G.R. No.

163271; January 15, 2010

Spouses Patricio and Myrna Bernales vs. Heirs of Julian Sambaam

FACTS:

Julian Sambaan (Julian), married to Guillerma Saarenas-Sambaan (Guillerma), was the

registered owner of a property located at Bulua, Cagayan de Oro City. The respondents herein
and the petitioner Myrna Bernales (Myrna) are the children of Julian and Guillerma.  Myrna,
who is the eldest of the siblings, is the present owner and possessor of the property in
question. 

 Sometime in 1975, Julian was ambushed at Merayon, Talakad, Bukidnon, and was
hospitalized due to a gunshot wound.  On April 11, 1975, Julian allegedly requested his
children to gather so that he could make his last two wishes.  Julian’s first wish was for the
children to redeem the subject property which was mortgaged to Myrna and her husband
Patricio Bernales (Patricio), while his second wish was for his remains not to be brought to the
house of Myrna at Nazareth, Cagayan de Oro City.  Thus, in 1982, respondent Absalon
Sambaan (Absalon), one of Julian’s children, offered to redeem the property but the petitioners
refused because they were allegedly using the property as tethering place for their cattle.  

 In January 1991, respondents received information that the property covered by TCT No. T-
14202 was already transferred to petitioners’ name.  Whereupon, they secured a copy of the
Deed of Absolute Sale dated December 7, 1970 which bore the signatures of their parents and
had it examined by the National Bureau of Investigation (NBI).  The result of the examination
revealed that the signatures of their parents, Julian and Guillerma, were forged. 

 Proceedings before the Regional Trial Court

 Thus, on April 13, 1993, the respondents, together with their mother Guillerma, filed a
Complaint for Annulment of Deed of Absolute Sale and Cancellation of Transfer Certificate of
Title No. T-14204 with Damages and Writ of Preliminary Injunction against herein petitioners. 

They alleged that in spite of the forged signature of their parents, the petitioners were able to
register the Deed of Absolute Sale with the Registry of Deeds of Cagayan de Oro City and
secure TCT No. T-14204 on March 8, 1972.  They prayed for an injunctive relief in order to
prevent the petitioners from selling, disposing, or mortgaging said property.  They further
prayed that (i) the Deed of Absolute Sale and TCT No. T-14204 be annulled; (ii) they be
declared the absolute owners of the property; (iii) all documents executed, made and entered
into relative to the said title be declared void; and, (iv) the petitioners be ordered to pay them
P300,000.00 as moral and exemplary damages, and P50,000.00 as attorney’s fees plus
P1,000.00 as appearance fee.

 On May 6, 1992, petitioners filed their Answer, alleging that the subject property (Lot No. 5947-
A) used to be a portion of Lot No. 5947, which was originally owned by Clodualdo Sambaan
(Clodualdo) and Gliceria Dacer (Gliceria).

After the death of Clodualdo and Gliceria in 1949, their heirs, namely, Alicia Lago, wife of Pedro
Gacusan; Bernardo Lago (single); Gloria Lago, wife of Jimmy Angco; Dionesia Lago, married
to Paulino Unat; Prysbetero Sambaan, married to Rosario Zaragosa; Juanito Sambaan,
married to Renerio Galos; Leo Sambaan, married to Adeloisa Tambulian; Renato Sambaan,
married to Adelina Ablon; Aida Sambaan (single); Julian Sambaan, married to Guillerma
Saarenas; Paz Sambaan, wife of Rufinito Lago; and, Bernie Sambaan, married to Alicia
Sabuero, executed an Extra Judicial Settlement and Sale dated April 10, 1970 involving the
abovementioned land covered by Original Certificate of Title (OCT) No. 7921. 

 It appears, however, that Juanito, Aida and Renato sold their share to a certain Domingo
Ebarrat (Ebarrat).  Hence, a portion of the property belonged to Julian while another portion
belonged to Ebarrat.  In view of the co-ownership between Ebarrat and Julian, the former and
the latter executed a Deed of Partition dated September 8, 1970 whereby Lot No. 5947 was
divided.  The eastern half with an area of 3,643 square meters was assigned to Julian, while
the western half with the same area went to Ebarrat. 
 Petitioners claimed that Julian subsequently sold his share to them by virtue of  a  Deed  of
Absolute  Sale  dated  December  7, 1970.  

Thereafter, on December 10, 1970, Ebarrat and Patricio executed an Agreement wherein
Ebarrat acknowledged that petitioners are the owners of the 18 coconut trees planted in
Ebarrat’s property and even made Julian as a witness to the said Agreement. 

In addition, petitioners alleged that the imputation of falsification of the signatures of Julian and
Guillerma is a product of respondents’ inflamed imagination because the latter envy them for
they have been successful in managing their properties.  Petitioners thus prayed that judgment
be rendered dismissing the complaint; affirming their title over the controverted property and
ordering respondents to pay them P500,000.00 as moral damages; P300,000.00 as
exemplary damages; P50,000.00 as attorney’s fees and costs of litigation. 

 On July 27, 1992, petitioners filed a Motion for Production and Inspection of Document to
compel respondents to produce and permit them to inspect and to copy or photograph the
Deed of Absolute Sale subject matter of said examination.  Thereafter, the trial court issued an
Order dated August 14, 1992 granting the motion and directing the Regional Office of the NBI
to bring the document to court so that the same may be properly examined. 

On August 11, 1992, Guillerma died in Cagayan de Oro City and was accordingly dropped as
co-plaintiff.After trial on the merits, the trial court rendered its Decision dated August 2, 2001
ruling in favor of the respondents.

Proceedings before the Court of Appeals

 Petitioners, alleging among others that the trial court erred in finding that the signature of Julian
on the assailed document was a forgery, went to the CA by way of ordinary appeal.  On
August 20, 2003, the CA rendered a Decision affirming the findings of the trial court. Petitioners
filed a Motion for Reconsideration which was denied by the CA.

ISSUES:

1. THE COURT OF APPEALS CONTRAVENED THE LEGAL RULES GOVERNING

THE APPRECIATION OF DOCUMENTS IN RULING AGAINST THE VALIDITY OF
JULIAN SAMBAAN’S SALE OF THE SUBJECT PROPERTY TO PETITIONERS
DESPITE THE EXISTENCE OF THE AGREEMENT DATED 10 DECEMBER 1970
CONFIRMING THE SALE.

2. THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT’S AWARD

OF DAMAGES IN FAVOR OF RESPONDENTS AND IN DISMISSING PETITIONERS’
COUNTERCLAIMS FOR DAMAGES.  

RULING:

Petition is denied.

The core issue to be resolved in the present controversy is the authenticity of the Deed of
Absolute Sale which is a question of fact rather than of law.  In Manila Bay Club Corporation v.
Court of Appeals, we held that 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.  There is a
question of law when the doubt or difference arises as to what the law is pertaining to a certain
state of facts.  On the other hand, there is a question of fact when the doubt arises as to the
truth or the falsity of alleged facts.

 In the case at bench, the issues raised by the petitioners are essentially factual matters, the
determination of which are best left to the courts below.  Well-settled is the rule that the
Supreme Court is not a trier of facts.  Factual findings of the lower courts are entitled to great
weight and respect on appeal, and in fact accorded finality when supported by substantial
evidence on the record.  Substantial evidence is more than a mere scintilla of evidence.  It is
that amount of relevant evidence that a reasonable mind might accept as adequate to support
a conclusion, even if other minds, equally reasonable, might conceivably opine otherwise.  But
to erase any doubt on the correctness of the assailed ruling, we have carefully perused the
records and, nonetheless, arrived at the same conclusion.  We find that there is substantial
evidence on record to support the Court of Appeals and trial court’s conclusion that the
signatures of Julian and Guillerma in the Deed of Absolute Sale were forged.

The trial court and the CA further concluded:

 x x x If such was the case, we are in a query why the signature of GUILLERMA must
have to be forged when her consent, as spouse of JULIAN, is not necessary to the
execution of the Deed of Absolute Sale?  The answer to this is simple: JULIAN never
executed the assailed Deed of Absolute Sale in favor of MYRNA and such deed
conveys no ownership in favor of the appellants.  

 Conclusions and findings of fact by the trial court are entitled to great weight on appeal and
should not be disturbed unless for strong and cogent reasons because the trial court is in a
better position to examine real evidence, as well as to observe the demeanor of the witnesses
while testifying in the case.  The fact that the CA adopted the findings of fact of the trial court
makes the same binding upon this court.  In Philippine Airlines, Inc. v. Court of Appeals, we
held that factual findings of the CA which are supported by substantial evidence are binding,
final and conclusive upon the Supreme Court.  A departure from this rule may be warranted
where the findings of fact of the CA are contrary to the findings and conclusions of the trial
court, or when the same is unsupported by the evidence on record.  There is no ground to
apply the exception in the instant case, however, because the findings and conclusions of the
CA are in full accord with those of the trial court.  

 The forged Deed of Absolute Sale is null and conveys no title.

 It is significant to stress that the main thrust in the case at bench is the regularity and
validity of the assailed Deed of Absolute Sale dated December 7, 1970 (Record p. 374,
Exhibit “3”) allegedly executed by JULIAN in favor of the appellants.  As such, we must
not confuse the issue at hand by averring that other documents should be considered in
determining the validity of the deed of absolute sale.  The reason is simple: the valid
execution of the Deed of Absolute Sale will convey and transfer ownership in favor of
appellants title based on the rule that by the contract of sale one of the contracting
parties obligates himself to transfer ownership of and to deliver a determinate thing, and
the other to pay therefor a sum certain in money or its equivalent (Coronel vs. Court of
Appeals, 263 SCRA 15).  The fact that the assailed Deed was not signed by JULIAN
and the signatures of JULIAN and GUILLERMA were forged per findings of the NBI
Senior Document Examiner, it can therefore be inferred that the subsequent issuance of
Transfer Certificate of Title No. T-14204 has no basis at all since ownership was not
conveyed to appellants by reason of the forged Deed.

 In addition, as to the issue that the Agreement dated December 10, 1970 (Record p.
375, Exhibit “4”) executed between DOMINGO and PATRICIO were excluded, we

believe there is no need to delve on the said Agreement since the same will not in any
way give justification to the forgery committed in the Deed of Absolute Sale.  As
explained by the court a quo, to which we concur, appellees should not be faulted
because they are not lawyers, and as such they may not be able to appreciate the legal
logic between Exhibits “3” and “4”.

Prescription did not bar respondents’ action to recover ownership of the subject property.

 Citing Article 1454 of the Civil Code, petitioners assert that since the respondents admit that
there was a mortgage transaction between Julian and herein petitioners involving the subject
property there is no dispute that an implied trust was created by operation of law.  In which
case, respondents’ right to reconveyance had already prescribed when they filed the
annulment case on April 3, 1992, or more than 10 years after petitioners’ repudiated such
implied trust.

 On the other hand, respondents assert that the element of consent is totally wanting in the
assailed Deed of Absolute Sale because the signatures of Julian and Guillerma, which is
equivalent to their consent, were forged by the petitioners.  They maintain that the absence of
consent made the said document null and void.  Hence, this case falls under the purview of
Article 1410 of the Civil Code which provides that an action to declare the inexistence of void
contracts does not prescribe.

 We agree with the respondents.  The supposed vendor's signature having been proved to be
a forgery, the instrument is totally void or inexistent as "absolutely simulated or fictitious" under
Article 1409 of the Civil Code.  According to Article 1410, "the action or defense for the
declaration of the inexistence of a contract does not prescribe”.  The inexistence of a contract is
permanent and incurable which cannot be cured either by ratification or by prescription. 

 The award of moral damages and attorney’s fees is proper.

 On this aspect, we must consider the blood relations among the parties.  One of the
respondents, Emma S. Felicilda, testified on cross examination that they had high regard for
Myrna, their eldest sister.  The same was echoed by respondent Anita Sambaan on cross
examination.  They could not believe that Myrna would keep and appropriate the land for
herself and transfer the title exclusively to her name.  On direct examination, respondent
Emma S. Felicilda likewise testified that the forgery caused them anger and bad emotions.   

 Moreover, it was Julian’s dying wish for the property to be redeemed from the petitioners. 
Hence, it is not unexpected that the sentimental significance of the property and the anger and
emotions caused by the unlawful transfer of the same have moved the respondents to recover
the same through the instant action.  We therefore hold that the award of P20,000.00 as moral
damages is proper.

 In addition, in view of the complexity of the instant case and the multiple levels of appeal that
this case had gone through, we also affirm the award of attorney’s fees of P20,000.00 as well
as the actual damages of P1,671.00 incurred by the prevailing party which was substantiated
during trial. 

On a final note, it bears stressing that the arguments raised by the petitioners are essentially
the same issues they put forward before the CA which have been duly passed upon and
considered by the appellate court in affirming the RTC Decision in toto. 
G.R. No. 167844; JANUARY 15, 2010

Spouses Tongson vs. Emergency Pawnshop Bula,Inc. & Danilo Napala

FACTS:

In May 1992, Napala offered to purchase from the Spouses Tongson their 364-square
meter parcel of land, situated in Davao City and covered by Transfer Certificate of Title
(TCT) No. 143020, for P3,000,000.  Finding the offer acceptable, the Spouses Tongson
executed with Napala a Memorandum of Agreement dated 8 May 1992.

 On 2 December 1992, respondents’ lawyer Atty. Petronilo A. Raganas, Jr. prepared a
Deed of Absolute Sale indicating the consideration as only P400,000.  When Carmen
Tongson “noticed that the consideration was very low, she [complained] and called the
attention of Napala but the latter told her not to worry as he would be the one to pay for
the taxes and she would receive the net amount of P3,000,000.” 

 To conform with the consideration stated in the Deed of Absolute Sale, the parties
executed another Memorandum of Agreement, which allegedly replaced the first
Memorandum of Agreement,  showing that the selling price of the land was only
P400,000.

 Upon signing the Deed of Absolute Sale, Napala paid P200,000 in cash to the Spouses
Tongson and issued a postdated Philippine National Bank (PNB) check in the amount of
P2,800,000, representing the remaining balance of the purchase price of the subject
property.  Thereafter, TCT      No. 143020 was cancelled and TCT No. T-186128 was
issued in the name of EPBI.

 When presented for payment, the PNB check was dishonored for the reason “Drawn
Against Insufficient Funds.”  Despite the Spouses Tongson's repeated demands to
either pay the full value of the check or to return the subject parcel of land, Napala failed
to do either.  Left with no other recourse, the Spouses Tongson filed with the Regional
Trial Court, Branch 16, Davao City a Complaint for Annulment of Contract and
Damages with a Prayer for the Issuance of a Temporary Restraining Order and a Writ of
Preliminary Injunction. 

 In their Answer, respondents countered that Napala had already delivered to the
Spouses Tongson the amount of P2,800,000 representing the face value of the PNB
check, as evidenced by a receipt issued by the Spouses Tongson.  Respondents
pointed out that the Spouses Tongson never returned the PNB check claiming that it
was misplaced.  Respondents asserted that the payment they made rendered the filing
of the complaint baseless.

At the pre-trial, Napala admitted, among others, issuing the postdated PNB check in the
sum of P2,800,000.  The Spouses Tongson, on the other hand, admitted issuing a
receipt which showed that they received the PNB check from Napala.  Thereafter, trial
ensued.

The Ruling of the Trial Court

The trial court found that the purchase price of the subject property has not been fully
paid and that Napala’s assurance to the Spouses Tongson that the PNB check would
not bounce constituted fraud that induced the Spouses Tongson to enter into the sale.
Without such assurance, the Spouses Tongson would not have agreed to the contract
of sale. Accordingly, there was fraud within the ambit of Article 1338 of the Civil Code,
justifying the annulment of the contract of sale, the award of damages and attorney’s
fees, and payment of costs.

Respondents appealed to the Court of Appeals.

 The Ruling of the Court of Appeals

The Court of Appeals agreed with the trial court’s finding that Napala  employed fraud
when he misrepresented to the Spouses Tongson that the PNB check in the amount of
P2,800,000 would be properly funded at its maturity.  However, the Court of Appeals
found that the issuance and delivery of the PNB check and fraudulent representation
made by Napala could not be considered as the determining cause for the sale of the
subject parcel of land.  Hence, such fraud could not be made the basis for annulling the
contract of sale.  Nevertheless, the fraud employed by Napala is a proper and valid 
basis for the entitlement of the Spouses Tongson to the balance of the purchase price in
the amount of P2,800,000 plus interest at the legal rate of 6% per annum computed
from the date of filing of the complaint on       11 February 1993.

 Finding the trial court’s award of damages unconscionable,  the Court of Appeals
reduced the moral damages from P100,000 to P50,000 and the exemplary damages
from P50,000  to P25,000.

The Spouses Tongson filed a partial motion for reconsideration which was denied by
the Court of Appeals in its Resolution dated 10 March 2005.

ISSUES:

 1.     WHETHER THE CONTRACT OF SALE CAN BE ANNULLED

BASED ON THE FRAUD EMPLOYED BY NAPALA; and

 2.     WHETHER THE COURT OF APPEALS ERRED IN REDUCING

THE AMOUNT OF DAMAGES AWARDED BY THE TRIAL COURT.

RULING:

Petition has merit.

On the existence of fraud

A contract is a meeting of the minds between two persons, whereby one is bound to
give something or to render some service to the other.  A valid contract requires the
concurrence of the following essential elements: (1) consent or meeting of the minds,
that is, consent to transfer ownership in exchange for the price; (2) determinate subject
matter; and (3) price certain in money or its equivalent.

 In the present case, there is no question that the subject matter of the sale is the 364-
square meter Davao lot owned by the Spouses Tongson and the selling price agreed
upon by the parties is P3,000,000.  Thus, there is no dispute as regards the presence
of the two requisites for a valid sales contract, namely, (1) a determinate subject matter
and (2) a price certain in money.

 The problem lies with the existence of the remaining element, which is consent of the
contracting parties, specifically, the consent of the Spouses  Tongson to sell the
property to Napala. Claiming that their consent was vitiated, the Spouses Tongson point
out that Napala’s fraudulent representations of sufficient funds to pay for the property
induced them into signing the contract of sale.  Such fraud, according to the Spouses
Tongson, renders the contract of sale void.

 On the contrary, Napala insists that the Spouses Tongson willingly consented to the
sale of the subject property making the contract of sale valid. Napala maintains that no
fraud attended the execution of the sales contract. 

 The trial and appellate courts had conflicting findings on the question of whether the
consent of the Spouses Tongson was vitiated by fraud. While the Court of Appeals
agreed with the trial court’s finding that Napala employed fraud when he assured the
Spouses Tongson that the postdated PNB check was fully funded when it fact it was
not, the Court of Appeals disagreed with the trial court’s ruling that such fraud could be
the basis for the annulment of the contract of sale between the parties.

 Under Article 1338 of the Civil Code, there is fraud when, through insidious words or
machinations of one of the contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to.  In order that fraud may

vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo
incidente), inducement to the making of the contract. Additionally, the fraud must be
serious.

 We find no causal fraud in this case to justify the annulment of the contract of sale
between the parties.  It is clear from the records that the Spouses Tongson agreed to
sell their 364-square meter Davao property to Napala who offered to pay P3,000,000 as
purchase price therefor.  Contrary to the Spouses Tongson’s belief that the fraud
employed by Napala was “already operational at the time of the perfection of the
contract of sale,” the misrepresentation by Napala that the postdated PNB check would
not bounce on its maturity hardly equates to dolo causante.  Napala’s assurance that
the check he issued was fully funded was not the principal inducement for the Spouses
Tongson to sign the Deed of Absolute Sale.  Even before Napala issued the check, the
parties had already consented and agreed to the sale transaction. The Spouses
Tongson were never tricked into selling their property to Napala. On the contrary, they
willingly accepted Napala’s offer to purchase the property at P3,000,000. In short, there
was a meeting of the minds as to the object of the sale as well as the consideration
therefor.

Some of the instances where this Court found the existence of causal fraud include: (1)
when the seller, who had no intention to part with her property, was “tricked into
believing” that what she signed were papers pertinent to her application for the
reconstitution of her burned certificate of title, not a deed of sale; (2) when the signature
of the authorized corporate officer was forged; or (3) when the seller was seriously ill,
and died a week after signing the deed of sale raising doubts on whether the seller
could have read, or fully understood, the contents of the documents he signed or of the
consequences of his act. Suffice it to state that nothing analogous to these badges of
causal fraud exists in this case.

However, while no causal fraud attended the execution of the sales contract, there is
fraud in its general sense, which involves a false representation of a fact, when Napala
inveigled the Spouses Tongson to accept the postdated PNB check on the
representation that the check would be sufficiently funded at its maturity. In other words,
the fraud surfaced when Napala issued the worthless check to the Spouses Tongson,
which is definitely not during the negotiation and perfection stages of the sale. Rather,
the fraud existed in the consummation stage of the sale when the parties are in the
process of performing their respective obligations under the perfected contract of sale.   
In Swedish Match, AB v. Court of Appeals, the Court explained the three stages of a
contract, thus: 

           In general, contracts undergo three distinct stages, to wit:

negotiation; perfection or birth; and consummation. Negotiation begins
from the time the prospective contracting parties manifest their interest in
the contract and ends at the moment of agreement of the parties.
Perfection or birth of the contract takes place when the parties agree upon
the essential elements of the contract. Consummation occurs when the
parties fulfill or perform the terms agreed upon in the contract, culminating
in the extinguishment thereof.

Indisputably, the Spouses Tongson as the sellers had already performed their
obligation of executing the Deed of Sale, which  led to the cancellation of their
title in favor of EPBI. Respondents as the buyers, on the  other hand, failed to
perform their correlative obligation of paying the full amount of the contract price. 
While Napala paid P200,000 cash to the Spouses Tongson as partial payment,
Napala issued an insufficiently funded PNB check to pay the remaining balance
of P2.8 million. Despite repeated demands and the filing of the complaint, Napala
failed to pay the P2.8 million until the present. Clearly, respondents committed a
substantial breach of their reciprocal obligation, entitling the Spouses Tongson to
the  rescission of the sales contract.  The law grants this relief to the aggrieved
party, thus:

 Article 1191 of the Civil Code provides:

 Article 1191. 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 fulfillment and the rescission of the
obligation, with payment of damages in either case.  He may also seek rescission, even
after he has chosen fulfillment, if the latter should become impossible.

 Article 1385 of the Civil Code provides the effects of rescission, viz:     

ART. 1385.  Rescission creates the obligation to return the things which were
the object of the contract, together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who demands rescission can
return whatever he may be obliged to restore.

Neither shall rescission take place when the things which are the object of the
contract are legally in the possession of third persons who did not act in bad faith.
While they did not file an action for the rescission of the sales contract, the
Spouses Tongson specifically prayed in their complaint for the annulment of the
sales contract, for the immediate execution of a deed of reconveyance, and for
the return of the subject property to them.  The Spouses Tongson likewise
prayed “for such other reliefs which may be deemed just and equitable in the
premises.” In view of such prayer, and considering respondents’ substantial
breach of their obligation under the sales contract,  the rescission of the sales
contract is but proper and justified. Accordingly, respondents must reconvey the
subject property to the Spouses Tongson, who in turn shall refund the initial
payment of P200,000 less the costs of suit.

 Napala’s claims that rescission is not proper and that he should be given more time to
pay for the unpaid remaining balance of P2,800,000 cannot be countenanced. Having
acted fraudulently in performing his obligation, Napala is not entitled to more time to pay
the remaining balance of P2,800,000, and thereby erase the default or breach that he
had deliberately incurred. To do otherwise would be to sanction a deliberate and
reiterated infringement of the contractual obligations incurred by Napala, an attitude
repugnant to the stability and obligatory force of contracts.

The Court notes that the selling price indicated in the Deed of Absolute Sale was only
P400,000, instead of the true purchase price of P3,000,000. The undervaluation of the
selling price operates to defraud the government of the taxes due on the basis of the
correct purchase price.  Under the law, the sellers have the obligation to pay the capital
gains tax.  In this case, Napala undertook to “advance” the capital gains tax, among
other fees, under the Memorandum of Agreement.

On the award of damages

Citing Article 1338 of the Civil Code,  the trial court awarded P100,000 moral damages
and P50,000 exemplary damages to the Spouses Tongson. While agreeing with the
trial court on the Spouses Tongson’s entitlement to moral and exemplary damages, the
Court of Appeals reduced such awards for being unconscionable. Thus, the moral
damages was reduced from P100,000 to P50,000, and  the exemplary damages was
reduced from P50,000 to P25,000. 
 As discussed above, Napala defrauded the Spouses Tongson in his acts of issuing a
worthless check and representing to the Spouses Tongson that the check was funded,
committing in the process a substantial breach of his obligation as a buyer.  For such
fraudulent acts, the law, specifically the Civil Code, awards moral damages to the
injured party, thus:

   ART. 2220.  Willful injury to property may be a legal ground for awarding moral
damages if the court should find that, under the circumstances, such damages are justly
due.  The same rule applies to breaches of contract where the defendant acted
fraudulently or in bad faith.  (Emphasis supplied)

Considering that the Spouses Tongson are entitled to moral damages, the Court may
also award exemplary damages, thus:

           ART. 2232.  In contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner. 

   Article 2234. When the amount of the exemplary damages need not be
proved, the plaintiff must show that he is entitled to moral, temperate
or compensatory damages before the court may consider the
question of whether or not exemplary damages would be awarded. In
case liquidated damages have been agreed upon, although no proof of
loss is necessary in order that such liquidated damages may be
recovered, nevertheless, before the court may consider the question of
granting exemplary in addition to the liquidated damages, the plaintiff must
show that he would be entitled to moral, temperate or compensatory
damages were it not for the stipulation for liquidated damages. (Emphasis
supplied)

Accordingly, we affirm the Court of Appeals’ awards of moral and exemplary

damages, which we find equitable under the circumstances in this case.  

WHEREFORE, we PARTIALLY GRANT the petition.

G.R. No. 184122; January 20, 2010

BPI vs. Sps. Norman & Angelina Yu and Tuanson Builders Corp.

FACTS:

Respondents Norman and Angelina Yu (the Yus), doing business as Tuanson Trading,
and Tuanson Builders Corporation (Tuanson Builders) borrowed various sums totaling
P75 million from Far East Bank and Trust Company.  For collateral, they executed real
estate mortgages over several of their properties, including certain lands in Legazpi City
owned by Tuanson Trading.  In 1999, unable to pay their loans, the Yus and Tuanson
Builders requested a loan restructuring, which the bank, now merged with Bank of the
Philippine Islands (BPI), granted.  By this time, the Yus’ loan balance stood at
P33,400,000.00.  The restructured loan used the same collaterals, with the exception of
Transfer Certificate of Title 40247 that secured a loan of P1,600,000.  

 Despite the restructuring, however, the Yus still had difficulties paying their loan.  They
asked BPI to release some of the mortgaged lands since their total appraised value far
exceeded the amount of the remaining debt.  When BPI ignored their request, the Yus
withheld payments on their amortizations.  Thus, BPI extrajudicially foreclosed the
mortgaged properties in Legazpi City and in Pili, Camarines Sur.  But the Yus sought by
court action against BPI and the winning bidder, Magnacraft Development Corporation
(Magnacraft), the annulment of the foreclosure sale.  

In the course of the proceedings, however, the Yus and Magnacraft entered into a
compromise agreement that affirmed the latter’s ownership of three out of the 10
parcels of land that were auctioned.  By virtue of this agreement, the court dismissed
the complaint against Magnacraft, without prejudice to the Yus filing a new one against
BPI.

On October 24, 2003 the Yus filed their new complaint before the Regional Trial Court
(RTC) of Legazpi City, Branch 1, in Civil Case 10286 against BPI for recovery of alleged
excessive penalty charges, attorney’s fees, and foreclosure expenses that the bank
caused to be incorporated in the price of the auctioned properties.  

In its answer, BPI essentially admitted the foreclosure of the mortgaged properties for
P39,055,254.95, broken down as follows: P33,283,758.73 as principal debt;
P2,110,282.78 as interest; and P3,661,213.46 as penalty charges.  BPI qualified that
the total of P39,055,254.95 corresponded only to the Yus’ debt as of date of filing of the
petition.  The notice of the auction sale said that the total was “inclusive of interest,
penalty charges, attorney’s fee and expenses of this foreclosure.”

BPI also admitted that Magnacraft submitted the highest and winning bid of
P45,500,000.00.  The sheriff turned over this amount to BPI.  According to BPI, it in turn
remitted to the Clerk of Court the P409,433.59 difference between its bid price and that
of Magnacraft’s.  Although the proceeds of the sale exceeded the P39,055,254.95
stated in the notice of sale by P6,035,311.46, the bid amount increased because it now
included litigation expenses and attorney’s fees as well as interests and penalties as
recomputed.

BPI admitted that it also pushed through with the second auction for the sale of a
lot in Pili, Camarines Sur that secured a remaining debt of P5,562,000.  BPI made
the lone bid of P1,701,934.09.

 The Yus had three causes of action against BPI. First.  The bank imposed excessive
penalty charges and interests: over P5 million in penalty charges computed at 36% per
annum compared to the 12% per annum that the Court fixed in the cases of State
Investment House, Inc. v. Court of Appeals and Ruiz v. Court of Appeals.  In addition,
BPI collected a 14% yearly interest on the principal, bringing the combined penalty
charges and interest to 50% of the principal per annum.
Second.  BPI also imposed a charge of P4,052,046.11 in attorney’s fees, the equivalent
of 10% of the principal, interest, and penalty charges.

Third.  BPI did not provide documents to support its claim for foreclosure expenses of
P446,726.74 and cost of publication of P518,059.21.  

As an alternative to their three causes of action, the Yus claimed that BPI was in
estoppel to claim more than the amount stated in its published notices.  Consequently, it
must turn over the excess bid of P6,035,311.46.

After pre-trial, the Yus moved for summary judgment, pointing out that based on the
answer, the common exhibits of the parties, and the answer to the written
interrogatories to the sheriff, no genuine issues of fact exist in the case.  The Yus
waived their claim for moral damages so the RTC can dispose of the case through a
summary judgment.

Initially, the RTC granted only a partial summary judgment.  It reduced the penalty
charge of 36% per annum to 12% per annum until the debt would have been fully paid
but maintained the attorney’s fees as reasonable considering that BPI already waived
the P1,761,511.36 that formed part of the attorney’s fees and reduced the rate of
attorney’s fees it collected from 25% to 10% of the amount due.  The RTC ruled that
facts necessary to resolve the issues on penalties and fees had been admitted by the
parties thus dispensing with the need to receive evidence. 

Still, the RTC held that it needed to receive evidence for the resolution of the issues of
(1) whether or not the foreclosure and publication expenses were justified; (2) whether
or not the foreclosure of the lot in Pili, Camarines Sur, was valid given that the proceeds
of the foreclosure of the properties in Legazpi City sufficiently covered the debt; and (3)
whether or not BPI was entitled to its counterclaim for attorney’s fees, moral damages,
and exemplary damages.

The Yus moved for partial reconsideration. On January 3, 2006 the RTC reconsidered
its earlier decision.

BPI appealed the decision to the Court of Appeals (CA) in CA-G.R. CV 86577.  But the
CA rendered judgment on January 23, 2008, affirming the RTC decision in all respects. 
And when BPI asked for reconsideration, the CA denied it on July 14, 2008, hence, the
bank’s recourse to this Court.

ISSUE:

WHETHER OR NOT THE LOAN AGREEMENTS BETWEEN THEM WERE VALID AND
ENFORCEABLE.

RULING:

BPI contends that a summary judgment was not proper given the following issues that
the parties raised: 1) whether or not the loan agreements between them were valid and
enforceable; 2) whether or not the Yus have a cause of action against BPI; 3) whether
or not the Yus are proper parties in interest; 4) whether or not the Yus are estopped
from questioning the foreclosure proceeding after entering into a compromise
agreement with Magnacraft; 5) whether or not the penalty charges and fees and
expenses of litigation and publication are excessive; and 6) whether or not BPI violated
the Truth in Lending Act.

But these are issues that could be readily resolved based on the facts established by
the pleadings and the admissions of the parties.  Indeed, BPI has failed to name any
document or item of fact that it would have wanted to adduce at the trial of the case.  A
trial would have been such a great waste of time and resources. 

 Two.  Both the RTC and CA decisions cited BPI’s alleged violation of the Truth in
Lending Act and the ruling of the Court in New Sampaguita Builders Construction, Inc.
v. Philippine National Bank to justify their deletion of the penalty charges.  Section 4 of
the Truth in Lending Act states that:

SEC. 4.  Any creditor shall furnish to each person to whom credit is extended,
prior to the consummation of the transaction, a clear statement in writing setting
forth, to the extent applicable and in accordance with rules and regulations
prescribed by the Board, the following information:

 (1)        the cash price or delivered price of the property or service to

be acquired;

(2)        the amounts, if any, to be credited as down payment and/or

trade-in;

(3)        the difference between the amounts set forth under clauses (1)
and

(4)        the charges, individually itemized, which are paid or to be paid

by such person in connection with the transaction but which are not
incident to the extension of credit;

(5)        the total amount to be financed;

(6)        the finance charge expressed in terms of pesos and

centavos; and

(7)        the percentage that the finance bears to the total amount to
be financed expressed as a simple annual rate on the outstanding unpaid
balance of the obligation.

Penalty charge, which is liquidated damages resulting from a breach, falls under item
(6) or finance charge.  A finance charge “represents the amount to be paid by the debtor
incident to the extension of credit.”  The lender may provide for a penalty clause so long
as the amount or rate of the charge and the conditions under which it is to be paid are
disclosed to the borrower before he enters into the credit agreement.

 In this case, although BPI failed to state the penalty charges in the disclosure
statement, the promissory note that the Yus signed, on the same date as the disclosure
statement, contained a penalty clause that said: “I/We jointly and severally, promise to
further pay a late payment charge on any overdue amount herein at the rate of 3% per
month.”  The promissory note is an acknowledgment of a debt and commitment to repay
it on the date and under the conditions that the parties agreed on.  It is a valid contract
absent proof of acts which might have vitiated consent. 

 The question is whether or not the reference to the penalty charges in the promissory
note constitutes substantial compliance with the disclosure requirement of the Truth in
Lending Act.  The RTC and CA relied on the ruling in New Sampaguita as authority that
the non-disclosure of the penalty charge renders its imposition illegal.   But New
Sampaguita is not attended by the same circumstances.  What New Sampaguita

disallowed, because it was not mentioned either in the disclosure statement or in the
promissory note, was the unilateral increase in the rates of penalty charges that the
creditor imposed on the borrower.  Here, however, it is not shown that BPI increased
the rate of penalty charge that it collected from the Yus.  

The ruling that is more in point is that laid down in The Consolidated Bank and Trust
Corporation v. Court of Appeals, a case cited in New Sampaguita.  The Consolidated
Bank ruling declared valid the penalty charges that were stipulated in the promissory
notes.  What the Court disallowed in that case was the collection of a handling charge
that the promissory notes did not contain.  

The Court has affirmed that financial charges are amply disclosed if stated in the
promissory note in the case of Development Bank of the Philippines v. Arcilla, Jr.  The
Court there said, “Under Circular 158 of the Central Bank, the lender is required to
include the information required by R.A. 3765 in the contract covering the credit
transaction or any other document to be acknowledged and signed by the borrower.   In
addition, the contract or document shall specify additional charges, if any, which will be
collected in case certain stipulations in the contract are not met by the debtor.”  In this
case, the promissory notes signed by the Yus contained data, including penalty
charges, required by the Truth in Lending Act.  They cannot avoid liability based on a
rigid interpretation of the Truth in Lending Act that contravenes its goal. Nonetheless,
the courts have authority to reduce penalty charges when these are unreasonable and
iniquitous.  Considering that BPI had already received over P2.7 million in interest and
that it seeks to impose the penalty charge of 3% per month or 36% per annum on the
total amount due—principal plus interest, with interest not paid when due added to and
becoming part of the principal and also bearing interest at the same rate—the Court
finds the ruling of the RTC in its original decision reasonable and fair.  Thus, the penalty
charge of 12% per annum or 1% per month is imposed.

Three.  As for the award of attorney’s fee, it being part of a party’s liquidated damages,
the same may likewise be equitably reduced.  The CA correctly affirmed the RTC Order
to reduce it from 10% to 1% based on the following reasons: (1) attorney’s fee is not
essential to the cost of borrowing, but a mere incident of collection; (2) 1% is just and
adequate because BPI had already charged foreclosure expenses; (3) attorney’s fee of
10% of the total amount due is onerous considering the rote effort that goes into
extrajudicial foreclosures.

 WHEREFORE, the Court DENIES the petition and AFFIRMS the Court of Appeals
Decision in CA-G.R. CV 86577 dated January 23, 2008 subject to the RESTORATION
of the penalty charge of 12% per annum or 1% per month of the amount due computed
from date of nonpayment or November 25, 2001.
G.R. No. 171911; January 26, 2010          

BERNARDA CH. OSMEÑA vs.  NICASIO CH. OSMEÑA,JOSE CH. OSMEÑA, TOMAS

CH. OSMEÑA, HEIRS OF FRANCISCO CH. OSMEÑA & SIXTA CH. OSMEÑA     

FACTS:

The parties to this case are descendants of spouses Quintin Chiong Osmeña and
Chiong Tan Sy. Petitioner is the couple’s daughter while respondents Nicasio and Jose
Osmeña are their grandchildren. The dispute revolves around two parcels of land, Lots
4 and 5, and the ancestral house standing on Lot 4.

 Before her death, Chiong Tan Sy executed a last will and testament in which she
enumerated her properties. The ancestral house subject of the instant case was
specifically mentioned in the said document; however, the litigated lots were not. The
titles to the lots were in the name of respondents’ father, Ignacio, petitioner’s elder
brother. Upon his demise, respondents transferred title to their own names.

 Petitioner asserts that she is a co-owner of the three litigated properties. She argues
that the two lots were her mother’s properties and were part of the inheritance that she
and her siblings received upon Chiong Tan Sy’s death. She claims that the lots were
placed in the name of her brother Ignacio merely because their mother, a Chinese
national, was prohibited by law to own land in the Philippines.

 With regard to the house, it is petitioner’s position that ownership of her share in the
ancestral home was transferred to her brother under the guise of a simulated contract to
defeat any claims by her estranged husband.  As proof of her co-ownership of the
house, petitioner maintains that she has never been charged rent by her brother for her
continued residence in the same.

Respondents, on the other hand, predicate their claim to the disputed properties on the
transfer certificates of title covering the lots issued in their father’s name and a deed of
sale dated April 26, 1982 signed by petitioner herself, covering her share in the
ancestral house.  Both the trial court and the Court of Appeals (CA) recognized the
validity of said documents and rendered judgment in favor of respondents. The trial
court enjoined petitioner from utilizing the litigated land for her orchid business and
ordered her to leave the house immediately. The CA modified the decision by declaring
petitioner a co-owner of the litigated ancestral house to the extent of the shares she
inherited from two of her siblings.

ISSUE:

Whether the CA erred in giving credence to the deed of sale dated April 26, 1982 and in
holding that respondents are the owners of the disputed lots.

RULING:

We have thoroughly reviewed the records of this case and agree that the deed of sale
dated April 26, 1982 is a legal and binding document. The testimonies of the witnesses
to the document attest to the parties freely signing the document and the occurrence of
the transaction in a clear and definite manner. Moreover, it is a notarized document
which renders it a prima facie evidence of the facts contained therein. In the absence of
documents or testimonies from disinterested persons proving petitioner’s claim of a
fictitious sale, there is no basis to set aside the deed of sale.

Assuming arguendo that the litigated lots were actually the properties of Chiong Tan Sy
and that the same were only put in the name of respondents’ father because he was the
only Filipino citizen in the family at the time the properties were purchased, this Court
will not consent to any violation of the constitutional prohibition on foreign ownership of
land. Moreover, by signing the deed of sale dated April 26, 1982 (where petitioner
transferred her share in the ancestral house to respondents’ father), petitioner would
have been a party to the alleged simulated document. This Court has oft repeated that
he who comes to court must come with clean hands. Considering that the right over the
litigated properties claimed by petitioner stems allegedly from illegal acts, no affirmative
relief of any kind is available. This Court leaves the parties where they have placed
themselves.

