FAITH, THEREFORE, ITS TITLE OVER THE SAID PROPERTY
CANNOT BE ANNULLED;

III. NEW EVIDENCE CANNOT BE ADMITTED ON APPEAL, OTHERWISE IT VIOLATES THE RULE
ON DUE PROCESS OF LAW; and

IV. OBLIGATION OF [MOVER] THAT IS SECURED BY THE REAL ESTATE MORTGAGE IS MORE
THAN THE PRINCIPAL AMOUNT OF Php1,700,000.00.20
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Banco de Oro-EPCI, Inc. alleged in the main that the HLURB has no jurisdiction over SHHA's letter-complaint
to annul the mortgage between Mover and PCIB. In the event that the nullification of the mortgage is
affirmed, it conceded that it was but fair that the mortgagor be also adjudged to pay interest on the
principal loan plus costs incurred.21

On March 11, 2011, the CA rendered the assailed judgment ruling that "[t]he jurisdiction of the HLURB to
regulate the real estate trade is broad enough to include jurisdiction over complaints for annulment of
mortgage."22 The CA further noted Banco de Oro-EPCI, Inc.'s argument that Mover's obligation was more
than the principal amount of P1,700,000.00. While the CA could not give credence to Banco de Oro-EPCI,
Inc.'s allegations of expenses it incurred, it acknowledged that Mover was indebted to Banco de Oro-EPCI,
Inc. in the amount of P1,700,000.00 as pointed out in the decision of the HLURB Board of Commissioners.
Inasmuch as the amount represents a loan, Mover must also be held liable for the payment of interest at the
rate stipulated in the mortgage contract. In the absence thereof, the legal rate of 12% per annum in
accordance with Eastern Shipping Lines, Inc. v. CA23 shall be imposed.24

Accordingly, the fallo reads as follows: chanRoblesvirtualLa wlibrary

WHEREFORE, the Petition is DENIED. The Decision, dated November 22, 2007, of the Office of the
President in O.P. Case No. 97-E-8033 is hereby AFFIRMED, with the modification that Mover Enterprises,
Inc. is held liable to pay the corresponding interest o[n] its mortgage indebtedness to Petitioner Banco de
Oro-EPCI Inc., in addition to its payment of the principal amount of Php 1,700,000.00 to Banco de Oro-EPCI
Inc.

SO ORDERED.25
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Banco de Oro-EPCI, Inc. moved for reconsideration,26 but the same was denied on September 23, 2011.27

Petition for Review to the Supreme Court

Now in this petition, BDO raises the following grounds, to wit: chanRoble svirtualLawlibrary

I.

THE [CA] HAS SO FAR DEPARTED FROM THE USUAL COURSE OF JUDICIAL PROCEEDINGS IN ITS
QUESTIONED DECISION AND RESOLUTION WHEN IT AFFIRMED THE DECISIONS OF THE [OP] AND HLURB
BOARD DESPITE TLIE UNDISPUTED FACT THAT THE LATTER WAS BASED ON NEW EVIDENCE RAISED FOR
THE FIRST TIME BY [SHHA] ON APPEAL IN VIOLATION OF THE RIGHT OF [BDO] TO DUE PROCESS OF LAW.

II.

THE [CA] COMMITTED SERIOUS AND REVERSIBLE ERROR AND DECIDED A MATTER OF SUBSTANCE IN A
WAY NOT IN ACCORD WITH THE LAW AND WITH APPLICABLE DECISIONS OF THE HONORABLE COURT
WHEN IT DID NOT HOLD THAT [BDO] IS A MORTGAGEE IN GOOD FAITH AS IT HAD THE RIGHT TO RELY ON
THE TITLE PRESENTED TO IT; THUS, ITS TITLE OVER THE SUBJECT PROPERTY CANNOT BE ANNULLED.

III.

THE [CA] HAS SO FAR DEPARTED FROM THE USUAL COURSE OF JUDICIAL PROCEEDINGS WHEN ITS
QUESTIONED DECISION AND RESOLUTION DENIED [EDO'S] PETITION FOR REVIEW DESPITE THE FACT
THAT THE HLURB DOES NOT HAVE JURISDICTION OVER THE INSTANT CASE. 28
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The Court finds no merit in the petition.

Importantly, BDO has interposed a continuing objection concerning the HLURB's jurisdiction over what it
claims to be the exclusive province of the regular courts. Corollarily, BDO insists that no evidence was
presented before the HLURB Arbiter to establish that the property covered by TCT No. 223475, claimed by
SHFIA as a subdivision open space, is in any way related to TCT No. 366219 registered in the name of Mover
and now covered by TCT No. 86389 in the name of BDO (then PCIB).

Section 3 of P.D. No. 95729 granted to the National Housing Authority (NHA) exclusive jurisdiction to regulate
the real estate trade and business in order to curb swindling and fraudulent manipulations by unscrupulous
subdivision and condominium sellers and operators, such as failure to deliver titles to the buyers or titles
free from liens and encumbrances, or to pay real estate taxes, and fraudulent sales of the same subdivision
lots to different innocent purchasers for value. P.D. No. 1344 in turn expanded the jurisdiction of the NHA to
include the following:chanRoble svirtualLawlibrary

SECTION 1. In the exercise of its functions to regulate the real estate trade and business and in addition to
its powers provided for in Presidential Decree No. 957, the National Housing Authority shall have exclusive
jurisdiction to hear and decide cases of the following nature:
a) Unsound real estate business practices;

b) Claims involving refund and any other claims filed by subdivision lot or condominium unit buyer against
the project owner, developer, dealer, broker or salesman; and

c) Cases involving specific performance of contractual and statutory obligations filed by buyers of subdivision
lot or condominium unit against the owner, developer, dealer, broker or salesman.
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Under Executive Order (E.O.) No. 648, which reorganized the Human Settlements Regulatory Commission in
1981, the regulatory and quasi-judicial functions of the NHA were transferred to the Human Settlements
Regulatory Commission, later renamed as HLURB under E.O. No. 90. 30 In the cases reaching this Court, the
consistent ruling has been that the HLLJRB has jurisdiction over complaints arising from contracts between
the subdivision developer and the lot buyer, or those aimed at compelling the developer to comply with
its contractual and statutory obligations.31

SHHA's letter-complaint puts in issue the validity of the mortgage over Block 10, now renamed as Block 7, of
Sunnyside Heights Subdivision, and the detriment and prejudice to the residents and the violation by Mover
of its obligation to maintain its open space under P.D. No. 121632 are all too plain, as the following "whereas"
clauses of P.D. No. 1216 underscore: chanRoblesvirtualLa wlibrary

WHEREAS, there is a compelling need to create and maintain a healthy environment in human settlements
by providing open spaces, roads, alleys and sidewalks as may be deemed suitable to enhance the quality of
life of the residents therein;

WHEREAS, such open spaces, roads, alleys and sidewalks in residential subdivision are for public use and
are, therefore, beyond the commerce of men[.]
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Issue: Whether or not the open space of the subdivision may be subject to liens and encumbrances on
claims against the developer. Or whether or not the mortgage agreement between the Mover and PCIB is
valid, wherein the open space of the subdivision are held as the security.

Section 1 of P.D. No. 1216 defines "open space" as an area in the subdivision reserved exclusively for parks,
playgrounds, recreational uses, schools, roads, places of worship, hospitals, health
centers, barangay centers and other similar facilities and amenities. Section 2 thereof further provides that
these reserved areas are non-alienable and non-buildable. The SEIE1A was correct to seek the annulment of
the mortgage between Mover and PCIB before the HLURB, in view of its exclusive jurisdiction over "any
claims filed by subdivision lot or condominium unit buyer against the project owner, developer, dealer,
broker or salesman; and cases involving specific performance of contractual and statutory obligations filed
by buyers of subdivision lot or condominium unit against the owner or developer. "
As for the claim that SHHA violated BDO's right to due process when on appeal it "belatedly" presented a
certification to the HLURB Board of Commissioners that in May 1987 an approved alteration of the
subdivision plan renamed Block 10 of Sunnyside Heights Subdivision as Block 7 but retained it as open
space, let it suffice that in view of BDO's continuing objection to HLURB's jurisdiction, it cannot now
complain that additional documentary proof has been adduced confirming its jurisdiction. As the agency
tasked to oversee the specific compliance by developers with their contractual and statutory obligations,
such as maintaining the open space as non-alienable and non-buildable, there is no doubt that the HLURB is
empowered to annul the subject mortgage. For if a party may continually interpose the HLURB's lack of
jurisdiction, even raising the same for the first time on appeal, since jurisdictional issues cannot be waived,
then BDO is estopped to complain that on appeal SHHA is finally able to present proof of HLURB's
jurisdiction over the present action.33

The Court has long recognized and upheld the rationale behind P.D. No. 957, which is to protect innocent lot
buyers from scheming developers;34 buyers who are by law entitled to the enjoyment of an open space
within the subdivision. Thus, this Court has broadly construed HLURB's jurisdiction to include complaints to
annul mortgages of condominium or subdivision units. 35 In The Manila Banking Corp. v. Spouses Rabina, et
al,36 the Court said: chanRoblesvirtualLa wlibrary

The jurisdiction of the HLURB to regulate the real estate trade is broad enough to include jurisdiction over
complaints for annulment of mortgage. To disassociate the issue of nullity of mortgage and lodge it
separately with the liquidation court would only cause inconvenience to the parties and would not serve the
ends of speedy and inexpensive administration of justice as mandated by the laws vesting quasi-judicial
powers in the agency.37 (Citations omitted)
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Coming now to Mover's liability, the Court agrees with the observation of the HLURB Board of Commissioners
that it would be unjust enrichment on the part of Mover not to acknowledge its indebtedness to BDO in the
amount of P1,700,000.00 in view of the nullity of the mortgage. 38 It should have known that its mortgage
security was invalid considering the alteration in its subdivision plan in May 1987. In equity, it must
therefore compensate PCIB for the loss thereof, reckoned from the filing of SHHA's letter-complaint on
September 14, 1994. Eastern Shipping Lines, Inc.39 provides, "with regard particularly to an award of
interest in the concept of actual and compensatory damages," 40that the rate of interest, and the accrual
thereof, shall be imposed as follows: chanRoble svirtualLawlibrary

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.41(Citations omitted)
cralawla wlibrary

Sunga-Chan, et al. v. CA, et al.42 further clarified the above rules: chanRoble svirtualLawlibrary

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the applicable
rate, as follows: The 12% per annum rate under CB Circular No. 416 shall apply only to loans or forbearance
of money, goods, or credits, as well as to judgments involving such loan or forbearance of money, goods, or
credit, while the 6% per annum under Art. 2209 of the Civil Code applies "when the transaction involves the
payment of indemnities in the concept of damage arising from the breach or a delay in the performance of
obligations in general," with the application of both rates reckoned "from the time the complaint was filed
until the [adjudged] amount is fully paid." In either instance, the reckoning period for the commencement of
the running of the legal interest shall be subject to the condition "that the courts are vested with discretion,
depending on the equities of each case, on the award of interest."43 (Citations omitted and emphasis
ours) cralawlawlibrary

Lastly, in view of absence of bad faith by PCIB in the questioned mortgage loan, the Court agrees that in
addition to the loan amount of P1,700,000.00, Mover should pay thereon to BDO legal interest at 12%per
annum from the time it is due pursuant to Eastern Shipping Lines, except that with the efiectivity of
Monetary Board Circular No. 799, the rate of interest for the loan shall be reduced to six percent (6%) per
annum from and after July 1, 2013.44

WHEREFORE, the petition is DENIED. The Decision dated March 11, 2011 of the Court of Appeals in CA-
G.R. SP No. 101740 is AFFIRMED with CLARIFICATION, in that Mover Enterprises, Inc. shall pay Banco
de Oro-EPCI, Inc., now Banco de Oro Unibank, Inc., the amount of P1,700,000.00 plus legal interest at
twelve percent (12%) per annum from September 14, 1994, the date of the letter-complaint of Sunnyside
Heights Homeowners Association, Inc., the said rate to be reduced to six percent (6%) per annum starting
July 1, 2013 until finality hereof. Thereafter, interest as thus computed shall, along with the principal, earn
interest at six percent (6%) per annum until fully paid.

SO ORDERED. chanroblesvirtuallawlibrary

Velasco, Jr., (Chairperson), Peralta, Villarama, Jr., and Jardeleza, JJ., concur.

SECOND DIVISION

G.R. No. 201417, January 13, 2016

ORIX METRO LEASING AND FINANCE CORPORATION, Petitioner, v. CARDLINE INC., MARY C.
CALUBAD, SONY N. CALUBAD, AND NG BENG SHENG, Respondents.

DECISION

BRION, J.:

We resolve the petition for review on certiorari challenging the January 6, 2012 decision1 and April 16,
2012 resolution2 of the Court of Appeals (CA) in CA-GR SP No. 118226. The CA annulled the Regional Trial
Court's (RTC) order to execute the judgment against the respondents. The CA ruled that Cardline Inc.
(Cardline) had fully satisfied its outstanding obligation by returning the leased properties to Orix Metro
Leasing and Finance Corporation (Orix).

THE ANTECEDENTS

Cardline leased four machines (machines) from Orix as evidenced by three similarly-worded lease
agreements. Cardlirte's principal stockholders and officers - Mary C. Calubad, Sony N. Calubad, and Ng Beng
Sheng (individual respondents) - signed the suretyship agreements in their personal capacities to guarantee
Cardline's obligations under each lease agreement.

Cardline defaulted in paying the rent: the unpaid obligations amounted to P9,369,657.00 as of July 12,
2007. Orix formally demanded payment from Cardline but the latter refused to pay.

Orix filed a complaint for replevin, sum of money, and damages with an application for a writ of seizure
against Cardline and the individual respondents (collectively, the respondents) before the RTC. The case was
docketed as Civil Case No. 07-855.

The RTC issued a writ of seizure allowing Orix to recover the machines from Cardline.

Thereafter, the RTC declared the respondents in default for failing to file an answer, and allowed Orix to
present evidence ex parte. The respondents filed a motion to set aside the order of default, but the RTC
denied their motion. On May 6, 2008, the RTC rendered judgment in Orix's favor and ordered the
respondents to pay Orix, as follows: chanRoble svirtualLawlibrary

1. The sum of P9,369,657.00 or whatever may be the balance of defendants'


outstanding obligation still owing the plaintiff after the recovery or saleof the
[machines] as and by way of actual damages (Section 9, Rule 60), in either case, with
interest and penalty charges as stipulated, from 12 July 2007 until fully paid;

2. As stipulated in the Continuing Surety, thirty (30%) percent of the total amount due as
Attorney's fees;

3. As stipulated in the Continuing Surety, twenty-five (25%) percent of the total amount due
as liquidated damages; and
4. Expenses incurred in securing the leased properties through manual delivery, (Emphasis
supplied)
cralawla wlibrary

On appeal, the respondents argued that the RTC erred in declaring them in default. The CA, 3 and
subsequently this Court,4 denied the respondents' appeal. Our denial in G.R. No. 189877 became final and
executory.

Ng Beng Sheng filed a petition for annulment of judgment. 5 He argued that the RTC had no jurisdiction over
his person since the summons was not properly served on him. The CA denied the petition on the grounds of
forum shopping and res judicata. The CA explained that this issue had been addressed by the RTC in the
order denying the motion to set aside the order of default, and by the CA and the Supreme Court on appeal.

In the main case, Orix filed a motion for the issuance of a writ of execution which the RTC granted in
its December 1, 2010 order. Thereafter, the RTC clerk of court issued a writ of execution commanding the
sheriff to enforce the May 8, 2009 judgment. The respondents filed a motion for a status quo ante order but
the RTC denied the motion.

Thereafter, the respondents filed a petition for prohibition6 under Rule 65 of the Rules of Court before the
CA.7 They assailed the issuance of the December 1, 2010 order, arguing that their rental obligations were
offset by the market value of the returned machines and by the guaranty deposit.

THE CA RULING

The CA granted the petition, annulled the RTC's order dated December 1, 2010, and prohibited the sheriff
from executing the judgment dated May 6, 2008.

The CA based its decision on Sections 19.2(d)8 in relation with Section 19.39 of the lease agreements. The
CA ruled that the respondents' debt amounting to P9,369,657.00 had been satisfied when Orix recovered
the machines valued at P14,481,500.00 and received the security deposit amounting to P1,635,638.89.
Considering that the judgment had been satisfied in full, the RTC's issuance of a writ of execution was no
longer necessary.

The CA denied Orix's motion for reconsideration; hence, this petition.

THE PARTIES' ARGUMENTS

In its petition, Orix argues that: (1) the market value of the returned machines and the guaranty deposit do
not offset the outstanding obligations; (2) the individual respondents are solidarity liable to Orix and are not
entitled to the benefit of excussion; and (3) the respondents and their counsel engaged in willful and
deliberate forum shopping.

After the petition was filed, Atty. Efren C. Lizardo withdrew his appearance and Atty. David A. Domingo
entered his appearance as the respondents' counsel.

In their comment, the respondents argue that: (1) the RTC's judgment should be interpreted as follows: if
Orix recovers the properties, their market values should be deducted from the respondents' outstanding
obligations; (2) the individual respondents merely acted as guarantors, not as sureties; and (3) the
respondents committed no forum shopping because no cases were pending before the courts when they filed
the petition for prohibition.

OUR RULING

We find the petition partly meritorious.

We note at the outset that the RTC's May 6, 2008 judgment has attained finality and can no longer be
altered. Once a judgment becomes final and executory, all that remains is the execution of the decision.
Thus, the RTC issued the December 1, 2010 order of execution. An order of execution is not
appealable;10 otherwise, a case would never end.11

As a rule, parties are not allowed to object to the execution of a final judgment. 12 One exception is when the
terms of the judgment are not clear enough and there remains room for its interpretation. 13If the exception
applies, the respondents may seek the stay of execution or the quashal of the writ of execution. 14 Although
an order of execution is not appealable, an aggrieved party may challenge the order of execution via an
appropriate special civil action under Rule 65 of the Rules of Court. 15 The special civil action of prohibition is
an available remedy against a tribunal exercising judicial, quasi-judicial or ministerial powers if it acted
without or in excess of its jurisdiction and there is no other plain, speedy, and adequate remedy in the
ordinary course of law.16

In the present case, the respondents effectively argued that the terms of the RTC's May 6, 2008 judgment
are not clear enough such that the parties' agreement must be examined to arrive at the proper
interpretation. The respondents, however, did not give the RTC an opportunity to clarify its judgment. The
respondents filed a special civil action for prohibition before the CA without first filing a motion to stay or
quash the writ of execution before the RTC. Hence, the petition for prohibition obviously lacked the
requirement that no "other plain, speedy, and adequate remedy" is available. Thus, the petition should have
been dismissed.

However, the CA gave due course to the petition. In granting the petition, the CA ruled that the judgment
had been satisfied; thus, there was no more judgment to execute. To stress, the CA erred in granting the
petition despite the availability of a "plain, speedy, and adequate remedy."

Orix comes before us for a review of the CA's decision. The issues for resolution are: (1) whether the CA
correctly prohibited the RTC from enforcing the writ of execution; (2) whether the individual respondents
can invoke the benefit of excussion; and (3) whether the respondents committed forum shopping.

I. Propriety of the CA's decision

The core issue presented in this case is whether the CA correctly prohibited the RTC from enforcing
the writ of execution. To resolve this issue, we must determine whether the CA correctly interpreted this
portion of the RTC's May 6, 2008 judgment: chanRoble svirtualLawlibrary

The sum of P9,369,657.00 or whatever may be the balance of defendants' outstanding obligation
still owing the plaintiff after the recovery or sale of the [machines] as and by way,of actual damages
xxx. (Emphasis supplied) cralawlawlibrary

The CA cited Sections 19.2(d) and 19.3 of the lease agreements in interpreting the above-quoted judgment.
The CA ruled that the balance of Cardline's debt was F9,369,657.00, less the machines' market value and
the guaranty deposit. After applying this formula, the CA concluded that Cardline no longer owed Orix any
indebtedness so that no judgment needed to be executed.

We disagree with the CA's conclusion.

A review of these agreements shows that the CA erroneously relied on Sections 19.2(d) and 19.3 of the
lease agreements. The CA also erred in deducting the guaranty deposit from the outstanding debt, contrary
to the provisions of the lease agreements.

We review the lease agreements on two points: first, on whether the market values of the returned
machines were intended to reduce Cardline's debt; and second, on whether the parties intended to deduct
the guaranty deposit from the unpaid obligation.

On the first point, the machines' market values were not intended to reduce, much less offset, Cardline's
debt.

The lease agreements' default provisions are instructive. Section 19 17 of the agreements provides that if
Cardline fails to pay rent, Orix may cancel the agreements and may avail of the following remedies under
Section 19.2: chanRoblesvirtualLa wlibrary

a) LESSOR may require LESSEE to surrender possession of the property x x x;

xxx

d) Subject to the provisions of Section 19.3, after repossessing the property, the LESSOR may re-lease or
sell the PROPERTY to any third person, in such manner and upon such terms as the LESSOR may solely
deem proper;

e) Recovery of all accrued and unpaid rental, including rentals up to the time the PROPERTY is
actually returned to the LESSOR xxx;" (Emphasis supplied)
cralawla wlibrary

Should Orix choose to re-lease or sell the machines after repossessing them pursuant to Section 19.2(d),
Section 19.3 shall apply, to wit: chanRoblesvirtualLa wlibrary

19.3 The proceeds derived from the sale or re-leasing of the PROPERTY, shall x xx be applied first to the
expenses incurred by the LESSOR in connection with the repossession, sale, or releasing of the PROPERTY, a
reasonable compensation for undertaking such sale or re-lease, all legal costs and fees, OTHER AMOUNTS,
and the balance, if any, to the RENTAL due from the LESSEE, xxx. (Emphasis supplied)
cralawla wlibrary

Applying these provisions, when Cardline defaulted in paying rent, Orix was authorized to: (a) re-possess
the machines; and (b) recover all unpaid rent. Considering that Orix neither re-leased nor sold the
machines, Sections 19.2(d) and 19.3 are not applicable. Thus, the CA erred in applying these provisions to
the present case.

Even assuming that these provisions apply, Section 19.3 states that the net "proceeds" derived from the
sale, not the machines' market values, shall be applied to the unpaid rent. Therefore, these contractual
provisions do not support the CA's stance that the machines' market values must be reduced
from Cardline's unpaid rent.

As Orix correctly argued, the CA's decision leads to an absurd situation where Cardline pays for its liabilities
to Orix using Orix's own properties. The Court cannot affirm this unreasonable and inequitable
interpretation.

On the second point, Sections 6.1 and 19.2(b) of the lease agreements discuss the use of the guaranty
deposit, to wit: chanRoble svirtualLawlibrary

6.1 The LESSEE shall pay to the LESSOR simultaneously with the execution of this Agreement, an amount
by way of deposit (the "GUARANTY DEPOSIT") as specified in the Lease Schedule, which deposit shall be
held as security for the faithful and timely performance by the LESSEE of its obligations hereunder, as well
as its compliance with all the provisions of this Agreement, or of any extension or renewals thereof. Should
the PROPERTY be returned to the LESSOR for any reason whatsoever including LESSEE'S default
under Section 19 hereof before the expiration of this Agreement, then the GUARANTY DEPOSIT shall
be forfeited automatically in favor of the LESSOR as additional penalty over and above those
stipulated in Section 3.5 [on interest and penalty], without prejudice to the right of the LESSOR
to recover any unpaid RENTAL as well as the OTHER AMOUNTS for which the LESSEE may be liable under
this agreement, (Emphasis supplied)

19.2(b) The LESSOR may retain all amounts including any advance rental paid to it hereunder as
compensation for rent, use and depreciation of the PROPERTY. Furthermore, the LESSOR may apply the
GUARANTY DEPOSIT towards the payment of liquidated damages.18
cralawla wlibrary
ChanRoblesVirtualawlibrary

These provisions are relevant to determine the parties' intent with respect to the guaranty deposit. These
provisions show that the parties did not intend to deduct the guaranty deposit from Cardline's unpaid rent.
On the contrary, the guaranty deposit was intended to be automatically forfeited to serve as penalty for
Cardline's default. In any case, Orix retained the right to recover the unpaid rent but it had the option to
consider the guaranty deposit as liquidated damages. Notably, Orix did not exercise this option. Thus, the CA
erred when it deducted the guaranty deposit from Cardline's unpaid rent.

After examining the RTC's judgment under the lease agreements' lenses, we rule that the return or recovery
of the machines does not reduce Cardline's outstanding obligation unless the returned machines are sold. No
sale transpired pursuant to the lease agreements. Moreover, the guaranty deposit was not meant to reduce
Cardline's unpaid obligation. Thus, Cardline's actual damages remain at P9,369,657.00.

In sum, we rule that the CA erroneously interpreted the RTC's May 6, 2008 judgment. Consequently, the CA
erred in preventing the RTC from enforcing the writ of execution.
II. The Benefit of Excussion

The second issue before us is whether the individual respondents are entitled to the benefit of
excussion. We note that this issue had already been raised before the CA in G.R. 189877. The CA, as
affirmed by the Court, ruled that the issue cannot be raised for the first time on appeal.

For clarity, we briefly discuss this issue and rule in favor of Orix.

The terms of a contract govern the parties' rights and obligations. When a party undertakes to be "jointly
and severally" liable, it means that the obligation is solidary.19 Furthermore, even assuming that a party is
liable only as a guarantor, he can be held immediately liable without the benefit of excussion if the guarantor
agreed that his liability is direct and immediate.20 In effect, the guarantor waived the benefit of excussion
pursuant to Article 2059(1) of the Civil Code.

In the present case, the records show that the individual respondents bound themselves solidarity with
Cardline. Section 31.121 of the lease agreements states that the persons who sign separate instruments to
secure Cardline's obligations to Orix shall be jointly and severally liable with Cardline.

Even assuming arguendo that the individual respondents signed the continuing surety agreements merely as
guarantors, they still cannot invoke the benefit of excussion. The surety agreements provide that the
individual respondents' liability is "solidary, direct, and immediate and not contingent upon"22 Orix's
remedies against Cardline. The continuing suretyship agreements also provide that the individual
respondents "individually and collectively waive(s) in advance the benefit of excussion xxx under Articles
2058 and 2065 of the Civil Code."23

Without any doubt, the individual respondents can no longer avail of the benefit of excussion.

III. Forum-Shopping

We now turn to whether the respondents committed forum shopping when they filed the petition for
prohibition before the CA.

Orix asserts that the respondents committed forum shopping by instituting several actions essentially
seeking to nullify the RTC's decision.

First, the respondents appealed before the CA to reverse the RTC's judgment which held them liable for the
unpaid rent. The CA, and subsequently this Court via a petition for review on certiorari,24affirmed the
RTC's judgment. The decision became final and executory.

Second, Ng Beng Sheng filed a petition for annulment of judgment,25 dated September 4, 2010, which
the CA dismissed on the grounds of forum shopping and res judicata.

Third, the respondents. filed the petition for prohibition,26 dated February 21, 2011, to prevent the
execution of the RTC's judgment.

We disagree with Orix's assertions.

Section 5 Rule 7 of the Rules prohibits forum shopping. The rule against forum shopping seeks to address
the great evil of two competent tribunals rendering two separate and contradictory decisions. 27 Forum
shopping exists when a party initiates two or more actions, other than appeal or certiorari, grounded on the
same cause to obtain a more favorable decision from any tribunal. 28

The elements of forum shopping are: (i) identity of parties, or at least such parties representing the same
interest; (ii) identity of rights asserted and relief prayed for, the latter founded on the same facts; (iii) any
judgment rendered in one action will amount to res judicata in the other action. 29

In Reyes v. Alsons,30 the petitioner filed a petition for annulment of judgment raising the issue of the RTC's
lack of jurisdiction to enforce the lower court's judgment. This Court held that this jurisdictional issue has
been resolved in the previous cases filed by the petitioner. Thus, the petition for annulment of judgment was
barred by res judicata and the policy against forum shopping.31

In the present case, the CA correctly denied Ng Beng Sheng's petition for annulment of judgment. As in
Reyes, the CA correctly reasoned out that the issue on jurisdiction had been resolved with finality in the
review on certiorari. Thus, the issue could no longer be re-litigated.

After the denial of the petition for annulment of judgment, Ng Beng Shen joined the other respondents in
filing a petition for prohibition. We are now called upon to ascertain whether the recourse to the petition for
prohibition amounted to forum shopping.

We rule in the negative.

The two cases filed collectively by the respondents are similar only in that they involve the same parties.
The cases, however, involve different causes of actions. The petition for review on certiorariwas filed to
review the merits of the RTC's judgment. On the other hand, the petition for prohibition respects the finality
of the RTC's judgment on the merits but interprets the dispositive portion in a way that would render the
execution unnecessary. Thus, the elements of forum shopping are not presentin the two cases.

Moreover, the resort to a remedy under Rule 65 is expressly allowed by the Rules of Court. Section 1, Rule
41 of the Rules of Court provides that an aggrieved party may file the appropriate civil action under Rule 65
to challenge an order of execution. Accordingly, the respondents filed their petition for prohibition under Rule
65 of the Rules of Court.

With respect to Ng Beng Sheng's petition for annulment of judgment, the CA has already ruled that the filing
of the petition constituted forum shopping, specifically due to the jurisdictional issue raised. The petition for
prohibition, however, involves a different cause of action. Thus, there is no forum shopping.

To recap, first, the CA erred in preventing the execution of the RTC's judgment. Nothing in the lease
agreements' provisions supports the CA's ruling that the market value of the returned machines and the
guaranty deposit shall be deducted from Cardline's unpaid rent. Second, the individual respondents are
solidarily liable for Cardline's obligations and are not entitled to the benefit of excussion. Finally, the
respondents did not commit forum shopping by filing the petition for prohibition.

With these matters clarified, Orix should no longer be denied the fruits of its victory. The RTC is hereby
ordered to execute its long-final judgment.

WHEREFORE, we hereby GRANT the petition. The January 6, 2012 decision and April 16, 2012 resolution
of the Court of Appeals in CA-GR SP No. 118226 are hereby REVERSED and SET ASIDE. Costs against the
respondents.

SO ORDERED. chanroblesvirtuallawlibrary

Carpio, (Chairperson), Brion, Del Castillo, Mendoza, and Leonen, JJ., concur.

SECOND DIVISION

G.R. No. 167615, January 11, 2016

SPOUSES ALEXANDER AND JULIE LAM, DOING BUSINESS UNDER THE NAME AND STYLE
"COLORKWIK LABORATORIES" AND "COLORKWIK PHOTO SUPPLY", Petitioners, v. KODAK
PHILIPPINES, LTD., Respondent.

DECISION

LEONEN, J.:

This is a Petition for Review on Certiorari filed on April 20, 2005 assailing the March 30, 2005 Decision 1and
September 9, 2005 Amended Decision2 of the Court of Appeals, which modified the February 26, 1999
Decision3 of the Regional Trial Court by reducing the amount of damages awarded to petitioners Spouses
Alexander and Julie Lam (Lam Spouses).4
The Lam Spouses argue that respondent Kodak Philippines, Ltd.'s breach of their contract of sale entitles
them to damages more than the amount awarded by the Court of Appeals. 5

On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into an agreement (Letter
Agreement) for the sale of three (3) units of the Kodak Minilab System 22XL 6 (Minilab Equipment) in the
amount of P1,796,000.00 per unit,7 with the following terms: chanRoble svirtualLawlibrary

This confirms our verbal agreement for Kodak Phils., Ltd. to provide Colorkwik Laboratories, Inc. with three
(3) units Kodak Minilab System 22XL . . . for your proposed outlets in Rizal Avenue (Manila), Tagum (Davao
del Norte), and your existing Multicolor photo counter in Cotabato City under the following terms and
conditions:chanRoblesvirtualLa wlibrary

1. Said Minilab Equipment packages will avail a total of 19% multiple order discount based on prevailing
equipment price provided said equipment packages will be purchased not later than June 30, 1992.

2. 19% Multiple Order Discount shall be applied in the form of merchandise and delivered in advance
immediately after signing of the contract.
* Also includes start-up packages worth P61,000.00.

3. NO DOWNPAYMENT.

4. Minilab Equipment Package shall be payable in 48 monthly installments at THIRTY FIVE THOUSAND
PESOS (P35,000.00) inclusive of 24% interest rate for the first 12 months; the balance shall be re-
amortized for the remaining 36 months and the prevailing interest shall be applied.

5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992 is at ONE MILLION SEVEN HUNDRED
NINETY SIX THOUSAND PESOS.

6. Price is subject to change without prior notice.


* Secured with PDCs; 1st monthly amortization due 45 days after installation[.] 8 cralawlawlibrary

On January 15, 1992, Kodak Philippines, Ltd. delivered one (1) unit of the Minilab Equipment in Tagum,
Davao Province.9 The delivered unit was installed by Noritsu representatives on March 9, 1992. 10 The Lam
Spouses issued postdated checks amounting to P35,000.00 each for 12 months as payment for the first
delivered unit, with the first check due on March 31, 1992. 11

Kodak delivered 1 unit, the Lam spouses issued post dated checks, 2 checks were honored, but the spouses
ordered stop payment for the subsequent, allegedly due to failure of Kodak to deliver the 2 other units.
Kodak cancelled the sale and sought for return of the unit delivered, and upon filing of action with the RTC,
the unit delivered was seized.

The Lam Spouses requested that Kodak Philippines, Ltd. not negotiate the check dated March 31, 1992
allegedly due to insufficiency of funds.12 The same request was made for the check due on April 30, 1992.
However, both checks were negotiated by Kodak Philippines, Ltd. and were honored by the depository
bank.13 The 10 other checks were subsequently dishonored after the Lam Spouses ordered the depository
bank to stop payment.14

Kodak Philippines, Ltd. canceled the sale and demanded that the Lam Spouses return the unit it delivered
together with its accessories.15 The Lam Spouses ignored the demand but also rescinded the contract
through the letter dated November 18, 1992 on account of Kodak Philippines, Ltd.'s failure to deliver the two
(2) remaining Minilab Equipment units.16

On November 25, 1992, Kodak Philippines, Ltd. filed a Complaint for replevin and/or recovery of sum of
money. The case was raffled to Branch 61 of the Regional Trial Court, Makati City.17 The Summons and a
copy of Kodak Philippines, Ltd.'s Complaint was personally served on the Lam Spouses. 18
The Lam Spouses failed to appear during the pre-trial conference and submit their pre-trial brief despite
being given extensions.19 Thus, on July 30, 1993, they were declared in default. 20 Kodak Philippines, Ltd.
presented evidence ex-parte.21 The trial court issued the Decision in favor of Kodak Philippines, Ltd. ordering
the seizure of the Minilab Equipment, which included the lone delivered unit, its standard accessories, and a
separate generator set.22 Based on this Decision, Kodak Philippines, Ltd. was able to obtain a writ of seizure
on December 16, 1992 for the Minilab Equipment installed at the Lam Spouses' outlet in Tagum, Davao
Province.23 The writ was enforced on December 21, 1992, and Kodak Philippines, Ltd. gained possession of
the Minilab Equipment unit, accessories, and the generator set. 24

The Lam Spouses then filed before the Court of Appeals a Petition to Set Aside the Orders issued by the trial
court dated July 30, 1993 and August 13, 1993. These Orders were subsequently set aside by the Court of
Appeals Ninth Division, and the case was remanded to the trial court for pre-trial. 25 cralawre d

On September 12, 1995, an Urgent Motion for Inhibition was filed against Judge Fernando V. Gorospe,
Jr.,26 who had issued the writ of seizure.27 The ground for the motion for inhibition was not provided.
Nevertheless, Judge Fernando V. Gorospe Jr. inhibited himself, and the case was reassigned to Branch 65 of
the Regional Trial Court, Makati City on October 3, 1995. 28

In the Decision dated February 26, 1999, the Regional Trial Court found that Kodak Philippines, Ltd.
defaulted in the performance of its obligation under its Letter Agreement with the Lam Spouses. 29 It held
that Kodak Philippines, Ltd.'s failure to deliver two (2) out of the three (3) units of the Minilab Equipment
caused the Lam Spouses to stop paying for the rest of the installments. 30 The trial court noted that while the
Letter Agreement did not specify a period within which the delivery of all units was to be made, the Civil
Code provides "reasonable time" as the standard period for compliance: chanRoblesvirtualLa wlibrary

The second paragraph of Article 1521 of the Civil Code provides: chanRoble svirtualLawlibrary

Where by a contract of sale the seller is bound to send the goods to the buyer, but no time for sending them
is fixed, the seller is bound to send them within a reasonable time.
cralawla wlibrary

What constitutes reasonable time is dependent on the circumstances availing both on the part of the seller
and the buyer. In this case, delivery of the first unit was made five (5) days after the date of the agreement.
Delivery of the other two (2) units, however, was never made despite the lapse of at least three (3)
months.31 cralawla wlibrary

Kodak Philippines, Ltd. failed to give a sufficient explanation for its failure to deliver all three (3) purchased
units within a reasonable time.32

The trial court found: chanRoblesvirtualLa wlibrary

Kodak would have the court believe that it did not deliver the other two (2) units due to the failure of
defendants to make good the installments subsequent to the second. The court is not convinced. First of all,
there should have been simultaneous delivery on account of the circumstances surrounding the
transaction. . . . Even after the first delivery ... no delivery was made despite repeated demands from the
defendants and despite the fact no installments were due. Then in March and in April (three and four months
respectively from the date of the agreement and the first delivery) when the installments due were both
honored, still no delivery was made.

Second, although it might be said that Kodak was testing the waters with just one delivery - determining
first defendants' capacity to pay - it was not at liberty to do so. It is implicit in the letter agreement that
delivery within a reasonable time was of the essence and failure to so deliver within a reasonable time and
despite demand would render the vendor in default.
....

Third, at least two (2) checks were honored. If indeed Kodak refused delivery on account of defendants'
inability to pay, non-delivery during the two (2) months that payments were honored is unjustified. 33 cralawla wlibrary

Nevertheless, the trial court also ruled that when the Lam Spouses accepted delivery of the first unit, they
became liable for the fair value of the goods received: chanRoble svirtualLawlibrary
On the other hand, defendants accepted delivery of one (1) unit. Under Article 1522 of the Civil Code, in the
event the buyer accepts incomplete delivery and uses the goods so delivered, not then knowing that there
would not be any further delivery by the seller, the buyer shall be liable only for the fair value to him of the
goods received. In other words, the buyer is still liable for the value of the property received. Defendants
were under obligation to pay the amount of the unit. Failure of delivery of the other units did not thereby
give unto them the right to suspend payment on the unit delivered. Indeed, in incomplete deliveries, the
buyer has the remedy of refusing payment unless delivery is first made. In this case though, payment for
the two undelivered units have not even commenced; the installments made were for only one (1) unit.

Hence, Kodak is right to retrieve the unit delivered. 34 cralawla wlibrary

The Lam Spouses were under obligation to pay for the amount of one unit, and the failure to deliver the
remaining units did not give them the right to suspend payment for the unit already delivered. 35However, the
trial court held that since Kodak Philippines, Ltd. had elected to cancel the sale and retrieve the delivered
unit, it could no longer seek payment for any deterioration that the unit may have suffered while under the
custody of the Lam Spouses.36

As to the generator set, the trial court ruled that Kodak Philippines, Ltd. attempted to mislead the court by
claiming that it had delivered the generator set with its accessories to the Lam Spouses, when the evidence
showed that the Lam Spouses had purchased it from Davao Ken Trading, not from Kodak Philippines,
Ltd.37 Thus, the generator set that Kodak Philippines, Ltd. wrongfully took from the Lam Spouses should be
replaced.38

The dispositive portion of the Regional Trial Court Decision reads: chanRoblesvirtualLa wlibrary

PREMISES CONSIDERED, the case is hereby dismissed. Plaintiff is ordered to pay the following: chanRoble svirtualLawlibrary

1) PHP 130,000.00 representing the amount of the generator set, plus legal interest at 12% per annum from
December 1992 until fully paid; and

2) PHP 1,300,000.00 as actual expenses in the renovation of the Tagum, Davao and Rizal Ave., Manila
outlets.

SO ORDERED.39
cralawla wlibrary
ChanRoblesVirtualawlibrary

On March 31, 1999, the Lam Spouses filed their Notice of Partial Appeal, raising as an issue the Regional
Trial Court's failure to order Kodak Philippines, Ltd. to pay: (1) P2,040,000 in actual damages; (2)
P50,000,000 in moral damages; (3) P20,000,000 in exemplary damages; (4) P353,000 in attorney's fees;
and (5) P3 00,000 as litigation expenses.40 The Lam Spouses did not appeal the Regional Trial Court's award
for the generator set and the renovation expenses. 41

Kodak Philippines, Ltd. also filed an appeal. However, the Court of Appeals 42 dismissed it on December 16,
2002 for Kodak Philippines, Ltd.'s failure to file its appellant's brief, without prejudice to the continuation of
the Lam Spouses' appeal.43 The Court of Appeals' December 16, 2002 Resolution denying Kodak Philippines,
Ltd.'s appeal became final and executory on January 4, 2003. 44

In the Decision45 dated March 30, 2005, the Court of Appeals Special Fourteenth Division modified the
February 26, 1999 Decision of the Regional Trial Court: chanRoble svirtualLawlibrary

WHEREFORE, PREMISES CONSIDERED, the Assailed Decision dated 26 February 1999 of the Regional
Trial Court, Branch 65 in Civil Case No. 92-3442 is hereby MODIFIED.Plaintiff-appellant is ordered to pay
the following:

1. P130,000.00 representing the amount of the generator set, plus legal interest at 12% per
annum from December 1992 until fully paid; and

2. P440.000.00 as actual damages;

3. P25,000.00 as moral damages; and


4. P50,000.00 as exemplary damages.

SO ORDERED.46 (Emphasis supplied)


cralawla wlibrary

The Court of Appeals agreed with the trial court's Decision, but extensively discussed the basis for the
modification of the dispositive portion.

The Court of Appeals ruled that the Letter Agreement executed by the parties showed that their obligations
were susceptible of partial performance. Under Article 1225 of the New Civil Code, their obligations are
divisible: chanRoblesvirtualLa wlibrary

In determining the divisibility of an obligation, the following factors may be considered, to wit: (1) the will or
intention of the parties, which may be expressed or presumed; (2) the objective or purpose of the stipulated
prestation; (3) the nature of the thing; and (4) provisions of law affecting the prestation.

Applying the foregoing factors to this case, We found that the intention of the parties is to be bound
separately for each Minilab Equipment to be delivered as shown by the separate purchase price for each of
the item, by the acceptance ofSps. Lam of separate deliveries for the first Minilab Equipment and for those
of the remaining two and the separate payment arrangements for each of the equipment. Under this
premise, Sps. Lam shall be liable for the entire amount of the purchase price of the Minilab Equipment
delivered considering that Kodak had already completely fulfilled its obligation to deliver the same.. ..

Third, it is also evident that the contract is one that is severable in character as demonstrated by the
separate purchase price for each of the minilab equipment. "If the part to be performed by one party
consists in several distinct and separate items and the price is apportioned to each of them, the contract will
generally be held to be severable. In such case, each distinct stipulation relating to a separate subject
matter will be treated as a separate contract." Considering this, Kodak's breach of its obligation to deliver
the other two (2) equipment cannot bar its recovery for the full payment of the equipment already
delivered. As far as Kodak is concerned, it had already fully complied with its separable obligation to deliver
the first unit of Minilab Equipment.47 (Emphasis supplied)
cralawla wlibrary

The Court of Appeals held that the issuance of a writ of replevin is proper insofar as the delivered Minilab
Equipment unit and its standard accessories are concerned, since Kodak Philippines, Ltd. had the right to
possess it:48 chanroblesvirtuallawlibrary

The purchase price of said equipment is P1,796,000.00 which, under the agreement is payable with forty
eight (48) monthly amortization. It is undisputed that Sps. Lam made payments which amounted to Two
Hundred Seventy Thousand Pesos (P270,000.00) through the following checks: Metrobank Check Nos.
00892620 and 00892621 dated 31 March 1992 and 30 April 1992 respectively in the amount of Thirty Five
Thousand Pesos (P35,000.0O) each, and BPI Family Check dated 31 July 1992 amounting to Two Hundred
Thousand Pesos (P200,000.00). This being the case, Sps. Lam are still liable to Kodak in the amount of One
Million Five Hundred Twenty Six Thousand Pesos (P1,526,000.00), which is payable in several monthly
amortization, pursuant to the Letter Agreement. However, Sps. Lam admitted that sometime in May 1992,
they had already ordered their drawee bank to stop the payment on all the other checks they had issued to
Kodak as payment for the Minilab Equipment delivered to them. Clearly then, Kodak hafdj the right to
repossess the said equipment, through this replevin suit. Sps. Lam cannot excuse themselves from paying
in full the purchase price of the equipment delivered to them on account of Kodak's breach of the contract to
deliver the other two (2) Minilab Equipment, as contemplated in the Letter Agreement.49 (Emphasis
supplied) cralawla wlibrary

Echoing the ruling of the trial court, the Court of Appeals held that the liability of the Lam Spouses to pay
the remaining balance for the first delivered unit is based on the second sentence of Article 1592 of the New
Civil Code.50 The Lam Spouses' receipt and use of the Minilab Equipment before they knew that Kodak
Philippines, Ltd. would not deliver the two (2) remaining units has made them liable for the unpaid portion
of the purchase price.51

The Court of Appeals noted that Kodak Philippines, Ltd. sought the rescission of its contract with the Lam
Spouses in the letter dated October 14, 1992.52 The rescission was based on Article 1191 of the New Civil
Code, which provides: "The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him." 53 In its letter, Kodak Philippines, Ltd.
demanded that the Lam Spouses surrender the lone delivered unit of Minilab Equipment along with its
standard accessories.54

The Court of Appeals likewise noted that the Lam Spouses rescinded the contract through its letter dated
November 18, 1992 on account of Kodak Philippines, Inc.'s breach of the parties' agreement to deliver the
two (2) remaining units.55

As a result of this rescission under Article 1191, the Court of Appeals ruled that "both parties must be
restored to their original situation, as far as practicable, as if the contract was never entered into." 56The
Court of Appeals ratiocinated that Article 1191 had the effect of extinguishing the obligatory relation as if
one was never created:57 chanroblesvirtuallawlibrary

To rescind is to declare a contract void in its inception and to put an end to it as though it never were. It is
not merely to terminate it and to release parties from further obligations to each other but abrogate it from
the beginning and restore parties to relative positions which they would have occupied had no contract been
made.58 cralawla wlibrary

The Lam Spouses were ordered to relinquish possession of the Minilab Equipment unit and its standard
accessories, while Kodak Philippines, Ltd. was ordered to return the amount of P270,000.00, tendered by
the Lam Spouses as partial payment.59

As to the actual damages sought by the parties, the Court of Appeals found that the Lam Spouses were able
to substantiate the following: chanRoble svirtualLawlibrary

Incentive fee paid to Mr. Ruales in the amount of P100,000.00; the rider to the contract of lease which made
the Sps. Lam liable, by way of advance payment, in the amount of P40,000.00, the same being intended for
the repair of the flooring of the leased premises; and lastly, the payment of P300,000.00, as compromise
agreement for the pre-termination of the contract of lease with Ruales. 60 cralawlawlibrary

The total amount is P440,000.00. The Court of Appeals found that all other claims made by the Lam
Spouses were not supported by evidence, either through official receipts or check payments. 61

As regards the generator set improperly seized from Kodak Philippines, Ltd. on the basis of the writ of
replevin, the Court of Appeals found that there was no basis for the Lam Spouses' claim for reasonable
rental of P5,000.00. It held that the trial court's award of 12% interest, in addition to the cost of the
generator set in the amount of P130,000.00, is sufficient compensation for whatever damage the Lam
Spouses suffered on account of its improper seizure.62

The Court of Appeals also ruled on the Lam Spouses' entitlement to moral and exemplary damages, as well
as attorney's fees and litigation expenses: chanRoblesvirtualLa wlibrary

In seeking recovery of the Minilab Equipment, Kodak cannot be considered to have manifested bad faith and
malevolence because as earlier ruled upon, it was well within its right to do the same. However, with respect
to the seizure of the generator set, where Kodak misrepresented to the court a quo its alleged right over the
said item, Kodak's bad faith and abuse of judicial processes become self-evident. Considering the off-setting
circumstances attendant, the amount of P25,000.00 by way of moral damages is considered sufficient.

In addition, so as to serve as an example to the public that an application for replevin should not be
accompanied by any false claims and misrepresentation, the amount of P50,000.00 by way of exemplary
damages should be pegged against Kodak.

With respect to the attorney's fees and litigation expenses, We find that there is no basis to award Sps. Lam
the amount sought for.63 cralawla wlibrary

Kodak Philippines, Ltd. moved for reconsideration of the Court of Appeals Decision, but it was denied for lack
of merit.64 However, the Court of Appeals noted that the Lam Spouses' Opposition correctly pointed out that
the additional award of P270,000.00 made by the trial court was not mentioned in the decretal portion of the
March 30, 2005 Decision: chanRoblesvirtualLa wlibrary

Going over the Decision, specifically page 12 thereof, the Court noted that, in addition to the amount of Two
Hundred Seventy Thousand (P270,000.00) which plaintiff-appellant should return to the defendants-
appellants, the Court also ruled that defendants-appellants should, in turn, relinquish possession of the
Minilab Equipment and the standard accessories to plaintiff-appellant. Inadvertently, these material items
were not mentioned in the decretal portion of the Decision. Hence, the proper correction should herein be
made.65 cralawla wlibrary

The Lam Spouses filed this Petition for Review on April 14, 2005. On the other hand, Kodak Philippines, Ltd.
filed its Motion for Reconsideration66 before the Court of Appeals on April 22, 2005.

While the Petition for Review on Certiorari filed by the Lam Spouses was pending before this court, the Court
of Appeals Special Fourteenth Division, acting on Kodak Philippines, Ltd.'s Motion for Reconsideration, issued
the Amended Decision67 dated September 9, 2005. The dispositive portion of the Decision reads: chanRoble svirtualLawlibrary

WHEREFORE, premises considered, this Court resolved that: chanRoblesvirtualLa wlibrary

A. Plaintiff-appellant's Motion for Reconsideration is hereby DENIED for lack of merit.

B. The decretal portion of the 30 March 2005 Decision should now read as follows:
"WHEREFORE, PREMISES CONSIDERED, the Assailed Decision dated 26 February 1999 of the Regional Trial
Court, Branch 65 in Civil Cases No. 92-3442 is hereby MODIFIED. Plaintiff-appellant is ordered to pay the
following:
a. P270,000.00 representing the partial payment made on the Minilab equipment.

b. P130,000.00 representing the amount of the generator set, plus legal interest at 12% per annum from
December 1992 until fully paid;

c. P440,000.00 as actual damages;

d. P25,000.00 as moral damages; and

e. P50,000.00 as exemplary damages.


Upon the other hand, defendants-appellants are hereby ordered to return to plaintiff-appellant the Minilab
equipment and the standard accessories delivered by plaintiff-appellant.

SO ORDERED."
SO ORDERED.68 (Emphasis in the original)
cralawla wlibrary

Upon receiving the Amended Decision of the Court of Appeals, Kodak Philippines, Ltd. filed a Motion for
Extension of Time to File an Appeal by Certiorari under Rule 45 of the 1997 Rules of Civil Procedure before
this court.69

This was docketed as G.R. No. 169639. In the Motion for Consolidation dated November 2, 2005, the Lam
Spouses moved that G.R. No. 167615 and G.R. No. 169639 be consolidated since both involved the same
parties, issues, transactions, and essential facts and circumstances. 70

In the Resolution dated November 16, 2005, this court noted the Lam Spouses' September 23 and
September 30, 2005 Manifestations praying that the Court of Appeals' September 9, 2005 Amended
Decision be considered in the resolution of the Petition for Review on Certiorari. 71 It also granted the Lam
Spouses' Motion for Consolidation.72

In the Resolution73 dated September 20, 2006, this court deconsolidated G.R No. 167615 from G.R. No.
169639 and declared G.R. No. 169639 closed and terminated since Kodak Philippines, Ltd. failed to file its
Petition for Review.

II

We resolve the following issues: chanRoble svirtualLawlibrary

First, whether the contract between petitioners Spouses Alexander and Julie Lam and respondent Kodak
Philippines, Ltd. pertained to obligations that are severable, divisible, and susceptible of partial performance
under Article 1225 of the New Civil Code; and

Second, upon rescission of the contract, what the parties are entitled to under Article 1190 and Article 1522
of the New Civil Code.

Petitioners argue that the Letter Agreement it executed with respondent for three (3) Minilab Equipment
units was not severable, divisible, and susceptible of partial performance. Respondent's recovery of the
delivered unit was unjustified.74

Petitioners assert that the obligations of the parties were not susceptible of partial performance since the
Letter Agreement was for a package deal consisting of three (3) units. 75 For the delivery of these units,
petitioners were obliged to pay 48 monthly payments, the total of which constituted one debt. 76Having relied
on respondent's assurance that the three units would be delivered at the same time, petitioners
simultaneously rented and renovated three stores in anticipation of simultaneous operations. 77 Petitioners
argue that the divisibility of the object does not necessarily determine the divisibility of the obligation since
the latter is tested against its susceptibility to a partial performance. 78 They argue that even if the object is
susceptible of separate deliveries, the transaction is a indivisible if the parties intended the realization of all
parts of the agreed obligation.79

Petitioners support the claim that it was the parties' intention to have an indivisible agreement by asserting
that the payments they made to respondent were intended to be applied to the whole package of three
units.80 The postdated checks were also intended as initial payment for the whole package. 81 The separate
purchase price for each item was merely intended to particularize the unit prices, not to negate the
indivisible nature of their transaction.82 As to the issue of delivery, petitioners claim that their acceptance of
separate deliveries of the units was solely due to the constraints faced by respondent, who had sole control
over delivery matters.83

With the obligation being indivisible, petitioners argue that respondent's failure to comply with its obligation
to deliver the two (2) remaining Minilab Equipment units amounted to a breach. Petitioners claim that the
breach entitled them to the remedy of rescission and damages under Article 1191 of the New Civil Code. 84

Petitioners also argue that they are entitled to moral damages more than the P50,000.00 awarded by the
Court of Appeals since respondent's wrongful act of accusing them of non-payment of their obligations
caused them sleepless nights, mental anguish, and wounded feelings. 85 They further claim that, to serve as
an example for the public good, they are entitled to exemplary damages as respondent, in making false
allegations, acted in evident bad faith and in a wanton, oppressive, capricious, and malevolent manner.86

Petitioners also assert that they are entitled to attorney's fees and litigation expenses under Article 2208 of
the New Civil Code since respondent's act of bringing a suit against them was baseless and malicious. This
prompted them to engage the services of a lawyer.87

Respondent argues that the parties' Letter Agreement contained divisible obligations susceptible of partial
performance as defined by Article 1225 of the New Civil Code. 88 In respondent's view, it was the intention of
the parties to be bound separately for each individually priced Minilab Equipment unit to be delivered to
different outlets:89
chanroble svirtuallawlibrary

The three (3) Minilab Equipment are intended by petitioners LAM for install[a]tion at their Tagum, Davao del
Norte, Sta. Cruz, Manila and Cotabato City outlets. Each of these units [is] independent from one another, as
many of them may perform its own job without the other. Clearly the objective or purpose of the prestation,
the obligation is divisible.

The nature of each unit of the three (3) Minilab Equipment is such that one can perform its own functions,
without awaiting for the other units to perform and complete its job. So much so, the nature of the object of
the Letter Agreement is susceptible of partial performance, thus the obligation is divisible. 90 cralawla wlibrary

With the contract being severable in character, respondent argues that it performed its obligation when it
delivered one unit of the Minilab Equipment.91 Since each unit could perform on its own, there was no need
to await the delivery of the other units to complete its job.92 Respondent then is of the view that when
petitioners ordered the depository bank to stop payment of the issued checks covering the first delivered
unit, they violated their obligations under the Letter Agreement since respondent was already entitled to full
payment.93

Respondent also argues that petitioners benefited from the use of the Minilab Equipment for 10 months
from March to December 1992 despite having paid only two (2) monthly installments. 94Respondent avers
that the two monthly installments amounting to P70,000.00 should be the subject of an offset against the
amount the Court of Appeals awarded to petitioners. 95

Respondent further avers that petitioners have no basis for claiming damages since the seizure and recovery
of the Minilab Equipment was not in bad faith and respondent was well within its right. 96

III

The Letter Agreement contained an indivisible obligation.

Both parties rely on the Letter Agreement97 as basis of their respective obligations. Written by respondent's
Jeffrey T. Go and Antonio V. Mines and addressed to petitioner Alexander Lam, the Letter Agreement
contemplated a "package deal" involving three (3) units of the Kodak Minilab System 22XL, with the
following terms and conditions: chanRoblesvirtualLa wlibrary

This confirms our verbal agreement for Kodak Phils., Ltd. to provide Colorkwik Laboratories, Inc. with three
(3) units Kodak Minilab System 22XL . . . for your proposed outlets in Rizal Avenue (Manila), Tagum (Davao
del Norte), and your existing Multicolor photo counter in Cotabato City under the following terms and
conditions:chanRoblesvirtualLa wlibrary

1. Said Minilab Equipment packages will avail a total of 19% multiple order discount based on prevailing
equipment price provided said equipment packages will be purchased not later than June 30, 1992.

2. 19% Multiple Order Discount shall be applied in the form of merchandise and delivered in advance
immediately after signing of the contract.
* Also includes start-up packages worth P61,000.00.

3. NO DOWNPAYMENT.

4. Minilab Equipment Package shall be payable in 48 monthly installments at THIRTY FIVE THOUSAND
PESOS (P35,000.00) inclusive of 24% interest rate for the first 12 months; the balance shall be re-
amortized for the remaining 36 months and the prevailing interest shall be applied.

5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992 is at ONE MILLION SEVEN HUNDRED
NINETY SIX THOUSAND PESOS.

6. Price is subject to change without prior notice.


*Secured with PDCs; 1st monthly amortization due 45 days after installation[.] 98 cralawla wlibrary

Based on the foregoing, the intention of the parties is for there to be a single transaction covering all three
(3) units of the Minilab Equipment. Respondent's obligation was to deliver all products purchased under a
"package," and, in turn, petitioners' obligation was to pay for the total purchase price, payable in
installments.

The intention of the parties to bind themselves to an indivisible obligation can be further discerned through
their direct acts in relation to the package deal. There was only one agreement covering all three (3) units of
the Minilab Equipment and their accessories. The Letter Agreement specified only one purpose for the buyer,
which was to obtain these units for three different outlets. If the intention of the parties were to have a
divisible contract, then separate agreements could have been made for each Minilab Equipment unit instead
of covering all three in one package deal. Furthermore, the 19% multiple order discount as contained in the
Letter Agreement was applied to all three acquired units.99The "no downpayment" term contained in the
Letter Agreement was also applicable to all the Minilab Equipment units. Lastly, the fourth clause of the
Letter Agreement clearly referred to the object of the contract as "Minilab Equipment Package."

In ruling that the contract between the parties intended to cover divisible obligations, the Court of Appeals
highlighted: (a) the separate purchase price of each item; (b) petitioners' acceptance of separate deliveries
of the units; and (c) the separate payment arrangements for each unit. 100However, through the specified
terms and conditions, the tenor of the Letter Agreement indicated an intention for a single transaction. This
intent must prevail even though the articles involved are physically separable and capable of being paid for
and delivered individually, consistent with the New Civil Code: chanRoble svirtualLawlibrary

Article 1225. For the purposes of the preceding articles, obligations to give definite things and those which
are not susceptible of partial performance shall be deemed to be indivisible.
When the obligation has for its object the execution of a certain number of days of work, the
accomplishment of work by metrical units, or analogous things which by their nature are susceptible of
partial performance, it shall be divisible.

However, even though the object or service may be physically divisible, an obligation is indivisible if so
provided by law or intended by the parties. (Emphasis supplied) cralawla wlibrary

In Nazareno v. Court of Appeals,101 the indivisibility of an obligation is tested against whether it can be the
subject of partial performance: chanRoble svirtualLawlibrary

An obligation is indivisible when it cannot be validly performed in parts, whatever may be the nature of the
thing which is the object thereof. The indivisibility refers to the prestation and not to the object thereof. In
the present case, the Deed of Sale of January 29, 1970 supposedly conveyed the six lots to Natividad. The
obligation is clearly indivisible because the performance of the contract cannot be done in parts, otherwise
the value of what is transferred is diminished. Petitioners are therefore mistaken in basing the indivisibility of
a contract on the number of obligors.102 (Emphasis supplied, citation omitted) cralawla wlibrary

There is no indication in the Letter Agreement that the units petitioners ordered were covered by three (3)
separate transactions. The factors considered by the Court of Appeals are mere incidents of the execution of
the obligation, which is to deliver three units of the Minilab Equipment on the part of respondent and
payment for all three on the part of petitioners. The intention to create an indivisible contract is apparent
from the benefits that the Letter Agreement afforded to both parties. Petitioners were given the 19%
discount on account of a multiple order, with the discount being equally applicable to all units that they
sought to acquire. The provision on "no downpayment" was also applicable to all units. Respondent, in turn,
was entitled to payment of all three Minilab Equipment units, payable by installments.

IV

With both parties opting for rescission of the contract under Article 1191, the Court of Appeals correctly
ordered for restitution.

The contract between the parties is one of sale, where one party obligates himself or herself to transfer the
ownership and deliver a determinate thing, while the other pays a certain price in money or its
equivalent.103 A contract of sale is perfected upon the meeting of minds as to the object and the price, and
the parties may reciprocally demand the performance of their respective obligations from that point on. 104

The Court of Appeals correctly noted that respondent had rescinded the parties' Letter Agreement through
the letter dated October 14, 1992.105 It likewise noted petitioners' rescission through the letter dated
November 18, 1992.106 This rescission from both parties is founded on Article 1191 of the New Civil Code: chanRoble svirtualLawlibrary

The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.

The injured party may choose between the fulfilment and the rescission of the obligation, with the payment
of damages in either case. He may also seek rescission, even after he has chosen fulfilment, if the latter
should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
cralawla wlibrary

Rescission under Article 1191 has the effect of mutual restitution. 107 In Velarde v. Court of Appeals:108 chanroble svirtuallawlibrary

Rescission abrogates the contract from its inception and requires a mutual restitution of benefits received.
....

Rescission creates the obligation to return the object of the contract. It can be carried out only when the
one who demands rescission can return whatever he may be obliged to restore. To rescind is to declare a
contract void at its inception and to put an end to it as though it never was. It is not merely to terminate it
and release the parties from further obligations to each other, but to abrogate it from the beginning and
restore the parties to their relative positions as if no contract has been made. (Emphasis supplied, citations
omitted)cralawlawlibrary

The Court of Appeals correctly ruled that both parties must be restored to their original situation as far as
practicable, as if the contract was never entered into. Petitioners must relinquish possession of the delivered
Minilab Equipment unit and accessories, while respondent must return the amount tendered by petitioners
as partial payment for the unit received. Further, respondent cannot claim that the two (2) monthly
installments should be offset against the amount awarded by the Court of Appeals to petitioners because the
effect of rescission under Article 1191 is to bring the parties back to their original positions before the
contract was entered into. Also in Velarde: chanRoblesvirtualLa wlibrary

As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal obligation,
not a violation of the terms and conditions of the mortgage contract. Therefore, the automatic rescission and
forfeiture of payment clauses stipulated in the contract does not apply. Instead, Civil Code provisions shall
govern and regulate the resolution of this controversy.

Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual restitution
is required to bring back the parties to their original situation prior to the inception of the contract.
Accordingly, the initial payment of P800.000 and the corresponding mortgage payments in the amounts of
P27,225, P23.000 and P23.925 (totaling P874,150.00) advanced by petitioners should be returned by
private respondents, lest the latter unjustly enrich themselves at the expense of the former.110](Emphasis
supplied) cralawla wlibrary

When rescission is sought under Article 1191 of the Civil Code, it need not be judicially invoked because the
power to resolve is implied in reciprocal obligations.111 The right to resolve allows an injured party to
minimize the damages he or she may suffer on account of the other party's failure to perform what is
incumbent upon him or her.112 When a party fails to comply with his or her obligation, the other party's right
to resolve the contract is triggered.113 The resolution immediately produces legal effects if the non-
performing party does not question the resolution. 114 Court intervention only becomes necessary when the
party who allegedly failed to comply with his or her obligation disputes the resolution of the
contract.115 Since both parties in this case have exercised their right to resolve under Article 1191, there is
no need for a judicial decree before the resolution produces effects.

The issue of damages is a factual one. A petition for review on certiorari under Rule 45 shall only pertain to
questions of law.116 It is not the duty of this court to re-evaluate the evidence adduced before the lower
courts.117 Furthermore, unless the petition clearly shows that there is grave abuse of discretion, the findings
of fact of the trial court as affirmed by the Court of Appeals are conclusive upon this court. 118 In Lorzano v.
Tabayag, Jr.:119 chanroble svirtuallawlibrary

For a question to be one of law, the same must not involve an examination of the probative value of the
evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the
law provides on the given set of circumstances. Once it is clear that the issue invites a review of the
evidence presented, the question posed is one of fact.
....

For the same reason, we would ordinarily disregard the petitioner's allegation as to the propriety of the
award of moral damages and attorney's fees in favor of the respondent as it is a question of fact. Thus,
questions on whether or not there was a preponderance of evidence to justify the award of damages or
whether or not there was a causal connection between the given set of facts and the damage suffered by
the private complainant or whether or not the act from which civil liability might arise exists are questions of
fact.

Essentially, the petitioner is questioning the award of moral damages and attorney's fees in favor of the
respondent as the same is supposedly not fully supported by evidence. However, in the final analysis, the
question of whether the said award is fully supported by evidence is a factual question as it would
necessitate whether the evidence adduced in support of the same has any probative value. For a question to
be one of law, it must involve no examination of the probative value of the evidence presented by the
litigants or any of them.120 (Emphasis supplied, citations omitted) cralawlawlibrary

The damages awarded by the Court of Appeals were supported by documentary evidence. 121Petitioners failed
to show any reason why the factual determination of the Court of Appeals must be reviewed, especially in
light of their failure to produce receipts or check payments to support their other claim for actual
damages.122

Furthermore, the actual damages amounting to P2,040,000.00 being sought by petitioners 123 must be
tempered on account of their own failure to pay the rest of the installments for the delivered unit. This
failure on their part is a breach of their obligation, for which the liability of respondent, for its failure to
deliver the remaining units, shall be equitably tempered on account of Article 1192 of the New Civil
Code.124 In Central Bank of the Philippines v. Court of Appeals:125 chanroble svirtuallawlibrary

Since both parties were in default in the performance of their respective reciprocal obligations, that is,
Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino
failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both
liable for damages.

Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the
liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of
Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue
P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his P17,000.00 debt shall not be
included in offsetting the liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for his
use of the P17,000.00, it is just that he should account for the interest thereon. 126 (Emphasis supplied) cralawla wlibrary

The award for moral and exemplary damages also appears to be sufficient. Moral damages are granted to
alleviate the moral suffering suffered by a party due to an act of another, but it is not intended to enrich the
victim at the defendant's expense.127 It is not meant to punish the culpable party and, therefore, must
always be reasonable vis-a-vis the injury caused.128 Exemplary damages, on the other hand, are awarded
when the injurious act is attended by bad faith. 129 In this case, respondent was found to have
misrepresented its right over the generator set that was seized. As such, it is properly liable for exemplary
damages as an example to the public.130

However, the dispositive portion of the Court of Appeals Amended Decision dated September 9, 2005 must
be modified to include the recovery of attorney's fees and costs of suit in favor of petitioners. In Sunbanun
v. Go:131 chanroble svirtuallawlibrary

Furthermore, we affirm the award of exemplary damages and attorney's fees. Exemplary damages may be
awarded when a wrongful act is accompanied by bad faith or when the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner which would justify an award of exemplary damages
under Article 2232 of the Civil Code. Since the award of exemplary damages is proper in this case,
attorney's fees and cost of the suit may also be recovered as provided under Article 2208 of the Civil
Code.132 (Emphasis supplied, citation omitted) cralawlawlibrary

Based on the amount awarded for moral and exemplary damages, it is reasonable to award petitioners
P20,000.00 as attorney's fees.

WHEREFORE, the Petition is DENIED. The Amended Decision dated September 9, 2005 is AFFIRMED
with MODIFICATION. Respondent Kodak Philippines, Ltd. is ordered to pay petitioners Alexander and Julie
Lam: chanRoblesvirtualLa wlibrary

(a) P270,000.00, representing the partial payment made on the Minilab


Equipment;
(b) P130,000.00, representing the amount of the generator set, plus
legal interest at 12% per annum from December 1992 until fully
paid;
(c) P440,000.00 as actual damages;
(d) P25,000.00 as moral damages;
(e) P50,000.00 as exemplary damages; and
(f) P20,000.00 as attorney's fees.

Petitioners are ordered to return the Kodak Minilab System 22XL unit and its standard accessories to
respondent.

SO ORDERED. chanroblesvirtuallawlibrary

Carpio, (Chairperson), Brion, Del Castillo, and Mendoza, JJ., concur.

SECOND DIVISION

G.R. No. 206147, January 13, 2016

MICHAEL C. GUY, Petitioner, v. ATTY. GLENN C. GACOTT, Respondent.

DECISION

MENDOZA, J.:

Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court filed by petitioner
Michael C. Guy (Guy), assailing the June 25, 2012 Decision1 and the March 5, 2013 Resolution2 of the Court
of Appeals (CA) in CA-G.R. CV No. 94816, which affirmed the June 28, 2009 3and February 19, 20104 Orders
of the Regional Trial Court, Branch 52, Puerto Princesa City, Palawan (RTC), in Civil Case No. 3108, a case
for damages. The assailed RTC orders denied Guy's Motion to Lift Attachment Upon Personalty 5 on the
ground that he was not a judgment debtor.

The Facts

It appears from the records that on March 3, 1997, Atty. Glenn Gacott (Gacott) from Palawan purchased two
(2) brand new transreceivers from Quantech Systems Corporation (QSC) in Manila through its employee Rey
Medestomas (Medestomas), amounting to a total of PI 8,000.00. On May 10, 1997, due to major defects,
Gacott personally returned the transreceivers to QSC and requested that they be replaced. Medestomas
received the returned transreceivers and promised to send him the replacement units within two (2) weeks
from May 10, 1997.

Time passed and Gacott did not receive the replacement units as promised. QSC informed him that there
were no available units and that it could not refund the purchased price. Despite several demands, both oral
and written, Gacott was never given a replacement or a refund. The demands caused Gacott to incur
expenses in the total amount of P40,936.44. Thus, Gacott filed a complaint for damages. Summons was
served upon QSC and Medestomas, afterwhich they filed their Answer, verified by Medestomas himself and a
certain Elton Ong (Ong). QSC and Medestomas did not present any evidence during the trial. 6

In a Decision,7 dated March 16, 2007, the RTC found that the two (2) transreceivers were defective and that
QSC and Medestomas failed to replace the same or return Gacott's money. The dispositive portion of the
decision reads:chanRoblesvirtualLa wlibrary

WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering the defendants to jointly and
severally pay plaintiff the following: chanRoble svirtualLawlibrary

1. Purchase price plus 6% per annum from March 3,1997 up to and until fully paid
-------------------------------------------------------- P 18,000.00
2. Actual Damages ----------------------------------- 40,936.44
3. Moral Damages ----------------------------------- 75,000.00
4. Corrective Damages ---------------------------- 100,000.00
5. Attorney's Fees ------------------------------------ 60,000.00
6. Costs.

SO ORDERED.
cralawla wlibrary

The decision became final as QSC and Medestomas did not interpose an appeal. Gacott then secured a Writ
of Execution,8 dated September 26, 2007.

During the execution stage, Gacott learned that QSC was not a corporation, but was in fact a general
partnership registered with the Securities and Exchange Commission (SEC). In the articles of
partnership,9 Guy was appointed as General Manager of QSC.

To execute the judgment, Branch Sheriff Ronnie L. Felizarte (Sheriff Felizarte) went to the main office of the
Department of Transportation and Communications, Land Transportation Office (DOTC-LTO), Quezon City,
and verified whether Medestomas, QSC and Guy had personal properties registered therein. 10 Upon learning
that Guy had vehicles registered in his name, Gacott instructed the sheriff to proceed with the attachment of
one of the motor vehicles of Guy based on the certification issued by the DOTC-LTO.11

On March 3, 2009, Sheriff Felizarte attached Guy's vehicle by virtue of the Notice of Attachment/Levy upon
Personalty12 served upon the record custodian of the DOTC-LTO of Mandaluyong City. A similar notice was
served to Guy through his housemaid at his residence.

Thereafter, Guy filed his Motion to Lift Attachment Upon Personalty, arguing that he was not a judgment
debtor and, therefore, his vehicle could not be attached.13 Gacott filed an opposition to the motion.

The RTC Order

On June 28, 2009, the RTC issued an order denying Guy's motion. It explained that considering QSC was not
a corporation, but a registered partnership, Guy should be treated as a general partner pursuant to Section
21 of the Corporation Code, and he may be held jointly and severally liable with QSC and Medestomas. The
trial court wrote: chanRoblesvirtualLa wlibrary

All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as
general partners for all debts, liabilities and damages incurred or arising as a result thereof x x x. Where, by
any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership
x x x, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is
incurred, the partnership is liable therefore to the same extent as the partner so acting or omitting to act. All
partners are liable solidarity with the partnership for everything chargeable to the partnership under Article
1822 and 1823.14 cralawlawlibrary

Accordingly, it disposed: chanRoble svirtualLawlibrary

WHEREFORE, with the ample discussion of the matter, this Court finds and so holds that the property of
movant Michael Guy may be validly attached in satisfaction of the liabilities adjudged by this Court against
Quantech Co., the latter being an ostensible Corporation and the movant being considered by this Court as a
general partner therein in accordance with the order of this court impressed in its decision to this case
imposing joint and several liability to the defendants. The Motion to Lift Attachment Upon Personalty
submitted by the movant is therefore DENIED for lack of merit.

SO ORDERED.15 cralawla wlibrary

Not satisfied, Guy moved for reconsideration of the denial of his motion. He argued that he was neither
impleaded as a defendant nor validly served with summons and, thus, the trial court did not acquire
jurisdiction over his person; that under Article 1824 of the Civil Code, the partners were only solidarily liable
for the partnership liability under exceptional circumstances; and that in order for a partner to be liable for
the debts of the partnership, it must be shown that all partnership assets had first been exhausted. 16

On February 19, 2010, the RTC issued an order17 denying his motion.

The denial prompted Guy to seek relief before the CA.

The CA Ruling
On June 25, 2012, the CA rendered the assailed decision dismissing Guy's appeal for the same reasons
given by the trial court. In addition thereto, the appellate court stated: chanRoble svirtualLawlibrary

We hold that Michael Guy, being listed as a general partner of QSC during that time, cannot feign ignorance
of the existence of the court summons. The verified Answer filed by one of the partners, Elton Ong, binds
him as a partner because the Rules of Court does not require that summons be served on all the partners. It
is sufficient that service be made on the "president, managing partner, general manager, corporate
secretary, treasurer or in-house counsel." To Our mind, it is immaterial whether the summons to QSC was
served on the theory that it was a corporation. What is important is that the summons was served on QSC's
authorized officer xxx.18
cralawla wlibrary
ChanRoblesVirtualawlibrary

The CA stressed that Guy, being a partner in QSC, was bound by the summons served upon QSC based on
Article 1821 of the Civil Code. The CA further opined that the law did not require a partner to be actually
involved in a suit in order for him to be made liable. He remained "solidarity liable whether he participated
or not, whether he ratified it or not, or whether he had knowledge of the act or omission." 19

Aggrieved, Guy filed a motion for reconsideration but it was denied by the CA in its assailed resolution,
dated March 5, 2013.

Hence, the present petition raising the following

ISSUE

THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN HOLDING THAT


PETITIONER GUY IS SOLIDARILY LIABLE WITH THE PARTNERSHIP FOR DAMAGES ARISING
FROM THE BREACH OF THE CONTRACT OF SALE WITH RESPONDENT GACOTT.20
cralawla wlibrary
ChanRoblesVirtualawlibrary

Guy argues that he is not solidarity liable with the partnership because the solidary liability of the partners
under Articles 1822, 1823 and 1824 of the Civil Code only applies when it stemmed from the act of a
partner. In this case, the alleged lapses were not attributable to any of the partners. Guy further invokes
Article 1816 of the Civil Code which states that the liability of the partners to the partnership is merely joint
and subsidiary in nature.

In his Comment,21 Gacott countered, among others, that because Guy was a general and managing partner
of QSC, he could not feign ignorance of the transactions undertaken by QSC. Gacott insisted that notice to
one partner must be considered as notice to the whole partnership, which included the pendency of the civil
suit against it.

In his Reply,22 Guy contended that jurisdiction over the person of the partnership was not acquired because
the summons was never served upon it or through any of its authorized office. He also reiterated that a
partner's liability was joint and subsidiary, and not solidary.

The Court's Ruling

The petition is meritorious.

The service of summons was


flawed; voluntary appearance
cured the defect

Jurisdiction over the person, or jurisdiction in personam - the power of the court to render a personal
judgment or to subject the parties in a particular action to the judgment and other rulings rendered in the
action - is an element of due process that is essential in all actions, civil as well as criminal, except in
actions in rem or quasi in rem.23 Jurisdiction over the person of the plaintiff is acquired by the mere filing of
the complaint in court. As the initiating party, the plaintiff in a civil action voluntarily submits himself to the
jurisdiction of the court. As to the defendant, the court acquires jurisdiction over his person either by the
proper service of the summons, or by his voluntary appearance in the action. 24

Under Section 11, Rule 14 of the 1997 Revised Rules of Civil Procedure, when the defendant is a
corporation, partnership or association organized under the laws of the Philippines with a juridical
personality, the service of summons may be made on the president, managing partner, general manager,
corporate secretary, treasurer, or in-house counsel. Jurisprudence is replete with pronouncements that such
provision provides an exclusive enumeration of the persons authorized to receive summons for juridical
entities.25
cralawred

The records of this case reveal that QSC was never shown to have been served with the summons through
any of the enumerated authorized persons to receive such, namely: president, managing partner, general
manager, corporate secretary, treasurer or in-house counsel. Service of summons upon persons other than
those officers enumerated in Section 11 is invalid. Even substantial compliance is not sufficient service
of summons. The CA was obviously mistaken when it opined that it was immaterial whether the summons to
QSC was served on the theory that it was a corporation. 27

Nevertheless, while proper service of summons is necessary to vest the court jurisdiction over the
defendant, the same is merely procedural in nature and the lack of or defect in the service of summons may
be cured by the defendant's subsequent voluntary submission to the court's jurisdiction through his filing a
responsive pleading such as an answer. In this case, it is not disputed that QSC filed its Answer despite the
defective summons. Thus, jurisdiction over its person was acquired through voluntary appearance.

A partner must be separately


and distinctly impleaded before
he can be bound by a judgment

The next question posed is whether the trial court's jurisdiction over QSC extended to the person of Guy
insofar as holding him solidarity liable with the partnership. After a thorough study of the relevant laws and
jurisprudence, the Court answers in the negative.

Although a partnership is based on delectus personae or mutual agency, whereby any partner can generally
represent the partnership in its business affairs, it is non sequitur that a suit against the partnership is
necessarily a suit impleading each and every partner. It must be remembered that a partnership is a
juridical entity that has a distinct and separate personality from the persons composing it. 28

In relation to the rules of civil procedure, it is elementary that a judgment of a court is conclusive and
binding only upon the parties and their successors-in-interest after the commencement of the action in
court.29 A decision rendered on a complaint in a civil action or proceeding does not bind or prejudice a
person not impleaded therein, for no person shall be adversely affected by the outcome of a civil action or
proceeding in which he is not a party.30 The principle that a person cannot be prejudiced by a ruling rendered
in an action or proceeding in which he has not been made a party conforms to the constitutional guarantee
of due process of law.31

In Muoz v. Yabut, Jr.,32 the Court declared that a person not impleaded and given the opportunity to take
part in the proceedings was not bound by the decision declaring as null and void the title from which his title
to the property had been derived. The effect of a judgment could not be extended to non-parties by simply
issuing an alias writ of execution against them, for no man should be prejudiced by any proceeding to which
he was a stranger.

In Aguila v. Court of Appeals33 the complainant had a cause of action against the partnership. Nevertheless,
it was the partners themselves that were impleaded in the complaint. The Court dismissed the complaint
and held that it was the partnership, not its partners, officers or agents, which should be impleaded for a
cause of action against the partnership itself. The Court added that the partners could not be held liable for
the obligations of the partnership unless it was shown that the legal fiction of a different juridical personality
was being used for fraudulent, unfair, or illegal purposes. 34

Here, Guy was never made a party to the case. He did not have any participation in the entire proceeding
until his vehicle was levied upon and he suddenly became QSC's "co-defendant debtor" during the judgment
execution stage. It is a basic principle of law that money judgments are enforceable only against the
property incontrovertibly belonging to the judgment debtor.35 Indeed, the power of the court in executing
judgments extends only to properties unquestionably belonging to the judgment debtor alone. An execution
can be issued only against a party and not against one who did not have his day in court. The duty of the
sheriff is to levy the property of the judgment debtor not that of a third person. For, as the saying goes, one
man's goods shall not be sold for another man's debts. 36
In the spirit of fair play, it is a better rule that a partner must first be impleaded before he could be
prejudiced by the judgment against the partnership. As will be discussed later, a partner may raise several
defenses during the trial to avoid or mitigate his obligation to the partnership liability. Necessarily, before he
could present evidence during the trial, he must first be impleaded and informed of the case against him. It
would be the height of injustice to rob an innocent partner of his hard-earned personal belongings without
giving him an opportunity to be heard. Without any showing that Guy himself acted maliciously on behalf of
the company, causing damage or injury to the complainant, then he and his personal properties cannot be
made directly and solely accountable for the liability of QSC, the judgment debtor, because he was not a
party to the case.

Further, Article 1821 of the Civil Code does not state that there is no need to implead a partner in
order to be bound by the partnership liability. It provides that:chanRoble svirtualLawlibrary

Notice to any partner of any matter relating to partnership affairs, and the knowledge of the
partner acting in the particular matter, acquired while a partner or then present to his mind, and the
knowledge of any other partner who reasonably could and should have communicated it to the acting
partner, operate as notice to or knowledge of the partnership, except in the case of fraud on the
partnership, committed by or with the consent of that partner.

cralawla wlibrary
[Emphases and Underscoring Supplied]

A careful reading of the provision shows that notice to any partner, under certain circumstances, operates as
notice to or knowledge to the partnership only. Evidently, it does not provide for the reverse situation, or
that notice to the partnership is notice to the partners. Unless there is an unequivocal law which states that
a partner is automatically charged in a complaint against the partnership, the constitutional right to due
process takes precedence and a partner must first be impleaded before he can be considered as a judgment
debtor. To rule otherwise would be a dangerous precedent, harping in favor of the deprivation of property
without ample notice and hearing, which the Court certainly cannot countenance.

Partners' liability is subsidiary


and generally joint; immediate levy
upon the property of a partner
cannot be made

Granting that Guy was properly impleaded in the complaint, the execution of judgment would be improper.
Article 1816 of the Civil Code governs the liability of the partners to third persons, which states that: chanRoble svirtualLawlibrary

Article 1816. All partners, including industrial ones, shall be liable pro rata with all their property and
after all the partnership assets have been exhausted, for the contracts which may be entered into in
the name and for the account of the partnership, under its signature and by a person authorized to act for
the partnership. However, any partner may enter into a separate obligation to perform a partnership
contract.

cralawla wlibrary
[Emphasis supplied]

This provision clearly states that, first, the partners' obligation with respect to the partnership liabilities is
subsidiary in nature. It provides that the partners shall only be liable with their property after all the
partnership assets have been exhausted. To say that one's liability is subsidiary means that it merely
becomes secondary and only arises if the one primarily liable fails to sufficiently satisfy the obligation. Resort
to the properties of a partner may be made only after efforts in exhausting partnership assets have failed or
that such partnership assets are insufficient to cover the entire obligation. The subsidiary nature of the
partners' liability with the partnership is one of the valid defenses against a premature execution of
judgment directed to a partner.

In this case, had he been properly impleaded, Guy's liability would only arise after the properties of QSC
would have been exhausted. The records, however, miserably failed to show that the partnership's
properties were exhausted. The report37 of the sheriff showed that the latter went to the main office of the
DOTC-LTO in Quezon City and verified whether Medestomas, QSC and Guy had personal properties
registered therein. Gaeott then instructed the sheriff to proceed with the attachment of one of the motor
vehicles of Guy.38 The sheriff then served the Notice of Attachment/Levy upon Personalty to the record
custodian of the DOTC-LTO of Mandaluyong City. A similar notice was served to Guy through his housemaid
at his residence.

Clearly, no genuine efforts were made to locate the properties of QSC that could have been attached to
satisfy the judgment - contrary to the clear mandate of Article 1816. Being subsidiarily liable, Guy could only
be held personally liable if properly impleaded and after all partnership assets had been exhausted.

Second, Article 1816 provides that the partners' obligation to third persons with respect to the partnership
liability is pro rata or joint. Liability is joint when a debtor is liable only for the payment of only a
proportionate part of the debt. In contrast, a solidary liability makes a debtor liable for the payment of the
entire debt. In the same vein, Article 1207 does not presume solidary liability unless: 1) the obligation
expressly so states; or 2) the law or nature requires solidarity. With regard to partnerships, ordinarily,
the liability of the partners is not solidary.39 The joint liability of the partners is a defense that can be raised
by a partner impleaded in a complaint against the partnership.

In other words, only in exceptional circumstances shall the partners' liability be solidary in nature. Articles
1822, 1823 and 1824 of the Civil Code provide for these exceptional conditions, to wit: chanRoble svirtualLawlibrary

Article 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the
business of the partnership or with the authority of his co-partners, loss or injury is caused to any person,
not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the
same extent as the partner so acting or omitting to act.

Article 1823. The partnership is bound to make good the loss: chanRoble svirtualLawlibrary

(1) Where one partner acting within the scope of his apparent authority receives money or property of a
third person and misapplies it; and

(2) Where the partnership in the course of its business receives money or property of a third person and the
money or property so received is misapplied by any partner while it is in the custody of the partnership.

Article 1824. All partners are liable solidarity with the partnership for everything chargeable to the
partnership under Articles 1822 and 1823.

cralawla wlibrary
[Emphases Supplied]

In essence, these provisions articulate that it is the act of a partner which caused loss or injury to a third
person that makes all other partners solidarity liable with the partnership because of the words "any
wrongful act or omission of any partner acting in the ordinary course of the business, " "one partner acting
within the scope of his apparent authority" and "misapplied by any partner while it is in the custody of the
partnership." The obligation is solidary because the law protects the third person, who in good faith relied
upon the authority of a partner, whether such authority is real or apparent. 40

In the case at bench, it was not shown that Guy or the other partners did a wrongful act or misapplied the
money or property he or the partnership received from Gacott. A third person who transacted with said
partnership can hold the partners solidarity liable for the whole obligation if the case of the third person
falls under Articles 1822 or 1823.41 Gacott's claim stemmed from the alleged defective transreceivers he
bought from QSC, through the latter's employee, Medestomas. It was for a breach of warranty in a
contractual obligation entered into in the name and for the account of QSC, not due to the acts of any of the
partners. For said reason, it is the general rule under Article 1816 that governs the joint liability of such
breach, and not the exceptions under Articles 1822 to 1824. Thus, it was improper to hold Guy solidarity
liable for the obligation of the partnership.

Finally, Section 21 of the Corporation Code,42 as invoked by the RTC, cannot be applied to sustain Guy's
liability. The said provision states that a general partner shall be liable for all debts, liabilities and damages
incurred by an ostensible corporation. It must be read, however, in conjunction with Article 1816 of the Civil
Code, which governs the liabilities of partners against third persons. Accordingly, whether QSC was an
alleged ostensible corporation or a duly registered partnership, the liability of Guy, if any, would remain to be
joint and subsidiary because, as previously stated, all partners shall be liable pro rata with all their
property and after all the partnership assets have been exhausted for the contracts which may be entered
into in the name and for the account of the partnership.

WHEREFORE, the petition is GRANTED. The June 25, 2012 Decision and the March 5, 2013 Resolution of
the Court of Appeals in CA-G.R. CV No. 94816 are hereby REVERSED and SET ASIDE. Accordingly, the
Regional Trial Court, Branch 52, Puerto Princesa City, is ORDERED TO RELEASEMichael C. Guy's Suzuki
Grand Vitara subject of the Notice of Levy/Attachment upon Personalty.

SO ORDERED. chanroblesvirtuallawlibrary

Carpio, (Chairperson), Brion, Del Castillo, and Leonen, JJ., concur.

FIRST DIVISION

G.R. No. 168078, January 13, 2016

FABIO CAHAYAG AND CONRADO RIVERA, Petitioners, v. COMMERCIAL CREDIT CORPORATION,


REPRESENTED BY ITS PRESIDENT, LEONARDO B. ALEJANDRO; TERESITA T. QUA, ASSISTED BY
HER HUSBAND ALFONSO MA. QUA; AND THE REGISTER OF DEEDS OF LAS PINAS, METRO MANILA,
DISTRICT IV, Respondents.

G.R. NO. 168357

DULOS REALTY & DEVELOPMENT CORPORATION, REPRESENTED BY ITS PRESIDENT, JUANITO C.


DULOS; AND MILAGROS E. ESCALONA, AND ILUMINADA D. BALDOZA, Petitioners, v.COMMERCIAL
CREDIT CORPORATION, REPRESENTED BY ITS PRESIDENT, LEONARDO B. ALEJANDRO; TERESITA
T. QUA, ASSISTED BY HER HUSBAND ALFONSO MA. QUA; AND THE REGISTER OF DEEDS OF LAS
PINAS, METRO MANILA, DISTRICT IV, Respondents.

DECISION

SERENO, C.J.:

Before us are consolidated Rule 45 Petitions1 seeking to nullify the Court of Appeals (CA) Decision dated 2
November 20042 and Resolution dated 10 May 20053 in CA-G.R. CV No. 47421. The CA Decision reversed
and set aside the Decision dated 6 July 1992 issued by the Regional Trial Court (RTC), Branch 65 of Makati. 4

Factual Antecedents

Petitioner Dulos Realty was the registered owner of certain residential lots covered by Transfer Certificate of
Title (TCT) Nos. S-39767, S-39775, S-28335, S-39778 and S-29776, located at Airmen's Village
Subdivision, Pulang Lupa II, Las Pinas, Metro Manila.

On 20 December 1980, Dulos Realty obtained a loan from respondent CCC in the amount of F300,000. To
secure the loan, the realty executed a Real Estate Mortgage over the subject properties in favor of
respondent. The mortgage was duly annotated on the certificates of title on 3 February 1981. 5

On 29 March 1981, Dulos Realty entered into a Contract to Sell with petitioner Cahayag over the lot covered
by TCT No. S-39775.6

On 12 August 1981, Dulos Realty entered into another Contract to Sell, this time with petitioner Rivera over
the lot covered by TCT No. S-28335.7

Dulos Realty defaulted in the payment of the mortgage loan, prompting respondent CCC to initiate
extrajudicial foreclosure proceedings. On 17 November 1981, the auction sale was held, with respondent
CCC emerging as the highest bidder.8

Dulos Realty, mortgaged properties in favor of CCC to secure a loan. The properties were sold third persons
(Cahayag, Rivera, Escalona, Baldoza). Dulos Realty defaulted in the payment of the mortgage loan,
prompting respondent CCC to initiate extrajudicial foreclosure proceedings. Dulos TCT were cancelled, and
were consolidated in favor of CCC. CCC then sold to Qua.
On 23 November 1981, a Certificate of Sale covering the properties, together with all the buildings and
improvements existing thereon, was issued in favor of CCC. 9 The Certificate of Sale was annotated on the
corresponding titles to the properties on 8 March 1982.10

Thereafter, or on 13 January 1983, Dulos Realty entered into a Contract to Sell with petitioner Escalona over
the house and lot covered by TCTNo. S-29776.11

On 10 November 1983, an Affidavit of Consolidation in favor of respondent CCC dated 26 August 1983 was
annotated on the corresponding titles to the properties. 12 By virtue of the affidavit, TCT Nos. S-39775, S-
28335, S-39778 and S-29776 all in the name of Dulos Realty were cancelled and TCT Nos. 74531,
74532, 74533 and 74534 were issued in the name of respondent CCC on the same day.13

On 10 December 1983, Dulos Realty entered into a Deed of Absolute Sale with petitioner Baldoza over the
property covered by TCT No. S-39778, together with the improvements existing thereon. 14

On 21 December 1983, respondent CCC, through a Deed of Absolute Sale, sold to respondent Qua the same
subject properties, now covered by TCT Nos. 74531, 74532, 74533 and 74534, which were in the name of
respondent CCC. The sale was duly annotated on the corresponding titles to the properties on 5 January
1984.15

Accordingly, TCT Nos. 74531, 74532, 74533 and 74534 were cancelled; and TCT Nos. 77012, 77013, 77014
and 770015 were issued to respondent Qua on 5 January 1984. 16

Subsequently, respondent Qua filed ejectment suits individually against petitioners Dulos Realty,17
Cahayag,18 Escalona,19 and Rivera20 before the Metropolitan Trial Court (MTC) of Las Pinas, Metro Manila.

The MTC rendered Decisions in favor of respondent Qua. It ordered Dulos Realty, Escalona, Cahayag, and
Rivera to vacate the properties.

On 8 March 1988, the MTC issued a Writ of Execution to enforce its Decision dated 20 October 1986 in Civil
Case No. 2257 against Dulos Realty "and all persons claiming right under defendant." 21 The subject of the
writ of execution was Lot 11 Block II,22 which was the lot sold by Dulos Realty to petitioner Baldoza.

COMPLAINT FOR ANNULMENT OF


SHERIFF'S SALE AND OTHER DOCUMENTS

On 5 December 1988, petitioners filed a Complaint against respondents for the "Annulment of Sheriff['s]
Sale and Other Documents with Preliminary Injunction and/or Temporary Restraining Order" before the RTC
of Makati City, where it was docketed as Civil Case No. 88-2599. 23

The Complaint24 alleged that petitioners Cahayag, Rivera, Escalona and Baldoza were owners of the
properties in question by virtue of Contracts of Sale individually executed in their favor, and that the Real
Estate Mortgage between Dulos Realty and defendant-appellant CCC did not include the houses, but merely
referred to the lands themselves." 25 Thus, the inclusion of the housing units in the Deed of Sale executed by
respondent CCC in favor of respondent Qua was allegedly illegal. 26

Respondents failed to file an answer within the reglementary period. Subsequently, they were declared in
default. They appealed the order of default but their appeal was dismissed on 8 February 1990. 27

On 6 July 1992, the RTC rendered a Decision,28 which ruled that the houses were not included in the Real
Estate Mortgage; and that the foreclosure of the mortgage over the subject lots, as well as the housing
units, was not valid.29 The trial court held that this conclusion was established by the plaintiffs' evidence,
which went unrefuted when defendants were declared in default. 30

THE CA DECISION

Respondents proceeded to the CA, where they secured a favorable ruling. In its Decision rendered on 2
November 2004,31 the appellate court held that the extrajudicial foreclosure was valid, since the Real Estate
Mortgage clearly included the buildings and improvements on the lands, subject of the mortgage.

After establishing the inclusion of the housing units in the Real Estate Mortgage, the CA determined the
rights of the buyers in the Contracts to Sell/Contract of Sale vis-a-vis those of the mortgagee and its
successor-in-interest.

In the cases of petitioners Cahayag, Rivera and Escalona, the CA pointed to lack of evidence establishing full
payment of the price. As supporting reason, it stated that even if there were full payment of the purchase
price, the mortgagee and the latter's successor-in-interest had a better right over the properties. The CA
anchored this conclusion on the fact that the Real Estate Mortgage was annotated at the back of the titles to
the subject properties before the execution of the Contracts to Sell. It said that the annotation constituted
sufficient notice to third parties that the property was subject to an encumbrance. With the notice, Cahayag,
Rivera and Escalona should have redeemed the properties within the one-year redemption period, but they
failed to do so. Consequently, the right of respondent CCC over the properties became absolute, and the
transfer to respondent Qua was valid.

As regards Baldoza, though the case involved a Contract of Sale, and not a mere Contract to Sell, the CA
declared the transaction null and void on the purported ground that Dulos was no longer the owner at the
time of the sale.

The CA accordingly reversed and set aside the RTC Decision, dismissed the case for lack of merit, and
ordered petitioners to surrender possession of the properties to respondent Qua.

THE RULE 45 PETITIONS

On 30 May 2005, petitioners Cahayag and Rivera filed their Rule 45 Petition with this Court. 32 For their part,
petitioners Dulos Realty, Baldoza and Escalona filed their Rule 45 Petition on 19 July 2005. 33

In the Petition under G.R. No. 168357, it is argued, among others, that the Deed of Absolute Sale in favor of
petitioner Baldoza was the culmination of a Contract to Sell between her and Dulos Realty. She claims that
the Contract to Sell, marked as Exhibit "L" during the trial, was executed on 10 January 1979, which
preceded the execution of the Deed of Real Estate Mortgage and the registration of the mortgage on 3
February 1981.34 After full payment of the price under the Contract to Sell, Dulos Realty executed the Deed
of Absolute Sale. In other words, Baldoza is arguing that she has a better title to the property than
respondent Qua since the unregistered contract to sell in her favor was executed before the registration of
the mortgage. But the CA ignored Exhibit "L" and merely stated that there was only a Deed of Absolute Sale
in favor of Baldoza.

THE ARGUMENTS

The arguments of petitioners, as stated in their respective Memoranda, are summarized as follows: chanRoble svirtualLawlibrary

Coverage of the Mortgage

Initially, petitioners attempt to stave off the effects of the extrajudicial foreclosure by attacking the coverage
of the Real Estate Mortgage with respect to its subject-matter.35 They draw attention to the fact that the List
of Properties attached to the Deed of Real Estate Mortgage refers merely to the lands themselves and does
not include the housing units found thereon.36 Petitioners also contend that doubts should be resolved
against the drafter inasmuch as the agreement is a contract of adhesion, having been prepared by the
mortgagee.37

As backup argument for the theory that the houses are outside the coverage of the mortgage agreement,
petitioners argue that the improvements were not owned by Dulos Realty, the mortgagor, but by its buyers
under the Contracts to Sell and Contracts of Sale; hence, those improvements are excluded from the
coverage of the real estate mortgage.

Validity of the Mortgage

Petitioners next challenge the validity of the foreclosure sale on the ground that the mortgage executed by
the mortgagor (petitioner Dulos Realty) and the mortgagee (respondent CCC) was null and
void.38 Petitioners claim that Dulos Realty was no longer the owner of the properties it had mortgaged at the
time of the execution of the mortgage contract, as they were sold under existing Contracts to Sell and Deed
of Absolute Sale.39

Petitioners Cahayag, Rivera and Escalona lean on the unregistered Contracts to Sell they had individually
executed with Dulos Realty as vendor. For his part, petitioner Baldoza points to the Deed of Absolute Sale
executed by Dulos Realty in his favor.

Better Right over the Properties

Petitioners claim that respondent CCC cannot claim to be a mortgagee in good faith, since it is a financial
institution.40 As such, respondent CCC knew that it was dealing with a subdivision developer, which was in
the business of selling subdivision lots.41Dela Merced v. GSIS42 which states that the general rule that a
mortgagee need not look beyond the title cannot benefit banks and other financial institutions, as a higher
due diligence requirement is imposed on them.

They also raise the contention that lack of full payment of the purchase price under the Contracts to Sell on
the part of Cahayag, Rivera and Escalona was due to respondent Qua's "harassment and unlawful
actuations.43

Petitioners further state that respondent Qua is a mere transferee of respondent CCC and that, like a
stream, she cannot rise higher than her source. They also argue that Qua is not an innocent purchaser for
value, since she is a former investor of respondent CCC and one of its principal stockholders. 44

No Prior Written HLURB


Approval of the Mortgage

Finally, petitioners allege that the mortgage contract in this case was not approved by the HLURB, which
violates Section 18 of P.D. 95745 and results in the nullity of the mortgage.

Exhibit "L" as Evidence of a Prior


Contract to Sell

The matter of CA ignoring Exhibit "L" as evidence of a prior unregistered Contract to Sell was not included in
the Memoranda of petitioners.

THE ISSUES

Based on the foregoing facts and arguments raised by petitioners, the threshold issues to be resolved are
the following:chanRoblesvirtualLa wlibrary

1. Whether the real mortgage covers the lands only, as enumerated in the Deed of Real Estate
Mortgage or the housing units as well;

2. Whether Dulos Realty was the owner of the properties it had mortgaged at the time of its execution
in view of the various Contracts to Sell and Deed of Absolute Sale respectively executed in favor of
petitioners Cahayag, Rivera, Escalona and Cahayag;

3. Who, as between petitioners-buyers and respondent Qua, has a better right over the properties?

4. Whether the Deed of Absolute Sale in favor of Baldoza was not preceded by a Contract to Sell and
full payment of the purchase price; and

5. Whether the mortgage is void on the ground that it lacked the prior written approval of the HLURB.

OUR RULING

We deny the Petition for reasons as follows.

Attack on the Subject-matter of


the Real Estate Mortgage
It is true that the List of Properties attached to the Deed of Real Estate Mortgage refers merely to the lands
themselves and does not include the housing units found thereon. A plain reading of the Real Estate
Mortgage, however, reveals that it covers the housing units as well. We quote the pertinent provision of
the agreement: chanRoblesvirtualLa wlibrary

[T]he MORTGAGOR has transferred and conveyed and, by these presents, do hereby transfer and convey by
way of FIRST MORTGAGE unto the MORTGAGEE, its successors and assigns the real properties described in
the list appearing at the back of this document and/or in a supplemental document attached hereto as
Annex "A" and made and integral part hereof, together with all the buildings and/or other
improvements now existing or which may hereafter be place[d] or constructed thereon, all of
which the MORTGAGOR hereby warrants that he is the absolute owner and exclusive possessor thereof, free
from all liens and encumbrances of whatever kind and nature, xxx. 47 (Emphasis Ours) cralawlawlibrary

Thus, the housing units would fall under the catch-all phrase "together with all the buildings and/or
other improvements now existing or which may hereafter be placed or constructed thereon."

The contra proferentem rule finds no application to this case. The doctrine provides that in the interpretation
of documents, ambiguities are to be construed against the drafter.48 By its very nature, the precept assumes
the existence of an ambiguity in the contract, which is why contra proferentem is also called the ambiguity
doctrine.49 In this case, the Deed of Real Estate Mortgage clearly establishes that the improvements found
on the real properties listed therein are included as subject-matter of the contract. It covers not only the
real properties, but the buildings and improvements thereon as well.

Challenge to the Foreclosure


Sale with Regard to the
Ownership of the Mortgaged Properties

To begin with, the Contracts to Sell and Deed of Absolute Sale could not have posed an impediment at all to
the mortgage, given that these contracts had yet to materialize when the mortgage was constituted. They
were all executed after the constitution of the Real Estate Mortgage on 20 December 1980.

As regards Cahayag, the Contract to Sell in his favor was executed on 29 March 1981, more than three
months after the execution of the mortgage contract.50 This is taken from the Contract to Sell itself, which
forms part of the records of this case.51

At this juncture, we note that the CA, for reasons unknown, specified 29 September 1980, 52] and not 29
March 1981, as the date of the execution of the Contract to Sell in its Decision. Respondent Qua has raised
this point in her Memorandum filed with us. This Court cannot be bound by the factual finding of the CA with
regard to the date of the Contract to Sell in favor of Cahayag. The general rule that the Court is bound by
the factual findings of the CA must yield in this case, as it falls under one of the exceptions: when the
findings of the CA are contradicted by the evidence on record.53 In this case, there is nothing in the records
to support the CA's conclusion that the Contract to Sell was executed on 29 September 1980. The evidence
on record, however, reveals that the correct date is 29 March 1981.

In the case of petitioner Rivera, the corresponding Contract to Sell in his favor was executed only on 12
August 1981, or almost eight months after the perfection of the mortgage contract on 20 December 1980.

The Contract to Sell in favor of Escalona was executed on 13 January 1983, almost two years after the
constitution of the mortgage on 20 December 1980.

Lastly, Dulos Realty executed the Deed of Absolute Sale in favor of petitioner Baldoza on 10 December 1983,
which was almost three years from the time the mortgage contract was executed on 20 December 1980.

There was neither a contract to sell nor a deed of absolute sale to speak of when the mortgage was
executed.

Petitioners equate a contract to sell to a contract of sale, in which the vendor loses ownership over the
property upon its delivery.54 But a contract to sell, standing alone, does not transfer ownership.55 At the point
of perfection, the seller under a contract to sell does not even have the obligation to transfer ownership to
the buyer.56 The obligation arises only when the buyer fulfills the condition: full payment of the purchase
price.57 In other words, the seller retains ownership at the time of the execution of the contract to sell. 58

There is no evidence to show that any of petitioners Cahayag, Rivera and Escalona were able to effect full
payment of the purchase price, which could have at least given rise to the obligation to transfer ownership.
Petitioners Cahayag and Rivera even admit that they defaulted on their obligations under their respective
Contracts to Sell, although they attribute the default to respondent Qua's "harassment and unlawful
actuations."59 The statement, though, was a mere allegation that was left unsubstantiated and, as such,
could not qualify as proof of anything.60

Who Has a Better Right over the Properties

Registration of the mortgage bound the


buyers under the Contracts to Sell
Registration of the mortgage establishes a real right or lien in favor of the mortgagee, as provided by
Articles 131261 and 212662 of the Civil Code.63 Corollary to the rule, the lien has been treated as "inseparable
from the property inasmuch as it is a right in rem."64 In other words, it binds third persons to the mortgage.

The purpose of registration is to notify persons other than the parties to the contract that a transaction
concerning the property was entered into.65 Ultimately, registration, because it provides constructive notice
to the whole world, makes the certificate of title reliable, such that third persons dealing with registered land
need only look at the certificate to determine the status of the property.66

In this case, the Real Estate Mortgage over the property was registered on 3 February 1981. On the other
hand, the Contracts to Sell were all executed after the registration of the mortgage. The Contract to Sell in
favor of petitioner Cahayag was executed on 29 March 1981, or almost two months after the registration of
the mortgage. The corresponding Contract to Sell in favor of Rivera was executed only on 12 August 1981,
roughly six months after the registration of the mortgage contract. Lastly, the Contract to Sell in favor of
Escalona was executed on 13 January 1983, or nearly two years after the registration of the mortgage on 3
February 1981.

Consequently, petitioners Cahayag, Rivera and Escalona, were bound to the mortgage executed between
mortgagor Dulos Realty and mortgagee CCC, by virtue of its registration. Definitely, the buyers each had
constructive knowledge of the existence of the mortgage contract when they individually executed the
Contracts to Sell.

Dela Merced v. GSIS not applicable

Petitioner invokes the above case. Dela Merced involved a clash between an unrecorded contract to sell and
a registered mortgage contract. The contract to sell between the mortgagors (Spouses Zulueta) and the
buyer (Francisco Dela Merced) was executed before the former's constitution of the mortgage in favor of
GSIS. Because the Zuluetas defaulted on their loans, the mortgage was foreclosed; the properties were sold
at public auction to GSIS as the highest bidder; and the titles were consolidated after the spouses' failure to
redeem the properties within the one-year redemption period. GSIS later sold the contested lot to Elizabeth
D. Manlongat and Ma. Therese D. Manlongat. However, Dela Merced was able to fully pay the purchase
price to Spouses Zulueta, who executed a Deed of Absolute Sale in his favor prior to the foreclosure sale.

This Court stated therein the general rule that the purchaser is not required to go beyond the Torrens title if
there is nothing therein to indicate any cloud or vice in the ownership of the property or any encumbrance
thereon. The case nonetheless provided an exception to the general rule. The exception arises when the
purchaser or mortgagee has knowledge of a defect in the vendor's title or lack thereof, or is aware of
sufficient facts to induce a reasonably prudent person to inquire into the status of the property under
litigation. The Court applied the exception, taking into consideration the fact that GSIS, the mortgagee, was
a financing institution.

But Dela Merced is not relevant here. Dela Merced involved a Contract to Sell that was executed priorto the
mortgage, while the Contracts to Sell in this case were all executed after the constitution and registration of
the mortgage.

In Dela Merced, since GSIS had knowledge of the contract to sell, this knowledge was equivalent to the
registration of the Contract to Sell. Effectively, this constitutes registration canceled out the subsequent
registration of the mortgage. In other words, the buyer under the Contract to Sell became the first to
register. Following the priority in time rule in civil law, the lot buyer was accorded preference or priority in
right in Dela Merced.

In this case, the registration of the mortgage, which predated the Contracts to Sell, already bound the
buyers to the mortgage. Consequently, the determination of good faith does not come into play.
Dela Merced materially differs from this case on another point. The Contract to Sell in favor of Dela Merced
was followed by full payment of the price and execution of the Deed of Absolute Sale. In this case,
the Contract to Sell in favor of each of petitioners Cahayag, Rivera and Escalona, is not coupled with full
payment and execution of a deed of absolute sale.

This case also needs to be distinguished from Luzon Development Bank v. Enriquez.67 In that case, the
unregistered Contract to Sell was executed after the execution of the mortgage. Instead of resorting to
foreclosure, the owner/developer and the bank entered into a dacion en pago. The Court declared that the
bank was bound by the Contract to Sell despite the non-registration of the contract. It reasoned that the
bank impliedly assumed the risk that some of the units might have been covered by contracts to sell. On the
other hand, the Court pronounced the mortgage to be void, as it was without the approval of the Housing
and Land Use Regulatory Board (HLURB). The Court consequently ordered the unit buyer in that case to pay
the balance to the bank, after which the buyer was obliged to deliver a clean title to the property.

There are points of distinction between the case at bar and Luzon Development Bank. First, there is a
definite finding in Luzon Development Bank that the mortgage was without prior HLURB approval, rendering
the mortgage void. In the present case, as will be discussed later, there is no proof from the records on
whether the HLURB did or did not approve the mortgage. Second, Luzon Development Bankdid not even
reach the foreclosure stage of the mortgage. This case, however, not only reached the foreclosure stage; it
even went past the redemption period, consolidation of the title in the owner, and sale of the property by the
highest bidder to a third person.

The first distinction deserves elaboration. The absence of prior written approval of the mortgage by the
HLURB rendered it void. This effectively wiped out any discussion on whether registration bound the
installment buyer. In fact, Luzon Development Bank did not even bother to state whether the mortgage was
registered or not. More important, the tables were turned when Luzon Development Bank held that the bank
was bound to the Contract to Sell in view of the latter's constructive notice of the Contract to Sell. Stated
differently, the actually unregistered Contract to Sell became fictionally registered, making it binding on the
bank.

In this case, on account of its registration, and the fact that the contracts were entered into after it, the
mortgage is valid even as to petitioners.

No Redemption within One Year from


the Foreclosure Sale

When it comes to extrajudicial foreclosures, the law68 grants mortgagors or their successors-in-interest an
opportunity to redeem the property within one year from the date of the sale. The one-year period has been
jurisprudentially held to be counted from the registration of the foreclosure sale with the Register of
Deeds.69 An exception to this rule has been carved out by Congress for juridical mortgagors. Section 47 of
the General Banking Law of 2000 shortens the redemption period to within three months after the
foreclosure sale or until the registration of the certificate of sale, whichever comes first. 70 The General
Banking Law of 2000 came into law on 13 June 2000.

If the redemption period expires and the mortgagors or their successors-in-interest fail to redeem the
foreclosed property, the title thereto is consolidated in the purchaser.71 The consolidation confirms the
purchaser as the owner of the property; concurrently, the mortgagorfor failure to exercise the right of
redemption within the periodloses all interest in the property.72

We now apply the rules to this case.

As the foreclosure sale took place prior to the advent of the General Banking Law of 2000, the applicable
redemption period is one year. In this case, because the Certificate of Sale in favor of respondent CCC was
registered on 8 March 1982, the redemption period was until 8 March 1983. It lapsed without any right of
redemption having been exercised by Dulos Realty. Consequently, the right of respondent CCC, as purchaser
of the subject lots, became absolute. As a matter of right, it was entitled to the consolidation of the titles in
its name and to the possession of those lots. Further, the right of respondent CCC over the lots was
transferred to respondent Qua by virtue of the Deed of Sale executed between them.

Given the foregoing considerations, respondent Qua, who now has title to the properties subject of the
various Contracts to Sell, is the lawful owner thereof.
Foreclosure Sale vs. Contract of Sale

When Dulos Realty executed a Deed of Absolute Sale covering the real property registered under TCT No. S-
39778 in favor of petitioner Baldoza on 10 December 1983, it was no longer the owner of the property. Titles
to the subject properties, including the one sold to Baldoza, had already been consolidated in favor of
respondent CCC as early as 10 November 1983. In fact, on the same date, the titles to the subject lots in
the name of Dulos Realty had already been cancelled and new ones issued to respondent CCC.

The fact that Dulos Realty was no longer the owner of the real property at the time of the sale led the CA to
declare that the Contract of Sale was null and void. On this premise, the appellate court concluded that
respondent Qua had a better title to the property over petitioner Baldoza.

We find no error in the conclusion of the CA that respondent Qua has a better right to the property. The
problem lies with its reasoning. We therefore take a different route to reach the same conclusion.

Proper place of nemo dat quod non


habet in the Law on Sales

Undeniably, there is an established rule under the law on sales that one cannot give what one does not have
(Nemo dat quod non habet).73 The CA, however, confuses the application of this rule with respect to time. It
makes the nemo dat quod non habet rule a requirement for the perfection of a contract of sale, such that a
violation thereof goes into the validity of the sale. But the Latin precept has been jurisprudentially held to
apply to a contract of sale at its consummation stage, and not at the perfection stage. 74

Cavite Development Bank v. Spouses Syrus Lim75 puts nemo dat quod non habet in its proper place. Initially,
the Court rules out ownership as a requirement for the perfection of a contract of sale. For all that is
required is a meeting of the minds upon the object of the contract and the price. The case then proceeds to
give examples of the rule. It cites Article 1434 of the Civil Code, which provides that in case the seller does
not own the subject matter of the contract at the time of the sale, but later acquires title to the thing sold,
ownership shall pass to the buyer. The Court also refers to the rule as the rationale behind Article 1462,
which deals with sale of "future goods."

Cavite Development Bank thereafter turns to Article 1459, which requires ownership by the seller of the
thing sold at the time of delivery or consummation stage of the sale. The Court explains that if the
rule were otherwise, the seller would not be able to comply with the latter's obligation to transfer ownership
to the buyer under a perfected contract of sale. The Court ends the discourse with the conclusion that "[i]t is
at the consummation stage where the principle of nemo dat quod non habetapplies."76

Case law also provides that the fact that the seller is not the owner of the subject matter of the sale at the
time of perfection does not make the sale void.77

Hence, the lesson: for title to pass to the buyer, the seller must be the owner of the thing sold at
the consummation stage or at the time of delivery of the item sold. The seller need not be the owner at the
perfection stage of the contract, whether it is of a contract to sell or a contract of sale. Ownership is not a
requirement for a valid contract of sale; it is a requirement for a valid transfer of ownership.

Consequently, it was not correct for the CA to consider the contract of sale void. The CA erroneously
considered lack of ownership on the part of the seller as having an effect on the validity of the sale. The sale
was very much valid when the Deed of Absolute Sale between the parties was executed on 10 December
1983, even though title to the property had earlier been consolidated in favor of respondent CCC as early as
10 November 1983. The fact that Dulos Realty was no longer the owner of the property in question at the
time of the sale did not affect the validity of the contract.

On the contrary, lack of title goes into the performance of a contract of sale. It is therefore crucial to
determine in this case if the seller was the owner at the time of delivery of the object of the sale. For this
purpose, it should be noted that execution of a public instrument evidencing a sale translates to delivery.78 It
transfers ownership of the item sold to the buyer.79

In this case, the delivery coincided with the perfection of the contract ^The Deed of Absolute Sale covering
the real property in favor of petitioner Baldoza was executed on 10 December 1983. As already mentioned,
Dulos Realty was no longer the owner of the property on that date. Accordingly, it could not have validly
transferred ownership of the real property it had sold to petitioner.

Thus, the correct conclusion that should be made is that while there was a valid sale, there was no valid
transfer of title to Baldoza, since Dulos Realty was no longer the owner at the time of the execution of the
Deed of Absolute Sale.

No Bad Faith on Qua

The contention that Qua is a stockholder and former member of the Board of Directors of respondent CCC
and therefore she is not exactly a stranger to the affairs of CCC is not even relevant.

An innocent purchaser for value is one who "buys the property of another without notice that some other
person has a right to or interest in it, and who pays a full and fair price at the time of the purchase or before
receiving any notice of another person's claim."80 The concept thus presupposes that there must be an
adverse claim or defect in the title to the property to be purchased by the innocent purchaser for value.

Respondent Qua traces her title to respondent CCC, whose acquisition over the property proceeded from a
foreclosure sale that was valid. As there is no defect in the title of respondent CCC to speak of in this case,
there is no need to go into a discussion of whether Qua is an innocent purchaser for value.

Dispute as to the Factual


Finding of the CA that the
Deed of Absolute Sale in
Favor of Baldoza was not
Preceded by a Contract to
Sell and Full Payment of
the Purchase Price
We absolutely discard the argument. We can think of at least four reasons why. First, Exhibit UL" was not
formally offered in evidence. Second, it was not even incorporated into the records. Third, the argument is
irrelevant. Fourth, it was even abandoned in the Memoranda filed by petitioners with us. Last, we are not a
trier of facts and thus we yield to the finding of the CA.

Exhibit "L " not formally offered

A perusal of the records shows that the Contract to Sell that Baldoza referred to had in fact been marked as
Exhibit "L" during her direct examination in court. 81 Even so, Exhibit "L" was never formally offered as
evidence. For this reason, we reject her contention. Courts do not consider evidence that has not been
formally offered.82 This explains why the CA never mentioned the alleged Contract to Sell in favor of
Baldoza.

The rationale behind the rule rests on the need for judges to confine their factual findings and ultimately
their judgment solely and strictly to the evidence offered by the parties to a suit. 83 The rule has a threefold
purpose. It allows the trial judge to know the purpose of the evidence presented; affords opposing parties
the opportunity to examine the evidence and object to its admissibility when necessary; and facilitates
review, given that an appellate court does not have to review documents that have not been subjected to
scrutiny by the trial court.84

Exhibit "L" not incorporated into the records

The rule, of course, admits an exception. Evidence not formally offered may be admitted and considered by
the trial court so long as the following requirements obtain: (1) the evidence is duly identified by testimony
duly recorded; and (2) the evidence is incorporated into the records of the case.

The exception does not apply to the case of Baldoza. While she duly identified the Contract to Sell during her
direct examination, which was duly recorded, Exhibit "L" was not incorporated into the records.

Exhibit "L " not relevant

Be that as it may, the contention that a Contract to Sell in favor of Baldoza preceded the sale in her favor is
irrelevant. It must be stressed that the sale to Baldoza made by Dulos Realty took place after the lapse of
the redemption period and after consolidation of title in the name of respondent CCC on 10 November
1983, one month prior to the sale to Baldoza on 10 December 1983. Dulos Realty still would have lost all
interest over the property mortgaged.

The fact that Dulos Realty ceased to be the owner of the property and therefore it could no longer effect
delivery of the property at the time the Deed of Absolute Sale in favor of Baldoza was executed is the very
reason why the case of Baldoza cannot be compared with Dela Merced. In the case, the buyer in the
Contract to Sell was able to effect full payment of the purchase price and to execute a Deed of Absolute Sale
in his favor before the foreclosure sale. In this case, the full payment of the purchase price and the
execution of a Deed of Absolute Sale in favor of Baldoza was done after the foreclosure sale.

Issue over Exhibit "L" not


included in the Memorandum

Equally important is the fact that petitioners failed to include the issue over Exhibit "L" in any of the
Memoranda they filed with us. The omission is fatal. Issues raised in previous pleadings but not
included in the memorandum are deemed waived or abandoned (A.M. No. 99-2-04-SC). As they are
"a summation of the parties' previous pleadings, the memoranda alone may be considered by the Court in
deciding or resolving the petition."85 Thus, even as the issue was raised in the Petition, the Court may not
consider it in resolving the case on the ground of failure of petitioners to include the issue in the
Memorandum. They have either waived or abandoned it.

Issue of HLURB's Non-Approval


of the Mortgage
Petitioners allege before the Court that the mortgage contract in this case was not approved by the HLURB.
They claim that this violates Section 18 of P.D. 95786 and results in the nullity of the mortgage. Respondents
have disputed the claim and counter-argue that the allegation of the petitioners is not supported by
evidence. Respondents likewise aver that the argument was raised for the first time on appeal. 87

It is rather too late in the day for petitioners to raise this argument. Parties are not permitted to change
their theory of a case at the appellate stage.88 Thus, theories and issues not raised at the trial level will not
be considered by a reviewing court on the ground that they cannot be raised for the first time on
appeal.89 Overriding considerations of fair play, justice and due process dictate this recognized rule. 90 This
Court cannot even receive evidence on this matter.

Petitioners' original theory of the case is the nullity of the mortgage on the grounds previously discussed. If
petitioners are allowed to introduce their new theory, respondents would have no more opportunity to rebut
the new claim with contrary evidence, as the trial stage has already been terminated. In the interest of fair
play and justice, the introduction of the new argument must be barred. 91

Exceptions Not Applicable

The Court is aware that the foregoing is merely a general rule. Exceptions are written in case law. first, an
issue of jurisdiction may be raised at any time, even on appeal, for as long as the exercise thereof will not
result in a mockery of the demands of fair play; 92second, in the interest of justice and at the sound
discretion of the appellate court, a party may be allowed to change its legal theory on appeal, but only when
the factual bases thereof would not require further presentation of evidence by the adverse party for the
purpose of addressing the issue raised in the new theory; 93 and last, which is actually a bogus exception, is
when the question falls within the issues raised at the trial court. 94

The exceptions do not apply to the instant case. The new argument offered in this case concerns a factual
matter prior approval by the HLURJB. This prerequisite is not in any way related to jurisdiction, and so the
first exception is not applicable. There is nothing in the record to allow us to make any conclusion with
respect to this new allegation.

Neither will the case fall under the second exception. Evidence would be required of the respondents to
disprove the new allegation that the mortgage did not have the requisite prior HLURB approval. Besides, to
the mind of this court, to allow petitioners to change their theory at this stage of the proceedings will be
exceedingly inappropriate.

Petitioners raised the issue only after obtaining an unfavorable judgment from the CA. Undoubtedly, if we
allow a change of theory late in the game, so to speak, we will unjustifiably close our eyes to the
fundamental right of petitioners to procedural due process. They will lose the opportunity to meet the
challenge, because trial has already ended. Ultimately, we will be throwing the Constitutional rulebook out
the window.

WHEREFORE, premises considered, the Petitions are DENIED, and the Court of Appeals Decision dated 2
November 2004 and Resolution dated 10 May 2005 in CA-G.R. CV No. 47421 are hereby AFFIRMED.

SO ORDERED.

Leonardo-De Castro, Bersamin, Perez, and Perlas-Bernabe, JJ., concur.

FIRST DIVISION

G.R. No. 173140, January 11, 2016

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY [MCIAA], Petitioner, v. HEIRS OF GAVINA


IJORDAN, NAMELY, JULIAN CUISON, FRANCISCA CUISON, DAMASTNA CUISON, PASTOR CUISON,
ANGELINA CUISON, MANSUETO CUISON, BONIFACIA CUISON, BASILIO CUISON, MOISES
CUISON, AND FLORENCIO CUISON, Respondents.

DECISION

BERSAMIN, J.:

A sale of jointly owned real property by a co-owner without the express authority of the others is
unenforceable against the latter, but valid and enforceable against the seller. chanRoblesvirtualLa wlibrary

The Case

This appeal assails the decision promulgated on February 22, 2006 in CA-G.R. CV No. 61509, 1whereby the
Court of Appeals (CA) affirmed the orders issued by the Regional Trial Court, Branch 53, in Lapu-Lapu City
(RTC) on September 2, 1997,2 and March 6, 1998.3 chanRoblesvirtualLa wlibrary

Antecedents

On October 14, 1957, Julian Cuizon (Julian) executed a Deed of Extrajudicial Settlement and Sale 4(Deed)
covering Lot No. 4539 (subject lot) situated in Ibo, Municipality of Opon (now Lapu-Lapu City) in favor of the
Civil Aeronautics Administration ((CAA), the predecessor-in-interest of petitioner Manila Cebu International
Airport Authority (MCIAA). Since then until the present, MCIAA rejmained in material, continuous,
uninterrupted and adverse possession of the subject lot through the CAA, later renamed the Bureau of Air
Transportation (BAT), and is presently known as the Air Transportation Office (ATO). The subject lot was
transferred and conveyed to MCIAA by virtue of Republic Act No. 6958.

In 1980, the respondents caused the judicial reconstitution of the original certificate of title covering the
subject lot (issued by virtue of Decree No. 531167). Consequently, Original Certificate of Title (OCT) No. RO-
2431 of the Register of Deeds of Cebu was reconstituted for Lot No. 4539 in the names of the respondents'
predecessors-in-interest, namely, Gavina Ijordan, and Julian, Francisca, Damasina, Marciana, Pastor, Angela,
Mansueto, Bonifacia, Basilio, Moises and Florencio, all surnamed Cuison. 5 The respondents' ownership of the
subject lot was evidenced by OCT No. RO-2431. Respondents They asserted that they had not sold their
shares in the subject lot, and had not authorized Julian to sell their shares to MCIAA's predecessor-in-
interest.6
chanroble svirtuallawlibrary

The failure of the respondents to surrender the owner's copy of OCT No. RO-2431 prompted MCIAA to sue
them for the cancellation of title in the RTC,7 alleging in its complaint that the certificate of title conferred no
right in favor of the respondents because the lot had already been sold to the Government in 1957; that the
subject lot had then been declared for taxation purposes under Tax Declaration No. 00387 in the name of
the BAT; and that by virtue of the Deed, the respondents came under the legal obligation to surrender the
certificate of title for cancellation to enable the issuance of a new one in its name.

At the trial, MCIAA presented Romeo Cueva, its legal assistant, as its sole witness who testified that the
documents pertaining to the subject lot were the Extrajudicial Settlement and Sale and Tax Declaration No.
00387 in the name of the BAT; and that the subject lot was utilized as part of the expansion of the Mactan
Export Processing Zone Authority I.8 chanroblesvirtuallawlibrary

After MCIAA's presentation of evidence, the respondents moved to dismiss the complaint upon the Demurrer
to Evidence dated February 3, 1997,9 contending that the Deed and Tax Declaration No. 00387 had no
probative value to support MCIAA's cause of action and its prayer for relief. They cited Section 3, Rule 130 of
the Rules of Court which provided that "when the subject of inquiry is the contents of a document, no
evidence shall be admissible other than the original document itself." They argued that what MCIAA
submitted was a mere photocopy of the Deed; that even assuming that the Deed was a true reproduction of
the original, the sale was unenforceable against them because it was only Julian who had executed the same
without obtaining their consent or authority as his co-heirs; that Article 1317 of the Civil Code provided that
"no one may contract in the name of another without being authorized by the latter, or unless he has by law
a right to represent him;" and that the tax declaration had no probative value by virtue of its having been
derived from the unenforceable sale.

MCIAA opposed the Demurrer to Evidence in due course. 10 chanroble svirtuallawlibrary

In its order dated September 2, 1997,11 the RTC dismissed MCIAA's complaint insofar as it pertained to the
shares of the respondents in Lot No. 4539 but recognized the sale as to the 1/22 share of Julian, disposing
as follows:

Wherefore, in the light of the foregoing considerations, defendants' demurrer to evidence is granted with
qualification. Consequently, plaintiffs complaint is hereby dismissed insofar as it pertains to defendants'
shares of Lot No. 4539, as reflected in Original Certificate of Title No. RO 2431. Plaintiff, however, is hereby
declared the owner of 1/22 share of Lot No. 4539. In this connection, the Register of Deeds of Lapu-Lapu
City is hereby directed to effect the necessary change in OCT No. RO-2431 by replacing as one of the
registered owners, "Julian Cuizon, married to Marcosa Cosef", with the name of plaintiff. No
pronouncement as to costs.

SO ORDERED.12 chanroblesvirtuallawlibrary

The RTC observed that although it appeared from the Deed that vendor Julian was the only heir of the late
Pedro Cuizon, thereby adjudicating unto himself the whole of Lot No. 4539, it likewise appeared from the
same Deed that the subject lot was covered by Cadastral Case No. 20, and that Decree No. 531167 had
been issued on July 29, 1930; that having known that the subject lot had been covered by the decree issued
long before the sale took place, the more appropriate thing that MCIAA or its representatives should have
done was to check the decreed owners of the lot, instead of merely relying on the tax declaration issued in
the name of Pedro Cuizon and on the statement of Julian; that the supposedly uninterrupted possession by
MCIAA and its predecessors-in-interest was not sufficiently established, there being no showing of the
improvements introduced on the property; and that even assuming that MCIAA had held the material
possession of the subject lot, the respondents had remained the registered owners of Lot No. 4539 and
could not be prejudiced by prescription.

MCIAA moved for reconsideration,13 but the RTC denied its motion on March 6, 1998.14 chanroblesvirtuallawlibrary

MCIAA appealed to the CA, submitting that: 15 chanroblesvirtuallawlibrary

I. THE TRIAL COURT ERRED IN RULING THAT ONLY THE SHARE OF JULIAN CUIZON WAS SOLD TO
PLAINTIFF- APPELLANT WAY BACK IN 1957.

II. THE TRIAL COURT ERRED IN DISREGARDING THE UN EXPLAINED, UNREASONABLE AND TEDIOUS
INACTION OF DEFENDANT-APPELLEES WHICH CONSTITUTE THEIR IMPLIED RATIFICATION OF THE SALE
WHICH THEY CANNOT NOW CONVENIENTLY IMPUGN IN ORDER TO TAKE ADVANTAGE OF THE PHENOMENAL
RISE IN LAND VALUES IN MACTAN ISLAND.

III. THE TRIAL COURT ERRED IN RULING THAT PLAINTIFF- APPELLANT HAS NOT PROVEN POSSESSION
OVER SAID LOT.

IV. THE TRIAL COURT ERRED IN NOT CONSIDERING MOTO- PROPRIO DEFENDANTS-APPELLEES AS GUILTY
OF LACHES AND/OR ESTOPPEL IN THE FACE OF CLEAR EVIDENCE FROM THE VERY FACTS OF THE CASE
ITSELF; IT SHOULD BE NOTED, MOREVER THAT IT WAS PLAINTIFF-APPELLANT WHO INITIATED THE
COMPLAINT HENCE THE SAME COULD NOT PROPERLY BE RAISED AS DEFENSES HEREIN BY PLAINTIFF-
APPELLANT.

V. THE TRIAL COURT ERRED IN DISREGARDING THE VALID PROVISION OF THE EXTRAJUDICIAL
SETTLEMENT AND SALE THAT DEFENDANTS-APPELLEES MERELY HOLD THE TITLE IN TRUST FOR PLAINTIFF-
APPELLANT AND ARE THEREFORE. OBLIGATED TO SURRENDER THE SAME TO PLAINTIFF-APPELLANT SO THE
TITLE COULD BE TRANSFERRED TO IT AS THE VENDEE WAY BACK IN 1957.

In the assailed decision promulgated on February 22, 2006, 16 the CA affirmed the orders of the RTC issued
on September 2, 199717 and March 6, 1998.18 chanroblesvirtuallawlibrary

The CA subsequently denied MCIAA's motion for reconsideration 19 on June 15, 2006.20 chanRoblesvirtualLa wlibrary

Issues

In this appeal, MCIAA submits the following grounds:21 chanroble svirtuallawlibrary

THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THE FOLLOWING:

I. RESPONDENTS WERE FULLY AWARE OF THE SALE OF THE SUBJECT LOT IN 1957 AND
PETITIONER'S CONTINUOUS POSSESSION THEREOF.

II. RESPONDENTS' INACTION FOR MORE THAN THIRTY (30) YEARS TO RECOVER POSSESSION
OF THE LOT AMOUNTS TO AN IMPLIED RATIFICATION OF THE SALE.

III. PETITIONER'S POSSESSION OF THE LOT SINCE 1957 IS BORNE BY THE CASE RECORD.

IV. RESPONDENTS ARE CLEARLY GUILTY OF ESTOPPEL BY LACHES, WHICH LEGALLY BARS
THEM FROM RECOVERING POSSESSION OF THE LOT.

In other words, was the subject lot validly conveyed in its entirety to the petitioner?

In support of its appeal, MCIAA insists that the respondents were fully aware of the transaction with Julian
from the time of the consummation of the sale in 1957, as well as of its continuous possession
thereof;22 that what was conveyed by Julian to its predecessor-in-interest, the CAA, was the entirety of Lot
No. 4539, consisting of 12,012 square meters, not just his share of 1/22 of the whole lot; that the
respondents were guilty of inexplicable inaction as to the sale, which manifested their implied ratification of
the supposedly unauthorized act of Julian of selling the subject lot in 1957; that although the respondents
were still minors at the time of the execution of the sale, their ratification of Julian's act became evident
from the fact that they had not impugned the sale upon reaching the age of majority; that they asserted
their claim only after knowing of the phenomenal rise in the value of the lot in the area despite their silence
for more than 30 years; and that they did not assert ownership for a long period, and did not exercise
physical and constructive possession by paying the taxes or declaring the property for taxation purposes.

On their part, the respondents aver that they were not aware of the sale of the subject lot in 1957 because
the sale was not registered, and because the subject lot was not occupied by MCIAA or its lessee; 23 that they
became aware of the claim of MCIAA only when its representative tried to intervene during the
reconstitution of the certificate of title in 1980; and that one of the co-owners of the property, Moises
Cuison, had been vigilant in preventing the occupation of the subject lot by other persons. chanRoblesvirtualLa wlibrary

Ruling of the Court

The appeal has no merit.

Firstly, both the CA and the RTC found the Deed and the Tax Declaration with which MCIAA would buttress
its right to the possession and ownership of the subject lot insufficient to substantiate the right of MCIAA to
the relief sought. Considering that possession was a factual matter that the lower courts had thoroughly
examined and based their findings on, we cannot undo their findings. We are now instead bound and
concluded thereby in accordance with the well-established rule that the findings of fact of the trial court,
when affirmed by the CA, are final and conclusive. Indeed, the Court is not a trier of facts. Moreover, this
mode of appeal is limited to issues of law; hence, factual findings should not be reviewed unless there is a
showing of an exceptional reason to review them. Alas, that showing is not made.

Secondly, the CA and the RTC concluded that the Deed was void as far as the respondents' shares in the
subject lot were concerned, but valid as to Julian's share. Their conclusion was based on the absence of the
authority from his co-heirs in favor of Julian to convey their shares in the subject lot. We have no reason to
overturn the affirmance of the CA on the issue of the respondents' co-ownership with Julian. Hence, the
conveyance by Julian of the entire property pursuant to the Deed did not bind the respondents for lack of
their consent and authority in his favor. As such, the Deed had no legal effect as to their shares in the
property. Article 1317 of the Civil Code provides that no person could contract in the name of another
without being authorized by the latter, or unless he had by law a right to represent him; the contract
entered into in the name of another by one who has no authority or legal representation, or who has acted
beyond his powers, is unenforceable, unless it is ratified, expressly or impliedly, by the person on whose
behalf it has been executed, before it is revoked by the other contracting party. But the conveyance by
Julian through the Deed had full force and effect with respect to his share of 1/22 of the entire property
consisting of 546 square meters by virtue of its being a voluntary disposition of property on his part. As
ruled in Torres v. Lapinid24:

x x x even if a co-owner sells the whole property as his, the sale will affect only his own share but not those
of the other co-owners who did not consent to the sale. This is because the sale or other disposition of a co-
owner affects only his undivided share and the transferee gets only what would correspond to his grantor in
the partition of the thing owned in common.

MCIAA's assertion of estoppel or ratification to bar the respondents' contrary claim of ownership of their
shares in the subject lot is bereft of substance. The doctrine of estoppel applied only to those who were
parties to the contract and their privies or successors-in-interest.25 Moreover, the respondents could not be
held to ratify the contract that was declared to be null and void with respect to their share, for there was
nothing for them to ratify. Verily, the Deed, being null and void, had no adverse effect on the rights of the
respondents in the subject lot.

Lastly, MCIAA's contention on acquisitive prescription in its favor must fail. Aside from the absence of the
satisfactory showing of MCIAA's supposed possession of the subject lot, no acquisitive prescription could
arise in view of the indefeasibility of the respondents' Torrens title. Under the Torrens System, no adverse
possession could deprive the registered owners of their title by prescription. 26 The real purpose of the
Torrens System is to quiet title to land and to stop any question as to its legality forever. Thus, once title is
registered, the owner may rest secure, without the necessity of waiting in the portals of the court, or sitting
on the mirador su casa to avoid the possibility of losing his land.27chanroblesvirtuallawlibrary

WHEREFORE, the Court DENIES the petition for review on certiorari; and AFFIRMS the decision
promulgated on February 22, 2006.

No pronouncement on costs of suit.

SO ORDERED. cralawla wlibrary

Sereno, C.J., Leonardo-De Castro, Perez, and Perlas-Bernabe, JJ., concur.

THIRD DIVISION

G.R. No. 172919, January 13, 2016

TIMOTEO BACALSO AND DIOSDADA BACALSO, Petitioners, v. GREGORIA B. ACA-AC, EUTIQUIA B.


AGUILA, JULIAN BACUS AND EVELYN SYCHANGCO, Respondents.

DECISION

REYES, J.:
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court seeking to annul
and set aside the Decision2 dated December 14, 2005 and the Resolution3 dated May 30, 2006 of the Court
of Appeals (CA) in CA-G.R. CV No. 67516. The CA affirmed the Decision dated April 19, 2000 of the Regional
Trial Court (RTC) of Cebu City, Branch 11, in Civil Case No. CEB-17994. The RTC ruled that the Deed of
Absolute Sale dated October 15, 1987 between herein respondents Gregoria B. Aca-Ac, Eutiquia B. Aguila
and Julian Bacus (Julian) (Bacus siblings) and herein petitioner Timoteo Bacalso (Timoteo) was void, for
want of consideration. chanRoble svirtualLawlibrary

The Facts

The Bacus siblings were the registered owners of a parcel of land described as Lot No. I 809-G-2 located in
San Roque, Talisay, Cebu with an area of 1,200 square meters and covered by Transfer Certificate of Title
(TCT) No. 59260. The Bacus siblings inherited the said property from their mother Matea Bacalso
(Matea).4chanroblesvirtuallawlibrary

On October 15, 1987, the Bacus siblings executed a Deed of Absolute Sale conveying a portion of Lot No.
1809-G-2 with an area of 271 sq m, described as Lot No. 1809-G-2-C in Talisay Cebu, in favor of their
cousin, Timoteo for and in consideration of the amount of P8,000.00. 5 chanroble svirtuallawlibrary

On March 4, 1988, however, Timoteo, together with his sisters Lucena and Victoria and some of his cousins
filed a complaint for declaration of nullity of documents, certificates of title, reconveyance of real property
and damages against the Bacus siblings and four other persons before the RTC oI Cebu City, Branch 12, and
was docketed as Civil Case No. CEB-6693. They claimed that they are co-owners of the three-fourths portion
of Lot No. 1809-G (which Lot No. 1809-G-2-C was originally part of) as Matea had paid for the said property
for and in behalf of her brother Alejandro (father of petitioner Timoteo) and sisters Perpetua and Liberata, all
surnamed Bacalso.6 chanroblesvirtuallawlibrary

On November 29, 1989, the RTC found that Matea was the sole owner of Lot No. 1809-G and affirmed the
validity of the conveyances of portions of Lot No. 1809-G made by her children. The same was affirmed by
the CA in a Decision dated March 23, 1992 and became final and executory on April 15, 1992. 7 chanroble svirtuallawlibrary

Undaunted, Timoteo and Diosdada Bacalso (petitioners) filed on October 26, 1995, a complaint for
declaration of nullity of contract and certificates of title, reconveyance and damages against the Bacus
siblings, this time claiming ownership over Lot No. 1809-G-2-C by virtue of the Deed of Absolute Sale dated
October 15, 1987. They claimed, however, that the Bacus siblings reneged on their promise to cause the
issuance of a new TCT in the name of the petitioners. 8 chanroble svirtuallawlibrary

Moreover, the petitioners alleged that the Bacus siblings have caused the subdivision of Lot No. 1 809-G-2
into four lots and one of which is Lot No. 1809-G-2-C which is now covered by TCT No. 70783. After
subdividing the property, the Bacus siblings, on February 11, 1992, without knowledge of the petitioners,
sold Lot No. 1809-G-2-C again to respondent Evelyn Sychangco (Sychangco) and that TCT No. 74687
covering the same property was issued in her name.9 chanroble svirtuallawlibrary

In their answer, the Bacus siblings denied the allegations of the petitioners and claimed that the alleged sale
of Lot No. 1809-G-2-C in favor of the petitioners did not push through because the petitioners foiled to pay
the purchase price thereof.10 chanroblesvirtuallawlibrary

For her part, Sychangco averred that she is a buyer in good faith and for value as she relied on what
appeared in the certificate of title of the property which appeared to be a clean title as no lien or
encumbrance was annotated therein.11 chanroble svirtuallawlibrary

On April 19, 2000, the RTC issued a Decision declaring the Deed of Absolute Sale dated October 15, 1987
void for want of consideration after finding that the petitioners failed to pay the price of the subject property.
Moreover, the RTC held that even granting that the sale between the Bacus siblings and the petitioners was
valid, the petitioners still cannot ask for the rescission of the sale of the disputed portion to Sychangco as
the latter was a buyer in good faith, thus has a better right to the property.12 chanroblesvirtuallawlibrary

Aggrieved by the foregoing disquisition of the RTC, the petitioners interposed an appeal with the CA. On
December 14, 2005, however, the CA affirmed the ruling of the RTC. The petitioners sought a
reconsideration13 of the CA decision but it was denied in a Resolution dated May 30, 2006. chanRoblesvirtualLa wlibrary

The Issues
The petitioners assign the following errors of the CA:

I.

THE |CA| SERIOUSLY ERRED WHEN IT RELIED TOO MUCH ON THE RESPECTIVE ORAL TESTIMONIES OF
RESPONDENTS JULIAN BACUS AND EVELYN SYCHANGCO UTTERLY DISREGARDING THE ORAL TESTIMONIES
OF PETITIONER TIMOTEO BAG ALSO AND THE LATTER'S WITNESS ROBERTO YBAS AND THE DOCUMENTARY
EVIDENCE OF THE PETITIONERS, THE DULY EXECUTED AND NOTARIZED DEED OF ABSOLUTE SALE
COVERING THE SUBJECT LOT NO. 1809-G-2-C. chanRoblesvirtualLa wlibrary

II

THE [CA] SERIOUSLY ERRED WHEN IT RULED THAI' THE DEED OF ABSOLUTE SALE DATED 15 OCTOBER
1987 IS NULL AND VOID AB INITIO FOR FAILURE OR WANT OF CONSIDERATION. chanRoble svirtualLawlibrary

III

THE [CA] SERIOUSLY ERRED WHEN IT DID NOT CONSIDER THE FACT THAT THE DEED OF ABSOLUTE SALE
DATED 15 OCTOBER 1987 WAS NOTARIZED, HENCE, A PUBLIC DOCUMENT WHICH ENJOYS THE
PRESUMPTION OF REGULARITY. chanRoblesvirtualLa wlibrary

IV

THE [CA] SERIOUSLY ERRED WHEN IT DID NOT RULE THAT ON 15 OCTOBER 1987, THE [BAGUS SIBLINGS]
WERE NO LONGER OWNERS AND POSSESSORS OF THE SUBJECT LOT AS THE SAME WAS ALREADY
TRANSFERRED TO THE PETITIONERS BY REASON OF THE MERE EXECUTION OF A DEED OF SALE IN A
PUBLIC DOCUMENT, AS IN THIS CASE.14 chanroble slaw

Essentially, the issues presented to the Court for resolution could be reduced into whether the CA erred in
holding that the Deed of Absolute Sale dated October 15, 1987 is void for want of consideration. chanRoble svirtualLawlibrary

Ruling of the Court

The petition is bereft of merit.

The central issue to be resolved in the present controversy is the validity of the Deed of Absolute Sale
between the petitioners and the Bacus siblings. "Such issue involves a question of fact, and settled
jurisprudence dictates that, subject to a few exceptions, only questions of law may be brought before the
Court via a petition for review on certiorari."15 chanroblesvirtuallawlibrary

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. "This is especially true where the trial court's factual findings
are adopted and affirmed by the CA as in the present case. Factual findings of the trial court, affirmed by the
CA, are final and conclusive and may not be reviewed on appeal." 16 chanroble svirtuallawlibrary

Although the Court recognized several exceptions to the limitation of an appeal by certiorari to only
questions of law, including: (1) when the findings are grounded entirely on speculation, surmises, or
conjectures; (2) when the interference 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 fact are conflicting; (6) when in making its findings, the CA went beyond the issues of the case,
or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings
are contrary to those of 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; and (10) when the findings of fact are premised
on the supposed absence of evidence and contradicted by the evidence on record, 17 the present appeal does
not come under any of the exceptions.

In any even!, the Court has carefully reviewed the records of the instant case and found no reason to
disturb the findings of the RTC as affirmed by the CA.
Under the Civil Code, a contract is a meeting of minds, with respect to the other, to give something or to
render some service. Article 1318 provides:

Art. 1318. There is no contract unless the following requisites concur: ChanRoblesVirtualawlibrary

(1) Consent of the contracting parties;


(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

In the case at bar, the petitioners argue that the Deed of Absolute Sale has all the requisites of a valid
contract. The petitioners contend that there is no lack of consideration that would prevent the existence of a
valid contract. They assert that the testimonies of Timoteo and witness Roberto Ybas sufficiently established
that the purchase price of P8,000.00 for Lot No. 1809-G-2-C was paid to Julian at Sto. Nino Church in Cebu
City before the execution of the Deed of Absolute Sale. They also claim that even assuming that they failed
to pay the purchase price, such failure does not render the sale void for being fictitious or simulated, rather,
there is only non-payment of the consideration within the period agreed upon for payment. 18 chanroble svirtuallawlibrary

The Court does not agree.

Contrary to the petitioners' claim, this is not merely a case of failure to pay the purchase price which can
only amount to a breach of obligation with rescission as the proper remedy. As correctly observed by the
RTC, the disputed sale produces no effect and is considered void ab initio for failure to or want of
consideration since the petitioner failed to pay the consideration stipulated in the Deed of Absolute Sale. The
trial court's discussion on the said issue, as affirmed by the CA, is hereby quoted:

To begin with, the Court hereby states that, from the totality of the evidence adduced in this case which it
scrutinized and evaluated, it has come up with a finding that there was failure or want of consideration of
the Deed of Sale of Lot 1809-G-2-C executed in favor of the [petitioners] on October 15, 1987. The Court is
morally and sufficiently convinced that [Timoteo] had not paid to the [Bacus siblings] the price for the said
land. This fact has been competently and preponderantly established by the testimony in court of [Julian].
[Julian] made the following narration in his testimony:

Sometime in October 1987, he and his two sisters agreed to sell to the |petitioners| Lot No. 1809-G-2-C
because they needed money for the issuance of the titles to the four lots into which Lot 1809-G-2 was
subdivided. [Timoteo] lured him and his sisters into selling the said land by his promise and representation
that money was coming from his sister, Lucena Bacalso, from Jolo, Sulu. Timoteo Bacalso asked for two
weeks within which to produce the said money. However, no such money came. To the shock and surprise of
him and his sisters, a complaint was filed in Court against them in Civil Case No. CEB-6693 by [Timoteo],
together with nine others, when Lucena Bacalso arrived from Jolo, Sulu, wherein they claimed as theirs Lot
1809-G. Instead of being paid, he and his sisters were sued in Court. From then on, [Timoteo] never cared
anymore to pay for Lot 1809-G-2-C. He and his sisters just went through the titling of Lots 1809-G-A, 1809-
G-2-B, Lot 1809-G-2-C and 1 809-G-2-D on then-own.

On his part, [Timoteo] himself acted in such a manner as to confirm that he did not anymore give
significance or importance to the Deed of Sale of Lot 1809-G-2-C which, in turn, creates an impression or
conclusion that he did not pay for the consideration or price thereof. Upon being cross-examined in Court on
his testimony, he made the following significant admissions and statements:

1. That he did not let [Julian] sign a receipt for the sum of P8,000.00 purportedly given by him to the latter
as payment for the land in question;

2. That the alleged payment of the said sum of P8,000.00 was made not in the presence of the notary public
who notarized the document but in a place near Sto. Nino Church in Cebu City;

3. That it was only [Julian] who appeared before the notary public, but he had no special power of attorney
from his two sisters;

4. That the Deed of Sale of Lot 1809-G-2-C was already in his possession before Civil Case No. CEE-6693
was filed in court;

5. That he did not however show the said Deed of Sale to his lawyer who filed for the plaintiffs the complaint
in Civil Case No. CEB 6693, as in fact he suppressed the said document from others;
6. That he did not bother to cause the segregation of Lot 1809-G-2-C from the rest of the lots even after he
had already bought it already;

7. That it was only after he lost in Civil Case No. CRB-6693 that he decided to file the present case;

8. That he did not apply for building permits for the three houses that he purportedly caused to be built on
the land in question;

9. Thai he did not also declare for taxation purposes the said alleged houses;

10. Thai, he did not declare either for taxation purposes the land in question in his name or he had not paid
taxes therefore; and

11. That lie did not bother to register with the Registry of Deeds for the Province of Cebu the Deed of Sale of
the lot.

To the mind of the Court, [Timoteo] desisted from paying to [the Bacus siblings] the price for Lot. 1809-G-2-
C when he, together with nine others, filed in Court the complaint in Civil Case No. CEB-6693. He found it
convenient to just acquire the said land as supposed co-owners of Lot 1809-G of which the land in question
is merely a part of. x x x.

xxxx

Thus, it is evident from all the foregoing circumstances that there was a failure to or want of consideration of
the supposed sale of the land in question to the [petitioners] on October 15, 1987. So, the said sale could
not be given effect. Article 1352 of the New Civil Code of the Philippines is explicit in providing that
'contracts without cause produce no effect whatsoever'. If there is no cause, the contract is void, x x x There
being no price paid, there is no cause or consideration; hence, the contract is void as a sale, x x x
Consequently, in the case at bench, the plaintiffs have not become absolute owners of Lot 1809-G-2-C of
Psd-07-022093 by virtue of the Deed of Sale thereof which was executed on October 15, 1987 by the [Bacus
siblings] in their favor.19 (Citations omit Led)

It is clear from the factual findings of the RTC that the Deed of Absolute Sale entirely lacked consideration
and, consequently, void and without effect. No portion of the F8,000.00 consideration indicated in the Deed
of Absolute Sale was ever paid by the petitioners.

The Court also finds no compelling reason to depart from the court a quo's finding that the Deed of Absolute
Sale executed on October 15, 1987 is null and void ab initio for lack of consideration, thus:

It must be stressed that the present case is not merely a case of failure to pay the purchase price, as [the
petitioners] claim, which can only amount to a breach of obligation with rescission as the proper remedy.
What we have here is a purported contract that lacks a cause - one of the three essential requisites of a
valid contract. Failure to pay the consideration is different from lack of consideration. The former results in a
right to demand the fulfillment or cancellation of (he obligation under an existing valid contract while the
latter prevents the existence of a valid contract. Consequently, we rule that the October 15, 1987 Deed of
Sale is null and void ab initiofor lack of consideration.20 (Citation omitted)

Well-settled is the rule that where there is no consideration, the sale is null and void ab initio. In Sps. Lequin
v. Sps. Vizconde,21 the Court ruled that:

There can be no doubt that the contract of sale or Kasulatan lacked the essential clement of consideration. It
is a well-entrenched rule that where the deed of sale states that the purchase price has been paid but in fact
has never been paid, the deed of sale is null and void ab initio for lack of consideration.22 (Citation omitted)

WHEREFORE, petition is DENIED and the Decision dated December 14, 2005 of the Court of Appeals in
CA-G.R. CV No. 67516 is AFFIRMED.

SO ORDERED. cralawla wlibrary

Velasco, Jr., (Chairperson), Peralrra, Villarama, Jr., and Jardeleza, JJ., concur.
cralawl
THIRD DIVISION

G.R. No. 180559, January 20, 2016

ANECITA GREGORIO, Petitioner, v. MARIA CRISOLOGO VDA. DE CULIG, THRU HER ATTORN EY-IN-
FACT ALFREDO CULIG, JR., Respondent.

DECISION

JARDELEZA, J.:

The issues in this petition are neither novel nor complicated. Petitioner^questions the ruling of the Court of
Appeals that tender of payment is not a requisite for the valid exercise of redemption, and that the failure of
counsel to file a motion for reconsideration does not amount to gross negligence.

Respondent Maria Crisologo Vda. De Culig (respondent) is the widow of Alfredo Culig, Sr. (Alfredo). During
his lifetime, Alfredo was granted a homestead patent under the Public Land Act (C.A. 141) over a 54,730-
square meter parcel of land (the property) in Nuangan, Kidapawan, North Cotabato. 1 Alfredo died sometime
in 1971, and on October 9, 1974, his heirs, including respondent, executed an extra-judicial settlement of
estate with simultaneous sale of the property in favor of spouses Andres Seguritan and Anecita Gregorio
(petitioner). The property was sold for P25,0000.00, and title to the property was issued in the name of the
spouses.2chanroble svirtuallawlibrary

On September 26, 1979, respondent filed a complaint demanding the repurchase of the property under the
provisions of the Public Land Act. She alleged that she first approached the spouses personally and offered
to pay back the purchase price of P25,000.00 but the latter refused. Subsequently, respondent and her son,
Alfredo Culig, Jr. (petitioner's attorney-in-fact) wrote letters reiterating their desire to repurchase the
property but the spouses did not answer.3 chanroblesvirtuallawlibrary

For their part, the spouses Seguritan countered that the respondent had no right to repurchase the property
since the latter only wanted to redeem the property to sell it for a greater profit. 4 Meanwhile, Andres
Seguritan died on May 15, 1981, and was substituted by petitioner.5 chanroble svirtuallawlibrary

Before trial could commence, the parties made the following stipulations:

1. That the property subject of the complaint was acquired as homestead during the existence
of the marriage between plaintiff and her deceased husband, and, therefore, it is admittedly
a conjugal property;

2. That the plaintiff and six of her eight children executed an extra-judicial settlement and
simultaneous sale in favor of the defendants and title was transferred to them;

3. That the complaint was filed within the [reglementary] period of five (5) years;

4. That the amount of P25,000.00 was fully paid at the time of the extra-judicial settlement
and sale;

5. that there was no consignment with the Court of the repurchase price of P25,000.00. 6 chanroblesvirtuallawlibrary

On January 5, 1998, the Regional Trial Court (RTC), Branch 17, Kidapawan, North Cotabato (the trial court)
rendered its decision dismissing the complaint.7 The trial court, relying on the case of Lee Chuy Realty
Corporation v. Court of Appeals8 ruled that a formal offer alone, or the filing of a case alone, within the
prescribed period of five (5) years is not sufficient to effect a valid offer to redeemeither must or should be
coupled with consignation of the repurchase price if bona fide tender of payment has been refused.9 The
dispositive portion of the decision reads:
WHEREFORE, prescinding from all of the foregoing considerations, the Court finds and so holds that plaintiffs
failed to validly exercise their right of legal redemption or repurchase within the reglementary period of five
(5) years from the execution of their sale and consequently DISMISSES this case, with costs of suit against
plaintiffs. In the absence of any evidence, the court likewise dismiss defendants' counterclaim.

SO ORDERED.10 (Emphasis in the original.)

Aggrieved, respondent appealed to the Court of Appeals (CA).

In its decision11 dated July 11, 2006, the CA granted the appeal. It ruled that the Lee Chny case is not
applicable because: 1.) it does not involve the exercise of the right of redemption of homestead or free
patent lots, but instead the right of legal pre-emption or redemption in relation to the rights of co-owners
under the Civil Code;12 2.) the Civil Code provisions on conventional and legal redemption do not apply, even
suppletorily, to the legal redemption of homestead or free patent lands under the Public Land Act; 13 and 3.)
the conclusions of the trial court is contrary to the doctrine in Hulganza v. Court of Appeals,14 which is the
case cited in Lee Chuy.15 chanroble svirtuallawlibrary

According to the CA, consignation should not be considered a requisite element for the repurchase of
homestead or free patent lots, citing Adelfa Properties, Inc. v. Court of Appeals,16 wherein this Court held
that consignation is not necessary in a sale with right of repurchase because it involves "an exercise of a
right or privilege ... rather than the discharge of an obligation, hence tender of payment would be sufficient
to preserve [a] right or [a] privilege."17 chanroble svirtuallawlibrary

The CA thus held:

IN FINE, We hold that appellants have validly exercised the right of redemption. The decision of the trial
[court] will be reversed. Upon returning the purchase price of P25,000.00 and, in addition, the expenses
enumerated under Article 1616 of the Civil Code, the appellant may avail of the right of repurchase.