WHEREFORE, the petition is hereby DENIED.

G.R No. 169438, January 21, 2010

ROMEO D. MARIANO vs. PETRON CORPORATION

FACTS:

On 5 November 1968, Pacita V. Aure, Nicomedes Aure Bundac, and Zeny Abundo
(Aure Group), owners of a 2,064 square meter parcel of land in Tagaytay City
(Property), leased the Property to ESSO Standard Eastern, Inc., (ESSO Eastern), a
foreign corporation doing business in the country through its subsidiary ESSO Standard
Philippines, Inc. (ESSO Philippines). The lease period is 90 years and the rent is
payable monthly for the first 10 years, and annually for the remaining period. The lease
contract (Contract) contained an assignment veto clause barring the parties from
assigning the lease without prior consent of the other. Excluded from the prohibition
were certain corporations to whom ESSO Eastern may unilaterally assign its leasehold
right.

          On 23 December 1977, ESSO Eastern sold ESSO Philippines to the Philippine
National Oil Corporation (PNOC). Apparently, the Aure Group was not informed of the
sale. ESSO Philippines, whose corporate name was successively changed to Petrophil
Corporation then to Petron Corporation (Petron), took possession of the Property.

     On 18 November 1993, petitioner Romeo D. Mariano (petitioner) bought the

Property from the Aure Group and obtained title to the Property issued in his name
bearing an annotation of ESSO Eastern’s lease.

On 17 December 1998, petitioner sent to Petron a notice to vacate the Property.

Petitioner informed Petron that Presidential Decree No. 471 (PD 471), dated 24 May
1974, reduced the Contract’s duration from 90 to 25 years, ending on 13 November
1993. Despite receiving the notice to vacate on 21 December 1998, Petron remained on
the Property.

   On 18 March 1999, petitioner sued Petron in the Regional Trial Court of

Tagaytay City, Branch 18, (trial court) to rescind the Contract and recover possession of
the Property. Aside from invoking PD 471, petitioner alternatively theorized that the
Contract was terminated on 23 December 1977 when ESSO Eastern sold ESSO
Philippines to PNOC, thus assigning to PNOC its lease on the Property, without seeking
the Aure Group’s prior consent.

            In its Answer, Petron countered that the Contract was not breached because
PNOC merely acquired ESSO Eastern’s shares in ESSO Philippines, a separate
corporate entity. Alternatively, Petron argued that petitioner’s suit, filed on 18 March
1999, was barred by prescription under Article 1389 and Article 1146(1) of the Civil
Code as petitioner should have sought rescission within four years from PNOC’s
purchase of ESSO Philippines on 23 December 1977 or before 23 December 1981.

      To dispense with the presentation of evidence, the parties submitted a Joint
Motion for Judgment (Joint Motion) containing the following stipulation: 

            5. On December 23, 1977, the Philippine National Oil Co. (PNOC),
a corporation wholly owned by the Philippine Government, acquired
ownership of  ESSO Standard Philippines, Inc.,  including its leasehold
right over the land in question, through the acquisition of its shares
of stocks. (Emphasis supplied)

The Ruling of the Trial Court

 In its Decision dated 30 May 2000, the trial court ruled for petitioner, rescinded the
Contract, ordered Petron to vacate the Property, and cancelled the annotation on
petitioner’s title of Petron’s lease. The trial court ruled that ESSO Eastern’s sale to
PNOC of its interest in ESSO Philippines included the assignment to PNOC of ESSO
Eastern’s lease over the Property, which, for lack of the Aure Group’s consent,
breached the Contract, resulting in its termination. However, because the Aure Group
(and later petitioner) tolerated ESSO Philippines’ continued use of the Property by
receiving rental payments, the law on implied new lease governs the relationship of the
Aure Group (and later petitioner) and Petron, creating for them an implied new lease
terminating on 21 December 1998 upon Petron’s receipt of petitioner’s notice to vacate.   

Petron appealed to the Court of Appeals, distancing itself from its admission in the Joint
Motion that in buying ESSO Philippines from ESSO Eastern, PNOC also acquired
ESSO Eastern’s leasehold right over the Property. Petron again invoked its separate
corporate personality to distinguish itself from PNOC.   

The Ruling of the Court of Appeals

 In its Decision dated 29 October 2004, the Court of Appeals found merit in Petron’s
appeal, set aside the trial court’s ruling, declared the Contract subsisting until 13
November 2058 and ordered petitioner to pay Petron P300,000 as attorney’s fees. The
Court of Appeals found no reason to pierce ESSO Philippines’ corporate veil, treating
PNOC’s buy-out of ESSO Philippines as mere change in ESSO Philippines’
stockholding. Hence, the Court of Appeals rejected the trial court’s conclusion that
PNOC acquired the leasehold right over the Property. Alternatively, the Court of
Appeals found petitioner’s suit barred by the four-year prescriptive period under Article
1389 and Article 1146 (1) of the Civil Code, reckoned from PNOC’s buy-out of ESSO
Philippines on 23 December 1977 (for Article 1389) or the execution of the Contract on
13 November 1968 (for Article 1146 [1]).

Petitioner sought reconsideration but the Court of Appeals denied his motion in its
Resolution of 26 August 2005.

Hence, this petition.

ISSUES:

1. Whether the Contract subsists between petitioner and Petron.

2. Whether the Lessor’s continued acceptance of lease payments despite breach of
contract amounted to waiver.
3. Whether Petitinoner’s suit is barred by prescription.

RULING:

ESSO Eastern Assigned to PNOC its

Leasehold Right over the Property, Breaching the Contract

PNOC’s buy-out of ESSO Philippines was total and unconditional, leaving no residual
rights to ESSO Eastern. Logically, this change of ownership carried with it the transfer
to PNOC of any proprietary interest ESSO Eastern may hold through ESSO Philippines,
including ESSO Eastern’s lease over the Property. This is the import of Petron’s
admission in the Joint Motion that by PNOC’s buy-out of ESSO Philippines “[PNOC],    x
x x acquired ownership of ESSO Standard Philippines, Inc., including its leasehold
right over the land in question, through the acquisition of its shares of stocks.” 
As the Aure Group gave no prior consent to the transaction between ESSO Eastern and
PNOC, ESSO Eastern violated the Contract’s assignment veto clause.

 Petron’s objection to this conclusion, sustained by the Court of Appeals, is rooted on its
reliance on its separate corporate personality and on the unstated assumption that
ESSO Philippines (not ESSO Eastern) initially held the leasehold right over the
Property. Petron is wrong on both counts.
The Lessor’s Continued Acceptance of Lease Payments

Despite Breach of Contract Amounted to Waiver

 The breach of contract notwithstanding, we hold that the Contract subsists. Contrary to
the trial court’s conclusion that ESSO Eastern’s violation of the assignment veto clause
extinguished the Contract, replaced by a new implied lease with a monthly term, we
hold that the breach merely gave rise to a cause of action for the Aure Group to seek
the lessee’s ejectment as provided under Article 1673, paragraph 3 of the Civil Code.
Although the records do not show that the Aure Group was formally notified of ESSO
Philippines’ sale to PNOC, the successive changes in the lessee’s name (from ESSO
Philippines to Petrophil Corporation then to Petron) suffice to alert the Aure Group of a
likely change in the personality of the lessee, which, for lack of the Aure Group’s prior
consent, was in obvious breach of the Contract. Thus, the continued receipt of lease
payments by the Aure Group (and later by petitioner) despite the contractual breach
amounted to a waiver of their option to eject the lessee.

Petitioner’s Suit Barred by Prescription

Petitioner’s waiver of Petron’s contractual breach was compounded by his longinaction

to seek judicial redress. Petitioner filed his complaint nearly 22 years after PNOC
acquired the leasehold rights to the Property and almost six years after petitioner
bought the Property from the Aure Group. The more than two decades lapse puts this
case well within the territory of the 10 year prescriptive bar to suits based upon a written
contract under Article 1144 (1) of the Civil Code.

WHEREFORE, we DENY the petition. The Decision dated 29 October 2004 and the
Resolution dated 26 August 2005 of the Court of Appeals  are AFFIRMED.

 
G.R NO.179909; January 25, 2010

FAR EAST BANK AND TRUST COMPANY (NOW BANK OF THE PHILIPPINE
ISLANDS) AND ROLANDO BORJA, DEPUTY SHERIFF vs. SPS. ERNESTO AND
LEONOR C. CAYETANO

FACTS:

Respondent Leonor C. Cayetano (Cayetano) executed a special power of attorney in

favor of her daughter Teresita C. Tabing (Tabing) authorizing her to contract a loan from
petitioner in an amount not more than three hundred thousand pesos (P300,000.00)
and to mortgage her two (2) lots located in Barangay Carolina, Naga City with Transfer
Certificate of Title Nos. 12304 and 11621. For the approval of the loan, Cayetano also
executed an affidavit of non-tenancy.  Petitioner loaned Tabing one hundred thousand
pesos (P100,000.00) secured by two (2) promissory notes and a real estate mortgage
over Cayetano’s two (2) properties.  The mortgage document was signed by Tabing and
her husband as mortgagors in their individual capacities, without stating that Tabing was
executing the mortgage contract for and in behalf of the owner (Cayetano).

Petitioner foreclosed the mortgage for failure of the respondents and the spouses
Tabing to pay the loan. A notice of public auction sale, to be conducted on September
18, 1991, was sent to respondents.   The latter’s lawyer responded with a letter to
petitioner requesting that the public auction be postponed. Respondents’ letter went
unheeded and the public auction was held as scheduled wherein the subject properties
were sold to petitioner for one hundred sixty thousand pesos (P160,000.00).
Subsequently, petitioner consolidated its title and obtained new titles in its name after
the redemption period lapsed without respondents taking any action.

More than five (5) years later, Tabing, on behalf of Cayetano, sent a letter dated
September 10, 1996 to petitioner expressing the intent to repurchase the properties for
two hundred fifty thousand pesos (P250,000.00) with proposed terms of payment.

Petitioner refused the offer stating that the minimum asking price for the properties was
five hundred thousand pesos (P500,000.00) and it was not amenable to the proposed
terms of payment. Petitioner nevertheless gave respondents the chance to buy back the
properties by joining a bidding to be set in some future date.  However, respondents
filed on December 18, 1996 a complaint for annulment of mortgage and extrajudicial
foreclosure of the properties with damages in the RTC of Naga City.  Respondents
sought nullification of the real estate mortgage and extrajudicial foreclosure sale, as well
as the cancellation of petitioner’s title over the properties.

After trial, the RTC rendered judgment in favor of the respondents, holding that the
principal (Cayetano) cannot be bound by the real estate mortgage executed by the
agent (Tabing) unless it is shown that the same was made and signed in the name of
the principal; hence, the mortgage will bind the agent only. The trial court also found
that there was no compliance with the requirement of publication of the foreclosure sale
in a newspaper of general circulation as provided in Act No. 3135, as amended. Such
requisite must be strictly complied with as any slight deviation therefrom will render the
sale voidable.

The Court of Appeals affirmed the RTC’s ruling. It held that it must be shown that the
real estate mortgage was executed by the agent on-behalf of the principal, otherwise
the agent may be deemed to have acted on his own and the mortgage is void. However,
the appellate court further declared that the principal loan agreement was not affected,
which had become an unsecured credit. The Court of Appeals denied petitioner’s
motion for reconsideration.

Hence, the present petition.

ISSUE:

Whether or not the principal is bound by the real estate mortgage executed by the
authorized agent in her own name without indicating the principal.

RULING:

The RTC and the Court of Appeals are both correct in holding that our decision in The
Philippine Sugar Estates Development Co., Ltd., Inc. v. Poizat, et al. (Poizat Case), as
reiterated in the case of Rural Bank of Bombon (Camarines Sur), Inc.  v. Court of
Appeals (Bombon Case), finds application in the instant case. The factual
circumstances of said cases are similar to the case at bar, where an authorized agent
executed a real estate mortgage on the principal’s property in her own name without
indicating that she was acting on behalf of the principal.

In the Poizat Case, Gabriela Andrea de Coster (Coster) executed a general power of
attorney authorizing her husband, Juan Poizat (Poizat), to obtain a loan and to secure
the same with mortgage, pledge or personal securities. Poizat obtained a credit of ten
thousand (10,000) Pounds Sterling from petitioner therein, and executed a mortgage
upon the real property of his wife. Although the provisions of the real estate mortgage
mentioned that it was entered also in Poizat’s capacity as attorney-in-fact of Coster,
Poizat signed the contract in his own name without any indication that he also signed it
as the attorney-in-fact of his wife. For failure to pay the loan, the petitioner foreclosed on
the mortgage but this was opposed by Coster. The Court ruled on the legal force and
effect of the real estate mortgage in question, by whom and for whom it was executed,
and whether or not it was void as to Coster, in this wise:

(1) It is a general rule in the law of agency that, in order to bind the
principal by a mortgage on real property executed by an agent,

(2) it must upon its face purport to be made, signed and sealed in
the name of the principal, otherwise, it will bind the agent only. It
is not enough merely that the agent was in fact authorized
to make the mortgage, if he has not acted in the name of
the principal. Neither is it ordinarily sufficient that in the
mortgage the agent describes himself as acting by virtue of a
power of attorney, if in fact the agent has acted in his own name
and has set his own hand and seal to the mortgage. This is
especially true where the agent himself is a party to the
instrument. However clearly the body of the mortgage may
show and intend that it shall be the act of the principal, yet,
unless in fact it is executed by the agent for and on behalf
of his principal and as the act and deed of the principal, it is
not valid as to the principal.  [EMPHASIS SUPPLIED]

Thus, while Poizat may have had the authority to borrow money and mortgage
the real property of his wife, the law specifies how and in what manner it must be
done, and the stubborn fact remains that, as to the transaction in question, that
power was never exercised. The mortgage in question was executed by him and
him only, and for such reason, it is not binding upon the wife, and as to her, it is
null and void.

In Bombon, respondent Ederlinda M. Gallardo (Gallardo) authorized Rufino S. Aquino

(Aquino) to contract a loan from any bank and secure it with mortgage on her property.
Gallardo also delivered her owner’s copy of Transfer Certificate of Title to Aquino.
Aquino obtained a loan from petitioner bank and executed a deed of real estate
mortgage without indicating that he was acting in behalf of Gallardo. At the beginning of
the mortgage deed, it was mentioned that the mortgage was executed by Aquino,
attorney-in-fact of Gallardo, together with a description of his legal capacity to contract.
Gallardo and her husband filed a complaint for annulment of mortgage against the
petitioner and Aquino and one (1) of the grounds raised was that the mortgagor in the
deed was Aquino instead of Gallardo. The trial court ordered the suspension of the
foreclosure of the real estate mortgage until after the decision in the annulment case
shall have become final and executory. The dismissal of the complaint for annulment of
mortgage was appealed to the Court of Appeals which reversed the trial court and
declared the mortgage contract void and unenforceable against Gallardo. Upon
elevation to this Court, we held that “Aquino’s act of signing the Deed of Real Estate
Mortgage in his name alone as mortgagor, without any indication that he was signing for
and in behalf of the property owner, Ederlinda M. Gallardo, bound himself alone in his
personal capacity as a debtor of the petitioner Bank and not as the agent or attorney-in-
fact of Gallardo.”     

 In the fairly recent case of Gozun v. Mercado,  respondent Mercado denied having
authorized his sister-in-law (Lilian) to borrow money from petitioner who gave her “cash
advance” of P253,000.00 allegedly for allowances of poll watchers.  Petitioner sued
respondent to collect on various sums due from the latter including the “cash advance”
obtained by Lilian.  The trial court found for the petitioner and ordered the respondent to
pay all amounts being claimed by the petitioner.  The Court of Appeals reversed the trial
court’s decision and dismissed the complaint for lack of cause of action.  When the case
reached this Court, petitioner argued that respondent had informed him that he had
authorized Lilian to obtain the loan and hence, following Macke v. Camps which held
that one who clothes another with apparent authority as his agent, and holds him out to
the public as such, respondent cannot be permitted to deny the authority.  We sustained
the Court of Appeals’ ruling on the matter and held that respondent was not liable for
the “cash advance” given by petitioner to Lilian who signed the receipt in her name
alone, without indicating therein that she was acting for and in behalf of respondent.
She thus bound herself in her personal capacity and not as an agent of respondent or
anyone for that matter.

Notwithstanding the nullity of the real estate mortgage executed by Tabing and her
husband, we find that the equity principle of laches is applicable in the instant case.
Laches is negligence or omission to assert a right within a reasonable time, warranting
a presumption that the party entitled to assert it either has abandoned it or declined to
assert it. Its essential elements are: (1) conduct on the part of the defendant, or of one
under whom he claims, giving rise to the situation complained of; (2) delay in asserting
complainant’s right after he had knowledge of the defendant’s conduct and after he has
an opportunity to sue; (3) lack of knowledge or notice on the part of the defendant that
the complainant would assert the right on which he bases his suit; and (4) injury or
prejudice to the defendant in the event relief is accorded to the complainant.

There is no absolute rule on what constitutes laches. It is a creation of equity and

applied not really to penalize neglect or sleeping upon one’s rights but rather to avoid
recognizing a right when to do so would result in a clearly inequitable situation. The
question of laches, we said, is addressed to the sound discretion of the court and each
case must be decided according to its particular circumstances. Verily, in a number of
cases, it had been held that laches, the essence of which is the neglect to assert a right
over a long period of time, may prevent recovery of a titled property. 

In the present case, records clearly show that respondents could have filed an action to
annul the mortgage on their properties, but for unexplained reasons, they failed to do
so.  They only questioned the loan and mortgage transactions in December 1996, or
after the lapse of more than five (5) years from the date of the foreclosure sale.   It bears
noting that the real estate mortgage was registered and annotated on the titles of
respondents, and the latter were even informed of the extrajudicial foreclosure and the
scheduled auction. Instead of impugning the real estate mortgage and opposing the
scheduled public auction, respondents’ lawyer wrote a letter to petitioner and merely
asked that the scheduled auction be postponed to a later date. Even after five (5) years,
respondents still failed to oppose the foreclosure and the subsequent transfer of titles to
petitioner when their agent, Tabing, acting in behalf of Cayetano, sent a letter proposing
to buy back the properties. It was only when the negotiations failed that respondents
filed the instant case. Clearly, respondents slept on their rights.

WHEREFORE, the petition is GRANTED. The Decision dated December 8, 2006 and

the Resolution dated September 6, 2007 of the Court of Appeals in CA-G.R. CV No.
76382, as well as the Decision dated May 24, 2002 in Civil Case No. 96-3684 of the
Regional Trial Court, Branch 61, Naga City, are hereby SET ASIDE.  

The complaint for annulment of mortgage and extrajudicial foreclosure with damages
and cancellation of titles filed by respondents is hereby DISMISSED.
G.R. NO.163280; February 2, 2010

DORIS SUNBANUN vs. AURORA GO 

FACTS:

Petitioner Doris U. Sunbanun is the owner of a residential house located at No. 68-F
Junquera Street, Cebu City.  On 7 July 1995, respondent Aurora B. Go leased the entire
ground floor of petitioner’s residential house for one year which was to expire on 7 July
1996.  As required under the lease contract, respondent paid a deposit of  P16,000 to
answer for damages and unpaid rent. To earn extra income, respondent accepted
lodgers, mostly her relatives, from whom she received a monthly income of P15,000.
Respondent paid the monthly rental until March 1996 when petitioner drove away
respondent’s lodgers by telling them that they could stay on the rented premises only
until 15 April 1996 since she was terminating the lease.  The lodgers left the rented
premises by 15 April 1996, and petitioner then padlocked the rooms vacated by
respondent’s lodgers. 

 On 10 May 1996, respondent filed an action for damages against petitioner.
Respondent alleged that she lost her income from her lodgers for the months of April,
May, and June 1996 totaling P45,000. Respondent, who worked in Hongkong, also
incurred expenses for plane fares and other travel expenses in coming to the
Philippines and returning to Hongkong.  

 On the other hand, petitioner argued that respondent violated the lease contract when
she subleased the rented premises. Besides, the lease contract was not renewed after
its expiration on 7 July 1996; thus, respondent had no more right to stay in the rented
premises. Petitioner also moved to dismiss the complaint in the trial court for failure to
comply with prior barangay conciliation.

During the pre-trial, petitioner moved for the case to be submitted for judgment on the
pleadings considering that the only disagreement between the parties was the correct
interpretation of the lease contract. Respondent did not object to petitioner’s motion.
The trial court then directed the parties to submit their respective memoranda, after
which the case would be considered submitted for decision.

 In its decision dated 28 March 2000, the trial court held that the case is not covered by
the barangay conciliation process since respondent is a resident of Hongkong. The trial
court noted that petitioner did not controvert respondent’s allegation that petitioner
ejected respondent’s lodgers sometime in March 1996 even if the contract of lease
would expire only on  7 July 1996. The trial court found untenable petitioner’s contention
that subleasing the rented premises violated the lease contract. The trial court held that
respondent’s act of accepting lodgers was in accordance with the lease contract which

allows the lessee “to use the premises as a dwelling or as lodging house.” Thus, the trial
court ordered petitioner to pay respondent actual damages of P45,000 for respondent’s
lost income from her lodgers for the months of April, May, and June 1996, and
attorney’s fees of P8,000.

Both parties appealed before the Court of Appeals. On 30 September 2003, the Court of
Appeals rendered its decision in favor of respondent and modified the trial court’s
decision. Aside from actual damages and attorney’s fees, the Court of Appeals also
ordered petitioner to pay moral and exemplary damages and the cost of the suit.

The Court of Appeals held that petitioner’s act of forcibly ejecting respondent’s lodgers
three months prior to the termination of the lease contract without valid reason
constitutes breach of contract. Petitioner also violated Article 1654 of the Civil Code
which states that “the lessor is obliged to maintain the lessee in the peaceful and
adequate enjoyment of the lease for the duration of the contract.” The Court of Appeals
awarded P50,000 as moral damages to respondent for breach of contract and for
petitioner’s act of pre-terminating the lease contract without valid reason, which shows

bad faith on the part of petitioner. The Court of Appeals also awarded respondent
P50,000 as exemplary damages for petitioner’s oppressive act.   Hence, this petition.

 ISSUES:

1. Whether or not petitioner’s act of ejecting respondent’s lodgers three months

before the lease contract expired without valid reason constitutes bad faith.
2. Whether or nor award for damages is proper.

RULING:

The Court denies the petition.

We agree with the appellate court that petitioner’s act of ejecting respondent’s lodgers
three months before the lease contract expired without valid reason constitutes bad
faith. What aggravates the situation was that petitioner did not inform respondent, who
was then working in Hongkong, about petitioner’s plan to pre-terminate the lease
contract and evict respondent’s lodgers. Moral damages may be awarded when the
breach of contract  was attended with bad faith.        

In this case, it is undisputed that petitioner ejected respondent’s lodgers three months
before the expiration of the lease contract on 7 July 1996. Petitioner maintains that she
had the right to terminate the contract prior to its expiration because respondent
allegedly violated the terms of the lease contract by subleasing the rented premises. 
Petitioner’s assertion is belied by the provision in the lease contract which states that

the lessee can “use the premises as a dwelling or as lodging house.” Furthermore the
lease contract clearly provides that petitioner leased to respondent the ground floor of
her residential house for a term of one year commencing from 7 July 1995. Thus, the
lease contract would expire only on 7 July 1996. However,  petitioner started ejecting
respondent’s lodgers in March 1996 by informing them that the lease contract was only
until 15 April 1996. Clearly, petitioner’s act of ejecting respondent’s lodgers resulted in
respondent losing income from her lodgers. Hence, it was proper for the trial court and
the appellate court to order petitioner to pay respondent actual damages in the amount
of P45,000.

 We likewise sustain the award of moral damages in favor of respondent. In this case,
moral damages may be recovered under Article 2219 and Article 2220 of the Civil Code
in relation to Article 21. The pertinent provisions read:

Art. 2219. Moral damages may be recovered in the following and analogous
cases:

            x x x

            (10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34, and
35.

            Art. 2220. Wilfull injury to property may be a legal ground for awarding moral
damages if the court should find that, under the circumstances, such damages are justly
due. The same rule applies to breaches of contract where the defendant acted
fraudulently or in bad faith.  (Emphasis supplied)

Art. 21. Any person who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.
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.

 
G.R. NO. 179117; February 3, 2010

Northwest Airlines,Inc. vs. Spouses Edward and Nelia Heshan and Dara Ganessa
Heshan represented by her parents Edward and Nelia Heshan

FACTS:

In July 1998, Edward Heshan (Edward) purchased three (3) roundtrip tickets from
Northwest Airlines, Inc. (petitioner) for him, his wife Nelia Heshan (Nelia) and daughter
Dara Ganessa Heshan (Dara) for their trip from Manila to St. Louis, Missouri, USA and
back to attend an ice skating competition where then seven yearold Dara was to
participate. 

When Dara’s participation in the ice skating event ended on August 7, 1998, the
Heshans proceeded to the airport to take the connecting flight from St. Louis to
Memphis on their way to Los Angeles.   At the airport, the Heshans first checked-in their
luggage at the airport’s “curbside check-in” near the entrance.  Since they arrived three
hours early for their 6:05 p.m. flight (Flight No. 972M), the Heshans whiled away the
time at a nearby coffee shop.  At 5:15 p.m. when the check-in counter opened, Edward
took to the line where he was second in the queue.  When his turn came and presented
the tickets to petitioner’s customer service agent Ken Carns (Carns) to get the boarding
passes, he was asked to step aside and wait to be called again. 

After all the other departing passengers were given their boarding passes, the Heshans
were told to board the plane without any boarding pass given to them and to just occupy
open seats therein.  Inside the plane, the Heshans noticed that only one vacant
passenger seat was available, which was offered to Dara, while Edward and Nelia were
directed to occupy two “folding seats” located at the rear portion of the plane.  To
respondents, the two folding seats were crew seats intended for the stewardesses. 

Upset that there were not enough passenger seats for them, the Heshans complained
to the cabin crew about the matter but were told that if they did not like to occupy the
seats, they were free to disembark from the plane.  And disembark they did,
complaining thereafter to Carns about their situation.  Petitioner’s plane then departed
for Memphis without respondents onboard.

The Heshans were later endorsed to and carried by Trans World Airways to Los
Angeles.  Respondents arrived in Los Angeles at 10:30 p.m. of the same day but had to
wait for three hours at the airport to retrieve their luggage from petitioner’s Flight No.
972M.  Respondents stayed for five days more in the U.S. before going back home to
Manila.    

On September 24, 1998, respondents sent a letter to petitioner to demand

indemnification for the breach of contract of carriage.  Via letter of December 4, 1998,
petitioner replied that respondents were prohibited to board Flight No. 972M for
“verbally abus[ing] [the] flight crew.”   

As their demand remained unheeded, respondents filed a complaint for breach of

contract with damages at the Regional Trial Court (RTC) of Quezon City.

From the depositions of petitioner’s employees Carns, Mylan Brown (Brown) and
Melissa Seipel (Seipel), the following version is gathered:  

The Heshans did not have reservations for particular seats on the flight.  When they
requested that they be seated together, Carns denied the request and explained that
other passengers had pre-selected seats and that the computerized seating system did
not reflect that the request could be accommodated at the time.  Carns nonetheless
assured the Heshans that they would be able to board the plane and be seated
accordingly, as he in fact instructed them ten minutes before the plane’s departure, to
board the plane even without boarding passes and to occupy “open seats” therein. 

By Seipel’s claim, as the Heshans were upset upon learning that they were not seated
together on the plane, she told them that she would request other passengers to switch
places to accommodate their demand; that she never had a chance to try to carry out
their demand, however, as she first had to find space for their bags in the overhead
compartment; and that the Heshans cursed her which compelled her to seek assistance
from Brown in dealing with them. 

Brown averred that she went to the back portion of the plane to help out but she was
brushed aside by Nelia who was cursing them as she stormed out of the plane followed
by Edward and Dara.          

Petitioner denied that the Heshans (hereafter respondents) were told to occupy “folding
seats” or crew seats since “[Federal Aviation Authority] regulations say no passengers
are to sit there.”  As for respondents not having been given boarding passes, petitioner
asserted that that does not in itself mean that the flight was overbooked, for this is done
on last minute boarding when flights are full and in order to get passengers on their way
and to get the plane out on time.  This is acceptable procedure.

Branch 96 of the RTC, by Decision of August 20, 2002, rendered judgment in

favor of respondents.

On appeal, the Court of Appeals, by Decision of June 22, 2007, sustained the trial
court’s findings but reduced the award of moral and exemplary damages to P2 million
and P300,000, respectively.  In affirming the findings of the trial court, the appellate
court held:

 … [I]t is clear that the only instances [sic] when the [petitioner] and its agents
allow its passengers to board the plane without any boarding pass is when the flights
are full and the plane is running late.  Taking into account the fact that the [respondents]
arrived at the airport early, checked-in their baggage before hand and were in fact at the
gates of the boarding area on time, thus, it could not be said that they can fall under the

exceptional circumstance [sic].  It bears stressing at this juncture that it becomes a

highly irregular situation that despite the fact that the [respondents] showed up on time
at the boarding area[,] they were made to go in last and sans any boarding passes. 
Thus, We hold that it can be logically inferred that the reason why no boarding passes
were immediately issued to the [respondents] is because Flight 972 from St. Louis to
Memphis is full and the [respondents] were “bumped off” from their flight.  (emphasis,
italics and underscoring supplied)

Reconsideration having been denied by the appellate court, petitioner filed the present
petition for review.

ISSUE:

1. Whether or not the respondents were entitled to moral, exemplary damages and
award of attorney’s fees; and
2. Assuming arguendo that respondents were entitled to award of damages,
whether or not the court erred in awarding excessive damages to respondents.

RULING:

The petition is in part meritorious.  There is a need to substantially reduce the moral
damages awarded by the appellate court.  While courts are given discretion to
determine the amount of damages to be awarded, it is limited by the principle that the
amount awarded should not be palpably and scandalously excessive. 
Moral damages are neither intended to impose a penalty to the wrongdoer, nor to enrich
the claimant.  Taking into consideration the facts and circumstances attendant to the
case, an award to respondents of P500,000, instead of P2,000,000, as moral damages
is to the Court reasonable.

G.R. NO. 162924; Februaury 4, 2010

Mid- Pasig Land Development Corp. vs. Mario Tablante doing business under the
name and style or ERCM Enterprises; Rockland Contruction Company et. Al

FACTS:

Petitioner  is the registered owner of a piece of land situated in Pasig City, bounded by
Meralco Avenue, Ortigas Avenue, Doña Julia Vargas Avenue, and Valle Verde
Subdivision.  On December 6, 1999, petitioner, represented by its Chairman and
President, Ronaldo Salonga, and ECRM Enterprises, represented by its proprietor,
Mario P. Tablante, executed an agreement whereby the former would lease to the latter
an area, approximately one (1) hectare, of the aforesaid land, for a period of three (3)
months, to be used as the staging area for the Home and Garden Exhibition Fair.  On
March 6, 2000, the date of the expiration of the Lease Agreement, Tablante assigned
all his rights and interests under the said agreement to respondents Laurie M. Litam
and/or Rockland Construction Company, Inc. (Rockland) under a Deed of Assignment
of the same date.  Petitioner eventually learned that respondent Tablante had executed
a Contract of  Lease with respondent MC Home Depot, Inc. on November 26, 1999
over the same parcel of land.  Thereafter, respondent MC Home Depot, Inc.
constructed improvements on the land and subdivided the area into fifty-nine (59)
commercial stalls, which it leased to various entities. Upon the expiration of the lease
on March 6, 2000, petitioner demanded that respondents vacate the land.  A final
demand was made in a letter dated December 20, 2000.

In order to forestall ejectment from the premises, respondent Rockland filed a case for
Specific Performance with the Regional Trial Court (RTC), Branch 266, Pasig City, on
January 11, 2001,   compelling petitioner to execute a new lease contract for another
three (3) years, commencing in July 2000. This was docketed as Civil Case No.
68213.    Petitioner moved to dismiss the complaint on the ground that it was
anticipatory in nature.

Consequently, on August 22, 2001, petitioner filed Civil Case No. 8788 for unlawful
detainer against herein respondents, raffled to the Municipal Trial Court (MTC), Pasig
City, Branch 70.  Simultaneously, petitioner filed a supplemental motion to dismiss Civil
Case No. 68213, on the ground of litis pendentia.  Petitioner’s motion to dismiss was
denied.  The  denial  was questioned and eventually elevated to the Supreme Court.

 Meantime, on April 29, 2002, the MTC rendered judgment in the unlawful detainer
(ejectment) case.  In the main, the trial court ruled that the issue did not involve
material or physical possession, but rather, whether or not ECRM had the right to
exercise an option to renew its lease contract. The MTC stated that, considering that

this issue was incapable of pecuniary estimation, jurisdiction over the case was vested
in the RTC.  The trial court, therefore, disposed, as follows:

        WHEREFORE, judgment is hereby rendered DISMISSING the complaint for lack
of merit.  In the meantime, the plaintiff is hereby ordered to pay the defendants
attorney’s fees and expenses of litigation in the amount of TWENTY THOUSAND
PESOS (P20,000.00).

On appeal, the RTC, Pasig City, Branch 160, affirmed in toto. In its decision 
dated July 10, 2003, the  RTC ruled that:

 Relative to the issue raised by the appellant that the lower court erred in finding
it had no jurisdiction over the subject matter of this case as the question of whether or
not ECRM under the provisions of the lease agreement (pars. 3 and 13) has the right to
exercise an option to renew its lease contract is one incapable of pecuniary estimation
and therefore jurisdiction is vested in the Regional Trial Court.  Republic Act No. 7691
grants Metropolitan Trial Courts the exclusive jurisdiction over cases of forcible entry
and unlawful detainer.  Since it has been sufficiently established under the facts
obtaining that the contract of lease has been renewed before the expiration of the lease
period, and the appellant has consented to the renewal and assignment of the lease, it
necessarily follows that the issue on whether the lower court erred in finding that it did
not have jurisdiction over the subject matter raised by the appellant, deserves scant
consideration and this court need not delve into it anymore.

A petition for certiorari was consequently filed with the CA.

ISSUE:

WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE

ERROR IN DISMISSING THE PETITION THUS EFFECTIVELY UPHOLDING
THE DECISION OF THE REGIONAL TRIAL COURT, TO WIT:

(a) THAT THE LEASE AGREEMENT WAS UNILATERALLY RENEWED AND

THAT PETITIONER IS ESTOPPED FROM DENYING SUCH UNILATERAL
RENEWAL;

(b) THAT RESPONDENTS TABLANTE/ECRM, ROCKLAND AND MC HOME

DEPOT COULD VALIDLY OCCUPY THE PROPERTY IN THE ABSENCE OF
ANY VALID LEASE AGREEMENT CONSENTED TO BY PETITIONER;

(c) PETITIONER [IS] LIABLE FOR ATTORNEY’S FEES AND COSTS OF SUIT.

RULING:

 The petition is granted.

From the foregoing, it is thus clear that the failure to attach the Secretary’s Certificate,
attesting to General Manager Antonio Merelos’s authority to sign the Verification and
Certification of Non-Forum Shopping, should not be considered fatal to the filing of the
petition. Nonetheless,  the requisite board resolution was subsequently submitted to the
CA, together with the pertinent documents.  Considering that petitioner substantially
complied with the rules, the dismissal of the petition was, therefore, unwarranted.  Time
and again, we have emphasized that dismissal of an appeal on a purely technical

ground is frowned upon especially if it will result in unfairness.  The rules of procedure
ought not to be applied in a very rigid, technical sense for they have been adopted to
help secure, not override, substantial justice.  For this reason, courts must proceed with
caution so as not to deprive a party of statutory appeal; rather, they must ensure that all
litigants are granted the amplest opportunity for the proper and just ventilation of their
causes, free from the constraint of technicalities.

 After a finding that the CA erred in dismissing the petition before it,  a remand of the
case is in order.  However, a perusal of the  records reveals that this  is no longer
necessary  in  light of relevant  developments obtaining in the  case at bar.

 Petitioner, in its Memorandum dated October 28, 2005, alleged that respondents’
possessory claims had lapsed and, therefore, had become moot and academic.
Respondent Rockland prayed that a three-year lease period be granted to it in order
that it would be able to plan its activities more efficiently.  Since the claimed “lease
contract” had already expired as of July or August 2003, there appears no reason why
respondents should continue to have any claim to further possession of the property.

 Respondent Rockland also stated in its Memorandum dated March 16, 2006 that it was
no longer in possession of the subject property considering that:
 50.       In a Resolution dated 17 September 2004, in the case of
“Rockland Construction Company, Inc. vs. Mid-Pasig Land Development
Corporation, et al.,” docketed as SCA No. 2673, and the Omnibus Order
dated 12 November 2004, affirming the aforesaid Resolution, Branch 67
Pasig City Regional Trial Court Presiding Judge Mariano M. Singzon awarded
possession (albeit erroneously) of subject property to Pasig Printing
Corporation, an intervenor in the SCA case.

 51.       At present, petitioner does not have a cause of action against

herein respondent Rockland.  Respondent is not unlawfully
withholding possession of the property in question as in fact

respondent is not in possession of the subject property.  The issue of

possession in this ejectment case has therefore been rendered moot
and academic.

This allegation was confirmed by respondent MC Home Depot, Inc. in its

Comment/Memorandum dated May 22, 2007 submitted to the Court.  It stated
therein that “the passage of time has rendered the issue of possession moot
and academic with respect to respondent Rockland, as the three-year period
has long been expired in 2003.”  Furthermore, respondent MC Home Depot,
Inc. asserts that it is in rightful possession of the land on the strength of a
Memorandum of Agreement dated November 22, 2004 between the latter and
Pasig Printing Corporation.  By petitioner’s admission that while it remains the
registered owner of the land, possession of the same had been adjudicated in
favor of Pasig Printing Corporation, another entity without any contractual
relationship with petitioner, on the strength of an Order from the RTC of Pasig
City.  Considering that Pasig Printing Corporation has the jus possessionis
over the subject property,  it granted the MC Home Depot, Inc. actual
occupation and possession of the subject property for a period of four (4)
years, renewable for another four (4) years upon mutual agreement of the
parties.  

 
G.R NO. 111794; February 4, 2010

ASIAN TERMINALS INC. vs. DAEHAN FIRE AND MARINE INSURANCE CO., LTD.

FACTS:

On July 8, 2000, Doosan Corporation (Doosan) shipped twenty-six (26) boxes of printed
aluminum sheets on board the vessel Heung-A Dragon owned by Dongnama Shipping
Co., Ltd. (Dongnama). The shipment was covered by Bill of Lading No.
DNALHMBUMN010010 and consigned to Access International, with address at No. 9
Parada St., San Juan, Metro Manila. Doosan insured the subject shipment with
respondent Daehan Fire and Marine Insurance Co., Ltd. under an “all-risk” marine cargo
insurance policy, payable to its settling agent in the Philippines, the Smith Bell & Co.,
Inc. (Smith Bell).

 On July 12, 2000, the vessel arrived in Manila and the containerized van was
discharged and unloaded in apparent good condition, as no survey and exceptions were
noted in the Equipment Interchange Receipt (EIR) issued by petitioner. The container
van was stored in the Container Yard of the Port.  On July 18, 2000, Access
International requested from petitioner and the licensed Customs Broker, Victoria Reyes
Lazo (V. Reyes Lazo), a joint survey of the shipment at the place of storage in the
Container Yard, but no such inspection was conducted.

On July 19, 2000, V. Reyes Lazo withdrew, and petitioner released, the shipment and
delivered it to Access International’s warehouse in Binondo, Manila. While the shipment
was at Access International’s warehouse, the latter, together with its surveyor, Lloyd’s
Agency, conducted an inspection and noted that only twelve (12) boxes were accounted
for, while fourteen (14) boxes were missing.  Access International thus filed a claim
against petitioner and V. Reyes Lazo for the missing shipment amounting to
$34,993.28.  For failure to collect its claim, Access International sought indemnification

from respondent in the amount of $45,742.81. On November 8, 2000, respondent paid

the amount of the claim and Access International accordingly executed a Subrogation
Receipt in favor of the former.

On July 10, 2001, respondent, represented by Smith Bell, instituted the present case
against Dongnama, Uni-ship, Inc. (Uni-ship), petitioner, and V. Reyes Lazo before the
RTC. Respondent alleged that the losses, shortages and short deliveries sustained by
the shipment were caused by the joint fault and negligence of Dongnama, petitioner and
V. Reyes Lazo.

Dongnama and Uni-ship filed a Motion to Dismiss on the grounds that Daehan lacked
legal capacity to sue and that the complaint stated no cause of action. The trial court,
however, denied the motion in an Order dated August 31, 2001.

Thereafter, Dongnama and Uni-ship filed their Answer with Counterclaim and Cross-
Claim Ad Cautelam denying any liability for the damages/losses sustained by the
shipment, pointing out that it was on a “Full Container Load,” “Said to Contain,” and
“Shipper’s Load and Count” bases, under which they had no means of verifying the
contents of the containers. They also alleged that the container van was properly
discharged from the vessel with seals intact and no exceptions noted. Moreover, they
claimed that the losses occurred while the subject shipment was in the custody,
possession or control of the shipper, its trucker, the arrastre operator, or their
representatives, or due to the consignee’s own negligence. They further questioned the
absence of notice of loss within the three (3)-day period provided under the Carriage of
Goods by Sea Act. Finally, they averred that their liability, if there be any, should only be
limited to US$500.00 per package or customary freight unit.
For its part, petitioner denied liability, claiming that it exercised due diligence in handling
and storing the subject container van.  It, likewise, assailed the timeliness of the
complaint, having been filed beyond the fifteen (15)-day period under its Contract for

Cargo Handling Services with the Philippine Ports Authority (PPA).  If at all, petitioner
added, its liability should only be limited to P5,000.00.

In her Answer, V. Reyes Lazo questioned respondent’s capacity to sue in Philippine

courts. She accused respondent of engaging in a fishing expedition since the latter
could not determine with clarity the party at fault.

On December 2, 2002, in their Joint Motion to Dismiss, respondent, on one hand, and
Dongnama and Uni-ship, on the other, prayed that the complaint be dismissed against
the latter, alleging that they could not be held liable based on the EIR.  The motion was
granted on December 9, 2002. Consequently, the case proceeded as against petitioner
and V. Reyes Lazo.

As no amicable settlement was reached during the pretrial, trial on the merits ensued.

On August 4, 2004, the RTC dismissed the complaint for insufficiency of evidence.  It
found the complaint fatally flawed, having been signed by a person who had no
authority from complainant (respondent herein) corporation to act for and on behalf of
the latter.  The RTC, likewise, held that respondent failed to prove that the loss/damage
of the subject cargoes was due to the fault or negligence of petitioner or V. Reyes Lazo.
It added that the cargoes were damaged when they were already in Access
International’s possession, considering that an inspection was conducted in the latter’s
warehouse. On appeal, the CA reversed and set aside the RTC decision.

ISSUE:

Who is liable for the loss of the goods?

RULING:

Petiton denied.

Petitioner denies liability for the loss of the subject shipment, considering that the
consignee’s representative signified receipt of the goods in good order without
exception. This being the case, respondent, as subrogee, is bound by such
acknowledgment.  As to the extent of its liability, if there be any, petitioner insists that it
be limited to P5,000.00 per package, as provided for in its Management Contract with
the PPA.

We do not agree with petitioner.

Respondent, as insurer, was subrogated to the rights of the consignee, pursuant to the
subrogation receipt executed by the latter in favor of the former.  The relationship,
therefore, between the consignee and the arrastre operator must be examined.  This
relationship is akin to that existing between the consignee and/or the owner of the
shipped goods and the common carrier, or that between a depositor and a
warehouseman. In the performance of its obligations, an arrastre operator should
observe the same degree of diligence as that required of a common carrier and a
warehouseman.  Being the custodian of the goods discharged from a vessel, an
arrastre operator’s duty is to take good care of the goods and to turn them over to the
party entitled to their possession.

In a claim for loss filed by the consignee (or the insurer), the burden of proof to show
compliance with the obligation to deliver the goods to the appropriate party devolves
upon the arrastre operator. Since the safekeeping of the goods is its responsibility, it
must prove that the losses were not due to its negligence or to that of its employees.  To
prove the exercise of diligence in handling the subject cargoes, petitioner must do more
than merely show the possibility that some other party could be responsible for the loss
or the damage.  It must prove that it exercised due care in the handling thereof.

Petitioner failed to do this. Instead, it insists that it be exonerated from liability, because
the customs broker’s representative received the subject shipment in good order and
condition without exception.  The appellate court’s conclusion on this matter is
instructive:

 ATI may not disclaim responsibility for the shortage/pilferage of fourteen (14) boxes of
printed aluminum sheet while the container van remained in its custody for seven (7)
days (at the Container Yard) simply because the alleged representative of the customs
broker had withdrawn the shipment from its premises and signed the EIR without any
complaint. The signature of the person/broker representative merely signifies that said
person thereby frees the ATI from any liability for loss or damage to the cargo so
withdrawn while the same was in the custody of such representative to whom the cargo
was released. It does not foreclose any remedy or right of the consignee to prove that
any loss or damage to the subject shipment occurred while the same was under the
custody, control and possession of the arrastre operator.

Clearly, petitioner cannot be excused from culpability simply because another person
could be responsible for the loss. This is especially true in the instant case because,
while the subject shipment was in petitioner’s custody, Access International requested
that a joint survey be conducted at the place of storage.

Moreover, it was shown in the Survey Report prepared by Access International’s

surveyor that petitioner was remiss in its obligations to handle the goods with due care
and to ensure that they reach the proper party in good order as to quality and quantity.

Considering that both petitioner and V. Reyes Lazo were negligent in the performance
of their duties in the handling, storage and delivery of the subject shipment to the
consignee, resulting in the loss of 14 boxes of printed aluminum sheets, both shall be
solidarily liable for such loss.

As to the extent of petitioner’s liability, we cannot sustain its contention that it be limited
to P5,000.00 per package.  Petitioner’s responsibility and liability for losses and
damages are set forth in Section 7.01 of the Management Contract drawn between the
PPA and the Marina Port Services, Inc., petitioner’s predecessor-in-interest, to wit:

 CLAIMS AND LIABILITY FOR LOSSES AND DAMAGES

Section 7.01. Responsibility and Liability for Losses and Damages; Exceptions. –
The CONTRACTOR shall, at its own expense, handle all merchandise in all work
undertaken by it, hereunder, diligently and in a skillful, workman-like and efficient
manner. The CONTRACTOR shall be solely responsible as an independent contractor,
and hereby agrees to accept liability and to pay to the shipping company, consignees,
consignors or other interested party or parties for the loss, damage or non-delivery of
cargoes in its custody and control to the extent of the actual invoice value of each
package which in no case shall be more than FIVE THOUSAND PESOS (P5,000.00)

each, unless the value of the cargo shipment is otherwise specified or manifested or
communicated in writing together with the declared Bill of Lading value and supported
by a certified packing list to the CONTRACTOR by the interested party or parties before
the discharge or loading unto vessel of the goods.  This amount of Five Thousand
Pesos (P5,000.00) per package may be reviewed and adjusted by the AUTHORITY
from time to time.  The CONTRACTOR shall not be responsible for the condition or the
contents of any package received, nor for the weight nor for any loss, injury or damage
to the said cargo before or while the goods are being received or remains in the piers,
sheds, warehouses or facility, if the loss, injury or damage is caused by force majeure
or other causes beyond the CONTRACTOR’S control or capacity to prevent or remedy;
PROVIDED that a formal claim together with the necessary  copies of Bill of Lading,
Invoice, Certified Packing List and Computation arrived at covering the loss, injury or
damage or non-delivery of such goods shall have been filed with the CONTRACTOR
within fifteen (15) days from day of issuance by the CONTRACTOR of a certificate of
non-delivery; PROVIDED, however, that if said CONTRACTOR fails to issue such

certification within fifteen (15) days from receipt of a written request by the
shipper/consignee or his duly authorized representative or any interested party, said
certification shall be deemed to have been issued, and thereafter, the fifteen (15) day
period within which to file the claim commences; PROVIDED, finally, that the request for
certification of loss shall be made within thirty (30) days from the date of delivery of the
package to the consignee.

 x x x x

The CONTRACTOR shall be solely responsible for any and all injury or damage
that may arise on account of the negligence or carelessness of the
CONTRACTOR, its agent or employees in the performance of the undertaking
under the Contract. Further, the CONTRACTOR hereby agrees to hold free the
AUTHORITY, at all times, from any claim that may be instituted by its employee
by reason of the provisions of the Labor Code, as amended. 

As clearly stated above, such limitation does not apply if the value of the cargo
shipment is communicated to the arrastre operator before the discharge of the
cargoes.

It is undisputed that Access International, upon arrival of the shipment, declared the
same for taxation purposes, as well as for the assessment of arrastre charges and other
fees.  For the purpose, the invoice, packing list and other shipping documents were
presented to the Bureau of Customs as well as to petitioner for the proper assessment
of the arrastre charges and other fees.  Such manifestation satisfies the condition of
declaration of the actual invoices of the value of the goods before their arrival, to
overcome the limitation on the liability of the arrastre operator. Then, the arrastre
operator, by reason of the payment to it of a commensurate charge based on the higher
declared value of the merchandise, could and should take extraordinary care of the
special or valuable cargo. What would, indeed, be unfair and arbitrary is to hold the
arrastre operator liable for the full value of the merchandise after the consignee has
paid the arrastre charges only on a basis much lower than the true value of the goods.
The stipulation requiring the consignee to inform the arrastre operator and to give
advance notice of the actual invoice value of the goods to be put in its custody is
adopted for the purpose of determining its liability, that it may obtain compensation
commensurate to the risk it assumes, not for the purpose of determining the degree of
care or diligence it must exercise as a depositary or warehouseman.

       
G.R NO. 181842; February 5, 2010

Metrobank and SolidBank Corporation vs. Bernardita H. Perez represented by her

Atty.-in-fact Patria H. Perez

FACTS:

On September 17, 1997, petitioner Solidbank Corporation (Solidbank) forged a lease

contract with Bernardita H. Perez (respondent), represented by her attorney-in-fact
Patria H. Perez, over two parcels of land located  in Sta. Maria, Bulacan for a period of
15 years commencing on January 1, 1998.  Solidbank was to, as it did, construct a one-
storey building specifically suited for bank premises.

 Solidbank was later acquired by its co-petitioner Metropolitan Bank and Trust Company
(Metrobank), the latter as the surviving entity.

On September 24, 2002, Metrobank sent a notice of termination of the lease contract
effective September 30, 2002.   Respondent, objecting to the termination, filed a
complaint for breach of contract and damages against herein petitioners Solidbank and
Metrobank before the Regional Trial Court (RTC) of Malolos, Bulacan praying that, inter
alia, herein petitioners be ordered to pay her “the would be unrealized income for the
ensuing idle months of the said building.”

 Metrobank asserted in its Answer with Counterclaim, however, that the lease contract
did not prohibit pre-termination by the parties.   

After respondent rested her case, Metrobank was, by Order of January 12, 2006,
declared to have waived its right to present evidence after its counsel incurred several
unexcused absences.

By Decision of April 5, 2006, Branch 22 of the Malolos RTC ruled in favor of respondent.

          On appeal, Metrobank challenged, in the main, the trial court’s award of
“unrealized income for the ensuing idle months” despite respondent’s failure to pay
docket fees thereon to thus render the complaint dismissible for lack of jurisdiction.

          By Decision of November 23, 2007, the appellate court affirmed that of the trial
court and denied, by Resolution of February 21, 2008, a reconsideration thereof.  
Hence, the present petition for review on certiorari.

ISSUE:

Whether or not respondent is liable to pay the plaintiff the would be

unrealized income for the ensuing idle months of said building amounting
to P7,126,494.30 (covering April 2006 until expiration of the contract of
lease.

RULING:

Metrobank’s position fails. The ensuing months in which the leased premises would be
rendered vacant could not be determined at the time of the filing of the complaint.  It
bears recalling that the building constructed on respondent’s leased premises was
specifically constructed to house a bank, hence, the idle period before another occupant
with like business may opt to lease would be difficult to project.  

On Metrobank’s raising the issue of lack of jurisdiction over the complaint for
respondent’s failure to pay the correct docket fees, apropos is the ruling in National
Steel Corporation v. Court of Appeals:
 Although the payment of the proper docket fees is a jurisdictional
requirement, the trial court may allow the plaintiff in an action to pay the
same within a reasonable time before the expiration of the applicable
prescriptive or reglementary period. If the plaintiff fails to comply with this
requirement, the defendant should timely raise the issue of jurisdiction or
else he would be considered in estoppel. In the latter case, the balance
between the appropriate docket fees and the amount actually paid by the
plaintiff will be considered a lien on any award he may obtain in his favor.
(emphasis and underscoring supplied) 

A word on the grant of moral and exemplary damages and attorney’s fees. The Court
notes that respondent’s witness-attorney-in-fact testified only on the existence of the
lease agreement and unrealized income due to pre-termination.  Since an award of
moral damages is predicated on a categorical showing from the claimant that emotional
and mental sufferings were actually experienced, absent any evidence thereon in the
present case,  the award must be disallowed.  And so too must the award of attorney’s
fees, absent an indication in the trial court’s Decision of the factual basis thereof, the
award having been merely stated in the dispositive portion.   Parenthetically, while
respondent prayed in her complaint for the award of attorney’s fees and testified during
the trial that:

Q:        Now, in connection with the filing of this case and hiring your
lawyer, do you have agreement with your counsel with respect to
attorney’s fees?

A:        P100,000.00 acceptance fees.

Q:        What about appearance fees?

A:        I forgot already, sir.,

 WHEREFORE, the petition is in part GRANTED.

GR NO. 184434; February 5, 2010

G.G Sportswear Manufacturing Corp. vs. Banco de Oro Unibank, Inc.

FACTS:

On April 22, 1994 petitioners G.G. Sportswear Manufacturing Corp. (G.G.

Sportswear) and Naresh Gidwani mortgaged a lot in Aranda, Makati, and a house and
lot in Bel-Air Village, also in Makati, to Equitable-PCI Bank, now the respondent Banco
de Oro Unibank, Inc. (BDO), to secure a P20,357,000.00 loan to G.G. Sportswear.  On
April 25, 1996, to secure an additional P11,643,000.00 loan that BDO gave G.G.
Sportswear, the parties amended the real estate mortgages to include such loan. 
Petitioner G.G. Sportswear was unable to pay its loans. 

On March 15, 2005 respondent BDO told G.G. Sportswear in a letter that the
bank transferred on that date its “past due loan obligation with the bank,” totaling
US$12,257,581.31 as of December 31, 2004, to Philippine Investment One (SPV-AMC),
Inc. (PIO), “including all interest, fees, charges, penalties, and securities/collaterals, if
any.”  This was followed by BDO Certification dated April 21, 2005 that it “has assigned,
conveyed, transferred and sold” to PIO, “on a without recourse basis, all its rights, title,
benefits and interest to the Loan Receivables” of G.G. Sportswear.   

Subsequently, however, respondent BDO applied with the Ex Officio Sheriff of

Makati for the foreclosure of the properties that petitioners G.G. Sportswear and
Gidwani mortgaged with the bank.  The notice of sheriff’s sale scheduled the auction of
the properties on May 31, 2007 but this was subsequently rescheduled to July 18,
2007.  At any rate, the sheriff auctioned off the Aranda property to BDO on June 21,
2007.   

On July 16, 2007, two days before the rescheduled auction of the Bel-Air
property, petitioners G.G. Sportswear and Gidwani filed an action with the Regional

Trial Court (RTC) of Makati, in Civil Case 07-631, to annul the foreclosure, hold
respondent BDO in indirect contempt, award damages, and enjoin further foreclosure by
TRO and preliminary injunction.  They alleged that, as a result of BDO’s transfer of G.G.
Sportswear’s loan receivables to PIO in 2005, BDO lost the right to foreclose. 

In its answer, respondent BDO denied transferring petitioner G.G. Sportswear’s

loan receivables to PIO, stating that the April 21, 2005 Certification it issued was a mere
“general certification” that did not specify which of several loan receivables were sold to
PIO.  BDO in fact transferred to Philippine Asset Investment, which entity was

subsequently taken over by respondent PIO, only P290,820.00 out of G.G.

Sportswear’s total loan.  BDO attached Certifications from itself and from PIO to the
effect that the credits secured by the Aranda and Bel-Air properties had not been
transferred to PIO.  The latter filed an answer of the same tenor.  

On August 7, 2007 the RTC issued an order, denying petitioners G.G.

Sportswear and Gidwani’s applications for TRO and preliminary injunction.  They filed a
motion for reconsideration and a motion to inhibit the presiding judge, but on October
11, 2007 the RTC denied both motions.  This prompted G.G. Sportswear and Gidwani
to file a special civil action of certiorari with the Court of Appeals (CA) in CA-G.R. SP
101799, assailing the RTC orders mainly based on the proposition that respondent BDO
had lost its right to foreclose the mortgages when it assigned its rights to PIO. 
 On June 26, 2008 the CA rendered judgment, dismissing the petition for lack of
merit.  It denied on August 29, 2008 petitioners G.G. Sportswear and Gidwani’s
subsequent motion for reconsideration, prompting them to file the present petition for
review.

ISSUE:

Whether or not the CA erred in finding that the RTC did not gravely abuse its discretion
when it denied petitioners G.G. Sportswear and Gidwani’s application for TRO and
preliminary injunction despite the bank’s apparent assignment of its credit to another
entity.

RULING:

Petitioners G.G. Sportswear and Gidwani point out that BDO’s March 15, 2005
letter and its April 21, 2005 certification show that the bank already transferred to PIO all
its rights to the loan receivables of G.G. Sportswear.  Thus, BDO lost its right to
foreclose the mortgages on the properties that secured the unpaid loans, thus, entitling
petitioners to an order enjoining the foreclosures.  Further, petitioners claim that BDO
bloated G.G. Sportswear’s outstanding obligation such that it was being made to pay
more through the foreclosure than was actually due. 

If one were to go by respondent BDO’s March 15, 2005 letter to petitioner G.G.
Sportswear and its April 21, 2005 certification, the bank appears to have already
assigned all the loan receivables of G.G. Sportswear to respondent PIO.  Logically,
BDO no longer had the right to foreclose on the mortgages that secured the loans. 

But, judging by its answer to the complaint, BDO wanted that corrected.  For it claimed
that it actually assigned just a measly portion of its loan receivables to respondent PIO. 

Did the allegations of the parties and the documents they attached to their
pleadings give ample justification for the issuance of a TRO or preliminary injunction
order to stop the foreclosure sale of the Bel-Air property?  Two considerations militate
against it: 

First.  The mortgaged properties were due for foreclosure.  Admittedly, petitioner
G.G. Sportswear had defaulted on the loans secured by the subject mortgages. 
Petitioners had, therefore, no right to complain about losing their properties to
foreclosure. 

Second.  The issue of which party owns the loan receivables and, consequently,
had the right to foreclose the mortgages is essentially an issue between BDO and PIO. 
This issue is the concern of petitioners G.G. Sportswear and Gidwani but only to the
extent that they are entitled to ensure that the proceeds of the foreclosure sale were
paid to the right party.

  As it happens, however, this is not even a genuine issue.  Respondent PIO,

which had been impleaded in the case, did not contest BDO’s ownership of the loan
receivables and its right to foreclose the mortgages.  It would, therefore, make no sense
to insist that PIO be the one to foreclose when it denounces such right.  Besides, the
real estate mortgages presented for foreclosure remained in BDO’s name.  No
document has been presented superseding it. 

For the above reasons, it cannot be said that petitioners G.G. Sportswear and
Gidwani have established a right to the main relief they want, namely, the arrest of the
foreclosure sale of their mortgaged properties after they had admitted not paying their
loans.  As for their claim that BDO had bloated G.G. Sportswear’s outstanding
obligation, the remedy if this turns out to be true is to direct BDO to return the excess
proceeds with damages as the circumstances may warrant.
  Under the circumstances, the Court must concur with the CA’s finding that the
RTC did not act with grave abuse of discretion in denying petitioners’ application for
TRO and preliminary injunction order.GR NO. 172279; February 11, 2010

Valentin Movido substituted by Marginito Movido vs. Luis Reyes Pastor

FACTS:

Respondent Luis Reyes Pastor filed a complaint for specific performance in the
Regional Trial Court (RTC) of Imus, Cavite, praying that petitioner Valentin Movido be
compelled to cause the survey of a parcel of land subject of their contract to sell.

In his complaint, respondent alleged that he and petitioner executed a kasunduan sa

bilihan ng lupa where the latter agreed to sell a parcel of land located in Paliparan,
Dasmariñas, Cavite with an area of some 21,000 sq. m. out of the 22,731 sq. m.
covered by Transfer Certificate of Title (TCT) No. 362995 at P400/sq. m.

Respondent further alleged that another kasunduan was later executed supplementing
the kasunduan sa bilihan ng lupa. It provided that, if a Napocor power line traversed the
subject lot, the purchase price would be lowered to P200/sq. m. beyond the distance of
15 meters on both sides from the center of the power line while the portion within a
distance of 15 meters on both sides from the center of the power line would not be paid.

 Lastly, respondent alleged that he already paid petitioner P5 million out of the original
purchase price of P8.4 million stated in the kasunduan sa bilihan ng lupa. He was willing
and ready to pay the balance of the purchase price but due to petitioner’s refusal to
have the property surveyed despite incessant demands, his unpaid balance could not
be determined with certainty.

In his answer, petitioner alleged that the original negotiation for the sale of his property
involved the entire area of 22,731 sq. m. However, as respondent was not sure whether
a Napocor power line traversed the property, they then executed the kasunduan. After
respondent personally inspected the property, a final agreement—the kasunduan sa
bilihan ng lupa—was executed where the area to be sold was 21,000 sq. m. for
P400/sq. m. for a total sum of P8.4 million. The final agreement also listed a schedule of
payments of the purchase price and included a penalty clause in case of default.

Petitioner also charged respondent with delay in paying several installments due and
did not pay the 7th installment in the amount of P1 million. This was allegedly a material
breach because they agreed that the survey of the property would only be done after
respondent would have paid the 7th installment. Due to respondent’s failure to fulfill his
obligations, petitioner claimed that he had no choice except to rescind the kasunduan
sa bilihan ng lupa. He, however, was willing to reimburse 50% of whatever respondent
had paid him so far.

After hearing, the RTC ruled in favor of petitioner and held that the kasunduan preceded
the kasunduan sa bilihan ng lupa. Thus, the RTC dismissed the complaint of
respondent for lack of merit and/or cause of action. It also ordered the rescission of the
kasunduan sa bilihan ng lupa as well as the forfeiture of 50% of the amount already
paid by respondent (but ordered petitioner to return to respondent 50% of the amount
already paid). The RTC also directed respondent to pay petitioner P50,000  attorney’s
fees and costs of suit.    

On appeal, the Court of Appeals (CA) reversed the RTC and held that the kasunduan
sa bilihan ng lupa was the first document executed by the parties, not the kasunduan.
Thus, the CA ordered respondent to pay the heirs of petitioner the balance of the
purchase price in the amount of P2,796,400. The CA also ordered that, upon complete
payment by respondent, Marginito Movido (the substitute of petitioner) should execute
the necessary deed of absolute sale in favor of respondent and comply with petitioner’s
other obligations under the kasunduan sa bilihan ng lupa.
Marginito Movido’s motion for reconsideration did not have its desired result. Hence,
this petition for review on certiorari, where he insists that it was the kasunduan, not the
kasunduan sa bilihan ng lupa, which was first executed by the parties. He likewise
claims that the failure of respondent to pay the 7 th and 8th installments of the purchase
price gave petitioner the right to rescind the contract.   

ISSUE:

Whether or not the failure of respondent to pay the 7 th and 8th installments of the
purchase price gave petitioner the right to rescind the contract.  

RULING:

The issue of which of the two contracts was first executed by the parties is immaterial to
the resolution of this case. In the first place, both contracts were executed and
notarized on the same day, December 6, 1993. More importantly, both contracts, even
independent of the time of their execution but, taken together, clearly spell out in full the
respective rights and obligations of the parties.       

 Indeed, a reading of the kasunduan sa bilihan ng lupa and the kasunduan would readily
reveal that payment of the purchase price does not depend on the survey of the
property. In other words, the purchase price should be paid whether or not the property
is surveyed. The survey of the property is important only insofar as the right of
respondent to the reduction of the purchase price is concerned.

On the other hand, the survey of the property to determine the metes and bounds of the
1,731 sq. m. portion that is excluded from the contract as well as the portions covered
by the kasunduan which will be subject to reduction of the purchase price, is also not
conditioned on the payment of any installment. Petitioner simply has to do it. In fact,
under the kasunduan sa bilihan ng lupa, the survey should be done before the date of
the last installment. Hence, the survey could have been done anytime after the
execution of the agreement. 

If respondent pays a higher amount without the property being surveyed first (compared
to what he is liable to pay after the survey of the property) it will not be a problem
because the excess of the amount paid can easily be refunded to him. Such would be
the plain application of the provisions of the kasunduan. On the other hand, petitioner
cannot successfully reject respondent’s demand for petitioner to perform his obligation
to have the property surveyed. Under the kasunduan sa bilihan ng lupa, petitioner is
obligated to conduct the survey on or before the due date of the last installment.

Corollary to this, the CA erred when it proceeded to determine the remaining balance of
respondent by applying a reduced rate on certain portions of the property. In effect, the
CA disregarded the agreement of the parties that petitioner should first cause the
survey of the subject property in order to determine the area excluded from the sale and
the portion traversed by the Napocor power line. Petitioner himself admitted that he had
this obligation. Thus, the CA’s application of a reduced price in the absence of a survey
was without factual or legal basis. It unduly infringed on the parties’ liberty to contract.

 There are two options to resolve this impasse. First, respondent may be ordered to pay
his remaining balance in the kasunduan sa bilihan ng lupa representing the 7th and 8th
installments or the amount of P3.4 million in which case Marginito will be ordered to
immediately conduct the survey of the property and thereafter to refund to respondent
the excess of the amount paid. Second, Marginito may be ordered to have the property
surveyed first within a reasonable period and thereafter respondent will have to pay his
corresponding balance (which, naturally, will be less than P3.4 million).

Prudence dictates that the second option is better as it will prevent further conflict
between the parties. Thus, we adopt the second option.  

IMPROPRIETY OF RESCISSION
Rescission is only allowed when the breach is so substantial and fundamental as to
defeat the object of the parties in entering into the contract. We find no such substantial
or material breach.

 It is true that respondent failed to pay the 7 th and 8th installments of the purchase price.
However, considering the circumstances of the instant case, particularly the provisions
of the kasunduan, respondent cannot be deemed to have committed a serious breach.
In the first place, respondent was not in default as petitioner never made a demand for
payment.

Moreover, the kasunduan sa bilihan ng lupa and the kasunduan should both be given
effect rather than be declared conflicting, if there is a way of reconciling them. Petitioner
and respondent would not have entered into either of the agreements if they did not
intend to be bound or governed by them. Indeed, taken together, the two agreements
actually constitute a single contract pertaining to the sale of a land to respondent by
petitioner. Their stipulations must therefore be interpreted together, attributing to the
doubtful ones that sense that may result from all of them taken jointly. Their proper
construction must be one that gives effect to all.  

In this connection, the kasunduan sa bilihan ng lupa contains the general terms and
conditions of the agreement of the parties. On the other hand, the kasunduan refers to a
particular or specific matter, i.e., that portion of the land that is traversed by a Napocor
power line. As the kasunduan pertains to a special area of the agreement, it constitutes
an exception to the general provisions of the kasunduan sa bilihan ng lupa, particularly
on the purchase price for that portion. Specialibus derogat generalibus.

Under both the kasunduan sa bilihan ng lupa and the kasunduan, petitioner undertook
to cause the survey of the property in order to determine the portion excluded from the
sale, as well as the portion traversed by the Napocor power line. Despite repeated

demands by respondent, however, petitioner failed to perform his obligation. Thus,

considering that there was a breach on the part of petitioner (and no material breach on
the part of respondent), he cannot properly invoke his right to rescind the contract.

 WHEREFORE, the petition is hereby DENIED. The July 18, 2005 decision of the Court
of Appeals in CA-G.R. CV No. 67207 is AFFIRMED with the MODIFICATION that
Marginito Movido is ordered to cause the survey of the subject lot within a period of
three months in order to determine the excluded portion of the sale and the portion
traversed by the Napocor power line. If he fails to do so, Luis Reyes Pastor is hereby
authorized to have it done with the cost of the survey charged to Marginito Movido.
G.R NO. 180945; February 12, 2010

PNB vs. Mercedes Corpuz

FACTS:

On October 4, 1974 respondent Mercedes Corpuz delivered her owner’s duplicate copy
of Transfer Certificate of Title (TCT) 32815 to Dagupan City Rural Bank as security
against any liability she might incur as its cashier.  She later left her job and went to the
United States.

On October 24, 1994 the rural bank where she worked cancelled its lien on Corpuz’s
title, she having incurred no liability to her employer.   Without Corpuz’s knowledge and
consent, however, Natividad Alano, the rural bank’s manager, turned over Corpuz’s title
to Julita Camacho and Amparo Callejo.

Conniving with someone from the assessor’s office, Alano, Camacho, and Callejo
prepared a falsified deed of sale, making it appear that on February 23, 1995 Corpuz
sold her land to one “Mary Bondoc” for P50,000.00.  They caused the registration of the
deed of sale, resulting in the cancellation of TCT 32815 and the issuance of TCT 63262
in Bondoc’s name.  About a month later or on March 27, 1995 the trio executed another
fictitious deed of sale with “Mary Bondoc” selling the property to the spouses Rufo and
Teresa Palaganas for only P15,000.00.  This sale resulted in the issuance of TCT
63466 in favor of the Palaganases. 

Nine days later or on April 5, 1995 the Palaganases executed a deed of sale in favor of
spouses Virgilio and Elena Songcuan for P50,000.00, resulting in the issuance of TCT
63528.  Finally, four months later or on August 10, 1995 the Songcuans took out a loan
of P1.1 million from petitioner Philippine National Bank (PNB) and, to secure payment,
they executed a real estate mortgage on their title.  Before granting the loan, the PNB
had the title verified and the property inspected.

On November 20, 1995 respondent Corpuz filed, through an attorney-in-fact, a

complaint before the Dagupan Regional Trial Court (RTC) against Mary Bondoc, the
Palaganases, the Songcuans, and petitioner PNB, asking for the annulment of the
layers of deeds of sale covering the land, the cancellation of TCTs 63262, 63466, and
63528, and the reinstatement of TCT 32815 in her name.

 On June 29, 1998 the RTC rendered a decision granting respondent Corpuz’s prayers. 
This prompted petitioner PNB to appeal to the Court of Appeals (CA).  On July 31, 2007
the CA affirmed the decision of the RTC and denied the motion for its reconsideration,
prompting PNB to take recourse to this Court. 

 ISSUE: 

The sole issue presented in this case is whether or not petitioner PNB is a
mortgagee in good faith, entitling it to its lien on the title to the property in dispute.

RULING:

Petitioner PNB points out that, since it did a credit investigation, inspected the property,
and verified the clean status of the title before giving out the loan to the Songcuans, it
should be regarded as a mortgagee in good faith.  PNB claims that the precautions it
took constitute sufficient compliance with the due diligence required of banks when
dealing with registered lands. 

As a rule, the Court would not expect a mortgagee to conduct an exhaustive

investigation of the history of the mortgagor’s title before he extends a loan.  But
petitioner PNB is not an ordinary mortgagee; it is a bank.  Banks are expected to be
more cautious than ordinary individuals in dealing with lands, even registered ones,
since the business of banks is imbued with public interest.  It is of judicial notice that the
standard practice for banks before approving a loan is to send a staff to the property
offered as collateral and verify the genuineness of the title to determine the real owner
or owners. 

 One of the CA’s findings in this case is that in the course of its verification, petitioner
PNB was informed of the previous TCTs covering the subject property.  And the PNB
has not categorically contested this finding.  It is evident from the faces of those titles
that the ownership of the land changed from Corpuz to Bondoc, from Bondoc to the
Palaganases, and from the Palaganases to the Songcuans in less than three months
and mortgaged to PNB within four months of the last transfer. 

The above information in turn should have driven the PNB to look at the deeds of sale
involved.  It would have then discovered that the property was sold for ridiculously low
prices: Corpuz supposedly sold it to Bondoc for just P50,000.00; Bondoc to the
Palaganases for just P15,000.00; and the Palaganases to the Songcuans also for just
P50,000.00.  Yet the PNB gave the property an appraised value of P781,760.00. 
Anyone who deliberately ignores a significant fact that would create suspicion in an
otherwise reasonable person cannot be considered as an innocent mortgagee for value.

 The Court finds no reason to reverse the CA decision.

 WHEREFORE, the Court DENIES the petition and AFFIRMS the decision of the Court
of Appeals dated July 31, 2007 and its resolution dated December 17, 2007 in CA-G.R.
CV 60616.
G.R NO 165377; February 16, 2010

Lolita Reyes doing business under the name and style,Solid Brothers vs. Century
Canning Corporation

FACTS:

In the subject case, Plaintiff Century Canning Corporation tried to establish the fact that
defendant Lolita Reyes had applied for and was granted “credit line” from the former
thereby allowing the latter to allegedly obtain and secure Century tuna canned goods.
And when the defendant's obligation to pay became due and demandable, the same
failed to pay as she refused to pay her unsettled accounts in the total amount of
P787,191.27. However, due to the constant and diligent efforts exerted by the
representatives of the plaintiff to collect the alleged unpaid obligations of the defendant,
the later returned some unsold Century tuna canned goods, the value of which at
P323,697.64 was deducted from the principal obligation thereby leaving the amount of
P463,493.63 as the unsettled account of defendant Reyes. That because of the refusal
of the defendant to satisfactorily and completely settle her unpaid account, the plaintiff
was constrained to refer the matter to its legal counsel, who consequently sent  a
demand letter, and accordingly  filed the instant case in Court after the defendant failed
to comply and satisfy the demand letter to pay.

In her Answer with Compulsory Counterclaim, defendant averred that she has no
transaction with the plaintiff for the purchase of the alleged canned goods in
question, inasmuch as she is not engaged in the canned goods business but in
auto airconditioning,  parts and car accessories in Banaue, Quezon City.

Trial thereafter ensued.

On April 28, 2000, the RTC rendered its decision, the dispositive portion of which
reads:

WHEREFORE, premises considered, the instant complaint is hereby

ordered DISMISSED. The prayer for counterclaim of defendant in the form
of moral damages, exemplary damages, and attorney's fees is hereby
granted. Accordingly, let judgment be rendered in favor of defendant's
counterclaim, and plaintiff Century Canning Corporation is directed to pay
defendant Lolita Reyes moral damages in the amount of P50,000.00,
exemplary damages in the amount of P25, 000.00 and attorney's fees in
the amount of  P20,000.00 as well as to pay the costs of the suit.      

  SO ORDERED.

In so ruling, the RTC found that respondent failed to substantiate its allegations that
petitioner is liable to pay a certain sum of money.   

Respondent filed its appeal with the CA. Petitioner filed her appellee's brief, and 
respondent filed a Reply thereto.

The CA concluded that the positive declarations of respondent's witnesses could not be
overturned by petitioner's general denial that she never transacted business with
respondent.    Hence,  this petition.

ISSUE:
WHETHER THE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION
IN GRANTING RESPONDENT'S APPEAL AND HOLDING PETITIONER LIABLE
TO PAY RESPONDENT'S CLAIM.

RULING:

The issue presented before Us is whether the CA correctly found that petitioner was
liable to pay respondent's claim. This is a factual issue.

 The Court is not a trier of facts, its jurisdiction being limited to reviewing only errors of
law that may have been committed by the lower courts.   As a general rule, petitions for
review under Rule 45 of the Rules of Civil Procedure filed before this Court may only
raise questions of law. However, jurisprudence has recognized several exceptions to
this rule.

In this case, the factual findings of the Court of Appeals are contrary to those of the
RTC; thus, we find it proper to review the evidence.  

 It is a basic rule in evidence that each party to a case must prove his own affirmative
allegations by the degree of evidence required by law.  In civil cases, the party having
the burden of proof must establish his case by preponderance of evidence, or that
evidence that is of greater weight or is more convincing than that which is in opposition
to it. It does not mean absolute truth; rather, it means that the testimony of one side is
more believable than that of the other side, and that the probability of truth is on one
side than on the other.

 We find no merit in the petition.     

 The RTC dismissed respondent's complaint, as it found that the signature appearing in
the credit application form, alleged to be that of petitioner, was significantly different
from the signature in the CTC and voter's ID that petitioner claimed to show her usual

and genuine signature.  However, the CA  found that such conclusion was contrary to
the RTC's observation made during the trial, when the latter said that “there seems to
be a similarity in strokes because a signature sometimes differs on the size.” While the
CA's finding on this matter was erroneous, since a reading of the transcript of

stenographic notes of the September 9, 1999 hearing, when the alleged observation
regarding the similarity in strokes was made by the RTC, shows that the RTC was
comparing petitioner's signatures in her voter's ID and her CTC with her signature in the
Verification in her Answer. We still affirm the CA's reversal of the RTC decision.  

 While petitioner denies having any transaction with respondent regarding the sale  and
delivery to her of respondent's canned goods, a review of the evidence shows
otherwise.  Records show that respondent submitted a certificate of registration of
business name under petitioner's name and with her photo, which was marked as
respondent's Exhibit “L.”  Notably, respondent's formal offer of evidence  stated that the
purpose of Exhibit “L” was to show that petitioner had submitted such certificate as one
of  her supporting documents in applying as a distributor of  respondent's products, and
also for the purpose of contradicting petitioner's allegation that she had no transaction
with respondent. In petitioner's Objections/Comment to respondent's offer of evidence,
she offered no objection to this exhibit.   In fact, in the same Comment,  petitioner
prayed that the other exhibits be denied admission for the purpose for which they were
offered, except Exhibit “L.”  In effect, petitioner admitted the purpose for which Exhibit
“L” was offered, i.e., one of the documents she submitted to respondent to be a
distributor of the latter’s products. Thus, such admission belies her allegation in her
Answer with compulsory counterclaim that she had no transaction with respondent for
the purchase of the canned goods, as well as her testimony on direct examination that
she did not know respondent.

 Although petitioner denies her signature in the credit application form, the entries 
therein show informations whose veracity even admitted by petitioner.  Such entries
include the residential address at 132 Zamora Street, Caloocan, which was petitioner's
previous residence prior to her transfer to Banaue, Quezon City; and shows Eliseo Dy
as authorized signatory of two bank accounts, whom petitioner  admitted on cross-
examination to be her live-in partner for 23 years.  Notable also is the fact that the tax
account number appearing in the credit application form was the same tax account
number stated in petitioner's CTC, which she presented to reflect her true and usual
signature.  It was also in the credit application form where the name of Oscar Delumen,
with his signature affixed thereto, appears as petitioner's operations manager. 

Petitioner claims that there was no evidence showing that she received the canned
goods delivered by respondent, as the sales invoices evidencing such delivery were not
signed by her.  The sales invoices were signed by Delumen, her operations manager. 
While petitioner denies having received the canned goods and knowing Delumen,
respondent presented two witnesses who categorically declared and positively identified
petitioner as the person whom they met several times in her store and residence for the
purpose of collecting her unpaid obligations with respondent.