ACCORDINGLY, the assailed decision is hereby REVERSED. Appellants are hereby declared to have exercised
their right to repurchase the subject property within (he period established by law for them to do so. The
case is hereby REMANDED to the court of origin for further proceedings to determine the amounts appellant
is to return to appellees, namely, the price appellees paid for the property and, in addition, the expenses of
the contract and any other legitimate payments made by reason of the sale, and the necessary and useful
expenses made on the property. Upon the return of the said amount, appellees are hereby ORDERED to
reconvey the property to appellant.18 chanrobleslaw

Petitioner19 filed her motion for reconsideration20 on March 19, 2007, way beyond the fifteen (15) day
reglementary period. She alleged that she and the other heirs learned of the July 11, 2006 decision only on
March 5, 2007 when they personally verified with the records of the CA. 21 She also assailed the decision of
the CA for being contrary to law, jurisprudence and facts of the case. 22 chanroble svirtuallawlibrary

On September 27, 2007, the CA denied the motion, holding that "notice to counsel is notice to client". The
CA noted that then counsel of record of the petitioner received the decision on July 31, 2006, thus the 15-
day period for filing a motion for reconsideration should be reckoned from this date. Her counsel allowed the
period to lapse and the motion for reconsideration filed by petitioner's new counsel is seven months
late.23
chanroblesvirtuallawlibrary

Before us, petitioner submits that the CA resolved the case in a manner contrary to law and settled rulings
of this court, particularly: a.) its decision holding that respondent validly exercised the right of redemption;
b.) its act of remanding the case to the court of origin for further proceedings and subsequent reconveyance
of the property to the respondent; and c.) its outright dismissal of the motion for reconsideration for being
filed out of time.24 chanroble svirtuallawlibrary

Petitioner insists that there was no valid redemption since there was no valid tender of payment nor
consignation of the amount of repurchase made by the respondent. 25 Citing Lee v. Court of Appeals,26which
in turn cites Article 1616 of the Civil Code,27 petitioner maintains that tender of payment of the repurchase
price is necessary to exercise the right of redemption. Thus, when respondent filed to tender payment of the
repurchase price, and admitted her failure to consign the amount in court, she lost her right to repurchase
the property.28 Petitioner also states that respondent is not entitled to the right of repurchase because the
latter's aim in redeeming the land is purely for speculation and profit. 29 She points out that respondent and
her siblings are professionals and most are living in Canada, and cannot possibly comply with the express
provision of the law that the land must be cultivated personally by the holder of the homestead. 30 chanroblesvirtuallawlibrary

Section 119 of the Public Land Act provides:

Sec. 119. Every conveyance of land acquired under the free patent or homestead provisions, when proper,
shall be subject to repurchase by the applicant, his widow, or legal heirs, within a period of five years from
the date of the conveyance.

It is undisputed, in fact, the parties already stipulated, that the complaint for repurchase was filed within the
reglementary period of five years. The parties also agreed that there was no consignment of the repurchase
price.31 However, petitioner argues that consignment is necessary to validly exercise the right of redemption.

The argument fails.

In Hulganza v. Court of Appeals,32 we held that the bona fide tender of the redemption price or its equivalent
consignation of said price in court is not essential or necessary where the filing of the action itself is
equivalent to a. formal offer to redeem.33 As explained in the said case,

"The formal offer to redeem, accompanied by a bona fide tender of the redemption price, within the period
of redemption prescribed by law, is only essential to preserve the right of redemption for future enforcement
beyond such period of redemption and within the period prescribed for the action by the statute of
limitations. Where, as in the instant case, the right to redeem is exercised thru the filing of judicial action
within the period of redemption prescribed by the law, the formal offer to redeem, accompanied by a bona
fide tender of the redemption price, might be proper, but is not essential. The filing of the action itself, within
the period of redemption, is equivalent to a formal offer to redeem, xxx" 34 chanroble slaw

The case of Vda. de Panaligan v. Court of Appeals35 further clarified that tender of payment of the
repurchase price is not among the requisites, and thus unnecessary for redemption under the Public Land
Act. Citing Philippine National Bank v. De los Reyes,36 we ruled that it is not even necessary for the
preservation of the right of redemption to make an offer to redeem or tender of payment of purchase price
within five years. The filing of an action to redeem within that period is equivalent to a formal offer to
redeem, and that there is even no need for consignation of the redemption price. 37Thus, even in the case
before us, it is immaterial that the repurchase price was not deposited with the Clerk of Court.

We also do not agree with petitioner's insistence that Article J616 of the Civil Code applies in this case. As
found by the CA, the provision only speaks of the amount to be tendered when exercising the right to
repurchase, but it does not state the procedure to be followed in exercising the right. In feet, inPeralta v.
Alipio,38 we rejected the argument that the provisions on conventional redemption apply as supplementary
law to the Public Land Act, and clarified that:

xxx. The Public Land Law does not fix the form and manner in which reconveyance may be enforced, nor
prescribe the method and manner in which demand therefor should be made; any act which should amount
to a demand for reconveyance should, therefore, be sufficient.39 (Underscoring supplied.)

In Lee v. Court of Appeals,40 the case cited by petitioner, we held that the mere sending of letters expressing
the desire to repurchase is not sufficient to exercise the right of redemption. In the said case, the original
owners of a homestead lot sought to compel the buyers to resell the property to them by writing demand
letters within the five-year period. The latter refused, but the former filed a case for redemption after the
lapse of the five-year period. We ruled that the letters did not preserve the former owners' right to redeem.
The case finds no application in this case because while respondent also sent letters to the petitioner, she
also filed a complaint for repurchase within the five-year period. As ruled in Hulganza, the filing of the
complaint is the formal offer to redeem recognized by law.

Petitioner claims that even if the redemption is timely made, respondent is not entitled to the right of
repurchase because respondent intends to resell the property again for profit, and that her "aim in
redeeming the land is purely for speculation and profit." To support her claim, petitioner states that
respondent and her heirs are professionals and her siblings are residing in Canada.

Indeed, the main purpose in the grant of a free patent or homestead is to preserve and keep in the family of
the homesteader that portion of public land which the State has given to him so he may have a place to live
with his family and become a happy citizen and a useful member of the society.41 We have ruled in several
instances, that the right to repurchase of a patentee should fail if the purpose was only speculative and for
profit,42 or "to dispose of it again for greater profit"43 or "to recover the land only to dispose of it again to
amass a hefty profit to themselves."44 In all these instances, we found basis for ruling that there was intent
to sell the property for a higher profit. We find no such purpose in this case.

The lower courts did not make any definitive finding that the intent to repurchase was for profit. In its
decision, the RTC merely glossed over the issue of intent, anchoring its dismissal on the respondent's failure
to consign the purchase price. Even the CA observed that the RTC found that the claim of speculative
repurchase is insufficient to warrant the denial of the redemption, as the latter's denial of the redemption
was based on the lack of a formal offer of redemption and consignation. 45 chanroble svirtuallawlibrary

The burden of proof of such speculative intent is on the petitioner. Petitioner's bare allegations as to
respondent's "manifestation of the affluence,"46 "bulging coffers,"47 their being "professionals"48 and "most of
them are residing in Canada"49 are not enough to show that petitioner intended to resell the property for
profit.

We also do not find merit in petitioner's claim that the CA should not have dismissed her motion for
reconsideration.

Petitioner claims that her previous counsel failed to file the motion for reconsideration due to gross neglect
of duties. Her counsel, Atty. Jeorge D. Zerrudo did not inform her of the appeal filed by the respondent and
the subsequent proceedings which took place after the RTC decision issued in 1998, all the while thinking
that the RTC decision became final and binding. In 2007, she was informed by Atty. Zerrudo that they have
lost the case and should just enter into a compromise with the respondent, as "nothing can be done." 50 It
was only upon personal verification with the CA that petitioner learned of the CA decision against her. Thus,
petitioner maintains that she should not be made responsible for the gross negligence of her counsel.

While Atty. Zerrudo's failure to file a motion for reconsideration may be considered as negligence, we see no
reason to modify the CA's resolution. Petitioner is still bound by her counsel's acts.

A client is bound by the negligence of his counsel. A counsel, once retained, holds the implied authority to
do all acts necessary or, at least, incidental to the prosecution and management of the suit in behalf of his
client, such that any act or omission by counsel within the scope of the authority is regarded, in the eyes of
the law, as the act or omission of the client himself. A recognized exception to the rule is when the reckless
or gross negligence of the counsel deprives the client of due process of law. For the exception to apply,
however, the gross negligence should not be accompanied by the client's own negligence or malice,
considering that the client has the duty to be vigilant in respect of his interests by keeping himself up-to-
date on the status of the case. Failing in this duty, the client should suffer whatever adverse judgment is
rendered against him.51 chanroblesvirtuallawlibrary

In Pasiona, Jr. v. Court of Appeals,52 we declared that the failure to file a motion for reconsideration is only
simple negligence, since it did not necessarily deny due process to his client party who had the opportunity
to be heard at some point of the proceedings. In Victory Liner, Inc. v. Gammad,53 we held that the question
is not whether petitioner succeeded in defending its rights and interests, but simply, whether it had the
opportunity to present its side of the controversy. Verily, as petitioner retained the services of counsel of its
choice, it should, as far as this suit is concerned, bear the consequences of its choice of a faulty option. 54 chanroble svirtuallawlibrary

Moreover, petitioner is also guilty of negligence. By her own admission, she had no knowledge about the
subsequent proceedings after the trial court rendered its decision in 1998, and she just assumed that the
decision was final and binding. A litigant bears the responsibility to monitor the status of his case, for no
prudent party leaves the fate of his case entirely in the hands of his lawyer.55 Petitioner should have
maintained contact with her counsel from time to time, and informed herself of the progress of their case,
thereby exercising that standard of care "which an ordinarily prudent man bestows upon his business." 56 It
took nine years before petitioner showed interest in her own case. Had she vigilantly monitored the case,
she would have sooner discovered the adverse decision and avoided her plight. 57 chanroblesvirtuallawlibrary

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. CV
No. 62401 dated July 11, 2006 and September 27, 2007, respectively are AFFIRMED.

SO ORDERED. cralawla wlibrary

Velasco, Jr., (Chairperson), Peralta, Perez,*and Reyes, JJ., concur. cralawlawlibrary


THIRD DIVISION

G.R. No. 176986, January 13, 2016

NISSAN CAR LEASE PHILS., INC., Petitioner, v. LICA MANAGEMENT, INC. AND PROTON PILIPINAS,
INC., Respondents.

DECISION

JARDELEZA, J.:

This is a Petition for Review on Certiorari1 filed by Nissan Car Lease Philippines, Inc. (NCLPI) to assail the
Decision2 and Resolution3 dated September 27, 2006 and March 8, 2007, respectively, of the Court of
Appeals (CA) in CA-G.R. CV No. 75985. The CA affirmed with modification the Decision4 of the Regional Trial
Court dated June 7, 2002 and ruled that there was a valid extrajudicial rescission of the lease contract
between NCLPI and Lica Management, Inc. (LMI). It also ordered NCLPI to pay its unpaid rentals and
awarded damages in favor of LMI and third-party respondent Proton Pilipinas, Inc. (Proton).

The Facts

LMI is the absolute owner of a property located at 2326 Pasong Tamo Extension, Makati City with a total
area of approximately 2,860 square meters.5 On June 24, 1994, it entered into a contract with NCLPI for the
latter to lease the property for a term often (10) years (or from July 1, 1994 to June 30, 2004) with a
monthly rental of P308,000.00 and an annual escalation rate often percent (10%). 6Sometime in September
1994, NCLPI, with LMFs consent, allowed its subsidiary Nissan Smartfix Corporation (NSC) to use the leased
premises.7 chanroblesvirtuallawlibrary

Subsequently, NCLPI became delinquent in paying the monthly rent, such that its total rental
arrearages8 amounted to P1,741,520.85.9 In May 1996, Nissan and Lica verbally agreed to convert the
arrearages into a debt to be covered by a promissory note and twelve (12) postdated checks, each
amounting to P162,541.95 as monthly payments starting June 1996 until May 1997. 10 chanroble svirtuallawlibrary

Lease agreement between owner of property in Makati LMI, and NCLPI for 10 years. NCLPI became
delinquent in paying the monthly rent, such that its total rental arrearages 8 amounted to P1,741,520.85.9 In
May 1996, Nissan and Lica verbally agreed to convert the arrearages into a debt to be covered by a
promissory note and twelve (12) postdated checks, but failed to pay the same. LMI informed NCLPI that it
was terminating their Contract of Lease due to arrears in the payment of rentals. It also demanded that
NCLPI (1) pay the amount of P2,651,570.39 for unpaid rentals11 and (2) vacate the premises within five (5)
days from receipt of the notice.

While NCLPI was able to deliver the postdated checks per its verbal agreement with LMI, it failed to sign the
promissory note and pay the checks for June to October 1996. Thus, in a letter dated October 16, 1996,
which was sent on October 18, 1996 by registered mail, LMI informed NCLPI that it was terminating their
Contract of Lease due to arrears in the payment of rentals. It also demanded that NCLPI (1) pay the amount
of P2,651,570.39 for unpaid rentals11 and (2) vacate the premises within five (5) days from receipt of the
notice.12
chanroble svirtuallawlibrary

In the meantime, Proton sent NCLPI an undated request to use the premises as a temporary display center
for "Audi" brand cars for a period of ten (10) days. In the same letter, Proton undertook "not to disturb
[NCLPI and LMI's] lease agreement and ensure that [NCLPI] will not breach the same [by] lending the
premises x x x without any consideration."13 NCLPI acceded to this request.14 chanroble svirtuallawlibrary

On October 11, 1996, NCLPI entered into a Memorandum of Agreement with Proton whereby the former
agreed to allow Proton "to immediately commence renovation work even prior to the execution of the
Contract of Sublease x x x."15 In consideration, Proton agreed to transmit to NCLPI a check representing
three (3) months of rental payments, to be deposited only upon the due execution of their Contract of
Sublease.16 chanroblesvirtuallawlibrary

In a letter dated October 24, 1996, NCLPI, through counsel, replied to LMI's letter of October 16, 1996
acknowledging the arrearages incurred by it under their Contract of Lease. Claiming, however, that it has no
intention of abandoning the lease and citing efforts to negotiate a possible sublease of the property, NCLPI
requested LMI to defer taking court action on the matter.17 chanroblesvirtuallawlibrary

LMI, on November 8, 1996, entered into a Contract of Lease with Proton over the subject premises. 18 chanroblesvirtuallawlibrary

On November 12, 1996, LMI filed a Complaint 19 for sum of money with damages seeking to recover from
NCLPI the amount of P2,696,639.97, equivalent to the balance of its unpaid rentals, with interest and
penalties, as well as exemplary damages, attorney's fees, and costs of litigation. 20 chanroblesvirtuallawlibrary

On November 20, 1996, NCLPI demanded Proton to vacate the leased premises. 21 However, Proton replied
that it was occupying the property based on a lease contract with LMI. 22 In a letter of even date addressed
to LMI, NCLPI asserted that its failure to pay rent does not automatically result in the termination of the
Contract of Lease nor does it give LMI the right to terminate the same. 23 NCLPI also informed LMI that since
it was unlawfully ousted from the leased premises and was not deriving any benefit therefrom, it decided to
stop payment of the checks issued to pay the rent. 24 chanroble svirtuallawlibrary

In its Answer25 and Third-Party Complaint26 against Proton, NCLPI alleged that LMI and Proton "schemed"
and "colluded" to unlawfully force NCLPI (and its subsidiary NSC) from the premises. Since it has not
abandoned its leasehold right, NCLPI asserts that the lease contract between LMI and Proton is void for lack
of a valid cause or consideration.27 It likewise prayed for the award of: (1) P3,000,000.00, an amount it
anticipates to lose on account of LMI and Proton's deprivation of its right to use and occupy the premises;
(2) P1,000,000.00 as exemplary damages; and (3) P500,000.00 as attorney's fees, plus P2,000.00 for every
court appearance.28 chanroblesvirtuallawlibrary

The trial court admitted29 the third-party complaint over LMI's opposition.30 chanroblesvirtuallawlibrary

Subsequently, or on April 17, 1998, Proton filed its Answer with Compulsory Counterclaim against
NCLPl.31 According to Proton, the undated letter-request supposedly sent by Proton to NCLPl was actually
prepared by the latter so as to keep from LMI its intention to sublease the premises to Proton until NCLPl is
able to secure LMI's consent.32 Denying NCLPl's allegation that its use of the lease premises was made
without any consideration, Proton claims that it "actually paid [NCLPl] rental of P200,000.00 for the use of
subject property for 10 days x x x."33 chanroble svirtuallawlibrary

Proton further asserted that NCLPl had vacated the premises as early as during the negotiations for the
sublease and, in fact, authorized the former to enter the property and commence renovations. 34When NCLPl
ultimately failed to obtain LMI's consent to the proposed sublease and its lease contract was terminated,
Proton, having already incurred substantial expenses renovating the premises, was constrained to enter into
a Contract of Lease with LMI. Thus, Proton prayed for the dismissal of the Third-Party Complaint, and asked,
by way of counterclaim, that NCLPl be ordered to pay exemplary damages, attorney's fees, and costs of
litigation.35
chanroble svirtuallawlibrary

Ruling of the Trial Court

On June 7, 2002, the trial court promulgated its Decision, 36 the decretal portion of which reads:

WHEREFORE, in view of the foregoing, judgment is rendered in plaintiff LICA MANAGEMENT


INCORPORATED's favor. As a consequence of this, defendant NISSAN CAR LEASE PHILIPPINES, INC. is
directed to pay plaintiff the following: ChanRoblesVirtualawlibrary

1.) [P]2,696,639.97 representing defendant's unpaid rentals inclusive of interest and penalties up to 12
November 1996, plus interest to be charged against said amount at the rate of twelve percent (12%)
beginning said date until the amount is fully paid.

2.) Exemplary damages and attorney's fees amounting to Two Hundred Thousand Pesos ([P]200,000.00)
and litigation expenses amounting to Fifty Thousand Pesos ([P] 50,000.00).
The third party complaint filed by defendant is DENIED for lack of merit and in addition to the foregoing and
as prayed for, defendant NISSAN is ordered to pay third party defendant PROTON PILIPINAS INC. the sum of
Two Hundred Thousand Pesos ([P]200,000.00) representing exemplary damages and attorney's fees due.

SO ORDERED.37 chanroblesvirtuallawlibrary

The trial court found that NCLPI purposely violated the terms of its contract with LMI when it failed to pay
the required rentals and contracted to sublease the premises without the latter's consent. 38 Under Article
1191 of the Civil Code, LMI was therefore entitled to rescind the contract between the parties and seek
payment of the unpaid rentals and damages.39 In addition, the trial court ruled that LMFs act of notifying
NCLPI of the termination of their lease contract due to non-payment of rentals is expressly sanctioned under
paragraphs 1640 and 1841 of their contract.42 chanroble svirtuallawlibrary

Contrary to NCLPI's claim that it was "fooled" into allowing Proton to occupy the premises for a limited
period after which the latter unilaterally usurped the premises for itself, the trial court found that it was
NCLPI "which misrepresented itself to [Proton] as being a lessee of good standing, so that it could induce
the latter to occupy and renovate the premises when at that time the negotiations were underway the lease
between [LMI] and [NCLPI] had already been terminated." 43 chanroble svirtuallawlibrary

Aggrieved, NCLPI filed a Petition for Review with the CA. In its Appellant's Brief,44 it argued that the trial
court erred in: (1) holding that there was a valid extrajudicial rescission of its lease contract with LMI; and
(2) dismissing NCLPI's claim for damages against LMI and Proton while at the same time holding NCLP1
liable to them for exemplary damages and attorney's fees. 45 chanRoblesvirtualLa wlibrary

Ruling of the Court of Appeals

The CA denied NCLPI's appeal and affirmed the trial court's decision with modification. The decretal portion
of the CA's Decision46 reads:

WHEREFORE, the appealed Decision dated June 7, 2002 of the trial court is affirmed, subject to
modification that:

(1) The award of exemplary damages of P100,000.00 each in favor of plaintiff-appellee and third-party
defendant-appellee is reduced to P50,000.00 each;

(2) The award of attorney's fees of P100,000.00 each in favor of plaintiff-appellee and third-party
defendant- appellee is reduced to P50,000.00 each;

(3) The amount of unpaid rentals is reduced from P2,696,639.97 to P2,365,569.61, exclusive of interest;
and.

(4) Plaintiff-appellee is ordered to return the balance of the security deposit amounting to P883.253.72 to
defendant-appellant.

The Decision dated June 7, 2002 is affirmed in all other respects.

SO ORDERED.47 chanrobleslaw

NCLPI sought for a reconsideration48 of this decision. LMI, on the other hand, filed a motion to clarify
whether the amount of P2,365,569.61 representing unpaid rentals was inclusive of interest. 49 The CA
resolved both motions, thus:

WHEREFORE, the motion for reconsideration filed by defendant-appellant Nissan Car Lease is denied for
lack of merit.

With respect to the motion for clarification filed by plaintiff-appellee Lica Management, Inc., paragraph (3) of
the dispositive portion of the Decision is hereby clarified to read as follows: ChanRoblesVirtualawlibrary

(3) The amount of unpaid rentals is reduced from P2,696,639.97 to P2,365,569.61, inclusive of interest and
rjenajties up to November 12, 1996, plus interest to be charged against said amount at the rate of twelve
per cent (12%) beginning said date until the amount is fully paid.
SO ORDERED.50 chanroblesvirtuallawlibrary

Hence, this petition.

The Petition

NCLPl, in its Petition, raises the following questions:


1. May a contract be rescinded extrajudicially despite the absence of a special contractual stipulation
therefor?

2. Do the prevailing facts warrant the dismissal of [LMI]'s claims and the award of NCLPI's claims?

3. How much interest should be paid in the delay of the release of a security deposit in a lease contract? 51 chanroble svirtuallawlibrary

The Court's Ruling

We deny the Petition for lack of merit.

Before going into the substantive merits of the case, however, we shall first resolve the technical issue
raised by LMI in its Comment52 dated August 22, 2007.

According to LMI, NCLPI's petition must be denied outright on the ground that Luis Manuel T. Banson
(Banson), who caused the preparation of the petition and signed the Verification and Certification against
Forum Shopping, was not duly authorized to do so. His apparent authority was based, not by virtue of any
NCLPl Board Resolution, but on a Special Power of Attorney (SPA) signed only by NCLPI's Corporate
Secretary Robel C. Lomibao.53 chanroble svirtuallawlibrary

As a rule, a corporation has a separate and distinct personality from its directors and officers and can only
exercise its corporate powers through its board of directors. Following this rule, a verification and
certification signed by an individual corporate officer is defective if done without authority From the
corporation's board of directors.54 chanroblesvirtuallawlibrary

The requirement of verification being a condition affecting only the form of the pleading, 55 this Court has, in
a number of cases, held that:

[T]he following officials or employees of the company can sign the verification and certification
without need of a board resolution: (1) the Chairperson of the Board of Directors, (2) the President of
a corporation, (3) the General Manager or Acting General Manager, (4) Personnel Officer, and (5) an
Employment Specialist in a labor case.

xxx [T]he determination of the sufficiency of the authority was done on a case to case basis. The rationale
applied in the foregoing cases is to justify the authority of corporate officers or representatives
of the corporation to sign xxx, being "in a position to verify the truthfulness and correctness of
the allegations in the petition."56 (Emphasis and underscoring supplied)

In this case, Banson was President of NCLPI at the time of the filing of the petition. 57 Thus, and applying the
foregoing ruling, he can sign the verification and certification against forum shopping in the petition without
the need of a board resolution.58 chanroblesvirtuallawlibrary

Having settled the technical issue, we shall now proceed to discuss the substantial issues.

Validity of Extrajudicial Rescission of


Lease Contract

It is clear from the records that NCLPI committed substantial breaches of its Contract of Lease with LMI.

Under Paragraph 2, NCLPI bound itself to pay a monthly rental of P308,000.00 not later than the first day of
every month to which the rent corresponds. NCLPI, however, defaulted on its contractual obligation to timely
and properly pay its rent, the arrearages of which, as of October 16, 1996, amounted to
P2,651,570.39.59 This fact was acknowledged and admitted by NCLPI.60 chanroble svirtuallawlibrary

Aside from non-payment of rentals, it appears that NCLPI also breached its obligations under Paragraphs
461 and 562 of the Contract of Lease which prohibit it from subleasing the premises or introducing
improvements or alterations thereon without LMI's prior written consent. The trial court found:

As revealed from the evidence presented by PROTON however, even before [NCLPI] represented that it
would try to negotiate a possible sub-lease of the premises, it had, without any semblance of authority
from [LMI,] already effectively subleased the subject premises to PROTON and allowed the latter
not only to enter the premises but to renovate the same.
[NCLPI]'s assertion that they only allowed PROTON to utilize the premises for ten days as a display center
for Audi cars on the occasion of the historic visit of Chancellor Helmut Kohl of Germany to the Philippines
is belied by the evidence offered by PROTON that by virtue of a Memorandum of Agreement
[NCLPI] had already permitted PROTON "to immediately commence renovation work even prior
to the execution of the Contract of Sublease" and had accepted a check from PROTON representing
the rental deposit under the yet to be executed Contract of Sublease, x x x chanRoblesvirtualLa wlibrary

xxxx

Besides, the court is not inclined lo show [NCLPl] any sympathy x x x because it came to court with
unclean hands when it accused [LMI] and PROTON of being guilty parties when they supposedly
connived with each other to oust [NCLPl] from the leased premises when in truth and in fact,
[NCLPl]'s lease was already terminated when it pursued negotiations to sub-lease (he premises
to PROTONthen giving the latter the assurance they would be able lo obtain [LMI]'s consent to the sublease
when this was very remote, in light of [NCLPI]'s failure to update its rental payments. 63 (Emphasis and
underscoring supplied)

This factual finding was affirmed by the CA:

There is no merit in [NCLPl]'s claim for damages allegedly arising from |LMl|'s failure to maintain it in
peaceful possession of the leased premises. It was [NCLPl] who breached the lease contract
by defaulting in the payment of lease rentals, entering into a sublease contract with [Proton] and
allowing [Proton] to introduce renovations on the leased premises without the consent of
[LMl].64 x x x (Emphasis supplied)

Factual findings of the CA are binding and conclusive on the parties and upon this Court and will not be
reviewed or disturbed on appeal. While the rule admits of certain exceptions, 65 NCLPl failed to prove that any
of the exceptions applies in this case.

The crux of the controversy rather revolves around the validity of LMI's act of extrajudicially rescinding its
Contract of Lease with NCLPl.

NCLPl maintains that while a lessor has a right to eject a delinquent lessee from its property, such right must
be exercised in accordance with law:

6.15. In this case, [LMI] did not comply with the requirement laid down in Section 2 of Rule 70 of the Rules
of Court, in unceremoniously ejecting [NCLPl] from the property. The said Rule explicitly provides that the
lessor shall serve a written notice of the demand to pay or comply with the conditions of the lease and to
vacate or post such notice on the premises if no person is found thereon, giving the lessee 15 days to
comply with the demand. [LMI]'s demand letter dated 16 October 1996 provides only a period of five
days for [NCLPI] to comply with such demand and, thus, defective. 66(Emphasis and underscoring supplied)

NCLPI's reliance on Section 2, Rule 7067 in this case is misplaced.

Rule 70 of the Rules of Court sets forth the procedure in relation to the filing of suits for forcible entry and
unlawful detainer. The action filed by LMI against NCLPI, however, is one for the recovery of a sum of
money. Clearly, Section 2 of Rule 70 is not applicable.

In fact, it does not appear that it was even necessary for LMI to eject NCLPI from the leased premises.
NCLPI had already vacated the same as early as October 11, 1996 when it surrendered possession of the
premises to Proton, by virtue of their Memorandum of Agreement, so that the latter can commence
renovations.68chanroblesvirtuallawlibrary

NCLPI also maintains that LMI cannot unilaterally and extrajudicially rescind their Contract of Lease in the
absence of an express provision in their Contract to that effect. 69 According to NCLPI:

6.1. The power to rescind is judicial in nature x x x

6.2. Nevertheless, the Supreme Court has allowed extrajudicial rescission if such remedy is specifically
provided for in the contract. A provision granting the non- defaulting party merely a right to rescind would
be superfluous because by law, it is inherent in such contract [see by analogy Villanueva, PHILIPPINE LAW
ON SALES, P. 238(1998)].

xxxx

6.4. [Paragraph 16],70 however, cannot be construed as an authority for either party to unilaterally and
extrajudicially rescind the Lease Contract in case of breach by the other party. All that [Paragraph] 16
affords the aggrieved party is merely the right to rescind the lease contract, which is the very same right
already granted under Article 1191 of the Civil Code. 71 (Emphasis and underscoring in the original)

It is true that NCLP1 and LMI's Contract of Lease does not contain a provision expressly authorizing
extrajudicial rescission. LMI can nevertheless rescind the contract, without prior court approval, pursuant to
Art. 1191 of the Civil Code.

Art. 1191 provides that the power to rescind is implied in reciprocal obligations, in cases where one of the
obligors should fail to comply with what is incumbent upon him. Otherwise stated, an aggrieved party is not
prevented from extrajudicially rescinding a contract to protect its interests, even in the absence of any
provision expressly providing for such right.72 The rationale for this rule was explained in the case
of University of the Philippines v. De los Angeles73 wherein this Court held:

[T]he law definitely does not require that the contracting party who believes itself injured must first file suit
and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party
injured by the other's breach will have to passively sit and watch its damages accumulate during
the pendency of the suit until the final judgment of rescission is rendered when the law itself
requires that he should exercise due diligence to minimize its own damages (Civil Code, Article
2203). (Emphasis and underscoring supplied)

We are aware of this Court's previous rulings in Tan v. Court of Appeals,74Iringan v. Court of
Appeals,75 and EDS Manufacturing, Inc. v. Healthcheck International, Inc.,76 for example, wherein we held
that extrajudicial rescission of a contract is not possible without an express stipulation to that effect. 77 chanroblesvirtuallawlibrary

The seeming "conflict" between this and our previous rulings, however, is more apparent than real.

Whether a contract provides for it or not, the remedy of rescission is always available as a remedy against a
defaulting party. When done without prior judicial imprimatur, however, it may still be subject to a possible
court review. In Golden Valley Exploration, Inc. v. Pinkian Mining Company,78 we explained:

This notwithstanding, jurisprudence still indicates that an extrajudicial rescission based on grounds not
specified in the contract would not preclude a party to treat the same as rescinded. The rescinding
party, however, by such course of action, subjects himself to the risk of being held liable for damages when
the extrajudicial rescission is questioned by the opposing party in court. This was made clear in the case
of U.P. v. De los Angeles, wherein the Court held as follows: ChanRoblesVirtualawlibrary

Of course, it must be understood that the act of a party in treating a contract as cancelled or
resolved on account of infractions by the other contracting party must be made known to the
other and is always provisional, being ever subject to scrutiny and review by the proper court. If
the other party denies that rescission is justified, it is free to resort to judicial action in its own
behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the
resolution of the contract was not warranted, the responsible party will be sentenced
to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded
to the party prejudiced.

In other words, the party who deems the contract violated may consider it resolved or rescinded,
and act accordingly, without previous court action, but it proceeds at its own risk. For it is only
the final judgment of the corresponding court that will conclusively and finally settle whether the
action taken was or was not correct in law. x x x (Emphasis and underscoring in the original)

The only practical effect of a contractual stipulation allowing extrajudicial rescission is "merely to transfer to
the defaulter the initiative of instituting suit, instead of the rescinder." 79 chanroblesvirtuallawlibrary

In fact, the rule is the same even if the parties' contract expressly allows extrajudicial rescission. The other
party denying the rescission may still seek judicial intervention to determine whether or not the rescission
was proper.80chanroblesvirtuallawlibrary
Having established that LMl can extrajudicially rescind its contract with NCLPI even absent an express
contractual stipulation to that effect, the question now to be resolved is whether this extrajudicial rescission
was proper under the circumstances.

As earlier discussed, NCLPI's non-payment of rentals and unauthorized sublease of the leased premises were
both clearly proven by the records. We thus confirm LMFs rescission of its contract with NCLPI on account of
the latter's breach of its obligations.

Rental Arrearages and Interest

Having upheld LMI's extrajudicial rescission of its Contract of Lease, we hold that NCLPI is required to pay all
rental arrearages owing to LMI, computed by the CA as follows:

In its appellant's brief, [NCLPI] admitted that it had rental arrears of P1,300,335.60 as of May 1996.
Additionally, the statement of account submitted by [LMI] showed that from June 1996 to October 1996 the
rental arrears of [NCLPI] amounted to P1,065,234.01. Hence, the total of said rental arrears not
disputed by the parties is P2,365,569.61 x x x.81 (Emphasis and underscoring supplied)

The Contract of Lease shows that the parties did not stipulate an applicable interest rate in case of default in
the payment of rentals. Thus, and following this Court's ruling in Nacar v. Gallery Frames,82the foregoing
amount of rental arrearages shall earn interest at the rate of six percent (6%) per annum computed from
October 18, 1996, the date of LMI's extrajudicial demand, 83 until the date of finality of this judgment. The
total amount shall thereafter earn interest at the rate of six percent (6%) per annum from such finality of
judgment until its satisfaction.

Security Deposit

NCLPI also argues that, assuming LMI could validly rescind their Contract of Lease, the security deposit must
be returned, with interest at the rate of twelve percent (12%) per annum, the obligation to return being in
the nature of a forbearance of money.84 chanroblesvirtuallawlibrary

NCLPI is partly correct.

Paragraph 385 of the Contract of Lease provides that, in case of termination of the lease, the balance of the
security deposit must be returned to NCLPI within seven (7) days. Since "there is no question that [LMI] is
retaining the security deposit" in the amount of P883,253.72 (after deduction of the expenses for water and
telephone services),86 LMI must return the same to NCLPI, with interest.

Considering, however, that the Contract of Lease does not stipulate an applicable interest rate, again
following our ruling in Nacar, the rate shall be six percent (6%) from the time of judicial or extrajudicial
demand. The records of this case show that the first time NCLPI raised the issue on the security deposit was
in its Brief dated March 25, 2003 filed with the CA.87 Thus, the interest should be computed starting only on
said date until the finality of this Decision, after which the total amount shall earn interest at the rate of six
percent (6%) from the finality of this Decision until satisfaction by LMI. 88
chanroble svirtuallawlibrary

Improvements

In its Petition, NCLPI also prayed for the return of "all the equipment installed and the other improvements
on the property, or their value, pursuant to the mandate of mutual restitution." 89 chanroblesvirtuallawlibrary

NCLPI errs.

Under Paragraph 5 of the Contract of Lease, NCLPI is entitled only to the return of those improvements
introduced by it which can be removed without causing damage to the leased premises. 90 Considering,
however, that the issue of ownership of the improvements within the premises appears to be subject of
another case initiated by NCLITs subsidiary, NSC,91 this Court will not rule on the same.

Denial of NCLPI's claim and award


of damages in favor of LMI and
Proton proper
Both the trial court and CA found that NCLPI breached the Contract of Lease. In sustaining the denial of
NCLPI's claim for damages, the CA held:

There is no merit in [NCLPIf s claim for damages allegedly arising from [LMIJ's failure to maintain it in
peaceful possession of the leased premises. It was [NCLPI] who breached the lease contract x x x Moreover,
the lease contract between [LMI] and [Proton] was entered into only on November 8, 1996 x x x after the
lease contract between [LMI] and [NCLPI] had been terminated. As aptly noted by the trial court:

xxxx

In other words, while in its responsive pleading [NCLPI] claims |that| it was fooled into allowing [Proton] to
occupy the subject premises for a limited period, alter which the latter, in alleged collusion with [LMI]
unilaterally usurped the premises for itself, the evidence shows thai it was |IMCLPI| which
misrepresented itself to PROTON as being a lessee of good standing, so that it could induce the
latter to occupy and renovate the premises when at that time the negotiations were underway,
the lease between [LMI] and [NCLPI] had already been terminated.92 (Emphasis and underscoring
supplied)

Contrary to NCLPI's claims of an unlawful "scheme" devised by LMI and Proton to force it out of the leased
premises, we find that it was NCLPI who was in bad faith and itself provided the bases for the cancellation of
its Contract of Lease with LMI and its eventual ejectment from the leased premises. Accordingly, we affirm
(1) the award of exemplary damages and attorney's fees in favor of LMI and Proton and (2) the denial of
NCLPI's claim for damages.93 chanroble svirtuallawlibrary

WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated September 27, 2006
and the Resolution dated March 8, 2007 rendered by the CA in CA-G.R. CV No. 75985 are,
however, MODIFIED as follows:

(1) NCLPI is ordered to pay LMI and Proton exemplary damages of P50,000.00 and attorney's fees of
P50,000.00, each;

(2) NCLPI is ordered to pay the amount of P2,365,569.6I unpaid rentals, with interest at the rate of six
percent (6%) per annum computed from October 18, 1996 until the date of finality of this judgment. The
total amount shall thereafter earn interest at the rate of six percent (6%) per annum from the finality of
judgment until its satisfaction;

(3) LMI is ordered to return to NCLPI the balance of the security deposit amounting to P883,253.72, with
interest at the rate of six percent (6%) starting March 25, 2003 until the finality of this Decision, after which
the total amount shall earn interest at the rate of six percent (6%) from the finality of this Decision until
satisfaction by LMI.94 chanroble slaw

SO ORDERED. cralawla wlibrary

Velasco, Jr., (Chairperson), Bersamin,* Villarama, Jr., and Mendoza,** JJ., concur.

THIRD DIVISION

G.R. Nos. 198916-17, January 11, 2016

MALAYAN INSURANCE COMPANY, INC., Petitioner, v. ST. FRANCIS SQUARE REALTY


CORPORATION, Respondent.

G.R. NOS. 198920-21

ST. FRANCIS SQUARE REALTY CORPORATION, Petitioner, v. MALAYAN INSURANCE COMPANY,


INC., Respondent.

DECISION
PERALTA, J.:

This resolves the Petition for Partial Review on Certiorari under Rule 45 of the Rules of Court filed by
Malayan Insurance Company, Inc. and the Petition for Review filed by St. Francis Square Realty Corporation,
both seeking to reverse and/or modify the Court of Appeals Decision 1 dated January 27, 2011 in CA-G.R. SP
Nos. 109286 and 109298, which affirmed with modifications the Award 2 dated March 27, 2009 of the
Construction Industry Arbitration Commission (CIAC) in CIAC CASE No. 33-2008 entitled "ST. FRANCIS
SQUARE REALTY CORPORATION, Claimant, -versus- MALAYAN INSURANCE COMPANY, INC., Respondent."

Malayan Insurance Company, Inc. (Malayan) is a duly-organized domestic corporation engaged in insurance
business. Formerly known as ASB Realty Corporation (ASB), St. Francis Square Realty Corporation (St.
Francis) is a duly-organized domestic corporation engaged in real estate development.

The admitted facts are as follows:

1. The parties' respective juridical existence;

1.1 The ASB Group of Companies, which include the ASB Realty Corporation (now St.
Francis Square Realty Corp.), is under rehabilitation with the Securities and Exchange
Commission (SEC) pursuant to a petition dated May 2, 2000;

2. [Malayan], as Owner, and [St. Francis], as Developer, executed a Joint Project Development
Agreement (JPDA) on 09 November 1995 for the construction, development and completion
of what was then known as "ASB Malayan Tower" ("the Project"), originally a 50-storey
office/residential condominium located at the ADB Avenue cor. Opal St., Ortigas Center,
Pasig City.

3. [Malayan] is the absolute and registered owner of the parcel of land (the Lot) in Pasig City
where the Project is located, as evidenced by Transfer Certificate of Title No. PT-78585 xxx;

4. The Certificate of Registration No. 96-04-2701 issued by the Housing Land Use and
Regulatory Board (HLURB) on 12 April 1996 shows that [Malayan] is the Owner and [St.
Francis] is the developer xxx;

5. The License to Sell No. 96-05-2844 issued by the HLURB also refers to [Malayan] as the
Owner and [St. Francis] as Developer xxx;

6. The Master Deed with Declaration of Restrictions of the ASB- Malayan Tower dated 13 May
1996 approved by the FILURB and registered with the Register of Deeds of Pasig City, sets
forth Malayan as "the Developer (absolute and registered owner) xxx;

7. ASB Realty Corporation [now, St. Francis] was not able to complete the Project;

7.1 The parties executed a Memorandum of Agreement (MOA) on 30 April 2002, under
which [Malayan] undertook to complete the condominium project then known as "ASB
Malayan Project" that later became "Malayan Plaza Tower'" xxx;

8. The MOA was approved by the SEC;

9. The Lot was the subject of a Contract to Sell between [Malayan] as seller and [St. Francis]
as buyer, but [St. Francis] was unable to completely perform its obligation under the
Contract to Sell;

10. Under Sec. 2 of the MOA, [Malayan] "shall invest the amount necessary to complete the
Project", among other obligations;

11. The basis for the distribution and disposition of the condominium units is the parties'
respective capital investments in the Project as provided in Sec. 4 of the MOA;
11.1 [St. Francis] represented and warranted to Malayan that Malayan can complete the
Project at a cost not exceeding Php452,424,849.00 (the Remaining Construction Cost
[RCC]) [Sec. 9 of MOA].

12. The net saleable area included in Schedule 4 of the 30 April 2002 MOA ("Reserved Units")
originally covered fifty-three (53) units with thirty-eight (38) parking spaces. The aforesaid
53 Reserved Units became only thirty-nine (39) units after a reconfiguration was done;

13. The aggregate monetary value of the Reserved Units as fixed by [St. Francis], is One
Hundred Seventy-Five Million Eight Hundred Fifty-Six Thousand Three Hundred Twenty-
Three Pesos and 05/100 (P175,856,323.05);

14. Under the MOA, [Malayan] assumed vast powers and revoked all authorities previously
granted to [St. Francis] (Section 8 of the MOA, xxx), with the exception of including [St.
Francis] in the bidding committee for bidding of material and services requirements of the
Project (Section 9, paragraph v of the MOA, xxx). The general supervision, management
and control of the day- to-day operations were undertaken by [Malayan] (Section 5,
paragraph b of the MOA, xxx) but under Sec. 9 of the MOA, "Malayan shall allow one (1)
representative of [St. Francis] to observe the development and completion of the Project";

15. On 24 August 2006, [St. Francis] sent a letter to [Malayan] seeking to reconcile several
items amounting to P133.64 million xxx;

16. There was a change in the specification of the floor finish from Narra Parque[t] to Kendall
Laminated Flooring;

17. [Malayan] made interest expense, amounting to P37,705,346.62 as of August 2006, as part
of its actual construction cost on that date;

18. [St. Francis] filed a case against the Register of Deeds of Pasig City and Atty. Francis
Serrano docketed as OMB-C-C-06-0583-J before the Office of the Ombudsman due to
alleged alterations on the Condominium Certificates of Title over the units comprising the
net saleable area in Schedule 4 of the MOA;

19. [Malayan] has included some of the units under Schedule 4 of the MOA in the condotel pool
managed by Quantum Hotels and Resorts from which it derives income;

20. Despite the completion of the Project and the turnover of the units to [St. Francis],
[Malayan], and other buyers of units, the issue of actual cost of construction has not been
resolved to the mutual satisfaction of the parties; and

21. The parties agreed to submit a list of documents that they admitted the authenticity and
due execution thereof.3

On November 7, 2008, St. Francis filed with the CIAC a Complaint with Prayer for Interim Relief against
Malayan. St. Francis alleged that in August 2006, it secured a copy of a document entitled "cost to
complete" from Malayan which fixed the Actual Remaining Construction Cost (ARCC) at P614,593,565.96. It
disputed several cost items in the ARCC, amounting to P145,487,496.42, and argued that their exclusion
would entitle it to some reserved units.

On December 8, 2008, Malayan filed a Verified Answer (With Grounds for Immediate Dismissal), claiming
that St. Francis failed to state a cause of action because the ARCC had already reached P635,018,369.05 as
of November 30, 2008, thereby exceeding the Remaining Construction Cost (RCC) [P452,424,849.00] by
more than the aggregate value of the reserved units [P175,856,323.05]; hence, St. Francis is no longer
entitled to any of such units.
On January 20, 2009, a preliminary conference was held where the parties stipulated on facts, formulated
issues, and drafted and signed the Terms of Reference (TOR) which would govern the proceedings of the
case. Aside from the above-stated admitted facts, the TOR, which was later amended, listed the following
issues to be determined by the CIAC:

2. What is the meaning or scope of the term Remaining Construction Cost (RCC) as used in the MOA as
stated in Par. 11.1 of the Admitted Facts?

2.1. What is the meaning or scope of the term "actual remaining construction cost" as used in the MOA?

2.2. Specifically, were the following costs and expenses part of the actual remaining construction cost
incurred by [Malayan] and questioned by [St. Francis] to wit:

2.2.1. Awarded contracts, specifically those pertaining to Narra Parquet Works, Interior Design Works,
Sanitary/Plumbing and Fire Protection Works, Additional Consultant's Fees and Audio Intercom and Paging
System;
2.2.2. Change Orders, pursuant to the reconfiguration done on several of the units;
2.2.3. Interest Expense from loans incurred to finance the construction, development and completion of the
Project;
2.2.4. Input Value Added Taxes ("VAT") paid to the government for goods and services utilized from the
Project;
2.2.5. Attendance Fees;
2.2.6. Alleged Prolongation Costs and Extended Overhead;
2.2.7. Judgment Award in CIAC Case No. 27-2007 (TVI v MICO); [Additional issue from TOR Amendment)
2.2.8. Contractor's All Risk Insurance;
2.2.9. Contingency Costs.
2.2.10 Other costs as mentioned in Exhibit "R-24" [Additional issue from TOR Amendment]

3. What is the total capital investment or contribution respectively of [St. Francis] and [Malayan] to the
Project per MOA? [Additional issue from TOR Amendment]

4. What is the actual remaining construction cost to complete the Project spent by |Malayan| as of today in
excess of [St. Francis'] estimate RCC?

5. After completion of the Project and computation of the actual remaining construction costs to complete
the same, is [St. Francis] still entitled to any of the Reserved units in Schedule 4 of the MOA?

5.1. If so, is [St.. Francis] entitled to the income therefrom?

6. Is [Malayan] entitled to its Counterclaim for the excess in the actual remaining construction cost it
incurred vis-a-vis the value of the Reserved Units?

7. Which party is entitled to attorney's fees?

[7.1] How much?

[8.] Which party shall bear the cost of arbitration?'

On March 2, 2009, St. Francis submitted the Joint Affidavit of Witnesses of Claimant, while Malayan
submitted the Joint Affidavit of Respondent's Witnesses. Thereafter, both parties submitted their respective
Joint Reply-Affidavits. Malayan also filed a Joint Affidavit of Respondent's Witnesses by Way of (1) Evidence
for New Issue No. 3 Defined under the Amended Terms of Reference; (2) Sur-Rejoinder Affidavit of
Claimant's Witnesses; and (3) Redirect Examination.

Trial ensued during which the witnesses of St. Francis and Malayan testified. Both parties likewise submitted
Lists of Exhibits. After trial, the parties simultaneously filed on April 27, 2009 their respective Memoranda in
the form of Draft Decisions.

On May 27, 2009, the CIAC rendered its Award, the dispositive portion of which states:

WHEREFORE, AWARD is hereby made as follows:


FOR THE CLAIMANT[St. Francis]:

GRANT[S] its claims for DISALLOWANCES amounting to P52,864,385.00 from the ARCC
of P614,593.565.96 under Exhibit C-3;

ALLOCATES 37.8% ownership over the Reserved Units (P66,551,993.09/P175,856,325.05);

As a consequence of these awards, Respondent | Malayan] is hereby DIRECTED to deliver possession and
transfer title over the Reserved Units in the proportion hereby stated.

CIAC GRANTS 37.8% proportionate share of the income realized from rentals of the Reserved
Units up to the present date.

As a consequence of these awards, Respondent [Malayan] is hereby DIRECTED to pay the Claimant [St.
Francis] its proportionate share in the income from the Reserved Units.

FOR THE RESPONDENT [Malayan]:

ALLOCATES 62.2% proportionate share of the income realized from rentals of the Reserved Units up to the
present date (P109,304,331.96/P175,856,325.05);

GRANTS 62.2% proportionate share of the income realized from rentals of the Reserved Units up
to the present date.

FOR BOTH CLAIMANT [St. Francis] and RESPONDENT [Malayan], all their Claims and Counterclaims for
Attorney's Fees are DENIED. Arbitration costs are maintained according to the pro rata sharing that they had
initially shared.

SO ORDERED.5 chanroble slaw

Dissatisfied with the CIAC Award, both parties filed with the Court of Appeals (CA) their respective Petitions
for Review under Rule 43 of the Rules of Court. On January 27, 2011, the CA affirmed with modifications the
CIAC Award, the dispositive portion of the decision reads:

WHEREFORE, premises considered, the CIAC's Award is hereby AFFIRMED subject to the following
modifications:

1) The total amount of deductions should be P15,135,166.51 and this is, in turn, shall be deducted from
the Total Actual Remaining Construction Cost of P615,880,672.47 to arrive at the Net amount
of P600,745,505.96 as computed above;

2) Si. Francis should be entitled to 16% ownership over the reserved units
(t27,535,668.09/P175,856,325.05) ownership of the reserved units to be done by drawing of lots with the
corresponding interest thereon;

3) As a consequence of the above awards, Malayan is hereby DIRECTED to deliver possession and transfer
title over the reserved units in accordance and in the proportion above-stated and to pay St. Francis its
proportionate share in the income from the reserved units reckoned from the date of completion of the
Project, that is from June 7, 2006 up to the finality of this decision, and to render full accounting of all the
rentals and such other income derived from said reserved units so awarded to St. Francis;

4) Arbitration Costs shall be maintained pro rata in accordance with their respective shares in the reserved
units.

5) Malayan and all others claiming rights under it, are enjoined from exercising acts of ownership over the
reserved units relative to the proportionate share awarded to St. Francis hereunder;

6) The concerned Register of Deeds is directed to immediately reinstate the name of St. Francis Square
Realty Corporation (formerly ASB Realty Corporation) as the registered owner in the corresponding
Condominium Certificates of Title Covering the reserved units herein awarded to St. Francis; and

7) All other awards granted by CIAC in its Award dated 27 May 2009 not affected by the above modifications
are affirmed. No costs.

SO ORDERED.6 chanroble slaw

Aggrieved by the CA decision, both parties filed their respective motions for reconsideration, which were
denied in the Resolution dated October 4, 2011. Hence, the present petitions of both parties.

St. Francis raises the following issues:

I.

The Court of Appeals gravely erred in ruling that interest [expenses] should be part of the actual remaining
construction cost. The ruling is contrary to law and the evidence on record. chanRoble svirtualLawlibrary

II.

The Court of Appeals committed serious error in finding that the actual construction cost is
P554,583,160.20. The ruling is contrary to law and the evidence on record. chanRoble svirtualLawlibrary

III.

The Court of Appeals erred in considering VAT as part of the ARCC. This is contrary to the facts and records
of the case.chanRoblesvirtualLa wlibrary

IV.

The Court of Appeals committed grave error in allowing the inclusion of the alleged cost of the Contractor's
All Risk Insurance as part of the ARCC. This is contrary to law and the records of the case. chanRoblesvirtualLa wlibrary

V.

The Court of Appeals committed grave and serious error on its allocation of the reserved units. This is
contrary to law and the records of the case.7 chanrobleslaw

On the other hand, Malayan raises the following issues:

A.

THE COURT OF APPEALS COMMITTED SERIOUS LEGAL ERROR IN PLACING THE BURDEN ON MALAYAN TO
PROVE THAT IT HAD ACTUALLY INCURRED THE ARCC, DESPITE THE FACT THAT DURING THE ARBITRAL
PROCEEDINGS, ST. FRANCIS HAD NEVER DISPUTED, AND THEREFORE, ADMITTED, THAT MALAYAN HAD
INCURRED THE ARCC. THE COURT OF APPEALS THUS DECIDED A QUESTION OF SUBSTANCE DEFINITELY
NOT IN ACCORD WITH THE BASIC LEGAL PRINCIPLE THAT A PARTY NEED NOT PROVE WHAT HAS NOT BEEN
RAISED, DISPUTED OR PUT IN ISSUE. chanRoble svirtualLawlibrary

B.

THE COURT OF APPEALS SERIOUSLY ERRED IN ALLOWING ST. FRANCIS TO BELATEDLY CHANGE ITS
THEORY IN ITS DRAFT DECISION FILED WITH THE CIAC AND ITS APPEAL. THE COURT OF APPEALS THUS
DECIDED A QUESTION OF SUBSTANCE IN DISREGARD OF THE BASIC DUE PROCESS TENET THAT A PARTY
CANNOT CHANGE ITS THEORY AFTER TRIAL OR ON APPEAL BECAUSE IN BOTH CASES THE OTHER PARTY IS
DEPRIVED OF THE OPPORTUNITY TO MEET THE NEW ISSUES. chanRoble svirtualLawlibrary

C.

THE COURT OF APPEALS SERIOUSLY ERRED IN DISREGARDING UNCONTROVERTED TESTIMONIAL


EVIDENCE THAT MALAYAN HAD ACTUALLY INCURRED ITS ARCC, AND FOCUSING EXCLUSIVELY ON
DOCUMENTARY EVIDENCE. chanRoblesvirtualLa wlibrary

D.
THE COURT OF APPEALS SERIOUSLY ERRED IN EXCLUDING THE FOLLOWING COSTS FROM THE ARCC,
DESPITE THE FACT THAT THEY WERE PROPER, NECESSARY AND REASONABLE FOR THE COMPLETION OF
THE PROJECT:

1. CHANGE ORDERS DUE TO RECONFIGURATION;

2. CHANGE ORDERS NOT DUE TO RECONFIGURATION;

3. HALF OF THE COSTS FOR THE NARRA PARQUET WORKS;

4. HALF OF THE COSTS FOR THE COMPREHENSIVE ALL- RISK INSURANCE (CARI);

5. HALF OF THE COSTS FOR THE INTERIOR DESIGN WORKS;

6. CONTINGENCY COSTS; AND

7. COSTS INCURRED AND/OR PAID AFTER JUNE 2006.

E.

THE COURT OF APPEALS SERIOUSLY ERRED IN RULING THAT ST. FRANCIS IS ENTITLED TO SOME OF THE
RESERVED UNITS. MALAYAN'S ARCC EXCEEDED THE ST. FRANCIS WARRANTED RCC BY MORE THAN THE
VALUE OF THE RESERVED UNITS. HENCE, ST. FRANCIS SHOULD NOT GET EVEN ONE OF THE RESERVED
UNITS. chanRoblesvirtualLa wlibrary

F.

THE COURT OF APPEALS SERIOUSLY ERRED IN RULING THAT ST. FRANCIS IS ENTITLED TO THE INCOME
RECEIVED BY MALAYAN FROM ST. FRANCIS'S (sic) SHARE IN THE RESERVED UNITS, IF ANY, MALAYAN IS
ENTITLED TO ALL OF THE RESERVED UNITS. AND EVEN ASSUMING ARGUENDO THAT ST. FRANCIS IS
ENTITLED TO SOME RESERVED UNITS, THE COURT OF APPEALS' DIRECTIVE IS IN DISREGARD OF ARTICLE
1187 OF THE CIVIL CODE. chanRoble svirtualLawlibrary

G.

THE COURT OF APPEALS SERIOUSLY ERRED IN NOT AWARDING MALAYAN ITS COUNTERCLAIMS AS WELL
AS ATTORNEY'S FEES, AND IN NOT ORDERING ST. FRANCIS TO BEAR ALL THE COSTS OF ARBITRATION. 8 chanrobleslaw

The Court finds partial merit in both the petition for review of St. Francis and the petition for partial review
on certiorari of Malayan.

In resolving in seriatim all the issues raised by both parties, the Court is guided by the rule that findings of
fact of quasi-judicial bodies, which have acquired expertise because their jurisdiction is confined to specific
matters, are generally accorded not only respect, but also finality, especially when affirmed by the CA. In
particular, factual findings of construction arbitrators are final and conclusive and not reviewable by this
Court on appeal.9 chanroble svirtuallawlibrary

As exceptions, however, factual findings of construction arbitrators may be reviewed by the Court when the
petitioner proves affirmatively that: (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 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; or (5) the arbitrators exceeded their powers, or so imperfectly executed
them, that a mutual, final and definite award upon the subject matter submitted to them 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 CA are
contrary to those of the CIAC, and (8) when a party is deprived of administrative due process. 10 Apart from
conflicting findings of fact of the CA and the CIAC as to the propriety of some arbitral awards, mathematical
computations, and entitlement to claim certain costs as part of the amount necessary to complete the
project, none of the other exceptions above was shown to obtain in this case. Hence, the Court will not
disturb those findings where the CA and the CIAC are consistent with each other, but will review their
findings which are inconsistent and cannot be reconciled.

The Court will discuss first the issues raised by St. Francis.

I. Interest expense

The CIAC stated that only costs directly related to construction costs can be included in the ARCC because
such intention of the parties in the MOA can be inferred from the fact that the baseline or starting point for
the determination of the ARCC is the estimate made by St. Francis based on Schedule 9 of the MOA. 11 The
CIAC held that the ARCC was intended to be spent within and among the four categories above exclusively,
subject to adjustments by reason of price increases and awarded contracts. It also rejected Malayan's theory
that costs which are not directly incurred for the construction, but which are actually related to it and to the
completion of the building, should be included in the ARCC. According to the CIAC, such could not have been
the intention of the parties; otherwise, St. Francis would be placed at the complete mercy of Malayan since
the determination of what costs are related to construction is left to the latter's entire discretion. Had such
been the intention, the parties would have set up standards to guide the discretion in determining what
expenses or costs are related to construction so as to be included in the term ARCC. Without such
standards, the validity of the MOA would have been questionable, as its interpretation would contravene
Article 1308 of the New Civil Code which provides that the performance of a contract cannot be left to the
will of one of the parties.

The CA reversed the CIAC ruling and held that Malayan had to obtain loans in order to finance the
completion of the project, and in doing so, it incurred interests which are deemed as an accessory of such
loans. It added that actual expenditures should not be limited only to traditional construction costs as the
parties' intention was to include those relative to the actual completion of the project, for which Malayan had
to invest in the form of seeking loan facilities from banking institutions in order to fully finance the
obligations set forth in the MOA. It also stressed that it was specifically stated in the MOA that the parties'
investment in the project would be distributed in accordance with their respective contributions

St. Francis contends that interest expense should not be included in the computation of the Actual
Remaining Construction Cost (ARCC). According to St. Francis, the term ARCC should be understood in its
ordinary context or plain meaning. The word "construction" refers to all on-site work on buildings or altering
structures from land clearance through completion, including excavation, erection and the assembly and
installation of components and equipment. Plainly, ARCC is the actual cost of completing and building the
structure which is the condominium/project.

Malayan counters that the MOA itself is replete with provisions recognizing the parties' contractual intent to
include the ARCC interest expense and the parties' respective capital contributions or investment in the
project. Such intent is confirmed by the parties' contemporaneous and subsequent acts when St. Francis'
own interest expense was credited to determine the number of units it was entitled to.

The Court upholds the CIAC ruling to disallow the interest expense from loans secured by Malayan to finance
the completion of the project, and thus, reverses the CA ruling that such expense in the amount of
P39,348,659.88 should be included in the computation of the ARCC. As correctly held by the CIAC, only
costs directly related to construction costs should be included in the ARCC. Interest expense should not be
included in the computation of the ARCC because it is not an actual expenditure necessary to complete the
project, but a mere financial cost. As will be discussed later, the term ARCC should be construed in its
traditional "construction" sense, rather than in the "investment" sense.

It also bears emphasis that part of Malayan's investment under Section 2 of the MOA 12 is the payment of
P65,804,381.00 as the principal amount of the loan obtained by ASB from the Rizal Commercial Banking
Corporation (RCBC) to finance the project. If it were the intention of the parties to include interest expense
as part of their investments, or even the ARCC, then the MOA would have expressly indicated such intent in
the provisions on investments of Malayan and of ASB. Nowhere in the provisions of the MOA can it be
gathered that interest expense is included in the computation of the ARCC.
Apart from the ARCC's definition as actual expenditures necessary to complete the project, the closest
provision in the MOA that could shed light on the scope and meaning of ARCC is Section 9 on the Remaining
Construction Cost (RCC) whereby St. Francis represented and warranted that Malayan can complete the
project at a cost not exceeding P452,424,849.00 as set forth in ASB's Construction Budget Report, which
reads:

Estimated Cost to Complete

I. Balance to Complete Existing - Php


Contracts 161,098,039.86
II. Unawareded Contracts 224,045,419.16
III. Professional Fee 4,138,108.08
IV. Contingencies 63,143,281.10
Php 452,424,849.10
The Court concurs with the CIAC that the ARCC was intended to be spent within and among the four
categories above, subject to adjustments by reason of price increases and awarded contracts. In
construction parlance, "contingency" is an amount of money, included in the budget for building
construction, that is uncommitted for any purpose, intended to cover the cost of unforeseen factors related
to the construction which are not specifically addressed in the budget. 13 Being a cost of borrowing money,
interest expense from bank loans to finance the project completion can hardly be considered as a cost due
to unforeseen factors.

That interest expense cannot be considered as part of any of the said categories is further substantiated by
the reports of the Davis Langdon Seah Philippines, Inc. (DLS) and Surequest Development Associates
(Surequest), which contain traditional construction cost components and items, but not investment costs
such as interest expense. As the one who engaged the services of both DLS and Surequest to come up with
a valuation of the cost to complete the project and to evaluate what had been accomplished in the project
prior the take-over, Malayan cannot deny that interest expense is not included in their computation of the
construction costs.

As regards the supposed contemporaneous act of St. Francis of including the amount of P207,500,000.00 as
interest expense in its claim for reimbursement for its contributions in the project, in the form of several
units per Schedules 1 and 3 of the MOA, the Court cannot determine whether or not such expense should be
considered as its contribution for purposes of computing the return of capital investment. Unlike the
investment of Malayan which is specifically stated under Section 2 14 of the MOA, but does not include
payment of interest of the bank loan to finance the project, the investment of ASB (now St. Francis) is
merely described as follows:

Section 3. Recognition of ASB's Investment. The parties confirm that as of the date hereof, ASB invested in
the Project an amount equivalent to its entitlement to the net saleable area of the Building under Section 4
below, including ASB's interest as buyer under the Contract to Sell.

From such vague definition of ASB's investment, the Court cannot rule if St. Francis should also be
disallowed from claiming interest expense as part of its investment, unlike Malayan which is disallowed from
including interest expense as part of the ARCC contemplated in the MOA, because such financial cost is not
an actual expenditure necessary to complete the project. Having in mind the rule that the interpretation of
obscure words or stipulations in a contract shall not favor the party who caused the obscurity,15 the Court
cannot give credence to the August 1, 2000 telefax of Evelyn Nolasco, St. Francis' former Chief Financial
Officer (CFO), to Malayan's CFO, Gema Cheng, which shows St. Francis' computation for reimbursement,
including the claim of P207,500,000.00 as interest expense.

Further negating Malayan's claim that interest expense should be included in the computation of the ARCC is
the restrictive construction industry definition of the term "construction cost" which means the cost of all
construction portions of the project, generally based upon the sum of the construction contract(s) and other
direct construction costs; it does not include the compensation paid to the architect and consultants, the
cost of the land, right-of-way, or other costs which are defined in the contract documents as being the
responsibility of the owner.16 Aside from the fact that such expense is not a directly related construction cost,
Section 2 of the MOA states that Malayan's investment includes, among other matters, the amount it had
paid to RCBC, on behalf of ASB, for the principal loan to finance the project, but not the interest thereof.
This casts doubt on Malayan's claim that the parties intended interest expense to become part of their
capital contribution, let alone the ARCC.

In view of the foregoing discussion, the Court will no longer delve into Malayan's two other contentions on
the issue of interest expense, namely: (1) that since St. Francis only claimed that such expense cannot be
included as part of the ARCC as the same is not a direct construction cost, it cannot now change its theory
and argue that there is no substantial evidence to show that Malayan incurred such expense in completing
the project because it is deemed to have admitted the same, and allowing St. Francis to do so would amount
to a prohibited change of its theory; and (2) that Malayan was able to prove that it incurred interest expense
on loans which were used to finance completion of the project.

II. Scope and total amount of ARCC

According to the CIAC, ARCC refers to actual expenditures made by Malayan to complete the project. What
is proper and necessary to complete the project is the essence of the dispute between the parties. As used
in the MOA, ARCC should be understood in the traditional "construction" sense rather than in "investment"
sense. The dispute is a construction dispute and not an investment dispute which would have taken the
dispute outside the ambit of construction arbitration. Notably, the cost component/pay items stated in
Exhibit "C-2" (MOA Schedule 9), Exhibit "11-7" (Surequest Report) and Exhibit "R-8" (Davis Langdon Seah
Report) contain basic and traditional construction cost, and not investment cost which is broader in scope.
As to the amount of the ARCC, CIAC held that it is P614,593,565.96 as stated in Exhibit "C-3" 17 which was
prepared by Malayan itself and submitted to St. Francis. Exhibit "C-3" listed the expenses incurred as of
August 10, 2006 which was close enough to the project completion date of June 7, 2006, as a basis to
determine what items should be disallowed therefrom.

Reversing the CIAC's ruling, the CA held that actual expenditures should not be limited only to traditional
construction cost as the parties' intention when they executed the MOA was to also include expenditures
relative to the actual completion of the project. It noted that the clear intention of the parties that whatever
expenditures they have spent shall be considered as their investment subject to the proportionate sharing
after determining the actual construction cost, can be gleaned from the following provisions of the MOA:

Section 2. Investment of Malayan. Subject to the provisions of Section 9 below, Malayan shall invest the
amount necessary to complete the Project and the following amounts:

xxxx

Section 3. Recognition of [St. Francis'] Investment. The parties confirm that as of the date hereof, [St.
Francis] invested in the Project an amount equivalent to its entitlement to the net saleable area of the
Building under Section 4 below, including [St. Francis'] interest as buyer under the Contract to Sell.

Section 4. Distribution and Disposition of Units - (a) As a return of its capital investment in the Project, each
party shall be entitled to such portion of all the net saleable area of the Building that their respective
contributions to the Project bear to the actual construction cost. As of the date of the execution hereof, and
on the basis of the total costs incurred to date in relation to the Remaining Construction Cost (as defined in
Section 9(a) hereof), the parties shall respectively be entitled to the following (which entitlement shall be
conditioned on, and subject to, adjustments as provided in sub-paragraph [b] of Section 4 in the event that
the actual remaining construction cost exceeds the Remaining Construction Cost):

The CA stressed that based on its reading of the MO A in its entirety, the ARCC clearly means the
"investment" incurred as contributed by Malayan in the completion of the project, and that there being no
ambiguity in the MOA, its literal meaning is controlling. The CA added that its interpretation is consistent
with the rule that when the terms of agreement have been reduced into writing, it is considered as
containing all the terms agreed upon by the parties and there can be between the parties and their
successors-in-interest, no evidence of such terms other than the contents of the written agreement.

As to the amount of the ARCC, the CA found that the gross ARCC based on evidence is f 554,583,160.20
[Including 1/11% Input VAT and 2% Withholding Tax], while the net payment is P552,152,508.70.
According to the CA, St. Francis and Malayan correctly argued that the CIAC mainly relied on Exhibit "C-3"
which is a mere summary of the expenses or a tabulation of figures incurred by Malayan without any other
supporting documents to prove the contents and authenticity of the figures stated therein. In determining
the ARCC, the CA thus reviewed the records and ruled that Exhibit "C-3" and Exhibit "R-24"18 [Project Cost
to Complete as of October 2008 amounting to P648,266,145.96] should be utilized vis-a-vis Exhibit "R-48-
series" which contain construction costs and computations supported by receipts, vouchers, checks and
other documents that are necessary to arrive at the final computation of the ARCC. In this regard, St.
Francis agrees with the CA that Exhibit "R-48-series" should be taken into account because it contains
computations supported by such documentary evidence, but gravely erred in considering only the
summaries in such exhibit without actually verifying and counter-checking if the amounts indicated in the
summaries actually correspond to the amounts reflected in the supporting documents. St. Francis points out
that the ARCC considered as being claimed by Malayan that are actually receipted is only P514,179,217.94
based on Exhibit "R-48-series."

Due to the conflicting findings of the CIAC and the CA on the scope, meaning and computation of the ARCC,
the Court is compelled to review them in light of the evidence on record.

As duly noted by the CA, the controversy between St. Francis and Malayan lies in the interpretation of the
term "Actual Remaining Construction Cost" (ARCC) in relation to the Estimated Remaining Construction Cost
(RCC), in order to determine the proportionate ownership over the reserved units, if any, as embodied in
their Memorandum of Agreement dated April 30, 2002, the pertinent provisions of which read:

Section 4. Distribution and Disposition of Units - (a) As a return of its capital investment in the Project, each
party shall be entitled to such portion of all the net saleable area of the Building that their respective
contributions to the Project bear to the actual construction cost. As of the date of the execution hereof, and
on the basis of the total costs incurred to date in relation to the Remaining Construction Cost (as defined in
Section 9(a) hereof), the parties shall respectively be entitled to the following (which entitlement shall be
conditioned on, and subject to, adjustments as provided in sub-paragraph [b] of Section 4 in the event that
the actual remaining construction costexceeds the Remaining Construction Cost):

xxx

(ii) ASB [now, St. Francis] - the following net saleable area:

(C) provided that the actual remaining construction costs do not exceed the Remaining Construction
Cost, the net saleable area particularly described in Schedule 4 hereof which shall be delivered to [St.
Francis] upon completion of the Project and determination of its actual construction costs. If the actual
remaining construction costs exceed the Remaining Construction Cost, sub-paragraph (b) of Section 4
shall apply.

(b) In the event that the actual remaining construction costs exceed the Remaining Construction Cost as
represented and warranted by [St. Francis] to Malayan under Section 9(a) hereof, and Malayan pays for
such excess, the pro rota sharing in the net saleable area of the Building, as provided in sub-paragraph (a)
of this Section 4 shall be adjusted accordingly. In such event, Malayan shall be entitled to such net saleable
area in Schedule 4 that corresponds to the excess of the actual remaining cost over the Remaining
Construction Cost.

xxx

Section 9. Remaining Construction Cost - (a) [St. Francis] represents and warrants to Malayan that Malayan
can complete the Project at a cost not exceeding Four Hundred Fifty-Two Million Four Hundred Twenty-Four
Thousand Eight Hundred Forty-Nine Pesos (P452,424,849) (the Remaining Construction Cost) as set forth in
[St. Francis'] Construction Budget Report attached hereto and made an integral part hereof as Schedule 9
that:

xxx

(b) Malayan shall pay for any additional costs and expenses that may be incurred in excess of the Remaining
Construction Cost. In such event, it shall be entitled to such net saleable area as indicated in Schedule 4
that corresponds to the increase in remaining construction cost. [St. Francis] shall be entitled to such net
saleable area, if any, remaining in the aforesaid Schedule 4. 19 chanrobleslaw

The ultimate purpose of determining the ARCC, as simply stated by CIAC, is to determine the proportionate
or absolute ownership of the properties over the net saleable area of the building (Reserved Units), as
provided in sub-paragraph (a) of Section 4 of the MOA, by calculating how much was spent by Malayan to
complete the project in excess of the estimate (Remaining Construction Cost) made by St. Francis.
After a careful review of the MOA as to the scope and meaning of the term "ARCC," the Court sustains the
CIAC that such term should be understood as the actual expenditures necessary to complete the project,
which is the traditional "construction" sense rather than the "investment" sense. The Court thus reverses the
CA's ruling that the parties' intention was to also include in the computation of the ARCC whatever
expenditures relative to the actual completion of the project, as such expenses are considered as their
investment subject to the proportionate sharing after determining the actual construction cost.

It bears stressing that the intent of the parties in entering into the MOA is to provide for the terms and
conditions of the completion of the Project and the allocation of the ownership of condominium units in the
Project among themselves.20 To recall, Malayan and St. Francis (then ASB) entered into the Joint Project
Development Agreement (JPDA) dated November 9, 1995 to construct a thirty-six (36)-storey condominium
[but originally a fifty (50)-storey-building] whereby the parties agreed (a) that Malayan would contribute a
parcel of land, and ASB would defray the construction cost of the project, and (b) that they would allocate
the net saleable area of the project, as return of their capital investment. In a Contract to Sell dated
November 20, 1996, Malayan also agreed to sell the said land to ASB (now St. Francis) for a consideration of
P640,847,928.48, but the latter was only able to pay P427,231,952.32. however, ASB was unable to
completely perform its obligations under the JPDA and the Contract to Sell because it underwent corporate
rehabilitation, and the Securities and Exchange Commission suspended, among other things, the
performance of such obligations. Since ASB had pre-sold a number of condominium units, and in order to
protect the interests of the buyers, to preserve its interest in the project, its goodwill and business
reputation, Malayan proposed to complete the project subject to the terms and conditions of the MOA.

Under Section 5(a) of the MOA, Malayan undertook to construct, develop and complete the Project based on
the general specifications already agreed upon by the parties and set forth in Schedule 6 of the MOA, within
two (2) years from (i) the date of effectivity of Malayan's obligations as provided in Section 21, or (ii) the
date of approval of all financing/loan facilities from any financial or banking institution to fully finance the
obligations of Malayan under the MOA, whichever of said dates shall come later; or within such extended
period as may be agreed upon by the parties. Section 21 of the MOA provides that Malayan shall be bound
by and perform its obligations, including the completion of the Project, only upon (i) fulfillment by St.
Francis of all its obligations under Section 6, items (a), (b), (c) and (d), 21 and (ii) approval by the Insurance
Commission of the MOA.

Section 5(a) of the MOA also states that that the project shall be deemed complete, and the obligation of
Malayan fulfilled, if the construction and development of the Project is finished as certified by the architect of
the project. Upon completion of the project, the general provision which governs the distribution and
disposition of units is the first sentence of Section 4(a) of the MOA, to wit: "[a]s a return of its capital
investment in the Project, each party shall be entitled to such portion of all the net saleable area of the
Building that their respective contributions to the Project bear to the actual construction cost." The second
sentence22 of Section 4(a) provides the specific details on the pro ratasharing of units to which the parties
are entitled based on the RCC in relation to total costs incurred as of the date of the execution of the MOA
dated April 30, 2002. It also states, however, that entitlement to certain units are subject to adjustments in
the event that the ARCC exceeds the RCC, and Malayan pays for such excess.

Clearly, the parties foresaw that Malayan may incur additional cost and expenses in excess of the Remaining
Construction Cost (RCC) of P452,424,849.00 which amount St. Francis represented and warranted that
Malayan would have to spend to complete the project. Section 9(b) 23 of the MOA thus adds that, in such
event, Malayan shall be entitled to such net saleable area as indicated in Schedule 4 that corresponds to the
increase in remaining construction costs, while St. Francis shall be entitled to such net saleable area, if any,
remaining in the said Schedule 4. As admitted by the parties in the Amended Terms of Reference, the net
saleable area included in Schedule 4 ("Reserved Units") originally covered fifty-three (53) units (which was
reduced to thirty-nine [39] units after reconfiguration) with thirty-eight (38) parking spaces, and the
aggregate monetary value of said units is P175,856,323.05.

In determining the entitlement of the parties to the reserved units in Schedule 4, Malayan insists that the
ARCC should include all its capital contributions to complete the project, including financial costs which are
not directly related to the construction of the building. It argues that the MOA is replete with provisions
recognizing the parties' intent to include in the ARCC their respective capital contributions or investment.

Malayan's argument fails to persuade.

The term ARCC should only be construed in light of its plain meaning which is the actual expenditures
necessary to complete the project, and it is not equivalent to the term "investment" under the MOA.

As stated in the MOA, the investment of Malayan is composed of (1) the amount necessary to complete the
project, and (2) the following amounts: (a) P65,804,381, representing Malayan's payment on behalf of ASB
(now St. Francis) of the principal amount of the loan obtained by ASB from the RCBC to finance the project;
and (b) P3 8,176,725, representing Malayan's payment on behalf of ASB of the outstanding obligations to
project contractors as of the signing of the MOA.24 On the other hand, the investment of St. Francis is
broadly defined as the ASB's invested amount equivalent to its entitlement to the net saleable area of the
Building under Section 4 of the MOA, including ASB's interest as buyer under the Contract to Sell. 25 Hence,
the Court holds that the ARCC, which pertains only to the amount necessary to complete the project, can be
considered as part of the capital investment, but they are not synonymous.

Likewise negating Malayan's argument that all its contribution to complete the project should be included in
the ARCC is the restrictive construction industry definition of "construction cost", to wit: the cost of all
construction portions of the project, generally based upon the sum of the construction contract(s) and other
direct construction costs; it does not include the compensation paid to the architect and consultants, the
cost of the land, right-of-way, or other costs which are defined in the contract documents as being the
responsibility of the owner.26
chanroblesvirtuallawlibrary

As to the computation of the ARCC, the Court agrees with the CA that the CIAC erred in relying mainly on
Exhibit "C-3," which is a mere summary or tabulation of the cost to complete the project as of August 10,
2006, and that Exhibit "R-24" (a 26-page Cost to Complete as of October 2008) and Exhibit "R-48-series"
(consisting of about 2,230 pages construction costs computation, receipts, vouchers, checks and other
documents) should also be considered in determining the ARCC. After a careful review of the records, the
Court finds partial merit in the claim of St. Francis that certain items in the computations are
unsubstantiated by evidence, while the other costs should either be included or excluded in the ARCC for
reasons that will be explained below. Hence, the CA's own computation of the ARCC based on Exhibit "R-48-
series" in the total amount of P554,583.160.20 (including 1/11% Input VAT and 2% withholding tax) should
be modified in order to arrive at the net ARCC of P505,391,573.63, thus:

Construction Cost as per receipts (Exhibit "R-48-series"27)


(with 1/11% Input VAT and 2% withholding tax) -P554,583,160.20

Total Inclusion: P8,282,974.82

Award to Total Ventures, Inc.


(Prolongation costs and extended Overhead)- + 8,282,974.82

Total ARCC: P554,583,160.20+8,282,974.82=P562,866,135.02


(Construction Costs as per receipts + Inclusion)

Total Deductions:P41,705,696.66

Interest expense paid by Malayan to RCBC - P39,348,659.88


Change orders not due to Reconfiguration - 971,796.29
Contingencies - 631,154.39
Interior Design Works - + 754,086.10
P41,705,696.66

Total Exclusions:P15,768,864.73
(Unsubstantiated Costs)

Item 1.028- P 9,297,947.22


Items 5.3 and 5.429 - 530,563.65
Items 5.3 and 5.4 - 725,877.62
Item 5.7.130 - 50,710.61
Item 6.2.2531 - 194,171.00
Item 6. 1132 - 3,499.64
Item 6.11 - 1,360.00
Item 6.12.333 - 2,397,047.8934
Item F335 - 368,397.52
Item F3 - 448,534.59
Item F3 - 634,232.26
Professional Fees C&D36 - 427,500.00
Professional Fees N37 -+ 79,022.73
P15,768,864.73

(Total Deductions) P41,705,696.66


(Total Exclusions) +15,768,864.73
P57,474,561.39
Total ARCC - Total Deductions & Exclusions = Net ARCC: P505,391,573.63

P562,866,135.02-P57,474,561.39 = P 505,391,573.63

III. Input VAT

St. Francis contends that Input VAT should not be treated as part of construction cost, because it is not part
of the costs of goods and services purchased or engaged under Section HO38 of the National Internal
Revenue Code (NIRC). According to St. Francis, VAT Ruling No. 053-94, February 9, 1994, states that VAT
paid by a VAT-registered person on his purchases (or input tax) is an asset account in the Balance Sheet and
not to be treated as an expense, unless he is exempt from VAT in which case the VAT paid would form part
of the cost to acquire what was purchased. In (act, per Malayan's own documentary evidence, cash vouchers
in Exhibit "R-4S-series," input VAT is indicated as an account separate from the actual cost of services or
materials. Also, in Malayan's audited financial statements, input VAT is treated as a separate item and was,
in fact, claimed as an asset under the heading "Other Assets."

St. Francis further points out that Malayan's counsel admitted that input VAT is not part of cost when he
stated that VAT and interest expense are actually financial cost and part of its capital contribution in the
construction, but, strictly speaking, not directly related construction cost. St. Francis claims that even from
an accounting standpoint, input tax is not entered into the books as part of cost. While contract prices for
contractors or suppliers are VAT inclusive, it docs not mean that input VAT is considered part of cost; input
VAT is treated as account in a different account, either under "Other assets" or "Input Tax", which is an asset
account. Besides, the input VAT claimed by Malayan as part of its construction cost in the usual course of
business as a VAT-able entity is offset or credited against output VAT to determine the net VAT due or
payable to the government. Since Malayan also has output VAT from its sales of condo units in the project
and from sales of insurance policies, it should be able to credit such input VAT and not charge it as part of
the construction cost.

St. Francis finally notes that Malayan admitted that it can apply for refund or issuance of tax credit for
excess input tax, and will thus benefit twice from charging input VAT as part of the construction cost. Since
input VAT had already been claimed by Malayan, and its audited financial statements show the offsetting of
input VAT against output VAT, then justice and equity dictate that it should not be allowed to claim it as part
of the ARCC.

The Court finds no compelling reason to disturb the consistent findings of the CA and the CIAC that Input
VAT should be allowed to remain in the ARCC. As aptly pointed out by the CA and the CIAC, ARCC refers to
the actual expenditures made by Malayan to complete the project. The Court thus agrees with Malayan that
in determining whether input VAT should be included as ARCC, the issue is not the technical classification of
taxes under accounting rules, but whether such tax was incurred and paid as part of the construction cost.
Given that input VAT is, strictly speaking, a financial cost and not a direct construction cost, it cannot be
denied that Malayan had to pay input VAT as part of the contract price of goods and properties purchased,
and services procured in order to complete the project. Moreover, that the burden of such tax was shifted to
Malayan by its suppliers and contractors is evident from the photocopies of cash vouchers and official
receipts on record,39 which separately indicated the VAT component in accordance with Section 113(B) 40 of
the Tax Code.41chanroble svirtuallawlibrary

Anent the claim that it would be unjust and inequitable if Malayan would be allowed to include its input VAT
in the ARCC, as well as to offset such tax against its output tax, the Court finds that such coincidence does
not result in unjust enrichment at the expense of St. Francis. Unjust enrichment claims do not lie simply
because one party benefits from the efforts or obligations of others, but instead it must be shown that a
party was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully.42 In
offsetting its input VAT against output VAT, Malayan is merely availing of the benefits of the tax credit
provisions of the law, and it cannot be said to have benefitted at the expense or to the damage of St.
Francis. After all, Malayan is justified in including in the ARCC the input VAT it had paid as part of the
contract price of the goods, properties and services it had procured to complete the project.

At any rate, St. Francis would also be entitled to avail of the same tax credit provisions upon the eventual
sale of its proportionate share of the reserved units allocated and transferred to it by Malayan. It bears
emphasis that the allocation of and transfer of such units to St. Francis is subject to output VAT which
Malayan could offset against its input VAT. In turn, St. Francis would incur input VAT which it may later offset
against its output VAT upon the sale of the said units. This is in accordance with the tax credit method of
computing the VAT of a taxpayer whereby the input tax shifted by the seller to the buyer is credited against
the buyer's output taxes when it. in turn sells the taxable goods, properties or services. 43
chanroble svirtuallawlibrary

IV. Comprehensive All Risk Insurance (CARI)

St. Francis claims that the CARI should be disallowed from being part of the ARCC because there is no proof
of expense on the part of Malayan, and only official receipts were presented. However, the first official
receipt in the amount of P2,814,672.81 is not even readable, while in the second receipt, the description of
the contract for the CARI appears to be a different project. Considering that the assured in the receipts is
not just Malayan but jointly with LANDEV (project manager), St. Francis adds that Malayan must prove that
it actually paid for this expense.

It bears stressing that both the CIAC and the CA agreed that the CARI should be allowed as part of the
ARCC, but differed as to the amount. Due to St. Francis' admission that it would allow inclusion of
P1,000,000.00, and considering that no basis has been suggested on how the said amount was arrived at,
the CIAC decided to split the amount contested (P2,814,678.80, excluding premium for renewals, per
Malayan) into equal shares, and allowed the CARI in the amount of P1,407,336.40 as part of the ARCC. On
the other hand, the CA allowed CARI in the amount of P2,168,035.66 as part of ARCC, after reviewing the
official receipts44 issued by Tokio Marine Insurance Co., and finding that the total amount of the CARI should
be P4,336,071.32 which should be split between Malayan and St. Francis.

The Court holds that CARI in the amount of P4,361,291.34 is supported by official receipts; 45 hence, such
amount should be allowed to remain in the ARCC. Although the official receipts of the CARI appear to have
been issued in the name of Malayan and/or LANDEV, the minutes of the December 20, 2002 Bids and
Awards Committee Meeting, of which St. Francis' President Luke Roxas was a member, proves that it was
unanimously agreed upon that the CARI would be secured directly by the owner, Malayan. The official
receipts and the said minutes prove that the premium of the policy, as well as the renewals thereof, were
shouldered by Malayan as the owner of the project. Against the said substantial evidence of Malayan, the CA
and the CIAC have no basis in ruling why the CARI should be split between Malayan and St. Francis. As to
the conflict between the CARI premium payments shown in Exhibit "C-3 " (Cost to Complete as of August
10, 2006) in the total amount of P4,006,634.85 and Exhibit "R-48-M-series" (Item 5.0 Project Insurance,
Tokio Marine Malayan Insurance Co. Inc.) in the total amount of P4,361,291.34, the latter should prevail as
it is supported by official receipts.46 chanroble svirtuallawlibrary

V. Allocation of Reserved Units

St. Francis asserts that the correct ARCC supported by receipts is only P514,179,217.94, 47 and after making
all the necessary deductions, the excess ARCC over the warranted RCC [P452,424,849.00] would only be
around P16,446,014.66, thus entitling it to the value of the reserved units of around P159,410,310.39, as
well as the income therefrom. On the other hand, Malayan insists that St. Francis would no longer be
entitled to any reserved units,and it would still be liable for P19,038,339.91, as the ARCC and the RCC
exceeded the aggregate value of the reserved and the total aggregate value of the reserved units by such
amount.
The CIAC held that the ARCC based on Exhibit "C-3" is P614,593,565.96, and that after deducting the total
disallowances of P52,864,385.00, as well as the amount of the RCC, the excess ARCC will be
P109,304,331.96 which is equivalent to Malayan's 62.2% share in the total aggregate value of the reserved
units (P175,856,325.05). Meanwhile, the remaining 37.8% is the proportionate share of St. Francis in the
said units.

Modifying the ruling of the CIAC, the CA ruled that based on Exhibit "C-3", "Exhibit R-24" and Exhibit "R-48-
series," the total ARCC is P615,880,672.47. After excluding the deductions in the total amount of
P15,135,166.51 and the amount of the RCC, the excess ARCC will be P148,320,656.96 which is equal to
Malayan's 84% share in the total aggregate value of the reserved units. The remaining 16% is the
proportionate share of St. Francis in the said units.

After a circumspect review of the records, the Court finds that the 30% of the reserved units should be
allocated to Malayan, while 70% should be allocated to St. Francis. Below is the computation of the parties'
proportionate share in the said units:

P505,391,573.63 [Net ARCC] - P452,424,849.00 [RCC] = P52,966,724.63 [Excess ARCC]

P52,966,724.63 [Excess ARCC]/P175,856,323.05 [Total Aggregate Value of Reserved Units] = .3011


or 30% - share of Malayan

P122,889,598.42/Pl 75,856,323.05 = .6988 or 70% - share of St. Francis.

Prolongation Costs and Extended Overhead

The CIAC held that Prolongation Costs and Extended Overhead in the amount of P6,000,000.00 should be
excluded as part of the ARCC because it would be unfair and unjust for Malayan to pass on its liability to St.
Francis after having been found responsible for the delay. The CIAC pointed out that the resolution of this
issue hinges upon whose fault the delay in the construction that gave rise to prolongation costs may be
attributed to, and this was resolved in CIAC Case No 27-2007 entitled "Total Ventures and Project, Inc. vs.
Malayan Insurance Company, Inc." where the arbitral tribunal awarded in favor of claimant TVI the sum of
P7,743,278.89 to compensate for the delay in the completion of construction which has been caused
essentially by Malayan.

On the contrary, the CA held that it is but proper to include in the ARCC the amount of P21,948,852.39
which Malayan had paid to Total Ventures, Inc. (TVI) for the settlement in the CIAC Case No. 27-2007.

St. Francis points out that without consideration of its arguments and contrary to CIAC's finding, the CA held
that Malayan had paid TVI P21,948,852.39 which should be included in the ARCC. St. Francis states that,
assuming arguendo, that such settlement in the arbitration case can be considered part of the ARCC, the
entire amount thereof cannot be included because the combined total amount of the award of prolongation
costs and extended overhead (P7,743,278.89), and the interest (P1,430,127.50) is only (P9,173,405.94). It
adds that it is very clear in the decision of the arbitral tribunal that the causes for the delay of TVI that
warranted the grant of overhead expenses are actually attributable to Malayan, to wit:

Based on the foregoing documentary evidence and the testimony of the witnesses, delays in the project
implementation was mainly attributed to the reconfiguration of the room layout of the building at Discovery
side and delay in the award by MICO [Malayan] of the subcontract packages for other trade disciplines plus,
the delayed delivery of material which had a domino effect on the work of the succeeding packages, and
eventually to the overall project completion date which had to be extended to August 31, 2005. 48 chanroble slaw

The CA grossly erred in ruling that the full amount of P21,948,852.39 paid by Malayan to TVI should be
included in the ARCC. A careful review of the decision of the arbitral tribunal in CIAC Case No. 27-2007
shows that such full amount consists of net amount due (P20,518,725.94) to TVI after offsetting its various
claims against the counterclaims of Malayan, plus the accrued interest of P1,430,127.05. 49Based on the said
decision and the amount which St. Francis itself has conceded it may be held liable-for, the Court holds that
the prolongation costs and extended overhead for the period of January 2005 to August 2005
(P6,313,846.43) and September 1, 2005 to August 31, 2005 (P1,429,432.46) in the total amount
P7,743,278.89,50 as well as the accrued interest in the amount of P539,695.93,51 or a total amount of
P8,282,974.82, should be included as part of the ARCC.

The Court agrees with Malayan that the cause of the delay in the completion of TVI's construction works was
the reconfiguration of the room layout of the building along the side facing Discovery Suites hotel. Such
delay was, in turn, caused by St. Francis deviation from the original April 12, 1996 floor plans for the 9 th to
31st floors of the project, which resulted in units that were more typical of a high-density, low-cost
condominium project. Indeed, Malayan had to reconfigure the said layout of several units that St. Francis
had constructed as they were smaller and narrower than those provided in the original floor plans, and in
order to meet St. Francis' commitment to the buyers of pre-sold units to create a prestigious building and
collaborative masterpiece that only the best in interior design, landscape planning and architecture can truly
offer, as well as to avoid possible liability under Section 19 52 of the Subdivision and Condominium Buyers'
Protective Decree (Presidential Decree No. 957).

The Court will now discuss jointly the first three interrelated issues raised by Malayan.

A. Whether St. Francis had never disputed and therefore admitted that Malayan had incurred the
ARCC.

B. Whether the CA erred in allowing St. Francis' to belatedly change its theory in its Draft
Decision and in its Appeal.

C. Whether the CA erred in disregarding the uncontroverted testimonial evidence, and focusing
solely on documentary evidence.

According to Malayan, the CA overlooked the fact that St. Francis objected only to the perceived impropriety
of including certain costs in the ARCC. That Malayan incurred these costs was never in issue during the
arbitral proceedings. In view of the rule that all facts not in issue are admitted, and that all facts judicially
admitted do not require proof, Malayan claims that it should not bear the burden to prove that it had
actually incurred its ARCC.

Malayan also notes that St. Francis' CIAC complaint contained no allegation that Malayan had not actually
incurred the costs in its ARCC, nor was there any claim that specific costs items in the ARCC lacked
evidentiary basis, or were otherwise fictitious or fabricated. Malayan argues that if its alleged failure to
substantiate the ARCC was enough basis to question costs included therein, it follows that St. Francis would
already have disputed in its complaint the entire amount of the ARCC. Yet, St. Francis only chose to object
to selected items in the ARCC, and not because of the alleged lack of substantiation.

Malayan adds that from the time St. Francis filed its complaint, up to the conclusion of trial, it had the same
theory, i.e., although Malayan had indeed spent for its ARCC, some costs items ought to be excluded as they
could not be considered part of the ARCC. It was only belatedly in its Draft Decision and its Petition before
the CA that St. Francis argued for the first time that new cost items should also be deducted from the ARCC
because they were allegedly unsubstantiated or not fully supported by official receipts. In light of the rule
that a party cannot change his theory on appeal when a party adopts a certain theory in the court below,
Malayan faults the CA for excluding new cost items from the ARCC due to lack of substantiation. Besides,
Malayan claims that its entire ARCC as of February 29, 2009 was expressly affirmed by its witnesses who are
competent to testify due to their involvement in the preparation and monitoring of the project's budget.

Stating that it did not have the burden of proving that it incurred the costs in its ARCC because this was
never in issue, Malayan concludes that the CA should have held St. Francis to its original theory that
Malayan had actually incurred all the items in its ARCC of P647,319,513.96, instead of examining each item
included therein and accepting only P615,880,672.47 as supported by documentary evidence. Finally,
Malayan insists that there can be no dispute that it incurred the ARCC of P647,319,513.96 based on the
unrebutted testimony of its witnesses and the voluminous documents it introduced at trial.

Malayan's contentions are misplaced.

Contrary to the claim that St. Francis admitted that Malayan had incurred the ARCC of P647,319,513.96, the
allegations in St. Francis complaint and the Amended Terms of Reference would show that the substantiation
of the cost items included in the ARCC and the exact amount thereof are the core issues of the construction
arbitration before the CIAC.

For one, the contention that St. Francis' complaint contained no allegation that Malayan had not actually
incurred the costs in its ARCC, nor was there any claim that specific costs items in the ARCC lacked
evidentiary basis, is belied by the following allegations in same complaint:
2.9 Sometime in August of 2006, [Malayan] presented a cost to complete construction of the Project in the
amount of SIX HUNDRED FOURTEEN MILLION FIVE HUNDRED NINETY THREE THOUSAND FIVE HUNDRED
SIXTY FIVE PESOS and 96/100 (P614,593,565.96).Said cost to complete however was a mere
tabulation with a listing of items and appurtenant costs. There was no independent proof or basis
as well as evidence that claimant incurred these costs, much less, if these costs conform with the
actual construction cost as the same is understood under the MOA. xxx53 chanroble slaw

For another, one of the admitted facts in the Amended Terms of Reference states that "[d]espite the
completion of the Project and the turnover of the units to [St. Francis], [Malayan], and other buyers of units,
the issue of actual cost of construction has not been resolved to the mutual satisfaction of the parties." 54 Not
to mention, one of the issues raised before the CIAC is "[w]hat is the actual remaining construction cost to
complete the Project spent by [Malayan] as of today in excess of [St. Francis'] estimate RCC?" 55 Clearly,
there is no merit in the claim that St. Francis admitted that Malayan had incurred the ARCC of
P647,319,513.96 as of October 2008. It can be gathered from the complaint that, as early as August 2006
when the ARCC was just P614,593,565.96, St. Francis already disputed such amount for lack of independent
proof or evidence that Malayan incurred these costs

Anent Malayan's claim that St. Francis argued belatedly in its Draft Decision and its petition before the CA
that new cost items should also be deducted from the ARCC because they were allegedly unsubstantiated or
not fully supported by official receipts, suffice it to state that whether such cost items should be excluded
from the ARCC is impliedly included in the issue of "[w]hat is the actual remaining construction cost to
complete the Project spent by [Malayan] as of today in excess of [St. Francis'] estimate RCC?" 56 chanroble svirtuallawlibrary

Moreover, in an action arising out of cost overruns on a construction project, the builder who has exclusive
control of the project and is in a better position to know what other factors, if any, caused the increases, has
the burden of segregating the overruns attributable to its own conduct from overruns due to other
causes.57 As the co-owner and developer who assumed the general supervision, management and control
over the project, and the one in possession of all the checks, vouchers, official receipts and other relevant
documents, Malayan bears the burden of proving that it incurred ARCC in excess of the RCC and the total
aggregate value of the reserved units, in which case St. Francis would no longer be entitled to a
proportionate share in the reserved units pursuant to the MOA.

In view of the foregoing discussion, the Court finds no merit in Malayan's contentions (I) that it did not have
the burden of proving that it incurred the costs in its ARCC because this was never in issue; and (2) that
there can be no dispute that it had incurred the ARCC of P647,319,513.96 based on the unrebutted
testimony of its witnesses and the voluminous documents it introduced at trial.

D. Erroneous Cost Exclusions from the ARCC

D.1. Change Orders due to Reconfiguration

The CIAC held that costs of reconfiguration should be allowed to remain as part of the ARCC on account of
the greater savings generated. It found that Malayan has sufficiently established that the reconfiguration did
not result in additional costs, and net savings were realized. Since St. Francis only concern was to minimize
costs and maximize savings, there is no longer any basis to object to the reconfiguration and the change
order that were approved as a results thereof.

In contrast, the CA ruled that the CIAC erred in allowing the increased cost of P7,434,129.85 to be included
in the ARCC because it is immaterial whether there were net savings generated from the reconfiguration,
and the fact remains that there was an increase in the budgeted construction cost, which Malayan alone
should bear.

Finding substantial evidence on record to support the CIAC ruling, the Court reverses the CA ruling and
upholds the CIAC that the increased costs of P7,434,129.52 should be included in the ARCC. The Court
sustains the CIAC's observation that although such reconfiguration was not really necessary for the
completion of the project and was undertaken only to make the units more saleable, St. Francis had
consented thereto on the condition that it would result in savings rather than additional costs. 58No
persuasive reason was shown to disturb the CIAC finding that despite the increased costs of P7,434,129.52
as claimed by St. Francis, and even including the consultants' fees in the aggregate amount of
P3,081,725.00, the savings amounting to P14,096,239.07 due to reconfiguration, would still be in excess of
the costs of additive change orders.59 In arriving at such computation, the CIAC went over the disputed
change orders due to reconfiguration, and proceeded to calculate whether the cost of the additive works
exceeded the savings realized from the deductive works. Notably, no similar effort was exerted by the CA in
arriving at its ruling. Without stating any reason, the CA reversed the CIAC ruling that net savings were
generated on account of change orders due to reconfiguration,

D.2. Change Order not due to Reconfiguration

With respect to change orders not due to reconfiguration amounting to P971,796.29, the CIAC held that
such costs should be excluded from the computation of the ARCC because they were clearly not within the
scope of the original work covered by the MOA, but were plainly additive works ordered by Malayan to
improve or enhance the project. It also found no legal or equitable reason to allow Malayan to pass on the
costs of such unnecessary improvements or enhancementsto St. Francis.

The CA deemed it unnecessary to disturb the CIAC's findings on the change of orders not due to
reconfiguration, as the latter had extensively discussed the issue. According to the CA, the CIAC correctly
ruled that the change orders not due to reconfiguration cannot be considered as part of the ARCC as these
were not within the scope of the work agreed upon by the parties in the MOA. It also noted that it is clear
from Section 5 of the MOA that Malayan shall undertake, among other things, to construct, develop and
complete the Project based on the general specifications already agreed upon by the parties and as set forth
in the Schedule 6 of the MOA, with full powers to enter into agreement with contractors, subcontractors, and
suppliers for the completion of the various phases of work. It concluded that when Malayan undertook
additional works, improvements or enhancements not within the specifications agreed upon, it presupposes
that it shall bear the costs thereof.

Since the findings of the CIAC and the CA on this issue are consistent, the Court perceives no cogent reason
to overturn such findings which are supported by substantial evidence. Besides, the Court takes issue with
Malayan's claim that the CA gravely erred in rigidly applying the specifications in Schedule 6 of the MOA,
considering that they were "general" in character and "for reference" purposes only. It is noteworthy that
Schedule 660 not only provides for the Schedule of Finishes and Materials of ASB Malayan Tower as of 26
October 2000, covering Exterior Works, Interior Works, Elevators, Intercom, Fire Alarm System, Standby
Generator Set, Lightning Protection and Pumps, among other things,but also includes the project floor plans
from Basement 2 to 6, and levels 4, 5, 7 to 12, 14 to 18, 20, 22 to 3 1, 33 to 35, penthouse and upper
penthouse. When a building contract refers to the plans and specifications and so makes them a part of
itself, the contract is to be construed as to its terms and scope together with the plans and
specifications.61 When the plans and specifications are by express terms made part of the contract, the
terms of the plans and specifications will control with the same force as if they were physically incorporated
in the very contract itself.62 Malayan cannot, therefore, brush aside Schedule 6 as "general" and "for
reference only" matters in the interpretation of the MOA.

As to the costs incurred due to the supposed reasonable deviations from specifications in the exercise of its
sound discretion as the developer, Malayan would do well to bear in mind that if the terms of a contract are
clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations
shall control.63 Under Section 5 of the MOA, Malayan undertook to construct, develop and complete the
project based on the general specifications already agreed upon by the parties and set forth in Schedule 6
thereof. As duly pointed out by the CIAC, since the parties to the MOA had agreed on the specifications that
will control the construction and completion of the project, anything that alters or adds to these
specifications which adds to the costs, should not be part of the ARCC.

D.3. Half of Costs for Narra Parquet Works

The CIAC allowed only half of the increased flooring costs [P4,982,798.44] in the amount of P2,491,399.22,
plus the original budgeted expense for this item in the amount of P12,770,000.00, or a total amount of
P15,261,399.22, as part of the ARCC. According to the CIAC, since the cause of change in flooring material
and the increased cost was a force majeure (government log ban) for which no one can be blamed, it is but
fair that both parties will equally share the increased cost.

The CA ruled that the CIAC did not err in dividing the increased cost between the parties. It stressed that
the dispute pertains to the proportionate entitlement of the parties to the reserved units after determining
the actual construction cost. Thus, both parties should share in the reserved units, as it is but fair that the
increased cost should also be equally divided between them, and half of the increased amount should be
included in the computation of the ARCC.

Although the findings of the CA and the CIAC on this issue are consistent, the Court finds their reasoning
contrary to the MOA. The construction cost increase due to the change from Narra parquet to Kendall
laminated flooring is undisputedly due to the government logging ban which is a force majeure. However,
the equal sharing of such cost increase is contrary tothe MOA which provides for the proportionate
entitlement of the parties to the reserved units, depending on the excess ARCC over the RCC and the total
aggregate value of the reserved units. In addition, such increased cost due to force majeure falls under the
category of "Contingencies" under Schedule 9 of the MOA, which term is defined as an amount of money,
included in the budget for building construction, that is uncommitted for any purpose, intended to cover the
cost of unforeseen factors related to the construction which are not specifically addressed in the
budget.64 The Court therefore holds that the entire increased cost of P4,982,798.44 due to the unforeseen
necessity of change in flooring materials, should be included in the computation of the ARCC.

D.4. Half of Costs for CARI

As discussed above, the CARI in the amount of P4,361,291.3465 is supported by official receipts; hence, such
amount should be allowed to remain in the ARCC. Although the official receipts of the CARI appear to have
been issued in the name of Malayan and/or LANDEV, the minutes of the December 20, 2002 Bids and
Awards Committee Meeting, of which St. Francis' President Luke Roxas was a member, proves that it was
unanimously agreed upon that the CARI would be secured directly by the owner, Malayan. The official
receipts and the said minutes prove that the premium of the policy, as well as the renewals thereof, were
shouldered by Malayan as the owner of the project. Against the said substantial evidence of Malayan, the CA
and CIAC have no basis in ruling why the CARI should be split equally between Malayan and St. Francis.

D.5. Half of Costs for Interior Design Works

In resolving this issue, the CIAC noted that it is crucial to determine whether the disputed amount was spent
to improve the original design or to comply with St. Francis' commitments to the buyers. According to the
CIAC, force majeure (government log ban) also justified the change of flooring materials from wood parquet
to homogenous tiles and marble flooring. However, the difficulty in resolving this issue is that the increased
cost is not only because of the change of flooring materials, but also due to the change of specifications and
the inclusion of gym equipment. Thus, it is impossible to separate the increased cost arising from flooring
change and those from causes other than gym equipment which is worth P962,250.00 and the underlay of
plywood and rubber pads worth P96,967.73.

The CIAC noted that the budgeted amount for this item of P5,600,000.00 made by St. Francis was increased
to P9,000,000.00 in Malayan's budget, and that the difference of P3,400,000.00 reflects the increase from
unspecified causes such as supervening price increase. It added that both parties agreed on the increase
due to cost of glass doors, hardware and plumbing fixtures amounting to P2,100,415.00. It was convinced
that what is being contested by St. Francis is the increase in the actual cost (P14,150,324.73) vis-a-vis the
Effective Budget for Interior Design Works of P11,100,415.00 or a net increase of P3,049,909.73.

In view of the above stated difficulty in resolving this issue, the CIAC held that the total increase of
P3,049,909.73 as cost of interior design works should be equally shared by both parties (P1,524,954.86
each), as well as the cost of the gym equipment (P962,250.00) and the underlay of plywood and rubber
pads (P96,967.73), both amounting to P1,059,217.73. In sum, it allowed only P2,054,563.73 or half of the
total cost increase (P4,109,127.46) of such works to be included in the ARCC

Upon review of the records under Exhibit "R-48-series," the CA found that the official receipts show that the
total payment due was P12,642,152.52. It agreed with the CIAC that the increased cost for this item should
be divided equally between the parties, but reduced the amount to P1,508,172.21 66(or P754,086.10 each),
instead of P3,049,909.73. The CA did not also disturb the CIAC's ruling on the disallowance of one-half of
the cost of gym equipment and the underlay of plywood, and rubber pads. Having noted a discrepancy in
the total amount of P962,250.00 stated in Exhibit "C-3" [Cost to Complete as of 10 August 2006], the
adjusted contract price of P987,250.00, and the official receipts showing the total payment of P978,275.01,
the CA determined that the share of each of the parties should be P493,625.00.

Malayan claims that no explanation was given why the costs for interior design works had to be divided
equally between the parties. In any event, the said works were awarded in accordance with the MOA and St.
Francis' original marketing representations to the buyers of the pre-sold units, and they were proper and
necessary for the completion of the project. As regards the costs incurred for the gym equipment and the
underlay of plywood and rubber pads, they should be included in full in the ARCC because: (1) Section 6 of
the MOA provides that the project must have a "Gym/Lounge/Children's Play Area"; (2) the general
specifications of the project lists as one of the amenities a gym with equipment; and (3) St. Francis included
such amenities in the marketing brochures and fliers it gave to buyers of the pre-sold units.

The Court agrees with the CA and the CIAC rulings that the costs for interior design works should be
included in the computation of the ARCC, and that what is being contested is whether the net increase of
P3,049,909.73 from the original budget of PI 1,100,415.00. As correctly found by the CA based on the
official receipts, the net increase should only be P1,508,172.21. The Court also sustains the CA that such
increase should be equally divided between the parties (P754,086.10 each) due to the impossibility of
separating the increased cost arising from flooring change and those from causes (change of specifications)
other than gym equipment and the underlay of plywood and rubber pads.

However, there being no valid reason to extend such equal sharing of costs with respect to the gym items,
the Court reverses the CA and the CIAC in ruling that costs of the gym equipment (P962,250.00) and the
underlay of plywood and rubber (P96.967.73) amounting to P1,059,217.73 should be equally shared by the
parties. The Court, thus, holds that the full amount thereof should be included in the computation of the
ARCC.

D.6. Contingency Costs

The CIAC disallowed the amount of P2,000,000.00 in contingency costs to be included in the ARCC as they
are not directly related to the completion of the project. The CIAC noted that what was included in the ARCC
is the amount of P631,154.39 as payment for professional services and various expenses connected with the
claim for damages to the car that was hit by falling construction debris, but Malayan included the amount of
P2,000,000.00 in the ARCC. It added that Malayan, being insured under the CARI, should assert its claim
against the insurance company. If Malayan failed to do so, or if it was able to recover less than what it had
claimed, it would be unfair to pass on (to St. Francis) the amount it failed to claim by adding it as part of the
ARCC.

The CA upheld the CIAC's ruling that contingency costs in the amount of P631,154.39 should not be passed
on to St. Francis, considering that what was paid as damages and expenses was a consequence of an
incident that occurred when a falling debris hit the Volvo car owned by Celestra. The CA noted that Malayan
should assert its claim against the insurer to recover whatever damages it incurred in the course of the
construction project. It added that legal fees paid to lawyers who defended Malayan against the claim of one
Tan-Yee, cannot be considered actual construction cost, as no evidence was submitted relative thereto.

Malayan claims that the incident which led to the payment of contingency costs was construction-related
because a case was filed against it as a result of the incident and that a temporary restraining order (TRO)
was issued enjoining further construction works; hence, the engagement of lawyers was necessary to ensure
the immediate resumption of the construction project.

The Court sustains the CA in ruling that the contingency costs in the amount of P631,154.39 should not be
included in the computation of the ARCC. As duly noted by the CIAC and the CA, legal fees cannot be
considered as part of the ARCC, as they are not directly related to the completion of the project. Despite the
allegation that a TRO was issued, no proof of such order was presented by Malayan. Hence, such costs
should not be included as part of the ARCC, but should be charged against the party responsible for the
incident, or Malayan as the one responsible for the general supervision, management, control over the
project.

D.7. Costs Incurred/Paid after June 2006

The CIAC found it is unnecessary to resolve the issue: "What is the actual remaining construction cost to
complete the Project spend by [Malayan] as of today [20 January 2009] in excess of St. Francis' estimated
RCC?" Instead, it resolved the same issue based on Exhibit "C-3" which is the ARCC amounting to
P614,593,565.96 as of August 10, 2006. Noting that Exhibit "C-3" was prepared by Malayan itself and
submitted to St. Francis, and was close enough to June 7, 2006 when the project was completed, the CIAC
used such evidence as the basis upon which disallowances were to be made, in order to arrive at the ARCC
of P561,729,180.96.

The CA agreed with the CIAC that it is important to determine when the project was completed, as costs
incurred after the cut-off date should no longer be included in the computation of the ARCC, and that the
incontrovertible proof that the project was completed on June 7, 2006 is the Certificate of
Occupancy67 submitted by C.E. Manzanero, the duly-licensed architect of Malayan.
The Court finds no compelling reason to disturb the CA and the CIAC rulings that are consistent with Section
5 of the MOA which expressly states that the project "shall be deemed complete, and the obligation of
Malayan fulfilled, if the construction and development of Project is finished as certified by the architect of the
Project." Indeed, costs and expenses incurred after completion of the project cannot be considered as part
of the ARCC.

E. Entitlement to Reserved Units

As discussed and computed above, the Court holds that 30% of the reserved units should be allocated to
Malayan, while 70% should be allocated to St. Francis.

F. Income from Reserved Units

The CIAC held that income realized from rental of the reserved units during the period from June 7, 2006
and the present date, should be determined as having been received by Malayan in trust for such party that
would be determined to be the owner/s thereof. Considering its determination of the excess ARCC over the
RCC, the CIAC stated that the said income should be proportionately shared as follows: 37.8% for St.
Francis and 62.2% for Malayan. According to the CIAC, based on Sections 4 (a), (ii) (C) 68 and 4
(b),69 ownership of the reserved units is in doubt during the intervening period from completion of the
project and final determination of costs because of the phrases "shall be delivered to ASB" and "Malayan
shall be entitled." Clearly, that the ownership of the reserved units shall be determined only upon completion
of the project and the determination of the ARCC, because only then could it be computed if there is an
excess ARCC over the RCC.

The CIAC observed that had the computation been done on the completion date of the project on June 7,
2006, there would already have been an allocation of ownership over the reserved units. Since the
determination of the ARCC was doneonly almost three (3) years later during the arbitration proceedings, the
issue had arisen as to who between the parties is entitled to the rental income from the reserved units which
are deposited in the account of Malayan.

The CA agreed with the CIAC's ruling but modified the proportionate sharing of the reserved units, thus:
84% for Malayan and 16% for St. Francis. The CA explained that the income realized from rentals and sales
of reserved units from June 7, 2006 until the finality of this case shall be considered as having been received
by Malayan; thus, it must be subject to proper accounting in order to arrive at the proper sharing in
accordance with the general principles of equity, and pursuant to the said proportionate sharing ratio.

Malayan contends that as the owner of the project, it is entitled to all of the civil fruits, including the rents
from the lease of the reserved units. With respect to the accruing fruits, Malayan invokes Article 1187 70 of
the New Civil Code, and claims that it is entitled to appropriate all the fruits and interests realized from the
reserved units prior to the happening of two (2) suspensive conditions, i.e., the completion of the project
and the determination of the ARCC. Malayan adds that it is iniquitous to award St. Francis a share in the
income from the reserved units without making it share in the expenses and upkeep thereof.

The Court finds that Malayan's obligation to give the reserved units is unilateral because it was subject to 2
suspensive conditions, i.e., the completion of the project and the determination of the ARCC, the happening
of which are entirely dependent upon Malayan, without any equivalent prestation on the part of St. Francis.
Even if the obligation is unilateral, Malayan cannot appropriate all the civil fruits received because it could be
inferred from the nature and circumstances of the obligation that the intention of the person constituting the
same was different. Section 9(b) of the MOA states that in the event that Malayan shall pay additional cost
and expenses in excess of the RCC, it shall be entitled to such net saleable areas indicated in Schedule 4
that corresponds to the increase in the remaining construction costs, while St. Francis shall be entitled to
such remaining areas, if any.

As aptly noted by the CIAC, the determination of the ARCC should have been made upon the date of
completion of the project on June 7, 2006, but it was only about 3 years later during the arbitration
proceedings that such determination was done. Not until now has the issue of the correct computation of the
ARCC been finally resolved. Such long delay in the determination of the ARCC and the proportionate
distribution of units in the project could not have been the intention of the parties. The Court, therefore,
sustains the CA and the CIAC rulings that the income realized from the reserved units from the completion
date until present, should be considered as having been received by Malayan in trust for such party that
shall be determined to be the owner thereof. In light of the determination of the excess of the ARCC over
the RCC, the income should be proportionately shared as follows: 30% for Malayan and 70% for St. Francis.
Subject to proper accounting, upkeep expenses for the reserved units should also be shared by the parties
in the same proportion.

G. Counterclaims, Attorney's fees and Arbitration costs

Counterclaims

Having determined above that the ARCC does not exceed the RCC and the total aggregate value of the
reserved units, the Court joins the CA and the CIAC in ruling that Malayan is not entitled to its
counterclaims.

Attorney's fees

The CIAC denied for lack of factual or legal basis the parties' respective claims and counterclaims for the
award of attorney's fees. It noted that the parties failed to point out the contractual stipulation on attorney's
fees and expenses of litigation in support of their respective claims therefor. According to the CIAC, based on
its extensive discussions made in disposing the claims and counterclaims of the parties, it is clear that the
two exceptions71 under Article 2208 of the New Civil Code cited by St. Francis and Malayan do not obtain in
this case. The CIAC explained that Malayan's denial of St. Francis' claims cannot be characterized as made in
gross and evident bad faith, and that the disallowances of the ARCC in favor of St. Francis disprove that the
filing of the arbitration case was "clearly unfounded." The CA affirmed the CIAC.

Finding that none of the exceptions under Article 220872 of the New Civil Code is present in this case, the
Court agrees with the CA and the CIAC that the parties' claims for attorney's fees must be denied. As held
in ABS-CBN Broadcasting Corporation v. Court of Appeals:73 chanroble svirtuallawlibrary

The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that
no premium should be placed on the right to litigate. They are not to be awarded every time a party wins a
suit. The power of the court to award attorney's fees under Article 2208 demands factual, legal, and
equitable justification. Even when a claimant is compelled to litigate with third persons or to incur expenses
to protect his rights, still attorney's fees may not be awarded where no sufficient showing of bad faith could
be reflected in a party's persistence in a case other than an erroneous conviction of the righteousness of his
cause.

Arbitration costs

The CIAC held that arbitration costs shall be maintained at the same level as initially shared based on
the pro rata sharing in accordance with the amounts claimed and counterclaimed by the parties. Stating that
Section 1, Rule 14274 of the Rules of Court suppletorily applies to arbitration proceedings since there is no
corresponding provision in the CIAC rules of procedure, the CIAC ruled that there are good reasons to
maintain their initial pro rata sharing thereof, considering that their respective claims and counterclaims
have merits. Thus, it is just and equitable that both Malayan and St. Francis pay for their respective shares
based on proportionate cost or amount of the claim. In contrast, the CA ruled that arbitration costs shall be
maintained pro rata in accordance with the parties' respective shares in the reserved units.

After reviewing the conflicting rulings of the CIAC and the CA on arbitration costs, the Court finds the one
rendered by CIAC to be in accord with law. Unlike the CA's ruling which is based only on the MOA provision
on distribution and disposition of reserved units, the CIAC's ruling is based on the Amended Terms of
Reference (TOR) which specifically provides that the costs of arbitration shall be on a pro rata basis subject
to the determination of the CIAC which of the parties shall eventually shoulder such costs or the mode of
sharing thereof.75 chanroblesvirtuallawlibrary

Citing Section 1, Rule 142 of the Rules of Court, the CIAC found it just and equitable that both Malayan and
St. Francis pay for their respective shares based on the pro rata sharing in accordance with the amounts
claimed and counterclaimed by the parties. Under the amended TOR, the Summary of Claims/Counterclaims
and the arbitration expenses are as follows:

CLAIMANT [St. Francis]


Value of Reserved Units P 139,519,969.17
being claimed 41,190.550.59
P 180,710,519.76
Income 21,150,659.33
Attorney's fees 300,000.00
P 202,161,179.09
RESPONDENT [Malayan]
Actual damages
P24,653,196.08
Attorney's fees
2,000,000.00
P 26,653,196.08
TOTAL SUM IN DISPUTE

P 228,814,375.17

xxxx

IX ARBITRATION EXPENSES BASED ON


A SUM IN DISPUTE OF P228,814,375.17
Filing Fee P 91,009.98
Administrative Fee 92,329.98
Arbitrator's Fees 629,566.60
ADF 214,566.60
TOTAL P 1,064,517.3876
Based on the parties' claims and counterclaims involving the total disputed sum of P228,814,375.17, the
arbitration expenses in the total amount of P1,064,517.38 should be shared in the following proportion:

1. St. Francis:P202,161,179.09/P228,814,375.17=0.88 x P1,064,517.38 =P936,775.29


2. Malayan: P26,653,196.08/P228,814,375.17=0.12xP1,064,517.38 = 127,742.09
Total Arbitration Expenses = P1,064,517.38

WHEREFORE, premises considered, the Court of Appeals Decision dated January 27, 2011 in CA-G.R. SP
Nos. 109286 and 109298, is AFFIRMED with the following MODIFICATIONS:

1) The total amount of P57,474,561.39 should be deducted and excluded from the gross Actual Remaining
Construction Cost (ARCC) of P562,866,135.02 to arrive at the net ARCC of P505,391,573.63;

2) Malayan is entitled to 30% ownership over the reserved units (P52,966,724.63/P175,856,325.05),


together with the corresponding interest in the income realized thereon in the same proportion; while St.
Francis is entitled to 70% (P122,889,598.42/P175,856,325.05) ownership of the said units, as well as to its
corresponding share in the said income. The distribution of the parties' proportionate share in the units shall
be made by drawing of lots;

3) Malayan is directed to deliver possession and transfer title over the reserved units in the proportion
above stated, to pay St. Francis its proportionate share of the income from the reserved units reckoned from
the date of the completion of the project on June 7, 2006 up to the finality of this decision, and to render full
accounting of all the upkeep expenses, rentals and such other income derived from the reserved units so
awarded to St. Francis;

4) Arbitration costs are maintained pursuant to the pro rata sharing that the parties had initially shared in
accordance with the amounts claimed and counterclaimed by them, namely, St. Francis: P936,775.29; and
Malayan: P 127,742.09;

5) Malayan and all others claiming rights under it, are enjoined from exercising acts of ownership over the
reserved units relative to the proportionate share awarded to St. Francis;

6) The Register of Deeds of Pasig City is directed to immediately reinstate the name of St. Francis Square
Realty Corporation (formerly ASB Realty Corporation) as the registered owner in the corresponding
Condominium Certificates of Title covering the reserved units awarded to St. Francis; and

7) All other awards granted by CIAC in its Award dated May 27, 2009 which are not affected by the above
modifications are affirmed. No costs.

SO ORDERED. cralawla wlibrary

Velasco, Jr., (Chairperson), Villarama, Jr., Reyes, and Jardeleza, JJ., concur. cralawla wlib

FIRST DIVISION

G.R. No. 212070, January 20, 2016

CEBU PEOPLE'S MULTIPURPOSE COOPERATIVE AND MACARIO G.


QUEVEDO, Petitioners, v.NICERATO E. CARBONILLA, JR., Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated June 25, 2013 and the
Resolution3 dated March 17, 2014 of the Court of Appeals (CA) in CA-G.R. CEB SP No. 05403, which
reversed and set aside the Decision4 dated April 29, 2010 and the Resolution5 dated June 30, 2010 of the
National Labor Relations Commission (NLRC) in NLRC Case No. VAC-10-000977-2009, and accordingly,
declared respondent Nicerato E. Carbonilla, Jr. (Carbonilla, Jr.) to have been illegally dismissed by petitioner
Cebu People's Multi-Purpose Cooperative (CPMPC). chanRoble svirtualLawlibrary

The Facts

On November 14, 2005, CPMPC hired Carbonilla, Jr. as a Credit and Collection Manager and, as such, was
tasked with the handling of the credit and collection activities of the cooperative, which included
recommending loan approvals, formulating and implementing credit and collection policies, and conducting
trainings.6 Sometime in 2007, CPMPC underwent a reorganization whereby Carbonilla, Jr. was also assigned
to perform the duties of Human Resources Department (HRD) Manager, i.e., assisting in the personnel
hiring, firing, and handling of labor disputes. 7 In 2008, he was appointed as Legal Officer and subsequently,
held the position of Legal and Collection Manager.8 chanroblesvirtuallawlibrary

However, beginning February 2008, CPMPC, through its HRD Manager, Ma. Theresa R. Marquez (HRD
Manager Marquez), sent various memoranda to Carbonilla, Jr. seeking explanation on the various infractions
he allegedly committed. The aforesaid memoranda, as well as his replies thereto, are detailed as follows:

CPMPC S MEMORANDA: CARBONILLA, JR.'S REPLIES:


HRD 202 File 2008.02.19.017 He claimed that he was belatedly
dated February 19, 20089 - informed and was not given any
Memorandum relative to his non- written notification of the said
attendance to the CLIMBS HOME meeting, and that he did not find any
PROTEK Dinner Meeting. relation of the said meeting to his
job as a Legal Officer.10
HRD 202 File 2008.02.26.034 No reply.
dated February 26, 2008 - 11

Memorandum relative to his non-


submission of Weekly Executive
Summary Reports and Itinerary for
the months of January and February.
HRD 202 File 2008.02.26.035 He stated that there was no policy
dated February 26, 200812 - requiring field collectors to own - in a
Memorandum on why he allowed strict legal sense - a motorcycle, but
Joelito Aguipo (Aguipo), a merely to possess the same so he
contractual collector for the can effect collections more
Bantayan Branch, to drive a efficiently. Besides, Aguipo was
motorcycle without a driver's license allowed to drive due to the urgency
and not being the owner thereof. of collecting from the Bantayan
Branch. In any case, there is an
Affidavit of
Undertaking13 exonerating CPMPC
from any liability.14
HRD 202 File 2008.02.26.036 He sought clarification of the charges
dated February 26, 200815 - against him, and at the same time,
Memorandum on why he failed to: threatened HRD Manager Marquez
(a) account for a motorcycle being that if this Memorandum is "proven
used by a former employee under his malicious, [she] might be
branch; and (b) reclassify the vehicle answerable to a certain degree of
of another employee. civil liability which the 1987
Constitution has given to
individuals."16
HRD 202 File 2008.06.26.086 He dismissed the charge as made
dated June 26, 200817 - with malicious intent and aimed to
Memorandum on why he insulted his discredit his person, claiming that he
superior, CPMPC Chief Operation only had a discussion with his
Officer Agustina L. Bentillo (COO superior, particularly, about Alfonso
Bentillo), in front of her Vasquez (Vasquez), who was
subordinates, with the unsystematically pulled out from his
statement: "Ikaw ra may di mosalig department without his consent. He
ba, ka kwalipikado adto niya, maski added that if COO Bentillo was
mag contest pa mo, lupigon gani indeed offended by his remarks, then
ka"18 or "You're the only one who it should not have taken almost a
doesn't trust her, she is very month before his attention was
qualified, you even lose in called regarding the matter.20
comparison to her."19
HRD 202 File 2008.06.26.087 Citing the Philippine Law Dictionary,
dated June 26, 200821 - he explained that "[ijnsubordination
Memorandum on his alleged acts of means a quality or state of being
insubordination and gross disrespect insubordinate to a person in
when he questioned the authority of authority." He maintained that he did
HRD Manager Marquez to refuse the not commit insubordination as he
hiring of a new staff. merely sought clarification about the
deferment of the hiring of a working
student by HRD Manager Marquez
despite having prior approval of
CPMPC Chief Executive Officer
(CEO), petitioner Macario G.
Quevedo (CEO Quevedo).22
HRD 202 File 2008.06.26.088 Reiterating the definition of
dated June 26, 200823 - "insubordination" in Philippine Law
Memorandum on his alleged acts of Dictionary, he maintained that his
insubordination and gross disrespect act of clarifying with the CEO the
when he insisted before CEO policy on hiring working students did
Quevedo that he had the authority not constitute insubordination, but
as Legal and Collection Manager to rather, was made in the exercise of
hire a new staff. his right to express.24
HRD 202 File 2008.06.27.091 He only reviewed the subject
dated June 27, 2008 - 25
documents and they were never
Memorandum asking Carbonilla, Jr. entrusted to him for safekeeping.27
to turn-over to the officer-in-charge
custody of the following documents:
Banco de Oro contract on staff loans,
CPMPC firearm contracts and
licenses, branch offices rentals, and
others.26
HRD 202 File 2008.07.03.094 He interposed the following
dated July 3, 200828 - defenses:29 (a) he was not
Memorandum on his alleged acts of responsible for employment
gross negligence in: (a) failing to assessments having been transferred
submit the employment assessment to the Legal Department; (b) as then
of one Marcelina M. Remonde HRD Manager, it was within his
(Remonde); (b) promoting one Mary discretion to promote Batain whose
Grace R. Batain (Batain) despite lack appointment has been previously
of any performance appraisal; (c) concurred in by the CEO; (c) he was
failing to report the shortage of not informed of the shortage
Batain amounting to P108,254.55; committed by Batain nor was it
(d) disseminating a wrong schedule within his primary obligation to
of mediation activity which caused disclose the same; (d) the printing of
confusion and pressure among invitation was managed only by his
branch managers; (e) failing to legal assistant, Joel Semblante
annotate the encumbrance on the (Semblante) and Vasquez. However,
certificate of title offered as collateral the latter was unexpectedly
to CPMPC; (f) failing to review and transferred to another job
verify its contract with the BISDA assignment, leaving only Semblante
Security Agency (agency) which to do the job, which may have
exposed CPMPC to third-party caused the unintentional
liability for failure of the agency to mistake;30] (e) a certain Brenda Dela
remit the Social Security System, Cruz was the one responsible for the
Philhealth and Pag-IBIG premiums of annotation of the encumbrances of
its security guards to the real and personal properties; if) he
government; (g) failing to inform the was not responsible for the review of
branch managers of any settlements the contract between the agency and
or compromise agreements entered its security guards as CPMPC had no
into by the head office resulting in employer-employee relationship with
confusion as to payments; and (h) them; (g) he was unaware of the
failing to submit to HRD Manager complaints of the branch managers
Marquez the status of the firearms regarding the payment confusion as
and licenses assigned to the branch a result of settlements or
managers. compromise agreements; and (h) it
was not his duty to determine the
status, custody, and licenses of the
firearms.31
HRD 202 File 2008.07.04.095 His acts did not constitute gross
dated July 4, 200832 - misconduct, gross disrespect, or loss
Memorandum on the allegations he of trust and confidence as he only
made against the CEO during the questioned the suspicious
Board of Directors' inquiry hearing, transactions of CEO Quevedo
which constituted gross misconduct, regarding the sale of a titled parcel
gross disrespect, and loss of trust of land owned by the cooperative for
and confidence. an inadequate consideration. He then
added that as a member of CPMPC,
he has the right to demand
transparency of all the transactions
made by CEO Quevedo, of which its
consequences will affect the
cooperative.33
HRD 202 File 2008.07.08.098 The said meeting was scheduled
dated July 8, 200834 - outside the regular meeting day and
Memorandum on his failure to attend he was only informed about it on the
the management and operations day of the meeting at which time, he
committee meeting held on July 7, was personally handling collection
2008 despite prior notices. cases.35
HRD 202 File 2008.07.09.103 He admitted that as head of the
dated July 9, 200836 - Legal Department, he endorsed the
Memorandum relative to the documents for notarization to his
mediation settlements which were friend who only charged P50.00 per
forwarded for notarization to one document as compared to the legal
Atty. Mioza who is not the retainers who charged P100.00 per
authorized legal retainer of CPMPC. document. He added that "[t]he
same is more advantageous and
secured rather than having it
notarized- by a 'murio-murio' notary
public at the back of the Cebu City
Hall."37
HRD 202 File 2008.07.09.104
dated July 9, 200838 - The two cases were re-filed before
Memorandum on his failure to the Regional Trial Court on May 29,
update the CEO and management 2008 as the amounts involved were
committee of the dismissal of the beyond the jurisdiction of the
cases filed by CPMPC against Municipal Trial Court (MTC). He also
Spouses Alex and Alma Monisit in explained that he was not aware of
Civil Case No. R-52633 and against the filing of these cases before the
Spouses Helen and Rogelio Lopez in MTC as he was occupying the
Civil Case No. R-53274. position of the HRD Manager at that
time.39

HRD 202 File 2008.07.15.106 He explained that as head of the


dated July 15, 200840 - Legal Department, he was
Memorandum relative to Carbonilla, responsible for the proper disposal of
Jr.'s instruction to Semblante to pull all legal documents and contracts,
out important records and vital and the cancellation of said
documents, i.e., Compromise/ documents were done to protect the
Settlement Agreement, Mediation interest of the cooperative.
Tracking Form, Agreement to Moreover, he claimed that the
Mediate, Mediator's Report, erasures were caused by the
Evaluation of Mediation, among cancellation of the notarial
others, from the head office without subscription since Carbonilla, Jr.
the knowledge and approval of the found the requirements of the notary
management, which documents were public - which required all 125
later on returned tampered and respondents to appear personally
altered. and present their community tax
certificates - impractical. Moreover,
he claimed that the cancellation of
the documents "was not for the
purpose of falsifying or tampering
the same[,] but merely to protect
the interest of the cooperative
against possible sanctions [or]
circulating bogus documents."41
HRD 202 File 2008.07.16.107 The delay in liquidation was due to
dated July 16, 200842 - the "agreement" he had with the
Memorandum relative to the notary public about the disposition of
unliquidated cash advances of the the notarized documents. He claimed
notarial transactions of the that in the afternoon of the same
mediation agreements.43 day, he turned over the amount of
P6,250.00 to the Accounting
Department.44
HRD 202 File 2008.07.19.111 No reply.
dated July 19, 2008 - 45

Memorandum on the alleged


tampering and loss of CPMPC's vital
records and documents, i.e., two (2)
copies of the compromise settlement
agreement.

Unconvinced by Carbonilla, Jr.'s explanations, CPMPC scheduled several clarificatory hearings, 46 but the
former failed to attend despite due notice.47 Later, CPMPC conducted a formal investigation where it
ultimately found Carbonilla, Jr. to have committed acts prejudicial to CPMPC's interests. 48 As such, CPMPC,
CEO Quevedo, sent Carbonilla, Jr. a Notice of Dismissal 49 dated August 5, 2008 informing the latter of his
termination on the grounds of: (a) loss of trust and confidence; (b) gross disrespect; (c) serious
misconduct; (d) gross negligence; (e) commission of a crime of falsification/inducing Aguipo to violate the
law or the Land Transportation and Traffic Code; and (e) committing acts highly prejudicial to the interest of
the cooperative.50chanroblesvirtuallawlibrary

Consequently, Carbonilla, Jr. filed the instant case for illegal dismissal, non-payment of salaries, 13th month
pay, as well as damages and backawages, against CPMPC, before the NLRC, docketed as NLRC RAB VII-08-
1856-2008.51 In support of his claims, Carbonilla, Jr. denied the administrative charges against him,
asserting that the Management and Board of Directors of CPMPC merely orchestrated means to unjustly
dismiss him from employment.52 chanroble svirtuallawlibrary

In defense, CPMPC maintained that the totality of Carbonilla, Jr.'s infractions was sufficient to warrant his
dismissal, and that it had complied with the procedural due process in terminating him. 53 Further, CPMPC
pointed out that Carbonilla, Jr. had been fully paid of all his benefits, notwithstanding his unsettled
obligations to it in the form of loans, insurance policy premiums, and cash advances, among others,
amounting to a total of P129,455.00.54 chanRoble svirtualLawlibrary

The LA Ruling
In a Decision55 dated July 1, 2009, the Labor Arbiter (LA) dismissed Carbonilla, Jr.'s complaint for lack of
merit.56 The LA found that Carbonilla, Jr. committed a litany of infractions, the totality of which constituted
just cause for the termination of his employment. 57 Likewise, it was determined that CPMPC afforded
Carbonilla, Jr. procedural due process prior to his termination, as evinced by the former's issuance of a
series of memoranda, as well as its conduct of investigation with notices to the latter.58 Furthermore, the LA
denied his claims for unpaid salaries and 13th month pay, as records show that the aggregate amount of his
monetary claims is not even enough to pay his accountabilities to CPMPC in the total amount of
P129,455.00.59 chanroble svirtuallawlibrary

Aggrieved, Carbonilla, Jr. appealed to the NLRC, which was docketed as NLRC Case No. VAC-10-000977-
2009.60chanRoblesvirtualLa wlibrary

The NLRC Ruling

In a Decision61 dated April 29, 2010, the NLRC affirmed the LA ruling. It found CPMPC to have substantially
proven the existence of just causes in dismissing Carbonilla, Jr., i.e., abuse of authority; disrespect to his
colleagues and superiors; being remiss in his duties; and commission of acts of misrepresentation. 62 It
further held that Carbonilla, Jr. was given the opportunity to present his side and to disprove the charges
against him, but failed to do so.63 Finally, the NLRC explained that while Carbonilla, Jr. may indeed be
entitled to his claims for unpaid salaries and 13th month pay, the same cannot be granted as his
accountabilities with CPMPC were larger than said claims.64 chanroblesvirtuallawlibrary

Carbonilla, Jr. moved for reconsideration,65 which was, however, denied in a Resolution66 dated June 30,
2010. Undaunted, he elevated the matter to the CA via a petition for certiorari.67 chanRoblesvirtualLa wlibrary

The CA Ruling

In a Decision68 dated June 25, 2013, the CA reversed and set aside the NLRC ruling and accordingly, ordered
Carbonilla, Jr.'s reinstatement and the remand of the case to the LA for the computation of his full
backwages, inclusive of allowances and other benefits, as well as attorney's fees. 69 It held that the NLRC
gravely abused its discretion in declaring Carbonilla, Jr.'s dismissal as valid, considering that, other than
CPMPC's series of memoranda and self-serving allegations, it did not present substantial documents to
support a conclusion that would warrant Carbonilla, Jr.'s valid dismissal. 70 In fine, CPMPC failed to discharge
the burden of proving that Carbonilla, Jr.'s dismissal was for just causes. 71 chanroblesvirtuallawlibrary

Dissatisfied, petitioners moved for reconsideration,72 but the same was denied in a Resolution73 dated March
17, 2014; hence, this petition. chanRoble svirtualLawlibrary

The Issue Before the Court

The core issue for the Court's resolution is whether or not the CA correctly ascribed grave abuse of
discretion on the part of the NLRC in ruling that Carbonilla, Jr.'s dismissal was valid. chanRoblesvirtualLa wlibrary

The Court's Ruling

The petition is impressed with merit.

To justify the grant of the extraordinary remedy of certiorari, petitioner must satisfactorily show that the
court or quasi-judicial authority gravely abused the discretion conferred upon it. Grave abuse of discretion
connotes a capricious and whimsical exercise of judgment, done in a despotic manner by reason of passion
or personal hostility, the character of which being so patent and gross as to amount to an evasion of positive
duty or to a virtual refusal to perform the duty enjoined by or to act at all in contemplation of law. 74 chanroblesvirtuallawlibrary

In labor disputes, grave abuse of discretion may be ascribed to the NLRC when, inter alia, its findings and
conclusions are not supported by substantial evidence, or that amount of relevant evidence which a
reasonable mind might accept as adequate to justify a conclusion. 75 chanroblesvirtuallawlibrary

Guided by the foregoing considerations, the Court finds that the CA committed reversible error in granting
Carbonilla, Jr.'s certiorari petition since the NLRC did not gravely abuse its discretion in ruling that he was
validly dismissed from employment as CPMPC was able to prove, through substantial evidence, the existence
of just causes warranting the same.

Basic is the rule that an employer may validly terminate the services of an employee for any of the just
causes enumerated under Article 296 (formerly Article 282) of the Labor Code, 76 namely:

(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or
representative in connection with his work;

(b) Gross and habitual neglect by the employee of his duties;

(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized
representative;

(d) Commission of a crime or offense by the employee against the person of his employer or any immediate
member of his family or his duly authorized representatives; and

(e) Other causes analogous to the foregoing.

As may be gathered from the tenor of CPMPC's Notice of Dismissal, it is apparent that Carbonilla, Jr.'s
employment was terminated on the grounds of, among others, serious misconduct and loss of trust and
confidence.77chanroble svirtuallawlibrary

On the first ground, case law characterizes misconduct as a transgression of some established and definite
rule of action, a forbidden act, a dereliction of duty, willful in character and implies wrongful intent and not
mere error in judgment.78 For misconduct to be considered as a just cause for termination, the following
requisites must concur: (a) the misconduct must be serious; (b) it must relate to the performance of the
employee's duties showing that the employee has become unfit to continue working for the employer; and
(c) it must have been performed with wrongful intent. 79 chanroblesvirtuallawlibrary

All of the foregoing requisites have been duly established in this case. Records reveal that Carbonilla, Jr.'s
serious misconduct consisted of him frequently exhibiting disrespectful and belligerent behavior, not only to
his colleagues, but also to his superiors. He even used his stature as a law graduate to insist that he is
"above" them, often using misguided legalese to weasel his way out of the charges against him, as well as
to strong-arm his colleagues and superiors into succumbing to his arrogance. Carbonilla, Jr.'s obnoxious
attitude is highlighted by the following documents on record: (a) his reply to HRD 202 File 2008.02.26.036
dated February 26, 2008 wherein he threatened HRD Manager Marquez with a lawsuit, stating that if the
memorandum is "proven malicious, [she] might be answerable to a certain degree of civil liability which the
1987 Constitution has given to individuals";80 (b) HRD 202 File 2008.06.26.086 dated June 26,
200881 wherein he berated COO Bentillo in front of her subordinates with the statement: "[I]kaw ra may di
mosalig ba, ka kwalipikado adto niya, maski mag contest pa mo, lupigon gani ka"82 or "[y]ou're the only one
who doesn't trust her, she is very qualified, you even lose in comparison to her[,]" 83 and his reply thereto
wherein he dismissed the charge as made with malicious intent and aimed to discredit his person; 84 (c) HRD
202 File 2008.06.26.088 dated June 26, 200885 wherein he argued with the CEO Quevedo, insisting that he
had the authority to hire a new staff, and his reply thereto where he cited the Philippine Law Dictionary to
maintain that his act did not amount to insubordination; 86 (d) HRD 202 File 2008.06.26.087 dated June 26,
2008 wherein he openly questioned the authority of HRD Manager Marquez in refusing to hire a new staff
and his reply thereto where he again cited the Philippine Law Dictionary to insist that he did not commit acts
of insubordination;88 and (e) HRD 202 File 2008.07.04.095 dated July 4, 200889 wherein he openly and
improperly confronted the CPMPC CEO during a Board of Directors' inquiry hearing, to which he again
maintained that his acts did not constitute misconduct, gross disrespect, and loss of trust and confidence as
he was only looking after the welfare of the cooperative. 90 chanroble svirtuallawlibrary

Indisputably, Carbonilla, Jr.'s demeanor towards his colleagues and superiors is serious in nature as it is not
only reflective of defiance but also breeds of antagonism in the work environment. Surely, within the bounds
of law, management has the rightful prerogative to take away dissidents and undesirables from the
workplace. It should not be forced to deal with difficult personnel, especially one who occupies a position of
trust and confidence, as will be later discussed, else it be compelled to act against the best interest of its
business. Carbonilla, Jr.'s conduct is also clearly work-related as all were incidents which sprung from the
performance of his duties. Lastly, the misconduct was performed with wrongful intent as no justifiable
reason was presented to excuse the same. On the contrary, Carbonilla, Jr. comes off as a smart aleck who
would even go to the extent of dangling whatever knowledge he had of the law against his employer in a
combative manner. As succinctly put by CPMPC, "[e]very time [Carbonilla, Jr.'s] attention was called for
some inappropriate actions, he would always show his Book, Philippine Law Dictionary and would ask the
CEO or HRD Manager under what provision of the law he would be liable for the complained action or
omission."91 Irrefragably, CPMPC is justified in no longer tolerating the grossly discourteous attitude of
Carbonilla, Jr. as it constitutes conduct unbecoming of his managerial position and a serious breach of order
and discipline in the workplace.92 chanroble svirtuallawlibrary

With all these factored in, CPMPC's dismissal of Carbonilla, Jr. on the ground of serious misconduct was
amply warranted.

For another, Carbonilla, Jr.'s dismissal was also justified on the ground of loss of trust and confidence.
According to jurisprudence, loss of trust and confidence will validate an employee's dismissal when it is
shown that: (a) the employee concerned holds a position of trust and confidence; and (b) he performs an
act that would justify such loss of trust and confidence. 93 There are two (2) classes of positions of
trust: first, managerial employees whose primary duty consists of the management of the establishment in
which they are employed or of a department or a subdivision thereof, and to other officers or members of
the managerial staff; and second, fiduciary rank-and-file employees, such as cashiers, auditors, property
custodians, or those who, in the normal exercise of their functions, regularly handle significant amounts of
money or property. These employees, though rank-and-file, are routinely charged with the care and custody
of the employer's money or property, and are thus classified as occupying positions of trust and
confidence.94chanroble svirtuallawlibrary

Records reveal that Carbonilla, Jr. occupied a position of trust and confidence as he was employed as Credit
and Collection Manager, and later on, as Legal and Collection Manager, tasked with the duties of, among
others, handling the credit and collection activities of the cooperative, which included recommending loan
approvals, formulating and implementing credit and collection policies, and conducting trainings. 95 With such
responsibilities, it is fairly evident that Carbonilla, Jr. is a managerial employee within the ambit of the first
classification of employees afore-discussed. The loss of CPMPC's trust and confidence in Carbonilla, Jr., as
imbued in that position, was later justified in light of the latter's commission of the following acts: (a) the
forwarding of the mediation settlements for notarization to a lawyer who was not the authorized legal
retainer of CPMPC (HRD 202 File 2008.07.09.103 dated July 9, 2008 96); (b) the pull-out of important records
and vital documents from the office premises, which were either lost or returned already tampered and
altered (HRD 202 File 2008.07.15.106 dated July 15, 200897 and HRD 202 File 2008.07.19.111 dated July
19, 200898); and (c) the incurring of unliquidated cash advances related to the notarial transactions of the
mediation agreements (HRD 202 File 2008.07.16.107 dated July 16, 2008 99). While Carbonilla, Jr. posited
that these actuations were resorted with good intentions as he was only finding ways for CPMPC to save up
on legal fees, this defense can hardly hold, considering that all of these transactions were not only highly
irregular, but also done without the prior knowledge and consent of CPMPC's management. Cast against this
light, Carbonilla, Jr.'s performance of the said acts therefore gives CPMPC more than enough reason to lose
trust and confidence in him. To this, it must be emphasized that "employers are allowed a wider latitude of
discretion in terminating the services of employees who perform functions by which their nature require the
employer's full trust and confidence. Mere existence of basis for believing that the employee has breached
the trust and confidence of the employer is sufficient and does not require proof beyond reasonable doubt.
Thus, when an employee has been guilty of breach of trust or his employer has ample reason to distrust
him, a labor tribunal cannot deny the employer the authority to dismiss him," 100 as in this case.

Perforce, having established the actual breaches of duty committed by Carbonilla, Jr. and CPMPC's
observance of due process, the Court no longer needs to further examine the other charges against
Carbonilla, Jr., as it is already clear that the CA erred in ascribing grave abuse of discretion on the part of the
NLRC when the latter declared that CPMPC validly dismissed Carbonilla, Jr. from his job. The totality and
gravity of Carbonilla, Jr.'s infractions throughout the course of his employment completely justified CPMPC's
decision to finally terminate his employment. The Court's pronouncement in Realda v. New Age Graphics,
Inc.101 is instructive on this matter, to wit:

The totality of infractions or the number of violations committed during the period of
employment shall be considered in determining the penalty to be imposed upon an erring
employee. The offenses committed by petitioner should not be taken singly and separately.
Fitness for continued employment cannot be compartmentalized into tight little cubicles of
aspects of character, conduct and ability separate and independent of each other. While it may be
true that petitioner was penalized for his previous infractions, this does not and should not mean that his
employment record would be wiped clean of his infractions. After all, the record of an employee is a relevant
consideration in determining the penalty that should be meted out since an employee's past misconduct and
present behavior must be taken together in determining the proper imposable penalty[.] Despite the
sanctions imposed upon petitioner, he continued to commit misconduct and exhibit undesirable behavior on
board. Indeed, the employer cannot be compelled to retain a misbehaving employee, or one who
is guilty of acts inimical to its interests. 102 (Emphases and underscoring supplied)

On a final point, the Court notes that Carbonilla, Jr.'s award of unpaid salaries and 13th month pay were
validly offset by his accountabilities to CPMPC in the amount of P129,455.00. 103 Pursuant to Article 1278104 in
relation to Article 1706105 of the Civil Code and Article 113 (c)106 of the Labor Code, compensation can take
place between two persons who are creditors and debtors of each other.107Considering that Carbonilla, Jr.
had existing debts to CPMPC which were incurred during the existence of the employer-employee
relationship, the amount which may be due him in wages was correctly deducted therefrom.

WHEREFORE, the petition is GRANTED. The Decision dated June 25, 2013 and the Resolution dated March
17, 2014 of the Court of Appeals in CA-G.R. CEB SP No. 05403 are hereby REVERSED and SET ASIDE.
Accordingly, the Decision dated April 29, 2010 and the Resolution dated June 30, 2010 of the National Labor
Relations Commission in NLRC Case No. VAC-10-000977-2009 declaring respondent Nicerato E. Carbonilla,
Jr. to have been validly dismissed by petitioner Cebu People's Multi-Purpose Cooperative are REINSTATED.

SO ORDERED.

Sereno, C.J., (Chairperson), Leonardo-De Castro, Bersamin, and Jardeleza, JJ., concur.

FIRST DIVISION

G.R. No. 160408, January 11, 2016

SPOUSES ROBERTO AND ADELAIDA PEN, Petitioners, v. SPOUSES SANTOS AND LINDA
JULIAN, Respondents.

DECISION

BERSAMIN, J.:

The petitioners who were the buyers of the mortgaged property of the respondents seek the reversal of the
decision promulgated on October 20, 2003,1 whereby the Court of Appeals (CA) affirmed with modification
the adverse judgment rendered on August 30, 1999 by the Regional Trial Court (RTC), Branch 77, in Quezon
City.2 In their respective rulings, the CA and the RTC both declared the deed of sale respecting the
respondents' property as void and inexistent, albeit premised upon different reasons. chanRoblesvirtualLawlibrary

Antecedents

The CA summarized the antecedent facts and procedural matters in its assailed decision as follows:

On April 9, 1986, the appellees (the Julians) obtained a P60,000.00 loan from appellant Adelaida Pen,
additional P50k and P10k with interest at 6% per annum. On May 23, 1986 and on the (sic) May 27, 1986,
they were again extended loans in the amounts of P50,000.00 and PI0,000.00, respectively by appellant
Adelaida. The initial interests were deducted by appellant Adelaida, (1) P3,600.00 from the P60,000.00 loan;
(2) P2,400.00 from the P50,000.00 loan; and (3) P600.00 from the PI0,000.00 loan. Two (2) promissory
notes were executed by the appellees in favor of appellant Adelaida to evidence the foregoing loans, one
dated April 9, 1986 and payable on June 15, 1986 for the P60,000.00 loan and another dated May 22, 1986
payable on July 22, 1986 for the P50,000.00 loan. Both loans were charged interest at 6% per month. As
security, on May 23, 1986, the appellees executed a Real Estate Mortgage over their property covered by
TCT No. 327733 registered under the name of appellee Santos Julian, Jr. The owner's duplicate of TCT No.
327733 was delivered to the appellants.

Appellant's version of the subsequent events run as follows: When the loans became due and demandable,
appellees failed to pay despite several demands. The appellees offered the mortgaged property as payment
in kind. They executed a deed of sale and the title to the property was transferred to the appellants.
As such, appellant Adelaida decided to institute foreclosure proceedings. However, she was prevailed upon
by appellee Linda not to foreclose the property because of the cost of litigation and since it would cause her
embarrassment as the proceedings will be announced in public places at the City Hall, where she has many
friends. Instead, appellee Linda offered their mortgaged property as payment in kind. After the ocular
inspection, the parties agreed to have the property valued at P70,000.00. Thereafter, on October 22, 1986
appellee executed a two (2) page Deed of Sale duly signed by her on the left margin and over her printed
name. After the execution of the Deed of Sale, appellant Pen paid the capital gains tax and the required real
property tax. Title to the property was transferred to the appellants by the issuance of TCT No. 364880 on
July 17, 1987. A reconstituted title was also issued to the appellants on July 09, 1994 when the Quezon City
Register of Deeds was burned (sic).

On July 1989, appellants allege that appellee Linda offered to repurchase the property to which the former
agreed at the repurchase price of P436,115.00 payable in cash on July 31, 1989. But failed to repurchase.
The appellees failed to repurchase on the agreed date. On February 1990, appellees again offered to
repurchase the property for the same amount, but they still failed to repurchase. On June 28, 1990, another
offer was made to repurchase the property for the same amount. Appellee Linda offered to pay P100,000.00
in cash as sign of good faith. The offer was rejected by appellant Adelaida. The latter held the money only
for safekeeping upon the pleading of appellee Linda. Upon the agreement of the parties, the amount of
P100,000.00 was deducted from the balance of the appellees' indebtedness, so that as of October 15, 1997,
their unpaid balance amounted to P319,065.00. Appellants allege that instead of paying [the] said balance,
the appellees instituted on September 8, 1994 the civil complaint and filed an adverse claim and lis pendens
which were annotated at the back of the title to the property.

On the other hand, the appellees aver the following: At the time the mortgage was executed, they were
likewise required by the appellant Adelaida to sign a one (1) page document purportedly an "Absolute Deed
of Sale". Said document did not contain any consideration, and was "undated, unfilled and unnotarized". And
that Adelaida refused to receive their payments, they were just informed that their title over the property
was transferred to Adelaida. They allege that their total payments amounted to P115,400.00 and that their
last payment was on June 28, 1990 in the amount of P100,000.00.

In December 1992, appellee Linda Julian offered to pay appellant Adelaida the amount of PI50,000.00. The
latter refused to accept the offer and demanded that she be paid the amount of P250,000.00. Unable to
meet the demand, appellee Linda desisted from the offer and requested that she be shown the land title
which she conveyed to the appellee Adelaida, but the latter refused. Upon verification with the Registry of
Deeds of Quezon City, she was informed that the title to the mortgaged property had already been
registered in the name of appellee Adelaida under TCT No. 364880, and that the transfer was entered on
July 17, 1987. A reconstituted title, TCT No. RT-45272 (364880), also appeared on file in the Registry of
Deeds replacing TCT No. 364880.

By reason of the foregoing discoveries, appellee filed an Affidavit of Adverse Claim on January 1993. Counsel
for the appellees, on August 12, 1994, formally demanded the reconveyance of the title and/or the property
to them, but the appellants refused. In the process of obtaining other documents; the appellees also
discovered that the appellants have obtained several Declarations of Real Property, and a Deed of Sale
consisting of two (2) pages which was notarized by one Atty. Cesar Ching. Said document indicates a
consideration of P70,000.00 for the lot, and was made to appear as having been executed on October 22,
1986. On September 8, 1994, appellees filed a suit for the Cancellation of Sale, Cancellation of Title issued
to the appellants; Recovery of Possession; Damages with Prayer for Preliminary Injunction. The complaint
alleged that appellant Adelaida, through obvious bad faith, maliciously typed, unilaterally filled up, and
caused to be notarized the Deed of Sale earlier signed by appellee Julian, and used this spurious deed of
sale as the vehicle for her fraudulent transfer unto herself the parcel of land covered by TCT No. 327733. 3
chanroble svirtuallawlibrary

Judgment of the RTC

In its judgment rendered on August 30, 1999,4 the RTC ruled in favor of the respondents. According greater
credence to the version of the respondents on the true nature of their transaction, the trial court concluded
that they had not agreed on the consideration for the sale at the time they signed the deed of sale; that in
the absence of the consideration, the sale lacked one of the essential requisites of a valid contract; that the
defense of prescription was rejected because the action to impugn the void contract was imprescriptible; and
that the promissory notes and the real estate mortgage in favor of the petitioners were nonetheless valid,
rendering the respondents liable to still pay their outstanding obligation with interest.
The RTC disposed thusly:

WHEREFORE, judgment is hereby rendered:

1. Declaring the Deed of Sale, dated October 22, 1986, void or inexistent;

2. Cancelling TCT No. RT-45272 (364480) and declaring it to be of no further legal force and
effect;

3. Ordering the defendants to reconvcy the subject property to the plaintiiTs and to deliver to
them the possession thereof; and

4. Ordering the plaintiffs to pay to the defendants the unpaid balance of their indebtedness
plus accrued interest totaling P319,065.00 as of October 15, 1997, plus interests at the
legal rate counted from the date of filing of the complaint and until the full payment thereof,
without prejudice to the right of the defendants to foreclose the mortgage in the event that
plaintiiTs will foil to pay their obligation.

No pronouncement as to cost.

SO ORDERED.5 chanroble svirtuallawlibrary

Decision of the CA

On appeal by the petitioners, the CA affirmed the RTC with modification under its assailed decision of
October 20, 2003,6 decreeing:

WHEREFORE, premises considered, the Decision of the Regional Trial Court of Quezon City is AFFIRMED
WITH modification. Judgement is hereby rendered: ChanRoblesVirtualawlibrary

a. Declaring the Deed of Sale, dated October 22, 1986, void or inexistent;

b. Cancelling TCT No. RT-45272 (364880) and declaring it to be of no further legal


force and effect;

c. Ordering the appellants-defendants to reconvey the subject property to the


plaintitTs-appellees and to deliver to them the possession thereof; and

d. Ordering the plaintiffs-appellees to pay to the defendants the unpaid balance of


their indebtedness, P43,492.15 as of June 28, 1990, plus interests at the legal rate
of 12% per annum from said date and until the full payment thereof, without
prejudice to the right of the defendants to foreclose the mortgage in the event that
plaintiffs-appellees will fail to pay their obligation.

SO ORDERED.7 chanroble svirtuallawlibrary

The CA pronounced the deed of sale as void but not because of the supposed lack of consideration as the
RTC had indicated, but because of the deed of sale having been executed at the same time as the real
estate mortgage, which rendered the sale as a prohibited pactum commissorium in light of the fact that the
deed of sale was blank as to the consideration and the date, which details would be filled out upon the
default by the respondents; that the promissory notes contained no stipulation on the payment of interest
on the obligation, for which reason no monetary interest could be imposed for the use of money; and that
compensatory interest should instead be imposed as a form of damages arising from Linda's failure to pay
the outstanding obligation. chanRoblesvirtualLawlibrary

Issues
In this appeal, the petitioners posit the following issues, namely: (1) whether or not the CA erred in ruling
against the validity of the deed of sale; and (2) whether or not the CA erred in ruling that no monetary
interest was due for Linda's use of Adelaida's money. chanRoble svirtualLawlibrary

Ruling of the Court

The appeal is partly meritorious.

That the petitioners are raising factual issues about the true nature of their transaction with the respondent
is already of itself, sufficient reason to forthwith deny due course to the petition for review
on certiorari. They cannot ignore that any appeal to the Court is limited to questions of law because the
Court is not a trier of facts. As such, the factual findings of the CA should be respected and accorded great
weight, and even finality when supported by the substantial evidence on record. 8Moreover, in view of the
unanimity between the RTC and the CA on the deed of sale being void, varying only in their justifications,
the Court affirms the CA, and adopts its conclusions on the invalidity of the deed of sale.

Nonetheless, We will take the occasion to explain why we concur with the CA's justification in discrediting
the deed of sale between the parties as pactum commissorium.

Article 2088 of the Civil Code prohibits the creditor from appropriating the things given by way of pledge or
mortgage, or from disposing of them; any stipulation to the contrary is null and void. The elements
for pactum commissorium to exist are as follows, to wit: (a) that there should be a pledge or mortgage
wherein property is pledged or mortgaged by way of security for the payment of the principal obligation;
and (b) that there should be a stipulation for an automatic appropriation by the creditor of the thing pledged
or mortgaged in the event of non-payment of the principal obligation within the stipulated period. 9 The first
element was present considering that the property of the respondents was mortgaged by Linda in favor of
Adelaida as security for the former's indebtedness. As to the second, the authorization for Adelaida to
appropriate the property subject of the mortgage upon Linda's default was implied from Linda's having
signed the blank deed of sale simultaneously with her signing of the real estate mortgage. The haste with
which the transfer of property was made upon the default by Linda on her obligation, and the eventual
transfer of the property in a manner not in the form of a valid dacion en pago ultimately confirmed the
nature of the transaction as a pactum commissorium.

It is notable that in reaching its conclusion that Linda's deed of sale had been executed simultaneously with
the real estate mortgage, the CA first compared the unfilled deed of sale presented by Linda with the
notarized deed of sale adduced by Adelaida. The CA justly deduced that the completion and execution of the
deed of sale had been conditioned on the non-payment of the debt by Linda, and reasonably pronounced
that such circumstances rendered the transaction pactum commissorium. The Court should not disturb or
undo the CA's conclusion in the absence of the clear showing of abuse, arbitrariness or capriciousness on the
part of the CA.10
chanroblesvirtuallawlibrary

The petitioners have theorized that their transaction with the respondents was a valid dacion en pagoby
highlighting that it was Linda who had offered to sell her property upon her default. Their theory cannot
stand scrutiny. Dacion en pago is in the nature of a sale because property is alienated in favor of the creditor
in satisfaction of a debt in money.11 For a valid dacion en pago to transpire, however, the attendance of the
following elements must be established, namely: (a) the existence of a money obligation; (b) the alienation
to the creditor of a property by the debtor with the consent of the former; and (c) the satisfaction of the
money obligation of the debtor.12 To have a valid dacion en pago, therefore, the alienation of the property
must fully extinguish the debt. Yet, the debt of the respondents subsisted despite the transfer of the
property in favor of Adelaida.