 George Navarez, respondent's former Credit and Collection Supervisor, testified that
petitioner was their former customer who failed to pay the purchases and deliveries 
covered by five sales invoices; that he knew petitioner since he had met her several
times when he was collecting her unpaid obligations; that in one of his visits to
petitioner, the latter offered to pay P50,000.00 a month as partial settlement of her total
indebtedness with respondent; and that to reduce her debt, petitioner even returned
some of the canned goods delivered to her. Navarez, on cross examination, testified
that he was the one who personally received the canned goods that petitioner returned,
as he was there in the store when the goods were pulled out; that the transaction
regarding the returned goods was contained in three credit memos, which served as the
bases for the amount deducted from petitioner's debt. On re-direct, he clarified that the
amount of P323,697.64 was the amount of the returned canned goods which was
reflected as deductions in the  statement of account, and that the statement of account
was prepared by a clerk and approved by him.

 Manuel Conti Uy, respondent's Regional Sales Manager, testified that he met petitioner
several times when he presented to her the five unpaid sales invoices that, in one

instance, petitioner, who was with Eliseo Dy who could not speak because of a throat
infection, asked him to just pull out the remaining unsold goods for application to her
total indebtedness; that he told her that he would still have to ask the approval of their
credit and collection department.  Uy then came back with Navarez and, in the presence
of petitioner, initiated the pull-out of the goods; that after deducting the amount of the
returned canned goods, the remaining balance was P463,493.63; and when he made
another visit, i.e., a few days after Eliseo's death, he presented to petitioner the
statement of account where the amount of the returned goods was deducted, but
petitioner still refused to pay.  

 Notably, petitioner did not even rebut, either in her direct testimony or in rebuttal,  the
testimonies of Navarez and Uy that they met with her several times, and talked with her
regarding the collection of her indebtedness and the pull-out of the canned goods.  In
fact, in Uy's testimony, he also mentioned Eliseo's death, and that Uy even allowed few

days to pass before going to petitioner's place to collect so as to give petitioner time to
comfort herself.  Eliseo's death sometime in October 1997 was confirmed by
petitioner.    

 We agree with the CA when it said that if indeed petitioner did not transact with
respondent, she should not have entertained respondent's collecting officers and should
not have offered settlement or returned some of the canned goods.
 The testimonies of respondent's witnesses were further bolstered by the absence of
any motive on their part to falsely testify against petitioner; thus, their testimonies are
hereby accorded full faith and credit.

 Petitioner's defense consists of denial. We have held that denial, if unsubstantiated by

clear and convincing evidence, is a negative and self-serving evidence that has no
weight in law and cannot be given greater evidentiary value over the testimony of
credible witnesses who testified on affirmative matters. 

 We find that respondent has sufficiently established petitioner's liability in the amount of
P463,493.63.   Such amount must be paid with legal interest from the filing  of the
complaint on June 25, 1998, until fully paid.  As held  in the landmark case of Eastern
Shipping Lines, Inc. v. Court of Appeals, to wit:

 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.

                     x x x x
 
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 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.

WHEREFORE,  the decision dated September 16, 2004 of the Court of Appeals in
CA-G.R. CV No. 67975 is hereby AFFIRMED.
 

G.R. NO. 162218; February 25, 2010

METROBANK vs. Edgardo D. Viray

FACTS:

On 7 July 1979, Rico Shipping, Inc., represented by its President, Erlinda Viray-Jarque,
together with respondent Edgardo D. Viray (Viray), in their own personal capacity and
as solidary obligors (the three parties collectively known as the debtors), obtained two
separate loans from petitioner Metropolitan Bank and Trust Company (MBTC) in the
total amount of P250,000.  The debtors executed a promissory note promising to pay in
four semi-annual installments of P62,500 starting on 23 January 1980, with 15% interest
and 2% credit evaluation and supervision fee per annum.  The two loans were
subsequently renewed and secured by one promissory note.  Under the note, the
debtors made a total payment of P134,054 leaving a balance of P115,946 which
remained unpaid despite demands by MBTC.

On 5 June 1981, the debtors executed another promissory note and obtained a loan
from MBTC in the amount of P50,000, payable on 2 November 1981, with 16% interest
and 2% credit evaluation and supervision fee per annum.  On the due date, the debtors
again failed to pay the loan despite demands to pay by MBTC.

 On 3 September 1981, the debtors obtained a third loan from MBTC in the amount of
P50,000 payable on 14 November 1981, with 16% interest and 2% credit evaluation
and supervision fee per annum.  Again, the debtors failed and refused to pay on due
date.

MBTC filed a complaint for sum of money against the debtors with the RTC of Manila,
Branch 4.  On 28 April 1983, the RTC of Manila rendered a judgment in favor of MBTC. 

Meanwhile, on 29 December 1982, the government issued Free Patents in favor of

Viray over three parcels of land (lots) designated as      (1) Lot No. 26275, Cad-237 with
an area of 500 square meters; (2) Lot     No. 26276, Cad-237, with an area of 888
square meters; and (3) Lot         No. 26277, Cad-237 with an area of 886 square
meters, all situated  in Barangay Bulua, Cagayan de Oro City, Misamis Oriental.
Original Certificate of Title (OCT) Nos. P-2324, P-2325 and P-2326 were issued
covering Free Patent Nos. [X-1] 10525, [X-1] 10526 and [X-1] 10527, respectively. 

 The  OCT’s containing the free patents were registered with the Registry of Deeds of
Cagayan de Oro City on 18 January 1983.

On 6 March 1984, the RTC of Manila issued a writ of execution over the lots owned by
Viray.  On 12 October 1984, pursuant to the writ of execution, the City Sheriff of
Cagayan de Oro sold the lots at public auction  in favor of MBTC as the winning bidder. 
The next day, the sheriff issued a Certificate of Sale to MBTC.

On 23 August 1990, the sheriff executed a Deed of Final Conveyance  to MBTC.  The
Register of Deeds of Cagayan de Oro City cancelled OCT Nos. P-2324, P-2325 and P-
2326 and issued in MBTC’s name Transfer  Certificate of Title (TCT) Nos. T-59171, T-
59172 and T-59173, respectively.

 On 30 July 1991, Viray filed an action for annulment of sale against the sheriff and
MBTC with the RTC of Cagayan de Oro City, Misamis Oriental, Branch 23.  Viray
sought the declaration of nullity of the execution sale, the sheriff’s certificate of sale, the
sheriff’s deed of final conveyance and the TCT's issued by the Register of Deeds. 

 On 21 September 1993, the RTC of Cagayan de Oro City rendered its decision in favor
of MBTC. 

Viray filed an appeal with the CA alleging that the RTC of Cagayan de Oro City
committed reversible error in ruling solely on the issue of redemption instead of the
issue of validity of the auction sale, being the lis mota of the action. 

MBTC filed a Motion for Reconsideration which was denied in a Resolution dated 13
February 2004.  Hence, the instant petition.

MBTC filed a Motion for Reconsideration which was denied in a Resolution dated 13
February 2004.  Hence, the instant petition.

ISSUE:

Whether or not the five-year prohibition period against the alienation or sale of the
property provided in Section 118 of CA 141 does not apply to an obligation contracted
before the grant or issuance of the free patent or homestead.

RULING:

The law clearly provides that lands which have been acquired under free patent or
homestead shall not be encumbered or alienated within five years from the date of
issuance of the patent or be liable for the satisfaction of any debt contracted prior to the
expiration of the period. 

In the present case, the three loans were obtained on separate dates –   7 July 1979, 5
June 1981 and 3 September 1981, or several years before the free patents on the lots
were issued by the government to respondent on 29 December 1982.  The RTC of
Manila, in a Decision dated 28 April 1983, ruled in favor of petitioner ordering the
debtors, including respondent, to pay jointly and severally certain amounts of money. 
The public auction conducted by the sheriff on the lots owned by respondent occurred
on 12 October 1984. 

 For a period of five years or from 29 December 1982 up to 28 December 1987, Section
118 of CA 141 provides that the lots comprising the free patents shall not be made
liable for the payment of any debt until the period of five years expires.  In this case, the
execution sale of the lots occurred less than two years after the date of the issuance of
the patents.  This clearly falls within the five-year prohibition period provided in the law,
regardless of the dates when the loans were incurred. 

In Artates v. Urbi, we held that a civil obligation cannot be enforced against, or

satisfied out of, the sale of the homestead lot acquired by the patentee less than five
years before the obligation accrued even if the sale is involuntary.  For purposes of
complying with the law, it is immaterial that the satisfaction of the debt by the
encumbrance or alienation of the land grant was made voluntarily, as in the case of an
ordinary sale, or involuntarily, such as that effected through levy on the property and
consequent sale at public auction.  In both instances, the law would have been
violated. 

Likewise, in Beach v. Pacific Commercial Company and Sheriff of Nueva Ecija, we held
that to subject the land to the satisfaction of debts would violate Section 116 of Act No.
2874 (now Section 118 of CA 141).

As correctly observed by the CA in the present case:

 It is argued by defendant-appellee, however, that the debt referred to in the law must
have been contracted within the five-year prohibitory period; any debt contracted before
or after the five-year prohibitory period is definitely not covered by the law.  This
argument is weakest on two points.  Firstly, because the provision of law does not say
that the debt referred to therein should be contracted before the five-year prohibitory
period but before the “expiration” of the five-year prohibitory period.  (Defendant-
appellee deliberately omitted the word “expiration” to suit its defense.)  This simply
means that it is not material whether the debt is contracted before the five-year
prohibitory period; what is material is that the debt must be contracted before or prior to
the expiration of the five-year prohibitory period from the date of the issuance and
approval of the patent or grant. x x x

                  And secondly, while it is true that the debt in this case was contracted
prior to the five-year prohibitory period, the same is of no consequence,
for as held in Artates vs. Urbi, supra, such indebtedness has to be
reckoned from the date said obligation was adjudicated and decreed by
the court. x x x

Section 118 of CA 141, therefore, is predicated on public policy.  Its violation gives rise
to the cancellation of the grant and the reversion of the land and its improvements to the
government at the instance of the latter.  The provision that “nor shall they become
liable to the satisfaction of any debt contracted prior to the expiration of the five-year
period” is mandatory and any sale made in violation of such provision is void and
produces no effect whatsoever, just like what transpired in this case.  Clearly, it is not
within the competence of any citizen to barter away what public policy by law seeks to
preserve.  

WHEREFORE, we DENY the petition.

G.R. NO. 169467; February 25, 2010

Alfredo and Cleopatre Pacis vs. Jerome Jovanne Morales

FACTS:

On 17 January 1995, petitioners Alfredo P. Pacis and Cleopatra D. Pacis (petitioners)

filed with the trial court a civil case for damages against respondent Jerome Jovanne
Morales (respondent). Petitioners are the parents of Alfred Dennis Pacis, Jr. (Alfred), a
17-year old student who died in a shooting incident inside the Top Gun Firearms and
Ammunitions Store (gun store) in Baguio City. Respondent  is the owner of the gun
store.                 

 On January 19, 1991, Alfred Dennis Pacis, then 17 years old and a first year student at
the Baguio Colleges Foundation taking up BS Computer Science, died due to a gunshot
wound in the head which he sustained while he was at the Top Gun Firearm[s] and
Ammunition[s] Store located at Upper Mabini Street, Baguio City. The gun store was
owned and operated by defendant Jerome Jovanne Morales.

With Alfred Pacis at the time of the shooting were Aristedes Matibag and Jason
Herbolario. They were sales agents of the defendant, and at that particular time,
the caretakers of the gun store.

 The bullet which killed Alfred Dennis Pacis was fired from a gun brought in by a
customer of the gun store for repair.

 The gun, an AMT Automag II Cal. 22 Rimfire Magnum with Serial No. SN-H34194
(Exhibit “Q”), was left by defendant Morales in a drawer of a table located inside the gun
store.

 Defendant Morales was in Manila at the time. His employee Armando Jarnague, who
was the regular caretaker of the gun store was also not around. He left earlier and
requested sales agents Matibag and Herbolario to look after the gun store while he and
defendant Morales were away. Jarnague entrusted to Matibag and Herbolario a bunch
of keys used in the gun store which included the key to the drawer where the fatal gun
was kept.

 It appears that Matibag and Herbolario later brought out the gun from the drawer and
placed it on top of the table. Attracted by the sight of the gun, the young Alfred Dennis
Pacis got hold of the same. Matibag  asked Alfred Dennis Pacis to return the gun. The
latter followed and handed the gun to Matibag. It went off, the bullet hitting the young
Alfred in the head.

A criminal case for homicide was filed against Matibag before branch VII of this
Court. Matibag, however, was acquitted of the charge against him because of the
exempting circumstance of “accident” under Art. 12, par. 4 of the Revised Penal
Code.
By agreement of the parties, the evidence adduced in the criminal case for homicide
against Matibag was reproduced and adopted by them as part of their evidence in the
instant case.

On 8 April 1998, the trial court rendered its decision in favor of petitioners.

 Respondent appealed to the Court of Appeals. In its Decision dated 11 May 2005, the
Court of Appeals reversed the trial court’s Decision and absolved respondent from civil
liability under Article 2180 of the Civil Code.

Petitioners filed a motion for reconsideration, which the Court of Appeals denied in its
Resolution dated 19 August 2005.

 Hence, this petition.

ISSUE:

Whether or not respondent is civilly liable for the death of Alfred.

RULING:

We find the petition meritorious.

 This case for damages arose out of the accidental shooting of petitioners’ son.   Under
Article 1161 of the Civil Code, petitioners may enforce their claim for damages based on
the civil liability arising from the crime under Article 100 of the Revised Penal Code or
they may opt to file an independent civil action for damages under the Civil Code. In this
case, instead of enforcing their claim for damages in the homicide case filed against
Matibag, petitioners opted to file an independent civil action for damages against
respondent whom they alleged was Matibag’s employer. Petitioners based their claim
for damages under Articles 2176 and 2180 of the Civil Code.

Unlike the subsidiary liability of the employer under Article 103 of the Revised Penal
Code, the liability of the employer, or any person for that matter, under Article 2176 of
the Civil Code is primary and direct, based on a person’s own negligence. Article 2176
states:

Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is
no pre-existing contractual relation between the parties, is called quasi-delict and is
governed by the provisions of this Chapter.

Clearly, respondent did not exercise the degree of care and diligence required of a good
father of a family, much less the degree of care required of someone dealing with
dangerous weapons, as would exempt him from liability in this case.  

WHEREFORE, we GRANT the petition.

 
G.R. No.  148225; March 3, 2010

CARMEN DEL PRADO vs. SPOUSES ANTONIO L. CABALLERO and LEONARDA

CABALLERO

FACTS:

In a judgment rendered on February 1, 1985 in Cadastral Case No. N-6 (LRC Rec. No.
N-611), Judge Juan Y. Reyes of the Regional Trial Court (RTC) of Cebu City, Branch
14, adjudicated in favor of  Spouses Antonio L. Caballero and Leonarda B. Caballero
several  parcels of land situated in Guba, Cebu City, one of which was Cadastral Lot
No. 11909, the subject of this controversy. On May 21, 1987, Antonio Caballero moved
for the issuance of the final decree of registration for their lots. Consequently, on May
25, 1987, the same court, through then Presiding Judge Renato C. Dacudao, ordered
the National Land Titles and Deeds Registration Administration to issue the decree of
registration and the corresponding titles of the lots in favor of the Caballeros.

Original Certificate of Title (OCT) No. 1305, covering Lot No. 11909, was issued only on
November 15, 1990, and entered in the “Registration Book” of the City of Cebu on
December 19, 1990. 

On March 20, 1991, petitioner filed in the same cadastral proceedings a “Petition for
Registration of Document Under Presidential Decree (P.D.) 1529” in order that a
certificate of title be issued in her name, covering the whole Lot No. 11909. In the
petition, petitioner alleged that the tenor of the instrument of sale indicated that the sale
was for a lump sum or cuerpo cierto, in which case, the vendor was bound to deliver all
that was included within said boundaries even when it exceeded the area specified in
the contract. Respondents opposed, on the main ground that only 4,000 sq m of Lot No.
11909 was sold to petitioner. They claimed that the sale was not for a cuerpo cierto.
They moved for the outright dismissal of the petition on grounds of prescription and lack
of jurisdiction.

After trial on the merits, the court found that petitioner had established a clear and
positive right to Lot No. 11909. The intended sale between the parties was for a lump
sum, since there was no evidence presented that the property was sold for a price per
unit. It was apparent that the subject matter of the sale was the parcel of land, known as
Cadastral Lot No. 11909, and not only a portion thereof.

An appeal was duly filed. On September 26, 2000, the CA promulgated the assailed
decision, reversing and setting aside the decision of the RTC. Hence this petition.

ISSUE:
WHETHER OR NOT THE COURT OF APPEALSCOMMITTED GRAVE ERROR IN
FAILING TO RULE THAT THE SALE OF THE LOT IS FOR A LUMP SUM OR
CUERPO CIERTO.

RULING:

In the instant case, the deed of sale is not one of a unit price contract.  The parties
agreed on the purchase price of P40,000.00 for a predetermined area of 4,000 sq m,
more or less, bounded on the North by Lot No. 11903, on the East by Lot No. 11908, on
the South by Lot Nos. 11858 & 11912, and on the West by Lot No. 11910. In a contract
of sale of land in a mass, the specific boundaries stated in the contract must control
over any other statement, with respect to the area contained within its boundaries.

Black’s Law Dictionary defines the phrase “more or less” to mean:

About; substantially; or approximately; implying that both parties assume the risk
of any ordinary discrepancy.  The words are intended to cover slight or unimportant
inaccuracies in quantity, Carter v. Finch, 186 Ark. 954, 57 S.W.2d 408; and are
ordinarily to be interpreted as taking care of unsubstantial differences or differences of
small importance compared to the whole number of items transferred.

Clearly, the discrepancy of 10,475 sq m cannot be considered a slight

difference in quantity. The difference in the area is obviously sizeable and
too substantial to be overlooked. It is not a reasonable excess or
deficiency that should be deemed included in the deed of sale.

We take exception to the avowed rule that this Court is not a trier of facts. After an
assiduous scrutiny of the records, we lend credence to respondents’ claim that they
intended to sell only 4,000 sq m of the whole Lot No. 11909, contrary to the findings of
the lower court. The records reveal that when the parties made an ocular inspection,
petitioner specifically pointed to that portion of the lot, which she preferred to purchase,
since there were mango trees planted and a deep well thereon. After the sale,
respondents delivered and segregated the area of 4,000 sq m in favor of petitioner by
fencing off the area of 10,475 sq m belonging to them.

Contracts are the law between the contracting parties. Sale, by its very nature, is a
consensual contract, because it is perfected by mere consent. The essential elements
of a contract of sale are the following: (a) consent or meeting of the minds, that is,
consent to transfer ownership in exchange for the price; (b) determinate subject matter;
and (c) price certain in money or its equivalent. All these elements are present in the
instant case.

More importantly, we find no reversible error in the decision of the CA. Petitioner’s
recourse, by filing the petition for registration in the same cadastral case, was improper.
It is a fundamental principle in land registration that a certificate of title serves as
evidence of an indefeasible and incontrovertible title to the property in favor of the
person whose name appears therein. Such indefeasibility commences after one year
from the date of entry of the decree of registration. Inasmuch as the petition for
registration of document did not interrupt the running of the period to file the appropriate
petition for review and considering that the prescribed one-year period had long since
expired, the decree of registration, as well as the certificate of title issued in favor of
respondents, had become incontrovertible.

WHEREFORE, the petition is DENIED.

 
G.R. No. 185644; March 2, 2010

HEIRS OF ESTELITA  BURGOS-LIPAT VS. HEIRS OF EUGENIO D. TRINIDAD

FACTS:

On April 16, 1979, petitioners Estelita Burgos-Lipat and Alfredo Lipat (spouses Lipat)
obtained a P583,854 loan from Pacific Banking Corporation (PBC), secured by a real
estate mortgage on their Quezon City property. The mortgage was eventually extended
to secure additional loans, discounting lines, overdrafts and credit accommodations that
petitioners subsequently obtained from PBC.

Due to petitioners’ failure to pay their loans, PBC foreclosed on the subject property.
Eugenio D. Trinidad was declared the highest bidder during the public auction and was
issued a certificate of sale on January 31, 1989. The certificate of sale was registered
on April 12, 1989.  

On November 28, 1989, petitioners filed a complaint for annulment of mortgage, extra-
judicial foreclosure and certificate of sale in the Regional Trial Court (RTC) of Quezon
City, Branch 84 against PBC, Eugenio D. Trinidad and the Registrar of Deeds and ex-
officio sheriff of Quezon City.

In a decision dated February 10, 1993, the RTC dismissed the complaint but granted
petitioners five months and 17 days from the finality of the decision to exercise their
right of redemption over the foreclosed property.

Meanwhile, petitioners assigned their rights over the contested property to Partas
Transporation Co., Inc. (PTCI). On June 16, 2004, within the given period left for
redemption, PTCI exercised the right of redemption and paid the redemption amount
computed by the sheriff. However, respondent heirs of Trinidad refused to claim the
redemption money and surrender the certificate of title covering the foreclosed property,
claiming the amount tendered was inadequate, i.e., the interest of 1% per month was
computed only for a one-year period. Ultimately, the RTC upheld the exercise of
redemption and directed respondents to surrender the certificate of title in an order
dated May 17, 2005. Respondents’ motion for reconsideration was denied in an order
dated September 28, 2005.

Respondents filed a notice of appeal which was denied by the RTC on February 6,
2006.

Petitioners subsequently moved for execution of the    May 17, 2005 order and the RTC
granted the same in an order dated August 22, 2006. Without filing a motion for
reconsideration of the order, respondents immediately filed a petition for certiorari in the
CA.

In a decision dated July 31, 2008, the CA granted respondents’ petition and set aside
the August 22, 2006 RTC order. It held that the right to redemption should have been
exercised within one year from the date of registration of the certificate of sale.

Petitioners filed a motion for reconsideration but the CA denied the same in a resolution
dated December 5, 2008.

Hence, this petition.

ISSUE:

Whether or not the right to redemption should have been exercised within one year
from the date of registration of the certificate of sale.

RULING:

The one-year redemption period applied by the CA is the rule that generally applies to
foreclosure of mortgage by a bank. The period of redemption is not tolled by the filing of
a complaint or petition for annulment of the mortgage and the foreclosure sale
conducted pursuant to the said mortgage. However, considering the exceptional
circumstances surrounding this case, we will not apply the rule in this instance pro hac
vice.

In Lipat, this Court upheld the RTC decision giving petitioners five months and
17 days from the finality of the trial court’s decision to redeem their foreclosed
property. Lipat, already  final  and  executory,  has therefore become the law of
the case between the parties, including their heirs who are petitioners and
respondents in this case.  In Union Bank of the Philippines v. ASB Development
Corporation, we explained:

 Law of the case has been defined as "the opinion delivered on a former appeal.
More specifically, it means that whatever is already 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 such decision was predicated continue to be the facts of the case before
the court.”

Consequently, petitioners had five months and 17 days from the finality of Lipat
to exercise their right of redemption, even though this period was beyond one
year from the date of registration of the sale.

Thus, the CA erred (and even committed a grave abuse of discretion) when it insisted
on a contrary ruling. The CA had no power to reverse this Court’s final and executory
judgment. The CA overstepped its authority when it held that the right of redemption
had already expired one year after the date of the registration of the certificate of sale.
Like all other courts in our judicial system, the CA must take its bearings from the
rulings and decisions of this Court.

Nevertheless, we note that the amount tendered by petitioners to redeem their

foreclosed property was determined by the sheriff at the rate of one percent per month
for only one year. Section 78 of the General Banking Act requires payment of the
amount fixed by the court in the order of execution, with interest thereon at the rate
specified in the mortgage contract, and all the costs and other judicial expenses
incurred by the bank or institution concerned by reason of the execution and sale and
as a result of the custody of said property less the income received from the property.
The rate of interest specified in the mortgage contract shall be applied for the one-year
period reckoned from the date of registration of the certificate of sale in accordance with
the General Banking Act. However, since petitioners effectively had more than one year
to exercise the right of redemption, justice, fairness and equity require that they pay
12% p.a. interest beyond the one-year period up to June 16, 2004 when Partas
consigned the redemption price with the RTC.

The one-year redemption period applied by the CA is the rule that generally applies to
foreclosure of mortgage by a bank. The period of redemption is not tolled by the filing of
a complaint or petition for annulment of the mortgage and the foreclosure sale
conducted pursuant to the said mortgage. However, considering the exceptional
circumstances surrounding this case, we will not apply the rule in this instance pro hac
vice.

 In Lipat, this Court upheld the RTC decision giving petitioners five months and
17 days from the finality of the trial court’s decision to redeem their foreclosed property.
Lipat, already  final  and  executory,  has therefore become the law of the case between
the parties, including their heirs who are petitioners and respondents in this case.  In
Union Bank of the Philippines v. ASB Development Corporation, we explained:

Law of the case has been defined as "the opinion delivered on a former appeal. More
specifically, it means that whatever is already 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 such decision was predicated continue to be the facts of the case before the
court.”

Consequently, petitioners had five months and 17 days from the finality of Lipat
to exercise their right of redemption, even though this period was beyond one
year from the date of registration of the sale.

Thus, the CA erred (and even committed a grave abuse of discretion) when it insisted
on a contrary ruling. The CA had no power to reverse this Court’s final and executory
judgment. The CA overstepped its authority when it held that the right of redemption
had already expired one year after the date of the registration of the certificate of sale.
Like all other courts in our judicial system, the CA must take its bearings from the
rulings and decisions of this Court.

Nevertheless, we note that the amount tendered by petitioners to redeem their

foreclosed property was determined by the sheriff at the rate of one percent per month
for only one year. Section 78 of the General Banking Act requires payment of the
amount fixed by the court in the order of execution, with interest thereon at the rate
specified in the mortgage contract, and all the costs and other judicial expenses
incurred by the bank or institution concerned by reason of the execution and sale and
as a result of the custody of said property less the income received from the property.
The rate of interest specified in the mortgage contract shall be applied for the one-year
period reckoned from the date of registration of the certificate of sale in accordance with
the General Banking Act. However, since petitioners effectively had more than one year
to exercise the right of redemption, justice, fairness and equity require that they pay
12% p.a. interest beyond the one-year period up to June 16, 2004 when Partas
consigned the redemption price with the RTC.

 The one-year redemption period applied by the CA is the rule that generally
applies to foreclosure of mortgage by a bank. The period of redemption is not tolled by
the filing of a complaint or petition for annulment of the mortgage and the foreclosure
sale conducted pursuant to the said mortgage. However, considering the exceptional
circumstances surrounding this case, we will not apply the rule in this instance pro hac
vice.

 
 In Lipat, this Court upheld the RTC decision giving petitioners five months and 17

days from the finality of the trial court’s decision to redeem their foreclosed property.

Lipat, already  final  and  executory,  has therefore become the law of the case between

the parties, including their heirs who are petitioners and respondents in this case.  In

Union Bank of the Philippines v. ASB Development Corporation, we explained:

Law of the case has been defined as "the opinion delivered on a former
appeal. More specifically, it means that whatever is already 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 such
decision was predicated continue to be the facts of the case before the
court.”

Consequently, petitioners had five months and 17 days from the finality of
Lipat to exercise their right of redemption, even though this period was
beyond one year from the date of registration of the sale.

Thus, the CA erred (and even committed a grave abuse of discretion) when it insisted
on a contrary ruling. The CA had no power to reverse this Court’s final and executory
judgment. The CA overstepped its authority when it held that the right of redemption
had already expired one year after the date of the registration of the certificate of sale.
Like all other courts in our judicial system, the CA must take its bearings from the
rulings and decisions of this Court.

Nevertheless, we note that the amount tendered by petitioners to redeem their

foreclosed property was determined by the sheriff at the rate of one percent per month
for only one year. Section 78 of the General Banking Act requires payment of the
amount fixed by the court in the order of execution, with interest thereon at the rate
specified in the mortgage contract, and all the costs and other judicial expenses
incurred by the bank or institution concerned by reason of the execution and sale and
as a result of the custody of said property less the income received from the property.
The rate of interest specified in the mortgage contract shall be applied for the one-year
period reckoned from the date of registration of the certificate of sale in accordance with
the General Banking Act. However, since petitioners effectively had more than one year
to exercise the right of redemption, justice, fairness and equity require that they pay
12% p.a. interest beyond the one-year period up to June 16, 2004 when Partas
consigned the redemption price with the RTC.

 
G.R. No. 172690; March 3, 2010

HEIRS OF JOSE LIM vs. JULIET VILLA LIM

FACTS:

Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay,
Mauban, Quezon.  Sometime in 1980, Jose, together with his friends Jimmy Yu (Jimmy)
and Norberto Uy (Norberto), formed a partnership to engage in the trucking business.
Initially, with a contribution of P50,000.00 each, they purchased a truck to be used in
the hauling and transport of lumber of the sawmill. Jose managed the operations of this
trucking business until his death on August 15, 1981.  Thereafter, Jose's heirs,
including Elfledo, and partners agreed to continue the business under the management
of Elfledo.  The shares in the partnership profits and income that formed part of the
estate of Jose were held in trust by Elfledo, with petitioners' authority for Elfledo to use,
purchase or acquire properties using said funds.

                  Petitioners also alleged that, at that time, Elfledo was a fresh commerce
graduate serving as his father’s driver in the trucking business.  He was never a partner
or an investor in the business and merely supervised the purchase of additional trucks
using the income from the trucking business of the partners.  By the time the
partnership ceased, it had nine trucks, which were all registered in Elfledo's name.
Petitioners asseverated that it was also through Elfledo’s management of the
partnership that he was able to purchase numerous real properties by using the profits
derived therefrom, all of which were registered in his name and that of respondent. In
addition to the nine trucks, Elfledo also acquired five other motor vehicles.

                  On May 18, 1995, Elfledo died, leaving respondent as his sole surviving
heir. Petitioners claimed that respondent took over the administration of the
aforementioned properties, which belonged to the estate of Jose, without their consent
and approval. Claiming that they are co-owners of the properties, petitioners required
respondent to submit an accounting of all income, profits and rentals received from the
estate of Elfledo, and to surrender the administration thereof.  Respondent refused;
thus, the filing of this case.

                  Respondent traversed petitioners' allegations and claimed that Elfledo was
himself a partner of Norberto and Jimmy.  Respondent also claimed that per testimony
of Cresencia, sometime in 1980, Jose gave Elfledo P50,000.00 as the latter's capital in
an informal partnership with Jimmy and Norberto. When Elfledo and respondent got
married in 1981, the partnership only had one truck; but through the efforts of Elfledo,
the business flourished. Other than this trucking business, Elfledo, together with
respondent, engaged in other business ventures. Thus, they were able to buy real
properties and to put up their own car assembly and repair business. When Norberto
was ambushed and killed on July 16, 1993, the trucking business started to falter.
When Elfledo died on May 18, 1995 due to a heart attack, respondent talked to Jimmy
and to the heirs of Norberto, as she could no longer run the business. Jimmy suggested
that three out of the nine trucks be given to him as his share, while the other three
trucks be given to the heirs of Norberto. However, Norberto's wife, Paquita Uy, was not
interested in the vehicles. Thus, she sold the same to respondent, who paid for them in
installments. 

                  Respondent also alleged that when Jose died in 1981, he left no known
assets, and the partnership with Jimmy and Norberto ceased upon his demise.
Respondent also stressed that Jose left no properties that Elfledo could have held in
trust. Respondent maintained that all the properties involved in this case were
purchased and acquired through her and her husband’s joint efforts and hard work, and
without any participation or contribution from petitioners or from Jose. Respondent
submitted that these are conjugal partnership properties; and thus, she had the right to
refuse to render an accounting for the income or profits of their own business.

                  Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision
in favor of petitioners.

Aggrieved, respondent appealed to the CA.

         On June 29, 2005, the CA reversed and set aside the RTC's decision, dismissing
petitioners' complaint for lack of merit. Undaunted, petitioners filed their Motion for
Reconsideration, which the CA, however, denied in its Resolution dated May 8, 2006.

ISSUE:

IN THE APPRECIATION BY THE COURT OF THE EVIDENCE

SUBMITTED BY THE PARTIES, CAN THE TESTIMONY OF ONE OF
THE PETITIONERS BE GIVEN GREATER WEIGHT THAN THAT BY A
FORMER PARTNER ON THE ISSUE OF THE IDENTITY OF THE
OTHER PARTNERS IN THE PARTNERSHIP?

RULING:

On the merits of the case, we find that the instant Petition is bereft of merit.

  A partnership exists when two or more persons agree to place their money,
effects, labor, and skill in lawful commerce or business, with the understanding that
there shall be a proportionate sharing of the profits and losses among them. A contract
of partnership is defined by the Civil Code as one where two or more persons bind
themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.

 Undoubtedly, the best evidence would have been the contract of partnership or the
articles of partnership. Unfortunately, there is none in this case, because the alleged
partnership was never formally organized. Nonetheless, we are asked to determine who
between Jose and Elfledo was the “partner” in the trucking business.
 A careful review of the records persuades us to affirm the CA decision.  The evidence
presented by petitioners falls short of the quantum of proof required to establish that: (1)
Jose was the partner and not Elfledo; and (2) all the properties acquired by Elfledo and
respondent form part of the estate of Jose, having been derived from the alleged
partnership.

 At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals is enlightening.
Therein, we cited Article 1769 of the Civil Code, which provides:  

Art. 1769.  In determining whether a partnership exists, these rules shall apply: 

(1)       Except as provided by Article 1825, persons who are not partners
as to each other are not partners as to third persons;
 
(2)       Co-ownership or co-possession does not of itself establish a
partnership, whether such co-owners or co-possessors do or do not
share any profits made by the use of the property;
 
(3)       The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or
common right or interest in any property from which the returns are
derived;
 (4)       The receipt by a person of a share of the profits of a business is a
prima facie evidence that he is a partner in the business, but no such
inference shall be drawn if such profits were received in payment:
 
(a)       As a debt by installments or otherwise;
(b)       As wages of an employee or rent to a landlord;
(c)       As an annuity to a widow or representative of a deceased
partner;
(d)       As interest on a loan, though the amount of payment vary
with the profits of the business;
(e)       As the consideration for the sale of a goodwill of a business
or other property by installments or otherwise.    
 

 Applying the legal provision to the facts of this case, the following circumstances tend
to prove that Elfledo was himself the partner of Jimmy and Norberto:  1)  Cresencia
testified that Jose gave Elfledo P50,000.00, as share in the partnership, on a date that
coincided with the payment of the initial capital in the partnership; (2) Elfledo ran the
affairs of the partnership, wielding absolute control,  power and authority, without any
intervention or opposition whatsoever from any of petitioners herein; (3) all of the
properties, particularly the nine trucks of the partnership, were registered in the name of
Elfledo; (4) Jimmy testified that Elfledo did not receive wages or salaries from the
partnership, indicating that what he actually received were shares of the profits of the
business; and (5) none of the petitioners, as heirs of Jose, the alleged partner,
demanded periodic accounting from Elfledo during his lifetime.  As repeatedly stressed
in Heirs of Tan Eng Kee, a demand for periodic accounting is evidence of a
partnership.    Furthermore, petitioners failed to adduce any evidence to show that the
real and personal properties acquired and registered in the names of Elfledo and
respondent formed part of the estate of Jose, having been derived from Jose's alleged
partnership with Jimmy and Norberto. They failed to refute respondent's claim that
Elfledo and respondent engaged in other businesses.  Edison even admitted that
Elfledo also sold Interwood lumber as a sideline.  Petitioners could not offer any credible
evidence other than their bare assertions.  Thus, we apply the basic rule of evidence
that between documentary and oral evidence, the former carries more weight.  
G.R. No. 173181; March 3, 2010

HUTAMA-RSEA/SUPERMAX PHILS., J.V. vs. KCD BUILDERS CORPORATION,

represented by its President CELSO C. DIOKNO

FACTS:

On 10 December 2001, appellee KCD Builders Corporation filed a complaint for sum of
money against appellants [Hutama-RSEA/Super Max, Philippines and/or Charles H.C.
Yang]   before the Regional Trial Court of Makati.  Its cause of action arose from a
written contract which was the Notice to Proceed dated 10 November 2000 executed by
the parties whereby appellant [Hutama] as principal contractor of Package 2-Site Works
in Philips Semiconductors Phils. Inc. – Integrated Circuits Plant Phase II Project located
at the Light Industry and Science Park of the Philippines-2 (LISPP-2) Calamba, Laguna
contracted with appellee [KCD] as sub-contractor for the said project.  The final billing
dated 20 September 2001 was submitted to appellant Charles H.C. Yang, and despite a
joint evaluation by the parties through their respective representatives who agreed on
the amount [of] P2,967,164.71 as HUTAMA’s total obligation to appellee [KCD], and a
letter of demand, appellant corporation [Hutama] failed and refused to pay.

Summons was served on appellants [Hutama and Yang] on 8 February 2002 which was
received by their secretary, Ms. Evelyn Estrabela in behalf of the two defendants
[Hutama and Yang]. On 21 February 2002, their counsel filed an Entry of Appearance
and Motion for Extension of time to File Responsive Pleading.  They were given a 20-
day extension period to file the responsive pleading, or until 16 March 2002.

On 11 April 2002, appellee [KCD] filed a Motion to Declare Defendant/s [Hutama and
Yang] in Default for failure to file the responsive pleading within the extended period,
and set the same for hearing on 26 April 2002.

On 23 April 2002, appellant Charles H.C. Yang filed a Motion to Dismiss for failure of
the complaint to state a case of action against him, as he merely signed the sub-
contract between the parties not for his personal benefit but only in behalf of appellant
HUTAMA.  On the same date, appellant HUTAMA filed an Urgent Motion to Admit
Attached Answer with Compulsory Counterclaim, together with the said answer.

During the hearing on appellee’s [KCD’s] motion to declare defendant/s [Hutama and
Yang] in default, the trial court noted the filing of appellants’ [Hutama and Yang’s]
respective motion to dismiss and answer with counterclaim but noted that the filing
thereof on 27 March 2002 was too late considering that they were only given an
extended period up [to] 16 March 2002 to do the same.  Thus, the trial court granted the
motion to declare defendants [Hutama and Yang] in default and directed, upon
appellee’s [KCD’s] motion, the presentation of evidence ex-parte before the branch
clerk of court who was appointed as commissioner to received evidence.

Appellants [Hutama and Yang] filed an Urgent Motion to Set Aside Order of Default. 
During the hearing, the trial court ordered appellee [KCD] to file an opposition or
comment.  After the Manifestation filed by appellee [KCD] on 24 June 2002, the trial
court set anew the hearing on the motion to set aside order of default on 22 August
2002, but appellants [Hutama and Yang] failed to appear.  The trial court then denied
the said motion in the Order dated 19 September 2002.

During the ex-parte presentation of evidence, appellee’s [KCD’s] witness Celso C.

Dioko testified that there was a contract executed between appellants [Hutama and
Yang] and appellee [KCD] regarding the construction of Package 2 Site Works in Philips
Semiconductor Phils. Inc., Calamba, Laguna where appellee [KCD] was the sub-
contractor as evidenced by a Notice to Proceed.  After the completion of the project, he
[Dioko] billed them the total amount of P3,009,954.05.  After they [Hutama and Yang]
received the bill, they asked him [Dioko] to have a joint evaluation by their engineer and
his engineer on site.  The authorized engineer to evaluate the amount arrived at was
Engr. Jose De Asis.  Thus, their authorized engineers came out with the total amount of
P2,967,164.71 as cost of the project.  After the joint evaluation, he [Dioko] again sent
the bill to appellant Charles H.C. Yang and wrote a letter to HUTAMA to pay the final
billing.  The appellants [Hutama and Yang], however, failed to comply with the demand. 
Upon the filing of this case, appellee [KCD]  paid P30,000.00 acceptance fee and
P3,000.00 per appearance fee and a contingency of 15% of the total amount due as
attorney’s fees.