The petitioners insist that the parties agreed that the deed of sale would not yet contain the date and the
consideration because they had still to agree on the price. 13 Their insistence is not supported by the
established circumstances. It appears that two days after the loan fell due on October 15, 1986, 14Linda
offered to sell the mortgaged property;15 hence, the parties made the ocular inspection of the premises on
October 18, 1986. By that time, Adelaida had already become aware that the appraiser had valued the
property at P70,000.00. If that was so, there was no plausible reason for still leaving the consideration on
the deed of sale blank if the deed was drafted by Adelaida on October 20, 1986, especially considering that
they could have conveniently communicated with each other in the meanwhile on this significant aspect of
their transaction. It was also improbable for Adelaida to still hand the unfilled deed of sale to Linda as her
copy if, after all, the deed of sale would be eventually notarized on October 22, 1986.

According to Article 1318 of the Civil Code, the requisites for any contract to be valid are, namely: (a) the
consent of the contracting parties; (b) the object; and (c) the consideration. There is a perfection of a
contract when there is a meeting of the minds of the parties on each of these requisites. 16 The following
passage has fittingly discussed the process of perfection in Moreno, Jr. v. Private Management Office:17 chanroblesvirtuallawlibrary

To reach that moment of perfection, the parties must agree on the same thing in the same sense, so that
their minds meet as to all the terms. They must have a distinct intention common to both and without doubt
or difference; until all understand alike, there can be no assent, and therefore no contract. The minds of
parties must meet at every point; nothing can be left open for further arrangement. So long as there is any
uncertainty or indefiniteness, or future negotiations or considerations to be had between the parties, there is
not a completed contract, and in fact, there is no contract at all. 18
chanrobleslaw

In a sale, the contract is perfected at the moment when the seller obligates herself to deliver and to transfer
ownership of a thing or right to the buyer for a price certain, as to which the latter agrees. 19The absence of
the consideration from Linda's copy of the deed of sale was credible proof of the lack of an essential
requisite for the sale. In other words, the meeting of the minds of the parties so vital in the perfection of the
contract of sale did not transpire. And, even assuming that Linda's leaving the consideration blank implied
the authority of Adelaida to fill in that essential detail in the deed of sale upon Linda's default on the loan,
the conclusion of the CA that the deed of sale was a pactum commisorium still holds, for, as earlier
mentioned, all the elements of pactum commisorium were present.

Anent interest, the CA deleted the imposition of monetary interest but decreed compensatory interest of
12% per annum.

Interest that is the compensation fixed by the parties for the use or forbearance of money is referred to as
monetary interest. On the other hand, interest that may be imposed by law or by the courts as penalty or
indemnity for damages is called compensatory interest. In other words, the right to recover interest arises
only either by virtue of a contract or as damages for delay or failure to pay the principal loan on which the
interest is demanded.20 chanroble svirtuallawlibrary

The CA correctly deleted the monetary interest from the judgment. Pursuant to Article 1956 of the Civil
Code, no interest shall be due unless it has been expressly stipulated in writing. In order for monetary
interest to be imposed, therefore, two requirements must be present, specifically: (a) that there has been
an express stipulation for the payment of interest; and (b) that the agreement for the payment of interest
has been reduced in writing.21 Considering that the promissory notes contained no stipulation on the
payment of monetary interest, monetary interest cannot be validly imposed.

The CA properly imposed compensatory interest to offset the delay in the respondents' performance of their
obligation. Nonetheless, the imposition of the legal rate of interest should be modified to conform to the
prevailing jurisprudence. The rate of 12% per annum imposed by the CA was the rate set in accordance
with Eastern Shipping Lines, Inc., v. Court of Appeals.22 In the meanwhile, Bangko Sentral ng Pilipinas
Monetary Board Resolution No. 796 dated May 16, 2013, amending Section 2 of Circular No. 905, Series of
1982, and Circular No. 799, Series of 2013, has lowered to 6% per annumthe legal rate of interest for a loan
or forbearance of money, goods or credit starting July 1, 2013. This revision is expressly recognized in Nacar
v. Gallery Frames.23 It should be noted, however, that imposition of the legal rate of interest at 6% per
annum is prospective in application.

Accordingly, the legal rate of interest on the outstanding obligation of P43,492.15 as of June 28, 1990, as
the CA found, should be as follows: (a) from the time of demand on October 13, 1994 until June 30, 2013,
the legal rate of interest was 12% per annum conformably with Eastern Shipping Lines; and (b)
following Nacar, from July 1, 2013 until full payment, the legal interest is 6% per annum.

WHEREFORE, the Court AFFIRMS the decision promulgated on October 20, 2003 subject to
the MODIFICATION that the amount of P43,492.15 due from the respondents shall earn legal interest of
12% per annum reckoned from October 13, 1994 until June 30, 2013, and 6% per annum from July 1, 2013
until full payment.

Without pronouncement on costs of suit.


SO ORDERED. cralawla wlibrary

Sereno, C.J., Leonardo-De Castro, Perez, and Perlas-Bernabe, JJ., concur.

SECOND DIVISION

G.R. No. 158622, January 27, 2016

SPOUSES ROBERT ALAN L. AND NANCY LEE LIMSO, Petitioners, v. PHILIPPINE NATIONAL BANK
AND THE REGISTER OF DEEDS OF DAVAO CITY, Respondents.

G.R. NO. 169441

DAVAO SUNRISE INVESTMENT AND DEVELOPMENT CORPORATION AND SPOUSES ROBERT ALAN
AND NANCY LIMSO, Petitioners, v. HON. JESUS V. QUITAIN, IN HIS CAPACITY AS PRESIDING
JUDGE OF REGIONAL TRIAL COURT, DAVAO CITY, BRANCH 15 AND PHILIPPINE NATIONAL
BANK, Respondents.

G.R. NO. 172958

DAVAO SUNRISE INVESTMENT AND DEVELOPMENT CORPORATION REPRESENTED BY ITS


PRESIDENT ROBERT ALAN L. LIMSO, AND SPOUSES ROBERT ALAN AND NANCY LEE
LIMSO, Petitioners, v. HON. JESUS V. QUITAIN, IN HIS CAPACITY AS PRESIDING JUDGE OF
REGIONAL TRIAL COURT, DAVAO CITY, BRANCH 15 AND PHILIPPINE NATIONAL
BANK, Respondents.

G.R. NO. 173194

PHILIPPINE NATIONAL BANK, Petitioner, v. DAVAO SUNRISE INVESTMENT AND DEVELOPMENT


CORPORATION AND SPOUSES ROBERT ALAN LIMSO AND NANCY LEE LIMSO, Respondents.

G.R. NO. 196958

PHILIPPINE NATIONAL BANK, Petitioner, v. DAVAO SUNRISE INVESTMENT AND DEVELOPMENT


CORPORATION AND SPOUSES ROBERT ALAN L. LIMSO AND NANCY LEE LIMSO, Respondent.

G.R. NO. 197120

DAVAO SUNRISE INVESTMENT AND DEVELOPMENT CORPORATION AND SPOUSES ROBERT ALAN
AND NANCY LEE LIMSO, Petitioners, v. PHILIPPINE NATIONAL BANK, Respondent.

G.R. NO. 205463

IN THE MATTER OF THE PETITION EX-PARTE FOR THE ISSUANCE OF THE WRIT OF POSSESSION
UNDER LRC RECORD NO. 12973, 18031 AND LRC RECORD NO. 317, PHILIPPINE NATIONAL BANK,

DECISION

LEONEN, J.:

There is no mutuality of contract when the interest rate in a loan agreement is set at the sole discretion of
one party. Nor is there any mutuality when there is no reasonable means by which the other party can
determine the applicable interest rate. These types of interest rates stipulated in the loan agreement are null
and void. However, the nullity of the stipulated interest rate does not automatically nullify the provision
requiring payment of interest. Certainly, it does not nullify the obligation to pay the principal loan obligation.
These consolidated cases arose from three related actions filed before the trial courts of Davao City.

In 1993, Spouses Robert Alan L. Limso and Nancy Lee Limso (Spouses Limso) 1 and Davao Sunrise
Investment and Development Corporation (Davao Sunrise) took out a loan secured by real estate mortgages
from Philippine National Bank.2

The loan was in the total amount of P700 million, divided into two (2) kinds of loan accommodations: a
revolving credit line of P300 million, and a seven-year long-term loan of P400 million. 3

To secure the loan, real estate mortgages were constituted on four (4) parcels of land registered with the
Registry of Deeds of Davao City.4 The parcels of land covered by TCT Nos. T-147820, T-151138, and T-
147821 were registered in the name of Davao Sunrise, while the parcel of land covered by TCT No. T-
140122 was registered in the name of Spouses Limso.5

In 1995, Spouses Limso sold the parcel of land covered by TCT No. T-140122 to Davao Sunrise. 6

Spouses Limso and Davao Sunrise had difficulty in paying their loan. In 1999, they requested that their loan
be restructured. After negotiations, Spouses Limso, Davao Sunrise, and Philippine National Bank executed a
Conversion, Restructuring and Extension Agreement. 7

The principal obligation in the restructured agreement totalled P1.067 billion. This included P217.15 million
unpaid interest.8

The restructured loan was divided into two (2) parts. Loan I was for the principal amount of P5 83.18
million, while Loan II was for the principal amount of P483.78 million. 9 The restructured loan was secured by
the same real estate mortgage over four (4) parcels of land in the original loan agreement. All the properties
were registered in the name of Davao Sunrise. 10

The terms of the restructured loan agreement state:

SECTION 1. TERMS OF THE CONVERSION,


RESTRUCTURING AND EXTENSION

1.01 The Conversion/Restructuring/Extension. Upon compliance by the Borrowers with the conditions
precedent provided herein, the Obligations shall be converted, restructured and/or its term extended
effective January 1, 1999 (the "Effectivity Date") in the form of term loans (the "Loans") as follows:
chanRoble svirtualLawlibrary

(a) The Credit Line portion of the Obligations is hereby converted and restructured into a Seven-Year Long
Term Loan (the "Loan I") in the principal amount of P583.18 Million;

(b) The original term of the Loan is hereby extended for another four (4) years (from September 1, 2001 to
December 31, 2005), and interest portion of the Obligations (including the interest accruing on the Credit
Line and Loan up to December 31, 1998 estimated at P49.83 Million) are hereby capitalized. Accordingly,
both the Loan and Interest portions of the Obligations are hereby consolidated into a Term Loan (the "Loan
II") in the aggregate principal amount of P483.78 Million;

SECTION 2. TERMS OF LOAN I

2.01 Amount of Loan I. Loan I shall be in the principal amount not exceeding PESOS: FIVE HUNDRED
EIGHTY THREE MILLION ONE HUNDRED EIGHTY THOUSAND (P583,180,000.00).

2.02 Promissory Note. Loan I shall be evidenced by a promissory note (the "Note I") to be issued by the
Borrowers in favor of the Bank in form and substance satisfactory to the Bank.

2.03 Principal Repayment. The Borrowers agree to repay Loan I within a period of seven (7) years (inclusive
of a one (1) year grace period) in monthly amortizations with the first amortization to commence on January
2000 and a balloon payment on or before the end of the 7th year on December 2005.

2.04 Interest, (a) The Borrowers agree to pay the Bank interest on Loan I from the Effective Date, until the
date of full payment thereof at the rate per annum to be set by the Bank. The interest rate shall be reset by
the Bank every month.
(b) The interest provided in clause (a) above shall be payable monthly in arrears to commence on January,
1999.

SECTION 3. TERMS OF LOAN II

3.01 Amount of Loan II. Loan II shall be in the principal amount not exceeding PESOS: FOUR HUNDRED
EIGHTY THREE MILLION SEVEN HUNDRED EIGHTY THOUSAND (P483,780,00.00).

3.02 Promissory Note. Loan II shall be evidenced by a promissory note (the "Note II") to be issued by the
Borrowers in favor of the Bank in form and substance satisfactory to the Bank.

3.03 Principal Repayment. The Borrowers agree to repay Loan II within a period of seven (7) years
(inclusive of a one (1) year grace period) in monthly amortizations with the first amortization to commence
on January 2000 and a balloon payment on or before December 2005.

3.04 Interest, (a) The Borrowers agree to pay the Bank interest on Loan II from the Effective Date, until the
date of full payment thereof at the rate per annum to be set by the Bank. The interest rate shall be reset by
the Bank every month.

(b) The interest provided in clause (a) above shall be payable monthly in arrears to commence on January
1999.11 (Emphasis provided)

Spouses Limso and Davao Sunrise executed promissory notes, both dated January 5, 1999, in Philippine
National Bank's favor. The promissory notes bore the amounts of P583,183,333.34 and
P483,811,798.93.12 The promissory note for Loan II includes interest charges because one of the
preambular clauses of the Conversion, Restructuring and Extension Agreement states that:

WHEREAS, the Borrowers acknowledge that they have outstanding obligations (the "Obligations") with the
Bank broken down as follows:

(i) Credit Line - P583.18 Million (as of September 30, 1998);


(ii) Loan - P266.67 Million (as of September 30, 1998); and
(iii) Interest - P217.15 Million (as of December 31, 1998)[.] 13
ChanRoblesVirtualawlibrary

Spouses Limso and Davao Sunrise encountered financial difficulties. Despite the restructuring of their loan,
they were still unable to pay.14 Philippine National Bank sent demand letters. Still, Spouses Limso and Davao
Sunrise failed to pay.15
PNB extrajudicially foreclosed the properties, and thru auction, was sold to Ball Park Realty Corporation.
Before the Sheriff could issue the Provisional Certificate of Sale, Spouses Limso and Davao Sunrise filed a
Complaint for Reformation or Annulment of contract against PNB, declaration of nullity of unilateral
imposition and increases of interest rates, crediting of illegal interests collected to [Spouses Limso and
Davao Sunrise's] account; elimination of all uncollected illegal interests; reimposition of new interest rates at
12% per annum only from date of filing of Complaint, total elimination of penalties; elimination also of
attorney's fees or its reduction; declaration of nullity of auction sale and the foreclosure proceedings;
reduction of both loan accounts; reformation or annulment of contract, reconveyance, damages and
injunction and restraining order.

On August 21, 2000, Philippine National Bank filed a Petition for Extrajudicial Foreclosure of Real Estate
Mortgage before the Sheriff's Office in Davao City.16 The Notice of Foreclosure was published. The bank
allegedly complied with all the other legal requirements under Act No. 3135. 17 The auction sale was held on
October 26, 2000. Ball Park Realty Corporation, through its representative Samson G. To, submitted its bid
in the amount of P1,521,045,331.49.18 Philippine National Bank's bid was in the amount of
P1,521,055,331.49. Thus, it was declared the highest bidder.19

After the foreclosure sale, but before the Sheriff could issue the Provisional Certificate of Sale, 20Spouses
Limso and Davao Sunrise filed a Complaint for Reformation or Annulment of contract against Philippine
National Bank, Arty. Marilou D. Aldevera, in her capacity as Ex-Officio Provincial Sheriff of Davao City, and
the Register of Deeds of Davao City.21 The Complaint was filed on October 30, 2000, raffled to Branch 17 of
the Regional Trial Court of Davao City, and docketed as Civil Case No. 28,170-2000. 22 It prayed for:
[the] declaration of nullity of unilateral imposition and increases of interest rates, crediting of illegal interests
collected to [Spouses Limso and Davao Sunrise's] account; elimination of all uncollected illegal interests;
reimposition of new interest rates at 12% per annum only from date of filing of Complaint, total elimination
of penalties; elimination also of attorney's fees or its reduction; declaration of nullity of auction sale and the
foreclosure proceedings; reduction of both loan accounts; reformation or annulment of contract,
reconveyance, damages and injunction and restraining order.23

Immediately after the Complaint was filed, the Executive Judge 24 of the Regional Trial Court of Davao City
issued a 72-hour restraining order preventing Philippine National Bank from taking possession and selling
the foreclosed properties.25 cralawred

Spouses Limso subsequently filed an amended Complaint. 26 The prayer in the amended Complaint stated:

PRAYER

WHEREFORE, it is respectfully prayed that judgment issue in favor of plaintiffs and against the defendants:

ON THE TEMPORARY
RESTRAINING ORDER

1. That, upon the filing of the above-entitled case, a TEMPORARY RESTRAINING ORDER be maintained
enjoining the defendants from executing the provisional Certificate of Sale and final Deed of Absolute Sale;
confirmation of such sale; taking immediate possession thereof and from selling to third parties those
properties covered by TCT Nos. T-147820, T-147821/T-246386 and T-247012 and its improvements nor to
mortgage or pledge the same prior to the final outcome of the above-entitled case, including other additional
acts of foreclosure;.

2. That, plaintiffs' application for the issuance of the [Writ of Preliminary Injunction] be concluded within the
20 days lifetime period of the [Temporary Restraining Order], and

AFTER TRIAL ON THE MERITS

3. To declare the injunction as final;

4. Declaring that the unilateral increases of interest rates imposed by the defendant bank over and above
the stipulated interest rates provided for in the Promissory Notes, be also considered as null and void and
thereafter lowering the same to 12% per annum only, from the date of the filing of the Complaint;

5. Declaring also that all illegally imposed interest rates and penalty charges be considered eliminated
and/or deducted from any account balance of plaintiffs;

6. Declaring also either the complete elimination of attorney's fees, or in the alternative, reducing the same
to P500,000.00 only;

7. Declaring the reduction of the loan account balance to P827,012,149.50 only;

8. That subsequent thereto, ordering a complete reformation of the loan agreement and Real Estate
Mortgage which will now embody the lawful terms and conditions adjudicated by this Honorable Court, or in
the alternative, ordering its annulment, as may be warranted under the provision of Article 1359 of the New
Civil Code;

9. Ordering the defendant Register of Deeds to refrain from issuing a new title in favor of third parties, and
to execute the necessary documents necessary for the reconveyance of the properties now covered by TCT
Nos. T-147820, T-147821, T-246386 and T-247012 from the defendant bank in favor of the plaintiffs upon
payment of the recomputed loan accounts;

10. Ordering also the defendant bank to pay to the plaintiffs the sum of at least P500,000.00 representing
business losses and loss of income by the later [sic] arising from the improvident and premature institution
of extrajudicial foreclosure proceedings against the plaintiffs;

11. Ordering again the defendant bank to pay to the plaintiffs the sum of P400,000.00 as attorney's fees
and the additional sum of P100,000.00 for expenses incident to litigation; and
12. To pay the costs and for such other reliefs just and proper

under the circumstances.27 (Underscoring in the original)

Through the Order28 dated November 20, 2000, Branch 17 of the Regional Trial Court of Davao City denied
Spouses Limso's application for the issuance of a writ of preliminary injunction. 29

Spouses Limso moved for reconsideration. On December 4, 2000, Branch 17 of the Regional Trial Court of
Davao City set aside its November 20, 2000 Order and issued a writ of preliminary injunction. 30

Philippine National Bank then moved for reconsideration of the trial court's December 4, 2000 Order. The
bank's Motion was denied on December 21, 2000. Hence, Philippine National Bank filed before the Court of
Appeals a Petition for Certiorari assailing the December 4, 2000 and December 21, 2000 Orders of the trial
court. This was docketed as CA G.R. SP. No. 63351.31

In the meantime, Branch 17 continued with the trial of the Complaint for Reformation or Annulment of
Contract with Damages.32

On January 10, 2002, the Court of Appeals issued the Decision 33 in CA G.R. SP. No. 63351 setting aside and
annulling the Orders dated December 4, 2000 and December 21, 2000 and dissolving the writ of preliminary
injunction.34

Spouses Limso and Davao Sunrise moved for reconsideration of the Court of Appeals' January 2, 2002
Resolution in CA G.R. SP No. 63351 but the motion was denied. 35 They then filed a Petition for Review on
Certiorari before this court.36 Their Petition was docketed as G.R. No. 152812, which was denied on
procedural grounds.37

In view of the dissolution of the writ of preliminary injunction, Acting Clerk of Court and Ex-officio Provincial
Sheriff Rosemarie T. Cabaguio issued the Sheriff's Provisional Certificate of Sale dated February 4, 2002 in
the amount of P1,521,055,331.49.38 However, the Sheriff's Provisional Certificate of Sale 39 did not state the
applicable redemption period and the redemption price payable by the mortgagor or redemptioner.40 cralawre d

On the same date, Philippine National Bank presented the Sheriff's Provisional Certificate of Sale to the
Register of Deeds of Davao City in order that the title to the foreclosed properties could be consolidated and
registered in Philippine National Bank's name. The presentation was recorded in the Primary Entry Book of
Davao City's Registry of Deeds under Act No. 496 and entered as Entry Nos. 4762 to 4765. 41

On February 5, 2002, the registration of the Certificate of Sale was elevated en consulta by Atty. Florenda T.
Patriarca (Atty. Patriarca) , Acting Register of Deeds of Davao City, to the Land Registration Authority in
Manila. This was docketed as Consulta No. 3405.42

Acting on the consulta, the Land Registration Authority issued the Resolution dated May 21, 2002, which
states:43

"WHEREFORE, in view of the foregoing, the Sheriff's Provisional Certificate of Sale dated February 4, 2002 is
registrable on TCT Nos. T-147820, T-147386, T-247012 provided all other registration requirements are
complied with."44

Meanwhile, on March 25, 2002, the Spouses Limso filed a Petition for Declaratory Relief with Prayer for
Temporary Restraining Order/Injunction on March 25, 2002 against Philippine National Bank, Atty. Rosemarie
T. Cabaguio, in her capacity as Ex-Officio Provincial Sheriff, and the Register of Deeds of Davao City (Petition
for Declaratory Relief). The Sheriff's Provisional Certificate of Sale allegedly did not state any redemption
price and period for redemption. This case was raffled to Branch 14 of the Regional Trial Court of Davao City
and docketed as Civil Case No. 29,036-2002.45

The Petition for Declaratory Relief was filed while the Complaint for Reformation or Annulment with Damages
was still pending before Branch 17 of the Regional Trial Court of Davao City.

Spouses Limso subsequently filed an Amended Petition for Declaratory Relief, alleging:
6. That Petitioners with the continuing crisis and the unstable interest rates imposed by respondent PNB
admittedly failed to pay their loan, the demand letters were sent to both debtors-mortgagors separately, one
addressed to the Petitioners and another addressed to DSIDC, the last of which was dated April 12, 2000
xxx;

7. That on August 21, 200(0), respondent PNB filed a Petition for Extrajudicial Foreclosure of the mortgaged
properties against the petitioners-mortgagors-debtors and DSIDC;

8. That on October 26, 2000, the mortgaged properties were auctioned with the respondent PNB as the
highest bidder;

9. That on February 4, 2002, a Sheriff's Provisional Certificate of Sale was issued by respondent Sheriff who
certified xxxx

10. That the said Sheriff's Provisional Certificate of Sale did not contain a provision usually contained in a
regular Sheriff's Provisional Certificate of Sale as regards the period of redemption and the redemption price
to be raised within the ONE (1) YEAR redemption period in accordance with Act 3135, under which same law
the extrajudicial petition for sale was conducted as mentioned in the Certificate;

11. That the Sheriff's Provisional Certificate of Sale has not yet been registered with the office of respondent
Register of Deeds yet; that petitioners and DSIDC are still in actual possession of the subject properties;

12. That sometime in the middle part of year 2000, Republic Act No. 8791 otherwise known as General
Banking Laws of 2000 was approved and finally passed on April 12, 2000 and took effect sometime
thereafter;

13. That among the provisions of the said law particularly, Section 47 dealt with Foreclosure of Real Estate
Mortgage, quoted verbatim hereunder as follows:
chanRoble svirtualLawlibrary

"Sec. 47. Foreclosure of Real Estate Mortgage. - In the event of foreclosure, whether judicially or extra-
judicially, or any mortgage on real estate which is security for any loan or other credit accommodation
granted, the mortgagor or debtor whose real property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of the real estate, to redeem the property by
paying the amount due under the mortgage deed, with interest thereon at rate specified in the mortgage,
and all the costs and expenses incurred by the bank or institution from the sale and custody of said property
less the income derived therefrom. However, the purchaser at the auction sale concerned whether in a
judicial or extra-judicial foreclosure shall have the right to enter upon and take possession of such property
immediately after the date of the confirmation of the auction sale and administer the same in accordance
with law. Any petition in court to enjoin or restrain the conduct of foreclosure proceedings instituted
pursuant to this provision shall be given due course only upon the filing by the petitioner of a bond in an
amount fixed by the court conditioned that he will pay all the damages which the bank may suffer by the
enjoining or the restraint of the foreclosure proceeding.

Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial
foreclosure, shall have the right to redeem the property in accordance with this provision until, but not after,
the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case
shall be more than three (3) months after foreclosure, whichever is earlier. Owners of property that has
been sold in a foreclosure sale prior to the effectivity of this Act shall retain their redemption rights until
their expiration."
14. That it is clear and evident that the absence of provisions as to redemption period and price in the
Sheriff's Provisional Certificate of Sale issued by respondent Sheriff, that respondent PNB and Sheriff
intended to apply the provisions of Section 47 of Republic Act No. 8791 which reduced the period of
redemption of a juridical person whose property is being sold pursuant to an extrajudicial foreclosure sale
until but not after the registration of the Certificate of Sale with the applicable Register of Deeds which in no
case shall be more than three (3) months after foreclosure, whichever is earlier;

15. That Petitioners in this subject mortgage are Natural Persons who are principal mortgagors-debtors and
at the same time registered owners of some properties at the time of the mortgage;

16. That the provisions of Republic Act No. 8791 do not make mention nor exceptions to this situation where
the Real Estate Mortgage is executed by both Juridical and Natural Persons; hence, the need to file this
instant case of Declaratory Relief under Rule 63 of the Revised Rules of Court of the Philippines;
....
PRAYER

WHEREFORE, it is respectfully prayed that judgment in favor of petitioners and against the respondent-PNB;

1. That upon the filing of the above-entitled case, a TEMPORARY RESTRAINING INJUNCTION be issued
immediately ordering a status quo, enjoining the Register of Deeds and defendant-PNB from registering the
subject Provisional Certificate of Sale from consolidating the title of the property covered by Transfer
Certificate of Title Nos. T-147820, T-147821, T-246386, T-24712 and Land Improvement, Etc.

2. That petitioners' application of the issuance of the Writ of Preliminary Injunctions be considered and
granted within 20 days lifetime period of the TRO.

AFTER TRIAL ON THE MERITS

3. To declare the injunction as final;

4. Ordering the Register of Deeds to refrain from registering the Sheriff's Certificate of Sale and further from
consolidating the titles of the said properties in its name and offering to sell the same to interested buyers
during the pendency of the above entitled case, while setting the date of hearing on the propriety of the
issuance of such Writ of Preliminary Injunction.

ON THE MAIN CASE

5. To declare the petitioners' right as principal mortgagors/owner jointly with a juridical person to redeem
within a period of 1 year the properties foreclosed by respondent PNB still protected and covered by Act
3135.

6. To declare the provisions on Foreclosure of Real Estate Mortgage under Republic Act 8791 or General
Banking Laws of 2000 discriminating and therefore unconstitutional.

OTHER RELIEFS AND REMEDIES are likewise prayed for.46

Branch 14 of the Regional Trial Court of Davao City issued a temporary restraining order 47 on April 10, 2002.
This temporary restraining order enjoined the Register of Deeds from registering the Sheriff's Provisional
Certificate of Sale.48

The temporary restraining order was issued without first hearing the parties to the case. Hence, the
temporary restraining order was recalled by the same trial court in the Order 49 dated April 16, 2002.

During the hearing for the issuance of a temporary restraining order in the Petition for Declaratory Relief,
Spouses Limso presented several exhibits, which included: Philippine National Bank's demand letter dated
April 12, 2000; Philippine National Bank's letter to the Acting Register of Deeds of Davao City dated February
4, 2002 requesting the immediate registration of the Sheriff's Provisional Certificate of Sale; and the Notice
of Foreclosure dated September 5, 2000.50

Counsel for Philippine National Bank objected to the purpose of the presentation of the exhibits and argued
that since Spouses Limso were Davao Sunrise's co-debtors, they "were notified as a matter of formality[.]" 51

On May 3, 2002, Branch 14 granted the prayer for the issuance of the writ of preliminary injunction
enjoining the registration of the Sheriff's Provisional Certificate of Sale. 52

Branch 14 reasoned as follows:

This Court finds no merit in the claims advanced by private respondent Bank for the following reasons:

1. That the primary ground why the Court of Appeals dissolved the preliminary injunction granted by Branch
17 of this Court was because the ground upon which the same was issued was based on a pleading which
was not verified;

2. That Civil Case No. 28,170-2000 and Civil Case No. 29,036- 2002 while involving substantially the same
parties, the same do not involved [sic] the same issues as the former involves nullity of unilateral imposition
and increases of interest rates, etc. nullity of foreclosure proceedings, reduction of both loan accounts,
reformation or annulment of contract, reconveyance and damages, whereas the issues raised in the instant
petition before this Court is the right and duty of the petitioners under the last paragraph of Sec. 47,
Republic Act No. 8791 and whether the said section of said law is applicable to the petitioners considering
that the mortgage contract was executed when Act No. 3135 was the controlling law and was in fact made
part of the contract;

3. That the petition, contrary to the claim of private respondent Bank, clearly states a cause of action; and

4. That since petitioners are parties to the mortgage contract they, therefore, have locus standi to file the
instant petition.

If Section 7 of Republic Act 8791 were made to apply to the petitioners, the latter would have a shorter
period of three (3) months to exercise the right of redemption after the registration of the Certificate of
Sale, hence, the registration of the Sheriff's Provisional Certificate of Sale would cause great and irreparable
injury to them as their rights to the properties sold at public auction would be lost forever if the registration
of the same is not enjoined.53ChanRoblesVirtualawlibrary

Spouses Limso posted an injunction bond that was approved by the trial court in the Order dated May 6,
2002. Thus, the writ of preliminary prohibitory injunction was issued. 54

Philippine National Bank moved for reconsideration of the Orders dated May 3, 2002 and May 6, 2002. 55

Around this time, Judge William M. Layague (Judge Layague), Presiding Judge of Branch 14, was on
leave.56 Philippine National Bank's Motion for Reconsideration was granted by the Pairing Judge, Judge Jesus
V. Quitain (Judge Quitain),57 and the writ of preliminary prohibitory injunction was dissolved in the Order
dated May 23, 2002.58

On May 30, 2002, Philippine National Bank's lawyers went to the Register of Deeds of Davao City "to inquire
on the status of the registration of the Sheriff's Provisional Certificate of Sale." 59

Philippine National Bank's lawyers were informed that the documents they needed "could not be found and
that the person in charge thereof, Deputy Register of Deeds Jorlyn Paralisan, was absent." 60

Philippine National Bank contacted Jorlyn Paralisan at her residence. She informed Philippine National Bank
that the documents they were looking for were all inside Atty. Patriarca's office. 61

Subsequently, Atty. Patriarca informed the representatives of Philippine National Bank that the Register of
Deeds "would not honor certified copies of [Land Registration Authority] resolutions even if an official copy
of the [Land Registration Authority] Resolution was already received by that Office through mail." 62

On May 31, 2002, Philippine National Bank's representatives returned to the Register of Deeds of Davao City
and learned that Atty. Patriarca, the Acting Register of Deeds, had not affixed her signature, which was
necessary to complete the registration of the Sheriff's Certificate of Sale. 63

Subsequently, Judge Layague reinstated the writ of preliminary prohibitory injunction in the Order 64dated
June 24, 2002.

Aggrieved, Philippine National Bank filed before the Court of Appeals a Petition for Certiorari, Prohibition and
Mandamus with Prayer for Temporary Restraining Order and Writ of Preliminary Injunction, both Prohibitory
and Mandatory, docketed as CA G.R. SP No. 71527. The Petition assailed the June 24, 2002 Order of Branch
14 of the Regional Trial Court, which reinstated the writ of preliminary prohibitory injunction. 65

On July 3, 2002, Philippine National Bank inspected the titles and found that correction fluid had been
applied over Atty. Patriarca's signature on the titles.66

Also on July 3, 2002, Philippine National Bank filed before the Regional Trial Court of Davao City a Petition
for Issuance of the Writ of Possession under Act No. 3135, as amended, and Section 47 of Republic Act No.
8791.67 This was docketed as Other Case No. 124-2002 and raffled to Branch 15 of the Regional Trial Court
of Davao City, presided by Judge Quitain.68

Davao Sunrise filed a Motion to Expunge and/or Dismiss Petition for Issuance of Writ of Possession dated
July 12, 2002.69 In the Motion to Expunge, Davao Sunrise pointed out that Branch 14 70 (in the Petition for
Declaratory Relief docketed as Civil Case No. 29,036-2002) issued a writ of preliminary injunction "enjoining
the Provincial Sheriff, the Register of Deeds of Davao City[,] and [Philippine National Bank] from registering
the Sheriff's Provisional Certificate of Sale and, if registered, enjoining [Philippine National Bank] to refrain
from consolidating the title of the said property in its name and/or offering to sell the same to interested
buyers during the pendency of the case."71

On July 18, 2002, Spouses Limso filed a Motion to Intervene 72 in Other Case No. 124-2002.73

In the Resolution dated August 13, 2002, the Court of Appeals granted the temporary restraining order
prayed for by Philippine National Bank (in CA G.R. SP No. 71527) enjoining the implementation of Judge
Layague's Orders dated May 3, 2002 and June 24, 2002. These Orders pertained to the writ of preliminary
injunction enjoining the registration of the Sheriff's Provisional Certificate of Sale. 74

Spouses Limso filed a Motion for Reconsideration with Prayers for the Dissolution of Temporary Restraining
Order and to Post Counter Bond.75

The Court of Appeals granted Philippine National Bank's Petition for Certiorari in the Decision 76 dated
December 11, 2002. The dispositive portion of the Decision states:

WHEREFORE, premises considered, the writ prayed for in the herein petition is GRANTED and the assailed
Orders of respondent judge dated May 3 and June 24, 2002 granting the writ of preliminary injunction are
SET ASIDE. Civil Case No. 29,036-2002 is hereby ordered DISMISSED and respondent Register of Deeds of
Davao City is hereby ordered to register petitioner PNB's Sheriff's Provisional Certificate of Sale and cause
its annotation on TCTNos. T-147820, T-147821, T-246386 andT-247012.77

Spouses Limso filed a Motion to Reconsider Decision and To Call Case For Hearing on Oral Argument, which
was opposed by Philippine National Bank. 78 Oral arguments were conducted on March 19, 2003.79

On June 10, 2003, the Court of Appeals denied Spouses Limso's Motion for Reconsideration. 80

Spouses Limso then filed a Petition for Review on Certiorari 81 before this court, questioning the Decision in
CA G.R. SP No. 71527, which ordered the Register of Deeds to register the Sheriff's Provisional Certificate of
Sale. This was docketed as G.R. No. 158622.82

With regard to the Complaint for Reformation or Annulment of Contract with Damages, Branch 17 of the
Regional Trial Court of Davao City promulgated its Decision 83 on June 19, 2002.

Branch 17 ruled in favor of Spouses Limso and Davao Sunrise. It found the interest rate provisions in the
loan agreement to be unreasonable and unjust because the imposable interest rates were to be solely
determined by Philippine National Bank. The arbitrary imposition of interest rates also had the effect of
increasing the total loan obligation of Spouses Limso and Davao Sunrise to an amount that would be beyond
their capacity to pay.84

The dispositive portion of the Decision in the Complaint for Reformation or Annulment with Damages states:

WHEREFORE, finding the evidence of plaintiffs corporation through counsel, more than sufficient, to
constitute a preponderance to prove the various unilateral impositions of increased interest rates by
defendant bank, such usurious, unreasonable, arbitrary, unilateral imposition of interest rates, are declared,
null and void.

Accordingly, decision is issued in favor of the defendant bank, in a reduced amount based on the following:

1. The amount of One Hundred Twenty Seven Million, One Hundred Fifty Thousand
(P127,150,000.00) Pesos, representing illegal interest rate, the amount of One Hundred
Seventy Six Million, Ninety Eight Thousand, Forty Five and 95/100 (P176,098,045.95)
Pesos, representing illegal penalty charges and the amount of One Hundred Thirty Six
Million, Nine Hundred Thousand, Nine Hundred Twenty Eight and 85/100 (P136,900,928.85)
Pesos, as unreasonable 10% Attorney's fees or in the total amount of Four Hundred Forty
Million, One Hundred Forty Eight Thousand, Nine Hundred Seventy Four and 79/100
(P440,148,974.79) Pesos, are declared null and void, rescending [sic] and/or altering the
loan agreement of parties, on the ground of fraud, collusion, mutual mistake, breach of
trust, misconduct, resulting to gross inadequacy of consideration, in favor of plaintiffs
corporation, whose total reduced and remaining principal loan obligation with defendant
bank, shall only be the amount of Eight Hundred Eighty Two Million, Twelve Thousand, One
Hundred Forty Nine and 50/100 (P882,012,149.50) Pesos, as outstanding remaining loan
obligation of plaintiffs corporation, with defendant bank, to be deducted from the total
payments so far paid by plaintiffs corporation with defendant bank as already stated in this
decision.

2. That thereafter, the above-amount as ordered reduced, shall earn an interest of 12% per
annum, the lawful rate of interest that should legitimately be imposed by defendant bank to
the outstanding remaining reduced principal loan obligation of plaintiffs corporation.

3. Notwithstanding, defendant bank, is entitled to a reduced Attorney's fees of Five Hundred


Thousand (P500,000.00) Pesos, as a reasonable Attorney's fees, subject to subsequent
pronouncement as to the real status of defendant bank, on whether or not, said institution
is now a private agency or still a government instrumentality in its capacity to be entitled or
not of the said Attorney's fees.

4. The prayer of defendant bank for award of moral damages and exemplary damages, are
denied, for lack of factual and legal basis.

SO ORDERED.85 (Emphasis in the original)

Philippine National Bank moved for reconsideration of the Decision, while Spouses Limso and Davao Sunrise
filed a Motion for partial clarification of the Decision.86

Branch 17 of the Regional Trial Court of Davao City subsequently issued the Order 87 dated August 13, 2002
clarifying the correct amount of Spouses Limso and Davao Sunrise's obligation, thus:

WHEREFORE, finding the motion for reconsideration of defendant bank through counsel, to the decision of
the court, grossly bereft of merit, merely a reiteration and rehash of the arguments already set forth during
the hearing, including therein matters not proved during the trial on the merits, and considered admitted, is
denied.

To provide a clarification of the decision of this court, relative to plaintiffs motion for partial clarification with
comment of defendant bank through counsel, the correct remaining balance of plaintiffs account with
defendant bank, pursuant to the decision of this court, in pages 17 and 18, dated June 19, 2002, is Two
Hundred Five Million Eighty Four Thousand Six Hundred Eighty Two Pesos & 61/100 (P205,084,682.61), as
above-clarified.

SO ORDERED.88 ChanRoblesVirtualawlibrary

Philippine National Bank appealed the Decision and Order in the Complaint for Reconstruction or Annulment
with Damages by filing a Notice of Appeal on August 16, 2002. 89 The Notice of Appeal was approved by the
trial court in the Order dated September 25, 2002.90 The appeal was docketed as CA-G.R. CV No. 79732.91

On August 20, 2002,92 Spouses Limso and Davao Sunrise filed, in Other Case No. 124-2002 (Petition for
Issuance of Writ of Possession), a Motion to Inhibit the Presiding Judge (referring to Judge Quitain, before
whom the Petition for Issuance of Writ of Possession was pending) because his wife, Gladys Isla Quitain, was
a long-time Philippine National Bank employee who had retired. 93 Spouses Limso and Davao Sunrise also
heard rumors that Gladys Isla Quitain had been serving as consultant for Philippine National Bank even after
retirement.94 Davao Sunrise also filed a Motion to Expunge and/or Dismiss Petition and argued that the
person who signed for Philippine National Bank was not authorized because no Board Resolution was
attached to the Verification and Certification against Forum Shopping.

In the Order95 dated March 21, 2003, Judge Quitain denied three motions:
(1) The Motion to Intervene filed by Spouses Robert Alan Limso and Nancy Limso;

(2) The Motion to Expunge and/or Dismiss Petition for the Issuance of Writ of Possession filed by Davao
Sunrise Investment and Development Corporation; and

(3) The Motion for Voluntary Inhibition filed by Davao Sunrise Investment and Development
Corporation.96ChanRoblesVirtualawlibrary

Judge Quitain denied the Motion to Inhibit on the ground that the allegations against him were mere
suspicions and conjectures.97 The Motion to Intervene was denied on the ground that Spouses Limso have no
interest in the case, not being the owners of the property.98

The Motion to Expunge and/or Dismiss filed by Davao Sunrise was also denied for lack of merit. Judge
Quitain ruled that "PNB Vice President Leopoldo is clearly clothed with authority to represent and sign in
behalf of the petitioner [referring to Philippine National Bank] as shown by the Verification and Certification
of the said petition as well as the Secretary's Certificate." 99

Spouses Limso and Davao Sunrise filed a Motion for Reconsideration 100 of the Order dated March 21, 2003.
Judge Quitain denied the Motion for Reconsideration in an Order dated September 1, 2003, only with regard
to the Motion to Intervene and Motion for Voluntary Inhibition. The Motion to Expunge and/or Dismiss was
not mentioned in the September 1,2003 Order.101

Spouses Limso and Davao Sunrise questioned the denial of the Motion for Inhibition by filing a Petition for
Certiorari before the Court of Appeals on September 26, 2003. This was docketed as CA G.R. SP No.
79500.102 Spouses Limso and Davao Sunrise subsequently filed a Supplemental Petition for Certiorari before
the Court of Appeals on October 3, 2003.103

In the meantime, Other Case No. 124-2002 (Petition for Issuance of Writ of Possession) was set for an ex-
parte hearing on October 10, 2003.104

However, on October 8, 2003, the Court of Appeals granted the prayer for the issuance of a temporary
restraining order in CA G.R. SP No. 79500 "enjoining public respondent Judge Quitain from proceeding with
Other Case No. 124-2002 for a period of sixty (60) days from receipt by respondents thereof." 105

The temporary restraining order was effective from October 10, 2003 to December 9, 2003. 106

On December 12, 2003, Judge Quitain issued the Order allowing Philippine National Bank to present
evidence ex-parte on December 18, 2003 despite the pendency of other incidents to be resolved. 107

Spouses Limso and Davao Sunrise filed an Urgent Motion for Cancellation of the December 18, 2003 hearing
due to the pendency of CA G.R. SPNo. 79500.108

Judge Quitain reset the hearing for Other Case No. 124-2002 to January 23, 2004. The hearing was
subsequently reset to January 30, 2004. In the January 30, 2004 hearing, Judge Quitain heard the
arguments of parties regarding the Urgent Motion to Cancel Hearing. 109

In the Order dated March 12, 2004, Judge Quitain "resolved the pending Urgent Motion to Cancel Hearing
and [Davao Sunrise's] Motion to Re-schedule Newly Scheduled Hearing Date." 110

The March 12, 2004 Order also stated that "the Spouses Limso have no right to intervene because they are
no longer owners of the subject foreclosed property."111

Spouses Limso treated the March 12, 2004 Order as a denial of their Motion for Reconsideration regarding
their Motion to Intervene. Thus, they, together with Davao Sunrise, filed a Petition for Certiorari before the
Court of Appeals, which was docketed as CA G.R. SP No. 84279. 112

CA G.R. SP No. 84279 was denied by the Court of Appeals in the Decision 113 dated September 20, 2004.

Spouses Limso and Davao Sunrise filed a Motion for Reconsideration 114 dated September 13, 2004, which
was denied in the Resolution115 dated July 8, 2005.

Spouses Limso and Davao Sunrise then filed a Petition for Review on Certiorari dated July 26, 2005 before
this court. This was docketed as G.R. No. 168947.116

Despite the pendency of Spouses Limso and Davao Sunrise's Motion for Reconsideration of the Order
denying Davao Sunrise's Motion to Expunge and/or Dismiss, Philippine National Bank filed a Motion for
Reception of Evidence and/or Resume Hearing dated March 30, 2004 in Other Case No. 124-2002. 117

Judge Quitain granted the Motion "and set the hearing for reception of petitioner's evidence on 06 April 2004
at 2:00 p.m."118

Spouses Limso and Davao Sunrise filed an Extremely Urgent Manifestation and Motion dated April 5, 2004.
They prayed for the cancellation of the hearing for the reason that the March 12, 2004 Order was not yet
final and that Davao Sunrise had a pending Motion for Reconsideration of the Order denying its Motion to
Expunge and/or Dismiss.119

Judge Quitain cancelled the April 6, 2004 hearing due to the Manifestation and Motion filed by Spouses
Limso and Davao Sunrise.120

Spouses Limso filed a Motion for Reconsideration of the March 12, 2004 Order because it addressed issues
other than those raised in the Motion for Intervention. 121

On April 20, 2004, Judge Quitain issued the Order and reset the case for hearing to May 7, 2004, even
though the Motion for Reconsideration of the Order denying the Motion to Expunge and/or Dismiss had not
been acted upon.122

During the May 7, 2004 hearing, counsel for Spouses Limso and Davao Sunrise pointed out to Judge Quitain
the pendency of the Motion for Reconsideration of the Order denying the Motion to Expunge and/or
Dismiss.123

Judge Quitain issued the Order dated July 5, 2004 denying Spouses Limso and Davao Sunrise's Motion for
Reconsideration to the March 12, 2004 Order (referring to the denial of Spouses Limso's Motion to
Intervene). Judge Quitain also set hearing dates on August 4 and 5, 2004 for the reception of Philippine
National Bank's evidence. Once again, the hearings were scheduled even though the Motion to Expunge
and/or Dismiss had yet to be resolved. 124

Davao Sunrise then filed a Motion to Transfer Case or in the Alternative to Dismiss the Same on July 30,
2004. Davao Sunrise reiterated the arguments in its Motion to Expunge and/or Dismiss. 125

Subsequently, Spouses Limso and Davao Sunrise filed an Extremely Urgent Manifestation and Motion dated
August 3, 2004 asking that the hearings scheduled for August 4 and 5, 2004 be cancelled, considering that
Davao Sunrise's Motion to Dismiss/Expunge the Petition was still unresolved. 126

On August 4, 2004, Judge Quitain took cognizance of the Extremely Urgent Manifestation and Motion dated
August 3, 2004 and a Very Urgent Motion for Intervention filed by a third party. Thus, Judge Quitain
cancelled the hearings scheduled on August 4 and 5, 2004, reset the hearing to August 11, 2004, and
"impressed upon the parties that he would be able to resolve all pending incidents by that time." 127

Spouses Limso and Davao Sunrise alleged that the pending incidents were hastily acted upon by Judge
Quitain, as follows:

[O]n 11 August 2004, at around 11:45 a.m., petitioners' counsel was furnished a copy of public respondent's
Order allegedly dated 06 August 2004 which declared as submitted for resolution the following incidents, to
wit: (a) petitioner DSIDC's Motion to Transfer the Case to Branch 17; (b) Petitioner DSIDC's Motion to
Postpone Hearing; (c) Motion for Intervention filed by a certain Karlan Lou Ong; (d) petitioners' (DSIDC and
Spouses Limso) Extremely Urgent Manifestation and Motion; and (e) Petitioner DSIDC's Manifestation.

. . . And then, at around 2:10 p.m. of the same day, 11 August 2004, when petitioners' counsel was already
in court for the said hearing, he was furnished by a staff of public respondent Judge Quitain a copy of
an Order dated 11 August 2004 and consisting of two (2) pages, the dispositive portion of which reads as
follows:

"WHEREFOREM(sic), the Court hereby resolves the following motions: 1) DSIDC's motion to transfer case to
Branch 17 or dismiss the same is denied for lack of merit. 2) DSIDC's (sic) motion to postpone the hearing
is denied for lack of merit. 3) The motion of Karla Ong to intervene is denied for lack of merit. 4) The August
5 manifestation of DSIDC is noted."128 (Emphasis in the original)

Spouses Limso and Davao Sunrise also claimed that the Order dated August 11, 2004 was done hastily so
that Philippine National Bank would be able to present its evidence without objection. 129

Spouses Limso and Davao Sunrise alleged that the August 11, 2004 Order contained factual findings not
supported by the record. When counsel for Spouses Limso and Davao Sunrise pointed out the errors, Judge
Quitain acknowledged the mistake and reset the August 11, 2004 hearing to August 27, 2004. 130

Because of Judge Quitain's actions, Spouses Limso and Davao Sunrise filed a Motion for Compulsory
Disqualification on the ground that Judge Quitain was biased in Philippine National Bank's favor.131

In the Order132 dated March 10, 2005, Judge Quitain denied the Motion for Compulsory Disqualification.

Spouses Limso and Davao Sunrise moved for reconsideration of the March 10, 2005 Order, while Philippine
National Bank filed an Opposition to the Motion for Reconsideration. 133

The August 11, 2004 Order also denied Davao Sunrise's Motion to Transfer Case to Branch 17 or Dismiss the
Same. Since the Motion to Transfer is a rehash of Davao Sunrise's Motion to Expunge and/or Dismiss
Petition, the denial of the Motion to Transfer is tantamount to the denial of Davao Sunrise's Motion to
Expunge and/or Dismiss.134 The August 11, 2004 Order did not specifically state that Spouses Limso and
Davao Sunrise's Motion for Reconsideration dated March 28, 2003 was denied, but since the issues raised in
the Motion to Reconsideration were also raised in the Motion to Expunge, the August 11, 2004 Order also
effectively denied the Motion for Reconsideration. 135

Thus, Spouses Limso and Davao Sunrise filed a Petition 136 for Certiorari before the Court of Appeals, which
was docketed as CA G.R. SP No. 85847.137 Spouses Limso and Davao Sunrise assailed the March 21, 2003
Order denying Davao Sunrise's Motion to Expunge and/or Dismiss Petition for Issuance of Writ of Possession,
as well as the August 11, 2004 Order denying Davao Sunrise's Motion to Dismiss. 138

On September 1, 2004, the Court of Appeals promulgated its Decision 139 in CA G.R. No. 79500140denying
Spouses Limso and Davao Sunrise's Petition, which assailed Judge Quitain's denial of their Motion to
Inhibit.141 The Court of Appeals ruled that Judge Quitain's reversal of Judge Layague's Orders "may
constitute an error of judgment . . . but it is not necessarily an evidence of bias and partiality." 142

Spouses Limso and Davao Sunrise moved for reconsideration on September 23, 2004. The Motion was
denied in the Resolution143 dated August 11, 2005.144

While the cases between Spouses Limso, Davao Sunrise, and Philippine National Bank were pending,
Philippine National Bank, through counsel, filed administrative145 and criminal complaints146 against Atty.
Patriarca.

The administrative case against Atty. Patriarca was docketed as Administrative Case No. 02-13. 147

In the Resolution148 dated January 12, 2005, the Land Registration Authority found Atty. Patriarca guilty of
grave misconduct and dismissed her from the service.149 Included in the Resolution are the following
pronouncements:

The registration of these documents became complete when respondent affixed her signature below these
annotations. Whatever information belatedly gathered thereafter relative to the circumstances as to the
registrability of these documents, respondent cannot unilaterally take judicial notice thereof and proceed to
lift at her whims and caprices what has already been officially in force and effective, by erasing thereon her
signature. With her years of experience in the Registry, not to mention her being a lawyer, respondent
should have taken the appropriate steps in filing a query to this Authority regarding the matter or should
have consulted Section 117 of PD 1529 in relation to Section 12 of Rule 43. The deplorable act of
Respondent was fraught with partiality to favor the DSIDC and Sps. Limso.150

Atty. Asteria E. Cruzabra (Atty. Cruzabra) replaced Atty. Patriarca as Register of Deeds of Davao
City.151 Philippine National Bank wrote a letter to Atty. Cruzabra, arguing "that the Sheriff's Provisional
Certificate of Sale was already validly registered[,]"152 and the unauthorized application of correction
fluid153 to cover the original signature of the Acting Register of Deeds "did not deprive the Bank of its rights
under the registered documents."154

Meanwhile, on February 10, 2005, as CA-G.R. CV No. 79732, which was an appeal from Civil Case No.
28,170-2000 (Petition for Reformation and Annulment of Contract with Damages), was still pending,
Philippine National Bank filed the following applications before the Court of Appeals Nineteenth Division: 155

a. Application to Hold Davao Sunrise Investment and Development Corporation, the Spouses Robert
Alan L. Limso and Nancy Lee Limso and Wellington Insurance Company, Inc. Jointly and Severally
liable for Damages on the Injunction Bond; and

b. Application for the Appointment of PNB as Receiver[.] 156

Spouses Limso and Davao Sunrise filed their opposition to Philippine National Bank's application on March
29, 2005.157 Philippine National Bank filed its Reply to the Opposition on May 5, 2005. 158

On March 2, 2006, the Court of Appeals denied Philippine National Bank's applications, reasoning that:

It is a settled rule that the procedure for claiming damages on account of an injunction wrongfully issued
shall be the same as that prescribed in Section 20 of Rule 57 of the Revised Rules of Court. Section 20
provides:
chanRoble svirtualLawlibrary

Sec. 20. Claim for damages on account of improper, irregular or excessive attachment. - An application for
damages on account of improper, irregular or excessive attachment must be filed before the trial or before
appeal is perfected or before the judgment becomes executory, with due notice to the attaching obligee or
his surety or sureties, setting forth the facts showing his right to damages and the amount thereof. Such
damages may be awarded only after proper hearing and shall be included in the judgment on the main case.

If the judgment of the appellate court be favorable to the party against whom the attachment was issued,
he must claim damages sustained during the pendency of the appeal by filing an application in the appellate
court with notice to the party in whose favor the attachment was issued or his surety or sureties, before the
judgment of the appellate court becomes executory. The appellate court may allow the application to be
heard and decided by the trial court.

Nothing herein contained shall prevent the party against whom the attachment was issued from recovering
in the same action the damages awarded to him from any property of the attaching obligee not exempt from
execution should the bond or deposit given by the latter be insufficient or fail to fully satisfy the award.
Records show that when this Court annulled the RTC's order of injunction, Davao Sunrise thereafter elevated
the matter to the Supreme Court. On July 24, 2002, the Supreme Court denied its petition for having been
filed out of time and an Entry of Judgment was issued on Sept. 11, 2002.

PNB's instant application however was filed only on February 17, 2005 and/or in the course of its appeal on
the main case - about two (2) years and five (5) months after the judgment annulling the injunction order
attained finality.

Clearly, despite that it already obtained a favorable judgment on the injunction matter, PNB failed to file
(before the court a quo) an application for damages against the bond before judgment was rendered in the
main case by the court a quo. Thus, even for this reason alone, Davao Sunrise and its bondsman are
relieved of further liability thereunder.159 (Citations omitted)

The Court of Appeals also denied Philippine National Bank's application to be appointed as receiver for failure
to fulfill the requirements to be appointed as receiver and for failure to prove the grounds for
receivership.160 It discussed that to appoint Philippine National Bank as receiver would violate the rule that
"neither party to a litigation should be appointed as receiver without the consent of the other because a
receiver should be a person indifferent to the parties and should be impartial and disinterested." 161 The Court
of Appeals noted that Philippine National Bank was not an impartial and disinterested party, and Davao
Sunrise objected to Philippine National Bank's appointment as receiver.162

In addition, Rule 59, Section l(a)163 of the 1997 Rules of Court requires that the "property or fund involved is
in danger of being lost, removed, or materially injured." The Court of Appeals found that the properties
involved were "not in danger of being lost, removed[,] or materially injured." 164Further, Philippine National
Bank's application was premature since the loan agreement was still pending appeal and "a receiver should
not be appointed to deprive a party who is in possession of the property in litigation." 165

The dispositive portion of the Court of Appeals Resolution166 states:

WHEREFORE, above premises considered, the Philippine National Bank's Application to Hold Davao Sunrise
Investment and Development Corporation, the Spouses Robert Alan L. Limso and Nancy Lee Limso and
Wellington Insurance Company, Inc. Jointly and Severally Liable for Damages on the Injunction Bond and its
Application for the Appointment of PNB as Receiver are hereby both DENIED. And, for the reasons above set
forth, the Plaintiff-Appellees' Motion to Dismiss is likewise DENIED.

With the filing of the Appellants' and the Appellees' respective Brief(s), this case is considered SUBMITTED
for Decision and ORDERED re-raffled to another justice for study and report.

SO ORDERED.167 ChanRoblesVirtualawlibrary

Philippine National Bank filed a Motion for Reconsideration on March 28, 2006, which was denied in the
Resolution168 dated May 26, 2006.169

Thus, on July 21, 2006, Philippine National Bank filed before this court a Petition for Review 170 on Certiorari
questioning the Court of Appeals' denial of its applications. 171 This was docketed as G.R. No. 173194.172

On February 16, 2007, Philippine National Bank's Ex-Parte Petition for Issuance of a Writ of Possession
docketed as Other Case No. 124-200 was dismissed173 based on the following grounds:

(1) For purposes of the issuance of the writ of possession, Petitioner should complete the entire process in
extrajudicial foreclosure ...

(2) The records disclose the [sic] contrary to petitioner's claim, the Certificate of Sale covering the subject
properties has not been registered with the Registry of Deeds of Davao City as the Court finds no annotation
thereof. As such, the sale is not considered perfected to entitled petitioner to the writ of possession as a
matter of rights [sic].174 ChanRoblesVirtualawlibrary

Philippine National Bank filed a Motion for Reconsideration with Motion for Evidentiary Hearing. 175

Acting on the Motion for Reconsideration, the trial court required the Registry of Deeds to comment on the
matter.176

The trial court eventually denied the Motion for Reconsideration. 177

Philippine National Bank appealed the trial court Decision dismissing the Petition for Issuance of a Writ of
Possession by filing a Rule 41 Petition before the Court of Appeals, which was docketed as CA-G.R. CV No.
01464-MIN.178

Meanwhile, when CA-G.R. CV No. 79732 was re-raffled,179 it was re-docketed as CA-G.R. CVNo. 79732-
MIN.180

In CA-G.R. CV No. 79732-MIN, the Court of Appeals resolved the issue of "whether or not there has been
mutuality between the parties, based on their essential equality, on the subject imposition of interest rates
on plaintiffs-appellees' loan obligation, i.e., the original loan and the restructured loan."181

On August 13, 2009, the Court of Appeals promulgated its Decision 182 in CA-G.R. CV No. 79732-MIN. It held
that there was no mutuality between the parties because the interest rates were unilaterally determined and
imposed by Philippine National Bank. 183

The Court of Appeals further explained that the contracts between Spouses Limso and Davao Sunrise, on
one hand, and Philippine National Bank, on the other, did not specify the applicable interest rates. The
contracts merely stated the interest rate to be "at a rate per annum that is determined by the bank[;]" 184 "at
the rate that is determined by the Bank to be the Bank's prime rate in effect at the Date of
Drawdown[;]"185 and "at the rate per annum to be set by the Bank. The interest rate shall be reset by the
Bank every month."186 In addition, the interest rate would depend on the prime rate, which was "to be
determined by the bank[.]"187 It was also discussed that:
But it even gets worse. After appellant bank had unilaterally determined the imposable interest on plaintiffs-
appellees loans and after the latter had been notified thereof, appellant bank unilaterally increased the
interest rates. Further aggravating the matter, appellant bank did not increase the interest rate only once
but on numerous occasions. Appellant bank unilaterally and arbitrarily increased the already arbitrarily
imposed interest rate within intervals of only seven (7) days and/or one (1) month.
....
The interests imposed under the Conversion, Restructuring and Extension Agreement, is not a valid
imposition. DSIDC and Spouses Limso have no choice except to assent to the conditions therein as they are
heavily indebted to PNB. In fact, the possibility of the foreclosure of their mortgage securities is right in their
doorsteps. Thus it cannot be considered "contracts'" between the parties, as the borrower's participation
thereat has been reduced to an unreasonable alternative that is to "take it or leave it." It has been used by
PNB to raise interest rates to levels which have enslaved appellees or have led to a hemorrhaging of the
latter's assets. Hence, for being an exploitation of the weaker party, the borrower, the alleged letter-
contracts should also be struck down for being violative of the principle of mutuality of contracts under
Article 1308.188 (Emphasis in the original)

Thus, the Court of Appeals nullified the interest rates imposed by Philippine National Bank:

We reiterate that since the unilateral imposition of rates of interest by appellant bank is not only violative of
the principle of mutuality of contracts, but also were found to be unconscionable, iniquitous and
unreasonable, it is as if there was no express contract thereon. Thus, the interest provisions on the (a)
revolving credit line in the amount of three hundred (300) million pesos, (b) seven-year long term loan in
the amount of four hundred (400) million pesos; and (c) Conversions, Restructuring and Extension
Agreement, Real Estate Mortgage, promissory notes, and all other loan documents executed
contemporaneous with or subsequent to the execution of the said agreements are hereby declared null and
void.

Such being the case, We apply the ruling of the Supreme Court in the case of United Coconut Planters Bank
vs. Spouses Samuel and Odette Beluso which stated:

"We see, however, sufficient basis to impose a 12% legal interest in favor of petitioner in the case at bar, as
what we have voided is merely the stipulated rate of interest and not the stipulation that the loan shall earn
interest."189 (Citation omitted)

As to the trial court's reduction of the penalty charges and attorney's fees, the Court of Appeals affirmed the
trial court's ruling and stated that Article 1229190 of the Civil Code allows for the reduction of penalty charges
that are unconscionable.191 The Court of Appeals discussed that:

The penalties imposed by PNB are clearly unconscionable. Any doubt as to this fact can be removed by
simply glancing at the penalties charged by defendant-appellant which . . . already amounted to an
incredibly huge amount of P176,098,045.94 despite payments that already exceeded the amount of the loan
as of 1998.

With respect to attorney's fees, the Supreme Court had consistently and invariably ruled that even with the
presence of an agreement between the parties, the court may nevertheless reduce attorney's fees though
fixed in the contract when the amount thereof appears to be unconscionable or unreasonable. Again, the
fact that the attorney's fees imposed by PNB are unconscionable and unreasonable can clearly be seen. The
attorney's fees imposed similarly points to an incredibly huge sum of P136,900,928.85 as of October 30,
2000. Therefore, its reduction in the assailed decision is well-grounded. 192 (Citation omitted)

The dispositive portion of the Court of Appeals Decision states:

WHEREFORE, the assailed Decision dated June 19, 2002 and Order dated August 13, 2002 of the Regional
Trial Court of Davao City, Branch 17 in Civil Case No. 28,170-2000 declaring the unilateral imposition of
interest rates by defendant-appellant PNB as null and void appealed from are AFFIRMED with the
MODIFICATION that the obligation of plaintiffs-appellees arising from the Loan and Revolving Credit Line
and subsequent Conversion, Restructuring and Extension Agreement as Loan I and Loan II shall earn
interest at the legal rate of twelve percent (12%) per annum computed from September 1, 1993, until fully
paid and satisfied.

SO ORDERED.193 (Emphasis in the original)


Philippine National Bank moved for reconsideration on September 3, 2009, 194 arguing that the interest rates
were "mutually agreed upon[;]"195 that Spouses Limso and Davao Sunrise "never questioned the . . . interest
rates[;]"196 and that they "acknowledged the total amount of their debt (inclusive of loan principal and
accrued interest) to [Philippine National Bank] in the Conversion, Restructuring and Extension Agreement
which restructured their obligation to [Philippine National Bank] in the amount of P1.067 Billion[.]" 197

Spouses Limso and Davao Sunrise moved for partial reconsideration on September 9, 2009, 198pointing, out
that their obligation to Philippine National Bank was only P205,084,682.61, as stated in the trial court's
Order dated August 13, 2002 in Civil Case No. 28,170-2000. 199

Both Motions were denied by the Court of Appeals in the Resolution 200 dated May 18, 2011.

The Court of Appeals held that Philippine National Bank's Motion for Reconsideration raised issues that were
a mere rehash of the issues already ruled upon.201

With regard to Spouses Limso and Davao Sunrise's Motion for Partial Reconsideration, the Court of Appeals
ruled that:

Since the appellees did not appeal from the decision of the lower court, they are not entitled to any award of
affirmative relief. It is well settled that an appellee who has not himself appealed cannot obtain from the
appellate court any affirmative relief other than those granted in the decision of the court below. The
appellee can only advance any argument that he may deem necessary to defeat the appellant's claim or to
uphold the decision that is being disputed. . . . Thus, the lower court's finding that the appellees have an
unpaid obligation with PNB, and not the other way around, should stand. It bears stressing that appellees
even acknowledged their outstanding indebtedness with the PNB when they filed their "Urgent Motion for
Execution Pending Appeal" of the August 13, 2002 Order of the lower court decreeing that appellees'
remaining obligation with PNB is P205,084,682.61. They cannot now claim that PNB is the one indebted to
them in the amount of P15,915,588.89.202

Philippine National Bank filed a Petition for Review on Certiorari 203 assailing the Decision in CA-G.R. CV No.
79732-MIN. Philippine National Bank argues that there was mutuality of contracts between the parties, and
that the interest rates imposed were valid in view of the escalation clauses in their contract. 204 Philippine
National Bank's Petition for Review was docketed as G.R. No. 196958. 205

Spouses Limso and Davao Sunrise also filed a Petition for Review 206 on Certiorari questioning the ruling of
the Court of Appeals in CA-G.R. CV No. 79732-MIN that their outstanding obligation was
P803,185,411.11.207 Spouses Limso and Davao Sunrise argue that they "made overpayments in the amount
of P15,915,588.89."208 This was docketed as G.R. No. 197120.209

On January 21, 2013, the Court of Appeals dismissed Philippine National Bank's appeal docketed as CA-G.R.
CV No. 01464-MIN (referring to the Petition for the Issuance of a Writ of Possession) on the ground that
Philippine National Bank availed itself of the wrong remedy.210 What the Philippine National Bank should have
filed was a "petition for review under Rule 45 and not an appeal under Rule 41[.]" 211

On March 15, 2013, the Philippine National Bank filed a Petition for Review on Certiorari 212 before this court,
assailing the dismissal of its appeal before the Court of Appeals and praying that the Decision of the trial
court that the Sheriffs Provisional Certificate of Sale was not signed by the Register of Deeds and was not
registered be reversed and set aside. The Petition was docketed as G.R. No. 205463. 213

G.R. No. 158622 was filed on July 1, 2003;214 G.R. No. 169441 was filed on September 14, 2005; 215G.R. No.
172958 was filed on June 26, 2006;216 G.R. No. 173194 was filed on July 21, 2006;217 G.R. No. 196958 was
filed on June 17, 2011;218 G.R. No. 197120 was filed on June 22, 2011;219 and G.R. No. 205463 was filed on
March 15, 2013.220

Docket Original Case Assailed Order/Decision


Number
G.R. No. Petition for Declaratory Court of Appeals Decision dated
158622 Relief with Prayer for the December 11, 2002 dismissing the
Issuance of Preliminary Petition for Certiorari filed by
Injunction and Philippine National Bank. The
Application for Temporary Petition for Certiorari questioned
Restraining Order221 the issuance of a writ of
preliminary injunction in favor of
Spouses Limso and Davao
Sunrise.222
G.R. Ex-Parte Petition223 for
No.169441 Issuance of Writ of Court of Appeals Decision dated
Possession under Act No. September 1, 2004 and Resolution
3135 filed by Philippine dated August 11, 2005.224
National Bank, praying
that it be granted Spouses Limso and Davao Sunrise
possession over four (4) filed a Motion to Inhibit Judge
parcels of land owned by Quitain, which was denied by
Davao Sunrise Judge Quitain. Thus, Spouses
Limso and Davao Sunrise
questioned the denial of their
Motion before the Court of
Appeals.225

G.R. No. Ex-Parte Petition226 for"


172958 Issuance of the Writ of Court of Appeals Decision227 dated
Possession under Act No. September 1, 2005 and
3135 filed by Philippine Resolution228 dated May 26, 2006.
National Bank, praying
that it be granted The Petition for Certiorari and
possession over four (4) Prohibition filed by Spouses Limso
parcels of land owned by and Davao Sunrise assailed two
Davao Sunrise Orders of Judge Quitain, which
denied their Motion to Expunge
and/or Dismiss Petition for
Issuance of Writ of Possession.229

G.R. No. Petition for Reformation


173194 or Annulment of Contract Court of Appeals
with Damages filed by Resolution231 dated March 2, 2006,
Spouses Limso and which denied Philippine National
Davao Sunrise230 Bank's (1) Application to Hold
[Spouses Limso and Davao
Sunrise] and the Surety Bond
Company Jointly and Severally
Liable for Damages on the
Injunction Bond, and (2)
Application for the Appointment of
[Philippine National Bank] as
Receiver.

Also assailed was the Court of


Appeals Resolution232 dated May
26, 2006, which denied the Motion
for Reconsideration filed by
Philippine National Bank.

G.R. No. Petition for Reformation


196958 or Annulment of Contract Court of Appeals Decision234 dated
with Damages filed by August 13, 2009 and Court of
Davao Sunrise and Appeals Resolution235 dated May
Spouses Limso233 18, 2011 docketed as CA-G.R. CV
No. 79732-Min.

The decision dated August 13,


2009 affirmed with modification
the decision of the trial court in
Civil Case No. 28,170-2000.236

The Resolution dated May 18,2011


in CA-G.R. CV No. 79732-Min
denied the Motion for
Reconsideration filed by Philippine
National Bank and also denied the
Motion for Partial Reconsideration
filed by Spouses Limso and Davao
Sunrise.237

The Rule 41 appeal was filed by


Philippine National Bank.238

G.R. No. Petition239 for Reformation


197120 or Annulment of Contract Court of Appeals Decision240 dated
with Damages filed by August 13, 2009 and Court of
Spouses Limso and Appeals Resolution241dated May 18,
Davao Sunrise 2011.
Spouses Limso and Davao Sunrise
assailed the portion of the Court of
Appeals Decision stating that their
outstanding obligation was
P803,185,411.11.242

G.R. No. Ex-Parte Petition for Court of Appeals Decision244 dated


205463 Issuance of the Writ of January 21, 2013 dismissing the
Possession under Act No. appeal under Rule 41 filed by
3135 filed by Philippine Philippine National Bank for being
National Bank, praying the wrong remedy
that it be granted
possession over four
parcels of land owned by
Davao Sunrise243

In the Manifestation and Motion245 dated May 26, 2006, Davao Sunrise prayed that it be allowed to withdraw
G.R. No. 169441 since the issues in the Petition had become moot and academic.

In the Resolution246 dated August 7, 2006, this court consolidated G.R. Nos. 172958, 173194, and 169441,
with G.R. No. 158622 as the lowest-numbered case.

Davao Sunrise's Manifestation and Motion dated May 26, 2006, which prayed that it be allowed to withdraw
G.R. No. 169441, was granted in the Resolution247 dated October 16, 2006. Thus, G.R. No. 169441 was
deemed closed and terminated as of October 16, 2006. 248

In the Resolution249 dated March 7, 2007 in G.R. No. 173194, this court required respondents Spouses Limso
and Davao Sunrise to file their comment.

In the Resolution250 dated July 4, 2011, G.R. No. 197120 was consolidated with G.R. No. 196958.

On May 17, 2012, counsel for Spouses Limso and Davao Sunrise notified this court of the death of Robert
Alan L. Limso.251

On October 9, 2013, Spouses Limso and Davao Sunrise filed a Motion to Withdraw Petitions in G.R. Nos.
172958, 169441 and 158622.252 Davao Sunrise and Spouses Limso, through counsel, explained that G.R.
No. 169441 had been mooted by Judge Quitain's voluntary inhibition from hearing and deciding Other Case
No. 124-2002.253

After Judge Quitain had inhibited, Other Case No. 124-2002 was re-raffled to Branch 16 of the Regional Trial
Court of Davao City.254 Other Case No. 124-2002 was dismissed in the Order255 dated February 16, 2007.
Since Other Case No. 124-2002 was dismissed, G.R. No. 172958 was mooted as well. 256

With regard to G.R. No. 158622, counsel for Spouses Limso and Davao Sunrise explained:

It is clear, however, that the ruling of the Regional Trial Court of Davao City in Civil Case No. 28,170-2000
and the Court of Appeals in CA G.R. No. 79732 already rendered Civil Case No. 29,036-2002 moot and
academic. Under the premises, there is no need for this Honorable Court to rule on the propriety of the
dismissal of the said action for Declaratory Relief as the loan agreements from which the entire case
stemmed had already been declared NULL AND VOID.257 (Emphasis in the original)

In the Resolution258 dated March 12, 2014, this court granted the Motion to Withdraw Petitions with regard to
G.R. Nos. 172958 and 158622. The prayer for the withdrawal of G.R. No. 169441 was noted without action
since G.R. No. 169441 was deemed closed and terminated in this court's Resolution dated October 16,
2006.259

On April 2, 2014, Spouses Limso and Davao Sunrise filed an "Omnibus Motion for Leave [1] To Intervene;
[2] To File/ Admit Herein Attached Comment-in-Intervention; and [3] To Consolidate Cases" 260 in G.R. No.
205463.

Spouses Limso and Davao Sunrise argue that they were allowed to participate in Other Case No. 124-2002,
and that Philippine National Bank was in bad faith when it did not furnish Nancy Limso and Davao Sunrise
copies of the Petition for Review it had filed.261

In the Resolution262 dated April 2, 2014, this court gave due course to the Petition and required the parties
to submit their memoranda.

On April 15, 2014, Spouses Limso and Davao Sunrise filed a Motion to Dismiss the Petition in G.R. No.
173194 on the ground that the issues raised by Philippine National Bank are moot and academic. Spouses
Limso and Davao Sunrise also reiterated that Philippine National Bank availed of the wrong remedy.263

In the Resolution264 dated July 9, 2014, this court recommended the consolidation of G.R. No. 205463 with
G.R. Nos. 158622, 169441, 172958, 173194, 196958, and 197120.

In the Resolution265 dated October 13, 2014, this court noted and granted the Omnibus Motion for Leave to
Intervene filed by counsel for Nancy Limso and Davao Sunrise. 266 This court also noted the memoranda filed
by counsel for Philippine National Bank, the Office of the Solicitor General, and counsel for Spouses Limso
and Davao Sunrise.267

The remaining issues for resolution are those raised in G.R. Nos. 173194, 196958, 197120, and 205463,
which are:

First, whether the Philippine National Bank's Petition for Review on Certiorari in G.R. No. 173194 is the
wrong remedy to assail the March 2, 2006 Court of Appeals Resolution, 268 which denied Philippine National
Bank's (1) Application to Hold [Spouses Limso and Davao Sunrise ] and the Surety Bond Company Jointly
and Severally Liable for Damages on the Injunction Bond, and (2) Application for the Appointment of
[Philippine National Bank] as Receiver;

Second, whether Philippine National Bank committed forum shopping when it filed an ex-parte Petition for
the Issuance of a Writ of Possession and an Application to be Appointed as Receiver;

Third, whether the Court of Appeals erred in ruling that the interest rates imposed by Philippine National
Bank were usurious and unconscionable;

Fourth, whether the Conversion, Restructuring and Extension Agreement executed in 1999 novated the
original Loan and Credit Agreement executed in 1993;

Fifth, whether the Court of Appeals erred in dismissing the appeal under Rule 41 filed by Philippine National
Bank, which assailed the Court of Appeals Decision dated January 21, 2013 in CA-G.R. CV No. 01464-MIN,
for being the wrong remedy;

Sixth, whether the Sheriff's Provisional Certificate of Sale should be considered registered in view of the
entry made by the Register of Deeds in the Primary Entry Book; and

Lastly, whether Philippine National Bank is entitled to a writ of possession.

The Petition for Review in G.R. No. 173194 should be denied.

The Petition docketed as G.R. No. 173194, filed by Philippine National Bank, questions the Court of Appeals
Resolutions in CA-G.R. CV No. 79732-MIN dated March 2, 2006 and May 26, 2006, which denied Philippine
National Bank's applications for damages on the injunction bond and to be appointed as receiver.269
The assailed Resolutions in G.R. No. 173194 are interlocutory orders and are not appealable.

Rule 41, Section 1270 of the Rules of Court provides:

SECTION 1. Subject of Appeal. An appeal may be taken from a judgment or final order that completely
disposes of the case, or of a particular matter therein when declared by these Rules to be appealable.

No appeal may be taken from:


....
(b) An interlocutory order;
....

In any of the foregoing circumstances, the aggrieved party may file an appropriate special civil action as
provided in Rule 65.

In addition, Rule 45, Section 1 of the Rules of Court provides:

SECTION 1. Filing of Petition with Supreme Court. A party desiring to appeal by certiorari from a
judgment, final order or resolution of the Court of Appeals, the Sandiganbayan, the Court of Tax Appeals,
the Regional Trial Court or other courts, whenever authorized by law, may file with the Supreme Court a
verified petition for review on certiorari[.] (Emphasis supplied)

The difference between an interlocutory order and a final order was discussed in United Overseas Bank v.
Judge Ros:271

The word interlocutory refers to something intervening between the commencement and the end of the suit
which decides some point or matter but is not a final decision of the whole controversy. This Court had the
occasion to distinguish a final order or resolution from an interlocutory one in the case of Investments, Inc.
v. Court of Appeals, thus:
chanRoble svirtualLawlibrary

x x x A "final" judgment or order is one that finally disposes of a case, leaving nothing more to be done by
the Court in respect thereto, e.g., an adjudication on the merits which, on the basis of the evidence
presented on the trial, declares categorically what the rights and obligations of the parties are and which
party is in the right; or a judgment or order that dismisses an action on the ground, for instance, of res
judicata or prescription. Once rendered, the task of the Court is ended, as far as deciding the controversy or
determining the rights and liabilities of the litigants is concerned. Nothing more remains to be done by the
Court except to await the parties' next move (which among others, may consist of the filing of a motion for
new trial or reconsideration, or the taking of an appeal) and ultimately, of course, to cause the execution of
the judgment once it becomes "final" or, to use the established and more distinctive term, "final and
executory."

xxx xxx xxx

Conversely, an order that does not finally dispose of the case, and does not end the Court's task of
adjudicating the parties' contentions and determining their rights and liabilities as regards each other, but
obviously indicates that other things remain to be done by the Court, is "interlocutory" e.g., an order
denying motion to dismiss under Rule 16 of the Rules, or granting of motion on extension of time to file a
pleading, or authorizing amendment thereof, or granting or denying applications for postponement, or
production or inspection of documents or things, etc.Unlike a "final" judgment or order, which is appealable,
as above pointed out, an "interlocutory" order may not be questioned on appeal except only as part of an
appeal that may eventually be taken from the final judgment rendered in the case. 272 (Citations omitted)

The Resolutions denying Philippine National Bank's applications were interlocutory orders since the
Resolutions did not dispose of the merits of the main case.

CA-G.R. CV No. 79732-MIN originated from Civil Case No. 28,170-2000, which involved the issues regarding
the interest rates imposed by Philippine National Bank. Hence, the denial of Philippine National Bank's
applications did not determine the issues on the interest rates imposed by Philippine National Bank.

The proper remedy for Philippine National Bank would have been to file a petition for certiorari under Rule
65 or, in the alternative, to await the outcome of the main case and file an appeal, raising the denial of its
applications as an assignment of error.
In any case, we continue to resolve the arguments raised in G.R. No. 173194.

Philippine National Bank argues in its Petition for Review docketed as G.R. No. 173194 that its application to
hold the injunction bond liable for damages was filed on time. It points out that the phrase "before the
judgment becomes executory" found in Section 20273 of Rule 57 refers to the judgment in the main case,
which, in this case, refers to CA-G.R. CV No. 79732.274

Philippine National Bank also argues that the Court of Appeals erred in denying its application to be
appointed as receiver because although the Sheriff's Provisional Certificate of Sale was not registered, the
Certificate of Sale "provides the basis for [Philippine National Bank] to claim ownership over the foreclosed
properties."275 As the highest bidder, Philippine National Bank had the right to receive the rental income of
the foreclosed properties.276

Spouses Limso and Davao Sunrise filed their Comment, 277 countering that the Court of Appeals did not err in
denying Philippine National Bank's applications to hold the injunction bond liable for damages and to be
appointed as receiver.278 They cite San Beda College v. Social Security System,279 where this court ruled that
"the claim for damages for wrongful issuance of injunction must be filed before the finality of the decree
dissolving the questioned writ."280

They highlight Philippine National Bank's admission that the writ of preliminary injunction was dissolved in
January 2002, and that^the Decision281 dissolving the writ attained finality on September 11, 2002. 282

Spouses Limso and Davao Sunrise further point out that while CA-G.R. CV No. 79732 was still pending
before the Court of Appeals, "the decree dissolving the questioned Writ of Preliminary Injunction had already
become final."283 Thus, Philippine National Bank filed its application out of time. 284

They argue that in any case, Philippine National Bank cannot claim damages on the injunction bond since it
was unable to secure a judgment in its favor in Civil Case No. 28,170-2000. 285

They further argue that the Court of Appeals was correct in denying Philippine National Bank's application to
be appointed as receiver on the ground that Philippine National Bank is a party to the case and hence, it
cannot be appointed as receiver.286

Spouses Limso and Davao Sunrise then allege that Philippine National Bank is guilty of forum shopping. They
argue that Philippine National Bank's ex-parte Petition for the issuance of a writ of possession, docketed as
Other Case No. 124-2002, and the application to be appointed as receiver have the same purpose: to obtain
possession of the properties.287

Philippine National Bank, through counsel, filed its Reply, countering that San Beda College was decided
when the 1964 Rules of Court was still in effect.288 It argues that the cited case is no longer applicable
because the 1964 Rules was superseded by the 1997 Rules of Civil Procedure. 289 The applicable case is Hanil
Development Co., Ltd. v. Intermediate Appellate Court 290 where this court ruled that "the judgment against
the attachment bond could be included in the final judgment of the main case." 291

Philippine National Bank also argued that under the 1997 Rules of Civil Procedure, the applicant for damages
does not have to be the winning party.292

Philippine National Bank further argues that it did not commit forum shopping since "there is no identity of
parties between CA G.R. CV No. 79732 ... and Other Case No. 124-2002." 293 The causes of action and reliefs
sought in the two cases are different.294 It points out that its application to be appointed as receiver is a
provisional remedy under Rule 59 of the 1997 Rules of Civil Procedure, while its prayer for the issuance of a
writ of possession in Other Case No. 124-2002 is based on its right to possess the properties involved. 295

We rule that the Court of Appeals properly denied Philippine National Bank's application to hold the
injunction bond liable for damages and be appointed as receiver. We also rule that no forum shopping was
committed by Philippine National Bank. However, the Court of Appeals erred in ruling that Philippine National
Bank filed its application to hold the injunction bond liable for damages out of time.

The Court of Appeals, in its Resolution dated March 2, 2006, explained:


Records show that when this Court annulled the RTC's order of injunction, Davao Sunrise thereafter elevated
the matter to the Supreme Court. On July 24, 2002, the Supreme Court denied its petition for having been
filed out of time and an Entry of Judgment was issued on Sept[ember] 11,2002.

PNB's instant application however was filed only on February 17, 2005 and/or in the course of its appeal on
the main case - about two (2) years and five (5) months after the judgment annulling the injunction order
attained finality.

Clearly, despite that it already obtained a favorable judgment on the injunction matter, PNB failed to file
(before the court a quo) an application for damages against the bond before judgment was rendered in the
main case by the court a quo. Thus, even for this reason alone, Davao Sunrise and its bondsman are
relieved of further liability thereunder.296 (Citations omitted)

The Petition referred to by the Court of Appeals in the quoted Resolution was docketed as G.R. No. 152812
and was entitled Davao Sunrise Investment and Development Corporation, et al. v. Court of Appeals, et
al.297 G.R. No. 152812 originated from CA G.R. SP No. 63351.298 CA G.R. SP No. 63351 was a Petition for
Certiorari filed by Philippine National Bank, which questioned the issuance of a writ of preliminary injunction
in Civil Case No. 28,170-2000.299

In the Decision300 dated January 10, 2002, the Court of Appeals granted Philippine National Bank's Petition
for Certiorari and held that:

In the case at bar, respondents' claim to a right to preliminary injunction based on PNB's purported
unilateral imposition of interest rates and subsequent increases thereof, is not a right warranting the
issuance of an injunction to halt the foreclosure proceedings. On the contrary, it is petitioner bank which has
proven its right to foreclose respondents' mortgaged properties, especially since respondents have admitted
their indebtedness to PNB and merely questioning the interest rates imposed by the bank. . . .
....

Above all, the core and ultimate issue raised in the main case below is the interest stipulation in the loan
agreements between the petitioner and private respondents, the validity of which is still to be determined by
the lower court. Injunctive relief cannot be made to rest on the assumption that said interest stipulation is
void as it would preempt the merits of the main case.

WHEREFORE, premises considered, the assailed Orders of respondent judge dated December 4 and 21, 2000
are hereby ANNULLED and SET ASIDE, and the Order dated November 20, 2000 denying private
respondents prayer for the issuance of a writ of preliminary injunction is REINSTATED.

SO ORDERED.301 ChanRoblesVirtualawlibrary

Spouses Limso and Davao Sunrise assailed the Decision in CA-G.R. SP No. 63351 and filed before this court
a Petition for Review, docketed as GR. No. 152812. However, the Petition for Review was denied in the
Resolution302 dated July 24, 2002 for being filed out of time, and Entry of Judgment 303 was made on
September 11, 2002.

The issuance of the writ of preliminary injunction in Civil Case No. 28,170-2000 was an interlocutory order,
and was properly questioned by Philippine National Bank through a Petition for Certiorari.

However, the Court of Appeals erred in ruling that Philippine National Bank's application was filed out of
time.

Section 20 of Rule 57 of the Rules of Civil Procedure provides:

SECTION 20. Claim for Damages on Account of Improper, Irregular or Excessive Attachment. An
application for damages on account of improper, irregular or excessive attachment must be filed before the
trial or before appeal is perfected or before the judgment becomes executory, with due notice to the
attaching party and his surety or sureties, setting forth the facts showing his right to damages and the
amount thereof. Such damages may be awarded only after proper hearing and shall be included in the
judgment on the main case.

If the judgment of the appellate court be favorable to the party against whom the attachment was issued,
he must claim damages sustained during the pendency of the appeal by filing an application in the appellate
court, with notice to the party in whose favor the attachment was issued or his surety or sureties, before the
judgment of the appellate court becomes executory. The appellate court may allow the application to be
heard and decided by the trial court.

Nothing herein contained shall prevent the party against whom the attachment was issued from recovering
in the same action the damages awarded to him from any property of the attaching party not exempt from
execution should the bond or deposit given by the latter be insufficient or fail to fully satisfy the award.

The judgment referred to in Section 20 of Rule 57 should mean the judgment in the main case. In Carlos v.
Sandoval:304

Section 20 essentially allows the application to be filed at any time before the judgment becomes executory.
It should be filed in the same case that is the main action, and cannot be instituted separately. It should be
filed with the court having jurisdiction over the case at the time of the application. The remedy provided by
law is exclusive and by failing to file a motion for the determination of the damages on time and while the
judgment is still under the control of the court, the claimant loses his right to damages. 305 (Citations
omitted)

In this case, Philippine National Bank filed its application 306 during the pendency of the appeal before the
Court of Appeals. The application was dated January 12, 2005, 307 while the appeal in the main case,
docketed as CA-G.R. CV No. 79732-MIN, was decided on August 13, 2009. 308 Hence, Philippine National
Bank's application to hold the injunction bond liable for damages was filed on time.

The Court of Appeals properly denied Philippine National Bank's application to be appointed as a receiver.

Rule 59, Section 1 provides the grounds when a receiver may be appointed:

SECTION 1. Appointment of Receiver. Upon a verified application, one or more receivers of the property
subject of the action or proceeding may be appointed by the court where the action is pending, or by the
Court of Appeals or by the Supreme Court, or a member thereof, in the following cases:

(a) When it appears from the verified application, and such other proof as
the court may require, that the party applying for the appointment of
a receiver has an interest in the property or fund which is the subject
of the action or proceeding, and that such property or fund is in
danger of being lost, removed, or materially injured unless a receiver
be appointed to administer and preserve it;
(b) When it appears in an action by the mortgagee for the foreclosure of a
mortgage that the property is in danger of being wasted or dissipated
or materially injured, and that its value is probably insufficient to
discharge the mortgage debt, or that the parties have so stipulated in
the contract of mortgage;
(c) After judgment, to preserve the property during the pendency of an
appeal, or to dispose of it according to the judgment, or to aid
execution when the execution has been returned unsatisfied or the
judgment obligor refuses to apply his property in satisfaction of the
judgment, or otherwise to carry the judgment into effect;
(d) Whenever in other cases it appears that the appointment of a receiver
is the most convenient and feasible means of preserving,
administering, or disposing of the property in litigation.
During the pendency of an appeal, the appellate court may allow an application for the appointment of a
receiver to be filed in and decided by the court of origin and the receiver appointed to be subject to the
control of said court.

In Commodities Storage & Ice Plant Corporation v. Court of Appeals: 309

The general rule is that neither party to a litigation should be appointed as receiver without the consent of
the other because a receiver should be a person indifferent to the parties and should be impartial and
disinterested. The receiver is not the representative of any of the parties but of all of them to the end that
their interests may be equally protected with the least possible inconvenience and expense. 310 (Citations
omitted)

The Court of Appeals cited Spouses Limso and Davao Sunrise's objection to Philippine National Bank's
application to be appointed as receiver as one of the grounds why the application should fail. 311

Also, the Court of Appeals found that the mortgaged properties of Spouses Limso and Davao Sunrise were
earning approximately P12,000,000.00 per month. This proves that the properties were being administered
properly and did not require the appointment of a receiver. Also, to appoint Philippine National Bank as
receiver would be premature since the trial court's Decision was pending appeal. 312

Philippine National Bank did not commit forum shopping when it filed an ex-parte Petition for the issuance of
a writ of possession and an application for appointment as receiver.

The elements of forum shopping are:

(a) identity of parties, or at least such parties as represent the same interests in both actions;

(b) identity of rights asserted and relief prayed for, the relief being founded on the same facts; and

(c) the identity of the two preceding particulars, such that any judgment rendered in the other action will,
regardless of which party is successful, amount to res judicata in the action under consideration.313 (Citation
omitted)

There is no identity of parties because the party to the Petition for Issuance of Writ of Possession is
Philippine National Bank only, while there are two parties to application for appointment as receiver:
Philippine National Bank on one hand, and Spouses Limso and Davao Sunrise on the other.

The causes of action are also different. In the Petition for Issuance of Writ of Possession, Philippine National
Bank prays that it be granted a writ of possession over the foreclosed properties because it is the winning
bidder in the foreclosure sale.314 On the other hand, Philippine National Bank's application to be appointed as
receiver is for the purpose of preserving these properties pending the resolution of CA-G.R. CV No.
79732.315 While the issuance of a writ of possession or the appointment as receiver would have the same
result of granting possession of the foreclosed properties to Philippine National Bank, Philippine National
Bank's right to possess these properties as the winning bidder in the foreclosure sale is different from its
interest as creditor to preserve these properties.

II

There is no mutuality of contracts when the determination or imposition of interest rates is at the sole
discretion of a party to the contract. Further, escalation clauses in contracts are void when they allow the
creditor to unilaterally adjust the interest rates without the consent of the debtor.

The Petitions docketed as G.R. Nos. 196958 and 197120 assail the Decision in CA-G.R. CV No. 79732-MIN. 316

Philippine National Bank argues that the principle of mutuality of contracts was not violated because
Spouses Limso and Davao Sunrise were notified as to the applicable interest rates, and their consent was
obtained before the effectivity of the agreement.317 There was no unilateral imposition of interest rates since
the rates were dependent on the prevailing market rates. 318

Philippine National Bank also argues that Spouses Limso and Davao Sunrise were regularly informed by
Philippine National Bank of the interest rates imposed on their loan, as shown by Robert Alan L. Limso's
signatures on the letters sent by Philippine National Bank.319

Philippine National Bank further argues that loan agreements with escalation clauses, by their nature,
"would not indicate the exact rate of interest applicable to a loan precisely because it is made to depend by
the parties to external factors such as market indicators and/or government regulations affecting the cost of
money."320

Philippine National Bank cites Solidbank Corp., (now Metropolitan Bank and Trust Company) v. Permanent
Homes, Incorporated,321 where this court held that "contracts with escalation clause do not violate the
principle of mutuality of contracts." 322

Philippine National Bank contends that the Conversion, Restructuring and Extension Agreement novated the
previous contracts with Spouses Limso and Davao Sunrise. In addition, the alleged infirmities in the previous
contracts were set aside upon the execution of the Conversion, Restructuring and Extension Agreement. 323

On the other hand, Spouses Limso and Davao Sunrise argue that the Court of Appeals did not err in ruling
that the interest rates were imposed unilaterally. Spouses Limso and Davao Sunrise allege that the interest
rates were not stipulated in writing, in violation of Article 1956 of the Civil Code. 324 Also, the Court of
Appeals did not err in reducing the penalties and attorney's fees since Article 2227 of the Civil Code
states:325

Article 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced
if they are iniquitous or unconscionable.

Spouses Limso and Davao Sunrise add that the letters sent by Philippine National Bank to Davao Sunrise
were not agreements but mere notices that the interest rates were increased by Philippine National
Bank.326 Moreover, the letters were received by Davao Sunrise's employees who were not authorized to
receive such letters.327 Some of the letters did not even appear to have been received by anyone at all. 328

Spouses Limso and Davao Sunrise allege that Philippine National Bank admitted that the penalties stated in
the agreements were in the nature of liquidated damages. 329 Nevertheless, Spouses Limso and Davao
Sunrise question the Court of Appeals' ruling insofar as it held that their remaining obligation to Philippine
National Bank is P803,185,411.11 as of September 1, 2008. According to Spouses Limso and Davao Sunrise,
they have overpaid Philippine National Bank in the amount of P15,915,588.89. 330

Philippine National Bank counters that Davao Sunrise and Spouses Limso's promissory notes had a provision
stating:

[T]he rate of interest shall be set at the start of every Interest Period. For this purpose, I/We agree that the
rate of interest herein stipulated may be increased or decreased for the subsequent Interest Periods,
with PRIOR NOTICE TO THE BORROWER in the event of changes in the interest rate prescribed by law or
the Monetary Board of Central Bank of the Philippines or in the Bank's overall cost of funds. I/We hereby
agree that IN THE EVENT I/WE ARE NOT AGREEABLE TO THE INTEREST RATE FIXED FOR ANY
INTEREST PERIOD, I/WE HAVE THE OPTION TO PREPAY THE LOAN OR CREDIT FACILITY
WITHOUT PENALTY within ten (10) calendar days from the Interest Setting Date. 331 (Emphasis in the
original)

As to the letters sent by Philippine National Bank, these letters were received by the Chief Finance Officer,
Chairman, and President of Davao Sunrise. In addition, assuming that the employees who allegedly received
the letters were not authorized to do so, the unauthorized acts were ratified by Spouses Limso and Davao
Sunrise when they used the proceeds of the loan. 332

We rule that there was no mutuality of contract between the parties since the interest rates imposed were
based on the sole discretion of Philippine National Bank.333 Further, the escalation clauses in the real estate
mortgage "[did] not specify a fixed or base interest[.]" 334 Thus, the interest rates are invalid.

The principle of mutuality of contracts is stated in Article 1308 of the Civil Code as follows:

Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the
will of one of them.
The importance of the principle of mutuality of contracts was discussed in Juico v. China Banking
Corporation:335

The binding effect of any agreement between parties to a contract is premised on two settled principles: (1)
that any obligation arising from contract has the force of law between the parties; and (2) that there must
be mutuality between the parties based on their essential equality. Any contract which appears to be heavily
weighed in favor of one of the parties so as to lead to an unconscionable result is void. Any stipulation
regarding the validity or compliance of the contract which is left solely to the will of one of the parties, is
likewise, invalid.336 (Citation omitted)

When there is no mutuality between the parties to a contract, it means that the parties were not on equal
footing when the terms of the contract were negotiated. Thus, the principle of mutuality of contracts dictates
that a contract must be rendered void when the execution of its terms is skewed in favor of one party.337

The Court of Appeals also noted that since the interest rates imposed were at the sole discretion of
Philippine National Bank, and that Spouses Limso and Davao Sunrise were merely notified when there were
changes in the interest rates, Philippine National Bank violated the principle of mutuality of contracts. 338 The
Court of Appeals ruled that:

We cannot subscribe to appellant bank's allegation that plaintiffs-appellees agreed to these interest rates by
receiving various letters from PNB. Those letters cannot be construed as agreements as a simple reading of
those letters would show that they are mere notices informing plaintiffs-appellees that the bank, through its
top management, had already imposed interest rates on their loan. The uniform wordings of the said letters
go this way:
chanRoble svirtualLawlibrary

This refers to your existing credit facility in the principal amount of P850.0 MM granted by the Philippine
National Bank by and under the terms and conditions of that Credit Agreement dated 12.2.97 (Renewal of
Credit Facility).

We wish to advise you that the top management has approved an interest rate of 20.756% which will be
used in computing the interest due on your existing peso and redenominated availments against the credit
facility for the period July 20 to August 19, 1998.

If you are amenable to this arrangement, please signify your conformity on the space provided below and
return to us the original copy of the document. If we receive no written objection by the end of 10 days from
date of receipt of this letter, we will take it to mean that you agree to the new interest rate we quote. On the
other hand, if you disagree with the quoted rate, you will have to pay the loan in full within the same ten-
day period otherwise, the entire loan will be considered due and demandable. 339 (Citation omitted)

The contents of the letter quoted by the Court of Appeals show that there was no room for negotiation
among Philippine National Bank, Spouses Limso, and Davao Sunrise when it came to the applicable interest
rate. Since there was no room for negotiations between the parties with regard to the increases of the rates
of interest, the principle of mutuality of contracts was violated. There was no meeting of the minds between
Spouses Limso, Davao Sunrise, and Philippine National Bank because the increases in the interest rates were
imposed on them unilaterally.

Meeting of the minds between parties to a contract is manifested when the elements of a valid contract are
all present.340 Article 1318 of the Civil Code provides:

Article 1318. There is no contract unless the following requisites concur:


chanRoble svirtualLawlibrary

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

When one of the elements is wanting, no contract can be perfected. 341In this case, no consent was given by
Spouses Limso and Davao Sunrise as to the increase in the interest rates. Consequently, the increases in the
interest rates are not valid.
Even the promissory notes contained provisions granting Philippine National Bank the sole discretion to set
the interest rate:

[Promissory Note] NO. 0015138516350115 . ..

. . . I/We, jointly and severally, promise to pay to the order of the Philippine National Bank (the 'Bank') at its
office in cm recto avenue davao city [sic], Philippines, the sum of PHILIPPINE
PESOS: 583.183.333.34 (P583383.333.34) together with interest thereon for the current Interest Period at
a rate of to be set by mzt. [management]. Interest Period shall mean the period commencing on the date
hereof and having a duration not exceeding monthly (____ ) days and each similar period thereafter
commencing upon the expiry of the immediately preceding Interest Period. The rate of interest shall be set
at the start of every Interest Period. For this purpose, I/We agree that the rate of interest herein stipulated
may be increased or decreased for the subsequent Interest Periods, with prior notice to the Borrower in the
event of changes in interest rate prescribed by law or the Monetary Board of the Central Bank of the
Philippines, or in the Bank's overall cost of funds. I/We hereby agree that in the event I/We are not
agreeable to the interest rate fixed for any Interest Period, I/we shall have the option to prepay the loan or
credit facility without penalty within ten (10) calendar days from the Interest Setting Date. 342ChanRoblesVirtualawlibrary

Promissory Note No. 0015138516350116343 contained the same provisions, differing only as to the amount
of the obligation.

Assuming that Davao Sunrise and Spouses Limso agreed to the increase in interest rates, the interest rates
are still null and void for being unreasonable.344

This court has held that while the Usury Law was suspended by Central Bank Circular No. 905, Series of
1982, unconscionable interest rates may be declared illegal.345 The suspension of the Usury Law did not give
creditors an unbridled right to impose arbitrary interest rates. To determine whether an interest rate is
unconscionable, we are guided by the following pronouncement:

In determining whether the rate of interest is unconscionable, the mechanical application of pre-established
floors would be wanting. The lowest rates that have previously been considered unconscionable need not be
an impenetrable minimum. What is more crucial is a consideration of the parties' contexts. Moreover,
interest rates must be appreciated in light of the fundamental nature of interest as compensation to the
creditor for money lent to another, which he or she could otherwise have used for his or her own purposes at
the time it was lent. It is not the default vehicle for predatory gain. As such, interest need only be
reasonable. It ought not be a supine mechanism for the creditor's unjust enrichment at the expense of
another.346

A reading of the interest provisions in the original agreement and the Conversion, Restructuring and
Extension Agreement shows that the interest rates imposed by Philippine National Bank were usurious and
unconscionable.

In the original credit and loan agreements executed in 1993, the interest provisions provide:

CREDIT AGREEMENT
....
1.04 Interest on Availments. (a) The Borrowers agree to pay interest on each availment from date of each
availment up to, but not including the date of full payment thereof at a rate per annum that is determined
by the Bank to be equivalent to the Bank's prime rate less 1.0% in effect as of the date of the relevant
Availment, subject to quarterly review and to maintenance of deposits with ADB of at least 5% of the
amount availed in its savings and current account. Non compliance of ADB requirement shall subject the
credit line to regular interest rate which is the prime rate plus applicable spread. 347

LOAN AGREEMENT

1.03 Interest, (a) The Borrowers hereby agree to pay interest on the loan from the date of Drawdown up to
Repayment Date at the rate that is determined by the Bank to be the Bank's prime rate in effect at the Date
of Drawdown less 1.0% and which shall be reset every 90 days to coincide with interest payments.

(b) The determination by the Bank of the amount of interest due and payable hereunder shall be conclusive
and binding on the borrower in the absence of manifest error in the computation. 348 (Emphasis supplied,
underscoring in the original)

In the Conversion, Restructuring and Extension Agreement, the interest provisions state:

SECTION 2. TERMS OF LOAN I

....
2.04 Interest, (a) The Borrowers agree to pay the Bank interest on Loan I from the Effective Date, until the
date of full payment thereof at the rate per annum to be set by the Bank. The interest rate shall be reset by
the Bank every month.
....

SECTION 3. TERMS OF LOAN II

....
3.04 Interest, (a) The Borrowers agree to pay the Bank interest on Loan II from the Effective Date, until the
date of full payment thereof at the rate per annum to be set by the Bank. The interest rate shall be reset by
the Bank every month.349 (Emphasis supplied, underscoring in the original)

From the terms of the loan agreements, there was no way for Spouses Limso and Davao Sunrise to
determine the interest rate imposed on their loan because it was always at the discretion of Philippine
National Bank.

Nor could Spouses Limso and Davao Sunrise determine the exact amount of their obligation because of the
frequent changes in the interest rates imposed.

As found by the Court of Appeals, the loan agreements merely stated that interest rates would be imposed.
However, the specific interest rates were not stipulated, and the subsequent increases in the interest rates
were all at the discretion of Philippine National Bank.350

Also invalid are the escalation clauses in the real estate mortgage and promissory notes. The escalation
clause in the real estate mortgage states:

"(k) INCREASE OF INTEREST RATE:

"The rate of interest charged on the obligation secured by this mortgage as well as the interest on the
amount which may have been advanced by the mortgagee, in accordance with the provisions hereof shall be
subject during the life of this contract to A such an increase within the rate allowed by law, as the Board of
Directors of the MORTGAGEE may prescribe for its debtors." 351

The escalation clause in the promissory notes352 states:

For this purpose, I/We agree that the rate of interest herein stipulated may be increased or decreased for
the subsequent Interest Periods, with prior notice to the Borrower in the event of changes in interest rate
prescribed by law or the Monetary Board or the Central Bank of the Philippines, or in the Bank's overall cost
of funds.353

Banco Filipino Savings and Mortgage Bank v. Judge Navarro 354 defined an escalation clause as "one which
the contract fixes a base price but contains a provision that in the event of specified cost increases, the
seller or contractor may raise the price up to a fixed percentage of the base." 355

This court has held that escalation clauses are not always void since they serve "to maintain fiscal stability
and to retain the value of money in long term contracts." 356 However:

[A]n escalation clause "which grants the creditor an unbridled right to adjust the interest independently and
upwardly, completely depriving the debtor of the right to assent to an important modification in the
agreement" is void. A stipulation of such nature violates the principle of mutuality of contracts. Thus, this
Court has previously nullified the unilateral determination and imposition by creditor banks of increases in
the rate of interest provided in loan contracts.
. . . [W]e hold that the escalation clause is ... void because it grants respondent the power to impose an
increased rate of interest without a written notice to petitioners and their written consent. Respondent's
monthly telephone calls to petitioners advising them of the prevailing interest rates would not suffice. A
detailed billing statement based on the new imposed interest with corresponding computation of the total
debt should have been provided by the respondent to enable petitioners to make an informed decision. An
appropriate form must also be signed by the petitioners to indicate their conformity to the new rates.
Compliance with these requisites is essential to preserve the mutuality of contracts. For indeed, one-sided
impositions do not have the force of law between the parties, because such impositions are not based on the
parties' essential equality.357(Citations omitted)

The interest rate provisions in Philippine National Bank's loan agreements and real estate mortgage
contracts have been nullified by this court in several cases. Even the escalation clauses in Philippine National
Bank's contracts were noted to be violative of the principle of mutuality of contracts. 358

The original loan agreement in this case was executed in 1993. Prior to the execution of the original loan
agreement, this court promulgated a Decision in 1991 ruling that "the unilateral action of the [Philippine
National Bank] in increasing the interest rate on the private respondent's loan, violated the mutuality of
contracts ordained in Article 1308 of the Civil Code[.]"359

In Philippine National Bank v. Court of Appeals 360 the interest rate provisions were nullified because these
allowed Philippine National Bank to unilaterally increase the interest rate. 361 The nullified interest rate
provisions were worded as follows:

"The Credit Agreement provided inter alia, that

'(a) The BANK reserves the right to increase the interest rate within the limits allowed by law at any time
depending on whatever policy it may adopt in the future: Provided, that the interest rate on this
accommodation shall be correspondingly decreased in the event that the applicable maximum interest is
reduced by law or by the Monetary Board. In either case, the adjustment in the interest rate agreed upon
shall take effect on the effectivity date of the increase or decrease in the maximum interest rate.'

"The Promissory Note, in turn, authorized the PNB to raise the rate of interest, at any time without notice,
beyond the stipulated rate of 12% but only 'within the limits allowed by law.'

The Real Estate Mortgage contract likewise provided that

'(k) INCREASE OF INTEREST RATE: The rate of interest charged on the obligation secured by this mortgage
as well as the interest on the amount which may have been advanced by the MORTGAGEE, in accordance
with the provision hereof, shall be subject during the life of this contract to such an increase within the rate
allowed by law, as the Board of Directors of the MORTGAGEE may prescribe for its debtors.' 362

This court explained that:

Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the
parties must meet as to the proposed modification, especially when it affects an important aspect of the
agreement. In the case of loan contracts, it cannot be gainsaid that the rate of interest is always a vital
component, for it can make or break a capital venture. Thus, any change must be mutually agreed upon,
otherwise, it is bereft of any binding effect.363

In a subsequent case364 also involving Philippine National Bank, this court likewise nullified the interest rate
provisions of Philippine National Bank and discussed:

In this case no attempt was made by PNB to secure the conformity of private respondents to the successive
increases in the interest rate. Private respondents' assent to the increases cannot be implied from their lack
of response to the letters sent by PNB, informing them of the increases. For as stated in one case, no one
receiving a proposal to change a contract is obliged to answer the proposal. 365 (Citation omitted)

However, only the interest rate imposed is nullified; hence, it is deemed not written in the contract. The
agreement on payment of interest on the principal loan obligation remains. It is a basic rule that a contract
is the law between contracting parties.366 In the original loan agreement and the Conversion, Restructuring
and Extension Agreement, Spouses Limso and Davao Sunrise agreed to pay interest on the loan they
obtained from Philippine National Bank. Such obligation was not nullified by this court. Thus, their obligation
to pay interest in their loan obligation subsists.367

Spouses Abella v. Spouses Abella368 involved a simple loan with an agreement to pay interest. Unfortunately,
the applicable interest rate was not stipulated by the parties. This court discussed that in cases where the
parties fail to specify the applicable interest rate, the legal rate of interest applies. This court also discussed
that the applicable legal rate of interest shall be the prevailing rate at the time when the agreement was
entered into:369

This is so because interest in this respect is used as a surrogate for the parties' intent, as expressed as of
the time of the execution of their contract. In this sense, the legal rate of interest is an affirmation of the
contracting parties' intent; that is, by their contract's silence on a specific rate, the then prevailing legal rate
of interest shall be the cost of borrowing money. This rate, which by their contract the parties have settled
on, is deemed to persist regardless of shifts in the legal rate of interest. Stated otherwise, the legal rate of
interest, when applied as conventional interest, shall always be the legal rate at the time the agreement was
executed and shall not be susceptible to shifts in rate. 370

Further, Spouses Abella cited Article 2212371 of the Civil Code and the ruling in Nacar v. Gallery
Frames372 which both state that "interest due shall itself earn legal interest from the time it is judicially
demanded:"373

[T]he interest due on conventional interest shall be at the rate of 12% per annum from [date of judicial
demand] to June 30, 2013. Thereafter, or starting July 1, 2013, this shall be at the rate of 6% per annum. 374

In this case, the Conversion, Restructuring and Extension Agreement was executed on January 28, 1999.
Thus, the applicable interest rate on the principal loan obligation (conventional interest) is at 12% per
annum. With regard to the interest due on the conventional interest, judicial demand was made on August
21, 2000 when Philippine National Bank filed a Petition 375 for Extrajudicial Foreclosure of Real Estate
Mortgage.376 Thus, from August 21, 2000 to June 30, 2013, the interest rate on conventional interest shall
be at 12%. From July 1, 2013 until full payment, the applicable interest rate on conventional interest shall
be at 6%.

III

The Conversion, Restructuring and Extension Agreement novated the original agreement executed in 1993.
However, the nullified interest rate provisions in the original loan agreement cannot be deemed as having
been legitimized, ratified, or set aside.

Philippine National Bank argues that the Conversion, Restructuring and Extension Agreement novated the
original loan agreement and that the novation effectively set aside the infirmities in the original loan
agreement.377

The Civil Code provides that:

Article 1292. In order that an obligation may be extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every
point incompatible with each other.

Novation has been defined as:

Novation may either be express, when the new obligation declares in unequivocal terms that the old
obligation is extinguished, or implied, when the new obligation is on every point incompatible with the old
one. The test of incompatibility lies on whether the two obligations can stand together, each one with its own
independent existence.

For novation, as a mode of extinguishing or modifying an obligation, to apply, the following requisites must
concur:

1) There must be a previous valid obligation.

2) The parties concerned must agree to a new contract.


3) The old contract must be extinguished.

4) There must be a valid new contract.378 (Citations omitted)

The original Credit Agreement379 was executed on September 1, 1993,380 while the Conversion, Restructuring
and Extension Agreement381 was executed on January 28, 1999.382

Pertinent portions of the Conversion, Restructuring and Extension Agreement state:

WITNESSETH: That -

....
WHEREAS, the Borrowers [referring to DSIDC and spouses Limso] acknowledge that they have outstanding
obligations (the "Obligations") with the Bank broken down as follows:

(i ) Credit Line - P583.18 Million (as of September 30, 1998);


(i i) Loan - P266.67 Million (as of September 30, 1998); and
(i i i) Interest -P217.15 Million (as of December 31, 1998);

WHEREAS, at the request of the Borrowers, the Bank has approved (a) the conversion and restructuring of
the Credit Line portion of the Obligations into a term loan, (b) the extension of the term of the Loan for
another four (4) years, (c) the capitalization on accrued interest (up to December 31,1998) on the
Obligations, (d) the waiver of the penalties charges (if any) accruing on the Obligations, and (e) the partial
release of chattel mortgage on stock inventories, subject to the terms and conditions hereinafter set forth;
....

SECTION 2. TERMS OF LOAN I

2.01 Amount of Loan I. Loan I shall be in the principal amount not exceeding PESOS: FIVE HUNDRED
EIGHTY THREE MILLION ONE HUNDRED EIGHTY THOUSAND (P583,180,000.00)
....

SECTION 3. TERMS OF LOAN II

3.01 Amount of Loan II. Loan II shall be in the principal amount not exceeding PESOS: FOUR HUNDRED
EIGHTY THREE MILLION SEVEN HUNDRED EIGHTY THOUSAND (P483,780,000.00). 383

In this case, the previous valid obligation of Spouses Limso and Davao Sunrise was the payment of a loan in
the total amount of P700 million, plus interest.

Upon the request of Spouses Limso and Davao Sunrise, Philippine National Bank agreed to restructure the
original loan agreement.384

Philippine National Bank summarized the Conversion, Restructuring and Extension Agreement as follows:

(a) The conversion of the Revolving Credit Line into a Term Loan in the principal amount of 583.18 Million
and denominated as "Loan I".

(b) The Extension for another four (4) years of the original long term loan (from 01 September 2001 to 31
December 2005);

(c) The capitalization of the accrued interest on both the Revolving Credit Line and the Long Term Loan up to
31 December 1998;

(d) The consolidation of the accrued interest and the outstanding obligation of the original Long Term Loan
to form "Loan 2" with the total principal amount of P483.82 Million;

(e) Waiver of penalty charges;


(f) Partial release of chattel mortgage on the stock inventories;

(g) Both "Loan I" and "Loan II" were made payable within seven (7) years in monthly amortization and a
balloon payment on or before December 2005.385

When the loan agreement was restructured, the principal obligation of Spouses Limso and Davao Sunrise
became P1.067 billion.

The Conversion, Restructuring and Extension Agreement novated the original credit agreement because the
principal obligation itself changed.

Important provisions of the original agreement were altered. For example, the penalty charges were waived
and the terms of payment were extended.

Further, the preambular clauses of the Conversion, Restructuring and Extension Agreement show that
Spouses Limso and Davao Sunrise sought to change the terms of the original agreement and that they
themselves acknowledged their obligation to be P1.067 billion. They are now estopped from claiming that
their obligation should be based on the original agreement when it was through their own actions that the
loan was restructured.

Thus, the Court of Appeals in CA-G.R. CV No. 79732-MIN erred in not declaring that the Conversion,
Restructuring and Extension Agreement novated the original agreement and in computing Spouses Limso
and Davao Sunrise's obligation based on the original agreement.

Since the Conversion, Restructuring and Extension Agreement novated the original credit agreement, we
modify the Court of Appeals Decision in that the outstanding obligation of Spouses Limso and Davao Sunrise
should be computed on the basis of the Conversion, Restructuring and Extension Agreement.

In the Court of Appeals Decision dated August 13, 2009:

Computing the interest at 12% per annum on the principal amount of 700 Million Pesos, the interest should
be 84 Million Pesos per annum. Multiplying 84 Million Pesos by 15 years from September 1, 1993 to
September 1, 2008, the interest for the 15-year period would be One Billion Two Hundred Sixty Million Pesos
(P1,260,000,000.00). Then, by adding the interest of P1,260,000,000.00 to the principal amount of 700
Million Pesos, the total obligation of plaintiffs-appellees would be One Billion Nine Hundred Sixty Million
Pesos (P1,960,000,000.00) by September 1, 2008. And since plaintiffs-appellees has paid a total amount of
One Billion One Hundred Fifty Six Million Eight Hundred Fourteen Thousand Five Hundred Eighty Eight Pesos
and 89/100 (P1,156,814,588.89) to appellant PNB as of December 5, 1998, as per PNB's official
computation of payments per official receipts, then, plaintiffs-appellees would still have an outstanding
balance of about Eight Hundred Three Million One Hundred Eighty Five Thousand Four Hundred Eleven and
11/100 Pesos (P 803,185,411.11) as of September 1, 2008. The amount of P 803,185,411.11 will earn
interest at the legal rate of 12% per annum from September 1, 2008 until fully paid.
....
chanroble slaw

WHEREFORE, the assailed Decision dated June 19, 2002 and Order dated August 13, 2002 of the Regional
Trial Court of Davao City, Branch 17 in Civil Case No. 28,170-2000 declaring the unilateral imposition of
interest rates by defendant-appellant PNB as null and void appealed from are AFFIRMED with the
MODIFICATION that the obligation of plaintiffs-appellees arising from the Loan and Revolving Credit Line
and subsequent Conversion, Restructuring and Extension Agreement as Loan I and Loan II shall earn
interest at the legal rate of twelve percent (12%) per annum computed from September 1, 1993, until fully
paid and satisfied.

SO ORDERED.386

Notably, in the body of the Court of Appeals Decision, Spouses Limso and Davao Sunrise's obligation was
computed on the basis of the original loan agreement, while in the dispositive portion, the Court of Appeals
cited both the original loan agreement and the Conversion, Restructuring and Extension Agreement.

The general rule is that:


Where there is a conflict between the dispositive part and the opinion of the court contained in the text or
body of the decision, the former must prevail over the latter on the theory that the dispositive portion is the
final order, while the opinion is merely a statement ordering nothing. 387 (Citation omitted)

To avoid confusion, we also rule that the interest rate provisions and the escalation clauses in the
Conversion, Restructuring and Extension Agreement are nullified insofar as they allow Philippine National
Bank to unilaterally determine and increase the imposable interest rates.

Article 1409388 of the Civil Code provides that void contracts cannot be ratified. Hence, the void interest rate
provisions in the original loan agreement could not have been ratified by the execution of the Conversion,
Restructuring and Extension Agreement.

IV

The proper remedy to assail a decision on pure questions of law is to file a petition for review on certiorari
under Rule 45, not an appeal under Rule 41 of the 1997 Rules of Civil Procedure.

One of the issues raised by Philippine National Bank in G.R. No. 205463 is the dismissal of its appeal under
Rule 41 by the Court of Appeals in its Decision dated January 21, 2013. 389

Philippine National Bank, through counsel, argues that Rule 41 is the proper remedy because its Petition
raises questions of fact and of law.390 For example, the issue of whether there is an annotation of
encumbrance on the titles of the mortgaged properties is a question of fact. 391

Denying Philippine National Bank's appeal under Rule 41, the Court of Appeals stated that:

[Philippine National Bank] simply takes issue against the conclusions made by the court a quo which
pertains to the matter of whether mere entry in the Primary Entry Book, sans the signature of the registrar,
already completes registration. It does not question the weight and probative value of the fact that the
signature of Atty. Patriarcha [sic] was previously entered in the records then revoked by her. What PNB
seeks, therefore, is a review of the decision of the court a quo dismissing its petition, without delving into
the weight of the evidence, but on the correctness of the court a quo's conclusions based on the evidence
presented before it. This is clearly a question of law.
....

To the mind of this Court, PNB seeks to harp repeatedly on the issue of the court a quo's failure to consider
that the certificate of sale has been duly registered on February 4, 2002 upon mere entry in the Primary
Entry Book, even without the signature of the then register of deeds. Though couched in different creative
presentations, all the errors assigned by PNB point to one vital question: What completes registration? To
answer it, this Court is not asked to calibrate the evidence presented, or gauge the truth or falsity, but to
apply the appropriate law to the situation. This is clearly a question of law. 392(Emphasis in the original)

In Land Bank of the Philippines v. Yatco Agricultural Enterprises,393 this court; discussed the difference
between questions of law and questions of fact:

As a general rule, the Court's jurisdiction in a Rule 45 petition is limited to the review of pure questions of
law. A question of law arises when the doubt or difference exists as to what the law is on a certain state of
facts. Negatively put, Rule 45 does not allow the review of questions of fact. A question of fact exists when
the doubt or difference arises as to the truth or falsity of the alleged facts.

The test in determining whether a question is one of law or of fact is "whether the appellate court can
determine the issue raised without reviewing or evaluating the evidence, in which case, it is a question of
law[.]" Any question that invites calibration of the whole evidence, as well as their relation to each other and
to the whole, is a question of fact and thus proscribed in a Rule 45 petition. 394 (Citations omitted)

Based on the foregoing, there was no error on the part of the Court of Appeals when it dismissed Philippine
National Bank's Petition for being the wrong remedy. Indeed, Philippine National Bank was not questioning
the probative value of the evidence. Instead, it was questioning the conclusion of the trial court that
registration had not been perfected based on the evidence presented.

V
The registration of the Sheriffs Provisional Certificate of Sale was completed.

Philippine National Bank argues that the registration was completed, and restates the doctrine in National
Housing Authority v. Basa, Jr., et al.:395

Once the Certificate of Sale is entered in the Primary Book of Entry of the Registry of Deeds with the
registrant having paid all the required fees and accomplished all that is required of him under the law to
cause registration, the registration is complete.396

Philippine National Bank further argues that "[t]he records of all the transactions are recorded in the Primary
Entry Book and the annotation on the titles of the transaction do not control registration. It is the recording
in the Primary Entry Book which controls registration."397

Philippine National Bank adds that though the annotation of a certificate of sale at the back of the
certificates of title is immaterial in the perfection of registration, the evidence shows that the Certificate of
Sale was annotated.398

Philippine National Bank alleges that registration was completed because Atty. Patriarca, the Register of
Deeds at that time, affixed her signature but would later erase it. 399

Philippine National Bank cites Atty. Cruzabra's Comment, which alleges that the Sheriffs Provisional
Certificate of Sale and other documents relative to the sale were registered in the Primary Entry Book of the
Registry of Deeds of Davao City.400 The Comment also states that:

3. The Sheriffs Provisional Certificate of Sale was annotated at the back of the aforementioned titles but it
does not bear the signature of the former Registrar of Deeds. Noted however is that the portion below the
annotation of the Provisional Sheriffs [sic] Certificate of Sale there appears to be erasures ("snowpake"),
and [Atty. Cruzabra] is not in a position to conclude as to the circumstances [relative to said erasures], for
lack of personal knowledge as to what transpired at that time. 401 (Citation omitted)

Philippine National Bank also cites the Decision in Administrative Case No. 02-13 dated January 12, 2005,
which was the case against Atty. Patriarca for Grave Misconduct and Conduct Unbecoming of a Public Official.
In the Decision, the Land Registration Authority found that:

Respondent herein likewise admits that she finally signed the PNB transaction annotated on the subject titles
when she was informed that the motion for reconsideration was denied by this Authority, but she
subsequently erased her signature when she subsequently found out that an appeal was filed by the Limso
spouses.
....

The registration of these documents became complete when respondent affixed her signature below these
annotations. Whatever information belatedly gathered thereafter relative to the circumstances as to the
registrability of these documents, respondent can not unilaterally take judicial notice thereof and proceed to
lift at her whims and caprices what has already been officially in force and effective, by erasing thereon her
signature.402

In addition, Philippine National Bank argues that the erasure of Atty. Patriarca's signature using correction
fluid could not have revoked, cancelled, or annulled the registration since under Section 108 of Presidential
Decree 1529, only a court order can revoke registration.403

Philippine National Bank alleges that it has complied with the requirements under Section 7 of Act No. 3135
and Section 47 of Republic Act No. 8791.404 Thus, it is entitled to a writ of possession.405

The Office of the Solicitor General filed its Comment, 406 quoting the dispositive portion of the Land
Registration Authority's Consulta No. 3405 dated May 21, 2002: 407

WHEREFORE, in view of the foregoing, the Sheriff's Provisional Certificate of Sale dated February 04, 2002 is
registerable on TCT Nos. T-147820, T-147386, and T-247012, provided all other registration requirements
are complied with.408 (Emphasis supplied)
The Office of the Solicitor General also quotes the dispositive portion of the Land Registration Authority's
Resolution in the Motion for Reconsideration:409

WHEREFORE, in view of the foregoing[J the Sheriff's Provisional Certificate of Sale dated February 4, 2002 is
registrable on TCT Nos. T-147820, T-147821, T-147386 and T-247012, provided all other registration
requirements are complied with.410 (Emphasis supplied)

The Office of the Solicitor General then cites National Housing Authority and Autocorp Group and
Autographies, Inc. v. Court of Appeals411 and discusses that when all the requirements for registration of
annotation has been complied with, it is ministerial upon the Register of Deeds to register the
annotation.412 The Register of Deeds is not authorized "to make an appraisal of proofs outside of the
documents sought to be registered."413

For the Office of the Solicitor General, the Register of Deeds' refusal to affix the annotation on the foreclosed
properties' titles "should not preclude the completion of the registration of any applicant who has complied
with the requirements of the law to register its right or interest in registered lands." 414

Spouses Limso and Davao Sunrise, as intervenors-oppositors, filed a Memorandum. 415 They cite Section
117416 of Presidential Decree No. 1529417 and argue that registration of the Certificate of Sale in the Primary
Entry Book is a preliminary step in registration.418 Since Philippine National Bank withdrew the documents it
submitted to the Register of Deeds of Davao City, the Sheriff's Provisional Certificate of Sale was not
registered.419

Further, Philippine National Bank's argument that "entry ... in the Primary Entry Book is equivalent to
registration"420 is not in accordance with Section 56421 of Presidential Decree No. 1529.422 Moreover, "[t]he
signature of the Register of Deeds is crucial to the completeness of the registration process." 423

Spouses Limso and Davao Sunrise posit that Philippine National Bank admitted that the Certificate of Sale is
not registered in various hearings.424 These admissions are judicial admissions that should be binding on
Philippine National Bank.425

Spouses Limso and Davao Sunrise allege that during the oral arguments held on March 19, 2003 at the
Court of Appeals in CA G.R. SP No. 71527, counsel for Philippine National Bank stated: 426

ATTY. [BENILDA A.] TEJADA:

Yes, we can show the documents which we are going to file your Honors.

We would like to state also your Honors the fact of why no registration was ever made in this case. Counsel
forgot to mention that the fact of no registration is simply because the Register of Deeds refused to register
our Certificate of Sale. We have a pending case against them Sir before the LRA and before the Ombudsman
fore [sic] refusal to register our Certificate of Sale. Now, we have filed this case because inspite [sic] of the
fact the Register of Deeds addressed a consulta to the Land Registration Authority on the registerity of the
Certificate of Sale your Honors [,] [i]t was at their instance that there was a consulta.

And then, the Land Registration Authority has already rendered its opinion that the document is registrable.
Despite that your Honors, the document has never been registered. So that was the subject of our case
against them. We do not understand the intransigencies we do not understand the refusal. 427

In addition, the Court of Appeals correctly dismissed Philippine National Bank's appeal because the issue
raised involved a question of law, specifically "whether or not mere entry in the Primary Entry Book is
considered as registration of the subject Certificate of Sale." 428

Section 56 of Presidential Decree No. 1529 states:

SECTION 56. Primary Entry Book; Fees; Certified Copies. Each Register of Deeds shall keep a primary
entry book in which, upon payment of the entry fee, he shall enter, in the order of their reception, all
instruments including copies of writs and processes filed with him relating to registered land. He shall, as a
preliminary process in registration, note 22in such book the date, hour and minute of reception of all
instruments, in the order in which they were received. They shall be regarded as registered from the time so
noted, and the memorandum of each instrument, when made on the certificate of title to which it refers,
shall bear the same date: Provided, that the national government as well as the provincial and city
governments shall be exempt from the payment of such fees in advance in order to be entitled to entry and
registration. (Emphasis supplied)

In this case, Philippine National Bank filed the Sheriffs Provisional Certificate of Sale, which was duly
approved by the Executive Judge, before the Registry of Deeds of Davao City. Entries were made in the
Primary Entry Book. Hence, the Sheriffs Provisional Certificate of Sale should be considered registered.

Autocorp Group and Autographies, Inc. involved an extrajudicial foreclosure of mortgaged property and the
registration of a Sheriffs Certificate of Sale. Autocorp sought the issuance of a writ of injunction "to prevent
the register of deeds from registering the subject certificate of sale[.]" 429

This court explained that a Sheriffs Certificate of Sale is an involuntary instrument and that a writ of
injunction will no longer lie because of the following reasons:

[F]or the registration of an involuntary instrument, the law does not require the presentation of the owner's
duplicate certificate of title and considers the annotation of such instrument upon the entry book, as
sufficient to affect the real estate to which it relates.
...
....

It is a ministerial duty on the part of the Register of Deeds to annotate the instrument on the certificate of
sale after a valid entry in the primary entry book. P.D. No. 1524 provides:
chanRoble svirtualLawlibrary

SEC. 63. Foreclosure of Mortgage. x x x

(b) If the mortgage was foreclosed extrajudicially, a certificate of sale executed by the officer who conducted
the sale shall be filed with the Register of Deeds who shall make a brief memorandum thereof on the
certificate of title.

In fine, petitioner's prayer for the issuance of a writ of injunction, to prevent the register of deeds from
registering the subject certificate of sale, had been rendered moot and academic by the valid entry of the
instrument in the primary entry book. Such entry is equivalent to registration. 430 (Emphasis supplied, citation
omitted)

Based on the records of this case, the Sheriffs Certificate of Sale filed by Philippine National Bank was
already recorded in the Primary Entry Book.

The refusal of the Register of Deeds to annotate the registration on the titles of the properties should not
affect Philippine National Bank's right to possess the properties.

As to the argument that Philippine National Bank admitted in open court that the Certificate of Sale was not
registered, it is evident from Spouses Limso and Davao Sunrise's Memorandum that Philippine National Bank
immediately explained that the non-registration was due to the Register of Deeds' refusal. Thus, the alleged
non-registration was not due to Philippine National Bank's fault.

It appears on record that Philippine National Bank already complied with the requirements for registration.
Thus, there was no reason for the Register of Deeds to persistently refuse the registration of the Certificate
of Sale.

At any rate, the Land Registration Authority stated in its Resolution in Administrative Case No. 02-13 that
Atty. Patriarca herself admitted that she already affixed her signature on the annotation at the back of the
certificate of titles, and that she subsequently erased her signature. 431 This finding of fact in the
administrative case supports the argument of Philippine National Bank and the opinion of the Office of the
Solicitor General that the Certificate of Sale should be considered registered.

With regard to the issue of whether Philippine National Bank is entitled to a writ of possession, the trial court
in Other Case No. 124-2002 denied the application for the writ of possession and explained:

Portion of Sec. 47 of RANo. 8791 is quoted:


chanRoble svirtualLawlibrary

xxx the purchaser at the auction sale concerned whether in a judicial or extra-judicial foreclosure shall have
the right to enter upon and take possession of such property immediately after the date of the confirmation
of the auction sale and administer the same in accordance with law xxx.
From the quoted provision, one can readily conclude that before the sale is confirmed, it is not considered
final or perfected to entitle the purchaser at the auction sale to the writ of possession as a matter of right....

In extra-judicial foreclosure, there is technically no confirmation of the auction sale in the manner provided
for by Sec. 7 of Rule 68. The process though involves an application, preparation of the notice of extra-
judicial sale, the extra-judicial foreclosure sale, issuance of the certificate of sale, approval of the Executive
Judge or in the latter's absence, the Vice-Executive Judge and the registration of the certificate of sale with
the Register of Deeds.

While it may be true that as found by the CA in the case earlier cited that DSIDC had only until January 24,
2001 to redeem its properties and that the registration of the certificate of foreclosure sale is no longer
relevant in the reckoning of the redemption period, for purposes of the issuance of the writ of possession,
petitioner to this Court's belief should complete the entire process in extra-judicial foreclosure. Otherwise
the sale may not be considered perfected and the application for writ of possession may be denied.

The records disclose that contrary to petitioner's claim, the Certificate of Sale covering the subject properties
has not been registered with the Registry of Deeds of Davao City as the Court finds no annotation thereof.
As such, the sale is not considered perfected to entitle petitioner to the writ of possession as a matter of
right.

Accordingly, for reason stated, the petition is DISMISSED. With the dismissal of the petition, PNB's Motion
for Reception and Admission of PNB's Ex-parte Testimonial and Documentary Evidence is DENIED.

SO ORDERED.432

However, Philippine National Bank is applying for the writ of possession on the ground that it is the winning
bidder during the auction sale, and not because it consolidated titles in its name. As such, the applicable
provisions of law are Section 47 of Republic Act No. 8791 433 and Section 7 of Act No. 3135.434

Section 47 of Republic Act No. 8791 provides:

SECTION 47. Foreclosure of Real Estate Mortgage. In the event of foreclosure, whether judicially or
extrajudicially, of any mortgage on real estate which is security for any loan or other credit accommodation
granted, the mortgagor or debtor whose real property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of the real estate, to redeem the property by
paying the amount due under the mortgage deed, with interest thereon at the rate specified in the
mortgage, and all the costs and expenses incurred by the bank or institution from the sale and custody of
said property less the income derived therefrom. However, the purchaser at the auction sale concerned
whether in a judicial or extrajudicial foreclosure shall have the right to enter upon and take possession of
such property immediately after the date of the confirmation of the auction sale and administer the same in
accordance with law. Any petition in court to enjoin or restrain the conduct of foreclosure proceedings
instituted pursuant to this provision shall be given due course only upon the filing by the petitioner of a bond
in an amount fixed by the court conditioned that he will pay all the damages which the bank may suffer by
the enjoining or the restraint of the foreclosure proceeding.

Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial
foreclosure, shall have the right to redeem the property in accordance with this provision until, but not after,
the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case
shall be more than three (3) months after foreclosure, whichever is earlier. Owners of property that has
been sold in a foreclosure sale prior to the effectivity of this Act shall retain their redemption rights until
their expiration. (Emphasis supplied)

Section 7 of Act No. 3135 provides:

SECTION 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First
Instance of the province or place where the property or any part thereof is situated, to give him possession
thereof during the redemption period, furnishing bond in an amount equivalent to the use of the property for
a period of twelve months, to indemnify the debtor in case it be shown that the sale was made without
violating the mortgage or without complying with the requirements of this Act. Such petition shall be made
under oath and filed in form of an ex parte motion in the registration or cadastral proceedings if the property
is registered, or in special proceedings in the case of property registered under the Mortgage Law or under
section one hundred and ninety-four of the Administrative Code, or of any other real property encumbered
with a mortgage duly registered in the office of any register of deeds in accordance with any existing law,
and in each case the clerk of the court shall, upon the filing of such petition, collect the fees specified in
paragraph eleven of section one hundred and fourteen of Act Numbered Four hundred and ninety-six, as
amended by Act Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval of the
bond, order that a writ of possession issue, addressed to the sheriff of the province in which the property is
situated, who shall execute said order immediately.

The rule under Section 7 of Act No. 3135 was restated in Nagtalon v. United Coconut Planters Bank:435

During the one-year redemption period, as contemplated by Section 7 of the above-mentioned law, a
purchaser may apply for a writ of possession by filing an ex partemotion under oath in the registration or
cadastral proceedings if the property is registered, or in special proceedings in case the property is
registered under the Mortgage Law. In this case, a bond is required before the court may issue a writ of
possession.436

On the other hand, a writ of possession may be issued as a matter of right when the title has been
consolidated in the buyer's name due to nonredemption by the mortgagor. Under this situation, the basis for
the writ of possession is ownership of the property.437

The Sheriffs Provisional Certificate of Sale should be deemed registered. However, Philippine National Bank
must still file a bond before the writ of possession may be issued.

VI

To fully dispose of all the issues in these consolidated cases, this court shall also rule on one of the issues
raised in G.R. No. 158622.

In G.R. No. 158622, Spouses Limso and Davao Sunrise allege that the Sheriffs Provisional Certificate of Sale
does not state the appropriate redemption period; thus, they filed a Petition for Declaratory Relief, which
was docketed as Civil Case No. 29,036-2002.438

In the loan agreement, natural and juridical persons are co-debtors, while the properties mortgaged to
secure the loan are owned by Davao Sunrise.

Act No. 3135 provides that the period of redemption is one (1) year after the sale. 439 On the other hand,
Republic Act No. 8791 provides a shorter period of three (3) months to redeem in cases involving juridical
persons.440

We rule that the period of redemption for this case should be not more than three (3) months in accordance
with Section 47 of Republic Act No. 8791. The mortgaged properties are all owned by Davao Sunrise.
Section 47 of Republic Act No. 8791 states: "the mortgagor or debtor whose real property has been sold"
and "juridical persons whose property is being sold[.]" Clearly, the law itself provides that the right to
redeem belongs to the owner of the property mortgaged. As the mortgaged properties all belong to Davao
Sunrise, the shorter period of three (3) months is the applicable redemption period.

The policy behind the shorter redemption period was explained in Goldenway Merchandising Corporation v.
Equitable PCI Bank:441

The difference in the treatment of juridical persons and natural persons was based on the nature of the
properties foreclosed whether these are used as residence, for which the more liberal one-year
redemption period is retained, or used for industrial or commercial purposes, in which case a shorter term is
deemed necessary to reduce the period of uncertainty in the ownership of property and enable mortgagee-
banks to dispose sooner of these acquired assets. It must be underscored that the General Banking Law of
2000, crafted in the aftermath of the 1997 Southeast Asian financial crisis, sought to reform the General
Banking Act of 1949 by fashioning a legal framework for maintaining a safe and sound banking system. In
this context, the amendment introduced by Section 47 embodied one of such safe and sound practices
aimed at ensuring the solvency and liquidity of our banks. 442 (Citation omitted)

To grant a longer period of redemption on the ground that a co-debtor is a natural person defeats the
purpose of Republic Act No. 8791. In addition, the real properties mortgaged by Davao Sunrise appear to be
used for commercial purposes.443
WHEREFORE, the Petition for Review on Certiorari in G.R. No. 173194 is DENIED.

The Petition docketed as G.R. No. 196958 is PARTIALLY GRANTED, while the Petition docketed as G.R. No.
197120 is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 79732-MIN is AFFIRMED with
MODIFICATION.

The Conversion, Restructuring and Extension Agreement executed in 1999 is deemed to have novated the
Credit Agreement and Loan Agreement executed in 1993. Thus, the principal loan obligation of Davao
Sunrise Investment and Development Corporation and Spouses Robert Alan and Nancy Limso shall be
computed on the basis of the amounts indicated in the Conversion, Restructuring and Extension Agreement.

Interest on the principal loan obligation shall be at the rate of 12% per annum and computed from January
28, 1999, the date of the execution of the Conversion, Restructuring and Extension Agreement. Interest rate
on the conventional interest shall be at the rate of 12% per annum from August 21, 2000, the date of
judicial demand, to June 30, 2013. From July 1, 2013 until full satisfaction, the interest rate on the
conventional interest shall be computed at 6% per annum in view of this court's ruling in Nacar v. Gallery
Frames.444

This case is ordered REMANDED to Branch 17 of the Regional Trial Court of Davao City for the computation
of the total amount of Davao Sunrise Investment and Development Corporation and Spouses Robert Alan
and Nancy Limso's remaining obligation.

The Petition docketed as G.R. No. 205463 is PARTIALLY GRANTED. The Sheriffs Provisional Certificate of
Sale is deemed to have been registered. In view of the facts of this case, the applicable period of
redemption shall be three (3) months as provided under Republic Act No. 8791.

In case the final computation shows that Davao Sunrise Investment and Development Corporation and
Spouses Robert Alan and Nancy Limso overpaid Philippine National Bank, Philippine National Bank must
return the excess amount.

The writ of possession prayed for by Philippine National Bank may only be issued after all the requirements
for the issuance of a writ of possession are complied with.

SO ORDERED. cralawla wlibrary

Carpio, (Chairperson), Brion, Peralta,* and Del Castillo, JJ., concur.

SECOND DIVISION

G.R. No. 214567, April 04, 2016

DRA. MERCEDES OLIVER, Petitioner, v. PHILIPPINE SAVINGS BANK AND LILIA


CASTRO, Respondents.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari seeking to reverse and set aside the October 25, 2013
Decision1 and the September 12, 2014 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 95656,
which reversed the July 22, 2010 Order3 of the Regional Trial Court, Branch 276, Muntinlupa City (RTC) in
Civil Case No. 99-278, a case for injunction and damages.

Petitioner Mercedes Oliver (Oliver) was a depositor of respondent Philippine Savings Bank (PSBank) with
account number 2812-07991-6. Respondent Lilia Castro (Castro) was the Assistant Vice President of PSBank
and the Acting Branch Manager of PSBank San Pedro, Laguna.

Oliver's Position
In her Complaint,4 dated October 5, 1999, Oliver alleged that sometime in 1997, she made an initial deposit
of P12 million into her PSBank account. During that time, Castro convinced her to loan out her deposit as
interim or bridge financing for the approved loans of bank borrowers who were waiting for the actual release
of their loan proceeds.

Under this arrangement, Castro would first show the approved loan documents to Oliver. Thereafter, Castro
would withdraw the amount needed from Oliver's account. Upon the actual release of the loan by PSBank to
the borrower, Castro would then charge the rate of 4% a month from the loan proceeds as interim or bridge
financing interest. Together with the interest income, the principal amount previously withdrawn from
Oliver's bank account would be. deposited back to her account. Meanwhile, Castro would earn a commission
of 10% from the interest.

Their arrangement went on smoothly for months. Due to the frequency of bank transactions, Oliver even
entrusted her passbook to Castro. Because Oliver earned substantial profit, she was further convinced by
Castro to avail of an additional credit line in the amount of P10 million. The said credit line was secured by a
real estate mortgage on her house and lot in Ayala Alabang covered by Transfer Certificate of Title (TCT) No.
137796.5

Oliver instructed Castro to pay P2 million monthly to PSBank starting on September 3, 1998 so that her
credit line for P10 million would be fully, paid by January 3, 1999.

Beginning September 1998, Castro stopped rendering an accounting for Oliver. The latter then demanded
the return of her passbook. When Castro showed her the passbook sometime in late January or early
February 1999, she noticed several erasures and superimpositions therein. She became very suspicious of
the many erasures pertaining to the December 1998 entries so she requested a copy of her transaction
history register from PSBank.

When her transaction history register6 was shown to her, Oliver was surprised to discover that the amount of
P4,491,250.00 (estimated at P4.5 million) was entered into her account on December 21, 1998. While a
total of P7 million was withdrawn from her account on the same day, Oliver asserted that she neither applied
for an additional loan of P4.5 million nor authorized the withdrawal of P7 million. She also discovered
another loan for P1,396,310.45, acquired on January 5, 1999 and allegedly issued in connection with the
P10 million credit line.

In Oliver's passbook,7 there were no entries from December 17, 1998 to December 27, 1998. The
transaction history register, however, showed several transactions on these very same dates including the
crediting of P4.5 million and the debiting of P7 million on December 21, 1998. Oliver then learned that the
additional P4.5 million and P1,396,310.45 loans were also secured by the real estate mortgage, 8 dated
January 8, 1998, covering the same property in Ayala Alabang.

Oliver received two collection letters,9 dated May 13, 1999 and June 18, 1999, from PSBank referring to the
non-payment of unpaid loans, to wit: (1) P4,491,250.00 from the additional loan and (2) P1,396,310.45
from the P10 million credit line.10 In response, Oliver protested that she neither availed of the said loans nor
authorized the withdrawal of P7 million from her account.11 She also claimed that the P10 million loan from
her credit line was already paid in full.12 and it was Castro, holding her passbook, who made several
unauthorized transactions.

On July 14, 1999, a final demand letter13 was sent to Oliver by PSBank, requiring her to pay the unpaid
loans. Oliver, however, still refused to pay. Subsequently, Oliver received a notice of sale 14involving the
property in Ayala Alabang, issued by Notary Public Jose Celestino Torres on September 15, 1999. The said
notice informed her of the impending extra-judicial foreclosure and sale of her house and lot to be held on
October 21, 1999.

As a result, Oliver filed the subject complaint against PSBank and Castro.

Castro's Position

In her Answer,15 Castro admitted that she and Oliver agreed that the latter would lend out money to
borrowers at 4% to 5% interest per month provided that the former would screen them. She also
acknowledged having been instructed by Oliver to pay the bank P2 million every.month to settle the P10
million credit line. Nonetheless, Castro informed Oliver that the payment thereof was subject to the
availability of funds in her account. She disclosed that she made some alterations and erasures in Oliver's
passbook so as to reconcile the passbook with the computer printout of the bank, but denied any attempt to
hide the passbook as she was able to return it sometime in January 1999.

Castro also denied the deceit imputed against her. She asserted that their arrangement was not "interim or
bridge financing" inasmuch as the loans were entirely new and distinct from that granted by PSBank. When
Oliver's clients multiplied, Castro advised her to apply for a credit line of P10 million. The said credit line was
first approved in December 1997 with a term of one year.16

Sometime in August 1998, Castro informed Oliver about the impending expiration of her credit line.
Subsequently, Oliver applied for another loan in the amount of P4.5 million as evidenced by a promissory
note,17 dated December 21, 1998. On January 5, 1999, another promissory note 18 was executed by Oliver to
cover a loan in the amount of P1,396,310.45.

Castro asserted that, on December 21, 1998, upon Oliver's instruction, a total of P7 million was withdrawn
from the latter's account and was then deposited to the account of one Ben Lim (Lim) on the same date. Lim
was a businessman who borrowed money from Oliver. Castro knew him because he was also a depositor and
borrower of PSBank San Pedro Branch.19

As to the amount of P1,396,310.45, Castro explained that it was a separate and personal loan obtained by
her from Oliver. To secure the payment of such obligation, Castro mortgaged a property located in Camella
Homes III in Tunasan, Muntinlupa City.

Castro admitted that on October 19, 1999, she was terminated by PSBank because of certain problems
regarding client accommodation and loss of confidence.20

PSBank's Position

In its defense, PSBank averred that Oliver applied for a credit line of P10 million which was granted by the
bank and which secured by a real estate mortgage. Because Oliver failed to pay the P10 million loan, she
obtained another loan in the amount of P4.5 million, as evidenced by a promissory note. Days later, she
again acquired a separate loan amounting to P1,396,310.45 as shown by another promissory note. Both
loans were secured by a real estate mortgage, dated January 8, 1998, and the proceeds thereof were issued
as proved by the release tickets,21 dated December 21, 1998 and January 5, 1999, respectively.22

The RTC Decision

In its March 30, 2010 Decision,23 the RTC dismissed the complaint and rendered judgment in favor of
PSBank and Castro. According to the RTC, PSBank and Castro should not be held liable for the loan of P4.5
million and the withdrawal of the P7 million. Castro was able to submit the Debit Credit Memo 24 and the
Savings Account Check Deposit Slip25 to prove that there were some previous loan transactions between
Oliver and Lim. Considering that neither PSBank nor Castro obtained the P7 million, there was ho obligation
on their part to return the amount.

Moreover, the trial court- stated that Oliver failed to controvert PSBank's allegation that she had unpaid loan
obligations. Thus, it concluded that PSBank had the right to foreclose the mortgaged property.
The fallo reads:
chanRoble svirtualLawlibrary

WHEREFORE, finding lack of merit, the instant case is hereby DISMISSED. Accordingly, the Writ of
Preliminary Injunction is hereby LIFTED and SET ASIDE.

SO ORDERED.26 ChanRoblesVirtualawlibrary

Oliver seasonably filed her motion for reconsideration. 27 She insisted that the P7 million was unlawfully
withdrawn. She claimed that what happened in this case was a "cash savings withdrawal" and that there
should have been a corresponding withdrawal slip for such transaction. Also, if indeed the P7 million was
withdrawn from her account and was credited to the account of Lim, the deposit slip for his account should
have been presented.

The RTC Order

On July 22, 2010, the RTC resolved the motion and issued an order reversing its earlier decision. According
to the RTC, Oliver's assertion that the withdrawal was made without her consent prevailed in the absence of
any proof to the contrary. The cash savings withdrawal slips should have been offered in evidence by either
PSBank or Castro to settle the issue of whether the amount of P7 million was actually withdrawn by Oliver or
by her authorized representative or agent.

The RTC also rejected the position of PSBank and Castro that the erasures and alterations in Oliver's
passbook were made simply to reconcile the same with the transaction history register of the bank because
even after the alleged corrections, the said documents still contained different entries. Although Oliver and
Lim had previous transactions, none of them pertained to the P7 million purportedly transferred on
December 21, 1998.

With regard to PSBank, the RTC stated that it failed to exercise utmost diligence in safekeeping Oliver's
deposit. Had it not been for the unauthorized, withdrawal which was attributable to the bank and Castro, the
P4.5 million and the P1,396,310.45 loans would not have remained outstanding, considering that the
improperly withdrawn P7 million was more than sufficient to discharge those liabilities. 28 The dispositive
portion of the order reads:
chanRoble svirtualLawlibrary

WHEREFORE, premises considered, the Motion for Reconsideration is hereby GRANTED. The Decision dated
March 30, 2010 is hereby reconsidered and set aside. In lieu thereof, a new one is hereby rendered ordering
the defendants Lilia Castro and Philippine Savings Bank to jointly and solidarity pay plaintiff Dra. Mercedes
Oliver, the sums of

1. P1,111,850.77 as actual damages;

2. P100,000.00 as moral damages;

3. P100,000.00 as attorney's fees; and

4. P100,000.00 as exemplary damages

Moreover, the Writ of Preliminary Injunction is hereby made permanent.

SO ORDERED.29 ChanRoblesVirtualawlibrary

Aggrieved, Castro and PSBank appealed before the CA.

The CA Decision

On October 25, 2013, the CA granted the appeal. It reversed the July 22, 2010 of the RTC order and
reinstated its March 30, 2010 decision. The appellate court found no compelling evidence to prove that fraud
attended the processing and release of the P4.5 million loan as well as. the withdrawal of P7 million from
Oliver's account. The CA found that Oliver admitted signing the loan documents, the promissory notes and
the release tickets pertaining to the obligations that she had contracted with PSBank. In addition, the CA
stated that Oliver also failed to establish her assertion that she was manipulated and defrauded into signing
the said loan documents.

The CA also found that PSBank exercised extraordinary diligence in handling Oliver's account, thus, the
awards of damages were deleted. The dispositive portion of the CA decision reads:
chanRoble svirtualLawlibrary

WHEREFORE, the Appeal is hereby GRANTED. The Order dated 22 July 2010 of the Regional Trial Court of
Muntinlupa City, Branch 276, is REVERSED and SET ASIDE, and another one entered REINSTATING the
Decision dated March 30, 2010, in Civil Case No. 99-278.

SO ORDERED.30 ChanRoblesVirtualawlibrary

Oliver filed her motion for reconsideration but the same was denied in the CA Resolution, dated September
12, 2014.

Hence, this petition.


ISSUES

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE PETITIONER
FAILED TO SHOW COMPELLING EVIDENCE TO PROVE THAT FRAUD ATTENDED THE PROCESSING
AND RELEASE OF THE LOAN OF P4.5 MILLION AS WELL AS THE WITHDRAWAL OF P7 MILLION
PESOS FROM HER ACCOUNT.
II

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED WHEN IT RULED THAT THERE WAS
NO EVIDENCE TO PROVE THAT THE SUM OF P7 MILLION WAS DEBITED FROM THE ACCOUNT OF
PETITIONER SANS HER AUTHORIZATION.

III

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED WHEN IT RULED THAT THE
RESPONDENTS TREATED THE PETITIONER'S ACCOUNT WITH EXTRAORDINARY DILIGENCE.

IV

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED WHEN IT FAILED TO HOLD THAT THE
RESPONDENTS ARE JOINTLY AND SEVERALLY LIABLE TO THE PETITIONER FOR DAMAGES. 31
In her petition for review,32 Oliver insisted that she had no knowledge of any loan released because she
never availed of any new loan from PSBank. Neither the P4.5 million loan nor the cash withdrawal of P7
million was reflected in her passbook.

Oliver further argued that the burden of proving that the withdrawal was made with her authority would lie
on the part of PSBank and Castro. The cash savings withdrawal slip containing the signature of Oliver should
have been presented in court. While the respondents claimed that the amount withdrawn was lent to Lim,
the latter was never called to the witness stand as PSBank and Castro opted not to present him in court.
Castro, aside from her self-serving testimony, failed to present any concrete proof to show that Oliver indeed
lent the withdrawn P7 million cash to Lim.

Finally, Oliver averred that the erasures and alterations in her passbook undeniably established that Castro
manipulated the same to conceal the loan release and the cash withdrawal from her account.

In her Comment,33 Castro countered that the CA had more opportunity and facilities to examine the facts.
Hence, there was no reason to depart from the rule that the findings of fact of the CA were final and
conclusive and could not-be reviewed on appeal. She asserted that there was no proof that the P7 million
was withdrawn without Oliver's authority. She added that Oliver was an astute businesswoman who knew
her clients and bank deposits and who was knowledgeable of her bank transactions and was aware of her
loaned amounts from the bank.

In its Comment,34 PSBank asserted that the issues and arguments propounded by Oliver had been
judiciously passed upon. On the stated facts alone, the petition, which was akin to a motion for
reconsideration, should be denied outright for being pro forma.

In her Reply,35 Oliver faulted PSBank and Castro for failing to present the cash withdrawal slip which would
show her signature to prove that the money was withdrawn with her authority. She also reiterated that Lim
should have been presented as a witness to substantiate their defense that he actually received the amount
of P7 million.

The Court's Ruling

The petition is impressed with merit.

There was an implied agency between Oliver and Castro; the loans were properly acquired

A contract of agency may be inferred from all the dealings between Oliver and Castro. Agency can be
express or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate
the agency knowing that another, person is acting on his behalf without authority.36 The question of whether
an agency has been created is ordinarily a question which may be established in the same way as any other
fact, either by direct or circumstantial evidence. The question is ultimately one of intention. 37

In this case, Oliver and Castro had a business agreement wherein Oliver would obtain loans from the bank,
through the help of Castro as its branch manager; and after acquiring the loan proceeds, Castro would lend
the acquired amount to prospective borrowers who were waiting for the actual release of their loan
proceeds. Oliver would gain 4% to 5% interest per month from the loan proceeds of her borrowers, while
Castro would earn a commission of 10% from the interests. Clearly, an agency was formed because Castro
bound herself to render some service in representation or on behalf of Oliver, in the furtherance of their
business pursuit.38

For months, the agency between Oliver and Castro benefited both parties. Oliver, through Castro's
representations, was able to obtain loans, relend them to borrowers, and earn interests; while Castro
acquired commissions from the transactions. Oliver even gave Castro her passbook to facilitate the
transactions.

Accordingly, the laws on, agency apply to their relationship. Article 1881 of the New Civil Code provides that
the agent must act within the scope of his authority. He may do such acts as may be conducive to the
accomplishment of the purpose of the agency. Thus, as long as the agent acts within the scope of the
authority given by his principal, the actions of the former shall bind the latter.

Oliver claims that the P4.5 million loan, released on December 21, 1998, and the P1,396,310.45 loan,
released on January 5, 1999, were not acquired with her consent. Castro and PSBank, on the other hand,
countered that these loans were obtained with Oliver's full consent.

The Court finds that the said loans were acquired with Oliver's authority. The promissory notes 39 and the
release tickets40 for the said loans bore her signatures. She failed to prove that her signatures appearing on
the loan documents were forged. Hence, the loan documents were reliable and these proved that the loans
were processed by Castro within the scope of her authority. As the loans were validly obtained, PSBank
correctly stated that Oliver had incurred a debt of P4.5 million and P1,396,310.45, or a total of
P5,888,149.33.

P7 million was improperly withdrawn; agent acted beyond her scope of authority

Although it was proven that Oliver authorized the loans, in the aggregate amount of P5,888,149.33, there
was nothing in the records which proved that she also allowed the withdrawal of P7 million from her bank
account. Oliver vehemently denied that she gave any authority whatsoever to either Castro or PSBank to
withdraw the said amount.

In her judicial affidavit before the RTC, Castro initially claimed that Oliver authorized, the withdrawal of P7
million from her bank account, to wit:
chanRoble svirtualLawlibrary

Q: Do you know when was this 4.5 million pesos loan was credited to
plaintiff's deposit account?
A: Based on the Transaction Ledge of PS Bank, the 4.5 million pesos was
credit to plaintiff's deposit account on 21 December 21, 1998.

Q: What happened after the 4.5 million pesos loan was credited to
plaintiff's account?
A: Upon plaintiff's instruction, 7 million was withdrawn from her
account including her loaned amount to be deposited at Mr. Ben Lim's
account at PS Bank, San Pedro Branch.41

[Emphasis Supplied]
During her cross-examination, however, Castro could no longer remember whether Oliver gave her the
authority to withdraw the P7 million from her account. The transcript of stenographic notes reads:
chanRoble svirtualLawlibrary

Q: You said here, your statement here, "Upon Plaintiffs instruction". So,
my question is, who did the Plaintiff instruct you, was it you?
A: I cannot remember, sir.
Q: You are not definite? Your statement here it is categorical. It's on page
9 of 17 in the Judicial Affidavit, the question is "What happened after
the 4.5 million Pesos loan was credited to the Plaintiffs account" And
your answer was, "Upon Plaintiffs instruction Seven (7) million was
withdrawn from her account. My question is, this phrase, upon
plaintiffs instruction, who did the Plaintiffs (sic) instruct, was it you?
A: I cannot remember, sir because I still have other officers other than
me, who were assisting me during that time, so it could be the
instruction even I said upon the instruction of the plaintiff, but I
cannot remember if I was the one who received the instruction
from the plaintiff. It could be other officers of mine during that
time, sir.

Q: May I remind you, this is Seven (7) million Pesos?


A: Yes, sir.42

[Emphasis Supplied]
Verily, Castro, as agent of Oliver and as branch manager of PS Bank, utterly failed to secure the
authorization of Oliver to withdraw such substantial amount. As a standard banking practice intended
precisely to prevent unauthorized and fraudulent withdrawals, a bank manager must verify with the client
depositor to authenticate and confirm that he or she has validly authorized such withdrawal. 43

Castro's lack of authority to withdraw the P7 million on behalf of Oliver became more apparent when she
altered the passbook to hide such transaction. It must be remembered that Oliver entrusted her passbook to
Castro. In the transaction history register for her account, it was clear that there was a series of dealings
from December 17, 1998 to December 23, 1998. When compared with Oliver's passbook, the latter showed
that the next transaction from December 16, 1998 was on December 28, 1998. It was also obvious to the
naked eye that the December 28, 1998 entry in the passbook was altered. As aptly observed by the RTC,
nowhere in the testimony of Castro could be gathered that she made a detailed, plausible and acceptable
explanation as to why she had to make numerous corrections in the entries in the passbook. 44 Even after the
corrections allegedly done to reconcile the records, the passbook and the transaction history register still
contained different entries.