Engr. Jose De Asis testified that he is an employee of appellee corporation

[KCD]  and knows the appellants [Hutama and Yang] to be the representatives of
HUTAMA.  He was the one who prepared the final evaluation and the total outstanding
obligation inside the office of Philips Conductors [in] Calamba, Laguna.  He and
appellants [Hutama and Yang] were present when the agreement was prepared and the
amount agreed upon was promised to be paid to Diokno. The Regional Trial Court
(RTC) rendered a decision  in favor of KCD Builders Corporation (KCD). Aggrieved,
Hutama Semiconductor Phils., Inc. (Hutama) and Charles H.C. Yang (Yang) filed an
appeal before the CA. CA  modified its decision by  dismissing  the  complaint against
appellant  Charles H.C. Yang for lack of cause of action. The decision is AFFIRMED in
all other respects. Unsatisfied, Hutama and Yang filed a motion for reconsideration;
however, the same was denied in a Resolution dated June 19, 2006.

Hence, this petition.

ISSUE:

Whether or not the CA erred in affirming the decision of the RTC as to the
liability of Hutama to KCD.

RULING:

Based on the findings of fact of the RTC, which were affirmed by the CA, it was proven
that Hutama contracted the services of KCD as a sub-contractor of Package 2 Site
Works at Phillips Semiconductors Philippines, Inc. – Integrated Circuits Plant Phase II
Project, located in Calamba, Laguna. After the completion of the project, KCD billed
Hutama Three Million Nine Hundred Nine Thousand Nine Hundred Sixty-Four Pesos
and 05/100 (P3,909,964.05). The amount was reduced to Two Million Nine Hundred
Sixty-Seven Thousand One Hundred Sixty-Four Pesos and 71/100 (P2,967,164.71) by
agreement of the parties. Thus, on October 11, 2001, KCD sent Hutama the final bill.
However, Hutama refused to settle the obligation and its refusal compelled KCD to file
the collection suit before the RTC.

 Second, Hutama avers that the CA committed a reversible error when it upheld the
decision of the RTC, which was based on the ex-parte evidence presented by KCD.
Allegedly, its constitutional right to due process was violated when the RTC issued an
order of default which resulted in its failure to present evidence.

However, we find that the RTC acted within the confines of its discretion when it issued
the order of default upon the motion of KCD when Hutama failed to file an answer within
the extended period. The RTC did not hastily issue the order of default. It gave Hutama
the opportunity to explain its side. On August 22, 2002, the motion to set aside the order
of default was set for hearing, but neither Hutama’s counsel, nor any other
representative of petitioner corporation, appeared. According to the counsel of Hutama,
in his Memorandum, he failed to file an answer on time because he went to the province
for the Lenten season. He assigned the case to his associate, but the latter also went to
the province. This flimsy excuse deserves scant consideration.

The instant petition is DENIED.

G.R. No. 126890; March 9, 2010

UNITED PLANTERS SUGAR MILLING CO., INC. (UPSUMCO) vs. CA

FACTS:

Petitioner, engaged in the business of milling sugar, obtained “takeoff loans” from
respondent PNB to finance the construction of a sugar milling plant which were covered
by a Credit Agreement dated November 5, 1974.  The said loans were thrice
restructured through Restructuring Agreements dated June 24, 1982, December 10,
1982, and May 9, 1984.  The takeoff loans were secured by a real estate mortgage over
two parcels of land where the milling plant stood and chattel mortgages over certain
machineries and equipment.  Also included in the condition for the takeoff loans,
petitioner agreed to “open and/or maintain a deposit account with [respondent PNB] and
the bank is authorized at its option to apply to the payment of any unpaid obligations of
the client any/and all monies, securities which may be in its hands on deposit.”

From 1984 to 1987, petitioner contracted another set of loans from respondent PNB,
denominated as “operational loans,” for the purpose of financing its operations, which
also contained setoff clauses relative to the application of payments from petitioner’s
bank accounts.  They were likewise secured by pledge contracts whereby petitioner
assigned to respondent PNB all its sugar produce for the latter to sell and apply the
proceeds to satisfy the indebtedness arising from the operational loans.

 Later, respondent APT and petitioner agreed to an “uncontested” or “friendly

foreclosure” of the mortgaged assets, in exchange for petitioner’s waiver of its right of
redemption. On July 28, 1987, respondent PNB (as mortgagee) and respondent APT
(as assignee and transferee of PNB’s rights, titles and interests) filed a Petition for
Extrajudicial Foreclosure Sale with the Ex-Officio Regional Sheriff of Dumaguete City,
seeking to foreclose on the real estate and chattel mortgages which were executed to
secure the takeoff loans.  The foreclosure sale was conducted on August 27, 1987
whereby respondent APT purchased the auctioned properties for P450,000,000.00.

Seven (7) days after the foreclosure sale, or on September 3, 1987, petitioner executed
a Deed of Assignment assigned to respondent APT its right to redeem the foreclosed
properties, in exchange for or in consideration of respondent APT “condoning any
deficiency amount it may be entitled to recover from the Petitioner under the Credit
Agreement dated November 5, 1974, and the Restructuring Agreements[s] dated June
24 and December 10, 1982, and May 9, 1984, respectively, executed between
[UPSUMCO] and PNB…” On the same day, the Board of Directors of petitioner
approved the Board Resolution authorizing Joaquin Montenegro, its President, to enter
into said Deed of Assignment.

Despite the Deed of Assignment, petitioner filed a complaint on March 10, 1989 for sum
of money and damages against respondents PNB and APT before the Regional Trial
Court (RTC) of Bais City alleging therein that respondents had illegally appropriated
funds belonging to petitioner, through the following means:  (1) withdrawals made from
the bank accounts opened by petitioner beginning August 27, 1987 until February 12,
1990; (2) the application of the proceeds from the sale of the sugar of petitioner
beginning August 27, 1987 until December 4, 1987; (3) the payment from the funds of
petitioner with respondent PNB for the operating expenses of the sugar mill after
September 3, 1987, allegedly upon the instruction of respondent APT and with the
consent of respondent PNB.

The RTC rendered judgment in favor of the petitioner.  On appeal, the CA reversed and
set aside the RTC Decision and ruled that only the “takeoff” loans and not the
operational loans were condoned by the Deed of Assignment.  In a Decision dated
November 28, 2006 and Resolution dated July 11, 2007, the Court (Third Division)
reversed and set aside the CA Decision.  The case was thereafter referred to the Court
en banc which reversed the ruling of the Third Division.  
ISSUE:

Whether or not only the “takeoff” loans and not the operational loans were condoned by
the Deed of Assignment.

RULING:

After a careful review of the arguments in the petitioner’s motion for reconsideration, the
Court finds the same to be mere rehash of the main points already set forth in the
Court’s En Banc Resolution of April 2, 2009 and, hence, denies the same for lack of
merit.

In sum, the Resolution of the Court En Banc reinstating the Decision of the CA
categorically ruled that only its takeoff loans, not the operational loans, were condoned
by the Deed of Assignment dated September 3, 1987.  The Deed of Assignment
expressly stipulated the particular loan agreements which were covered therein.  As
such, respondent APT was entitled to have the funds from petitioner’s savings accounts
with respondent PNB transferred to its own account, to the extent of petitioner’s
remaining obligations under the operational loans, less the amount condoned in the
Deed of Assignment and the P450,000,000.00 proceeds of the foreclosure.  As the En
Banc Resolution explained, respondent APT had a right to go after the bank deposits of
petitioner, in its capacity as the creditor of the latter.  Likewise, respondent PNB had the
right to apply the proceeds of the sale of petitioner’s sugar and molasses, in satisfaction
of petitioner’s obligations.  Respondent PNB never waived these rights and the same
were transferred to respondent APT (now PMO) by virtue of the Deed of Transfer
executed between them.  Moreover, there was no conventional subrogation since such
requires the consent of the original parties and of the third persons and there was no
evidence that the consent of petitioner (as debtor) was secured when respondent PNB
assigned its rights to respondent APT, and that the assignment by respondent PNB to
respondent APT arose by mandate of law and not by the volition of the parties. 
Accordingly, the remand of the case to the RTC for computation of the parties’
remaining outstanding balances was proper. 

The doctrine of stare decisis et no quieta movere or principle of adherence to

precedents does not apply to the present case so as to bar the Court en banc from
taking cognizance over the case which rectified the disposition of the case and reversed
and set aside the Decision rendered by a Division thereof.       

 
G.R. No. 160545; March 9, 2010
PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION vs. MENCHAVEZ

FACTS:

On December 8, 1993, Pantaleon, the President and Chairman of the Board of

PRISMA, obtained a P1,000,000.00 loan from the respondent, with a monthly
interest of P40,000.00 payable for six months, or a total obligation of P1,240,000.00
to be paid within six (6) months. To secure the payment of the loan, Pantaleon issued a
promissory note. . Pantaleon signed the promissory note in his personal capacity, and
as duly authorized by the Board of Directors of PRISMA. The petitioners failed to
completely pay the loan within the stipulated six (6)-month period.

As of January 4, 1997, the petitioners had already paid a total of P1,108,772.00. 

However, the respondent found that the petitioners still had an outstanding balance of
P1,364,151.00 as of January 4, 1997, to which it applied a 4% monthly interest. 
Thus, on August 28, 1997, the respondent filed a complaint for sum of money with the
RTC to enforce the unpaid balance, plus 4% monthly interest, P30,000.00 in
attorney’s fees, P1,000.00 per court appearance and costs of suit.

 In their Answer dated October 6, 1998, the petitioners admitted the loan of
P1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing that the
interest was not provided in the promissory note. Pantaleon also denied that he made
himself personally liable and that he made representations that the loan would be repaid
within six (6) months. 

The RTC rendered a Decision on October 27, 2000 finding that the respondent issued a
check for P1,000,000.00 in favor of the petitioners for a loan that  would earn  an
interest of 4% or P40,000.00 per month, or a total of P240,000.00 for a 6-month period.

The petitioners elevated the case to the CA via an ordinary appeal under Rule 41 of the
Rules of Court, insisting that there was no express stipulation on the 4% monthly
interest. 

The CA affirmed the RTC’s finding that PRISMA was a mere instrumentality of
Pantaleon that justified the piercing of the veil of corporate fiction. Thus, the CA
modified the RTC Decision by imposing a 12% per annum interest, computed from the
filing of the complaint until finality of judgment, and thereafter, 12% from finality until fully
paid.

ISSUE:

Whether the parties agreed to the 4% monthly interest on the loan. If so, does the rate
of interest apply to the 6-month payment period only or until full payment of the loan?

RULING:          

We find the petition meritorious.

 Interest due should be stipulated in writing; otherwise, 12% per annum

Obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith. When the terms of a contract are clear and
leave no doubt as to the intention of the contracting parties, the literal meaning of its
stipulations governs. In such cases, courts have no authority to alter the contract by
construction or to make a new contract for the parties; a court's duty is confined to the
interpretation of the contract the parties made for themselves without regard to its
wisdom or folly, as the court cannot supply material stipulations or read into the contract
words the contract does not contain. It is only when the contract is vague and
ambiguous that courts are permitted to resort to the interpretation of its terms to
determine the parties’ intent.

In the present case, the respondent issued a check for P1,000,000.00. In turn,
Pantaleon, in his personal capacity and as authorized by the Board, executed the
promissory note quoted above.        Thus, the P1,000,000.00 loan shall be payable
within six (6) months, or from January 8, 1994 up to June 8, 1994.  During this period,
the loan shall earn an interest of P40,000.00 per month, for a total obligation of
P1,240,000.00 for the six-month period. We note that this agreed sum can be
computed at 4% interest per month, but no such rate of interest was stipulated in
the promissory note; rather a fixed sum equivalent to this rate was agreed upon.

 Article 1956 of the Civil Code specifically mandates that “no interest shall be due unless
it has been expressly stipulated in writing.” Under this provision, the payment of interest
in loans or forbearance of money is allowed only if: (1) there was an express stipulation
for the payment of interest; and (2) the agreement for the payment of interest was
reduced in writing. The concurrence of the two conditions is required for the payment of
interest at a stipulated rate. Thus, we held in Tan v. Valdehueza and Ching v. Nicdao
that collection of interest without any stipulation in writing is prohibited by law.

 Applying this provision, we find that the interest of P40,000.00 per month corresponds
only to the six (6)-month period of the loan, or from January 8, 1994 to June 8, 1994, as
agreed upon by the parties in the promissory note. Thereafter, the interest on the loan
should be at the legal interest rate of 12% per annum, consistent with our ruling in
Eastern Shipping Lines, Inc. v. Court of Appeals:

 
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.” (Emphasis supplied)

 
G.R. No. 160972; March 9, 2010

LEIGHTON CONTRACTORS  PHILIPPINES, INC. vs. CNP INDUSTRIES, INC.

FACTS:

In 1997, Hardie Jardin, Inc. (HJI) awarded the contract for site preparation, building
foundation and structural steel works of its fibre cement plant project in Barangay
Tatalon in San Isidro, Cabuyao, Laguna to petitioner Leighton Contractors Philippines,
Inc.

 On July 5, 1997, respondent CNP Industries, Inc. submitted to petitioner a proposal to
undertake, as subcontractor, the construction of the structural steelworks of HJI’s fibre
cement plant project.  It estimated the project to require 885,009 kgs. of steel costing
P44,223,909.

On July 15, 1997, petitioner accepted respondent’s proposal specifying that the project
cost was for the fixed lump sum price of P44,223,909. Respondent agreed and
petitioner instructed it to commence work.

Meanwhile, petitioner revised the fabrication drawings of several of the structure’s

columns necessitating adjustments in the designs of roof ridge ventilation and crane
beams. Petitioner communicated the said revisions to respondent on July 16, 1997.
Respondent estimated that the said revisions required an additional 8,132 kgs. of steel
costing P13,442,882. However, it did not re-negotiate the fixed lump-sum price with
petitioner.

Moreover, the contract required respondent to finish the project within 20 weeks from
the time petitioner was allowed access to the site on June 20, 1997, that is, on or before
November 6, 1997.

 On July 29, 1997, petitioner paid respondent 10% of the project cost amounting to
P4,422,390.90.

Thereafter, in a letter dated July 31, 1997, respondent informed petitioner that, due to
the revisions in the designs of the roof ridge ventilation and crane beams, it incurred
“additional costs” amounting to P13,442,882. In its August 12, 1997 progress report,
respondent reiterated that the roof ridge ventilation and crane beams were not included
in the scope of work and consequently were not part of the sub-contract price. It
likewise presented the cost estimates in the progress report.

Because respondent was unable to meet the project schedule, petitioner took over the
project on April 27, 1998. At the time of the takeover, respondent had already
accomplished 86% of the project for which petitioner paid P42,008,343.69.

Thereafter, respondent again asked petitioner to settle the “outstanding balance” of

P12,364,993.94, asserting that the roof ridge ventilation and crane beams were
excluded from the project cost. Petitioner refused to pay as the July 28, 1997
subcontract clearly stated that the sub-contract price was a fixed lump sum.

The parties submitted the matter to the Construction Industry Arbitration Commission
(CIAC) for arbitration. The CIAC found that the subcontract was perfected when
petitioner accepted respondent’s proposal on July 15, 2009. Thus, because the
fabrication drawings for the roof ridge ventilation and crane beams had not yet been
finalized then, the same were deemed “additional works” not included in the lump-sum
price. In a decision dated March 19, 1999, the CIAC rendered judgment in favor of
respondent and ordered petitioner to pay the balance of the contract price plus
additional works, the cost of arbitration and attorney’s fees.

Aggrieved, petitioner assailed the CIAC decision via a petition for review in the CA.
Aside from disputing the CIAC’s interpretation of the sub-contract, petitioner likewise
argued that the arbitral body disregarded Article 1724 of the Civil Code. The CA
dismissed the petition and affirmed the CIAC decision in toto. Petitioner moved for
reconsideration but it was denied in resolution dated November 20, 2003.Hence, this
recourse.

ISSUE:

Whether or not petitioner was not liable to pay for incremental cost since respondent did
not observe the procedure mandated by Article 1724 of the Civil Code.

RULING:

The petition is meritorious.

The parties entered into a contract for a piece of work whereby petitioner engaged
respondent as contractor to build and provide the necessary materials for the
construction of the structural steel works of HJI’s fiber cement plant for a fixed lump-
sum price of P44,223,909.

In contracts for a stipulated price like fixed lump-sum contracts, the recovery of
additional costs is governed by Article 1724 of the Civil Code. Settled is the rule that a
claim for the cost of additional work arising from changes in the scope of work can only
be allowed upon the:

 (1)  written authority from the developer or project owner ordering or allowing the
written changes in work and

(2) written agreement of parties with regard to the increase in price or cost due to
the change in work or design modification.

Furthermore, compliance with the two requisites of Article 1724, a specific provision
governing additional works, is a condition precedent for the recovery. The absence of
one or the other condition bars the recovery of additional costs. Neither the authority for
the changes made nor the additional price to be paid therefor may be proved by any
other evidence.

 
G.R. No.    179230; March 9, 2010

EUGENE   L.   LIM vs. BPI AGRICULTURAL DEVELOPMENT BANK

FACTS:

The BPI Agricultural Development Bank (respondent) granted Eugene L. Lim

(petitioner) and his wife Constancia a revolving credit line in the amount of P7,000,000
on account of which they executed two promissory notes:  Promissory Note No.
1000045-08 dated January 9, 1998 for P2,000,000 which matured on July 8, 1998, and
Promissory Note No. 1000045-09 dated April 8, 1998 for P5,000,000 which matured on
October 5, 1998.

Respondent also granted petitioner medium term loans on account of which he and his
wife executed Promissory Note No. 6000201-00 dated September 4, 1997 for
P3,294,117.63 which matured on August 19, 1999 and Promissory Note No. 6000191-
00 for P2,000,000 dated February 19, 1997 which matured on February 19, 2002.

To secure the payment of their loans, petitioner and his wife executed real estate
mortgages covering properties in Ozamis City. 

Petitioner defaulted on the first Promissory Note.  And he had an overdraft of

P16,000,000 with respondent, drawing respondent to send a final demand letter dated
July 27, 1998 declaring petitioner’s availments under the revolving credit line and
medium term loans immediately due and payable  and demanding settlement thereof in
five days.

Petitioner and his wife failed to settle their obligations, hence, respondent filed an
application for extrajudicial foreclosure of the mortgages in September 1999 before the
Office of the Sheriff of the Regional Trial Court (RTC) of Ozamis City.

By Order of October 23, 1998, Branch 15 of the Ozamis City RTC directed the issuance
of a Temporary Restraining Order.

After it conducted a hearing on herein petitioner’s application for a writ of preliminary

injunction, the trial court, by Order of March 13, 2000, directed the issuance of a writ of
preliminary injunction, it finding that “there are legal matters to be looked into with
respect to the application of the acceleration clause or default provisions in the
promissory note and great and irreparable damage will be suffered by the plaintiff if the
mortgage will be foreclosed and the propert[ies] are sold on public auction.”   Its Motion
for Reconsideration having been denied, respondent filed a petition for certiorari before
the Court of Appeals.

The Court of Appeals, by Decision of June 30, 2006, finding that petitioner has no clear
right to an injunctive relief, lifted the preliminary injunction issued by the RTC, hence,
the present petition for review on certiorari
ISSUE:

Whether or not petitioner’s availments under the revolving credit line and medium term
loans were immediately due and payable was by virtue of the cross-default provision of
Promissory Note No.  1000045-08 .

RULING:

The petition fails. 

Petitioner alleged in his complaint, however, that respondent’s acceleration of the

maturity of his entire obligation is “in gross bad faith” and in “gross abuse of [his] right”
as it “subjected the maturity of the loans to its own whims and caprices . . . not to
mention that it [was] done in the midst of this present economic crisis . . . .” 

Respondent’s declaration that petitioner’s availments under the revolving credit line and
medium term loans were immediately due and payable was by virtue of the cross-default
provision of Promissory Note No.  1000045-08. Respondent’s move to foreclose the
mortgages after petitioner defaulted in his obligation under the promissory note was thus
in accordance with said provision which petitioner did not challenge.    The trial court
thus erred in ordering the issuance of the writ of preliminary injunction on the basis of its
finding that “there are legal matters to be looked into with respect to the application of
the acceleration clause or default provisions in the promissory note.”  

 
G.R. No. 161137; March 15, 2010

LYDIA L. ROA vs. HEIRS OF SANTIAGO EBORA,et. al.

FACTS:

On June 3, 1977, during the pendency of G.R. Nos. L-46418-19, the heirs of Ebora sold
the entire Lot 18026-A to their co-heir Josefa Ebora Pacardo (Josefa) and her husband
Rosalio Pacardo for P300,000. On the same day, the spouses Pacardo assigned the
property to Digno Roa, married to petitioner Lydia Roa. The corresponding deeds of
absolute sale and assignment were inscribed on original certificate of title (OCT) No. P-
47 on July 5, 1977 under Entry Nos. 55548 and 55549, respectively. On August 11,
1977, transfer certificate of title (TCT) No. T-24488 was issued in the name of Digno
Roa. The issuance of TCT No. T-24488 was annotated in OCT P-47 on the same day
under Entry No. 56244.

Subsequently, the heirs of Ebora, including Josefa, executed an extrajudicial settlement

of the estate with confirmation of sale, assignment and waiver of rights, recognizing the
conveyance of Lot 18026-A to Josefa and eventually to Digno Roa.

On September 29, 1983, G.R. Nos L-46418-19 was resolved against Chacon
Enterprises and in favor of the heirs of Ebora. By reason of this decision, TCT No. T-
48097 was issued in the name of the heirs of Ebora.

Thereafter, or on October 8, 1987, the heirs of Ebora again adjudicated Lot 18026-A
among themselves, pro indiviso. The adjudication was inscribed in TCT No. T-48097 on
December 29, 1987 under Entry No. 126545. That same day, a deed of confirmation of
a prior conveyance by Josefa to respondent Samuel Sonnie Lim of a 4,500 sq. m.
portion was likewise inscribed on TCT No. T-48097. The issuance of new TCTs in the
name of Alejandro Ebora was likewise inscribed in TCT No. T-48097 on December 29,
1987. The lots were thereafter sold to various respondents which resulted in the
issuance of the following new TCTs in the names of the respective vendees.

All these transactions occurred without petitioner’s knowledge and consent.

In view of the death of her husband, Digno Roa, petitioner filed a petition for annulment
and cancellation of TCT No. 48097 and its derivative titles in the RTC of Misamis
Oriental, Cagayan de Oro City, Branch 23, against respondents. The case was
docketed as Civil Case No. 93492.

On June 27, 2003, the Regional Trial Court (RTC) declared respondents as innocent
purchasers for value whose titles to their respective lots should be respected, and
ordered the cancellation of petitioner’s title, TCT No. T-24488.

Hence, this petition for review on certiorari. Petitioner imputes error to the RTC which
declared TCT No. T-48097 as void but upheld the validity of its derivative titles.

ISSUE:

Whether or not respondents are not innocent purchasers for value.

RULING:

Petition is granted.

In this case, as in Sanchez, petitioner’s title was validly issued and had been
undisturbed for 10 years before the title of respondents’ predecessor (the Ebora heirs)
was issued. Petitioner never relinquished her title to respondents or to anybody else.
She therefore possessed a superior right over those of respondents, notwithstanding
the fact that respondents were innocent purchasers for value.  
Moreover, the heirs of Ebora sold and conveyed their rights to and interests in Lot
18026-A to the spouses Pacardo who assigned the property to the husband of petitioner
as early as June 3, 1977. From then on, the heirs of Ebora lost all their rights and
interest over the property. Indeed, the heirs of Ebora even confirmed the sale to Josefa
and the assignment and waiver of rights in favor of petitioner’s husband in an instrument
dated January 31, 1983.

Thus, the heirs of Ebora had nothing to adjudicate among themselves on October 8,
1987. Neither did they have anything to transfer to the vendees or successors-in-
interest. As such, the transferees of the heirs of Ebora acquired no better right than that
of the transferors. The spring cannot rise higher than its source.

In this case, as in Sanchez, petitioner’s title was validly issued and had been
undisturbed for 10 years before the title of respondents’ predecessor (the Ebora heirs)
was issued. Petitioner never relinquished her title to respondents or to anybody else.
She therefore possessed a superior right over those of respondents, notwithstanding
the fact that respondents were innocent purchasers for value.

Moreover, the heirs of Ebora sold and conveyed their rights to and interests in Lot
18026-A to the spouses Pacardo who assigned the property to the husband of petitioner
as early as June 3, 1977. From then on, the heirs of Ebora lost all their rights and
interest over the property. Indeed, the heirs of Ebora even confirmed the sale to Josefa
and the assignment and waiver of rights in favor of petitioner’s husband in an instrument
dated January 31, 1983.

Thus, the heirs of Ebora had nothing to adjudicate among themselves on October 8,
1987. Neither did they have anything to transfer to the vendees or successors-in-
interest. As such, the transferees of the heirs of Ebora acquired no better right than that
of the transferors. The spring cannot rise higher than its source.
G.R. No. 167750; March 15, 2010

BANK OF THE PHILIPPINE ISLANDS vs. REYNALD R. SUAREZ

FACTS:

Respondent Reynald R. Suarez (Suarez) is a lawyer who used to maintain both savings
and current accounts with petitioner Bank of the Philippine Islands’ (BPI) Ermita Branch
from 1988 to 1997.

 Sometime in 1997, Suarez had a client who planned to purchase several parcels of
land in Tagaytay City, but preferred not to deal directly with the land owners. In
accordance with his client’s instruction, Suarez transacted with the owners of the
Tagaytay properties, making it appear that he was the buyer of the lots.  As regards the
payment of the purchase money, Suarez and his client made an arrangement such that
Suarez’s client would deposit the money in Suarez’s BPI account and then, Suarez
would issue checks to the sellers.  Hence, on 16 June 1997, Suarez’s client deposited a
Rizal Commercial Banking Corporation (RCBC) check with a face value of P19,129,100,
representing the total consideration of the sales, in BPI Pasong Tamo Branch to be
credited to Suarez’s current account in BPI Ermita Branch.

Aware of the banking system’s 3-day check clearing policy, Suarez instructed his
secretary, Petronila Garaygay (Garaygay), to confirm from BPI whether the face value
of the RCBC check was already credited to his account that same day of 16 June 1997. 
According to Garaygay, BPI allegedly confirmed the same-day crediting of the RCBC
check.  Relying on this confirmation, Suarez issued on the same day five checks of
different amounts totaling P19,129,100 for the purchase of the Tagaytay properties.

The next day, Suarez left for the United States (U.S.) for a vacation.  While Suarez was
in the U.S., Garaygay informed him that the five checks he issued were all dishonored
by BPI due to insufficiency of funds and that his current account had been debited a
total of P57,200 as penalty for the dishonor. Suarez’s secretary further told him that the
checks were dishonored despite an assurance from RCBC, the drawee bank for the
sum of P19,129,100, that this amount had already been debited from the account of the
drawer on 16 June 1997 and the RCBC check was fully funded. 

 On 19 June 1997, the payees of the five BPI checks that Suarez issued on 16 June
1997 presented the checks again. Since the RCBC check (which Suarez’s client issued)
had already been cleared by that time, rendering Suarez’s available funds sufficient, the
checks were honored by BPI.

Subsequently, Suarez sent a letter to BPI demanding an apology and the reversal of the
charges debited from his account. Suarez received a call from Fe Gregorius, then
manager of the BPI Ermita Branch, who requested a meeting with him to explain BPI’s
side.  However, the meeting did not transpire.

Suarez sent another letter to BPI addressed to its president, Xavier Loinaz.
Consequently, BPI representatives asked another meeting with Suarez.

Upon Suarez’s request, BPI delivered to him the five checks which he issued on 16
June 1997. Suarez claimed that the checks were tampered with, specifically the reason
for the dishonor, prompting him to send another letter informing BPI of its act of
falsification by making it appear that it marked the checks with “drawn against
uncollected deposit (DAUD) and not “drawn against insufficient fund” (DAIF).  In reply,
BPI offered to reverse the penalty charges which were debited from his account, but
denied Suarez’s claim for damages.  Suarez rejected BPI’s offer.

Claiming that BPI mishandled his account through negligence, Suarez  filed with the
Regional Trial Court a complaint for damages, docketed as Civil Case No. 98-574.

The Regional Trial Court, Makati City, Branch 136 rendered judgment in favor of
Suarez.
BPI appealed to the Court of Appeals, which affirmed the trial court’s decision.

The Court of Appeals denied BPI’s motion for reconsideration in its 11 April 2005
Resolution.

 Hence, this petition.

ISSUE:

WHETHER OR NOT BPI IS LIABLE TO PAY SUAREZ MORAL AND EXEMPLARY

DAMAGES, ATTORNEY’S FEES AND COSTS OF LITIGATION.

RULING:

The petition is partly meritorious.

IN THE PRESENT CASE, SUAREZ FAILED TO ESTABLISH THAT HIS CLAIMED

INJURY WAS PROXIMATELY CAUSED BY THE ERRONEOUS MARKING OF DAIF
ON THE CHECKS. PROXIMATE CAUSE HAS BEEN DEFINED AS “ANY CAUSE
WHICH, IN NATURAL AND CONTINUOUS SEQUENCE, UNBROKEN BY ANY
EFFICIENT INTERVENING CAUSE, PRODUCES THE RESULT COMPLAINED OF
AND WITHOUT WHICH WOULD NOT HAVE OCCURRED.”  THERE IS NOTHING IN
SUAREZ’S TESTIMONY WHICH CONVINCINGLY SHOWS THAT THE ERRONEOUS
MARKING OF DAIF ON THE CHECKS PROXIMATELY CAUSED HIS ALLEGED
PSYCHOLOGICAL OR SOCIAL INJURIES. SUAREZ MERELY TESTIFIED THAT HE
SUFFERED HUMILIATION AND THAT THE PROSPECTIVE CONSOLIDATION OF
THE TITLES TO THE TAGAYTAY PROPERTIES DID NOT MATERIALIZE DUE TO
THE DISHONOR OF HIS CHECKS, NOT DUE TO THE ERRONEOUS MARKING OF
DAIF ON HIS CHECKS. HENCE, SUAREZ HAD ONLY HIMSELF TO BLAME FOR HIS
HURT FEELINGS AND THE UNSUCCESSFUL TRANSACTION WITH HIS CLIENT AS
THESE WERE DIRECTLY CAUSED BY THE JUSTIFIED DISHONOR OF THE
CHECKS.  IN SHORT, SUAREZ CANNOT RECOVER COMPENSATORY DAMAGES
FOR HIS OWN NEGLIGENCE. 

WHILE THE ERRONEOUS MARKING OF DAIF, WHICH BPI BELATEDLY

RECTIFIED, WAS NOT THE PROXIMATE CAUSE OF SUAREZ’S CLAIMED INJURY,
THE COURT REMINDS BPI THAT ITS BUSINESS IS AFFECTED WITH PUBLIC
INTEREST. IT MUST AT ALL TIMES MAINTAIN A HIGH LEVEL OF
METICULOUSNESS AND SHOULD GUARD AGAINST INJURY ATTRIBUTABLE TO
NEGLIGENCE OR BAD FAITH ON ITS PART. SUAREZ HAD A RIGHT TO EXPECT
SUCH HIGH LEVEL OF CARE AND DILIGENCE FROM BPI.  SINCE BPI FAILED TO
EXERCISE SUCH DILIGENCE, SUAREZ IS ENTITLED TO NOMINAL DAMAGES TO
VINDICATE SUAREZ’S RIGHT TO SUCH HIGH DEGREE OF CARE AND
DILIGENCE.  THUS, WE AWARD SUAREZ P75,000.00 NOMINAL DAMAGES.

 ON THE AWARD OF ACTUAL DAMAGES, WE FIND THE SAME WITHOUT ANY
BASIS.  CONSIDERING THAT BPI LEGALLY DISHONORED THE CHECKS FOR
BEING DRAWN AGAINST UNCOLLECTED DEPOSIT, BPI WAS JUSTIFIED IN
DEBITING THE PENALTY CHARGES AGAINST SUAREZ’S ACCOUNT, PURSUANT
TO THE RULES OF THE PHILIPPINE CLEARING HOUSE CORPORATION, TO WIT:

 
Sec. 27.  PENALTY CHARGES ON RETURNED ITEMS

27.1                    A SERVICE CHARGE OF P600.00 FOR

EACH CHECK SHALL BE LEVIED AGAINST THE
DRAWER OF ANY CHECK OR CHECKS RETURNED FOR
ANY REASON, EXCEPT FOR THE FOLLOWING:
            

            A)  ACCOUNT CLOSED

            B)  NO ACCOUNT

            C)  UNDER GARNISHMENT

            D)  SPURIOUS CHECK

            E)  DOCUMENTARY STAMPS MISSING (FOR FOREIGN CHECKS/DRAFTS

ONLY)

            F)  POST-DATED/STALE-DATED

            G)  VALIDITY RESTRICTED

            H)  MISCLEARED ITEMS

            I)  DECEASED DEPOSITOR

            J)  VIOLATION OF CLEARING RULES  AND/OR PROCEDURES

            K) LOST BY PRESENTING BANK WHILE IN TRANSIT TO CLEARING

 AS WELL AS OTHER EXCEPTIONS WHICH MAY BE

DEFINED/CIRCULATED BY PCHC FROM TIME TO TIME.

 IN VIEW OF THE FOREGOING, THE COURT DEEMS IT UNNECESSARY TO

RESOLVE THE OTHER ISSUES RAISED IN THIS CASE.

 WHEREFORE, THE COURT GRANTS THE PETITION IN PART.  THE COURT SETS
ASIDE THE 30 NOVEMBER 2004 DECISION AND 11 APRIL 2005 RESOLUTION OF
THE COURT OF APPEALS IN CA-G.R. CV NO. 76988, AND DELETES THE AWARD
OF ALL DAMAGES AND FEES. THE COURT AWARDS TO RESPONDENT REYNALD
R. SUAREZ NOMINAL DAMAGES IN THE SUM OF P75,000.00.

 
G.R. No. 168266; March 15, 2010

CARGILL, INC. vs. INTRA STRATA ASSURANCE CORPORATION

FACTS:

Petitioner Cargill, Inc. (petitioner) is a corporation organized and existing under the laws
of the State of Delaware, United States of America. Petitioner and Northern Mindanao
Corporation (NMC) executed a contract dated 16 August 1989 whereby NMC agreed to
sell to petitioner 20,000 to 24,000 metric tons of molasses, to be delivered from 1
January  to 30 June 1990  at the price of $44 per metric ton. The contract provides that
petitioner would open a Letter of Credit with the Bank of Philippine Islands. Under the
“red clause” of the Letter of Credit, NMC was permitted to draw up to $500,000
representing the minimum price of the contract upon presentation of some documents.

The contract was amended three times: first, on 11 January 1990, increasing  the
purchase price of the molasses to $47.50 per metric ton; second, on 18 June 1990,
reducing the quantity of the molasses to 10,500 metric tons and increasing the price to
$55 per metric ton; and third, on 22 August 1990, providing for the shipment of 5,250
metric tons of molasses on the last half of December 1990 through the first half of
January 1991, and the balance of 5,250 metric tons on the last half of January 1991
through the first half of February 1991.  The third amendment also required NMC to put
up a performance bond equivalent to $451,500, which represents the value of 10,500
metric tons of molasses computed at $43 per metric ton. The performance bond was
intended to guarantee NMC’s performance to deliver the molasses during the
prescribed shipment periods according to the terms of the amended contract.

In compliance with the terms of the third amendment of the contract, respondent Intra
Strata Assurance Corporation (respondent) issued on 10 October 1990 a performance
bond in the sum of P11,287,500 to guarantee NMC’s delivery of the 10,500 tons of
molasses, and a surety bond in the sum of P9,978,125 to guarantee the repayment of
downpayment as provided in the contract.

 NMC was only able to deliver 219.551 metric tons of molasses out of the agreed
10,500 metric tons. Thus, petitioner sent demand letters to respondent claiming
payment under the performance and surety bonds. When respondent refused to pay,
petitioner filed on 12 April 1991 a complaint for sum of money against NMC and
respondent.

 Petitioner, NMC, and respondent entered into a compromise agreement, which the trial
court approved in its Decision dated 13 December 1991. The compromise agreement
provides that NMC would pay petitioner P3,000,000 upon signing of the compromise
agreement and would deliver to petitioner 6,991 metric tons of molasses from 16-31
December 1991. However, NMC still failed to comply with its obligation under the
compromise agreement. Hence, trial proceeded against respondent.

On 23 November 1994, the trial court rendered a decision in favor of plaintiff Cargill, Inc.
On appeal, the Court of Appeals reversed the trial court’s decision and dismissed the
complaint. Hence, this petition.

ISSUE:

Whether the advance payment of $500,000 was released to NMC without the
submission of the supporting documents required in the  contract and the “red clause”
Letter of Credit from which said  amount was drawn.

RULING:
A review of the records shows that the trial court was correct in holding that  the
advance payment of $500,000 was released to NMC in accordance with the conditions
provided under  the “red clause” Letter of Credit from which said  amount was drawn.
The Head of the International Operations Department of the Bank of Philippine Islands
testified that the bank would not have paid the beneficiary if the required documents
were not complete. It is a requisite in a documentary credit transaction that the
documents should conform to the terms and conditions of the letter of credit; otherwise,
the bank will not pay. The Head of the International Operations Department of the Bank
of Philippine Islands also testified that they received reimbursement from the issuing
bank for the $500,000 withdrawn by NMC. Thus, respondent had no legitimate reason
to refuse payment under the performance and surety bonds when NMC failed to
perform its part under its contract with petitioner.

WHEREFORE , we GRANT the petition.

G.R. No. 157009;  March 17, 2010

SULPICIO LINES, INC. vs. DOMINGO  E. CURSO, et. al.

FACTS:

On October 23, 1988, Dr. Curso boarded at the port of Manila the MV Doña Marilyn, an
inter-island vessel owned and operated by petitioner Sulpicio Lines, Inc., bound for
Tacloban City. Unfortunately, the MV Doña Marilyn sank in the afternoon of October 24,
1988 while at sea due to the inclement sea and weather conditions brought about by
Typhoon Unsang. The body of Dr. Curso was not recovered, along with hundreds of
other passengers of the ill-fated vessel. At the time of his death, Dr. Curso was 48 years
old, and employed as a resident physician at the Naval District Hospital in Naval, Biliran.
He had a basic monthly salary of P3,940.00, and would have retired from government
service by December 20, 2004 at the age of 65.

On January 21, 1993, the respondents, allegedly the surviving brothers and sisters of
Dr. Curso, sued the petitioner in the RTC in Naval, Biliran to claim damages based on
breach of contract of carriage by sea, averring that the petitioner had acted negligently
in transporting Dr. Curso and the other passengers. They stated, among others, that
their parents had predeceased Dr. Curso, who died single and without issue; and that,
as such, they were Dr. Curso’s surviving heirs and successors in interest entitled to
recover moral and other damages. They prayed for judgment, as follows: (a)
compensatory damages of P1,924,809.00; (b) moral damages of P100,000.00; (c)
exemplary or corrective damages in the amount deemed proper and just; ( d) expenses
of litigation of at least P50,000.00; (e) attorney’s fees of P50,000.00; and (f)  costs of
suit.

The petitioner denied liability, insisting that the sinking of the vessel was due to force
majeure (i.e., Typhoon Unsang), which exempted a common carrier from liability. It
averred that the MV Doña Marilyn was seaworthy in all respects, and was in fact
cleared by the Philippine Coast Guard for the voyage; and that after the accident it
conducted intensive search and rescue operations and extended assistance and aid to
the victims and their families.

RTC dismissed the complaint upon its finding that the sinking of the vessel was due to
force majeure. Respondents appealed to the CA having found defendant Sulpicio Lines
negligent. Hence, this appeal, in which the petitioner insists that the CA committed
grievous errors in holding that the respondents were entitled to moral damages as the
brothers and sisters of the late Dr. Curso; that the CA thereby disregarded Article 1764
and Article 2206 of the Civil Code, and the ruling in Receiver for North Negros Sugar
Co., Inc. v. Ybañez, whereby the Supreme Court disallowed the award of moral
damages in favor of the brothers and sisters of a deceased passenger in an action upon
breach of a contract of carriage.