Curiously, though she asserts that Oliver obtained a loan of P4.5 million and authorized the withdrawal of P7
million,45 Castro could not explain why these transactions were not reflected in the passbook which was in
her possession. Bearing in mind that the alleged unauthorized withdrawal happened on December 21, 1998,
while Castro was questionably withholding the passbook, the Court is of the impression that she
manipulated the entries therein to conceal the P7 million withdrawal.

Further, Castro claims that Oliver instructed her to withdraw the P7 million from her bank account and to
deposit the same in Lim's account. Glaringly, Lim was not presented as a witness to substantiate her
defense. Even though she testified that the P7 million transfer from Oliver's account to Lim's was duly
documented, Castro never presented a single documentary proof of that specific transaction.

The Court is convinced that Castro went beyond the scope of her authority in withdrawing the P7 million
from Oliver's bank account. Her flimsy excuse that the said amount was transferred to the account of a
certain Lim deserves scant consideration. Hence, Castro must be held liable for prejudicing Oliver.46

PSBank failed to exercise the highest degree of diligence required of banking institutions
Aside from Castro, PSBank must also be held liable because it failed to exercise utmost diligence in the
improper withdrawal of the P7 million from Oliver's bank account.

In the case of banks, the degree of diligence required is more than that of a good father of a family.
Considering the fiduciary nature of their relationship with their depositors, banks are duty bound to treat the
accounts of their clients with the highest degree of care. The point is that as a business affected with public
interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of their relationship. 47

In Simex International v. Court of Appeals,48 the Court held that the depositor expected the bank to treat his
account with the utmost fidelity, whether such account consisted only of a few hundred pesos or of millions.
The bank must record every single transaction accurately, down to the last centavo, and as promptly as
possible. This has to be done if the account is to reflect at any given time the amount of money the
depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs.
A blunder on the part of the bank, such as the dishonor of a check without good reason, can cause the
depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation. 49

Time and again, the Court has emphasized that the bank is expected to ensure that the depositor's funds
shall only be given to him or his authorized representative. In Producers Bank of the Phil. v. Court of
Appeals,50 the Court held that the usual banking procedure was that withdrawals of savings deposits could
only be made by persons whose authorized signatures were in the signature cards on file with the bank. In
the said case, the bank therein allowed an unauthorized person to withdraw from its depositor's savings
account, thus, it failed to exercise the required diligence of banks and must be held liable.

With respect to withdrawal slips, the Court declared in Philippine National Bank v. Pike51 that "[o]rdinarily,
banks allow withdrawal by someone who is not the account holder so long as the account holder authorizes
his representative to withdraw and receive from his account by signing on the space provided particularly for
such transactions, usually found at the back of withdrawal slips." There, the bank violated its fiduciary duty
because it allowed a withdrawal by a representative even though the authorization portion of the withdrawal
slip was not signed by the depositor.

Finally, in Cagungun v. Planters Development Bank,52 a case very similar to the present one, the depositors
therein entrusted their passbook to the bank employees for some specific transactions. The bank employees
went beyond their authority and were able to withdraw from the depositors' account without the latter's
consent. The bank was held liable therein for the acts of its employees because it failed to safeguard the
accounts of its depositors.

In the case at bench, it must be determined whether the P7 million was withdrawn from the bank with the
authority of Oliver. As testified to by Castro, every withdrawal from the bank was duly evidenced by a cash
withdrawal slip, a copy of which is given both to the bank and to its client. 53 Contrary to the position of the
CA and that of the respondents, Oliver cannot be required to produce the cash withdrawal slip for the said
transaction because, precisely, she consistently denied giving authority to withdraw such
amount from her account.

Necessarily, the party that must have access to such crucial document would either be PSBank or Castro.
They must present the said cash withdrawal slip, duly signed by Oliver, to prove that the withdrawal of P7
million was indeed sanctioned. Unfortunately, both PSBank and Castro failed to present the cash withdrawal
slip.

During the trial, the counsel of PSBank conceded that the cash withdrawal slip for the P7 million transaction
could not be located, to quote:
chanRoble svirtualLawlibrary

ATTY DEJARESCO: Your Honor, excuse me just a comment for the record we asked for two (2) years, Your
Honor to subpoena this from the bank, the bank never produce (sic) the withdrawal slip two (2) years (sic),
Your Honor, this case was delayed by the previous Court for two (2) years. Your Honor, no withdrawal slip
was produced by the bank, Your Honor. I would just like to place it on record.

COURT: Were there subpoenas issued by the bank, was there an order?

ATTY. DEJARESCO: Yes Your Honor, I think the good counsel was the counsel at that time would you able to
confirm that it took us two (2) years to subpoena and subpoena (sic) this withdrawal slip because there
must be an authority to withdraw, and it there is a signature of the plaintiff, we will admit that.
ATTY. CORPUZ: I remember having manifested that the withdrawal slip cannot be located.

ATTY. DEJARESCO: Let's put that on record, Your Honor.

ATTY. CORPUS: (sic) I remember having made that manifestation, Your Honor.

COURT: That's the reason why no document was produced in Court by the PSBank?

ATTY. CORPUS: (sic) With respect to the withdrawal slip only, Your Honor on December 21.

ATTY. DEJARESCO: Of that Seven (7) million from the account.

COURT: Make that on record.

ATTY. CORPUS: Yes, Your Honor.54

[Emphasis Supplied]
Castro, as agent of Oliver, could not produce either the said withdrawal slip allegedly authorizing the
withdrawal of the P7 million, her testimony is quoted as follows:
chanRoble svirtualLawlibrary

ATTY. DEJARESCO:

Q: Can you show poof of the withdrawal slip?


A: The withdrawal slip.

Q: I'm asking you do you have proof?


A: None, sir.

Q: You cannot produce in Court in support of your Judicial Affidavit?


A: None.

Q: And you cannot produce that in Court?


A: As far as the withdrawal slip as for myself, none.55

[Emphasis Supplied]
From the foregoing, there was a clear showing of PSBank's failure to exercise the degree of diligence that it
ought to have exercised in dealing with its clients. It could not prove that the withdrawal of P7 million was
duly authorized by Oliver. As a banking institution, PSBank was expected to ensure that such substantial
amount should only be transacted with the consent and authority of Oliver. PSBank, however, reneged on its
fiduciary duty by allowing an encroachment upon its depositor's account without the latter's permission.
Hence, PSBank must be held liable for such improper transaction.

PSBank and Castro failed to discharge their burden and must be held solidarity liable

The party who alleges a fact has the burden of proving it. Section 1, Rule 131 of the Rules of Court defines
"burden of proof as "the duty of a party to present evidence on the facts in issue necessary to establish his
claim or defense by the amount of evidence required by law." In civil cases, the burden of proof rests upon
the plaintiff, who is required to establish his case by a preponderance of evidence. Once the plaintiff
establishes his case, the burden of evidence shifts to the defendant, who, in,turn, bears the burden to
establish his defense.56

Here, Oliver alleged that she did not authorize the withdrawal of P7 million from her account. To establish
her allegation, Oliver presented the following: (1) the transaction history register which showed the
withdrawal of P7 million from her account on December 21, 1998; (2) the passbook which contained
alterations to conceal the withdrawal on December 21, 1998 while in the possession of Castro; and (3)
testimonial evidence that she did not allow the withdrawal of the said amount. 57 The Court is of the view that
Oliver had sufficiently discharged her burden in proving that P7 million was withdrawn from her account
without her authorization. Hence, the burden was shifted to the respondents to refute the allegation of
Oliver.

As discussed above, both Castro and PSBank failed to establish the burden of their defense. They failed to
present proof that Oliver authorized the said transaction. They could have presented either the cash
withdrawal slip for the P7 million on December 21, 1999 or Lim's testimony to prove the transfer of funds'to
the latter's account, but they did neither. Without an iota of proof to substantiate the validity of the said
transaction, the respondents unlawfully deprived Oliver of her funds.

Indeed, the bank should be solidarily liable with its employee for the damages committed to its
depositor.58 Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for
damages caused by their employees acting within the scope of their assigned tasks.

Castro, as acting branch manager of PSBank was able to facilitate the questionable transaction as she was
also entrusted with Oliver's passbook. In other words, Castro was the representative of PSBank, and, at the
same time, the agent of Oliver, earning commissions from their transactions. Oddly, PSBank, either
consciously or through sheer negligence, allowed the double dealings of its employee with its client. Such
carelessness and lack of protection of the depositors from its own employees led to the unlawful withdrawal
of the P7 million from Oliver's account. Although Castro was eventually terminated by PSBank because of
certain problems regarding client accommodation and loss of confidence, the damage to Oliver had already
been done. Thus, both Castro and PSBank must be held solidarily liable.

Award of damages; invalid foreclosure

To recapitulate, the loans of Oliver from PSBank which were secured by real estate mortages amounted to
P5,888,149.33. Finding PSBank and Castro solidarily liable to Oliver in the amount of P7 million because it
was improperly withdrawn from her bank account, the Court agrees with the RTC that had it not been for the
said unauthorized withdrawal, Oliver's debts amounting to P5,888,149.33 would have been satisfied.

Consequently, PSBank's foreclosure of the real estate mortgage covering the two (2) loans in the total
amount of P5,888,149.33 was improper. With PSBank being found liable to Oliver for P7 million, after
offsetting her loans would have. PSBank and Castro still owing her P1,111,850.77, which must be suitably
paid in the form of actual damages.

The award of moral damages must also be upheld. Specifically, in culpa contractual, or breach of contract,
like in the present case, moral damages are recoverable only if the defendant has acted fraudulently or in
bad faith, or is found guilty of gross negligence amounting to bad faith, or in wanton disregard of his
contractual obligations. Verily, the breach must be wanton, reckless, malicious, or in bad faith, oppressive or
abusive.59

Here, Castro and PSBank were utterly reckless in allowing the withdrawal of a huge amount from Oliver's
account without her consent. The bank's negligence is a result of lack of due care and caution required of
managers and employees of a firm engaged in a business so sensitive and demanding. 60Hence, the award of
P100,000.00 as moral damages is warranted.

The award of exemplary damages is also proper due to the failure of Castro and PSBank to prevent the
unauthorized withdrawal from Oliver's account. The law allows the grant of exemplary damages to set an
example for public good.61 The Court, however, finds that the amount of exemplary damages must be
decreased to P50,000.00.

Finally, the Court agrees with the RTC that Castro and PSBank should be held solidarity liable for attorney's
fees. Article 2208 of the Civil Code is clear that attorney's fees may be recovered when exemplary damages
are awarded or when the plaintiff, through the defendant's act or omission, has been compelled to litigate
with thirds persons. A decreased amount of P50,000.00 attorney's fees should be sufficient. chanrobleslaw

WHEREFORE, the petition is GRANTED. The October 25, 2013 Decision and the September 12, 2014
Resolution of the Court of Appeals in CA-G.R. CV No. 95656 are REVERSED and SET ASIDE. The July 22,
2010 Order of the Regional Trial Court, Branch 276, Muntinlupa City in Civil Case No. 99-278 is
hereby REINSTATED with the MODIFICATION that the award of exemplary damages and attorney's fees
be decreased to P50,000.00 each.

All awards shall earn interests at the rate of six percent (6%) per annum from the finality of this decision.

SO ORDERED.

Carpio, (Chairperson), Brion, Del Castillo, and Leonen, JJ., concur. chanroble

214567
THIRD DIVISION

G.R. No. 190520, May 30, 2016

LAND BANK OF THE PHILIPPINES, Petitioner, v. SPOUSES ANTONIO AND CARMEN


AVANCENA, Respondents.

DECISION

PERALTA, J.:

Before us is a petition for review on certiorari filed by petitioner Land Bank of the Philippines seeking
to annul and set aside the Decision1 dated August 11, 2008 of the Court of Appeals (CA) issued in CA-
G.R. CV No. 00067 directing it to pay twelve percent (12%) interest per annum for the delay in the
payment of just compensation. Also assailed is the CA Resolution 2 dated December 1, 2009 denying
reconsideration thereof.

Respondents-spouses Antonio and Carmen Avancea were the registered owners of a parcel of
agricultural land situated at Sanghan, Cabadbaran, Agusan del Norte covered by Transfer Certificate of
Title No. RT-2937 containing an area of 205.0074 hectares. In 1988, respondents spouses voluntarily
offered to sell their land in Agusan del Norte to the government under the Comprehensive Agrarian
Reform Program (CARP), which consisted of 160.2532 hectares of the land. LBP initial valuation is
P1.88M, revalued to P3.34M in 1992, but was rejected by Spouses Avancea. LBP deposited the
difference in the cash portion between the revalued amount and the initial valuation of P1,877,516.09
in trust for the respondents on July 24, 1996. The parties brought the matter to Department of
Agrarian Reform Adjudication Board (DARAB), Caraga Regional Office, which affirmed petitioner's
second valuation. In 1991, petitioner Land Bank of the Philippines initially valued the subject lot at
P1,877,516.09 based on the guidelines prescribed in DAR Administrative Order No. 17, Series of 1989.
Upon recomputation in 1994 and based on DAR AO No. 6, Series of 1992, as amended, by DAR AO
No. 11, Series of 1994, the land was revalued at P3,337,672.78 but respondents rejected the
valuation. Petitioner deposited the difference in the cash portion between the revalued amount and the
initial valuation of P1,877,516.09 in trust for the respondents on July 24, 1996. The parties brought
the matter of valuation to the Department of Agrarian Reform Adjudication Board (DARAB), Caraga
Regional Office, which affirmed petitioner's second valuation.

Respondents-spouses filed with the Regional Trial Court, acting as a Special Agrarian Court (SAC), a
complaint for determination of just compensation, docketed as Civil Case No. 4507. They prayed for a
valuation of no less than P200,000.00 per hectare for the subject lot or in the alternative, to appoint
Commissioners to determine the just compensation; and that they be allowed to withdraw the
valuation amount that petitioner had deposited for them including the earned interest, pending the
court's final valuation. Petitioner filed its Answer alleging that the valuation was computed based on
the factors enumerated in Section 17 of Republic Act No. (R.A.) 6657, the Comprehensive Agrarian
Reform Law.

While the complaint was pending, petitioner made a reevaluation of the property using the valuation
prescribed by DAR AO 5, series of 1998 which yielded the amount of P9,057,180.32.

On March 29, 2000, the SAC issued its Decision, 3 the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered directing the defendants Land Bank
of the Philippines (LBP) and the Department of Agrarian Reform (DAK) to pay plaintiffs the following:

1. The sum of Twenty Million Four Hundred Seventy-Five Thousand, Seven Hundred Seventy-Five
(P20?475,775) Pesos for the 160.253 hectares |of| land with its improvements with six (6%) percent
legal interest thereon, less the provisional deposits from April 1991 until actually paid;

2. The sum of One Hundred Thousand (P100,000) Pesos, as Attorneys' fees;


3. The sum of One Hundred Thousand (P100,000) Pesos, litigation expenses;

4. All other claims and counterclaims are dismissed for lack of merit.

SO ORDERED.4 ChanRoblesVirtualawlibrary

Petitioner's motion for reconsideration was denied, hence it appealed the decision with the CA. In the
meantime, respondents spouses moved for the execution of the RTC decision pending appeal 5 which
was granted in a Resolution6 dated October 2, 2000; thus, the writ of execution was issued and
implemented.

On August 11, 2008, the CA issued the assailed decision, the decretal portion of which reads:

WHEREFORE, in view of all the foregoing, the instant appeal is hereby GRANTED and the assailed
March 29, 2006 decision of the Regional Trial Court (RTC), 10 th Judicial Region, Branch 5, Butuan City,
in Civil Case No. 4507, is hereby SET ASIDE. Consequently, this case is remanded to the court a
quo for the recomputation of just compensation. In determining the valuation of the subject property,
the factors provided under Section 17 of R.A. 6657 shall be considered in accord with the formula
prescribed in DAR Administrative Order No. 5, Series of 1998. Moreover, the just compensation due
the [S]pouses Avancena should bear 12% interest per annum from the time title to the property was
transferred in the name of the government up to the time that LBP deposited the amount of its
valuation for the subject land under the account of the appellees. The basis of the 12% interest would
be the just compensation that would be determined by the court a quo after remand of the instant
case.

SO ORDERED.7 ChanRoblesVirtualawlibrary

Petitioner filed a motion for partial reconsideration arguing that the CA erred in awarding interest at
the rate of 12% p.a. reckoned from the time title to property was transferred in the name of the
government to the time petitioner deposited the valuation in July 1996. It argued that upon receipt of
the DAR order of deposit, it immediately deposited the cash portion of the initial valuation of
P1,877,516.09 on October 17, 1991, thus it never incurred delay as the title to the subject lot was
transferred in the name of the government only in December 1991.

On December 1, 2009, the CA issued its resolution denying the motion for reconsideration. It found
that nowhere in the records showed that petitioner made a deposit of P1,877,516.09 on October
17,1991.

Dissatisfied, petitioner is now before us alleging that:

THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW IN AWARDING


INTEREST AT THE RATE OF 12% PER ANNUM FROM THE TIME TITLE TO THE PROPERTY WAS
TRANSFERRED IN THE NAME OF THE GOVERNMENT IN 1991 UP TO THE TIME LBP ALLEGEDLY
DEPOSITED THE VALUATION IN 1996.8

Petitioner claims that it deposited cash and bonds for the initial valuation of P1,877, 516.09 on
October 17, 1991. It attached in this petition a Certification 9 dated October 22, 1991 which stated that
the cash and bonds due the respondents-spouses have been earmarked by petitioner for respondents
spouses on October 17, 1991. It argues that such deposit was the basis for the DAR to take
possession of the property and caused the issuance of the title in the name of the government in
December 1991, pursuant to Section 16 (e) of RA 6657, thus, it did not incur any delay in depositing
the amounts due the respondents-spouses which can validly justify the payment of interest.

Petitioner cites the case of Apo Fruits Corporation et al, v. CA10 saying that we have categorically
declared therein that payment of interest for delay cannot be applied where there is prompt and valid
payment of just compensation as initially determined, as subsequently determined after revaluation,
and even if the amount was later on increased pursuant to the court's judgment.
Petitioner further contends that despite the pendency of the case with the CA, the RTC issued a Writ of
Execution dated March 9, 2000 directing petitioner to pay the RTC's valuation of P20,475,775.00 plus
legal interest thereon at the rate of 6% per annum from April 1991 until fully paid; that since such
valuation was, however, set aside by the CA in its assailed decision, there is now a huge possibility
that the recomputed value will be much lower than P20,475,775.00; that the advance payment it
made amounting to P23,416,772.55 may have exceeded the value of the subject land so that there is
a need for respondents spouses to return the difference between its valuation of P9,057,182.30 and
the advance payment.

We are not persuaded.

The CA found that the title to respondents spouses' land was canceled and a new title was issued in
the name of the Republic of the Philippines in December 1991, but there was no showing that
petitioner had made payments prior to the taking of the land.

Thus, there was delay in the payment of just compensation which entitles the respondents spouses to
the payment of interest from the time the property was transferred in the name of the government in
December 1991 up to the time petitioner deposited the valuation in the account of the respondents-
spouses in July 1996. We agree with the CA that petitioner should pay interest for the delay in the
payment of just compensation. However, such payment of interest should be computed up to the full
payment of just compensation.

Petitioner argues that it had made a deposit on October 17, 1991, i.e., prior to the cancellation of the
title of the respondents-spouses, and submitted with us a Certification dated October 22, 1991 issued
by the petitioner's Bonds Servicing Department stating that it had earmarked the sum of
PI,877,516.09 in cash and in LBP bonds as compensation for the parcel of lands covered by RT-2937
in the name of respondents spouses on October 17, 1991 pursuant to RA 6657 through voluntary
offer. However, such certification was not among those that the petitioner offered as evidence during
the trial.11 More importantly, We had rejected the practice of earmarking funds and opening trust
accounts for purposes of effecting payment, hence, the law 12 requires payment of just compesation in
cash or Land Bank of the Philippines (LBP) bonds, not by trust account. 13

The certificate of title to respondents-spouses' land was canceled and a new certificate was issued in
the government's name in December 1991 without giving the former just compensation for such
taking. We have allowed the grant of interest in expropriation cases where there is delay in the
payment of just compensation.14We recognize that the owner's loss is not only his property but also its
income-generating potential.15 Thus, when property is taken, full compensation of its value must
immediately be paid to achieve a fair exchange for the property and the potential income lost. 16 The
rationale for imposing the interest is to compensate the landowners for the income they would have
made had they been properly compensated for their properties at the time of the taking. 17

In Republic v. CA,18 we held:

The constitutional limitation of "just compensation" is considered to be the sum equivalent to the
market value of the property, broadly described to be the price fixed by the seller in open market in
the usual and ordinary course of legal action and competition or the fair value of the property as
between one who receives, and one who desires to sell it, fixed at the time of the actual taking by the
government. Thus, if property is taken for public use before compensation is deposited with the court
having jurisdiction over the case, the final compensation must include interests on its just value to be
computed from the time the property is taken to the time when compensation is actually paid or
deposited with the court. In fine, between the taking of the property and the actual payment, legal
interests accrue in order to place the owner in a position as good as (but not better than) the position
he was in before the taking occurred.

The Bulacan trial court, in its 1979 decision, was correct in imposing interests on the zonal value of
the property to be computed from the time petitioner instituted condemnation proceedings and "took'"
the property in September 1969. This allowance of interest on the amount found to be the value of the
property as of the time of the taking computed, being an effective forbearance, at 12% per
annum should help eliminate the issue of the constant fluctuation and inflation of the value of the
currency over time. Article 1250 of the Civil Code, providing that, in case of extraordinary inflation or
deflation, the value of the currency at the time of the establishment of the obligation shall be the basis
for the payment when no agreement to the contrary is stipulated, has strict application only to
contractual obligations. In other words, a contractual agreement is needed for the effects of
extraordinary inflation to be taken into account to alter the value of the currency.19
ChanRoblesVirtualawlibrary

Thus, the CA did not err in imposing interest on the just compensation which will be determined after
the remand of the case to the SAC. The interest should be computed from December 1991 up to the
full payment of just compensation and not only up to the time petitioner deposited the valuation in
1996 as the CA ruled. The concept of just compensation embraces not only the correct determination
of the amount to be paid to the owners of the land, but also payment within a reasonable time from
its taking.20 Without prompt payment, compensation cannot be considered "just" inasmuch as the
property owner is made to suffer the consequences of being immediately deprived of his land while
being made to wait for a decade or more before actually receiving the amount necessary to cope with
his loss.21

The award of interest is imposed in the nature of damages for delay in payment which, in effect,
makes the obligation on the part of the government one of forbearance to ensure prompt payment of
the value of the land and limit the opportunity loss of the owner.22 The just compensation due
respondents-spouses shall earn legal interest at the rate of 12% per annum computed from the time
of taking in December 1991 until June 30, 2013. 23 And from July 1, 2013 until full payment, the
interest will be at the new legal rate of 6% per annum, in accordance with the revisions governing the
rate of interest established by Bangko Sentral ng Pilipinas Monetary Board Circular No. 799, 24 Series of
2013.25 The amount which petitioner had already paid respondents-spouses by virtue of the RTC's
Order granting the issuance of the Writ of Execution dated October 2, 2000 shall be deducted from the
amount of the just compensation which will be awarded after the remand of this case.

Petitioner's reliance on our Third Division's December 19, 2007 Resolution in the case of Apo Fruits
Corporation v. CA26 wherein we declared that the payment of interest for the delay of payment cannot
be applied where there is prompt and valid payment of just compensation as initially determined, even
if the amount of just compensation was later on increased pursuant to the Court's judgment, is
misplaced. We found then that as Land Bank had deposited pertinent amounts in favor of the
landowners within fourteen months after the latter filed their complaint for determination of just
compensation with the SAC, there was no unreasonable delay in the payment of just compensation
which entitled the landowners to the payment of 12% interest per annumon the unpaid just
compensation.

However, such resolution was subsequenlty reversed and set aside in our En Bane Resolution dated
October 12, 2010 where we granted the landowners' motion for reconsideration. We ordered the Land
Bank to pay the landowners an interest at the rate of 12% per annum on the unpaid balance of the
just compensation, computed from the date the Government took the properties on December 9,
1996, until the respondent Land Bank fully paid the balance of the principal amount on May 9, 2008.
We ruled that notwithstanding that the Land Bank had immediately paid the remaining unpaid balance
of the just compensation as finally determined by the court, however, 12 long years had passed before
the landowners were fully paid. Thus, the landowners were entitled to legal interest from the time of
the taking of the property until the actual payment in order to place the owner in a position as good
as, but not better than, the position he was in before the taking occurred. 27 The imposition of such
interest was to compensate the landowners for the income they would have made had they been
properly compensated for their properties at the time of the taking. 28 Thus, we held:

Let it be remembered that shorn of its eminent domain and social justice aspects, what the agrarian
land reform program involves is the purchase by the government, through the LBP, of agricultural
lands for sale and distribution to farmers. As a purchase, it involves an exchange of values the
landholdings in exchange for the LBPs payment. In determining the just compensation for this
exchange, however, the measure to be borne in mind is not the taker's gain but the owner's loss since
what is involved is the takeover of private property under the States coercive power. As mentioned
above, in the value-for-value exchange in an eminent domain situation, the State must ensure that
the individual whose property is taken is not shortchanged and must hence carry the burden of
showing that the just compensation requirement of the Bill of Rights is satisfied.
The owner's loss, of course, is not only his property but also its income-generating potential. Thus,
when property is taken, lull compensation of its value must immediately be paid to achieve a fair
exchange for the property and the potential income lost. The just compensation is made available to
the property owner so that he may derive income from this compensation, in the same manner that
he would have derived income from his expropriated property. If full compensation is not paid for
property taken, then the State must make up for the shortfall in the earning potential immediately lost
due to the taking, and the absence of replacement property from which income can be derived;
interest on the unpaid compensation becomes due as compliance with the constitutional mandate on
eminent domain and as a basic measure of fairness. 29

As in the Apo case, respondents-spouses voluntarily offered to sell their land pursuant to the
government's land reform program, however, the valuation made by the LBP on the land was rejected
by the former for being undervalued. Respondents-spouses had to resort to the filing of the case with
the RTC, sitting as SAC, for the determination of just compensation of their land. It has already been
25 years but respondents-spouses have not received the full amount of the just compensation due
them, and further delay can be expected with the remand of the case to the SAC for the
recomputation of the just compensation. Thus, the long delay entitles them to the payment of interest
to compensate for the loss of income due to the taking. 30

Petitioner's claim for reimbursement of the amount it had already paid to respondents-spouses by
virtue of the writ of execution pending appeal then issued by the SAC is not meritorious. The
recomputed amount of just compensation due the respondents-spouses shall only be determined after
the remand of the case to the SAC. It would only be that time which would establish whether the
payment made to them was more than the just compensation that they are entitled to.

There is also no basis for petitioner to claim that respondents-spouses are merely entitled to
provisionally receive its valuation of P9,057,182.30 pending the final determination of the just
compensation. Notably, the CA's decision rejected petitioner's valuation as well, thus:

It has been stated in a number of cases that in computing the just compensation for expropriation
proceedings, it is the value of the land at the time of the taking which should be taken into
consideration. This being so, then in determining the value of the land for the payment of just
compensation, the time of taking should be the basis.

In the case at bar, the court a quo failed to consider the value and the character of the land at the
time it was taken by the government in 1991. Instead, the former assessed the market value of the
idle portion of the subject lot as a riceland. Yet, per LBP's Field Investigation Report (FIR) prepared in
1990, the subject lot was not yet devoted to rice or corn at that time, although its idle portion was
classified as suitable for said crops. Also, in computing the value of the land, the court a
quo considered the land's appreciation value from the time of taking in 1991 up to the filing of the
case in 1997 and of appellee's potential profit from the land's suitability to rice and corn, which We
find to be contrary to the settled criterion in determining just compensation. Hence erroneous.

The foregoing pronouncements do not, however, mean that We favor LBP's valuation of P9,057,10.32
for the subject lot. The same is found to be non-reflective of just compensation because the Tax
Declaration used by LBP in fixing the market value of the land in its initial valuation for the year 1986,
as indicated in the FIR. Additionally, no evidence was adduced to show that LBP used the correct tax
declaration (TD), which should be the 1991 TD, in fixing the market value in its latest computation of
the land's valuation.

Notably, LBP's initial valuation of the land in 1991 was P1,877,516.09 and became P3,337,672.78
after recomputation in 1994, pursuant to DAR AO No. 11, Series of 1994. During the pendency of the
case in court, DAR AO No. 5 series of 1998 was issued; hence, LBP accordingly recomputed its
valuation and came up with the amount of P9,057,180.32 (the amount of P8,955,269.16 constitutes
the value of the land while PI 01,913.14 was the value of the legal easement).

Albeit LBP claims to have faithfully observed and applied the prescribed formula in DAR AO No. 5,
series of 1998, in its recomputation of the land's valuation, it adduced no evidence, like the official
computation sheets, to show that the latest valuation of the land was indeed arrived at using the
prescribed formula and that the correct documents indicating the factors enumerated in Section 17 of
RA 6657 were actually considered. Hence, We cannot accept LBP's latest valuation as well.

Consequently, We deem it proper to remand this case to the court a quo for a recomputation of the
just compensation, x x x31

Therefore, until the SAC had finally determined the just compensation due the respondents-spouses
upon remand of the case, it could not be said that the payment made by virtue of the writ of
execution pending appeal had exceeded the value of the subject property.

Moreover, assuming arguendo that the amount paid by virtue of the execution pending appeal would
be more than the recomputed amount of the just compensation, any excess amount should be
returned to petitioner as provided under Section 5, Rule 39 of the Rules of Court, to wit:

Section 5. Effect of reversal of executed judgment. - Where the executed judgment is reversed totally
or partially, or annulled, on appeal or otherwise, the trial court may, on motion, issue such orders of
restitution or reparation of damages as equity and justice may warrant under the circumstances.

WHEREFORE, the dispositive portion of the Decision dated August 11, 2008 of the Court of Appeals in
CA-G.R. CV No. 00067 is hereby modified and shall now read as follows:

WHEREFORE, in view of all the foregoing, the instant appeal is hereby GRANTED and the assailed
March 29, 2006 decision of the Regional Trial Court (RTC), 10lh Judicial Region, Branch 5, Butuan City,
in Civil Case No. 4507, is hereby SET ASIDE. Consequently, this case is remanded to the court a quo
for the recomputation of just compensation. The interest on the recomputed just compensation should
be computed from December 1991 up to the payment of the lull amount of just compensation less
whatever amounts received by the respondents-spouses.

SO ORDERED.

Velasco, Jr., (Chairperson), Peralta, Perez, and Reyes, JJ.


Jardeleza, J., on leave.
chanro

SECOND DIVISION

G.R. No. 207597, May 30, 2016

ANECITO CAMPOS, Petitioner, v. BANK OF THE PHILIPPINE ISLANDS, NOW SUBSTITUTED BY


HOUSTON HOMEDEPOT, INC., Respondent.

DECISION

BRION, J.:

This is a petition for review on certiorari assailing the Court of Appeals' (CA) dismissal of
Anecito Campos' petition for certiorari in CA-G.R. CEB SP No. 029641 where he questioned the
denial of his motion to suspend the implementation of a writ of possession in CAD Case No. 06-
2266.2

Antecedents

The CA found the facts outlined below.

In 1980, petitioner Campos mortgaged fourteen (14) lots in favor of the Far East Bank and Trust, Co.
(FEBTC) - now merged with respondent Bank of the Philippine Islands (BPI/the Bank) - to secure a
One (1) Million peso loan. Among these lots was the then vacant Lot No. 7-G-4 (subject lot).3
Sometime in the late 1980's, Campos constructed a two-storey building on the subject lot allegedly
with the knowledge and consent of the Bank.

Due to unfortunate business losses, Campos failed to pay his loan. The loan eventually ballooned to
Eleven (11) Million pesos (P11,000,000.00).4 Consequently, the Bank moved for the extra judicial
foreclosure of the mortgaged lots and Campos failed to redeem the said properties. 5

The Bank was issued a Certificate of Sale after becoming the highest bidder during the public auction
at a bid of 11.3 million pesos.

When Campos failed to redeem the properties within the legal redemption period, the Bank
consolidated its ownership of the properties. 6 Thereafter, it filed a verified ex parte motion for the
issuance of a writ of possession before the Regional Trial Court (RTC). 7

On August 7, 2006, the RTC granted the motion and ordered the Clerk of Court and the Ex Officio
Sheriff of the RTC to place the Bank in possession of the lots. 8

On September 8, 2006, the RTC issued a Writ of Possession commanding the Ex Officio Provincial
Sheriff of Negros Occidental to execute the August 7, 2006 Order.9

Long after the RTC's August 7, 2006 Order became final and executory, Campos filed a Motion for the
Suspension of the Implementation of the Writ of Possession and/or to Allow Mortgagor to Present
Evidence of Good Faith dated February 12, 2007.10

Campos claimed that he constructed the building on subject Lot No. 7-G-4 in good faith and with the
Bank's consent. Citing Article 54611 in relation to Articles 44812 and 45013 of the Civil Code, Campos
argues that he has the right to retain possession of the subject lot until the Bank reimburses him the
value of the building.14

The Bank opposed the motion arguing that the purchaser in a foreclosure sale has no obligation to
reimburse the mortgagor for the value of the improvements and that under the Mortgage Contract,
improvements shall likewise be transferred.15 More importantly, the Bank cited the Mortgage Contract
which stipulates:

x x x the MORTGAGOR does hereby transfer and convey by way of mortgage unto the MORTGAGEE, its
successors or assigns, the parcels of land which are described in the list inserted on the back of this
document and/or appended hereto, together with all the buildings and improvements now
existing or which may hereafter be erected or constructed thereon of which the MORTGAGOR
declares that he/it is the absolute owner free from all liens and incumbrances [sic],16 x x x [emphases
supplied]

On April 16, 2007, the RTC denied Campos' motion for lack of merit. 17Citing Ong v. Court of
Appeals18 and De Vera v. Agloro,19 the RTC explained that upon the expiration of the redemption
period, its duty to issue a writ of possession is ministerial. It likewise explained that any cause of
action for the reimbursement may be pursued in a separate civil action but not in a non-litigious
and ex parte proceeding for the issuance of a writ of possession. 20

On April 20, 2007, Campos moved for reconsideration21 citing Policarpio v. Court of Appeals22 where the
Court permitted the heirs of a mortgagor to present evidence that they were builders in good faith.

On September 10, 2007, the RTC denied the motion for reconsideration. 23 It explained that
in Policarpio, the main issue was denial of due process because the trial court had called for evidence
on the matter of good faith several times. However, the court capriciously reversed itself during the
absence of the petitioners' counsel due to illness, and received the respondent's evidence ex parte.

The RTC further held that the motion for suspension was filed long after the writ of possession
attained finality.
Campos responded to the denial through a petition for certiorari with the CA with an application for a
Temporary Restraining Order (TRO). The petition was docketed as CA-G.R. CEB-SP No. 02964.

On July 24, 2012, the CA dismissed the petition after finding no grave abuse of discretion on the part
of the RTC.24 The CA held that the RTC's action is allowed under Section 7 of Act No. 3135 which grants
the purchaser the right to demand a writ of possession upon the lapse of the redemption period.
Accordingly, it was the RTC's ministerial duty to issue a writ of possession. Campos' remedy under
Section 8 of Act No. 3135 was to file a petition to set aside or cancel the writ of possession within
thirty days after the Bank was given possession.25 cralawre d

Campos moved for reconsideration26 reiterating that he had not been furnished a copy of the ex parte
motion or of the RTC's order granting the writ of possession. He also asserted the applicability
of Policarpio to his situation.

On May 23, 2013, the CA denied Campos' motion for reconsideration. Hence, the present petition for
review on certiorari.

The Petition

Campos insists on his right to prove that he was a builder in good faith pursuant to Policarpio. He also
claims: (1) that the bank already has 13 of the 14 mortgaged lots; (2) that the 13 lots have an
assessed value of 12 million pesos and a market value of 15 million pesos many times the value of
the original loan; and (3) that the original 1 million peso loan ballooned to 11 million due to exorbitant
interest rates and excessive penalties charged by the Bank.

He argues that the Bank did not furnish him a copy of its ex parte motion for a writ of possession and
that he was denied notice of the proceedings.27 Lastly, he contends that the Bank will unduly enrich
itself at his expense if he is not reimbursed the value of the improvements he constructed in good
faith.28

The Counter-arguments

On May 18, 2015, Houston HomeDepot, Inc., (Houston), as the Bank's transferee pendente lite, filed
its comment on the petition with leave of court. 29 Houston disputed Campos' claim of good faith, citing
the stipulation that included all future improvements as part of the mortgage. 30

Houston further alleged that Campos made it difficult to come to an amicable arrangement. Campos
allegedly dismantled the bulk of the improvements and locked up the premises while Houston's motion
to enforce the writ of possession was being heard by the trial court. 31

On July 3, 2015, the Bank also filed its comment to the petition. 32 It refuted Campos' claim as to the
original value of the loan and produced the Mortgage Contracts which put the value of the loan at
P9,324,000.00.33

The Bank, moreover, noted that the earliest Mortgage Contract was dated June 28, 1990 - later than
"the late 1980s" when Campos allegedly constructed the building. 34 Even if the building was
constructed after the mortgage, the contract expressly stipulates that any future improvements form
part of the mortgage.35 The Bank further maintained that Campos resorted to the wrong remedy by
filing a motion to suspend the implementation of the writ of possession.

Lastly, the Bank denied the applicability of Policarpio, arguing: (1) that Policarpio involved
a judicial foreclosure; and (2) that in Policarpio, an heir of the deceased mortgagor allegedly
constructed a new house on the lot 3 years after the foreclosure sale with the consent of the
mortgagee bank.36 The Bank argues that neither is true in the present case.

Our Ruling

We DENY the petition for lack of merit.


We emphasize at the outset that this Court is not a trier of facts. It is not our function to weigh
conflicting evidence all over again after the lower courts have sifted through them. Except for a few
recognized exceptions,37 this Court will not disturb the factual findings of the trial courts. Thus, we
refrain from passing upon the conflicting allegations of the parties as to the original amount of the
loan. Moreover, the conflicting factual details are immaterial to the resolution of the case.

Notably, the present appeal by certiorari stems from the CA's denial of a petition for certiorari. The
case before the CA was a limited and extraordinary form of judicial review whose only purpose was to
determine whether or not the RTC acted without jurisdiction or committed grave abuse of discretion.

This appeal by certiorari of the CA's dismissal is an even narrower form of review. Our present
function is not to determine whether the RTC committed errors of law, but to determine whether the
CA committed errors of law in dismissing the petition for certiorari. The core issue remains whether or
not the RTC acted beyond its jurisdiction or gravely abused its discretion in denying Campos' motion to
suspend the implementation of the writ of possession.

It did not.

First, Section 7 of Act No. 3135, as amended by Act No. 4118, explicitly allows the purchaser of a
foreclosed property to file an ex parte motion to acquire possession of the property:
chanRoble svirtualLawlibrary

Section 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of
First Instance of the province or place where the property or any part thereof is situated, to give him
possession thereof during the redemption period, furnishing bond in an amount equivalent to the use
of the property for a period of twelve months, to indemnify the debtor in case it be shown that the
sale was made without violating the mortgage or without complying with the requirements of this Act.
Such petition shall be made under oath and filed in form of an ex parte motion xxx and the court
shall, upon approval of the bond, order that a writ of possession issue, addressed to the sheriff of
the province in which the property is situated, who shall execute said order
immediately.38 [emphases supplied]

Neither the Bank nor the trial court was obligated to furnish Campos with notice of the proceedings.
An ex parteproceeding is one made at the instance and for the benefit of one party only, and without
giving notice to or hearing from any person adversely affected. 39 Campos was not entitled to
participate in the proceedings except to the extent permitted by Section 8 of Act No.
3135.40 Considering that he never questioned the validity of the sale, Campos' remedy was to institute
a separate civil action for the value of the improvements.

Failure to redeem the foreclosed property extinguishes the mortgagor's remaining interest in it.
Following the consolidation of ownership and the issuance of a new certificate of title in the
purchaser's name, the purchaser can demand possession at any time as a result of his absolute
ownership41 With the consolidated title, the purchaser becomes entitled to possession and it becomes
the ministerial duty of the court to issue a writ of possession. 42 Likewise, the implementation of the
writ is a ministerial duty; otherwise, the writ will be a useless paper judgment. 43

The writ issues as a matter of course and the court is left with no alternative or discretion
except to issue the writ.44 The rationale is to immediately vest possession of the property in the
purchaser, such possession being founded on his right of ownership. 45 The only exception is if the
property is possessed by a third party whose possession is adverse to the mortgagor.46

The RTC therefore did not err - and did not abuse its discretion -when it issued the writ of
possession ex parteand denied Campos' motion to suspend its implementation.

Second, the term "grave abuse of discretion" has a specific and well-defined meaning; it is not an
amorphous concept that can be shaped or manipulated to suit a litigant's purpose. 47 It is present when
there is such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, 48 or
where power is exercised arbitrarily or in a despotic manner by reason of passion, prejudice, or
personal hostility amounting to an evasion of positive duty, or to a virtual refusal to perform a legal
duty or act at all in contemplation of law.49
The RTC did not act capriciously or arbitrarily. In fact, it observed the provisions of Act No. 3135 and
narrowly adhered to prevailing jurisprudence on the ministerial nature of its duty to issue a writ of
possession.

Third, we reject Campos' argument citing Policarpio as authority to contradict overwhelming


jurisprudence that the RTC's duty to issue a writ of possession in extrajudicial foreclosure sales is
ministerial.

The lis mota in Policarpio was not the character of a writ of possession but the arbitrariness of the trial
court's actions. The trial court, after repeatedly calling for the mortgagor's heirs to present evidence of
their good faith, suddenly changed its mind when their lawyer was absent due to illness. The trial
court then capriciously heard, received, and admitted the bank's evidence while the petitioner was not
represented in court.50

Moreover, Policarpio is an outlier involving a judicial foreclosure of mortgaged property. In that case,
the mortgagee-bank did not immediately acquire possession of the property even though the court
already confirmed the sale.51 The mortgagor's heirs retained possession of the property and allegedly
negotiated with the Bank to repurchase it. 52 In the meantime, the ancestral house located on the
property was destroyed by a typhoon, prompting the heirs to rebuild it. 53

The mortgagees' construction was made three years after title to the property was consolidated in the
Bank but before the latter acquired possession. In other words, the mortgagees built on the Bank's
property.

Articles 448, 450, and 546 fall under Chapter II (The Right of Accession) of Book II, Title II of the Civil
Code. These provisions on the good faith of the builder contemplate situations when a person
builds on the land of another. They do not apply when, as in the present case, the owner builds on his
own property.

The developments subsequent to the consolidation of title in the bank's name as well as the judicial
character of the foreclosure removed Policarpio from the ambit of Section 7 of Act No. 3135 and
placed it within the coverage of the Rules on Accession.

Lastly, the mortgage contracts themselves specifically include "all the buildings and improvements
now existing or which may hereafter be erected or constructed [on the properties]" as part of the
mortgage. This renders the value of the improvements and Campos' alleged good faith immaterial; he
voluntarily included the building when he entered into the mortgage.

Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as
they may deem convenient provided they are not contrary to law, morals, good customs, public order,
or public policy.54

This Civil Code provision asserts the Autonomy of Contracts. Contractual obligations have the force of
law between the parties and should be complied with in good faith. The Courts will not rescue a
litigant from his bad bargains, protect him from unwise investments, relieve him from
disadvantageous contracts, or annul the effects of his foolish acts unless there has been a violation of
law.55

WHEREFORE, premises considered, we hereby DENY the petition for lack of merit, and
accordingly AFFIRM the July 24, 2012 decision and the May 23, 2013 resolution of the Court of
Appeals in CA-G.R. CEB SP No. 02964.

SO ORDERED. cralawlawlibrary

Carpio, (Chairperson), Brion, Del Castillo, Mendoza, and Leonen, JJ., concur. chanroble svirtualla
SECOND DIVISION

G.R. No. 204056, June 01, 2016

GIL MACALINO, JR., TERESITA MACALINO, ELPIDIO MACALINO, PILAR MACALINO,


GILBERTO MACALINO, HERMILINA MACALINO, EMMANUEL MACALINO, EDELINA MACALINO,
EDUARDO MACALINO, LEONARDO MACALINO, EDLLANE** MACALINO, APOLLO MACALINO,
MA. FE MACALINO, AND GILDA MACALINO, Petitioners, v. ARTEMIO PIS-AN, Respondent.

DECISION

DEL CASTILLO, J.:

This Petition for Review on Certiorari assails the September 20, 2012 Decision1 of the Court of Appeals
(CA) in CA-G.R. CV No. 02893 which granted respondent Artemio Pis-an's (Artemio) appeal and set
aside the December 12, 2008 Decision2 of the Regional Trial Court (RTC) of Negros Oriental,
Dumaguete City, Branch 40 in Civil Case No. 13725.

Factual Antecedents

Under Original Certificate of Title (OCT) No, 2393-A, Emeterio Jumento (Emeterio) was the owner of
the half portion, and his children Hospicio Jumento (Hospicio) and Severina Jumento (Severina) of the
other half in equal shares, of Lot 3154 consisting of 469 square meters and located in Junob,
Dumaguete City, Negros Oriental. When Hospicio and Severina died single and without issue, Emeterio
as their sole heir inherited the portions pertaining to them and thus became the owner of the whole
lot. Subsequently, Emeterio, owner of Lot 3154 459 square meters lot in Dumaguete City, passed
away.

Apparently, the City of Dumaguete built in the 1950's a barangay road which cut across said lot. As a
result, Lot 3154 was divided into three portions, to wit: the portion which was converted into
a barangay road and the portions on both sides of said barangay road. Sometime in the 1970's,
Artemio, a grandson-in-law of Emeterio,3commissioned Geodetic Engineer Rodolfo B. Ridad (Engr.
Ridad) to survey Lot 3154 so that taxes would be assessed only on the portions of the subject
property which remained as private property.4 Accordingly, Engr. Ridad came up with a sketch
plan5 (sketch plan) where the three portions of Lot 3154 were denominated as Lot 3154-A (the portion
on the left side of the road), Lot 3154-B (the portion which was converted into a barangayroad), and
Lot 3154-C (the portion on the right side of the road). The sketch plan also revealed that the portion
occupied by Artemio, i.e., Lot 3154-A as enclosed by points 1, 2, 3, 4, 5, and 6, 6 together with a
section of a dried creek, contained an area of 207 square meters. 7

On May 3, 1995, Artemio and the other heirs of Emeterio executed an Extra Judicial Settlement of
Estate and Absolute Sale8 (Absolute Sale) adjudicating among themselves Lot 3154 and selling a 207-
square meter portion of the same to the spouses Wilfredo and Judith Sillero (spouses Sillero). The
document, did not, however, identify the portion being sold as Lot No. 3154-A but simply stated as
follows:

That for and in consideration of the sum of TWELVE THOUSAND PESOS (P12,000.00) Philippine
currency to them in hand paid by spouses WILFREDO SILLERO and JUDITH SILLERO, both of legal
age, Filipino, with residence at Taclobo, Dumaguete City, the aforementioned heirs hereby SELL,
TRANSFER and CONVEY absolutely and unconditionally, unto the said WILFREDO SILLERO and JUDITH
SILLEROW their heirs and assigns a portion of the above-described parcel of land [Lot 3154]
which is TWO HUNDRED SEVEN (207) square meters and which shall have access to and [to
which] belong the existing road right of way, together with the building and improvements thereon. 9

The spouses Sillero, immediately after the sale, fenced Lot No. 3154-A and built a house thereon. Not
long after, they sold Lot 3154-A to petitioner Gil Macalino, Jr. (Gil) by virtue of a Deed of Sale 10 (Deed
of Sale) dated December 27,1996 which states in part, viz.:
The Vendors are the absolute owners of TWO HUNDRED SEVEN (207) square [meter-part] of [L]ot
3154 x x x known as Sub[-]lot 3154-A x x x [T]he whole [L]ot 3154 is covered by Original
Certificate of Title No. 2393-A situated at Junob, Dumaguete City and more particularly described as
follows:

ORIGINAL CERTIFICATE OF TITLE NO. 2393-A

A parcel of land (Lot No. 3154 of the Cadastral Survey of Dumaguete) with the improvements thereon,
situated in the Municipality of Dumaguete. Bounded on the NE., and N., by Lot No. 3153; on the SE.,
by a road; and on the SW., by a sapa. Containing an area of FOUR HUNDRED and SIXTY NINE (469)
SQUARE METERS, more or less, including [a] house under Tax Dec. No. 93-022-1587

having been acquired by purchase in a document known as Extrajudicial Settlement of Estate and
Absolute Sale x x x.

For and in consideration of the sum of TWO HUNDRED TEN THOUSAND PESOS ONLY, Philippine
currency paid by the Vendee to the Vendors, receipt whereof is hereby acknowledged by the VENDORS
to their complete and entire satisfaction, [Vendors] hereby SELL, CEDE, TRANSFER, and CONVEY unto
the Vendee, his heirs, successors, and assigns the TWO HUNDRED SEVEN (207)[-]square meter
[portion] of the above-described [L]ot 3154 which x x x portion is now known as SUBLOT
3154-A, absolutely and unconditionally, and free from any lien or encumbrance; 11

On July 2, 1998, Transfer Certificate of Title (TCT) No. 2765812 in the names of Artemio and the other
heirs of Emeterio was issued in lieu of OCT No. 2393-A. Annotated therein was the sale made by the
heirs of Emeterio to the spouses Sillero and also of the latter to Gil. 13

Intending to have Lot 3154-A registered in his name, Gil caused the survey of the same by Geodetic
Engineer Rilthe P. Dorado (Engr. Dorado) sometime in 1998. 14 Engr. Dorado, however, discovered that
the portion occupied by Gil consists of 140 square meters only and not 207. 15 Believing that he was
deceived, Gil filed a complaint for estafa against the spouses Sillero. 16

On January 31, 2001, the Land Management Bureau issued an approved Subdivision
Plan17 (Subdivision Plan) wherein Lot 3154 was subdivided into four sub-lots, to wit: (1) Lot 3154-A
with an area of 140 square meters; (2) Lot 3154-B or the existing barangay road with an area of 215
square meters; (3) Lot 3154-C with an area of 67 square meters; and (4) Lot 3154-D with an area of
47 square meters. Notably, the Subdivision Plan which was based on the survey conducted by Engr.
Dorado refers not only to Lot 3154-A as Gil's property but also to Lot 3154-C. Likewise, the document
does not bear the conformity of Artemio and his co-heirs but only that of Gil.

A few years later or on January 18, 2005, Gil, joined by his children and their respective spouses,
namely: petitioners Gil Macalino, Jr., Teresita Macalino, Elpidio Macalino, Pilar Macalino, Gilberto
Macalino, Hermilina Macalino, Emmanuel Macalino, Edelina Macalino, Eduardo Macalino, Leonardo
Macalino, Eillane Macalino, Apollo Macalino, Ma. Fe Macalino, and Hilda Macalino, filed against Artemio
a Complaint for Quieting of Title and Damages18 with the RTC, docketed as Civil Case No. 13725.

Ruling of the Regional Trial Court

Petitioners claimed that the 207-square meter property sold by the spouses Sillero to Gil consists of
Lot 3154-A with an area of 140 square meters and Lot 3154-C with an area of 67 square meters. In
February 2003, however, Artemio built a pig pen on Lot 3154-C. When confronted by Gil, Artemio
simply ignored him. Gil thus brought the matter to the barangay but since conciliation proved futile,
petitioners filed the said Complaint in order to quiet their title over Lot 3154-C and seek for damages. 19

Artemio denied petitioners' allegations. He asserted that the portion sold to the spouses Sillero was
limited to the area enclosed by points 1, 2, 3, 4, 5, and 6 denominated as Lot No. 3154-A in the
sketch plan. Accordingly, only the said area was occupied and possessed by the said spouses as in
fact, they fenced the perimeter covered only by the aforementioned points. Logically, therefore, what
the spouses Sillero sold to Gil was also the same and exact property. And granting that the subject
property has an area less than 207-square meters, Gil only has himself to blame since he did not
exercise the diligence required of a buyer. Besides, the sale between Gil and the spouses Sillero was
for a lump sum, hence the former cannot complain that the property delivered to him was lacking in
area. At any rate, Gil has no cause of action against Artemio since the latter was not privy to the
contract between the former and the spouses Sillero. Anent the Subdivision Plan, Artemio argued that
the same does not bind him as it was made without his knowledge and consent. 20

After trial, the RTC in its Decision21 of December 12, 2008 ruled as follows:

The Extra-judicial Settlement of Estate and Absolute Sale dated May 3, 1995 and the Deed of Sale
dated December 27,1996 are common exhibits of the parties and admitted as such conveyances by
them. On the basis of these documents, x x x Gil Macalino asserts that he is in fact the owner of a 207
square meter portion of Lot 3154, particularly Lots 3154-A (140 square meters) and 3154-C (67
square meters) of the approved subdivision plan. This is disputed by [Artemio] who argues that the
Deed of Sale dated December 27, 1996, from Wilfredo and Judith Sillero to Gil Macalino, particularly
states that they were selling a 207 square meter portion 'known as sublot 3154-A'. Due to this phrase,
[Artemio] argues that the sale was for a lump sum, presuming that Gil Macalino only intended to buy
Lot 3154-A and cannot claim the difference from Lot 3154-C. [Artemio] further asserts that there is no
privity of contract between Gil Macalino and [Artemio] because the contract is between Gil Macalino
and Wilfredo and Judith Sillero.

In the Extra-judicial Settlement of Estate and Absolute Sale dated May 3, 1995, [Artemio], as one of
the signatories categorically avowed that he was selling 207 square meters of Lot 3154 to Wilfredo
and Judith Sillero. This conveyance did not identify the portion sold as Lot 3154-A.

As a consequence, [Artemio] divested himself of any interest in a 207[-] square meter portion of Lot
3154 as early as May 3, 1995 when he signed the Extra-judicial Settlement of Estate [and Absolute
Sale]. In signing such deed, he is now estopped from disavowing that he conveyed a lesser area to x x
x Wilfredo and Judith Sillero.

The identification of the portion sold as Lot 3154-A is found only in the subsequent Deed of Sale dated
December 27, 1996, which is the conveyance of the 207 square meter portion by Wilfredo and Judith
Sillero to Gil Macalino. Under the principle of privity of contracts, only the Silleros can claim that they
sold Lot 3154-A consisting of 140 square meters only and not 207 square meters. In truth however,
the Deed of Sale by the Silleros provides that they were selling 207 square meters of Lot 3154. The
deed did not state that the Silleros were selling Lot 3154-A. This then lends to the conclusion that this
was not a sale by lump sum but by square meters, x x x

xxxx

WHEREFORE, premises considered, Judgment is rendered in favor of x x x Gil Macalino against


[Artemio], declaring x x x Gil Macalino x x x the rightful owner of Lot 3154-A and Lot 3154-C of the
approved subdivision plan PSD-07-048844.

SO ORDERED.22 ChanRoblesVirtualawlibrary

Aggrieved, Artemio filed a Notice of Appeal23 which was granted by the RTC in an Order24 dated
February 9,2009.

Ruling of the Court of Appeals

Artemio argued before the CA that the sale between Gil and the spouses Sillero was for a lump sum.
Pursuant, therefore, to Article 1542 of the Civil Code, 25 Gil cannot complain that the property delivered
to him by the said spouses was lacking in area. Artemio called attention to the testimony of Judith
Sillero (Judith) who categorically declared that what she and her husband bouglit from Artemio and his
co-heirs was the property enclosed by points 1, 2, 3, 4, 5 and 6 identified as Lot 3154-A in the sketch
plan and, that it was the same and exact property wliich they sold to Gil. Judith further said that Gil
even inspected the property consisting of a fenced house and lot before he purchased the same. His
inspection of the property, however, excluded the lot at the other side of the barangay road (Lot 3154-
C) since it was not involved in the subject sale, she and her husband not being the owners thereof. 26
Petitioners, for their part, fully subscribed to the Decision of the RTC. 27
cralawred

In a Decision28 dated September 20, 2012, the CA concluded that the sale between the spouses Sillero
and Gil involved Lot 3154-A only and not Lot 3154-C. The appellate court gave weight to Judith's
testimony and to the fact that the Deed of Sale between the spouses Sillero and Gil expressly
identified the lot subject thereof as Sub-lot 3154-A. The CA further ruled that contrary to the ruling of
the RTC, the sale between Gil and the spouses Sillero was for a lump sum and not by square meter
since the said deed showed that the purchase price agreed upon was based on a predetermined area
of the lot (albeit erroneous since what was sold was actually 140 square meters only) and not on a per
square meter basis. The dispositive portion of the CA Decision therefore reads:

WHEREFORE, premises considered, the Appeal is GRANTED. The Decision dated December 12, 2008 of
the Regional Trial Court (RTC), Branch 40, Dumaguete City in Civil Case No. 13725, is hereby SET
ASIDE. Defendant-appellant Artemio Pis-an is declared as the true and legal owner of the Sixty Seven
(67) square meter lot known as Lot 1354-C situated at Northern Junob, Dumaguete City.

SO ORDERED.29

Hence, this Petition for Review on Certiorari.

The Parties' Arguments

Petitioners reiterate the ratiocination of the RTC that since the Absolute Sale merely stated that
Artemio and his co-heirs were selling a 207-square meter portion of Lot 3154 and did not identify the
portion being sold as Lot 3154-A, Artemio, by virtue of the said document, had already divested
himself of any interest to such an extent (207 square meters) of Lot 3154. Thus, he cannot now lay a
claim on Lot 3154-C, the area of which (67 square meters) if added to the area of Lot 3154-A (140
square meters), totals 207 square meters. Besides, Artemio is already estopped from claiming Lot
3154-C since as early as 1996, petitioners already occupied and possessed the said sub-lot by making
use of the gravel, soil and stones found therein. In fact in one instance, Artemio asked Gil why the
latter was hollowing out the stones and gravels from Lot 3154-C and when Gil answered that it was his
lot anyway since the same was included in his purchase from the spouses Sillero, Artemio did not say
or do anything.30

Artemio, on the other hand, basically reiterates the arguments he advanced before the CA.

Our Ruling

There is no merit in the Petition.

Essentially, the Court is tasked to resolve who between petitioners and Artemio has a right over Lot
3154-C. For this determination, one pivotal question must be answered, i.e., did the sale between the
spouses Sillero and Gil include Lot 3154-C? The Court finds in the negative.

It is necessary to determine the


true intention of the parties to the
instruments relevant to this case.

Petitioners, in order to further their case, rely on the failure of the Absolute Sale to state that the 207-
square meter portion conveyed by Artemio and his coheirs to the spouses Sillero was Lot 3154-A.
Artemio, on the other hand, puts emphasis on the fact that the Deed of Sale between Gil and the
spouses Sillero expressly stated that the lot subject of the sale was Lot 3154-A only. Plainly, the
parties' respective arguments hinge on two relevant documents which they adopted as common
exhibits - (1) the Absolute Sale subject of which, among others, is the conveyance made by Artemio
and his co-heirs to the spouses Sillero; and (2) the Deed of Sale between the spouses Sillero and Gil.
It is worthy to note that there is no dispute regarding the contents of these documents, that is,
neither of the parties contests that the Absolute Sale did not state that the 207-square meter portion
sold to the spouses Sillero was Lot 3154-A nor that the Deed of Sale between Gil and the spouses
Sillero expressly mentioned that the subject of the sale between them was Lot 3154-A. What is really
in issue therefore is whether the admitted contents of the said documents adequately and correctly
express the true intention of the parties to the same. It has been held that "[w]hen the parties admit
the contents of written documents but put in issue whether these documents adequately and correctly
express the true intention of the parties, the deciding body is authorized to look beyond these
instruments and into the contemporaneous and subsequent actions of the parties in order to
determine such intent."31 In view of this and since the Parol Evidence Rule 32 is inapplicable in this
case,33 an examination of the parties' respective parol evidence is in order. Indeed, examination of
evidence is necessarily factual34 and not within the province of a petition for review on certiorari35 which
only allows questions of law to be raised. However, this case falls under one of the recognized
exceptions to such rule, i.e., when the CA's findings are contrary to that of the trial court. 36

The subject of the sale between Artemio


and his co-heirs and the spouses Sillero
was Lot 3154-A only.

As mentioned, the Absolute Sale did not specifically indicate that Artemio and his co-heirs were
conveying to the spouses Sillero Lot 3154-A, It simply stated that they were selling to the said
spouses a 207-square meter portion of Lot 3154. However, mere should be no question that the sale
was only specific to Lot 3154-A since none other than the parties to the said transaction acknowledged
this. At any rate, the testimonial evidence presented by Artemio sufficiently supports the conclusion
that what was sold to the spouses Sillero was indeed Lot 3154-A only.

Judith testified that since Lot 3154 consisted of 469 square meters and Artemio and his co-heirs were
selling only a portion thereof, Artemio presented to her and her husband a sketch plan prior to their
purchase. Artemio pointed to the portion being sold as enclosed by points 1, 2, 3, 4, 5, 6, and
identified as Lot 3154-A.37Immediately after the sale, Judith and her husband occupied Lot 3154-A,
introduced a house thereon and built a fence around it.

For his part, Rolando Pis-an (Rolando), Artemio's son and co-heir, stated during trial that the spouses
Sillero never took possession of Lot 3154-C or of any other portion of Lot 3154 except for Lot 3154-
A.38 In fact, the nipa hut he built on Lot 3154-C in 1993 remained standing there even after the sale
transaction with the spouses Sillero in 1995 and until the time of the trial. 39 Also, subsequent to 1995,
Rolando planted various kinds of trees on Lot 3154-C40 without any objection on the part of the
spouses Sillero.

In view of the above, it cannot be any clearer that the portion of Lot 3154 subject of the Absolute Sale
between Artemio and his co-heirs and the spouses Sillero was Lot 3154-A only.

The sale transaction between the


spouses Sillero and Gil likewise
pertains to Lot 3154-A only.

Since what the spouses Sillero bought from Artemio and his co-heirs was Lot 3154-A, it logically
follows that what they sold to Gil was the same and exact property. After all, "no one can give what
one does not have. A seller can only sell what he or she owns x x x, and a buyer can only acquire
what the seller can legally transfer."41 Despite this and the categorical statement in the Deed of Sale
that the subject of the sale was Lot 3154-A, Gil insists that the sale includes Lot 3154-C.

However, from Gil's Affidavit[-]Complaint42 which he executed relative to the estafa case he filed
against the spouses Sillero, it can be deduced that what he bought from the latter was only Lot 3154-
A on which a house stood, viz.:

That sometime on October 25, 1996, I purchased a portion of a piece of land with an area of about
207 square meters, more or less, from the entire [l]ot covered by TCT No. 27658 (Lot No. 3154)
owned by Artemio Pis-an with an entire area of about 469 square meters which Artemio Pis-an
[i]nherited from Emeterio Jumento x x x;
That after Artemio Pis-an inherited the afore-mentioned Lot No. 3154 (TCT No. 27658), Artemio Pis-an
sold about 207 square meters to spouses Wilfredo and Judith Sillero, of legal age, Filipino and residing
at Taclobo, Dumaguete City;

That later, Gil Macalino purchased the said portion of about 207 square meters, as aforesaid, on
October 25, 1996 together with all the improvements, which included a house which was under
construction and made of mixed materials x x x

That in view of the desire of complainant Gil Macalino to register his purchased portion from the entire
[L]ot, he [caused] it to be surveyed by Geodetic Engineer Rilthe P. Dorado of the City Engineer's
Office, Dumaguete City, sometime in April 1998 x x x

That after 1 week when Geodetic Engineer Dorado surveyed my [l]ot purchased from spouses Sillero,
Engineer Dorado stop[p]ed the survey because according to him my purchased [l]ot from spouses
Sillero of about 207 square meters, overlapped on the already titled Lot of LUBRUS INC. x x x

That in other words, what was really sold to me by the spouses Wilfredo and Judith Sillero is only with
an area of about 140 square meters as shown by the subdivision survey plan of Geodetic Engineer
Dorado x x x

That after I learned about my purchased lot that lacked the area of about 67 square meters and
especially that the house where I am now residing is built on the area having overlapped with an area
of 67 square meters which was sold to me by spouses Sillero, I approached respondent x x x Wilfredo
Sillero about the portion which is owned by the aforesaid [c]ompany, GLUBUS INC., but spouses
respondents Wilfredo and Judith Sillero answered me sarcastically, that "Wala koy labot ana kay ang
gibaligya nako nimo 207 square meters" which means in English (I have nothing to do with that
because what [we] sold to you was 207 square meters) xxx 43 ChanRoblesVirtualawlibrary

Notably too, the above-quoted allegations are plainly contrary to the claim later made by Gil in this
case mat the 67-square meter portion of the 207-square meter lot he bought from the spouses Sillero
pertains to Lot 3154-C. If such was the case, there would have been no reason for him to file an
estafa case against the spouses Sillero since no portion of the lot sold to him would be lacking.
Otherwise stated, the 207-square meter portion he purchased from the spouses Sillero would be
complete and intact - with Lot 3154-A consisting of 140 square meters on the left side of
the barangay road on which the house where he resides stood, and Lot 3154-C consisting of 67 square
meters on the other side, both of which he now claims to be in his possession from the time of sale.
Again, however, such contention is clearly belied by Gil's Affidavit[-] Complaint. Besides it bears to
mention that when Artemio offered Gil's Affidavit[-]Complaint as part of his evidence, 44 Gil did not
deny its existence or the truth of the allegations therein but merely remarked that it is irrelevant. 45

Moreover, in an effort to convince the Court that Lot 3154-C was included in his sale Iransaction with
the spouses Sillero, Gil testified that when he bought a portion of the 469-square meter Lot 3154, he
did not refer to a sketch plan. He merely estimated the measurement of the lot on which the house of
the spouses Sillero stood (Lot 3154-A) and the lot across the road (Lot 3154-C) pointed to him by said
spouses. By that, he already became satisfied that the combined area of the two lots is 207 square
meters. Gil denied seeing the sketch plan where Lot 3154-A was described as enclosed by points 1, 2,
3, 4, 5 and 6. He also claimed that he signed the Deed of Sale on the assumption that the lot on the
right side of the barangay road (Lot 3154-C) was included under the denomination "Lot 3154-A"
stated in the said deed.46

The Court, however, is not convinced of Gil's testimony. It is implausible for a former Provincial
Agriculturist like Gil to buy a parcel of land without being conscious of its area, metes and bounds, and
location especially considering that what he was buying in this case was a mere portion of a still
undivided lot. It is also unlikely for him, if he was indeed also buying Lot 3154-C, to have not
inspected the said property but only looked at it from the across the road (from Lot 3154-A).
Moreover, the Court could not understand why Gil would sign the Deed of Sale which indicated Lot
3154-A as the only subject thereof when as alleged by him, the agreement involved two separate and
different portions of Lot 3154. Obviously, Lot 3154-A and the lot on the other side of the road (Lot
3154-C) are two separate and different portions of Lot 3154 as in fact, they were separated by
the barangay road. Common sense, thus, dictates that the two lots cannot fall under a single
denomination since they apparently have different technical descriptions. Moreover, what Gil occupied
after the sale was Lot

A only. His claimed possession of Lot 3154-C as correctly observed by the CA, 47 is not supported by the
evidence on record.

On the other hand, Judith's testimony is more in accord with the clear import of the Deed of Sale and
the ordinary course of things. She testified, viz.:

Q After you purchased a portion of Lot 3154 which you said has been identified as [lot]
3154-A enclosed end point 1 to 6, what did you do to the land?
A We developed the land, Sir. We applied [for] fencing permit at the City and we also
applied [for] a building permit, Sir.
Q Now what improvements, if any, did you introduce x x x? A Only the fence and also the
house, Sir.
Q Now after having built the fence and the house, what happened] to the property and the
improvements which you introduce[d]? Did you sell it to anyone?
A After several months, we needed the money [so] we [sold] the property, Sir.
Q Now in what manner did you advertise the intention to sell?
A Thru the daughter[-]in[-]law of Mr. Macalino, Sir. We had advertised that we are going
to sell the house and lot, Sir, and this daughter[-]in[-]law of Mr. Macalino [came to us]
since Mr. Macalino [was] looking for a house and lot which he can occupy after his
retirement.
Q Now eventually did you and your husband meet Gil Macalino [who] is one of the
plaintiffs in this case?
A The first negotitation, Sir, was [with] his daughter[-]in[-]law since Mr. Macalino [was]
still in Larena working at that time and when we negotiated the property, it was Mr.
Macalino himself.
Q When you negotiated for the sale of the property with Mr. Gil Macalino himself, did he
examine the perimeter, the area which you sought to sell?
A Yes. It [was] Mr. Macalino and his family who look[ed] at the property, Sir.
Q Will you please describe how Gil Macalino and his family examine[d] the property?
A He looked at the house [to find out how many rooms it has], the septic tank and also
around the house, Sir, and it was quick.
Q How about the perimeter of the fence[,] did Gil Macalino and his family went around to
see the perimeter of the fence with the boundaries?
A Yes, Sir, when they were inside.
Q Eventually, was the sale consummated between you and your husband and Gil
Macalino?
A After he looked at the property, Sir, we went to see Arty. Lumjod.
Q What happen[ed] at the office of Atty. Lumjod?
A We agreed to the amount of the house and lot and the [payment].
Q Now, was a Deed of Sale eventually made and signed by you and Gil Macalino?
A We have documents, Sir, and it is with Atty. Lumjod.
xxx
x
Q Now in the Deed of Sale the description of the property is the whole Lot 3154 which is
469 square meters. Now in the lower portion what you sold was only [lot] 3154-A. Now,
what [was] the basis of your [identification of] the portion you sold as [lot] 3154-[?] Did
you show the Sketch Plan to Gil Macalino?
A Yes. I [showed] x x x him the Sketch Plan
Q That Sketch Plan was the one marked as Exhibit "6"?
A The Sketch Plan which was prepared by Engr. Ridad, Sir. Yes, this is the Sketch Plan
[referred to as] Exhibit "6."
Q Now when you agreed with Gil Macalino [regarding] the sale of [lot] 3154-A, was your
agreement in lump sum amount or did you sell it in per square meter?
A The whole house and lot, Sir.
Q Now as shown in this Sketch Plan x x x across the road there are x x x words [written]
"portion of lot 3154-C["]. Was this included in the sale between the Pis-an family and
you and your husband?
A That is not included, Sir.
Q Was this portion [lot] 3154-C included in the sale between you and Gil Macalino?
xxx
x
A That is not included.
Q Did you take possession of Lot No. 3154-C?
A No, Sir.
Q Did you turn over possession of [Lot No.] 3154-C to Gil Macalino?
A No, Sir.
Q When you bought [Lot No.] 3154-A, were there improvements on [L]ot 3154-C across
the road?
A Yes, there was, Sir. There are trees, gemilina trees and acacia trees.
Q To your knowledge, who introduce[d] those improvements?
A Pis-an, Sir. That is across the road Sir. That is part of the whole lot but it is not included
when I boughtthe property and if we have money, we might buy that property. 48

The subdivision plan which refers to Lots


3154-A and 3154-C as Gil's properties cannot
support petitioners' claimed right over
Lot 3154-C

Petitioners cannot rely on the Subdivision Plan describing Lots 3154-A and 3154-C as Gil's properties
to support their claimed right over Lot 3154-C. For one, the said subdivision plan does not bear the
conformity of Artemio and his coheirs who remain to be the registered owners of Lot 3154. For
another, there is doubt as to who really initiated the survey which led to the issuance of the
Subdivision Plan. Gil claims that the same was made through the instance of the City Engineer's
Office. When asked, however, of the circumstances surrounding the conduct of the said survey and his
supposed participation thereon, Gil prevaricated on his answers. 49 Moreover, petitioners' own witness,
Engr. Josephine Antonio, stated during cross-examination that Engr. Dorado, who conducted the
survey, undertook the same not on behalf of the City Engineer's Office but in his private capacity, viz,:

Q Now, Engr. Antonio, x x x, [L]ot No. 3154 appears to be registered in the name of Artemio
Pis-an, Eulogio Jumento, Miraflor Pis-an, Jocelyn Pis-an, Lando Pis-an, Leon Pis~an,
Llamato Pis-an and Joena Pis-an. My question is, in this subdivision plan submitted, is there
any document showing that any of the registered owners of Lot No. 3154 covered by
Transfer Certificate of Title No. 27658 appeared to have initiated this survey?
A Mr. Gil Macalino signed the application form. And this was prepared by Engr. Dorado.
Q Now, when this was prepared by Engr. Dorado x x x can you tell us if at [that] time [in]
1999[J Engr. Rilthe Dorado was under you x x [in] The City Development Office?
A No. He was I think with the City Engineer's Office.
Q Does your records show whether or not Engr. Rilthe Dorado did this as part of his duties in
the City Engineer's Office or in his private capacity?
A I think in his private capacity. 50

Moreover, the said subdivision plan was issued after Gil's discovery that Lot 3154-A only consisted of
140 square meters and not 207 square meters.

Given the foregoing, the Court could only conclude that the said subdivision plan was secured to give
the impression that the sale between Gil and the spouses Sillero included Lot 3154-C, the 67-square
meter area, of which when tacked to the 140-square meter area of Lot 3154-A completes the 207-
square meter portion that Gil supposedly bought from the spouses Sillero. The said document,
therefore, does not deserve any credence from this Court.

The remedy of quieting of title is not


available to petitioners.

"Quieting of title is a common law remedy for the removal of any cloud upon or doubt or uncertainty
with respect to title to real property." 51 "In order that an action for quieting of title may prosper, it is
essential that the plaintiff must have legal or equitable title to, or interest in, the property which is the
subject-matter of the action. Legal title denotes registered ownership, while equitable title means
beneficial ownership. In the absence of such legal or equitable title, or interest, there is no cloud to be
prevented or removed."52

Petitioners anchored their Complaint on their alleged legal title over Lot 3154-C wliich as above-
discussed, they do not have. Hence, the action for quieting of title is unavailable to petitioners. chanroble slaw

WHEREFORE, the Petition for Review on Certiorari is DENIED. The assailed Decision dated
September 20, 2012 of the Court of Appeals in CA-G.R. CV No. 02893 is AFFIRMED.

SO ORDERED.

Carpio, (Chairperson), Del Castillo, Mendoza and Leonen, JJ., concur.


Brion, J., on official leave. chanroble

THIRD DIVISION

G.R. No. 212493, June 01, 2016

GABRIEL YAP, SR. DULY REPRESENTED BY GILBERT YAP AND ALSO IN HIS PERSONAL
CAPACITY, GABRIEL YAP, JR., AND HYMAN YAP, Petitioners, v. LETECIA SIAO, LYNEL SIAO,
JANELYN SIAO, ELEANOR FAYE SIAO, SHELETT SIAO AND HONEYLET SIAO, Respondents.

G.R. No. 212504

CEBU SOUTH MEMORIAL GARDEN, INC., Petitioner, v. LETECIA SIAO, LYNEL SIAO, JANELYN
SIAO, ELEANOR FAYE SIAO, SHELETT SIAO AND HONEYLET SIAO, Respondents.

DECISION

PEREZ, J.:

Before this court are two consolidated cases involving two petitions for Review on Certiorari. These
petitions assail the Decision1 dated 9 October 2013 and Resolution2 dated 26 March 2014 of the Court
of Appeals in CA-G.R. CV No. 02037.

Petitioners in G.R. No. 212493 are deceased Gabriel Yap, Sr., represented by his son and the President
of Cebu South Memorial Garden, Inc., Gilbert Yap; Gabriel Yap, Jr., in his capacity as Treasurer; and
Hyman Yap, as one of the directors, while petitioner in G.R. No. 212504 is Cebu South Memorial
Garden, Inc. Respondents in both cases are Letecia Siao and her children, Lynel, Janelyn, Eleonor,
Shellett and Honeylet.

These consolidated cases arose from a Complaint for Specific Performance filed by petitioners Cebu
South Memorial Gardens, Inc. and Gabriel Yap, Sr., both represented by Gilbert Yap against
respondents Honeylet Siao and Letecia Siao on 27 April 1999. Gilbert Yap, in his own behalf, Gabriel
Yap, Jr. and Hyman Yap joined the plaintiffs in their Supplemental Complaint. In their Second Amended
Complaint, the petitioners alleged that Gabriel Yap, Sr. and Letecia Siao entered into a Certificate of
Agreement to form a corporation, and turn lots of the respondents into memorial lots as payment for
previous indebtedness. But the respondents refused to transfer ownership.

where the parties agreed on the following terms:


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1. To convert the parcels of land covered by TCT Nos. 66716, 66714 and 66713, registered in the
names of Spouses Sergio and Letecia Siao, into memorial lots;

2. To organize themselves into a corporation;


3. To transfer ownership of the parcels of land to Gabriel Yap who will transfer ownership thereof
to the corporation;

4. To give advance payment to Letecia Siao in the amount of P100,000.00 per month until
Letecia Siao is financially stable to support herself and her family.3

As a backgrounder, respondent Letecia Siao's husband Sergio Siao was indebted to petitioner Gabriel
Yap, Sr. Petitioners claim that the titles to the subject parcels of land were in the possession of Gabriel
Yap, Sr. as collateral for the loan. In consideration of condoning the loan, Gabriel Yap, Sr. returned the
titles to Letecia Siao on the condition that the parcels of land covered by the titles would be developed
into memorial lots.4

Petitioners claimed that respondents refused to transfer the ownership of the three parcels of land to
Cebu South Memorial Garden, Inc., causing them to be exposed to numerous lawsuits from the buyers
of the burial plots.

Respondents argued that Letecia Siao was coerced to sign the Certificate of Agreement, rendering it
null and void.

A panel of commissioners was appointment to determine the financial standing of petitioner


corporation and the actual money received by Letecia Siao.

On 31 January 2000 and during the pendency of the case before the commissioners, respondents filed
a Motion for Payment of Monthly Support5 for Leticia Siao's family and herself. Respondents relied on
the agreement made by the parties during the preliminary conference to abide by the terms of the
Certificate of Agreement. In a Resolution6 dated 5 April 2000, the RTC granted the motion for monthly
support and ordered Gabriel Yap, Sr. to pay immediately Letecia Siao the amount of P1,300,000.00.
Resultantly, petitioners filed a Motion for Summary Judgment 7 on 24 May 2002 alleging that
respondents had abandoned their defense of the nullity of the Certificate of Agreement when they
agreed to implement its provisions. Petitioners submitted that the trial court may render a summary
judgment or judgment on the pleadings based on the admitted facts.

On 1 August 2002, Judge Generosa G. Labra of Branch 23 of the Regional Trial Court (RTC) of Cebu
City issued an Order denying the motion and holding that there were no existing admissions or
admitted facts by respondents to be considered. Petitioners filed a Motion for Reconsideration but it
was denied on 11 September 2002. Petitioners elevated the matter to the Court of Appeals.

On 10 October 2003, the Court of Appeals in CA-G.R. SP No. 73850, 8 through Associate Justice
Eugenio S. Labitoria, reversed the trial court's decision and ordered its judge to render summary
judgment in favor of petitioners. The appellate court ruled that by claiming benefits arising from the
Certificate of Agreement, respondents had invoked the validity and effectiveness of the Agreement.