ISSUE:

ARE THE BROTHERS AND SISTERS OF A DECEASED PASSENGER IN A

CASE OF BREACH OF CONTRACT OF CARRIAGE ENTITLED TO AN AWARD
OF MORAL DAMAGES AGAINST THE CARRIER?

RULING:

The petition is meritorious.

As a general rule, moral damages are not recoverable in actions for damages
predicated on a breach of contract, unless there is fraud or bad faith. As an exception,
moral damages may be awarded in case of breach of contract of carriage that results in
the death of a passenger, in accordance with Article 1764, in relation to Article 2206 (3),
of the Civil Code, which provide:
 Article 1764. Damages in cases comprised in this Section shall be awarded in
accordance with Title XVIII of this Book, concerning Damages. Article 2206 shall
also apply to the death of a passenger caused by the breach of contract by a
common carrier.   

Article 2206. The amount of damages for death caused by a crime or quasi-delict
shall be at least three thousand pesos, even though there may have been
mitigating circumstances. In addition:

 (1) The defendant shall be liable for the loss of the earning capacity
of the deceased, and the indemnity shall be paid to the heirs of the latter;
such indemnity shall in every case be assessed and awarded by the court,
unless the deceased on account of permanent physical disability not
caused by the defendant, had no earning capacity at the time of his death;
 
(2) If the deceased was obliged to give support according to the
provisions of article 291, the recipient who is not an heir called to the
decedent's inheritance by the law of testate or intestate succession, may
demand support from the person causing the death, for a period not
exceeding five years, the exact duration to be fixed by the court;
 
(3) The spouse, legitimate and illegitimate descendants and
ascendants of the deceased may demand moral damages for mental
anguish by reason of the death of the deceased.   
The foregoing legal provisions set forth the persons entitled to moral damages. The
omission from Article 2206 (3) of the brothers and sisters of the deceased passenger
reveals the legislative intent to exclude them from the recovery of moral damages for
mental anguish by reason of the death of the deceased. Inclusio unius est exclusio
alterius. The solemn power and duty of the courts to interpret and apply the law do not
include the power to correct the law by reading into it what is not written therein. Thus,
the CA erred in awarding moral damages to the respondents.

To be entitled to moral damages, the respondents must have a right based upon law. It
is true that under Article 1003 of the Civil Code they succeeded to the entire estate of
the late Dr. Curso in the absence of the latter’s descendants, ascendants, illegitimate
children, and surviving spouse.  However, they were not included among the persons
entitled to recover moral damages, as enumerated in Article 2219 of the Civil Code.

 
G.R. No. 169975; March 18, 2010

PAN PACIFIC SERVICE CONTRACTORS, INC. vs. EQUITABLE PCI BANK

(formerly THE PHILIPPINE COMMERCIAL INTERNATIONAL BANK)

FACTS:

Pan Pacific Service Contractors, Inc. (Pan Pacific) is engaged in contracting mechanical
works on airconditioning system. On 24 November 1989, Pan Pacific, through its
President, Ricardo F. Del Rosario (Del Rosario), entered into a contract of mechanical
works (Contract) with respondent for P20,688,800. Pan Pacific and respondent also
agreed on nine change orders for P2,622,610.30. Thus, the total consideration for the
whole project was P23,311,410.30. The Contract stipulated, among others, that Pan
Pacific shall be entitled to a price adjustment in case of increase in labor costs and
prices of materials under paragraphs 70.1 and 70.2 of the “General Conditions for the
Construction of PCIB Tower II Extension” (the escalation clause).

Pursuant to the contract, Pan Pacific commenced the mechanical works in the project
site, the PCIB Tower II extension building in Makati City. The project was completed in
June 1992. Respondent accepted the project on 9 July 1992. 

In 1990, labor costs and prices of materials escalated. On 5 April 1991, in accordance
with the escalation clause, Pan Pacific claimed a price adjustment of P5,165,945.52.
Respondent’s appointed project engineer, TCGI Engineers, asked for a reduction in the
price adjustment. To show goodwill, Pan Pacific reduced the price adjustment to
P4,858,548.67. 

On 28 April 1992, TCGI Engineers recommended to respondent that the price

adjustment should be pegged at P3,730,957.07.

Due to the extraordinary increases in the costs of labor and materials, Pan Pacific’s
operational capital was becoming inadequate for the project. However, respondent
withheld the payment of the price adjustment under the escalation clause despite Pan
Pacific’s repeated demands. Instead, respondent offered Pan Pacific a loan of P1.8
million. Against its will and on the strength of respondent’s promise that the price
adjustment would be released soon, Pan Pacific, through Del Rosario, was constrained
to execute a promissory note in the amount of P1.8 million as a requirement for the
loan. Pan Pacific also posted a surety bond. The P1.8 million was released directly to
laborers and suppliers and not a single centavo was given to Pan Pacific. 

Pan Pacific made several demands for payment on the price adjustment but respondent
merely kept on promising to release the same. Meanwhile, the P1.8 million loan
matured and respondent demanded payment plus interest and penalty. Pan Pacific
refused to pay the loan. Pan Pacific insisted that it would not have incurred the loan if
respondent released the price adjustment on time. Pan Pacific alleged that the
promissory note did not express the true agreement of the parties. Pan Pacific
maintained that the P1.8 million was to be considered as an advance payment on the
price adjustment. Therefore, there was really no consideration for the promissory note;
hence, it is null and void from the beginning. 

Respondent stood firm that it would not release any amount of the price adjustment to
Pan Pacific but it would offset the price adjustment with Pan Pacific’s outstanding
balance of P3,226,186.01, representing the loan, interests, penalties and collection
charges. 

Pan Pacific refused the offsetting but agreed to receive the reduced amount of
P3,730,957.07 as recommended by the TCGI Engineers for the purpose of extrajudicial
settlement, less P1.8 million and P414,942 as advance payments. 

On 6 May 1994, petitioners filed a complaint for declaration of nullity/annulment of the

promissory note, sum of money, and damages against the respondent with the RTC of
Makati City, Branch 59. On 12 April 1999, the RTC rendered its decision in favor of
plaintiffs. CA modified the RTC decision, with respect to the principal amount due to
petitioners. petitioners filed a Motion for Partial Reconsideration seeking a
reconsideration of the CA’s Decision imposing the legal rate of 12%. Petitioners claimed
that the interest rate applicable should be the 18% bank lending rate. Respondent
likewise filed a Motion for Reconsideration of the CA’s decision. In a Resolution dated 5
October 2005, the CA denied both motions.

ISSUE:

Whether the CA, in awarding the unpaid balance of the price adjustment, erred in fixing
the interest rate at 12% instead of the 18% bank lending rate.

RULING:

It is settled that the agreement or the contract between the parties is the formal
expression of the parties’ rights, duties, and obligations. It is the best evidence of the
intention of the parties. Thus, when the terms of an agreement have been reduced to
writing, it is considered as containing all the terms agreed upon 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.

The escalation clause of the contract provides:

CHANGES IN COST AND LEGISLATION

70.1 Increase or Decrease of Cost

There shall be added to or deducted from the Contract Price such sums in respect of rise or fall in
the cost of labor and/or materials or any other matters affecting the cost of the execution of the
Works as may be determined.

70.2 Subsequent Legislation

If, after the date 28 days prior to the latest date of submission of tenders for the Contract there
occur in the country in which the Works are being or are to be executed changes to any National
or State Statute, Ordinance, Decree or other Law or any regulation or bye-law (sic) of any local
or other duly constituted authority, or the introduction of any such State Statute, Ordinance,
Decree, Law, regulation or bye-law (sic) which causes additional or reduced cost to the
contractor, other than under Sub-Clause 70.1, in the execution of the Contract, such additional or
reduced cost shall, after due consultation with the Owner and Contractor, be determined by the
Engineer and shall be added to or deducted from the Contract Price and the Engineer shall notify
the Contractor accordingly, with a copy to the Owner. 

In this case, the CA already settled that petitioners consulted respondent on the
imposition of the price adjustment, and held respondent liable for the balance of
P1,516,015.07. Respondent did not appeal from the decision of the CA; hence,
respondent is estopped from contesting such fact.

However, the CA went beyond the intent of the parties by requiring respondent to give
its consent to the imposition of interest before petitioners can hold respondent liable for
interest at the current bank lending rate. This is erroneous. A review of Section 2.6 of
the Agreement and Section 60.10 of the General Conditions shows that the consent of
the respondent is not needed for the imposition of interest at the current bank lending
rate, which occurs upon any delay in payment.  

When the terms of a contract are clear and leave no doubt as to the intention of the
contracting parties, the literal meaning of its stipulations governs.  In these cases, courts
have no authority to alter a contract by construction or to make a new contract for the
parties. The Court’s duty is confined to the interpretation of the contract which the
parties have made for themselves without regard to its wisdom or folly as the court
cannot supply material stipulations or read into the contract words which it does not
contain. It is only when the contract is vague and ambiguous that courts are permitted to
resort to construction of its terms and determine the intention of the parties. 

The escalation clause must be read in conjunction with Section 2.5 of the Agreement
and Section 60.10 of the General Conditions which pertain to the time of payment. Once
the parties agree on the price adjustment after due consultation in compliance with the
provisions of the escalation clause, the agreement is in effect an amendment to the
original contract, and gives rise to the liability of respondent to pay the adjusted costs.
Under Section 60.10 of the General Conditions, the respondent shall pay such liability to
the petitioner within 28 days from issuance of the interim certificate. Upon respondent’s
failure to pay within the time provided (28 days), then it shall be liable to pay the
stipulated interest.

This is the logical interpretation of the agreement of the parties on the imposition of
interest. To provide a contrary interpretation, as one requiring a separate consent for
the imposition of the stipulated interest, would render the intentions of the parties
nugatory.

Article 1956 of the Civil Code, which refers to monetary interest, specifically
mandates that no interest shall be due unless it has been expressly stipulated in
writing. Therefore, payment of monetary interest is allowed only if:

(1) there was an express stipulation for the payment of interest; and

(2) the agreement for the payment of interest was reduced in writing. The
concurrence of the two conditions is required for the payment of monetary interest. 

We agree with petitioners’ interpretation that in case of default, the consent of the
respondent is not needed in order to impose interest at the current bank lending rate.

 Under Article 2209 of the Civil Code, the appropriate measure for damages in case of
delay in discharging an obligation consisting of the payment of a sum of money is the
payment of penalty interest at the rate agreed upon in the contract of the parties. In the
absence of a stipulation of a particular rate of penalty interest, payment of additional
interest at a rate equal to the regular monetary interest becomes due and payable.
Finally, if no regular interest had been agreed upon by the contracting parties, then the
damages payable will consist of payment of legal interest which is 6%, or in the case of
loans or forbearances of money, 12% per annum. It is only when the parties to a
contract have failed to fix the rate of interest or when such amount is unwarranted that
the Court will apply the 12% interest per annum on a loan or forbearance of money. 

The written agreement entered into between petitioners and respondent provides for an
interest at the current bank lending rate in case of delay in payment and the promissory
note charged an interest of 18%.

To prove petitioners’ entitlement to the 18% bank lending rate of interest, petitioners
presented the promissory note prepared by respondent bank itself. This promissory
note, although declared void by the lower courts because it did not express the real
intention of the parties, is substantial proof that the bank lending rate at the time of
default was 18% per annum. Absent any evidence of fraud, undue influence or any vice
of consent exercised by petitioners against the respondent, the interest rate agreed
upon is binding on them. 

WHEREFORE, we GRANT the petition.

G.R. No. 168386; March 29, 2010

LUCITA A. CANTOJA vs. HARRY S. LIM

FACTS:

On 16 November 1989, the late Roberto Cantoja Sr. filed with the Office of the DENR,
General Santos City, an application for a Foreshore Lease Contract over an area
situated in Makar, General Santos City, per Survey Plan No. (XI-5B) 000002-D. 
Cantoja was awarded the Foreshore Lease Agreement (FLA) on 23 November 1990.

On 4 March 1994, herein petitioner [Harry S. Lim] filed his protest docketed as DENR
Case No. 5231, questioning the grant of the FLA to Cantoja.  The protest was based on
petitioner’s  allegation that Cantoja committed fraud and misrepresentation in declaring
in his application that the subject foreshore area adjoined his (Cantoja’s) property.   To
prove this allegation, petitioner presented his Transfer Certificate of Title (TCT)   No.
8423, over Lot 2-B, (LRC) Psd-210799, which adjoins the foreshore area subject of the
lease.
 
On 23 May 1995, Regional Executive Director Augustus L. Momongan of DENR XI,
Davao City, issued “Memorandum/Order assigning the above entitled case to Special
Investigator Romulo Marohomsalic of the DENR Office No. XI-5D, General Santos City,
for further investigation and appropriate action”  Upon ocular inspection, during which
petitioner failed to appear despite notice, Special Investigator Marohomsalic found that
Cantoja was in actual possession of the foreshore area which was utilized as “dock-
board of the Cantoja’s Fishing Business.  It was further ascertained, that no portion
thereof, has been occupied or possessed by any other person or persons, nor was
there any adverse claimant thereof.”

On 12 December 1995, Geodetic Engineer Bernardo L. Soria, in compliance with the

27 October 1995 Order of the City Environment and Natural Resources Office (CENRO)
XI-5B, submitted his report stating, inter alia, that “there was no overlapping of xxx Lot
2-B, (LRC) Psd-210799; and Fli-XI-5b-000002-D xxx all shown in the prepared sketch
xxx of (the) report.”

On 1 February 1996, Director Momongan issued [an] Order dismissing petitioner’s

protest on the ground that “(i)n view of all the xxx circumstances and facts gathered
during the investigative proceedings, this Office finds that the foreshore area under
survey plan Fli-XI-5B-000002-
D, covered by FLA No. (XI-5B) 000002 is separate and distinct from that parcel of land,
identified as Lot 2-B, Psd-210799, registered in the name of Claimant-Protestant Harry
G. Lim.”  The petitioner, concluded the Director, “has no legal personality to question
the veracity of the possession and occupation of herein Applicant-Respondent over the
foreshore area in question, as the same has been legally and regularly acquired by
Applicant-Respondent Roberto Cantoja, through public bidding and Applicant-
Respondent’s occupation and possession thereof is by virtue of a valid award granted
by the Department of Environment and Natural Resources (DENR).”
On 5 May 1997, petitioner filed Motion for Reconsideration of the said Order.
 
Meanwhile, on 6 October 1997, the DENR through the Office of the Solicitor General
instituted Civil Case No. 6438 for annulment/cancellation of Patent No. 188030 and
OCT No. P-14720 both issued in the name of Jacinto Acharon, as well as petitioner’s
TCT        No. 8423.  The suit was anchored on the findings and recommendations of
Special Investigator Romulo J. Marohomsalic that “the area in question is  xxx partly
foreshore and partly river bed of the Makar and therefore inalienable.”

On 2 May 2000, then DENR Secretary Antonio H. Cerilles, rendered a Decision

reconsidering the 1 February 1996 Order issued by Executive Director Momongan, and
thereby cancelled the FLA previously granted to Cantoja. 
 
A motion for reconsideration with supplemental grounds was subsequently filed by
Cantoja.  Petitioner in turn filed his opposition.
  
 
On 16 August 2000, Secretary Cerilles issued Special Order       No. 2000-820 for the
“Creation of a Team to Conduct Investigation and Ocular Inspection of the Land
Located in General Santos City subject of DENR Case No. 5231.”  Said order was
issued “(i)n view of the request of the Office of the Solicitor General for comment on the
proposal of Mr. Harry Lim for amicable settlement of the case xxx.”
 
Without waiting, however, for the result of the investigation of said team, Secretary
Cerilles, in an Order dated 17 October 2000, set aside its 2 May 2000 Order and
reinstated the FLA in favor of Cantoja.  The DENR Secretary also denied petitioner’s
motion for reconsideration.
 
On appeal, the Office of the President rendered the herein assailed Decision affirming
the 17 October 2000 Order of the DENR Secretary.  Like the DENR Secretary, the
Office of the President also relied on the findings of Special Investigator Marohomsalic
that the petitioner’s titled land is an inalienable foreshore area which could not be
subject of a valid patent or title.

Aggrieved, respondent Harry Lim (respondent) appealed to the Court of Appeals. On 24

January 2005, the Court of Appeals rendered a decision, setting aside the 27 March
2003 decision of the Office of the President and reinstating the 2 May 2000 decision of
the Secretary of the Department of Environment and Natural Resources (DENR).

Hence, this petition for review.

ISSUE:

Whether the Court of Appeals erred in cancelling the Foreshore Lease Contract granted
to Cantoja covering the foreshore area  under survey plan  Fli-XI-5B-000002-D.

RULING:

The petition has no merit.

 It is undisputed that respondent is the registered owner of the land adjacent to the
foreshore area leased to Cantoja, which is covered by TCT No. 8423 issued on 20
January 1975. Respondent’s predecessor-in-interest, Jacinto Acharon, was issued OCT
No. P-14720 on 17 August 1961 by virtue of a free patent grant. Thus, prior to Cantoja’s
foreshore lease application on 16 November 1989 and the grant of the foreshore lease
contract on 23 November 1990, respondent already owned the land adjacent to the
foreshore land. The sketch plan dated 12 December 1995 submitted by the Geodetic
Engineer clearly shows that respondent’s property is in between the foreshore land and
Cantoja’s property.

In this case, Cantoja committed fraud when he misrepresented himself as the riparian or
littoral owner in his application for the foreshore lease. Under stipulation no. 15 of the
Foreshore Lease Agreement, any fraud or misrepresentation committed by the
applicant is a ground for cancellation or rescission of the Foreshore Lease Agreement.   
G.R. No.  184193; March 29, 2010

SEGUNDO G. DIMARANAN vs. HEIRS OF SPOUSES ARAYATA

FACTS:

Respondents Hermogenes Jr., Belen and Cecille Arayata are the legal heirs of Spouses
Hermogenes and Flaviana Arayata (Spouses Arayata).  They claimed that on 5
September 1955, Spouses Arayata purchased a 28,496 square meter lot in Tanza (now
known as Trece Martires City), Cavite and covered by TCT No. (T-8718) RT-7973 from
petitioner, by virtue of a deed of sale denominated as “Bilihan ng Lupa.”  

Evidence of respondents shows that as a result of the sale, TCT No. T-8672 in the
name of petitioner was cancelled in favor of Spouses Arayata.  Thus, TCT No. T-8718
was issued.  In 1959, all records of the Register of Deeds of Cavite were burned, thus
TCT No. T-8718 was reconstituted, and as such, became TCT No. (T-8718) RT-7973.

In 1980, respondents learned that petitioner was able to secure TCT No. T-115904
under his name from the Register of Deeds of Cavite covering the same property.  
Respondents thereafter filed a case before the then Court of First Instance of Cavite
against petitioner.  On 29 December 1981, the trial court ordered the cancellation of
TCT No. T-115904 under the name of petitioner.  A writ of execution was issued
accordingly.  However, records are bereft of proof that the writ was duly enforced.

Sometime in December 1996, respondents applied with the Sangguniang Panglunsod

of Trece Martires City for a franchise to operate a cockpit arena on their property.  Much
to respondents’ surprise, petitioner objected to the application claiming that he owns the
subject property and presented TCT No. (T-115904) RT-004.  Upon investigation,
respondents discovered that a petition for reconstitution was filed by petitioner in RTC,
Branch 23 of Trece Martires City on 18 March 1996.  Two weeks later or on 1 April
1996, the trial court ordered the reconstitution of TCT No. T-115904.  The claim of
petitioner based on his reconstituted title prompted respondents to file a complaint for
Quieting of Title and Damages with Prayer for TRO and Writ of Preliminary Injunction
before the RTC of Trece Martires City, docketed as Civil Case No. TM-718.

Petitioner countered that he purchased the subject property from the government and
paid in three (3) installments, the last of which was in 15 September 1954. He asserted
that TCT No. T-115904 was issued on 2 December 1980.

Petitioner admitted that when he found out that his original title in custody of the
Register of Deeds of Cavite was missing, he sought the help of a certain Abling
Lungkay to reconstitute his title, and as reconstituted, became TCT No. (T-115904) RT-
004.

Petitioner maintained that the “Bilihan ng Lupa” is a spurious document and that TCT
No. (T-8718) RT-7973 is a fake title having no origin whatsoever. He pointed out that he
could not have sold the property in 1955 because he only legally acquired the property
on 2 December 1980, as reflected in TCT No. T-115904.  To bolster his claim, he
averred that TCT No. T-8672, from which (T-8718) RT-7973 supposedly emanated
from, was registered in the names of Maxima Timbang, et. al., and not that of
petitioner’s.  In sum, petitioner argued that he is the registered owner of the subject land
and is in actual possession thereof until 7 February 1997 when respondents, aided by
armed men, invaded the property.

Petitioner also assailed the 29 December 1981

Decision of the trial court nullifying TCT No. T-115904 on the ground that said decision
was rendered without proper service of summons and therefore, null and void. 

On 21 February 2005, the trial court rendered judgment in favor of respondents.

Aggrieved, petitioner appealed to the Court of Appeals. The appellate court affirmed
with modification the trial court’s decision by deleting the award of moral damages and
attorney’s fees. The Court of Appeals sustained the trial court’s finding that the sale
between Spouses Arayata and petitioner is valid.

ISSUE:

Whether or not the sale of the disputed property between petitioner and Spouses
Arayata was valid.

RULING:

The Court of Appeals affirmed the trial court’s finding that the Final Deed of
Conveyance No. V-4477 and TCT No. (T-115094) RT-004 are void while validating the
sale between petitioner and Spouses Arayata, from which TCT No. (T-8718) RT-7973
emanated from.

The ultimate issue to be resolved is which between the titles of petitioner and
respondent is genuine.  Clearly, this issue calls for a re-evaluation of the probative value
of the evidence presented.  We agree with respondents’ contention that the issues
raised are purely questions of fact that this Court cannot review in a certiorari petition. 

As a general rule, factual findings of the trial court, especially those affirmed by the
Court of Appeals, are conclusive on this Court when supported by the evidence on
record.   There are recognized exceptions to this rule, among which are: (1) the
conclusion is grounded on speculations, surmises or conjectures; (2) the inference is
manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the
judgment is based on a misapprehension of facts; (5) the findings of facts are
conflicting; (6) there is no citation of specific evidence on which the factual findings are
based; (7) the finding of absence of facts is contradicted by the presence of evidence on
record; (8) the findings of the Court of Appeals are contrary to the findings of the trial
court; (9) the Court of Appeals manifestly overlooked certain relevant and undisputed
facts that, if properly considered, would justify a different conclusion; (10) the findings of
the Court of Appeals are beyond the issues of the case; and (11) such findings are
contrary to the admissions of both parties. However, in the instant case, petitioner failed
to demonstrate that their petition falls under any one of the above exceptions. We find
no cogent reason to disturb the findings of the RTC, which the Court of Appeals had
affirmed. 

Based on the foregoing, it now becomes unnecessary to dwell on the issues raised by
petitioner, which are a mere rehash of their arguments before the appellate court.   Such
arguments had in fact already been passed upon by the Court of Appeals. 

We likewise uphold the deletion of the award for moral damages and attorney’s fees for
failure of respondents to substantiate their claims. 

WHEREFORE, the petition is DENIED. 

G.R. No. 179781; April 7, 2010

SPOUSES BASILIO and NORMA HILAGA vs. RURAL BANK OF ISULAN (Cotabato,
Inc., as represented by its Manager)

FACTS:

Petitioners Basilio and Norma B. Hilaga were the owners of a parcel of land, identified
as Lot No. 172-A, Pls-212-D-7, located at Barrio Lopez Jaena, Municipality of Norala,
Province of South Cotabato and containing an area of 46,868 square meters, more or
less.

On March 16, 1970, petitioners obtained a loan from respondent Rural Bank of Isulan
(Cotabato) Inc., in the amount of P2,500.00.  To secure the loan, they executed a Real
Estate Mortgage over the above-mentioned property which was then covered only by
Tax Declaration No. 5537.   When petitioners failed to pay their obligation when it
became due on March 19, 1971, the respondent bank initiated foreclosure
proceedings.  The subject property was sold at a public auction by the Provincial Sheriff
on April 20, 1977 and a Certificate of Extrajudicial Sale was issued in favor of the Rural
Bank of Isulan (Cotabato) Inc. as the highest bidder. The respondent bank then took
possession of the foreclosed property. Meanwhile, unknown to respondent bank, a Free
Patent title (Original Certificate of Title No. P-19766) had been issued in favor of
petitioners on August 4, 1976 or before the foreclosure sale.

On September 21, 1994, or more than seventeen (17) years after the foreclosure sale,
petitioner Basilio Hilaga sent a letter to the respondent bank’s lawyer, the late Atty.
Ismail Arceno, conveying his desire to redeem the subject property.   When the letter
remained unanswered, petitioners, through their counsel, again sent a letter dated May
4, 1999, seeking to redeem the foreclosed property. The second letter, however, also
remained unheeded.

Thus, on June 3, 1999, petitioners filed a complaint for Redemption of Foreclosed

Mortgaged Property Under [Act No. 3135] before the Regional Trial Court of Surallah,
South Cotabato, Branch 26, seeking to redeem the subject property from the
respondent bank under the provisions of Act No. 3135.  In their complaint, petitioners
alleged that the mortgage and subsequent foreclosure of the subject property had not
been annotated on the title nor registered with the Register of Deeds. Also, no
annotation and consolidation of ownership was made in favor of the respondent bank. 
Thus, the one (1)-year redemption period under Act No. 3135, which commences from
the date of registration of the sale, has not yet started.  They insisted that, indeed, their
right of redemption has not yet expired because under Section 119 of Commonwealth
Act No. 141 or the Public Land Act, a homesteader whose homestead has been sold at
a public auction by virtue of an extrajudicial foreclosure, may repurchase said land
within five (5) years from the date of registration of the sale. Thus, they can still exercise
their right of redemption. They signified their willingness to redeem or repurchase the
foreclosed property by depositing the amount of P10,000.00 with the court.

The trial court rendered judgment in favor of petitioners. On appeal, the CA reversed
the trial court.  According to the CA, the right of petitioners to redeem their foreclosed
property can only be exercised within two (2) years from the date of foreclosure, as
provided under Republic Act No. 720 or the Rural Banks’ Act, as amended by Republic
Act No. 2670. The CA also ruled that petitioners are guilty of laches.

On August 6, 2007, the CA denied petitioners’ motion for reconsideration. Hence, this
appeal.

ISSUE:

WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE

ERROR OF LAW AND GRAVE ABUSE OF DISCRETION IN HOLDING THAT
PETITIONERS HAS ONLY TWO YEARS TO REDEEM THEIR PROPERTY
FROM THE ISSUANCE OF CERTIFICATE OF SALE AFTER THE SAME WAS
FORECLOSED.

RULING:

The petition has no merit.

In the present case, petitioners admit that when the property was mortgaged, only the
tax declaration was presented.  Although a free patent title was subsequently issued in
their favor on August 4, 1976, petitioners failed to inform the creditor rural bank of such
issuance.  As a result, the certificate of sale was not registered or annotated on the free
patent title. Petitioners are estopped from redeeming the property based on the free
patent title which was not presented during the foreclosure sale nor delivered to the
Register of Deeds for annotation of the certificate of sale as required under Section 5 of
Republic Act No. 720, as amended.  Estoppel in pais arises when one, by his acts,
representations or admissions, or by his own silence when he ought to speak out,
intentionally or through culpable negligence, induces another to believe certain facts to
exist and such other rightfully relies and acts on such belief, so that he will be
prejudiced if the former is permitted to deny the existence of such facts.  

Petitioners cannot fault respondent for the non-registration of the certificate of sale
because petitioners did not inform the respondent bank that a Torrens title had already
been acquired by them on August 4, 1976.  By their silence and inaction, petitioners
misled the respondent bank to believe that their only proof of ownership was the tax
declaration.   Thus, the two (2)-year redemption period shall be reckoned from the date
of the foreclosure.  Apropos is the CA’s ruling on this matter:

It is undisputed that the foreclosed property was not yet covered by

a Torrens title, being merely covered by a Tax Declaration, when
appellees mortgaged their property.  Clearly, the right of appellees to
redeem their foreclosed property can only be exercised within two (2)
years from the date of foreclosure, as provided for under R.A. No. 720, as
amended by R.A. No. 2670.  When the instant suit commenced on 31 May
1999, appellees right to redeem had already lapsed since they had only
until 1979 to exercise their right of redemption or within two (2) years from
the foreclosure proceedings in 1977.

For the same reason, petitioners’ assertion that they will have five (5) years from the date of
registration of the sale to redeem the foreclosed property under Section 119 of the Public
Land Act has no merit, the reckoning period for the redemption period being properly from
the date of sale.

But even assuming arguendo that petitioners can avail of the five (5)-year redemption
period provided under Section 119 of the Public Land Act, they still failed to exercise
their right of redemption within the reglementary period provided by law. As mentioned
earlier, Section 119 of said Act expressly provides that where the land involved is
acquired as a homestead or under a free patent, if the mortgagor fails to exercise the
right of redemption, he or his heirs may still repurchase the property within five (5) years
from the expiration of the two (2)-year redemption period. The auction sale having been
conducted on April 20, 1977, petitioners had until April 20, 1984 within which to redeem
the mortgaged property.  Since petitioner only filed the instant suit in 1999, their right to
redeem had already lapsed. It took petitioners twenty-two (22) years before instituting
an action for redemption.  The considerable delay in asserting one’s right before a court
of justice is strongly persuasive of the lack of merit in petitioners’ claim, since it is
human nature for a person to enforce his right when the same is threatened or invaded. 

 
G.R. No. 165133; April 19, 2010

SPS. ALCANTARA & SPS. RUBI vs. BRIGIDA L. NIDO, as attorney-in-fact of

REVELEN N. SRIVASTAVA

FACTS:

Revelen, who is respondent’s daughter and of legal age, is the owner of an unregistered
land with an area of 1,939 square meters located in Cardona, Rizal. Sometime in March
1984, respondent accepted the offer of petitioners to purchase a 200-square meter
portion of Revelen’s lot (lot) at P200 per square meter. Petitioners paid P3,000 as
downpayment and the balance was payable on installment. Petitioners constructed their
houses in 1985. In 1986, with respondent’s consent, petitioners occupied an additional
150 square meters of the lot. By 1987, petitioners had already paid P17,500 before
petitioners defaulted on their installment payments.

On 11 May 1994, respondent, acting as administrator and attorney-in-fact of Revelen,

filed a complaint for recovery of possession with damages and prayer for preliminary
injunction against petitioners with the RTC.  

The RTC stated that based on the evidence presented, Revelen owns the lot and
respondent was verbally authorized to sell 200 square meters to petitioners. The RTC
ruled that since respondent’s authority to sell the land was not in writing, the sale was
void under Article 1874 of the Civil Code.  The RTC ruled that rescission is the proper
remedy.

Petitioners appealed the trial court’s Decision to the appellate court. In its decision
dated 10 June 2004, the appellate court reversed the RTC decision and dismissed the
civil case. Aggrieved by the appellate court’s Decision, petitioners elevated the case
before this Court.

ISSUE:

Whether or not the appellate court gravely erred in ruling that the contract entered into
by respondent, in representation of her daughter, and former defendant Eduardo Rubi
(deceased), is void.

RULING:

We deny the petition.

Petitioners submit that the sale of land by an agent who has no written authority is not
void but merely voidable given the spirit and intent of the law. Being only voidable, the
contract may be ratified, expressly or impliedly. Petitioners argue that since the contract
to sell was sufficiently established through respondent’s admission during the pre-trial
conference, the appellate court should have ruled on the matter of the counterclaim for
specific performance.

Respondent argues that the appellate court cannot lawfully rule on petitioners’
counterclaim because there is nothing in the records to sustain petitioners’ claim that
they have fully paid the price of the lot. Respondent points out that petitioners admitted
the lack of written authority to sell. Respondent also alleges that there was clearly no
meeting of the minds between the parties on the purported contract of sale.

Sale of Land through an Agent

 Articles 1874 and 1878 of the Civil Code provide:

 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:
 
            x x x
 
            (5) To enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a valuable
consideration;
 
            x x x

Article 1874 of the Civil Code explicitly requires a written authority before an agent can
sell an immovable property. Based on a review of the records, there is absolutely no
proof of respondent’s written authority to sell the lot to petitioners. In fact, during the pre-
trial conference, petitioners admitted that at the time of the negotiation for the sale of the
lot, petitioners were of the belief that respondent was the owner of lot. Petitioners only
knew that Revelen was the owner of the lot during the hearing of this case.
Consequently, the sale of the lot by respondent who did not have a written authority
from Revelen is void. A void contract produces no effect either against or in favor of
anyone and cannot be ratified.

A special power of attorney is also necessary to enter into any contract by which the
ownership of an immovable is transmitted or acquired for a valuable consideration.
Without an authority in writing, respondent cannot validly sell the lot to petitioners.
Hence, any “sale” in favor of the petitioners is void.

 
G.R. No.  164747; May 4, 2010

CORDERO vs. ALLAN C. GO, doing business under  the  name  and   style “ACG  
Express    Liner,” FELIPE M. LANDICHO and VINCENT D. TECSON

FACTS:

Sometime in 1996, Mortimer F. Cordero, Vice-President of Pamana Marketing

Corporation (Pamana), ventured into the business of marketing inter-island passenger
vessels.  After contacting various overseas fast ferry manufacturers from all over the
world, he came to meet Tony Robinson, an Australian national based in Brisbane,
Australia, who is the Managing Director of Aluminium Fast Ferries Australia (AFFA). 

Between June and August 1997, Robinson signed documents appointing Cordero as
the exclusive distributor of AFFA catamaran and other fast ferry vessels in the
Philippines.  As such exclusive distributor, Cordero offered for sale to prospective
buyers the 25-meter Aluminium Passenger catamaran known as the SEACAT 25.    

After negotiations with Felipe Landicho and Vincent Tecson, lawyers of Allan C. Go who
is the owner/operator of ACG Express Liner of Cebu City, a single proprietorship,
Cordero was able to close a deal for the purchase of two (2) SEACAT 25 as evidenced
by the Memorandum of Agreement dated August 7, 1997. Accordingly, the parties
executed Shipbuilding Contract No. 7825 for one (1) high-speed catamaran (SEACAT
25) for the price of US$1,465,512.00.  Per agreement between Robinson and Cordero,
the latter shall receive commissions totalling US$328,742.00, or 22.43% of the
purchase price, from the sale of each vessel.   

Cordero made two (2) trips to the AFFA Shipyard in Brisbane, Australia, and on one (1)
occasion even accompanied Go and his family and Landicho, to monitor the progress of
the building of the vessel.  He shouldered all the expenses for airfare, food, hotel
accommodations, transportation and entertainment during these trips.  He also spent for
long distance telephone calls to communicate regularly with Robinson, Go, Tecson and
Landicho.

However, Cordero later discovered that Go was dealing directly with Robinson when he
was informed by Dennis Padua of Wartsila Philippines that Go was canvassing for a
second catamaran engine from their company which provided the ship engine for the
first SEACAT 25.  Padua told Cordero that Go instructed him to fax the requested
quotation of the second engine to the Park Royal Hotel in Brisbane where Go was then
staying.  Cordero tried to contact Go and Landicho to confirm the matter but they were
nowhere to be found, while Robinson refused to answer his calls.  Cordero immediately
flew to Brisbane to clarify matters with Robinson, only to find out that Go and Landicho
were already there in Brisbane negotiating for the sale of the second SEACAT 25.  
Despite repeated follow-up calls, no explanation was given by Robinson, Go, Landicho
and Tecson who even made Cordero believe there would be no further sale between
AFFA and ACG Express Liner.

On August 21, 1998, Cordero instituted Civil Case No. 98-35332  seeking to hold
Robinson, Go, Tecson and Landicho liable jointly and solidarily for conniving and
conspiring together in violating his exclusive distributorship in bad faith and wanton
disregard of his rights, thus depriving him of his due commissions (balance of unpaid
commission from the sale of the first vessel in the amount of US$31,522.01 and unpaid
commission for the sale of the second vessel in the amount of US$328,742.00)  and
causing him actual, moral and exemplary damages, including P800,000.00 representing
expenses for airplane travel to Australia, telecommunications bills and entertainment, on
account of AFFA’s untimely cancellation of the exclusive distributorship agreement. 
Cordero also prayed for the award of moral and exemplary damages, as well as
attorney’s fees and litigation expenses.
Robinson filed a motion to dismiss grounded on lack of jurisdiction over his person and
failure to state a cause of action, asserting that there was no act committed in violation
of the distributorship agreement.  Said motion was denied by the trial court on
December 20, 1999.  Robinson was likewise declared in default for failure to file his
answer within the period granted by the trial court.   As for Go and Tecson, their motion
to dismiss based on failure to state a cause of action was likewise denied by the trial
court on February 26, 1999.  Subsequently, they filed their Answer denying that they
have anything to do with the termination by AFFA of Cordero’s authority as exclusive
distributor in the Philippines.  On the contrary, they averred it was Cordero who stopped
communicating with Go in connection with the purchase of the first vessel from AFFA
and was not doing his part in making progress status reports and airing the client’s
grievances to his principal, AFFA, such that Go engaged the services of Landicho to fly
to Australia and attend to the documents needed for shipment of the vessel to the
Philippines.  As to the inquiry for the Philippine price for a Wartsila ship engine for
AFFA’s other on-going vessel construction, this was merely requested by Robinson but
which Cordero misinterpreted as indication that Go was buying a second vessel. 
Moreover, Landicho and Tecson had no transaction whatsoever with Cordero who had
no document to show any such shipbuilding contract.  As to the supposed meeting to
settle their dispute, this was due to the malicious demand of Cordero to be given
US$3,000,000 as otherwise he will expose in the media the alleged undervaluation of
the vessel with the BOC.  In any case, Cordero no longer had cause of action for his
commission for the sale of the second vessel under the memorandum of agreement
dated August 7, 1997 considering the termination of his authority by AFFA’s lawyers on
June 26, 1998.

On May 31, 2000, the trial court rendered its judgment in favor of Plaintiff and against
defendants Allan C. Go, Tony Robinson, Felipe Landicho, and Vincent Tecson. On
January 29, 2001, the CA rendered judgment granting the petition for certiorari in CA-
G.R. SP No. 60354 and setting aside the trial court’s orders of execution pending
appeal.

The case before the Supreme Court is a consolidation of the petitions for review
under Rule 45 separately filed by Go (G.R. No. 164703) and Cordero (G.R. No.
164747).

ISSUE:

(1) Whether petitioner Cordero has the legal personality to sue the respondents for
breach of contract; and

(2) whether the respondents may be held liable for damages to Cordero for his
unpaid commissions and termination of his exclusive distributorship appointment
by the principal, AFFA.

RULING:

While it is true that a third person cannot possibly be sued for breach of contract
because only parties can breach contractual provisions, a contracting party may sue
a third person not for breach but for inducing another to commit such breach. 
Article 1314 of the Civil Code provides:
Art. 1314. Any third person who induces another to violate his contract
shall be liable for damages to the other contracting party.

The elements of tort interference are: (1) existence of a valid contract; (2)
knowledge on the part of the third person of the existence of a contract; and (3)
interference of the third person is without legal justification.
The presence of the first and second elements is not disputed.  Through the letters
issued by Robinson attesting that Cordero is the exclusive distributor of AFFA in
the Philippines, respondents were clearly aware of the contract between Cordero
and AFFA represented by Robinson.  In fact, evidence on record showed that
respondents initially dealt with and recognized Cordero as such exclusive dealer of
AFFA high-speed catamaran vessels in the Philippines.  In that capacity as
exclusive distributor, petitioner Go entered into the Memorandum of Agreement
and Shipbuilding Contract No. 7825 with Cordero in behalf of AFFA.

The rule is that the defendant found guilty of interference with contractual
relations cannot be held liable for more than the amount for which the party who
was inducted to break the contract can be held liable.  Respondents Go, Landicho
and Tecson were therefore correctly held liable for the balance of petitioner
Cordero’s commission from the sale of the first SEACAT 25, in the amount of
US$31,522.09 or its peso equivalent, which AFFA/Robinson did not pay in
violation of the exclusive distributorship agreement, with interest at the rate of 6%
per annum from June 24, 1998 until the same is fully paid.   

Respondents having acted in bad faith, moral damages may be recovered under
Article 2219 of the Civil Code. 

 
G.R. No. 187556; May 5, 2010

PLANTERS DEVELOPMENT BANK vs. JAMES NG and ANTHONY NG

FACTS:

On various occasions in 1997, James Ng and his brother Anthony (respondents)

obtained loans from petitioner amounting to Twenty Five Million Pesos
(P25,000,000.00) to secure which they mortgaged two parcels of land situated in San
Francisco del Monte, Quezon City and covered by Transfer Certificate of Title (TCT)
Nos. 79865 and 79866 of the Registry of Deeds of Quezon City.

 Respondents failed to settle their loan obligation, hence, petitioner instituted

extrajudicial foreclosure of the mortgage before Notary Public Stephen Z. Taala.  The
Notice of Auction Sale scheduled the sale of the properties covered by the mortgage on
April 7, 1999 at the Main Entrance of the Hall of Justice Building in Quezon City.  The
Notice was published in Metro Profile, a newspaper of general circulation, in its March
9, 16 and 23, 1999 issues.

The highest bidder at the auction sale was petitioner to which was issued a Certificate
of Sale that was registered with the Register of Deeds of Quezon City on May 19, 1999.

 As respondents failed to redeem the mortgage within one year, petitioner filed on June
26, 2001, an ex-parte petition for the issuance of a writ of possession, docketed as LRC
Case No. Q-14305 (01) and lodged before RTC-QC, Branch 77.

 In the meantime, respondents instituted an action for Annulment of Certificate of Sale,
Promissory Note and Deed of Mortgage, raffled to RTC-QC, Branch 221 which, by
Order of June 14, 2000, issued a writ of preliminary injunction restraining petitioner from
consolidating its title to the properties and committing any act of dispossession that
would defeat respondents’ right of ownership.

 After numerous incidents arising from petitioner’s petition for issuance of a writ of
possession and respondents’ complaint for annulment which incidents reached this
Court, petitioner was finally allowed by Branch 77 of the RTC-QC, by Order of August
22, 2008, to present evidence ex parte on its petition for the issuance of a writ of
possession.  By Decision of January 19, 2009, RTC-QC, Branch 77 denied the
issuance of a writ of possession in this wise. Petitioner’s motion for reconsideration of
the decision having been denied by Order of April 20, 2009, it filed, before this Court,
the present petition for review on certiorari on pure questions of law, in accordance with
Rule 45 of the Rules of Court.

ISSUE:

Whether or not the validity of a mortgage or its foreclosure as well as the sale of the
property covered by the mortgage cannot be raised as ground to deny the issuance of a
writ of possession.

RULING:

The petition is meritorious.

It is settled that questions regarding the validity of a mortgage or its foreclosure as well
as the sale of the property covered by the mortgage cannot be raised as ground to deny
the issuance of a writ of possession. Any such questions must be determined in a
subsequent proceeding as in fact, herein respondents commenced an action for
Annulment of Certificate of Sale, Promissory Note and Deed of Mortgage.
Since respondents failed to redeem the mortgage within the reglementary period,
entitlement to the writ of possession becomes a matter of right and the issuance thereof
is merely a ministerial function. 
G.R. No.  174719; May 5, 2010

HEIRS OF MARIO PACRES vs. HEIRS of CECILIA YGOÑA

FACTS:

Lot No. 9 is a 1,007 square meter parcel of land located at Kinasang-an, Pardo, Cebu City and
fronting the Cebu provincial highway.  The lot originally belonged to Pastor Pacres (Pastor)
who left it intestate to his heirs Margarita, Simplicia, Rodrigo, Francisco, Mario (petitioners’
predecessor-in-interest) and Veñaranda (herein petitioner).  Petitioners admitted that at the
time of Pastor’s death in 1962, his heirs were already occupying definite portions of Lot No. 9. 
The front portion along the provincial highway was occupied by the co-owned Pacres
ancestral home, and beside it stood Rodrigo’s hut (also fronting the provincial highway). 
Mario’s house stood at the back of the ancestral house.  This is how the property stood in
1968, as confirmed by petitioner Valentina’s testimony. 

On the same year, the heirs leased “the ground floor of the [ancestral home] together with a lot
area of 300 square meters including the area occupied by the house” to respondent Hilario
Ramirez (Ramirez), who immediately took possession thereof.  Subsequently in 1974, four of
the Pacres siblings (namely, Rodrigo, Francisco, Simplicia and Margarita) sold their shares in
the ancestral home and the lot on which it stood to Ramirez.  The deeds of sale described the
subjects thereof as “part and portion of the 300 square meters actually in possession and
enjoyment by vendee and her spouse, Hilario Ramirez, by virtue of a contract of lease in their
favor.”  The Deed of Sale of Right in a House executed by Rodrigo and Francisco was more
detailed, to wit:

x x x do hereby sell, cede, transfer and convey, forever and in absolute manner, our shares
interests and participation in a house of mixed materials under roof of nipa which is constructed
inside Lot No. 5506 of the Cadastral Survey of Cebu, the lot on which the house is constructed
has already been sold to and bought by the herein vendee from our brothers and sisters; that this
sale pertains only to our rights and interests and participation in the house which we inherited
from our late father Pastor Pacres.

With the sale, respondent Ramirez’s possession as lessee turned into a co-ownership with
petitioners Mario and Veñaranda, who did not sell their shares in the house and lot.  

On various dates in 1971, Rodrigo, Francisco, and Simplicia sold their remaining shares in Lot
No. 9 to respondent Cecilia Ygoña (Ygoña).  In 1983, Margarita also sold her share to Ygoña. 
The total area sold to Ygoña was 493 square meters.     In 1984, Ygoña filed a petition to
survey and segregate the portions she bought from Lot No. 9.  Mario objected on the ground
that he wanted to exercise his right as co-owner to redeem his siblings’ shares.  Vendee
Rodrigo also opposed on the ground that he wanted to annul the sale for failure of
consideration.  On the other hand, Margarita and the widow of Francisco both manifested their
assent to Ygoña’s petition.  By virtue of such manifestation, the court issued a writ of
possession respecting Margarita’s and Francisco’s shares in favor of Ygoña.  It is by authority
of this writ that Ygoña built her house on a portion of Lot No. 9.  Considering, however, the
objections of the two other Pacres siblings, the trial court subsequently dismissed the petition
so that the two issues could be threshed out in the proper proceeding.  Mario filed the intended
action while Rodrigo no longer pursued his objection.

The complaint for legal redemption, filed by Mario and Veñaranda, was dismissed on the
ground of improper exercise of the right.  The decision was affirmed by the appellate court and
attained finality in the Supreme Court on December 28, 1992.   The CA held that the complaint
was filed beyond the 30-day period provided in Article 1623 of the New Civil Code and failed to
comply with the requirement of consignation.  It was further held that Ygoña built her house on
Lot No. 9 in good faith and it would be unjust to require her to remove her house thereon.

On June 18, 1993, the Republic of the Philippines, through the Department of Public Works
and Highways (DPWH), expropriated the front portion of Lot No. 9 for the expansion of the
Cebu south road.  The petition for expropriation was filed in Branch 9 of the Regional Trial
Court of Cebu City and docketed as Civil Case No. CEB-14150.  As occupant of the
expropriated portion, Ygoña moved to withdraw her corresponding share in the expropriation
payment. Petitioners opposed the said motion.  The parties did not supply the Court with the
pleadings in the expropriation case; hence, we are unaware of the parties involved and the
issues presented therein.  However, from all indications, the said motion of Ygoña remains
unresolved.

On July 20, 1993, the Pacres siblings (Margarita and Francisco were already deceased at that
time and were only represented by their heirs) executed a Confirmation of Oral
Partition/Settlement of Estate of Pastor Pacres. 

On September 30, 1994, Mario, petitioners’ predecessor-in-interest, filed an ejectment suit

against Ramirez’ successor-in-interest Vicentuan.  Mario claimed sole ownership of the lot
occupied by Ramirez/Vicentuan by virtue of the oral partition.  He argued that
Ramirez/Vicentuan should pay rentals to him for occupying the front lot and should transfer to
the rear of Lot No. 9 where the lots of Ramirez’s vendors are located. 

The court dismissed Mario’s assertion that his siblings sold the rear lots to Ramirez.  It held that
the deeds of sale in favor of Ramirez clearly described the object of the sale as the ancestral
house and lot.  Thus, Ramirez has a right to continue occupying the property he bought.  The
court further held that since Mario did not sell his pro-indiviso shares in the house and lot, at the
very least, the parties are co-owners thereof. Co-owners are entitled to occupy the co-owned
property. 

The trial court ruled in favor of respondents. Petitioners’ motion for reconsideration was
denied. Unsatisfied with the adverse decision, petitioners appealed to the CA.

ISSUE:

Whether petitioners were able to prove the existence of the alleged oral agreements
such as the partition and the additional obligations of surveying and titling.

RULING:

In fine, we rule that the records contain ample support for the trial and appellate courts’ factual
findings that petitioners failed to prove their allegation of oral partition.  While petitioners claim
that the trial and appellate courts did not appreciate their evidence regarding the existence of
the alleged oral partition, the reality is that their evidence is utterly unconvincing. 

With respect to the alleged additional obligations which petitioners seek to be enforced against
respondent Ygoña, we likewise find that the trial and appellate courts did not err in rejecting
them.  Petitioners allege that when Ygoña bought portions of Lot No. 9 from petitioners’ four
siblings, aside from paying the purchase price, she also bound herself to survey Lot No. 9
including the shares of the petitioners (the non-selling siblings); to deliver to petitioners, free of
cost, the titles corresponding to their definite shares in Lot No. 9; and to pay for all their past
and present estate and realty taxes.  According to petitioners, Ygoña agreed to these
undertakings as additional consideration for the sale, even though they were not written in the
Deeds of Sale.

Like the trial and appellate courts, we find that these assertions by petitioners have not been
sufficiently established. 

In the first place, under Article 1311 of the Civil Code, contracts take effect only between the
parties, their assigns and heirs (subject to exceptions not applicable here).  Thus, only a party
to the contract can maintain an action to enforce the obligations arising under said contract. 
Consequently, petitioners, not being parties to the contracts of sale between Ygoña and the
petitioners’ siblings, cannot sue for the enforcement of the supposed obligations arising from
said contracts. 

It is true that third parties may seek enforcement of a contract under the second paragraph of
Article 1311, which provides that “if a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment.”  This refers to stipulations pour autrui, or stipulations for
the benefit of third parties.  However, the written contracts of sale in this case contain no such
stipulation in favor of the petitioners.  While petitioners claim that there was an oral stipulation,
it cannot be proven under the Parol Evidence Rule.  Under this Rule, “[w]hen the terms of an
agreement have been reduced to writing, it is considered as containing all the terms agreed
upon 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.”  While the Rule admits of
exception, no such exception was pleaded, much less proved, by petitioners.

 
G.R. No. 178523; June 16, 2010

MAKATI SPORTS CLUB, INC. vs. CECILE H. CHENG

FACTS:

 On October 20, 1994, plaintiff’s Board of Directors adopted a resolution (Exhibit 7)
authorizing the sale of 19 unissued shares at a floor price of P400,000 and P450,000
per share for Class A and B, respectively.

Defendant Cheng was a Treasurer and Director of plaintiff in 1985.  On July 7, 1995,
Hodreal expressed his interest to buy a share, for this purpose he sent the letter, Exhibit
13.  In said letter, he requested that his name be included in the waiting list.

It appears that sometime in November 1995, McFoods expressed interest in acquiring a

share of the plaintiff, and one was acquired with the payment to the plaintiff by McFoods
of P1,800,000 through Urban Bank (Exhibit 3).  On December 15, 1995, the Deed of
Absolute Sale, Exhibit 1, was executed by the plaintiff and McFoods Stock Certificate
No. A 2243 was issued to McFoods on January 5, 1996.  On December 27, 1995,
McFoods sent a letter to the plaintiff giving advise (sic) of its offer to resell the share.

It appears that while the sale between the plaintiff and McFoods was still under
negotiations, there were negotiations between McFoods and Hodreal for the purchase
by the latter of a share of the plaintiff.  On November 24, 1995, Hodreal paid McFoods
P1,400,000.  Another payment of P1,400,000 was made by Hodreal to McFoods on
December 27, 1995, to complete the purchase price of P2,800,000.

On February 7, 1996, plaintiff was advised of the sale by McFoods to Hodreal of the
share evidenced by Certificate No. 2243 for P2.8 Million.  Upon request, a new
certificate was issued.  In 1997, an investigation was conducted and the committee held
that there is prima facie evidence to show that defendant Cheng profited from the
transaction because of her knowledge.

Plaintiff’s evidence of fraud are – [a] letter of Hodreal dated July 7, 1995 where he
expressed interest in buying one (1) share from the plaintiff with the request that he be
included in the waiting list of buyers; [b] declaration of Lolita Hodreal in her Affidavit that
in October 1995, she talked to Cheng who assured her that there was one (1) available
share at the price of P2,800,000.  The purchase to be validated by paying 50%
immediately and the balance after thirty (30) days; [c] Marian Punzalan, Head,
Membership Section of the plaintiff declared that she informed Cheng of the intention of
Hodreal to purchase one (1) share and she gave to Cheng the contact telephone
number of Hodreal; and [d] the authorization from Sabarre to claim the stock certificate.

Thus, petitioner sought judgment that would order respondents to pay the sum of
P1,000,000.00, representing the amount allegedly defrauded, together with interest and
damages.

After trial on the merits, the RTC rendered its August 20, 2003 decision, dismissing the
complaint, including all counterclaims. The CA promulgated its assailed Decision,
affirming the August 20, 2003 decision of the RTC. 

RULING:

We disagree.

Undeniably, on December 27, 1995, when Mc Foods offered for sale one Class “A”
share of stock to MSCI for the price of P2,800,000.00 for the latter to exercise its pre-
emptive right as required by Section 30(e) of MSCI’s Amended By-Laws, it legally had
the right to do so since it was already an owner of a Class “A” share by virtue of its
payment on November 28, 1995, and the Deed of Absolute Share dated December 15,
1995, notwithstanding the fact that the stock certificate was issued only on January 5,
1996.  A certificate of stock is the paper representative or tangible evidence of the stock
itself and of the various interests therein.  The certificate is not a stock in the corporation
but is merely evidence of the holder’s interest and status in the corporation, his
ownership of the share represented thereby.  It is not in law the equivalent of such
ownership.  It expresses the contract between the corporation and the stockholder, but
is not essential to the existence of a share of stock or the nature of the relation of
shareholder to the corporation. 

Therefore, Mc Foods properly complied with the requirement of Section 30(e) of the
Amended By-Laws on MSCI’s pre-emptive rights.  Without doubt, MSCI failed to
repurchase Mc Foods’ Class “A” share within the thirty (30) day pre-emptive period as
provided by the Amended By-Laws.  It was only on January 29, 1996, or 32 days after
December 28, 1995, when MSCI received Mc Foods’ letter of offer to sell the share, that
Mc Foods and Hodreal executed the Deed of Absolute Sale over the said share of
stock.  While Hodreal had the right to demand the immediate execution of the Deed of
Absolute Sale after his full payment of Mc Foods’ Class “A” share, he did not do so.  
Perhaps, he wanted to wait for Mc Foods to first comply with the pre-emptive
requirement as set forth in the Amended By-Laws. Neither can MSCI argue that Mc
Foods was not yet a registered owner of the share of stock when the latter offered it for
resale, in order to void the transfer from Mc Foods to Hodreal.  The corporation’s
obligation to register is ministerial upon the buyer’s acquisition of ownership of the share
of stock.  The corporation, either by its board, its by-laws, or the act of its officers,
cannot create restrictions in stock transfers.

 Moreover, MSCI’s ardent position that Cheng was in cahoots with Mc Foods in
depriving it of selling an original, unissued Class “A” share of stock for P2,800,000.00 is
not supported by the evidence on record.  The mere fact that she performed acts upon
authority of Mc Foods, i.e., receiving the payments of Hodreal in her office and claiming
the stock certificate on behalf of Mc Foods, do not by themselves, individually or taken
together, show badges of fraud, since Mc Foods did acts well within its rights and there
is no proof that Cheng personally profited from the assailed transaction.  Even the
statement of MSCI that Cheng doctored the books to give a semblance of regularity to
the transfers involving the share of stock covered by Certificate A 2243 remains merely
a plain statement not buttressed by convincing proof.

Fraud is deemed to comprise anything calculated to deceive, including all acts,

omissions, and concealment involving a breach of legal or equitable duty, trust or
confidence justly reposed, resulting in the damage to another or by which an undue and
unconscionable advantage is taken of another.  It is a question of fact that must be
alleged and proved.  It cannot be presumed and must be established by clear and
convincing evidence, not by mere preponderance of evidence.  The party alleging the
existence of fraud has the burden of proof.  On the basis of the above disquisitions, this
Court finds that petitioner has failed to discharge this burden.  No matter how strong the
suspicion is on the part of petitioner, such suspicion does not translate into tangible
evidence sufficient to nullify the assailed transactions involving the subject MSCI Class
“A” share of stock.

WHEREFORE, the petition is DENIED for lack of merit.

G.R. No. 174632; June 16, 2010

FELICIDAD T. MARTIN, et. al. vs. DBS BANK PHILIPPINES, INC. (Formerly known
as Bank of Southeast Asia) now merged with and into BPI FAMILY BANK

FACTS:

On March 27, 1997 Felicidad T. Martin, Melissa M. Isidro, Grace M. David, Caroline M.
Garcia, Victoria M. Roldan, and Benjamin T. Martin, Jr. (the Martins), as lessors,
entered into a lease contract with the DBS Bank Philippines, Inc. (DBS), formerly known
as Bank of Southeast Asia and now merged with Bank of the Philippine Islands, as
lessee, covering a commercial warehouse and lots that DBS was to use for office,
warehouse, and parking yard for repossessed vehicles.  The lease was for five years,
from March 1, 1997 to March 1, 2002, at a monthly rent of P300,000.00 for the first
year, P330,000.00 for the second year, P363,000.00 for the third year, P399,300.00 for
the fourth year, and P439,230.00 for the final year, all net of withholding taxes.  DBS
paid a deposit of P1,200,000.00 and advance rentals of P600,000.00.

On May 25 and August 13, 1997 heavy rains flooded the leased property and
submerged into water the DBS offices there along with its 326 repossessed vehicles. 
As a result, on February 11, 1998 DBS wrote the Martins demanding that they take
appropriate steps to make the leased premises suitable as a parking yard for its
vehicles.  DBS suggested the improvement of the drainage system or the raising of the
property’s ground level.  In response, the Martins filled the property’s grounds with soil
and rocks.   

But DBS lamented that the property remained unsuitable for its use since the Martins
did not level the grounds.   Worse, portions of the perimeter fence collapsed because of
the excessive amount of soil and rock that were haphazardly dumped on it.  In June
1998, DBS vacated the property but continued paying the monthly rents.  On
September 11, 1998, however, it made a final demand on the Martins to restore the
leased premises to tenantable condition on or before September 30, 1998, otherwise, it
would rescind the lease contract. 

On September 24, 1998 the Martins contracted the services of Altitude Systems &
Technologies Co. for the reconstruction of the perimeter fence on the property.   On
October 13, 1998 DBS demanded the rescission of the lease contract and the return of
its deposit.  At that point, DBS had already paid the monthly rents from March 1997 to
September 1998.  The Martins refused, however, to comply with DBS’ demand. 

On appeal to the Court of Appeals (CA) in CA-G.R. CV 76210, the latter court rendered
judgment dated April 26, 2006, reversing and setting aside the RTC decision. 

On July 7, 1999 DBS filed a complaint against the Martins for rescission of the contract
of lease with damages before the Regional Trial Court (RTC) of Makati City, Branch
141, in Civil Case 99-1266.   Claiming that the leased premises had become
untenantable, DBS demanded rescission of the lease contract as well as the return of
its deposit of P1,200,000.00.

On November 12, 2001 the Makati City RTC rendered a decision, dismissing the
complaint against the Martins. On appeal to the Court of Appeals , the latter court
rendered judgment dated April 26, 2006, reversing and setting aside the RTC decision.

With the denial of their separate motions for reconsideration, DBS and the Martins filed
their respective petitions for review before this Court in G.R. 174632 and 174804.  The
Court eventually consolidated the two cases.

ISSUES:

Whether or not the CA erred in holding that the Martins allowed the leased premises to
remain untenantable after the floods, justifying DBS’ rescission of the lease agreement
between them
RULING:

Unless the terms of a contract are against the law, morals, good customs, and public
policy, such contract is law between the parties and its terms bind them.  In Felsan
Realty & Development Corporation v. Commonwealth of Australia, the Court regarded
as valid and binding a provision in the lease contract that allowed the lessee to pre-
terminate the same when fire damaged the leased building, rendering it uninhabitable or
unsuitable for living.

Here, paragraph VIII of the lease contract between DBS and the Martins permitted
rescission by either party should the leased property become untenantable because of
natural causes.  Thus:

 In case of damage to the leased premises or any portion thereof by reason of fault or
negligence attributable to the LESSEE, its agents, employees, customers, or guests, the LESSEE
shall be responsible for undertaking such repair or reconstruction.  In case of damage due to fire,
earthquake, lightning, typhoon, flood, or other natural causes, without fault or negligence
attributable to the LESSEE, its agents, employees, customers or guests, the LESSOR shall be
responsible for undertaking such repair or reconstruction.   In the latter case, if the leased
premises become untenantable, either party may demand for the rescission of this contract and in
such case, the deposit referred to in paragraph III shall be returned to the LESSEE immediately .
(Underscoring supplied.)

The Martins claim that DBS cannot invoke the above since they undertook the repair
and reconstruction of the leased premises, incurring P1.6 million in expenses.   The
Martins point out that the option to rescind was available only if they failed to do the
repair work and reconstruction. 

But, under their agreement, the remedy of rescission would become unavailable to DBS
only if the Martins, as lessors, made the required repair and reconstruction after the
damages by natural cause occurred, which meant putting the premises after the floods
in such condition as would enable DBS to resume its use of the same for the purposes
contemplated in the agreement, namely, as office, warehouse, and parking space for
DBS’ repossessed vehicles.  

Here, it is undisputed that the floods of May 25 and August 13, 1997 submerged the
DBS offices and its 326 repossessed vehicles.  The floods rendered the place
unsuitable for its intended uses.  And, while the Martins did some repairs, they did not
restore the place to meet DBS’ needs.  The photographs taken of the place show that
the Martins filled the grounds with soil and rocks to raise the elevation but did not level
and compact the same so they could accommodate the repossessed vehicles. 
Moreover, the heaviness of the filling materials caused portions of the perimeter walls to
collapse or lean dangerously.  Indeed, the Office of the City Engineer advised DBS that
unless those walls were immediately demolished or rehabilitated, they would endanger
passersby.

For their part, although the Martins insisted that they successfully repaired and restored
the leased areas, they failed to produce photographs that would contradict those that
DBS presented in court.  For one thing, the evidence for DBS shows that the Martins
simply dumped soil and rocks on the grounds, creating an uneven terrain that would not
permit vehicular parking.  True, the Martins contracted the services of Altitude Systems
and Technologies Co. but the scope of work covered only the construction of a new
perimeter fence, leaving out works that are essential to the leveling and compacting of
the grounds.

Undeniably, the DBS suffered considerable damages when flood waters deluged its
offices and 326 repossessed vehicles.   Notably, DBS vacated the leased premises in
June of 1998, without rescinding the lease agreement, evidently to allow for unhindered
repair of the grounds.  In fact, DBS continued to pay the monthly rents until September
1998, showing how DBS leaned back to enable the Martins to finish the repair and
rehabilitation of the place.   The Martins provided basis for rescission by DBS when they
failed to do so.

The Martins point out that paragraph X of the contract forbade the pre-termination of the
lease.  But, as the Court held in Manila International Airport Authority v. Gingoyon, the
various stipulations in a contract must be read together and given effect as their
meanings warrant.  Here, paragraph X, which barred pre-termination of the lease
agreement, cannot be read in isolation.  Paragraph VIII gave DBS and the Martins the
right to rescind the agreement in the event the property becomes untenantable due to
natural causes, including floods, unless proper repairs and rehabilitation are carried
out. 

As for the effective date of rescission, the record shows that DBS made a final demand
on the Martins on September 11, 1998, giving the latter up to September 30, 1998
within which to fully restore the leased property to a tenantable condition, otherwise, it
would rescind their lease contract.  Consequently, the Martins may be regarded in
default with respect to their obligation to repair and rehabilitate the leased property by
the end of September 1998 when they did not comply with the demand.  Contrary to the
ruling of the CA, it is not the filing of the action for rescission that marks the violation of
the lease agreement but the failure of the Martins to repair and rehabilitate the property
despite demand.
G.R. No. 171201; June 18, 2010

SPS. TECKLO vs. RURAL BANK OF PAMPLONA, INC.

FACTS:

On 20 January 1994, spouses Roberto and Maria Antonette Co obtained from

respondent Rural Bank of Pamplona, Inc. a P100,000.00 loan due in three months or on
20 April 1994. The loan was secured by a real estate mortgage on a 262-square meter
residential lot owned by spouses Co located in San Felipe, Naga City

One of the stipulations in the mortgage contract was that the mortgaged property would
also answer for the future loans of the mortgagor. Pursuant to this provision, spouses
Co obtained on 4 March 1994 a second  loan from respondent bank in the amount of
P150,000.00 due in three months or on 2 June 1994.

 Petitioners, spouses Benedict and Maricel Dy Tecklo, meanwhile instituted an action

for collection of sum of money against spouses Co. The case, docketed as Civil Case
No. 94-3161, was assigned to the Regional Trial Court (Branch 25) of Naga City. In the
said case, petitioners obtained a writ of attachment on the mortgaged property of
spouses Co. The notice of attachment was annotated on the TCT of the mortgaged
property as Entry No. 58941.

 When the two loans remained unpaid after becoming due and demandable, respondent
bank instituted extrajudicial foreclosure proceedings. In its 5 September 1994 petition
for extrajudicial foreclosure, respondent bank sought the satisfaction solely of the first
loan although the second loan had  also become due. At the public auction scheduled
on 19 December 1994, respondent bank offered the winning bid of P142,000.00, which
did not include the second loan. The provisional certificate of sale to respondent bank
was annotated on the TCT of the mortgaged property as Entry No. 60794.

Petitioners then exercised the right of redemption as successors-in-interest of the

judgment debtor. Stepping into the shoes of spouses Co, petitioners tendered on 9
August 1995 the amount of P155,769.50.

Respondent bank objected to the non-inclusion of the second loan. It also claimed that
the applicable interest rate should be the rate fixed in the mortgage, which was 24% per
annum plus 3% service charge per annum and 18% penalty per annum. However, the
Provincial Sheriff insisted that the interest rate should only be 12% per annum. 
Respondent bank then sought annulment of the redemption, injunction, and damages in
the Regional Trial Court (Branch 61) of Naga City.

The trial court ruled, among others, that the second loan, not having been annotated on
the TCT of the mortgaged property, could not bind third persons such as petitioners.
Applying the 24% per annum interest rate fixed in the mortgage.

The appellate court ruled that the redemption amount should have included the second
loan even though it was not annotated on the TCT of the mortgaged property.
Aggrieved, petitioners filed a motion for reconsideration, which the Court of Appeals
denied. Hence, the present petition for review.

ISSUE:

Whether the redemption amount includes the second loan in the amount of
P150,000.00 even if it was not included in respondent bank’s application for extrajudicial
foreclosure.

RULING:

The mortgage contract in this case contains the following blanket mortgage clause:
 1. That as security for the payment of the loan or advance in the principal sum of
ONE HUNDRED THOUSAND PESOS ONLY (P100,000.00) PESOS, Philippine
Currency, and such other loans or advances already obtained and/or still to
be obtained by the MORTGAGOR/S, either as MAKER/S, CO-MAKER/S,
SURETY/IES OR GUARANTOR/S from the MORTGAGEE payable on the date/s
stated in the corresponding promissory note/s and subject to the payment of
interest, other bank charges, and to other conditions mentioned thereon, x x x.
(Emphasis supplied)

A blanket mortgage clause, which makes available future loans without need of
executing another set of security documents, has long been recognized in our
jurisprudence. It is meant to save time, loan closing charges, additional legal services,
recording fees, and other costs. A blanket mortgage clause is designed to lower the
cost of loans to borrowers, at the same time making the business of lending more
profitable to banks. Settled is the rule that mortgages securing future loans are valid and
legal contracts.

Records of the present case show that the mortgage contract, containing the provision
that future loans would also be secured by the mortgage, is duly annotated on the TCT
of the mortgaged property. This constitutes sufficient notice to the world that the
mortgage secures not only the first loan but also future loans the mortgagor may obtain
from respondent bank. Applying the doctrine laid down in Tad-Y v. Philippine National
Bank, the second loan need not be separately annotated on the said TCT in order to
bind third parties such as petitioners.

For its failure to include the second loan in its application for extrajudicial foreclosure as
well as in its bid at the public auction sale, respondent bank is deemed to have waived
its lien on the mortgaged property with respect to the second loan. Of course,
respondent bank may still collect the unpaid second loan, and the interest thereon, in an
ordinary collection suit before the right to collect prescribes.

After the foreclosure of the mortgaged property, the mortgage is extinguished and the
purchaser at auction sale acquires the property free from such mortgage. Any
deficiency amount after foreclosure cannot constitute a continuing lien on the foreclosed
property, but must be collected by the mortgagee-creditor in an ordinary action for
collection. In this case, the second loan from the same mortgage deed is in the nature
of a deficiency amount after foreclosure.

In order to effect redemption, the judgment debtor or his successor -in-interest need
only pay the purchaser at the public auction sale the redemption amount composed of
(1) the price which the purchaser at the public auction sale paid for the property and (2)
the amount of any assessment or taxes which the purchaser may have paid on the
property after the purchase, plus the applicable interest. Respondent bank’s demand
that the second loan be added to the actual amount paid for the property at the public
auction sale finds no basis in law or jurisprudence.

 
G.R. No. 176841; June 29, 2010

ORDUÑA vs. EDUARDO J. FUENTEBELLA

FACTS:

Badly in need of money, Gabriel Jr. borrowed from Bernard the amount of PhP 50,000,
payable in two weeks at a fixed interest rate, with the further condition that the subject
lot would answer for the loan in case of default.  Gabriel Jr.  failed to pay the loan and
this led to the execution of a Deed of Sale dated June 30, 1999 and the issuance later
of TCT No. T-72782 for subject lot in the name of Bernard upon cancellation of TCT No.
71499 in the name of Gabriel, Jr. As the RTC decision indicated, the reluctant Bernard
agreed to acquire the lot, since he had by then ready buyers in respondents Marcos Cid
and Benjamin F. Cid (Marcos and Benjamin or the Cids).

Subsequently, Bernard sold to the Cids the subject lot for PhP 80,000. Armed with a
Deed of Absolute Sale of a Registered Land dated January 19, 2000, the Cids were
able to cancel TCT No. T-72782 and secure TCT No. 72783 covering the subject lot.
Just like in the immediately preceding transaction, the deed of sale between Bernard
and the Cids had respondent Eduardo J. Fuentebella (Eduardo) as one of the
instrumental witnesses.

Marcos and Benjamin, in turn, ceded the subject lot to Eduardo through a Deed of
Absolute Sale dated May 11, 2000. Thus, the consequent cancellation of TCT No. T-
72782 and issuance on May 16, 2000 of TCT No. T-3276 over subject lot in the name of
Eduardo.

As successive buyers of the subject lot, Bernard, then Marcos and Benjamin, and finally
Eduardo, checked, so each claimed, the title of their respective predecessors-in-interest
with the Baguio Registry and discovered said title to be free and unencumbered at the
time each purchased the property. Furthermore, respondent Eduardo, before buying the
property, was said to have inspected the same and found it unoccupied by the Orduñas.

Sometime in May 2000, or shortly after his purchase of the subject lot, Eduardo, through
his lawyer, sent a letter addressed to the residence of Gabriel Jr. demanding that all
persons residing on or physically occupying the subject lot vacate the premises or face
the prospect of being ejected. 

Learning of Eduardo’s threat, petitioners went to the residence of Gabriel Jr. at No. 34
Dominican Hill, Baguio City.  There, they met Gabriel Jr.’s estranged wife, Teresita, who
informed them about her having filed an affidavit-complaint against her husband and the
Cids for falsification of public documents on March 30, 2000. According to Teresita, her
signature on the June 30, 1999 Gabriel Jr.–Bernard deed of sale was a forgery. Teresita
further informed the petitioners of her intent to honor the aforementioned 1996 verbal
agreement between Gabriel Sr. and Antonita and the partial payments they gave her
father-in-law and her husband for the subject lot.

On July 3, 2001, petitioners, joined by Teresita, filed a Complaint for Annulment of Title,
Reconveyance with Damages against the respondents before the RTC and ruled for the
respondents. The appellate court rendered the assailed Decision affirming the RTC
decision. Hence this appeal.

ISSUE:

Whether or not the Statute of Frauds bars the enforcement of the verbal sale contract
between Gabriel Sr. and Antonita. 

RULING:

The petition is meritorious.

Statute of Frauds Inapplicable to Partially Executed Contracts.

The CA, just as the RTC, ruled that the contract is unenforceable for non-compliance
with the Statute of Frauds.

We disagree for several reasons. Foremost of these is that the Statute of Frauds
expressed in Article 1403, par. (2), of the Civil Code applies only to executory contracts,
i.e., those where no performance has yet been made. Stated a bit differently, the legal
consequence of non-compliance with the Statute does not come into play where the
contract in question is  completed, executed, or partially consummated.

The Statute of Frauds, in context, provides that a contract for the sale of real property or
of an interest therein shall be unenforceable unless the sale or some note or
memorandum thereof is in writing and subscribed by the party or his agent.  However,
where the verbal contract of sale has been partially executed through the partial
payments made by one party duly received by the vendor, as in the present case, the
contract is taken out of the scope of the Statute.

The purpose of the Statute is to prevent fraud and perjury in the enforcement of
obligations depending for their evidence on the unassisted memory of witnesses, by
requiring certain enumerated contracts and transactions to be evidenced by a writing
signed by the party to be charged.  The Statute requires certain contracts to be
evidenced by some note or memorandum in order to be enforceable.  The term
“Statute of Frauds” is descriptive of statutes that require certain classes of contracts to
be in writing.  The Statute does not deprive the parties of the right to contract with
respect to the matters therein involved, but merely regulates the formalities of the
contract necessary to render it enforceable.

Since contracts are generally obligatory in whatever form they may have been entered
into, provided all the essential requisites for their validity are present, the Statute simply
provides the method by which the contracts enumerated in Art. 1403 (2) may be proved
but does not declare them invalid because they are not reduced to writing.  In fine, the
form required under the Statute is for convenience or evidentiary purposes only. 

There can be no serious argument about the partial execution of the sale in question. 
The records show that petitioners had, on separate occasions, given Gabriel Sr. and
Gabriel Jr. sums of money as partial payments of the purchase price. These payments
were duly receipted by Gabriel Jr.  To recall, in his letter of May 1, 1997, Gabriel, Jr.
acknowledged having received the aggregate payment of PhP 65,000 from petitioners
with the balance of PhP 60,000 still remaining unpaid. But on top of the partial
payments thus made, possession of the subject of the sale had been transferred to
Antonita as buyer. Owing thus to its partial execution, the subject sale is no longer
within the purview of the Statute of Frauds.

Lest it be overlooked, a contract that infringes the Statute of Frauds is ratified by the
acceptance of benefits under the contract. Evidently, Gabriel, Jr., as his father earlier,
had benefited from the partial payments made by the petitioners. Thus, neither Gabriel
Jr. nor the other respondents—successive purchasers of subject lots—could plausibly
set up the Statute of Frauds to thwart petitioners’ efforts towards establishing their
lawful right over the subject lot and removing any cloud in their title.  As it were,
petitioners need only to pay the outstanding balance of the purchase price and that
would complete the execution of the oral sale.

 
G.R. No. 164791; June 29, 2010

SELWYN F. LAO VS. SPECIAL PLANS, INC.

FACTS:

Delfin Cruz, president of Special Plans, Inc. testified that on January 7, 1993, plaintiff-
corporation and herein defendants entered into a two-year Contract of Lease (Exhibit “A”
inclusive, with sub-markings) starting January 16, 1993 until January 15, 1995, involving a
portion of said plaintiff-corporation’s office building which used to be the Bahay Namin Food
and Drinks at 354 Quezon Avenue, Quezon City.  Defendants used the leased premises for
their karaoke and restaurant business known as Saporro Restaurant.  Upon [expiration of the
lease], defendants, through defendant Lao requested in writing (Exhibit “B”) for a renewal of the
contract of lease, but plaintiff-corporation agreed only for an eight-month extension of [the]
contract with all its terms and conditions on a month-to-month basis at a monthly rental of
P23,000.00. 
 
This witness further testified that while defendants paid the sum of P23,000.00 in
August 1996 they nevertheless failed to pay the agreed rental since March 16, 1996,
thus the accumulated unpaid rentals shot up to P118,000.00.  Plaintiff-corporation
demanded upon defendants payment therefor in a letter dated June 3, 1996 (Exhibit
“D” inclusive with sub-markings).
 
On cross, Delfin Cruz admitted that plaintiff-corporation did not inform defendants that it
was not the owner of the leased premises during the signing of the contract of lease
and that said defendants did not inform him of the structural defects of the subject
premises, including the repair works conducted thereon. 
 
Antonio San Mateo, vice-president for legal affairs of plaintiff-corporation, averred that
he made the demand to pay upon defendants for their failure to settle their agreed
monthly rentals starting March 16, 1996 to August 15, 1996; and that for the period
covering September 16, 1995 to October 15, 1995, defendants paid only P20,000.00,
hence, the balance of P3,000.00 (Exhibit “E”).
 
 In their defense, Jim and petitioners proffered the following:
 
Meanwhile, defendant Benjamin Jim testified that he was one of the signatories [to] the
original contract of lease involving the subject premises whose facilities, including the
roof, were already dilapidated: thus prompting the group to renovate the same.  After a
year of operation, Saporro lost so he decided to back out but defendant Lao convinced
him to stay with the group for another x x x year.  But the business lost even more so he
finally called it quits with the consent of the group.  He pulled out his audio-video
equipment, refrigerator, and air-conditioning unit on January 2, 1995, thirteen (13) days
before the expiration of the contract of lease.  He further denied having signed the
request for the extension of the contract.
 
On cross, he stated that he did not sign documents for and in behalf of Saporro;
and, that he allowed defendant Lao and Victor San Luis to sign for the group. 
 
Testifying for defendant Jim, Atty. Maria Rosario Carmela Nova declared that
defendant Jim sought her services on August 30, 1996 for the recovery of his
money invested at Mount Fuji and Saporro but Atty. Cesa, who acted as
counsel for defendants Lao and Manansala, refused to return the same in a
letter-reply dated September 23, 1996 (Exhibit “1-Jim” inclusive with sub-
markings).
 
Defendant Selwyn Lao testified that the group was not able to inspect the leased
premises since Delfin Cruz had no key thereon during the signing of the contract
of lease on January 7, 1993.  He stated that paragraph 6 of the said contract
provides that the LESSEE shall maintain the leased premises, including the
parking lot, in good, clean and sanitary condition and shall make all necessary
repairs thereon at his own expense except repairs of structural defects which
 shall be the responsibility of the LESSOR (Exhibit “1-Lao and Manansala”). 
When the group took possession of the leased premises on January 16, 1993,
the equipment and furniture, among others, were found to be not in good
condition.  The trusses, roof and ceiling of the premises were already
dilapidated.  Rain seeped through the floor.  When the group talked with Delfin
Cruz about the condition of the leased property, the latter would just tell the
former not to worry about it.
 