Respondents sought for reconsideration but it was denied by the appellate court. Respondents did not
file an appeal before the Supreme Court within the reglementary period. Thus, the Decision became
final and executory on 7 June 2004 and the same had been recorded in the Book of Entries of
Judgment.9

In compliance with the Order that had become final, on 7 February 2006, RTC Branch 13 of Cebu City
Judge Meinrado P. Paredes rendered a Summary Judgment, the dispositive portion of which reads:
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WHEREFORE, judgment is hereby rendered directing defendants to transfer to the plaintiff-movant the
three (3) parcels of land covered by TCT Nos. 66714, 66713 and 66716 after this judgment shall have
become final and executory.

Should defendants fail to do so, the Branch Clerk of Court is directed to prepare a deed of conveyance
or transfer of the said titles to the plaintiff CSMG, Inc. at the expense of defendants. 10 ChanRoblesVirtualawlibrary

The motion for reconsideration filed by respondents was denied. Once again, respondents filed an
appeal under Rule 41 of the Rules of Court seeking to reverse and set aside the Summary Judgment
rendered by the RTC.

On 9 October 2013, the Court of Appeals set aside the Summary Judgment on a technicality. The
appellate court found that the certification against forum-shopping appended to the complaint is
defective because there was no board resolution and special power of attorney vesting upon Gilbert
Yap the authority to sign the certification on behalf of petitioner corporation and individual petitioners.
The appellate court added that the procedural defects affected the jurisdiction of the court in that the
court never acquired jurisdiction over the case because the complaints are considered not filed and are
ineffectual. Petitioners filed their separate motions for reconsideration but they were denied by the
appellate court.

The following errors are grounds for the allowance of these petitions:
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1. The Honorable Court of Appeals made an error in applying the law when the same resolved to
reverse the decision the [c]ourt a quo on the ground that even if Gilbert Yap is the president of
petitioner corporation the same had no authority to institute the complaint unless he can produce
a board resolution showing his authority.

2. The Honorable Court of Appeals also erred when it entertained the issue on lack of Certificate
of Non-forum shopping when the raising of said grounds is already barred by the Rules on
Pleading and Omnibus Motion Rule.11

3. The Court of Appeals gravely erred and acted contrary to law in reversing the summary
judgment and dismissing the complaints filed by petitioner on ground that the RTC Cebu had no
jurisdiction over the complaint and plaintiff because the verification and certification of non-forum
shopping signed by the president of the corporation was not accompanied by a board resolution
considering that:
3. Gilbert Yap, as President of petitioner, can sign the verification and certification even
1 without a board resolution. Hence, his verification and certification is valid. Consequently,
the complaint and second amended complaint are likewise valid.

3. The Court of Appeals gravely erred and acted contrary to law in ruling that the subsequent
2 submission of petitioner's board resolution cannot be deemed as substantial compliance to
the rule on verification and certificate of non-forum shopping.

3. The execution of a verification and certification of non-forum [shopping] is a formal, not a


3 [jurisdictional] issue. It may be waived if not raised on time. In the instant case,
respondents waived the alleged [defect] when they failed to raise it in a motion to dismiss
or answer.

3. The assailed decision resolved an issue beyond its jurisdiction. Thus, it is void under the
4 principle of coram non judice.
3. The validity of the complaints have been settled with finality. In its decision dated 10
5 October 2013, the Court of Appeals thru the another division (nineteenth division) directed
RTC Cebu to render summary judgment there being no genuine issues to be tried. The
Court of Appeals (Fifth Division) in the present case violated the doctrine of immutability
of judgment when it dismissed the complaints, thereby effectively directing the trial court
not to render any summary judgment.

4. The Court of Appeals gravely erred in reversing the summary judgment despite the fact the
same is consistent with the Certificate of Agreement. 12

Petitioner Yaps, in G.R. No. 212493 maintain that the signature of the President of the corporation is
sufficient to vest authority on him to represent the corporation sans a board resolution. Petitioners
stress that the Special Power of Attorney categorically granted Gilbert Yap the full authority to appear
and represent Gabriel Yap, Sr. With respect to the failure of Gabriel Yap, Jr. and Hyman Yap to sign the
certificate of non-forum shopping, petitioners assert that while the two men share a common interest
with petitioner corporation and Gabriel Yap, Sr., these are not indispensable parties, thus their
signatures are not necessary. Petitioners also submit that the issue of a defective certification of non-
forum shopping was belatedly raised, thus should not have been considered. 13

Petitioner in G.R. No. 212504 adds that the appellate court should have considered the subsequent
submission of the board resolution as substantial compliance with the Rules. Petitioner also argues
that the appellate court violated the doctrine of immutability of judgment when it dismissed the
complaints thereby effectively directing the trial court not to render any summary judgment. 14

Respondents filed one Comment on both petitions. They argue that petitioners, except for Gabriel Yap,
Sr. are not parties to the Certificate of Agreement, thus the petitions should be dismissed because as
against them no rights were violated. Respondents insist that the Certificate of Agreement is void
because it involved unliquidated community properties. Respondents further claim that petitioners,
other than Cebu South Memorial Garden, did not appeal the Summary Judgment before the Court of
Appeals, hence, they are all bound by the denial of their Motion for Summary Judgment by the RTC.
With respect to the alleged defect in the Certification of Non-forum shopping, respondents echoed the
ruling of the Court of Appeals.15

We will first discuss the procedural aspect of this case where the Court of Appeals wholly based its
decision. The appellate court ruled that the certification against forum-shopping is defective because it
was signed by Gilbert Yap without a valid board resolution. In the leading case of Cagayan Valley Drug
Corporation v. Commission on Internal Revenue,16 the Court, in summarizing numerous jurisprudence,
rendered a definitive rule that the following officials or employees of the company can sign the
verification and certification without need of a board resolution: (1) the Chairperson of the Board of
Directors, (2) the President of a corporation, (3) the General Manager or Acting General Manager, (4)
Personnel Officer, and (5) an Employment Specialist in a labor case. The rationale behind the rule is
that these officers are "in a position to verify the truthfulness and correctness of the allegations in the
petition."17

In Cebu Metro Pharmacy, Inc v. Euro-Med Laboratories, Pharmacy, Inc.,18 the President and Manager
of Cebu Metro was held by the Court as having the authority to sign the verification and certification of
non-forum shopping even without the submission of a written authority from the board. The Court
went on to say:
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As the corporation's President and Manager, she is in a position to verify the truthfulness and
correctness of the allegations in the petition. In addition, such an act is presumed to be included in the
scope of her authority to act within the domain of the general objectives of the corporation's business
and her usual duties in the absence of any contrary provision in the corporation's charter or by-
laws.19 ChanRoblesVirtualawlibrary
Cebu Metro also cited cases wherein the Court allowed officers of a corporation to sign the verification
and certification of non-forum shopping even without a board resolution, to wit:
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xxxx

In Ateneo de Naga University v. Manalo, we held that the lone signature of the University President
was sufficient to fulfill the verification requirement, because such officer had sufficient knowledge to
swear to the truth of the allegations in the petition.

In People's Aircargo and Warehousing Co., Inc. v. CA, we held that in the absence of a charter or by-
law provision to the contrary, the president of a corporation is presumed to have the authority to act
within the domain of the general objectives of its business and within the scope of his or her usual
duties. Moreover, even if a certain contract or undertaking is outside the usual powers of the
president, the corporation's ratilication of the contract or undertaking and the acceptance of benefits
therefrom make the corporate president's actions binding on the corporation. 20 ChanRoblesVirtualawlibrary

Bolstering our conclusion that the certification of non-forum shopping is valid is the subsequent
appending of the board resolution to petitioners' motion for reconsideration. The Board Resolution
reads:
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BOARD RESOLUTION NO. 01


Series of 2013

WHEREAS, the corporation is presently facing a Civil Case entitled Cebu South Memorial Garden, Inc.
versus Letecia Siao, Lynel Siao, Janelyn Siao, Eleanor Faye Siao, Shelett Siao and Honeylet Siao, and
docketed as Civil Case No. CEB-23707 before the Regional Trial Court of Ccbu City, Branch 13, and is
mostly like to [raise] to the Court of Appeals and the Supreme Court by our corporation or by the
opposing party depending on the outcome of the said case.

WHEREAS, the corporation needs to appoint its authorized representative who will be vested with the
authority to sign the Verification and Certificate of Forum Shopping for any and all pleadings to be filed
before the Court of Appeals and the Supreme Court as the need of the case requires.

WHEREAS, the corporation also needs to ratify the action taken by the president of the corporation in
the person of Gilbert Yap who signed the Verification and the Certificate of Non-Forum Shopping in the
Complaint filed by this corporation before the Regional Trial Court of Cebu City last April 27, 1999 and
docketed as [Civil Case No. CEB-23707].

WHEREFORE, it is hereby resolved that:

1. The action of the president Gilbert Yap in signing the Verification and Certificate of Non-forum
Shopping in [Civil Case No. CEB-23707] filed before the Regional Trial Court of Cebu City on April 27,
1999 is hereby ratified/affirmed by this Board with all legal effects and consequences.

2. The corporate president Gilbert Yap is given full authority to sign the Verification and Certificate
on Non-forum Shopping for all pleadings to be filed with the Court of Appeals and after with the
Supreme Court of the Philippines.21 ChanRoblesVirtualawlibrary

The Board of Directors of Cebu South Memorial Garden, through a Board Resolution, not only
authorized the President of the corporation to sign the Certificate of Forum-Shopping but it ratified the
action taken by Gilbert Yap in signing the forum-shopping certificate.

In Swedish Match Philippines, Inc. v. The Treasurer of the City of Manila,22 we held that the belated
submission of a Secretary's certification constitutes substantial compliance with the rules, thus:
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Clearly, this is not an ordinary case of belated submission of proof of authority from the board of
directors. Petitioner-corporation ratified the authority of Ms. Beleno to represent it in the Petition filed
before the RTC, particularly in Civil Case No. 03-108163, and consequently to sign the verification and
certification of non-forum shopping on behalf of the corporation. This fact confirms and affirms her
authority and gives this Court all the more reason to uphold that authority.23 ChanRoblesVirtualawlibrary

In Cosco Philippine Shipping, Inc. v. Kemper Insurance,24 we cited instances wherein the lack of
authority of the person making the certification of non-forum shopping was remedied through
subsequent compliance by the parties therein:
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In China Banking Corporation v. Mondragon International Philippines, Inc., the CA dismissed the
petition filed by China Bank, since the latter failed to show that its bank manager who signed the
certification against non-forum shopping was authorized to do so. We reversed the CA and said that
the case be decided on the merits despite the failure to attach the required proof of authority, since
the board resolution which was subsequently attached recognized the pre-existing status of the bank
manager as an authorized signatory.

In Abaya Investments Corporation v. Merit Philippines, where the complaint before the Metropolitan
Trial Court of Manila was instituted by petitioner's Chairman and President, Ofelia Abaya, who signed
the verification and certification against non-forum shopping without proof of authority to sign for the
corporation, we also relaxed the rule. We did so taking into consideration the merits of the case and to
avoid a re-litigation of the issues and further delay the administration of justice, since the case had
already been decided by the lower courts on the merits. Moreover, Abaya's authority to sign the
certification was ratified by the Board. 25
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In Lim v. Court of Appeals, Mindanao Station26 it was ruled that the Assistant Vice-President for BPI
Northern Mindanao, who was then the highest official representing the bank in the Northern Mindanao
area, is in a position to verify the truthfulness and correctness of the allegations in the subject
complaint, signifying his authority in filing the complaint and to sign the verification and certification
against forum shopping.

In Fuji Television Network v. Espiritu,27 we highlighted two rules relative to certification against forum-
shopping:
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xxxx

4) As to certification against forum shopping, non-compliance therewith or a defect therein, unlike in


verification, is generally not curable by its subsequent submission or correction thereof, unless there is
a need to relax the Rule on the ground of "substantial compliance" or presence of "special
circumstances or compelling reasons."

5) The certification against forum shopping must be signed by all the plaintiffs or petitioners in a case;
otherwise, those who did not sign will be dropped as parties to the case. Under reasonable or
justifiable circumstances, however, as when all the plaintiffs or petitioners share a common interest
and invoke a common cause of action or defense, the signature of only one of them in the certification
against forum shopping substantially complies with the Rule.

xxxx
Clearly, a defect in the certification is allowed on the ground of substantial compliance as in this case.

Applying the above-mentioned rule, the signatures of petitioners Gabriel Yap, Jr. and Hyman Yap are
not indispensable for the validity of the certification. These petitioners indeed share a common cause
of action with Gilbert Yap in that they are impleaded as officers and directors of Cebu South Memorial
Garden, the very same corporation represented by Gilbert Yap.

At any rate, any objection as to compliance with the requirement of verification in the complaint
should have been raised in the proceedings below, and not in the appellate court for the first time. 28

In Young v. John Keng Seng,29 it was also held that the question of forum shopping cannot be raised in
the Court of Appeals and in the Supreme Court, since such an issue must be raised at the earliest
opportunity in a motion to dismiss or a similar pleading.

The Court of Appeals relied on procedural rules rather than on the merits of the case. On this score,
we can remand the case to the Court of Appeals for an opportunity to rule on the substance of the
case. The Court, in the public interest and expeditious administration of justice, has resolved action on
the merits, instead of remanding them for further proceedings, as where the ends of justice would not
be sub-served by the remand of the case or where the trial court had already received all the evidence
of the parties. Briefly stated, a remand of the instant case to the Court of Appeals would serve no
purpose save to further delay its disposition contrary to the spirit of fair play.30

Considering that this case has dragged on for 15 years with no concrete solution in sight, we shall
proceed to discuss the merits.

We reiterate the ruling penned by Justice Labitoria of the Court of Appeals in CA-G.R. SP No.
7385031 directing the trial court to render a summary judgment. The issues and arguments posed by
respondents have already been passed upon and resolved by the Court of Appeals. By appealing the
summary judgment, respondents are in effect asking the Court of Appeals to revisit the same issues.
We cannot allow this under the principle of the "law of the case."

The "law of the case" doctrine applies in a situation where an appellate court has made a ruling on a
question on appeal and thereafter remands the case to the lower court to effect the ruling; the
question settled by the appellate court becomes the law of the case at the lower court and in any
subsequent appeal. It means that whatever is irrevocably established as the controlling legal rule or
decision between the same parties in the same case continues to be the law of the case, whether
correct on general principles or not, so long as the facts on which the legal rule or decision was
predicated continue to be the facts of the case before the court. 32

The rationale behind this rule is to enable an appellate court to perform its duties satisfactorily and
efficiently, which would be impossible if a question, once considered and decided by it, were to be
litigated anew in the same case upon any and every subsequent appeal. Without it, there would be
endless litigation. Litigants would be free to speculate on changes in the personnel of a court, or on
the chance of having propositions rewritten once gravely ruled on solemn argument and handed down
as the law of a given case.33

In the Labitoria decision, the Court of Appeals directed the trial court to render a summary judgment
on the ground that there was no longer any legal controversy regarding the Certificate of Agreement
when respondents relied on the same agreement to ask for support. This ruling became the law of the
case between the parties which cannot be disturbed. Respondents cannot raise this same issue in
another petition.

In any case, we affirm the summary judgment rendered by the trial court, as directed by the Court of
Appeals. A summary judgment is permitted only if there is no genuine issue as to any material fact
and a moving party is entitled to a judgment as a matter of law. A summary judgment is proper if,
while the pleadings on their face appear to raise issues, the affidavits, depositions, and admissions
presented by the moving party show that such issues are not genuine. 34

A "genuine issue" is an issue of fact which requires the presentation of evidence as distinguished from
a sham, fictitious, contrived or false claim. When the facts as pleaded appear uncontested or
undisputed, then there is no real or genuine issue or question as to the facts, and summary judgment
is called for. The party who moves for summary judgment has the burden of demonstrating clearly the
absence of any genuine issue of fact, or that the issue posed in the complaint is patently unsubstantial
so as not to constitute a genuine issue for trial. Trial courts have limited authority to render summary
judgments and may do so only when there is clearly no genuine issue as to any material fact. When
the facts as pleaded by the parties are disputed or contested, proceedings for summary judgment
cannot take the place of trial.35

Petitioners' complaint seeks for specific performance from respondents, i.e. to transfer ownership of
the subject properties to petitioner corporation based on the Certificate of Agreement. As their
defense, respondents challenge the validity of the Agreement. However, respondents filed a motion for
support relying on the same Agreement that they are impugning. In view of this admission,
respondents are effectively banking on the validity of the Agreement. Thus, there are no more issues
that need to be threshed out. As aptly explained by the appellate court:
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Clearly, there is no longer any legal controversy in this case which would justify trial. By claiming
benefits arising from the Certificate of Agreement, private respondents had invoked the validity and
effectiveness of the Certificate of Agreement which according to them is the law between the parties.

After invoking the validity and effectiveness of the Certificate of Agreement, private respondents
cannot now be heard claiming that they could not be required to perform their obligations under the
Certificate of Agreement because the said contract is void or that because private respondent Leticia
Siao had no authority to bind the other private respondents.
The application of the principle of estoppel is proper and timely in heading off private respondents
efforts at renouncing their previous acts to the prejudice of petitioner. The principle of equity and
natural justice, as expressly adopted in Article 1431 of the Civil Code, and pronounced as one of the
CONCLUSIVE presumption under rule 131, Section 3 (a) of the Rules of Court, as follows: "Whenever
a party has, by his own declaration, act or omission, intentionally and deliberately led another to
believe a particular thing to be true, and to act upon such a belief, he cannot, in any litigation arising
out of such declaration, act or omission, be permitted to falsify it."

Private respondents, having performed affirmative acts upon which the petitioner and public
respondent based their subsequent actions, cannot thereafter refute their acts or renege on the
effects of the same, to the prejudice of the latter. To allow private respondents to do so would be
tantamount to conferring upon them the liberty to limit their liability at their whims and caprices,
which is against the very principles of equity and natural justice. 36 (Emphasis Supplied)
Considering the foregoing, we grant the petition. chanroble slaw

WHEREFORE, the petition is GRANTED. The Court of Appeals' Decision dated 9 October 2013 and
Resolution dated 26 March 2014 in CA-G.R. CV No. 02037 are REVERSED and SET ASIDE. The
Summary Judgment in Civil Case No. CEB-23707 rendered by the Regional Trial Court, Branch 13,
Cebu City is AFFIRMED.

SO ORDERED. cralawlawlibrary

Velasco, Jr., (Chairperson), Peralta, and Reyes, JJ., concur.


Jardeleza, J., on wellness leave. chan

SECOND DIVISION

G.R. No. 182537, June 01, 2016

MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY, Petitioner, v. RICHARD E.


UNCHUAN, Respondent.

DECISION

MENDOZA, J.:

This petition for review on certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure filed by
petitioner Mactan-Cebu International Airport Authority (MCIAA), represented by the Office of the
Solicitor General (OSG), assails the November 29, 2007 Decision2 and the March 25, 2008
Resolution3 of the Court of Appeals (CA), in CA-G.R. CV No. 01306, which affirmed the March 3, 2006
Decision4 of the Regional Trial Court, Lapu-Lapu City, Branch 27 (RTC), in Civil Case No. 6120-L, an
action for declaration of nullity of deed of absolute sale, quieting of title and/or payment of just
compensation, rental, damages, and attorney's fees.

The Antecedents

On March 5, 2004, respondent Richard Unchuan (Unchuan) filed a complaint for Partial Declaration of
Nullity of the Deed of Absolute Sale with Plea for Partition, Damages and Attorney's Fees before the
RTC against MCIAA.5Unchuan later filed an Amended Complaint for Declaration of Nullity of Deed of
Absolute Sale, Quieting of Title and/or Payment of Just Compensation, Rental and Damages and
Attorney's Fees.6

In his complaint, Unchuan alleged, among others, that he was the legal and rightful owner of Lot No.
4810-A, with an area of 177,176 square meters, and Lot No. 4810-B, with an area of 2,740 square
meters, both located in Barrio Buaya, Lapu-Lapu City, and covered by Original Certificate of Title
(OCT) No. R0-1173;7 that the title was registered under the names of the heirs of Eugenio Godinez,
specifically, Teodora Tampus, Fernanda Godinez (the wife of Iscolastico Epe), Tomasa Godinez (the
wife of Mateo Ibaez), Sotera Godinez (the wife of Guillermo Pino), Atanasio Godinez 8 (married to
Florencia Pino), Juana Godinez (the wife of Catalino Cuison), and Ambrosio Godinez (married to
Mamerta Inot); and that he bought the two lots from the surviving heirs of the registered owners
through several deeds of absolute sale, all dated December 7, 1998. 9

For reference, the table below summarizes the sale transactions between Unchuan and the aforesaid
surviving heirs of the original registered owners:
chanRoble svirtualLawlibrary

AREA
DEEDS OF SALE EXECUTED BY THE HEIRS (Through Representation)
(sq.m.)
Sps. Atanacio Godinez & Florencia Pino & Teodora Tampus 10
29,986
Sps. Ambrosio Godinez & Mamerta Inot 11
5,997.20
Sps. Fernanda Epe & Iscolastico Epe & Teodora Tampus 12
29,986
Sps. Ambrosio Godinez & Mamerta Inot 13
5,997.20
Sps. Sotera Godinez & Guillermo Pino & Teodora Tampus 14
29,986
Sps. Tomasa Godinez & Mateo Ybanez & Teodora Tampus 15
29,986
Sps. Juana Godinez & Catalino Quizon & Teodora Tampus 16
29,986
Sps. Ambrosio Godinez & Mamerta Inot 17
5,997.20
Sps. Ambrosio Godinez & Mamerta Inot 18
5,997.20
Unchuan further alleged that he came to know that Atanacio Godinez (Atanacio), the supposed
attorney-in-fact of all the registered owners and their heirs, already sold both lots to Civil Aeronautics
Administration (CAA),19the predecessor of MCIAA; that the sale covered by the Deed of Absolute
Sale,20 dated April 3, 1958, was null and void because the registered owners and their heirs did not
authorize Atanacio to sell their undivided shares in the subject lots in favor of CAA; that no actual
consideration was paid to the said registered owners or their heirs, despite promises that they would
be paid; that the deed of absolute sale did not bear the signature of the CAA representative; that
there was no proof that the Secretary of the Department of Public Works and Highways approved the
sale; and that his predecessors-in-interest merely tolerated the possession by CAA and, later, by
MCIAA.21

In its Motion to Dismiss, dated April 27, 2004,22 MCIAA moved for the dismissal of the said complaint
citing prescription, laches and estoppel as its grounds. The RTC, however, denied the motion. 23 MCIAA
later filed its Very Urgent Motion for Compulsory Joinder of Indispensable Parties, 24 but the RTC issued
a denial in the Order,25dated November 5, 2004, and required MCIAA to file an Answer. Again, MCIAA
moved for reconsideration,26 but the RTC still denied it in the Order,27 dated January 5, 2005.

In its Answer,28 MCIAA averred that on April 3, 1958, Atanacio, acting as the representative of the
heirs of Eugenio Godinez, who were the registered owners, sold Lot No. 4810-A and Lot No. 4810-B to
the Republic of the Philippines, represented by CAA. Thereafter, CAA took possession of the said
property upon payment of the purchase price. To corroborate the said transaction, on September 17,
1969, Atanacio, along with other former registered co-owners, signed a deed of partition attesting to
the fact of sale of the two lots in favor of the government and admitted its absolute right over the
same. Since then, the said lots had been in the possession of the Republic in the concept of an owner.
The said real properties were declared by the Republic for taxation purposes under Tax Declaration No.
00078 and Tax Declaration No. 00092. In fact, by virtue of Republic Act (R.A.) No. 6958, otherwise
known as "The Charter of Mactan-Cebu International Airport Authority," the Republic officially turned
over the management of the said lots to MCIAA.
On March 3, 2006, the RTC rendered judgment in favor of Unchuan. The decretal portion of the
decision reads:
chanRoble svirtualLawlibrary

WHEREFORE, the above as premises, this court hereby renders judgment in favor of Plaintiff
Unchuan and against Defendant MCIAA and declares:

a. The Deed of Sale signed by Atanacio Godinez alienating the lands denominated as Lot Nos. 4810-A
and 4810-B in favor of Defendant's predecessor-in-interest as VOID;

b. Plaintiff as the true and legal owner of Lot Nos. 4810-A and 4810-B consisting of ONE HUNDRED
SEVENTY NINE THOUSAND NINE HUNDRED SIXTEEN (179,916) SQUARE METERS because the Deed of
Sale between Plaintiffs predecessor-in-interest is void;

c. The Register of Deeds of Lapu-Lapu City to annotate in OCT No. RO-1173 up to the extent of the
right of Plaintiff in the said land and to subsequently issue a title in his name up to such extent;

d. Defendant is directed to vacate from Lot Nos. 4810-A and 4810-B;

e. Defendant to pay the sum of TWENTY PESOS (Php20.00) per square meter per month as rental
reckoned from the time of the filing of the complaint until Defendant shall vacate the same.

No pronouncement as to the cost of this suit.

SO ORDERED.29 ChanRoblesVirtualawlibrary

The RTC held that Atanacio was not legally authorized to act as the attorney-in-fact of his brothers and
sisters and to transact on their behalf because he was not clothed with a special power of attorney
granting him authority to sell the disputed lots. "This lack of authority of Atanacio Godinez, therefore,
has an effect of making the contract of sale between the parties' predecessors-in-interest as void
except perhaps for the share of Atanacio Godinez which he could very well alienate." Moreover, the
documentation of the sale was never transmitted to CAA's Manila Office; hence, the heirs did not
receive any payment for the sale transaction.30

The RTC also noted that the deed of absolute sale presented to the trial court did not bear the
signature of the then CAA Administrator which would have shown that the vendee consented to the
sale. Thus, the RTC concluded that (1) there was no valid consideration for the alleged conveyance;
(2) Atanacio lacked the authority to alienate the undivided shares of his co-heirs to CAA, MCIAA's
predecessor-in-interest; and (3) the lack of signature of the CAA Administrator was indicative of the
lack of consent from him to purchase the lots. 31

Aggrieved, MCIAA appealed the said decision to the CA.

On November 29, 2007, the CA affirmed the RTC decision. The CA explained that Atanacio had no
authority to act as an agent for the other registered owners and their heirs absent the special power of
attorney specifically executed for such purpose as required in Article 1874 of the New Civil Code. Also,
no evidence was adduced to show that the purchase price for the said lots was paid. For being a void
contract, the heirs' deed of partition acknowledging the purported sale in favor of CAA was found by
the CA to have produced no legal effects and not susceptible of ratification. It was of the view that
prescription, estoppel or laches did not set in because a void contract could be questioned anytime
and an action or defense for the declaration of its inexistence or absolute nullity was imprescriptible. It
also noted that the deed of absolute sale was not signed by the then CAA authorized representative. 32

MCIAA filed its Motion for Reconsideration,33 dated December 18, 2007, and subsequently, its
Supplemental Motion for Reconsideration,34 dated January 30, 2008. Later, MCIAA filed its Motion for
New Trial,35 dated March 6, 2008, in which it incorporated three newly discovered evidence: a) certified
true copy of the Deed of Absolute Sale executed between Atanacio Godinez and the Republic,
represented by CAA, with the signature of then Administrator Urbano B. Caldoza (Caldoza) showing
that the vendee consented to the sale;36 b) certified true copy of the Joint Affidavit of Confirmation of
Sale of Alloted Shares Already Adjudicated and Quitclaim of a Portion of Lot No. 4810, dated July 21,
1969, executed by the other heirs who did not sign the Deed of Partition acknowledging the sale; and
c) certified true copy of the Provincial Voucher with attachments showing that there was payment of
the purchase price. MCIAA claimed that the said documents would prove that there was consent
between the contracting parties and that the consideration was paid.

In its March 25, 2008 Resolution,37 the CA denied MCIAA's Motion for Reconsideration. Before MCIAA
received its copy of the March 25, 2008 CA Resolution, it filed a Supplemental Motion for
Reconsideration adopting the said newly discovered evidence. The CA Resolution partly reads:
chanRoble svirtualLawlibrary

After a very careful read-through of the motion for reconsideration, we find no new or substantial
arguments which have not been presented in defendant-appellant's prior pleadings and which have
not been taken up or considered in our Decision, save for the allegation that the proper remedy should
have been a petition for just compensation.

Otherwise, no further ratiocination is needed to show there was a valid sale between the registered
owners of the subject lots and the Civil Aeronautics Administration (CAA), the predecessor-in-interest
of defendant-appellant MCIAA. There was absolutely no competent evidence to prove that all of the
registered owners of the subject properties gave their consent to the sale through their attorney-in-
fact or that the CAA through its authorized representative gave his approval to the sale or that there
was consideration. In addition, we see no reason to discuss again our finding that prescription, laches,
or estoppel is unavailing against the registered owners and equally unavailing against the latter's
successor's, including herein plaintiff-appellee, they having stepped into the shoes of the decedents-
registered owners by operation of law.

Allow us, however, to re-visit the defendant-appellant's claim that extrinsic fraud prevented it from
having a fair trial and completely presenting its case before the trial court, clearly adverting to the
omission of Atty. Sigfredo V. Dublin to timely apprise the OSG of the adverse claim (in favor of
defendant-appellant) that was annotated in the Original Certificate of Title No. RO-1173 on October
9,1998.

In our decision, we stressed that even if there was a belated annotation of the adverse claim in OCT
No. RO-1173, said annotation is of no force and effect since the same was predicated on a void and
inexistent contract. For like "the spring that cannot rise above its source," a void contract cannot
create a valid and legally enforceable right.

Anent the allegation of extrinsic fraud, we are not at all persuaded there was one. "Extrinsic or
collateral fraud, as distinguished from intrinsic fraud, connotes any fraudulent scheme executed by a
prevailing litigant outside the trial of a case against the defeated party, or his agent, attorneys or
witnesses, whereby said defeated party, is prevented from presenting fully and fairly his side of the
case." ... In other words, extrinsic fraud is one that affects and goes into the jurisdiction of the Court"
or that the defendant-appellant was deprived of due process of law owing to the gross negligence of
its counsel. Both do not, however, obtain under the circumstances prevailing in the instant case.

Firstly, defendant-appellant has not shown any clear and convincing evidence that the plaintiff-
appellee employed actual and extrinsic fraud in procuring a favorable decision from the trial court.
Sadly, it failed to show that it was prevented by the plaintiff -appellee from asserting its right over the
subject properties and properly presenting its case by reason of such alleged fraud; neither was any
evidence proffered to substantiate such allegation.

And secondly, it bears to stress that the failure of Arty. Sigfredo V. Dublin to fully apprise the OSG of
the annotation of the defendant-appellant's adverse claim is not tantamount to gross negligence of
counsel. With due and reasonable diligence, the said annotation could have been timely presented by
the OSG during the presentation of evidence. It bears to stress that the office which has custody of
OCT No. RO-1173 (where the adverse claim is annotated) is another government agency, The Registry
of Deeds, which the OSG can easily have access to.

As we have held in our decision, the defendant-appellant's heavy reliance on the Deed of Partition
which contained the phrase: "Lot No. 4810-A, with an area of ONE HUNDRED SEVENTY-SEVEN
THOUSAND ONE HUNDRED SEVENTY SIX (177,176) square meters and Lot 4810-B,with [an] area of
TWO THOUSAND SEVEN HUNDRED FORTY (2,740) square meters, ARE OWNED by the Civil
Aeronautics Administration having bought the same from the original owners; (Emphasis supplied) "to
support its assertion that the Civil Aeronautics Administration (predecessor-in-interest of MCIAA) had
indeed validly purchased the lots from the registered owners through their purported attorney-in-fact,
Atanacio Godinez, is misplaced. This Court had already found and ruled that:
chanRoble svirtualLawlibrary

"... At most, the above-quoted statement is a mistaken conclusion that the CAA validly purchased the
subject lots. The above-quoted statement does not change the fact that the Deed of Sale in favor of
CAA was void and inexistent. Neither can the same be considered as a cure for the defect of lack of
consent or authority."
"Lack of consent and consideration made the deeds of sale void altogether and rendered them subject
to attack at any time, conformably to the rule in Article 1410 that an action to declare the existence of
void contracts does not prescribe." We would like to add that there is even "no need of an action to set
aside a void and inexistent contract; in fact, such action cannot logically exist. However, an action to
declare the non-existence of the contract can be maintained; and in the same action, the plaintiff may
recover what he has given by virtue of the contract."38 ChanRoblesVirtualawlibrary

Undaunted, MCIAA filed this present action, praying for the reversal of the assailed CA ruling and for a
new judgment dismissing the complaint against MCIAA or, in the alternative, to remand the case to
the CA to thresh out all unresolved factual issues concerning the case. To bolster the reliefs prayed for,
MCIAA offers the following
GROUNDS RELIED UPON IN SUPPORT OF THE PETITION

THE COURT OF APPEALS COMMITTED A SERIOUS ERROR IN LAW WHEN IT AFFIRMED THE
MARCH 3, 2006 DECISION OF THE TRIAL COURT DESPITE THE FACT THAT:

THE TRIAL COURT GRAVELY ERRED IN DECLARING THAT ATANACIO GODINEZ WAS NOT
AUTHORIZED TO CONVEY LOT NOS. 4810-A AND 4810-B TO CAA.

THE TRIAL COURT GRAVELY ERRED IN FINDING THAT RESPONDENTS' PREDECESSORS-IN-


INTEREST WERE NOT PAID THE CONSIDERATION FOR THE SALE OF THE SUBJECT LOTS.

THE TRIAL COURT GRAVELY ERRED IN DECLARING AS VOID AND INVALID THE DEED OF
ABSOLUTE SALE EXECUTED BY ATANACIO GODINEZ IN FAVOR OF THE CAA.

THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT RESPONDENT'S PREDECESSORS-IN-


INTEREST ARE NOT INDISPENSABLE PARTIES TO THE INSTANT CASE.

THE TRIAL COURT GRAVELY ERRED IN DECLARING THAT RESPONDENT'S CAUSE OF ACTION
IS NOT BARRED BY PRESCRIPTION, LACHES AND ESTOPPEL.

II

THE COURT OF APPEALS COMMITTED A SERIOUS ERROR IN LAW BY NOT ADMITTING THE
ADDITIONAL EVIDENCE SOUGHT TO BE INTRODUCED BY PETITIONER. 39 ChanRoblesVirtualawlibrary

The OSG argues that "the mere absence of a special power of attorney in favor of Atanacio Godinez
does not necessarily mean that he was not authorized by his co-owners who even authorized and
represented to CAA that Atanacio Godinez was their attorney-in-fact." 40 "Even granting for the sake of
argument that Atanacio Godinez was not in fact authorized by the other registered co-owners to
execute a deed conveying Lot Nos. 4810-A and 4810-B to CAA, such defect has nevertheless been
cured when his co-owners subsequently executed on September 17, 1969 a public document
denominated as Deed of Partition."41 As to the nonpayment of consideration, the OSG contends that
such allegation cannot be established by mere testimonial evidence and that it must be proved by
clear, positive and convincing evidence.42 Moreover, "not only are private transactions presumed to be
fair and regular and that the ordinary course of business presumed to have been followed but, also,
government employees are presumed to have regularly performed their official duties. In this case,
Unchuan has not overcome the foregoing legal presumptions." 43

The OSG further avers that "the absence of the signature of Administrator Caldoza on the challenged
Deed of Absolute Sale should, at best, be treated as a mere formal defect which should not affect the
very substance of the contract"44 bearing in mind that "a contract of sale is a consensual
contract."45 The OSG likewise posits that "assuming arguendo that petitioner does not possess any title
or right whatsoever over the above parcels of land, its possession is justified by extraordinary
prescription."46 It also claims that laches had set in against the original registered owners for their
failure to question the validity of the sale for over forty six (46) years after the sale transaction
between CAA and Atanacio in 1958.47 Thus, "the laches of the original registered owners extend to
Unchuan since he stands in privity with his predecessors-in-interest." 48

The OSG insists that extrinsic fraud was committed against it as Atty. Sigfredo Dublin (Atty. Dublin),
the legal manager of CAA, withheld from their office, while the trial was ongoing, the information that
on October 9, 1998, he had caused the annotation of an adverse claim on OCT No. RO-1173. The OSG
asserts that it was significant because the deed of absolute sale between Unchuan and the alleged
heirs of the registered owners was executed only on December 7, 1998. Also suppressed from the
OSG, as it claims, were the following:
chanRoble svirtualLawlibrary

1. Deed of Absolute Sale executed between Atanacio Godinez and the CAA bearing the signature
of Urbano B. Caldoza, then CAA Administrator;

2. Joint Affidavit of Confirmation of Sale of Allotted Shares Already Adjudicated and Quitclaim of
a Portion of Lot No. 4810, Open Cadastre, executed by the heirs of Juana Godinez.

3. Extra-Judicial Declaration of Partition and Adjudication executed by Tomasa Godinez, Atanacio


Godinez, Mamerta Inot (for Ambrosio Godinez), Pedro Pino (for Sotera Godinez) and Corazon Epe
(for Fernanda Godinez).

4. Provincial Voucher, dated October 3, 1958 (and its attachments) evidencing payment of the
consideration for the sale of Lot Nos. 4810-A and 4810-B.

The OSG argues that these documents are very important and material to petitioner's defense and
should be admitted to prevent a miscarriage of justice.

The Court's Ruling

The RTC decision, as affirmed by the CA, needs to be modified.

The Court finds that the sale transaction executed between Atanacio, acting as an agent of his fellow
registered owners, and the CAA was indeed void insofar as the other registered owners were
concerned. They were represented without a written authority from them clearly in violation of the
requirement under Articles 1874 and 1878 of the Civil Code, which provide:
chanRoble svirtualLawlibrary

Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of
the latter shall be in writing; otherwise, the sale shall be void.

Art. 1878. Special powers of attorney are necessary in the following cases:
xxx

(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired
either gratuitously or for a valuable consideration;

xxx
The significance of requiring the authority of an agent to be put into writing was amplified in Dizon v.
Court of Appeals:49
When the sale of a piece of land or any interest thereon is through an agent, the authority of the latter
shall be in writing; otherwise, the sale shall be void. Thus the authority of an agent to execute a
contract for the sale of real estate must be conferred in writing and must give him specific authority,
either to conduct the general business of the principal or to execute a binding contract containing
terms and conditions which are in the contract he did execute. A special power of attorney is
necessary to enter into any contract by which the ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable consideration. The express mandate required by law to
enable an appointee of an agency (couched) in general terms to sell must be one that expressly
mentions a sale or that includes a sale as a necessary ingredient of the act mentioned. For the
principal to confer the right upon an agent to sell real estate, a power of attorney must so express the
powers of the agent in clear and unmistakable language. When there is any reasonable doubt that the
language so used conveys such power, no such construction shall be given the document.
Without a special power of attorney specifying his authority to dispose of an immovable, Atanacio
could not be legally considered as the representative of the other registered co-owners of the
properties in question. Atanacio's act of conveying Lot No. 4810-A and Lot No. 4810-B cannot be a
valid source of obligation to bind all the other registered co-owners and their heirs because he was not
clothed with any authority to enter into a contract with CAA. The other heirs could not have given their
consent as required under Article 1475 50 of the New Civil Code because there was no meeting of the
minds among the other registered co-owners who gave no written authority to Atanacio to transact on
their behalf. Therefore, no contract was perfected insofar as the portions or shares of the other
registered co-owners or their heirs were concerned.

Thus, the Court cannot give any weight either to the Deed of Partition of Lot No. 4810, Open
Cadastre51(subsequently executed by all the heirs of Ambrosio and Sotera Godinez to the effect that
they had acknowledged52 the sale of the subject lots in favor of CAA) or to other documents (such as
Joint Affidavit of Confirmation of Sale of Alloted Shares Already Adjudicated and Quitclaim of a Portion
of Lot No. 4810, Open Cadastre)53 all of which gave the impression that they had ratified 54 the sale of
the subject lots in favor of CAA, MCIAA's predecessor-in-interest.

The rule is that a void contract produces no effect either against or in favor of anyone and cannot be
ratified.55Similarly, laches will not set in against a void transaction, as in this case, where the agent did
not have a special power of attorney to dispose of the lots co-owned by the other registered owners.
In fact, Article 1410 of the Civil Code specifically provides that an action to declare the inexistence of a
void contract does not prescribe.

The transaction entered into by Atanacio and CAA, however, was not entirely void because the lack of
consent by the other co-owners in the sale was with respect to their shares only. Article 493 of the
New Civil Code expressly provides:
chanRoble svirtualLawlibrary

Art. 493. Each co-owner shall have the full ownership of his part and 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.
The quoted provision recognizes the absolute right of a co-owner to freely dispose of his pro
indiviso share as well as the fruits and other benefits arising from that share, independently of the
other co-owners. The sale of the subject lots affects only the seller's share pro indiviso, and the
transferee gets only what corresponds to his grantor's share in the partition of the property owned in
common. Since a co-owner is entitled to sell his undivided share, a sale of the entire property by one
co-owner without the consent of the other co-owners is not null and void; only the rights of the co-
owner/seller are transferred, thereby making the buyer a co-owner of the property.56
In the case at bench, although the sale transaction insofar as the other heirs of the registered owners
was void, the sale insofar as the extent of Atanacio's interest is concerned, remains valid. Atanacio
was one of the registered co-owners of the subject lots, but he was not clothed with authority to
transact for the other co-owners. By signing the deed of sale with the CAA, Atanacio effectively sold
his undivided share in the lots in question. Thus, CAA became a co-owner of the undivided subject
lots. Accordingly, Atanacio's heirs could no longer alienate anything in favor of Unchuan because he
already conveyed his pro indiviso share to CAA.

The Court does not accept either Unchuan's allegation that no payment was received for the
transaction between Atanacio and CAA. Section 3, Rule 131 of the Rules of Court identifies the
following as disputable presumptions: (1) private transactions have been fair and regular; (2) the
ordinary course of business has been followed; and (3) there was sufficient consideration for a
contract. A presumption may operate against a challenger who has not presented any proof to rebut
it. "The effect of a legal presumption upon a burden of proof is to create the necessity of presenting
evidence to meet the legal presumption or the prima facie case created thereby, and which, if no proof
to the contrary is presented and offered, will prevail. The burden of proof remains where it is, but by
the presumption, the one who has that burden is relieved for the time being from introducing evidence
in support of the averment, because the presumption stands in the place of evidence unless
rebutted."57 Atanacio, by affixing his signature on the deed of absolute sale, a disputable presumption
arose that consideration was paid. A mere allegation that no payment was received is not sufficient to
dispel such legal presumption. Furthermore, the record shows an official communication, dated
October 8, 1958, from the District Land Office of Cebu to the Provincial Treasurer of Cebu stating that
Provincial Voucher No. 05358 was disbursed in favor of Atanacio.58

Consequently, the Court deems it just and fair to modify the disposition of the subject lots to Unchuan.
Unchuan is not entitled to the whole 179,916 square meters of the property, as originally awarded by
the RTC and affirmed by the CA. Atanacio's share should be excluded from the computation as his
heirs were already precluded from further conveying what he, their predecessor-in-interest, had
previously sold to CAA. Thus, Unchuan is only legally entitled to an unidentified 149,930 square
meters of the property after excluding Atanacio's unidentified share of 29,986 square meters.

The Court notes that the lots in question were formerly undeveloped lands, but now form part of the
Mactan-Cebu International Airport. It is, thus, being used for a public purpose. It being the situation,
the government or the MCIAA should initiate expropriation proceedings so that the registered owners
or successors-in-interest would be compensated for their undivided shares in the lots taken from
them. In the meantime, MCIAA should pay rentals thereon, after these shall have been identified and
segregated, at the rate of P20.00 per square meter to be reckoned from the filing of the complaint. chanrobleslaw

WHEREFORE, the petition is PARTIALLY GRANTED. The November 29, 2007 Decision and the
March 25, 2008 Resolution of the Court of Appeals (CA) in CA-G.R. CV No. 01306 are AFFIRMED
with MODIFICATION. Accordingly, the dispositive portion of the decision should read as follows:
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WHEREFORE, judgment is hereby rendered declaring that:


chanRoble svirtualLawlibrary

a. The Deed of Sale signed by Atanacio Godinez alienating the lands denominated as Lot No.
4810-A and Lot No. 4810-B in favor of MCIAA's predecessor-in-interest is VALID, insofar as his
undivided share in the said lots is concerned, but VOID, insofar as the undivided shares of the
other registered owners, who did not sign the deed, are concerned; and

b. Plaintiff Richard E. Unchuan is the true and legal owner of portions of Lot No. 4810-A and Lot
No. 4810-B consisting of One Hundred Forty Nine Thousand Nine Hundred Thirty (149,930)
Square Meters.

The Register of Deeds of Lapu-Lapu City is hereby ordered to annotate in OCT No. RO-1173 the
respective rights of Richard E. Unchuan and the Mactan-Cebu International Airport Authority in the
said property.
The Mactan-Cebu International Airport Authority is ordered to initiate expropriation proceedings over
the undivided portions of Lots No. 4810-A and 4810-B covering the said 149,930 Square Meters.

In the meantime, Mactan-Cebu International Airport Authority is ordered to pay the sum of P20.00 per
square meter per month as rental for the use of the property reckoned from the time of the filing of
the complaint until its final payment for the same.

No pronouncement as to the cost of the suit.


SO ORDERED.

Carpio, (Chairperson), Del Castillo, and Leonen, JJ., concur.


Brion, J., on official leave. chanro

FIRST DIVISION

G.R. No. 189401, June 15, 2016

VIL-REY PLANNERS AND BUILDERS, Petitioners, v. LEXBER, INC., Respondent.

G.R. NO. 189447

LEXBER, INC., Petitioner, v. STRONGHOLD INSURANCE COMPANY, INC., Respondent.

DECISION

SERENO, C.J.:

Before us are petitions for review on certiorari under Rule 45 of the Rules of Court seeking to nullify
the Court of Appeals (CA) Decision1 and Resolution2 in CA-G.R. CV No. 90241. The CA Decision found
Vil-Rey Planners and Builders (Vil-Rey) and Stronghold Insurance Company, Inc. (Stronghold),
solidarily liable to Lexber, Inc. (Lexber) in the amount of P284,084.46 plus attorney's fees of P50,000.
The CA Resolution denied the motions for reconsideration filed by Vil-Rey and Stronghold.

FACTS

Vil-Rey and Lexber entered into a Construction Contract dated 17 April 1996 3 (first contract) whereby
the former undertook to work on the compacted backfill of the latter's 56,565-square-meter property
in BarangayBangad, Cabanatuan City. This contract was mutually terminated, and they enetered into a
Contruction Contract. They entered into a third contract Work Order. Vil-Rey agreed to indemnify
Stronghold for whatever amount the latter might be adjudged to pay Lexber under the surety bond.
Accordingly, Stronghold, issued Surety Bond G(16) No. 077258 8 (second surety bond) in the amount
of P584,364.19 in favor of Lexber. Vil-Rey again obligated itself to indemnify Stronghold for whatever
amount the latter might be held to pay under the surety bond. Vil-Rey failed to complete the works on
time. Lexber then wrote Stronghold seeking to collect on the two surety bonds issued in favor of the
former.13
ChanRoblesVirtualawlibrary

When negotiations failed, Lexber filed a Complaint14 for sum of money and damages against Vil-Rey
and Stronghold before the Regional Trial Court of Quezon City, Branch 93 (RTC).

Based on the first contract, Vil-Rey shall complete the project in 60 days for a consideration of
P5,100,000. Lexber released to Vil-Rey a mobilization downpayment of P500,000 secured by Surety
Bond G(16) No. 0669154 (first surety bond) issued by Stronghold. For its part, Vil-Rey agreed to
indemnify Stronghold for whatever amount the latter might be adjudged to pay Lexber under the
surety bond.5 ChanRoblesVirtualawlibrary

Vil-Rey and Lexber mutually terminated the first contract and entered into a Construction Contract
dated 1 July 19966 (second contract) to cover the remaining works, but under revised terms and
conditions. The contract amount was P2,988,700.20, and the scope of work was required to be
completed in 60 days.

On 23 December 1996, Vil-Rey and Lexber executed Work Order No. CAB-96-09 7 (third contract) for
the completion of the remaining works by 15 January 1997. Under the third contract, a consideration
of P1,168,728.37 shall be paid on the following basis: 50% downpayment to be secured by a surety
bond in the same amount issued by Stronghold upon approval of the work order and 50% balance
upon completion of the works. Accordingly, Stronghold, issued Surety Bond G(16) No.
0772588 (second surety bond) in the amount of P584,364.19 in favor of Lexber. Vil-Rey again
obligated itself to indemnify Stronghold for whatever amount the latter might be held to pay under the
surety bond.9ChanRoblesVirtualawlibrary

In a letter dated 21 January 199710 addressed to Lexber, Vil-Rey requested the extension of the
contract period to 31 January 1997. Lexber granted the request for extension. 11 However, Vil-Rey failed
to complete the works by the end of the extended period, or even after Lexber gave it another five
days to finish the works.12 Lexber then wrote Stronghold seeking to collect on the two surety bonds
issued in favor of the former.13 ChanRoblesVirtualawlibrary

When negotiations failed, Lexber filed a Complaint14 for sum of money and damages against Vil-Rey
and Stronghold before the Regional Trial Court of Quezon City, Branch 93 (RTC).

In its Answer (with Counterclaim),15 Vil-Rey denied that it was guilty of breach of contract and insisted
that it was Lexber that owed the amount of P1,960,558.40 to the former. Vil-Rey alleged that under
the first contract, it was able to finish 75.33% of the works, but that Lexber paid an amount
equivalent to only 50% of the contract, thereby leaving a balance of PI,291,830 in Vil-Rey's favor.
Furthermore, considering that almost 100% of the works were finished under the third contract, Vil-
Rey had receivables of P668/728.40 representing the contract amount of P1,168,728.37 less the
downpayment of P500,000. It also prayed for the payment of moral damages and attorney's fees.

Stronghold filed its Answer16 alleging that its liability under the surety bonds was very specific. Under
the first surety bond, it guaranteed only the mobilization down payment of 10% of the total
consideration for the first contract. The mobilization downpayment was fully liquidated prior to the
mutual termination of the first contract. Also, no collection could be made on the second surety bond,
because Lexber failed to allege that there were defects in the materials used and workmanship utilized
by Vil-Rey in undertaking the works. Stronghold put forward its counterclaim against Lexber for
attorney's fees, litigation expenses, and cross-claim against Vil-Rey for any and all amounts
Stronghold may be ordered to pay under the surety bonds pursuant to the indemnity agreements.

RULING OF THE RTC

In a Decision dated 12 December 2005,17 the RTC adjudged Vil-Rey and Stronghold jointly and
severally liable to Lexber in the amount of P2,988,700.20, with interest at the rate of 12% per annum
as actual and compensatory damages from the time of the breach until full satisfaction. The trial court
also ordered Vil-Rey and Stronghold to pay attorney's fees in the amount of P500,000 plus the costs of
suit. It upheld the indemnity agreements and granted Stronghold's cross-claim against Vil-Rey.

The RTC emphasized that parties to a contract are bound by the stipulations therein. When the
contract requires the accomplishment of tasks at a given time and the obligor fails to deliver, there is
breach of contract that entitles the obligee to damages. In this case, when Vil-Rey failed to finish the
works on time, it became liable to Lexber for damages brought about by the breach. The trial court
found no merit in the claim of Vil-Rey that there was underpayment and brushed aside the latter's
counterclaim.

As regards Stronghold, the trial court found that the wording of the surety bonds did not embody the
parties' true intent, which was to ensure the faithful performance by Vil-Rey of its obligations.
Considering its failure in this regard, Stronghold should pay the total amount of the two surety bonds
to Lexber.
In an Order dated 22 October 2007,18 the RTC decreed a partial reconsideration and ordered Vil-Rey
and Stronghold to pay Lexber in solidum in the amount of PI,084,364.19. This represented the true
total amount of the two surety bonds, with 12% interest per annum as actual and compensatory
damages from the time of the breach until full satisfaction. Furthermore, attorney's fees were reduced
to P200,000.

Vil-Rey and Stronghold filed an appeal before the CA.

The RTC ruled in favor of Lexber, and ordered Vil-Rey and Stronghold to pay Lexber in solidum for
breach of contract.

RULING OF THE CA

In the assailed Decision dated 16 April 2009, 19 the CA modified the RTC Order and further lowered the
liability of Vil-Rey and Stronghold to P284,084.46 with interest at the rate of 6% per annum from 11
February 1997 until the finality of the Decision. Thereafter, the amount shall earn 12% interest per
annum until full satisfaction. The appellate court also reduced attorney's fees to P50,000.

The CA ruled that, considering the mutual termination of the first and second contracts, no liability
could be assessed against Vil-Rey. Whatever claims Lexber had against Vil-Rey had been deemed
waived with the execution of the third contract. Consequently, Stronghold could not be made to pay
under the first surety bond, which covered only the mobilization downpayment under the first
contract.

Nevertheless, there was a clear breach of the third contract, and Vil-Rey should be held liable for the
natural and probable consequences of the breach as duly proven. In this case, Lexber was able to
prove that it sustained damages in the amount of P284,084.46, which was the amount it paid another
contractor tasked to complete the works left unfinished by Vil-Rey. That amount was charged against
the second surety bond, which guaranteed not only the workmanship and the quality of the materials
used in the project, but also the obligations of Vil-Rey.

The CA modified the interest imposed considering that the obligation breached was not a loan or
forbearance of money. Like the RTC, it denied the counterclaims of Vil-Rey and Stronghold against
Lexber, but upheld Stronghold's cross-claim against Vil-Rey.

Vil-Rey's motion for reconsideration and Stronghold's motion for partial reconsideration were denied
by the CA in the challenged Resolution dated 1 September 2009. 20 ChanRoblesVirtualawlibrary

Issues

Dissatisfied, Vil-Rey and Stronghold filed the instant petitions before us raising the following issues for
our resolution:

1. Whether Vil-Rey is liable for breach of contract

2. Whether Stronghold's liability under the second surety bond was extinguished by the
extension of the third contract

3. Whether Lexber is entitled to attorney's fees

Our Ruling

I.
Vil-Rey is liable for breach of contract.
In resisting the ruling of the CA that Vil-Rey was guilty of breach of contract, the latter alleges that the
appellate court's findings are based on a misapprehension of facts. 21 Vil-Rey argues that the
consideration for the third contract was P1,168,728.37, of which it was paid only P500,000.
Considering that there remained a balance of P668,728.37, the amount was more than enough to
offset that incurred by Lexber in order to finish the works.

The argument misses the point.

Breach of contract is the failure of a party, without legal reason, to comply with the terms of a contract
or perform any promise that forms either a part or the whole of it. 22 The failure of Vil-Rey to complete
the works under the third contract was never an issue in this case. In fact, that failure was readily
admitted by Moises Villarta, its managing partner,23 in his testimony before the trial court:

Q. What happened after you accomplished 95% under the [third contract]?
A. The only remaining there would be the compaction and fill density test.
Q. Could you please tell us why you did not finish the compaction and density test under
the [third] contract.
A. Because I lacked funds. 1 was not paid anymore. 24

To clarify, aside from this testimony, no proof was presented to show that Vil-Rey was able to
accomplish 95% of the works under the third contract. Nevertheless, even if we were to assume that
this claim is true, it still falls short of the obligation to finish 100% of the works.

In the third contract, Vil-Rey and Lexber agreed on the following terms of payment:

50% downpayment upon approval of this work order against a surety bond from Stronghold Insurance
Corporation
50% balance upon completion of work

The work will be completed on or before 15 January 1997 x x x. 25

It is clear that the next payment for Vil-Rey would have fallen due upon completion of the works.
Thus, it cannot put up the defense that its failure to comply with its obligation was because it was not
paid.

Under the above provisions, the parties clearly took on reciprocal obligations. These are obligations
that arise from the same cause, such that the obligation of one is dependent upon that of the
other.26
ChanRoblesVirtualawlibrary

The reciprocal obligation in this case was Lexber's payment of the 50% balance upon Vil-Rey's
completion of the works on or before 15 January 1997. However, despite the grant of extension until
31 January 1997, and even after the lapse of another five-day grace period, Vil-Rey failed to finish the
works under the third contract.

The law provides that the obligation of a person who fails to fulfill it shall be executed at that person's
cost.27The CA was correct in ruling that Vil-Rey should be held liable for the amount paid by Lexber to
another contractor to complete the works. Furthermore, Article 2201 of the Civil Code provides:

Article 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good
faith is liable shall be those that are the natural and probable consequences of the breach of the
obligation, and which the parties have foreseen or could have reasonably foreseen at the time the
obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages
which may be reasonably attributed to the non-performance of the obligation.

In the absence of a clear showing of bad faith on the part of Vil-Rey, it shall be liable for damages only
with regard to those that are the natural and probable consequences of its breach. In this case, the
failure of Vil-Rey to finish the works compelled Lexber to secure the services of another contractor, to
which the latter paid a total of P284,084.46. Considering that this amount was not a loan or
forbearance of money, We impose interest at the rate of 6% per annum 28 from 17 February 199729 until
the finality of this Decision. Thereafter, it shall earn interest at the rate of 6% per annum until
satisfaction.30 ChanRoblesVirtualawlibrary

We shall not close this discussion without passing upon another reciprocal obligation assumed by the
parties under the third contract. As agreed, Vil-Rey shall acquire a surety bond from Stronghold
equivalent to 50% of the contract price of P1,168,728.37 upon Lexber's downpayment of the same
amount. Accordingly, on 24 December 1996, Vil-Rey secured the second surety bond in the amount of
P584,364.19. On the same day, Lexber made a downpayment of only P500,000. 31 ChanRoblesVirtualawlibrary

Article 1169 of the Civil Code provides that in reciprocal obligations, delay by one of the parties begins
from the moment the other fulfills the obligation. In this case, Lexber is guilty of delay with regard to
the amount of P84,364.19, which should be paid. Also, the delay shall make it liable to Vil-Rey for
damages,32 which We impose in the form of interest at the rate of 6% per annum 33 from 24 December
1996 until the finality of this Decision. Thereafter, it shall earn interest at the rate of 6% per annum
until satisfaction.34 ChanRoblesVirtualawlibrary

The parties shall be allowed to compensate the amounts due them to the extent of their respective
obligations.

II.
THE EXTENSION OF THE THIRD CONTRACT
DID NOT EXTINGUISH STRONGHOLD'S LIABILITY
UNDER THE SECOND SURETY BOND.

Stronghold claims that the extension of time for the completion of the works under the third contract
from 15 January 1997 to 31 January 1997 was made without its consent as surety.35 It is argued that
an extension of payment given by the creditor to the debtor without notice to or consent of the surety
extinguishes the surety's obligation, unless a continuing guarantee was executed by the surety.
Stronghold insists that the CA erred in construing the second surety bond as a continuing guarantee
despite clear stipulations to the contrary.36Furthermore, considering that the second surety bond
guaranteed only the materials and the workmanship that would be utilized by Vil-Rey, the absence of
any complaint from Lexber in this respect discharged Stronghold. 37 ChanRoblesVirtualawlibrary

The following were the conditions and the obligations assumed by Stronghold under the second surety
bond:

TO GUARANTEE [VIL-REY'S] OBLIGATIONS AND TO ANSWER FOR ANY DEFECTS IN THE MATERIALS
USED AND WORKMANSHIP UTILIZED IN THE LAND FILLING OF LEXBER HOMES CABANATUAN
(REMAINING WORKS).

AND THAT THE LIABILITY OF THIS BOND SHALL NOT EXCEED THE SUM OF PESOS, FIVE HUNDRED
EIGHTY FOUR THOUSAND THREE HUNDRED SIXTY FOUR & 19/100 ONLY, (P584,364.19), PHILIPPINE
CURRENCY.38 cralawre d

The second surety bond clearly guaranteed the full and faithful performance of the "obligations" of Vil-
Rey under the third contract, and it was not secured just to answer for "defects in the materials used
and workmanship utilized." As a performance bond, the second surety bond guaranteed that Vil-Rey
would perform the contract, and provided that if the latter defaults and fails to complete the contract,
Stronghold itself shall complete the contract or pay damages up to the limit of the bond. 39 ChanRoblesVirtualawlibrary
A surety bond is an accessory contract dependent for its existence upon the principal obligation it
guarantees.40Being so associated with the third contract as a necessary condition or component
thereof, the second surety bond cannot be separated or severed from its principal. Considering that
the third contract provided that the works shall be completed on or before 15 January 1997, the
second surety bond was deemed to have guaranteed the completion of the works on the same date.

It is true that a surety is discharged from its obligation when there is a material alteration of the
principal contract, such as a change that imposes a new obligation on the obligor; or takes away some
obligation already imposed; or changes the legal effect, and not merely the form, of the original
contract.42 Nevertheless, no release from the obligation shall take place when the change in the
contract does not have the effect of making the obligation more onerous to the surety.43 ChanRoblesVirtualawlibrary

In this case, the extension of the third contract for 15 days and the grant of an additional five-day
grace period did not make Stronghold's obligation more onerous. On the contrary, the extensions were
aimed at the completion of the works, which would have been for the benefit of Stronghold. This
perspective comes from the provision of the second surety bond that "if [Vil-Rey] shall in all respects
duly and fully observe and perform all xxx the aforesaid covenants, conditions and agreements to the
true intent and meaning thereof, then this obligation shall be null and void, otherwise to remain in full
force and effect."44 The completion of the works would have discharged Stronghold from its liability.

We find no merit in the contention of Stronghold that the extensions extinguished its obligation as a
surety.45We note that it also realized the importance of the completion of the works as far as it was
concerned, as shown in its letter to Vil-Rey dated 25 March 1997:

Enclosed is a copy of the letter dated February 18, 1997 we received on February 20, 1997 from
Lexber, Inc., posting formal claim against our bonds at caption due to your failure to complete your
contracted project within the stipulated period.

Please take appropriate action to make good your commitment and contractual obligations to the
Obligee within five (5) days from receipt hereof and advise us on any development you have with
them on the matter for our guidance.46

Even as late as 25 March 1997, Stronghold still sought the completion of the works to the point of
giving Vil-Rey a period of five days to fulfill its commitments. Clearly, it cannot now claim that it was
prejudiced by the extensions given by Lexber, when it was prepared to give an extension of its own
just so Vil-Rey could finish the works.

Stronghold contends that the extension of time for the completion of the third contract without its
knowledge discharged it from its obligation under the second surety bond. What further militates
against this contention is the fact that it was raised for the first time in the Motion for Partial
Reconsideration47 of the CA Decision dated 16 April 2009. Prior to the filing of that motion by
Stronghold, its consistent argument before the RTC and even before the CA was that the second
surety bond guaranteed only the materials and the workmanship utilized by Vil-Rey; and that the
absence of any complaint from Lexber in this regard discharged Stronghold.

We have ruled that issues, grounds, points of law, or theories not brought to the attention of the trial
courts cannot be passed upon by reviewing courts. 48 Thus, when a party deliberately adopts a certain
theory, which becomes the basis for the manner on which the case is tried and decided, the party will
not be permitted to change that theory on appeal; otherwise, it would be unfair to the adverse
party.49
ChanRoblesVirtualawlibrary

At any rate, as surety, Stronghold has the right to be indemnified for whatever it may be ordered to
pay Lexber. This right is provided in the law and not merely based on the indemnity agreement
Stronghold executed with Vil-Rey.

In Escao v. Ortigas, Jr.,50 we explained the right to full reimbursement by a surety for whatever it
pays the creditor:
[E]ven as the surety is solidarity bound with the principal debtor to the creditor, the surety who does
pay the creditor has the right to recover the full amount paid, and not just any proportional share,
from the principal debtor or debtors. Such right to full reimbursement falls within the other rights,
actions and benefits which pertain to the surety by reason of the subsidiary obligation assumed by the
surety.

What is the source of this right to full reimbursement by the surety? We find the right under Article
2066 of the Civil Code, which assures that "[t]he guarantor who pays for a debtor must be indemnified
by the latter," such indemnity comprising of, among others, "the total amount of the debt." Further,
Article 2067 of the Civil Code likewise establishes that "ft]he guarantor who pays is subrogated by
virtue thereof to all the rights which the creditor had against the debtor."

Articles 2066 and 2067 explicitly pertain to guarantors, and one might argue that the provisions
should not extend to sureties, especially in light of the qualifier in Article 2047 that the provisions on
joint and several obligations should apply to sureties. We reject that argument, and instead adopt Dr.
Tolentino's observation that "[t]he reference in the second paragraph of [Article 2047] to the
provisions of Section 4, Chapter 3, Title I, Book IV, on solidary or several obligations, however, does
not mean that suretyship is withdrawn from the applicable provisions governing guaranty." For if that
were not the implication, there would be no material difference between the surety as defined under
Article 2047 and the joint and several debtors, for both classes of obligors would be governed by
exactly the same rules and limitations.

Accordingly, the rights to indemnification and subrogation as established and granted to the guarantor
by Articles 2066 and 2067 extend as well to sureties as defined under Article 2047. x x x 51 cralawred

III.
Lexber is entitled to reduced attorney's fees.

Section 9.3 of the first contract provides that in the event Lexber has to institute judicial proceedings
in order to enforce any term or condition therein, Vil-Rey shall pay attorney's fees equivalent to not
less than 25% of the total amount adjudged.52 This provision was adopted in the second contract53 and
even in the third contract, which provides that all conditions in the second contract shall remain in
force.54
ChanRoblesVirtualawlibrary

Attorney's fees as provided for in the contracts are in the nature of liquidated damages agreed upon
by the parties. These fees are to be paid in case of breach of the contractual stipulations necessitating
a party to seek judicial intervention to protect its rights. 55 Normally, the obligor is bound to pay the
stipulated indemnity without the necessity of proof of the existence or the measure of damages
caused by the breach.56 ChanRoblesVirtualawlibrary

In this case, the failure of Vil-Rey to fulfill its obligation to finish the works under the third contract
compelled Lexber to seek judicial intervention. Pursuant to a contractual stipulation therefor, the
payment of attorney's fees to Lexber shall be the obligation of Vil-Rey and Stronghold.

However, considering the circumstances surrounding this case, We reduce the award to 10% of
P284,084.46, which was the amount Lexber paid to another contractor for the completion of the
works. Liquidated damages may be equitably reduced by the courts. 57 Since the failure of Vil-Rey to
fulfill its obligations was apparently caused by financial difficulties, and Lexber was also guilty of delay
with regard to the latter's reciprocal obligation to make a downpayment of 50% of the amount of the
third contract upon Vil-Rey's acquisition of a surety bond in the same amount, the courts' power may
be properly exercised in this case.

WHEREFORE, the Court of Appeals Decision dated 16 April 2009 and Resolution dated 1 September
2009 in CA-G.R. CV No. 90241 are hereby MODIFIED as follows:

1. Vil-Rey Planners and Builders and Stronghold Insurance Company, Inc., are
hereby ORDERED to jointly and severally pay the following amounts to Lexber, Inc.:
a. P284,084.46, with interest at the rate of 6% per annum from 17 February 1997 until
full payment

b. 10% of F284,084.46 as attorney's fees

2. Vil-Rey Planners and Builders is hereby ORDERED to indemnify Stronghold Insurance


Company, Inc., for whatever amount the latter shall pay Lexber, Inc.

3. Lexber, Inc. is hereby ORDERED to pay Vil-Rey Planners and Builders the amount of
P84,364.19, with interest at the rate of 6% per annum from 24 December 1996 until full payment.

Vil-Rey Planners and Builders and Lexber, Inc., shall be allowed to compensate the amounts due them
to the extent of their respective obligations.

SO ORDERED. chanroble svirtuallawlibrary

Leonardo-De Castro, Bersamin, Reyes,* and Caguioa, JJ., concur.

SECOND DIVISION

G.R. No. 214122, June 08, 2016

AUTOZENTRUM ALABANG, INC., Petitioner, v. SPOUSES MIAMAR A. BERNARDO AND GENARO


F. BERNARDO, JR., DEPARTMENT OF TRADE AND INDUSTRY, ASIAN CARMAKERS
CORPORATION, AND BAYERISHE MOTOREN WERKE (BMW) A.G., Respondents.

DECISION

CARPIO, ACTING C.J.:

The Case

This petition for review1 assails the Decision dated 30 June 20142 and Resolution dated 4 September
20143 of the Court of Appeals (CA) in CA-G.R. SP No. 127748, which affirmed the Decision dated 30
April 20124 of the Department of Trade and Industry (DTI).

The Facts

On 12 November 2008, respondents Spouses Miamar A. Bernardo and Genaro F. Bernardo, Jr.
(Spouses Bernardo) bought a 2008 BMW 320i sports car, in the amount of P2,990,000, from petitioner
Autozentrum Alabang, Inc. (Autozentrum), a domestic corporation and authorized dealer of BMW
vehicles. Autozentrum was authorized to deliver a brand new car to Spouses Bernardo. 5 ChanRoblesVirtualawlibrary

On 12 October 2009, Spouses Bernardo brought the car to BMW Autohaus, the service center of
respondent Asian Carmakers Corporation (ACC), because its ABS brake system and steering column
malfunctioned. On 26 October 2009, six days after the car's release, Spouses Bernardo returned the
car to BMW Autohaus due to the malfunctioning of the electric warning system and door lock system.
Sometime in March 2010, the car was brought again to BMW Autohaus because its air conditioning
unit bogged down. BMW Autohaus repaired the car under its warranty.
In September 2010, Spouses Bernardo brought the car to BMW Autohaus, under an insurance claim,
for the replacement of its two front wheels due to the damage of its wishbone component. BMW
Autohaus performed the repairs and discovered that one of the rear tires did not have Running Flat
Technology (RFT), when all of its tires should have RFT. Upon being informed, Autozentrum replaced
the ordinary tire with an RFT tire.

On 13 January 2011, Spouses Bernardo brought the car to ACC because the car's fuel tank was
leaking. ACC replaced the fuel tank without cost to the Spouses Bernardo. On 17 January and 26
January 2011, Spouses Bernardo sent letters to Autozentrum, demanding for the replacement of the
car or the refund of their payment.

In his letter dated 29 January 2011,6 Autozentrum's Aftersales Manager Ron T. Campilan (Campilan)
replied that the car purchased by Spouses Bernardo was certified pre-owned or used, and that
Autozentrum's legal department was still examining their demand.
Due to several aftersales malfunctions, the Spouses Bernardo demanded replacement of the car or
refund of payment. The car turned out to be a pre-owned of used.
On 24 February 2011, Spouses Bernardo filed a complaint for refund or replacement of the car and
damages with the DTI against respondents Autozentrum, ACC, and Bayerishe Motoren Werke (BMW)
A.G. for violation of Article 50(b) and (c), in relation to Article 97, of the Consumer Act of the
Philippines or Republic Act No. (RA) 7394.

In their Supplemental Complaint dated 23 September 2011, Spouses Bernardo alleged that they
brought the car again to Autozentrum after the electrical system and programming control units
malfunctioned on 4 June 2011. The car was released to them five days later, but was towed to
Autozentrum on 8 August 2011, because its engine emitted smoke inside the car. Autozentrum has
custody of the car until now.

The DTI Ruling

In a Decision dated 30 April 2012, DTI Hearing Officer Maria Fatima B. Pacampara (Hearing Officer)
ruled that Autozentrum violated the Consumer Act of the Philippines particularly the provisions on
defective products and deceptive sales. DTI ordered Autozentrum to pay the depreciated value of the
car, considering that the complainants have already used it for 2 years. In concluding that the car was
defective, the Hearing Officer considered that the major malfunctions in the car do not usually happen
in such a short period of usage, and Autozentrum did not present proof that the malfunctions were
caused by ordinary wear and tear.

The Hearing Officer further held Autozentrum liable for deceptive sales because the car was not brand
new at the time of sale, contrary to what Autozentrum represented to Spouses Bernardo. However, the
Hearing Officer exculpated ACC and BMW, since there was no proof that the defects were due to
design and manufacturing, and they were not privy to the sale of the car.

The dispositive portion of the Decision reads:


chanRoble svirtualLawlibrary

WHEREFORE, in view of the foregoing, this Honorable Office finds in favor of the Complainant. The
Respondent Autozentrum, having violated the provisions of the Consumer Act particularly on defective
products and deceptive sales act, is hereby ordered to:

1. To pay an administrative fine of ONE HUNDRED SIXTY THOUSAND PESOS (Php 160,000.00) and the
additional administrative fine of not more than One Thousand Pesos (Php 1,000.00) for each day of
continuing violation, at the DTI-NCR Cashier's Office at the 12 th Floor, Trafalgar Plaza, HV Dela Costa
St., Salcedo Village, Makati City;

2. To refund, in favor of the Complainant, the purchase price of the subject vehicle [in the] amount of
Two Million Nine Hundred and Ninety Thousand Pesos (Php 2,990,000.00) for the amount of the
memory stick [sic] bought from the Respondent.

SO ORDERED.7 cralawred
In a Resolution dated 14 September 2012, the DTI Appeals Committee affirmed the findings of the
Hearing Officer, but modified the amount to be reimbursed to Spouses Bernardo taking into account
the depreciation of the car, as follows:
chanRoble svirtualLawlibrary

WHEREFORE, premises considered, the instant appeal is hereby dismissed. The decision finding
respondent to have violated the provisions of the Consumer Act is affirmed with modification in
paragraph 2 thereof. In view of the fact that the complainants had made use of the vehicle for two (2)
years, the Committee modifies par. 1 of the dispositive portion of the decision pursuant to the case
entitled Sps. Eslao vs. Ford Cars Alabang, Adm. Case No. 07-43. Said decision was appealed to the
Court of Appeals through petition for certiorari (CA-G.R. SP No. 111859) and Supreme Court through
petition for review on certiorari (Ford Cars Alabang vs. Sps. Ike and Mercelita Eslao, et al. (G.R. No.
194250) wherein the Court resolves to deny the petition for failure to show any reversible error in the
challenged resolution. The decision dated 11 March 2009 in Adm. Case No. 07-43 which was partly
modified in the Resolution dated 1 October 2009 of the DTI-Appeals Committee was then fully
implemented. On that basis, the Committee modifies par. 2 of the dispositive portion of the assailed
decision to read as follows:

2. To reimburse the total purchase price of the subject BMW 320i unit less the beneficial use of the
vehicle.

Record shows that complainant already used the vehicle for two (2) years before the filing of the
complaint. In this regard, the Committee deems it proper and reasonable to apply COA Circular No.
2003-07 dated 11 December 2003 entitled Revised Estimated Useful Life in Computing Depreciation
for Government Property. By analogy, such circular provides the basis for computing the depreciation
value of a vehicle. Under par. 4 of the said Circular, a residual value equivalent to 10% of the
acquisition cost/ appraised value shall be deducted before dividing the same by the Estimated Useful
Life. Annex "A" thereof provides that the Estimated Useful Life (in years) of motor vehicles is seven
(7) years.

Thus, the complainant is entitled to the reimbursement, computed as follows: chanRoble svirtualLawlibrary

Acquisition cost x 10%


Php2,990,000.00 x 10% = Php299,000.00 (Residual Value)

Acquisition cost less the residual value


Php2,990,000.00 - Php299,000.00 = Php2,691,000.00

Php2,691,000.00/7 years (estimated useful life)= Php384,428.57


(depreciated value per year)

Depreciated value x the number of beneficial use


Php384,428.57 x 2 (the no. of years vehicle was used before filing of the complaint)= Php 768,857.14

Acquisition Cost - Depreciation value for 2 years


Php2,990,000.00 - Php 768,857.14 = Php2,221,142.90
(remaining value of the vehicle) cralawred

The complainant shall be reimbursed the amount of two million two hundred twenty one thousand one
hundred forty two pesos and ninety centavos (Php 2,221,142.90), however, the subject vehicle shall
be returned to the respondent.

SO ORDERED.8 cralawred

Hence, Autozentrum filed an appeal with the CA.

The Decision of the CA

In a Decision dated 30 June 2014, the CA ruled in favor of Spouses Bernardo. The CA found that the
car was defective and not brand new. Thus, the CA held that Autozentrum should be liable under
Article 1561, in relation to Article 1567, of the Civil Code, and not under Articles 97 and 98 of RA
7394. The CA ruled that a two-year depreciation value should not be deducted from the purchase price
of the car, since Autozentrum did not submit proof of depreciation.
The CA also held Autozentrum liable for deceptive sales under Article 50(c) of RA 7394, because it
represented an altered and second-hand vehicle as a brand new one. The dispositive portion of the
Decision reads: chanRoble svirtualLawlibrary

WHEREFORE, finding the petition for certiorari bereft of merit, the same is hereby DISMISSED. The
assailed resolution of the DTI is hereby AFFIRMED with MODIFICATION in that as regards the amount
of refund/reimbursement of the purchase price of the subject vehicle, petitioner is hereby ORDERED to
pay the full amount of TWO MILLION NINE HUNDRED NINETY THOUSAND PESOS (Php2,990,000.00).

SO ORDERED.9 cralawred

In a Resolution dated 4 September 2014, the CA denied the motion for reconsideration filed by
Autozentrum.

Hence, this petition.

The Issues

Autozentrum raises the following issues for resolution: chanRoblesvirtualLa wlibrary

I. THE HONORABLE ADJUDICATING OFFICER GRAVELY ABUSED HER DISCRETION AND/OR


EXCEEDED HER AUTHORITY IN RULING THAT THE PETITIONER VIOLATED ARTICLE 97 OF THE
CONSUMER ACT OF THE PHILIPPINES WHEN THE LAW AND EVIDENCE CLEARLY SHOW IT DID
NOT.

II. THE HONORABLE ADJUDICATING OFFICER GRAVELY ABUSED HER DISCRETION IN RULING
THAT THE PETITIONER HAD VIOLATED ART. 50 OF THE CONSUMER ACT OF THE PHILIPPINES
(R.A. 7394) ON PROHIBITION AGAINST DECEPTIVE SALES ACTS OR PRACTICES WHEN THE
FACTS OF THE CASE POINT THAT IT DID NOT.

III. THE HONORABLE ADJUDICATING OFFICER GRAVELY ABUSED HER DISCRETION AND/OR
EXCEEDED HER AUTHORITY IN ORDERING SOLELY THE PETITIONER TO REFUND THE ENTIRE
PURCHASE PRICE OF THE SUBJECT VEHICLE.

IV. ASSUMING ARGUENDO THAT THE PETITIONER HAS INDEED VIOLATED THE SAID ARTS. 97
AND/OR 50 OF THE CONSUMER ACT OF THE PHILIPPINES, THE HONORABLE ADJUDICATING
OFFICER [GRAVELY] ABUSED HER DISCRETION AND/OR EXCEEDED HER AUTHORITY IN
IMPOSING THE AMOUNT OF THE PENALTIES IMPOSED.

V. THE OFFICE OF THE DTI SECRETARY THROUGH THE APPEALS COMMITTEE COMMITTED [AN]
ERROR IN AFFIRMING THE DECISION OF THE ADJUDICATING OFFICER.

VI. THE COURT OF APPEALS COMMITTED AN ERROR IN AFFIRMING WITH MODIFICATION THE
RESOLUTION/DECISION OF THE OFFICE OF THE DTI SECRETARY AND IN DENYING PETITIONER'S
MOTION FOR RECONSIDERATION.10

The Ruling of the Court

The petition has no merit.

Spouses Bernardo allege that Autozentrum violated Article 50(b) and (c), in relation to Article 97, of
RA 7394, when it sold to them a defective and used car, instead of a brand new one. Autozentrum,
however, claims that Spouses Bernardo failed to prove the elements of deceit or misrepresentation
under Article 50, and injury under Article 97.

The