The group conducted structural and necessary repairs thereon, thus incurring
the sum of P545,000.00 (Exhibit “2-Lao and Manansala” inclusive, with sub-
markings), P125,000.00 of which was spent on structural defects, as follows:   
 
Roofing repair - P  45,000.00 (Exhibit “2-
A”)
Ceiling repair -     50,000.00 (Exhibit “2-
B”)
Flooring -     20,000.00 (Exhibit “2-
repair C”)
Waterproofing -     10,000.00 (Exhibit “2-
D”)
 
Defendant Lao further testified that Delfin Cruz told him to proceed with the
repair work without informing him (Lao) that plaintiff-corporation was not the
owner of the leased premises.  The witness added that the group paid the sum
of P23,000.00 on July 21, 1996 for the period March 16, 1996 to April 15, 1996.
 
On cross, he averred that he sought the expertise of Gregorio Tamayo to repair
the premises for P545,000.00; and that he had a verbal authority to sign for and
in behalf of defendant Jim who took his audio-video equipment on January 2,
1996.
 
Presented at the witness stand to testify for defendant Lao and Manansala,
Gregorio Tamayo admitted that defendant Lao sought his services to undertake
both structural and finishing works on the subject property at a cost of
P545,00.00.
 
On cross, he declared that he was the subcontractor of defendant Lao.

On December 15, 1999,the MeTC rendered its Decision finding that the unpaid rentals stood at
only P95,000.00.  It also found that SPI is solely responsible for repairing the structural defects
of the leased premises, for which the petitioners spent P125,000.00. 

Aggrieved, SPI filed an appeal before the RTC of Quezon City.  Both parties filed their
respective memoranda.  However, on November 24, 2000, counsel for SPI filed his
Withdrawal of Appearance with the conformity of SPI, through its Vice President Antonio L.
San Mateo.  In an Order dated January 5, 2001, the RTC granted the Withdrawal of
Appearance and ordered that all notices, orders and other court processes in the case be
forwarded to SPI at its address at 354 Quezon Avenue, Quezon City.
 

On March 12, 2001, the RTC rendered a Decision affirming with modification the MeTC
Decision by ordering petitioners to pay SPI the amount of P95,000.00 for unpaid rentals.  The
RTC disagreed with the MeTC on the aspect of off-setting the amount allegedly spent by
petitioners for the repairs of the structural defects of subject property with their unpaid rentals.

On April 25, 2003, petitioners Lao and Manansala filed a Petition for Review with the CA.  Jim
did not join them.  Hence, the appealed Decision of the RTC had become final insofar as Jim is
concerned.
 
On June 30, 2003, the CA rendered a Decision affirming in toto the RTC Decision.  Petitioners
moved for reconsideration, but it was denied in a Resolution dated August 9, 2004.
 
ISSUE:

Whether or no the amount of P545,000.00 they spent for repairs, P125,000.00 of which was
spent on structural repairs, should be judicially compensated against the said unpaid rentals
amounting to P95,000.00. 

RULING:

The petition is without merit. 

 
The Civil Code provides that compensation shall take place when two persons, in their own
right, are creditors and debtors of each other.  In order for compensation to be proper, it is
necessary that:
 
1.     Each one of the obligors be bound principally and that he be at the same
time a principal creditor of the other;
 
2.     Both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been
stated;
 
3.     The two debts are due:
 
4.     The debts are liquidated and demandable;  
 
5.     Over neither of them be any retention or controversy, commenced by third
parties and communicated in due time to the debtor. .
 
 
A claim  is  liquidated when  the amount  and time of payment is fixed.  If acknowledged by the
debtor, although not in writing, the claim must be treated as liquidated.  When the defendant,
who has an unliquidated claim, sets it up by way of counterclaim, and a judgment is rendered
liquidating such claim, it can be compensated against the plaintiff’s claim from the moment it is
liquidated by judgment. 
In addition, paragraph 6 of the contract of lease between the petitioners and the respondent
reads:
 
                The lessee shall maintain the leased premises including the parking
lot in good, clean and sanitary condition and shall make all the necessary
repairs thereon at their own expense except repairs of the structural defects
which shall be the responsibility of the lessor. x x x    (Emphasis supplied)
 
 
As the contract contrastingly treats necessary repairs, which are on the account of the lessee,
and repairs of structural defects, which are the responsibility of the lessor, the onus of the
petitioners is two-fold: (1) to establish the existence, amount and demandability of their claim;
and (2) to show that these expenses were incurred in the repair of structural defects. 
G.R. No. 182353; June 29, 2010

ST. JOSEPH’S COLLEGE, SR. vs. JAYSON MIRANDA, represented by his father,
RODOLFO S. MIRANDA

FACTS:

On November 17, 1994, at around 1:30 in the afternoon inside St. Joseph College’s
[SJC’s] premises, the class to which [respondent Jayson Val Miranda] belonged was
conducting a science experiment about fusion of sulphur powder and iron fillings under
the tutelage of [petitioner] Rosalinda Tabugo, she being the subject teacher and
employee of [petitioner] SJC. The adviser of [Jayson’s] class is x x x Estefania Abdan.

Tabugo left her class while it was doing the experiment without having adequately
secured it from any untoward incident or occurrence. In the middle of the experiment,
[Jayson], who was the assistant leader of one of the class groups, checked the result
of the experiment by looking into the test tube with magnifying glass. The test tube was
being held by one of his group mates who moved it close and towards the eye of
[Jayson]. At that instance, the compound in the test tube spurted out and several
particles of which hit [Jayson’s] eye and the different parts of the bodies of some of his
group mates. As a result thereof, [Jayson’s] eyes were chemically burned, particularly
his left eye, for which he had to undergo surgery and had to spend for his medication.
Upon filing of this case [in] the lower court, [Jayson’s] wound had not completely
healed and still had to undergo another surgery.

Upon learning of the incident and because of the need for finances, [Jayson’s] mother,
who was working abroad, had to rush back home for which she spent P36,070.00 for
her fares and had to forego her salary from November 23, 1994 to December 26, 1994,
in the amount of at least P40,000.00.

Then, too, [Jayson] and his parents suffered sleepless nights, mental anguish and
wounded feelings as a result of his injury due to [petitioners’] fault and failure to exercise
the degree of care and diligence incumbent upon each one of them. Thus, they should
be held liable for moral damages. Also, [Jayson] sent a demand letter to [petitioners] for
the payment of his medical expenses as well as other expenses incidental thereto,
which the latter failed to heed. Hence, [Jayson] was constrained to file the complaint for
damages. [Petitioners], therefore, should likewise compensate [Jayson] for litigation
expenses, including attorney’s fees.

On the other hand, [petitioners SJC, Sr. Josephini Ambatali, SFIC, and Tabugo] alleged
that [Jayson] was a grade six pupil of SJC in the school year 1994-1995. On November
17, 1994, at about 1:30 in the afternoon, the class to which [Jayson] belong[s] was
conducting a science experiment under the guidance and supervision of Tabugo, the
class science teacher, about fusion of sulphur powder and iron fillings by combining
these elements in a test tube and heating the same. Before the science experiment was
conducted, [Jayson] and his classmates were given strict instructions to follow the
written procedure for the experiment and not to look into the test tube until the heated
compound had cooled off. [Jayson], however, a person of sufficient age and discretion
and completely capable of understanding the English language and the instructions of
his teacher, without waiting for the heated compound to cool off, as required in the
written procedure for the experiment and as repeatedly explained by the teacher,
violated such instructions and took a magnifying glass and looked at the compound,
which at that moment spurted out of the test tube, a small particle hitting one of
[Jayson’s] eyes.

Jayson was rushed by the school employees to the school clinic and thereafter
transferred to St. Luke’s Medical Center for treatment. At the hospital, when Tabago
visited [Jayson], the latter cried and apologized to his teacher for violating her
instructions not to look into the test tube until the compound had cooled off.

After the treatment, [Jayson] was pronounced ready for discharge and an eye test
showed that his vision had not been impaired or affected. In order to avoid additional
hospital charges due to the delay in [Jayson’s] discharge, Rodolfo S. Miranda,
[Jayson’s] father, requested SJC to advance the amount of P26,176.35 representing
[Jayson’s] hospital bill until his wife could arrive from abroad and pay back the money.
SJC acceded to the request.

On December 6, 1994, however, the parents of [Jayson], through counsel, wrote SJC a
letter demanding that it should shoulder all the medical expenses of [Jayson] that had
been incurred and will be incurred further arising from the accident caused by the
science experiment. In a letter dated December 14, 1994, the counsel for SJC,
represented by Sr. Josephini Ambatali, SFIC, explained that the school cannot accede
to the demand because “the accident occurred by reason of [Jayson’s] failure to comply
with the written procedure for the experiment and his teacher’s repeated warnings and
instruction that no student must face, much less look into, the opening of the test tube
until the heated compound has cooled.

Since SJC did not accede to the demand, Rodolfo, Jayson’s father, on Jayson’s behalf,
sued petitioners for damages. After trial, the RTC rendered judgment in favor of the
respondent. Aggrieved, petitioners appealed to the CA. However, as previously
adverted to, the CA affirmed in toto the ruling of the RTC.

ISSUE:

WHETHER OR NOT THE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT

FINDING THAT THE PROXIMATE CAUSE OF JAYSON’S INJURY WAS HIS OWN
ACT OF LOOKING AT THE HEATED TEST TUBE BEFORE THE COMPOUND HAD
COOLED IN COMPLETE DISREGARD OF INSTRUCTIONS GIVEN PRIOR TO THE
EXPERIMENT.

RULING:

We find no reason to depart from the uniform rulings of the lower courts that petitioners
were “negligent since they all failed to exercise the required reasonable care, prudence,
caution and foresight to prevent or avoid injuries to the students.”

Contrary to petitioners’ assertions, the lower courts’ conclusions are borne out by the
records of this case. Both courts correctly concluded that the immediate and proximate
cause of the accident which caused injury to Jayson was the sudden and unexpected
explosion of the chemicals, independent of any intervening cause.

As found by both lower courts, the proximate cause of Jayson’s injury was the
concurrent failure of petitioners to prevent the foreseeable mishap that occurred during
the conduct of the science experiment. Petitioners were negligent by failing to exercise
the higher degree of care, caution and foresight incumbent upon the school, its
administrators and teachers.

Article 218 of the Family Code, in relation to Article 2180 of the Civil Code, bestows
special parental authority on the following persons with the corresponding obligation,
thus:

Art. 218. The school, its administrators and teachers, or the individual, entity or institution
engaged in child care shall have special parental authority and responsibility over the minor child while
under their supervision, instruction or custody.

  Authority and responsibility shall apply to all authorized activities whether inside or
outside the premises of the school, entity or institution.

  Art. 2180. The obligation imposed by Article 2176 is demandable not only for one’s
own acts or omissions, but also for those of persons for whom one is responsible.

xxx
 Lastly, teachers or heads of establishments of arts and trades shall be liable for
damages caused by their pupils and students or apprentices, so long as they remain in
their custody.

 
G.R. No. 148974; July 2, 2010
OMC CARRIERS, INC. vs. SPOUSES ROBERTO C. NABUA and ROSARIO T.
NABUA

FACTS:

 On August 4, 1995, at about 3:00 p.m., an Isuzu private tanker with plate no. PCH 612,
owned by and registered in the name of petitioner OMC Carriers, Inc. and then being
driven by its employee Jerry P. Añalucas (Añalucas), was cruising along Quirino
Highway towards the general direction of Lagro, Quezon City. At Barangay Pasong
Putik, Novaliches, Quezon City, the aforesaid private tanker hit a private vehicle, an
Isuzu Gemini with plate no. NDF 372, which was making a left turn towards a nearby
Caltex gasoline station. The impact heavily damaged the right side portion of the latter
motor and mortally injured its 18-year-old driver, Reggie T. Nabua, who was later
pronounced dead on arrival at the Fairview Polymedic Hospital. 

Respondent spouses Berlino and Rosario Nabua, the parents of the victim, filed a
Complaint for damages against petitioners and the General Manager of OMC Carriers,
Chito Calauag, before the RTC of Quezon City, Branch 224. The complaint was
docketed as Civil Case No. Q-95-24838 and entitled, Spouses Berlino C. Nabua and
Rosario T. Nabua, Plaintiffs, vs. OMC Carriers, Inc., its General Manager, Chito
Calauag, and Jerry Añalucas y Pitalino, Defendants.

On January 19, 1998, the RTC rendered a Decision in favor of the plaintiffs as against
defendants and ordering the latter to pay the plaintiffs, jointly and solidarily. Aggrieved,
petitioners appealed the RTC Decision to the CA. On December 28, 1999, the CA
rendered a Decision, partially granting the petition.

ISSUE:

Whether or not the proximate and immediate cause of the accident was the
negligence of the victim, Reggie Nabua.

RULING:

This Court is not persuaded as the same is a question of fact.

 All told, this Court is convinced, and thus affirms the findings of fact of the RTC and the
CA that the proximate cause of the accident was the negligence of petitioner Añalucas.

Having resolved the same, this Court shall now address the defense of petitioner
company that they exercised due diligence in the selection and supervision of their
employees. On this note, the CA ruled that petitioners had failed to overturn the
presumption of negligence on the part of the employer.

In their defense, the appellants’ witnesses have admittedly testified at length regarding
the hiring and supervisory policies of the appellant company. While they were able to
amply demonstrate the implantation of the company’s hiring procedure insofar as
appellant Jerry Añalucas was concerned, the same witnesses failed to similarly
individualize the company’s purported supervisory policies. The introduction of evidence
showing the employer exercised the required amount of care in selecting its employees
is only half of the employer’s burden is (sic) overcome. The question of diligent
supervision depends on the circumstances of employment, which, in the instant case
was not sufficiently proved by the appellants. In discounting merit from the appellants’
second assignment of error, this Court is, consequently, guided by the principle that the
existence of hiring procedure and supervisory policies cannot be casually invoked to
overturn the presumption of negligence on the part of the employer.

Article 2180 of the Civil Code provides:

xxxx
 
Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in any
business or industry.
 
xxxx
 
The responsibility treated in this article shall cease when the persons herein mentioned prove
they observed all the diligence of a good father of a family to prevent damage.

 It is thus clear that the employer of a negligent employee is liable for the damages
caused by the latter. When an injury is caused by the negligence of an employee, there
instantly arises a presumption of the law that there was negligence on the part of the
employer, either in the selection of his employee or in the supervision over him after
such selection.  However, the presumption may be overcome by a clear showing on the
part of the employer that he has exercised the care and diligence of a good father of a
family in the selection and supervision of his employee. In other words, the burden of
proof is on the employer. Thus, petitioners must prove two things: first, that they had
exercised due diligence in the selection of petitioner Añalucas, and second, that after
hiring Añalucas, petitioners had exercised due diligence in supervising him.

 
G.R. No. 159097; July 5, 2010

METROBANK vs. RURAL BANK OF GERONA, INC.

FACTS:

RBG is a rural banking corporation organized under Philippine laws and located in
Gerona, Tarlac.  In the 1970s, the Central Bank and the RBG entered into an agreement
providing that RBG shall facilitate the loan applications of farmers-borrowers under the
Central Bank-International Bank for Reconstruction and Development’s (IBRD’s) 4th
Rural Credit Project.  The agreement required RBG to open a separate bank account
where the IBRD loan proceeds shall be deposited.  The RBG accordingly opened a
special savings account with Metrobank’s Tarlac Branch.  As the depository bank of
RBG, Metrobank was designated to receive the credit advice released by the Central
Bank representing the proceeds of the IBRD loan of the farmers-borrowers; Metrobank,
in turn, credited the proceeds to RBG’s special savings account for the latter’s release to
the farmers-borrowers.
 
On September 27, 1978, the Central Bank released a credit advice in Metrobank’s favor
and accordingly credited Metrobank’s demand deposit account in the amount of
P178,652.00, for the account of RBG.  The amount, which was credited to RBG’s
special savings account represented the approved loan application of farmer-borrower
Dominador de Jesus.  RBG withdrew the P178,652.00 from its account. 
 
On the same date, the Central Bank approved the loan application of another farmer-
borrower, Basilio Panopio, for P189,052.00, and credited the amount to Metrobank’s
demand deposit account.  Metrobank, in turn, credited RBG’s special savings account. 
Metrobank claims that the RBG also withdrew the entire credited amount from its
account. 
 
On October 3, 1978, the Central Bank approved Ponciano Lagman’s loan application
for P220,000.00.  As with the two other IBRD loans, the amount was credited to
Metrobank’s demand deposit account, which amount Metrobank later credited in favor of
RBG’s special savings account.  Of the P220,000.00, RBG only withdrew P75,375.00.
 
On November 3, 1978, more than a month after RBG had made the above withdrawals
from its account with Metrobank, the Central Bank issued debit advices, reversing all
the approved IBRD loans.  The Central Bank implemented the reversal by debiting
from Metrobank’s demand deposit account the amount corresponding to all three IBRD
loans.  
 
Upon receipt of the November 3, 1978 debit advices, Metrobank, in turn, debited the
following amounts from RBG’s special savings account: P189,052.00, P115,000.00, and
P8,000.41.  Metrobank, however, claimed that these amounts were insufficient to cover
all the credit advices that were reversed by the Central Bank.  It demanded payment
from RBG which could make partial payments.  As of October 17, 1979, Metrobank
claimed that RBG had an outstanding balance of P334,220.00.  To collect this amount, it
filed a complaint for collection of sum of money against RBG before the RTC,
docketed as Civil Case No. 6028. 
 
In its July 7, 1994 decision, the RTC ruled for Metrobank, finding that legal subrogation
had ensued:  
 
[Metrobank] had allowed releases of the amounts in the credit advices it credited
in favor of [RBG’s special savings account] which credit advices and deposits
were under its supervision.  Being faulted in these acts or omissions, the Central
Bank [sic] debited these amounts against [Metrobank’s] demand [deposit]
reserve; thus[, Metrobank’s] demand deposit reserves diminished
correspondingly, [Metrobank as of this time,] suffers prejudice in which case
legal subrogation has ensued. 
 It thus ordered RBG to pay Metrobank the sum of P334,200.00, plus interest at 14%
per annum until the amount is fully paid. 

On appeal, the CA noted that this was not a case of legal subrogation under Article
1302 of the Civil Code.  Nevertheless, the CA recognized that Metrobank had a right to
be reimbursed of the amount it had paid and failed to recover, as it suffered loss in an
agreement that involved only the Central Bank and the RBG.  It clarified, however, that
a determination still had to be made on who should reimburse Metrobank.  Noting that
no evidence exists why the Central Bank reversed the credit advices it had previously
confirmed, the CA declared that the Central Bank should be impleaded as a necessary
party so it could shed light on the IBRD loan reversals.  Thus, the CA set aside the RTC
decision, and remanded the case to the trial court for further proceedings after the
Central Bank is impleaded as a necessary party.  After the CA denied its motion for
reconsideration, Metrobank filed the present petition for review on certiorari. 

ISSUE:
Who are the liable parties on the IBRD loans that the Central Bank extended.

RULING:

The Terms and Conditions of the IBRD 4 th Rural Credit Project (Project Terms and
Conditions) executed by the Central Bank and the RBG shows that the farmers-
borrowers to whom credits have been extended, are primarily liable for the payment of
the borrowed amounts.  The loans were extended through the RBG which also took
care of the collection and of the remittance of the collection to the Central Bank.   RBG,
however, was not a mere conduit and collector.  While the farmers-borrowers were the
principal debtors, RBG assumed liability under the Project Terms and Conditions by
solidarily binding itself with the principal debtors to fulfill the obligation. 

How RBG profited from the transaction is not clear from the records and is not part of
the issues before us, but if it delays in remitting the amounts due, the Central Bank
imposed a 14% per annum penalty rate on RBG until the amount is actually remitted. 
The Central Bank was further authorized to deduct the amount due from RBG’s demand
deposit reserve should the latter become delinquent in payment.   On these points,
paragraphs 5 and 6 of the Project Terms and Conditions read:
 
5. Collection received representing repayments of borrowers shall be
immediately remitted to the Central Bank, otherwise[,] the Rural Bank/SLA shall
be charged a penalty of fourteen [percent] (14%) p.a. until date of remittance.
 
6. In case the rural bank becomes delinquent in the payment of
amortizations due[,] the Central Bank is authorized to deduct the
corresponding amount from the rural bank’s demand deposit reserve at any
time to cover any delinquency.  [Emphasis supplied.]

 Based on these arrangements, the Central Bank’s immediate recourse, therefore

should have been against the farmers-borrowers and the RBG; thus, it erred when it
deducted the amounts covered by the debit advices from Metrobank’s demand deposit
account.  Under the Project Terms and Conditions, Metrobank had no responsibility
over the proceeds of the IBRD loans other than serving as a conduit for their transfer
from the Central Bank to the RBG once credit advice has been issued.   Thus, we agree
with the CA’s conclusion that the agreement governed only the parties involved – the
Central Bank and the RBG.  Metrobank was simply an outsider to the agreement.  Our
disagreement with the appellate court is in its conclusion that no legal subrogation took
place; the present case, in fact, exemplifies the circumstance contemplated under
paragraph 2, of Article 1302 of the Civil Code which provides:
 
Art. 1302.  It is presumed that there is legal subrogation:
 
(1)   When a creditor pays another creditor who is preferred, even without the
debtor’s knowledge;
 (2)   When a third person, not interested in the obligation, pays with the
express or tacit approval of the debtor;
(3)   When, even without the knowledge of the debtor, a person interested in
the fulfillment of the obligation pays, without prejudice to the effects of
confusion as to the latter’s share.  [Emphasis supplied.]
As discussed, Metrobank was a third party to the Central Bank-RBG agreement, had
no interest except as a conduit, and was not legally answerable for the IBRD loans.
Despite this, it was Metrobank’s demand deposit account, instead of RBG’s, which the
Central Bank proceeded against, on the assumption perhaps that this was the most
convenient means of recovering the cancelled loans.  That Metrobank’s payment was
involuntarily made does not change the reality that it was Metrobank which effectively
answered for RBG’s obligations. 

Article 1303 of the Civil Code states that subrogation transfers to the person subrogated
the credit with all the rights thereto appertaining, either against the debtor or against
third persons.  As the entity against which the collection was enforced, Metrobank was
subrogated to the rights of Central Bank and has a cause of action to recover from RBG
the amounts it paid to the Central Bank, plus 14% per annum interest. 
G.R. No. 186550; July 5, 2010

ASIAN CATHAY FINANCE AND LEASING CORPORATION vs. SPOUSES DE VERA

FACTS:

On October 22, 1999, petitioner Asian Cathay Finance and Leasing Corporation
(ACFLC) extended a loan of Eight Hundred Thousand Pesos (P800,000.00) to
respondent Cesario Gravador, with respondents Norma de Vera and Emma
Concepcion Dumigpi as co-makers. The loan was payable in sixty (60) monthly
installments of P24,400.00 each. To secure the loan, respondent Cesario executed a
real estate mortgage over his property in Sta. Maria, Bulacan, covered by Transfer
Certificate of Title No. T-29234. 

Respondents paid the initial installment due in November 1999.  However, they were
unable to pay the subsequent ones.  Consequently, on February 1, 2000, respondents
received a letter demanding payment of P1,871,480.00 within five (5) days from receipt
thereof.  Respondents requested for an additional period to settle their account, but
ACFLC denied the request. Petitioner filed a petition for extrajudicial foreclosure of
mortgage with the Office of the Deputy Sheriff of Malolos, Bulacan.

On April 7, 2000, respondents filed a suit for annulment of real estate mortgage and
promissory note with damages and prayer for issuance of a temporary restraining order
(TRO) and writ of preliminary injunction.  Respondents claimed that the real estate
mortgage is null and void. They pointed out that the mortgage does not make reference
to the promissory note dated October 22, 1999.  The promissory note does not specify
the maturity date of the loan, the interest rate, and the mode of payment; and it illegally
imposed liquidated damages.  The real estate mortgage, on the other hand, contains a
provision on the waiver of the mortgagor’s right of redemption, a provision that is
contrary to law and public policy.  Respondents added that ACFLC violated Republic
Act No. 3765, or the Truth in Lending Act, in the disclosure statement that should be
issued to the borrower.  Respondents, thus, claimed that ACFLC’s petition for
foreclosure lacked factual and legal basis, and prayed that the promissory note, real
estate mortgage, and any certificate of sale that might be issued in connection with
ACFLC’s petition for extrajudicial foreclosure be declared null and void.  In the
alternative, respondents prayed that the court fix their obligation at P800,000.00 if the
mortgage could not be annulled, and declare as null and void the provisions on the
waiver of mortgagor’s right of redemption and imposition of the liquidated damages.
Respondents further prayed for moral and exemplary damages, as well as attorney’s
fees, and for the issuance of a TRO to enjoin ACFLC from foreclosing their property.

On April 12, 2000, the RTC issued an Order, denying respondents’ application for TRO,
as the acts sought to be enjoined were already fait accompli. 

On May 12, 2000, ACFLC filed its Answer, denying the material allegations in the
complaint and averring failure to state a cause of action and lack of cause of action, as
defenses.  ACFLC claimed that it was merely exercising its right as mortgagor; hence, it
prayed for the dismissal of the complaint.

After trial, the RTC rendered a decision, dismissing the complaint for lack of cause of
action.Aggrieved, respondents appealed to the CA. On June 10, 2008, the CA rendered
the assailed Decision, reversing the RTC.  It held that the amount of P1,871,480.00
demanded by ACFLC from respondents is unconscionable and excessive.

ACFLC filed a motion for reconsideration, but the CA denied it.

ISSUE:

Whether or not the amount claimed by ACFLC is unconscionable.

RULING:

It is true that parties to a loan agreement have a wide latitude to stipulate on any interest
rate in view of Central Bank Circular No. 905, series of 1982, which suspended the
Usury Law ceiling on interest rate effective January 1, 1983.  However, interest rates,
whenever unconscionable, may be equitably reduced or even invalidated.   In several
cases, this Court had declared as null and void stipulations on interest and charges that
were found excessive, iniquitous and unconscionable.    

Records show that the amount of loan obtained by respondents on October 22, 1999
was P800,000.00.  Respondents paid the installment for November 1999, but failed to
pay the subsequent ones.  On February 1, 2000, ACFLC demanded payment of
P1,871,480.00.  In a span of three months, respondents’ obligation ballooned by more
than P1,000,000.00.  ACFLC failed to show any computation on how much interest was
imposed and on the penalties charged.  Thus, we fully agree with the CA that the
amount claimed by ACFLC is unconscionable.
G.R. No. 179812; July 6, 2010

ETERTON MULTI-RESOURCES CORP. vs. FILIPINO PIPE AND FOUNDRY CORP.

FACTS:

ETERTON is a corporation engaged in the manufacture of asbestos cement pipes. On

November 17, 1980, it entered into an Agreement with respondent Filipino Pipe and
Foundry Corporation (FPFC) wherein   ETERTON undertook to deliver the asbestos
cement pipes needed by FPFC in its Metropolitan Waterworks and Sewerage System
PG-8 Project in Novaliches, Quezon City. FPFC paid P1,260,521.83, but only
P1,156,408.48 worth of asbestos cement pipes were delivered.  ETERTON then
refused to make delivery of asbestos cement pipes unless the price would be increased.
Thus, to meet the project deadline, FPFC acquiesced to ETERTON’s demand, and
paid, but under protest, an additional amount of P125,168.03.

Thereafter, FPFC demanded from ETERTON the value of the undelivered asbestos
cement pipes and the return of the overpayment it made, but the latter refused. Thus,
on September 7, 1983, FPFC filed a collection suit with damages against ETERTON in
the Regional Trial Court (RTC) of Pasig, docketed as Civil Case No. 50163.

Traversing the complaint, ETERTON denied FPFC’s allegations of short delivery and
overpayment. It averred that the amount claimed by FPFC had already been applied to
the price escalation and penalty charge imposed by reason of the delay in the payment
of the purchases.

The RTC rendered a decision ordering [petitioner] Eternit Corporation and/or Eterton
Multi-Resources Corporation to pay [respondent] Filipino Pipe and Foundry Corporation.

On appeal, the CA affirmed the RTC.

ISSUE:

Whether or not the CA for sustaining FPFC’s claim for excess payment on account of
short delivery.

RULING:

We reviewed the records before us and found no compelling reason to depart from and
reverse the trial court’s findings and conclusions. The findings of the RTC, as affirmed
by the CA, are well supported by evidence on record.

We reiterate that factual findings of the trial court, when adopted and confirmed by the
CA, are binding and conclusive on this Court and will generally not be reviewed on
appeal. While this Court has recognized several exceptions to this rule, none of these
exceptions finds application here. ETERTON failed to convince us that the trial court
has overlooked, misunderstood, or misappreciated certain facts and circumstances
which if considered would have altered the outcome of the case. Neither is there any
proof that the findings of fact below were reached arbitrarily or capriciously. Accordingly,
the CA committed no reversible error in affirming the findings of the RTC.

WHEREFORE, the petition is DENIED.

      

 
G.R. No. 161849; July 9, 2010

WALLEM PHILIPPINES SHIPPING, INC. vs. S.R. FARMS, INC.

FACTS:

On March 25, 1992, Continental Enterprises, Ltd. loaded on board the vessel
M/V “Hui Yang,” at Bedi Bunder, India, a shipment of Indian Soya Bean Meal, for
transportation and delivery to Manila, with plaintiff [herein respondent] as
consignee/notify party. The said shipment is said to weigh 1,100 metric tons and
covered by Bill of Lading No. BEDI 4 dated March 25, 1992 (Exhibit A; also
Exhibit I). The vessel is owned and operated by defendant Conti-Feed, with
defendant [herein petitioner] Wallem as its ship agent.
 
The subject cargo is part of the entire shipment of Indian Soya Bean Meal/India
Rapeseed Meal loaded in bulk on board the said vessel for delivery to several
consignees. Among the consignees were San Miguel Corporation and Vitarich
Corporation, including the herein plaintiff (Exhibit A; Exhibits 1 to 6; TSN, p. 13,
June 28, 1996).
 
On April 11, 1992, the said vessel, M/V “Hui Yang” arrived at the port of Manila,
Pier 7 South Harbor. Thereafter, the shipment was discharged and transferred
into the custody of the receiving barges, the NorthFront-333 and NorthFront-444.
The offloading of the shipment went on until April 15, 1992 and was handled by
[Ocean Terminal Services, Inc.] OTSI using its own manpower and equipment
and without the participation of the crew members of the vessel. All throughout
the entire period of unloading operation, good and fair weather condition
prevailed.
 
At the instance of the plaintiff, a cargo check of the subject shipment was made
by one Lorenzo Bituin of Erne Maritime and Allied Services, Co. Inc., who noted
a shortage in the shipment which was placed at 80.467 metric tons based on
draft survey made on the NorthFront-33 and NorthFront-444 showing that the
quantity of cargo unloaded from the vessel was only 1019.53 metric tons. Thus,
per the bill of lading, there was an estimated shortage of 80.467.
 
Upon discovery thereof, the vessel chief officer was immediately notified of the
said short shipment by the cargo surveyor, who accordingly issued the
corresponding Certificate of Discharge dated April 15, 1992 (Exhibit D). The
survey conducted and the resultant findings thereon are embodied in the Report
of Superintendence dated April 21, 1992 (Exhibits C to C-2) and in the Barge
Survey Report both submitted by Lorenzo Bituin (Exhibits C-3 and C-4). As
testified to by Lorenzo Bituin, this alleged shortage of 80.467 metric tons was
arrived at using the draft survey method which calls for the measurement of the
light and loaded condition of the barge in  relation to the weight of the water
supposedly displaced.

Petitioner then filed a Complaint for damages against Conti-Feed & Maritime Pvt.
Ltd., a foreign corporation doing business in the Philippines and the owner of
M/V “Hui Yang”; RCS Shipping Agencies, Inc., the ship agent of Conti-Feed;
Ocean Terminal Services, Inc. (OTSI), the arrastre operator at Anchorage No. 7,
South Harbor, Manila; and Cargo Trade, the customs broker.

 On June 7, 1993, respondent filed an Amended Complaint impleading herein petitioner
as defendant alleging that the latter, and not RCS, was the one which, in fact, acted as
Conti-Feed’s ship agent.

On June 22,1993, the complaint against Cargo Trade was dismissed at the instance of
respondent on the ground that it has no cause of action against the former.

 Subsequently, upon motion of RCS, the case against it was likewise dismissed for lack
of cause of action.
 Meanwhile, defendant OTSI filed its Answer with Counterclaim and Crossclaim denying
the material allegations of the Complaint and alleging that it exercised due care and
diligence in the handling of the shipment from the carrying vessel unto the lighters; no
damage or loss whatsoever was sustained by the cargo in question while being
discharged by OTSI; petitioner’s claim had been waived, abandoned or barred by
laches or estoppels; liability, if any, is attributable to its co-defendants.

For its part, petitioner denied the allegations of respondent claiming, among others, that
it is not accountable nor responsible for any alleged shortage sustained by the shipment
while in the possession of its co-defendants; the alleged shortage was due to negligent
or faulty loading or unloading of the cargo by the stevedores/shipper/consignee; the
shortage, if any, was due to pre-shipment damage, inherent nature, vice or defect of the
cargo for which herein petitioner is not liable; respondent’s claim is already barred by
laches and/or prescription.

Conti-Feed did not file an Answer.

Pre-Trial Conference was conducted, after which trial ensued.

 On October 8, 1999, the RTC rendered its Decision dismissing respondent’s complaint,
as well as the opposing parties’ counterclaims and crossclaims.

Aggrieved by the RTC Decision, respondent filed an appeal with the CA.          On June
2, 2003, the CA rendered Decision which REVERSED and SET ASIDE and another
one entered ordering defendants-appellees Conti-Feed and Maritime Pvt. Ltd. and
Wallem Philippines Shipping, Inc., to pay the sum representing the value of the 80.467
metric tons of Indian Soya Beans shortdelivered, with legal interest from the time the
judgment becomes final until full payment, plus attorney’s fees and expenses of
litigation of P10,000.00, as well as the cost of suit. Petitioner filed a Motion for
Reconsideration.

 ISSUE:
WHETHER OR NOT THE COURT OF APPEALS ERRED IN APPLYING THE
PRESUMPTION OF NEGLIGENCE UNDER ARTICLE 1735 OF THE CIVIL
CODE. THIS PROVISION DOES NOT APPLY IN THIS CASE BECAUSE
THERE WAS NO LOSS OR SHORTAGE OR SHORTDELIVERY.

RULING:

In the instant case, the Court is not persuaded by respondent’s claim that the complaint
against petitioner was timely filed. Respondent argues that the suit for damages was
filed on March 11, 1993, which is within one year from the time the vessel carrying the
subject cargo arrived at the Port of Manila on April 11, 1993, or from the time the
shipment was completely discharged from the vessel on April 15, 1992.

 There is no dispute that the vessel carrying the shipment arrived at the Port of Manila
on April 11, 1992 and that the cargo was completely discharged therefrom on April 15,
1992. However, respondent erred in arguing that the complaint for damages, insofar as
the petitioner is concerned, was filed on March 11, 1993.

As the records would show, petitioner was not impleaded as a defendant in the original
complaint filed on March 11, 1993. It was only on June 7, 1993 that the Amended
Complaint, impleading petitioner as defendant, was filed.

Respondent cannot argue that the filing of the Amended Complaint against petitioner
should retroact to the date of the filing of the original complaint.

The settled rule is that the filing of an amended pleading does not retroact to the date of
the filing of the original; hence, the statute of limitation runs until the submission of the
amendment. It is true that, as an exception, this Court has held that an amendment
which merely supplements and amplifies facts originally alleged in the complaint relates
back to the date of the commencement of the action and is not barred by the statute of
limitations which expired after the service of the original complaint. The exception,
however, would not apply to the party impleaded for the first time in the amended
complaint.

The rule on the non-applicability of the curative and retroactive effect of an amended
complaint, insofar as newly impleaded defendants are concerned, has been established
as early as in the case of Aetna Insurance Co. v. Luzon Stevedoring Corporation. In the
said case, the defendant Barber Lines Far East Service was impleaded for the first time
in the amended complaint which was filed after the one-year period of prescription.  The
order of the lower court dismissing the amended complaint against the said defendant
on ground of prescription was affirmed by this Court.
In the instant case, petitioner was only impleaded in the amended Complaint of June 7,
1993, or one (1) year, one (1) month and twenty-three (23) days from April 15, 1992, the
date when the subject cargo was fully unloaded from the vessel. Hence, reckoned from
April 15, 1992, the one-year prescriptive period had already lapsed.
Having ruled that the action against petitioner had already prescribed, the Court no
longer finds it necessary to address the other issues raised in the present petition.

 WHEREFORE, the petition is PARTLY GRANTED.   

G.R. No.  167390; July 26, 2010

SPOUSES ADOLFO FERNANDEZ, SR. vs. SPOUSES MARTINES CO

FACTS:

The property involved in this case is Lot 978, Cad. 439-D, with an area of 1,209 square
meters, located in Nalsian, Calasiao, Pangasinan.

Respondents’ predecessor-in-interest, Emilio Torres, married to Pilar Torres, applied

for, and was granted, a free patent over the subject property, described as Lot 978,
Cad. 439-D, Calasiao Cadastre. The said free patent, issued on June 10, 1996 by
President Fidel V. Ramos, was registered with the Register of Deeds for the Province of
Pangasinan, and Katibayan ng Orihinal na Titulo Blg. P-35620 covering the subject
property was issued in the name of Emilio Torres.  Petitioner Adolfo Fernandez filed an
Affidavit of Adverse Claim with the Register of Deeds of Pangasinan and had the same
annotated on Emilio Torres' title on July 16, 1996.

The adverse claim was eventually cancelled when Emilio Torres filed an Affidavit of
Cancellation of Adverse Claim with the Register of Deeds of Pangasinan, alleging,
among others, that adverse claimant Adolfo Fernandez failed to pursue his claim in
court, and that he executed an Affidavit dated March 20, 1996, wherein he  admitted
that Emilio Torres is the actual owner  in possession of the subject property. Thereafter,
Emilio Torres executed an Affidavit of Request for Issuance of New Transfer Certificate
of Title dated September 20, 1996 and filed the same before the Register of Deeds of
Pangasinan.

On June 6, 1997, the spouses Emilio and Pilar Torres sold the subject property to
respondents spouses Martines and Erlinda Co, as evidenced by a Deed of Absolute
Sale.  TCT No. T-216709 in the name of Emilio Torres was cancelled, and TCT No. T-
236032 was issued in the name of respondents spouses Martines and Erlinda Co.
Respondents took actual physical possession of the property, and erected concrete
posts and barbed wire fence enclosing the property.

On August 14, 1997, respondents obtained a loan from Solid Bank in the amount of
P8,000,000.00, and mortgaged the subject property to secure the loan.

Subsequently, a portion of the property, denominated as Lot 978-B, was segregated

and made part of the Judge Jose De Venecia, Sr. Highway covered by TCT No. T-
236033 (Road Lot). The remaining portion, denominated as Lot 978-A, covered by TCT
No. T-236032, now subject matter of the controversy, pertained to respondents.

On September 3, 2001, respondents' possession of the subject property was disturbed

by petitioner Adolfo Fernandez, who destroyed the perimeter fence surrounding the
property and started construction work therein.

In order to protect their interest, respondents filed a Complaint for quieting of title and
injunction with damages before the RTC of Dagupan City, but the complaint was
dismissed for lack of jurisdiction.

On January 22, 2002, respondents  filed a Complaint for forcible entry/ejectment before
the MTC in Calasiao, Pangasinan (trial court). the trial court rendered a Decision in
favor of respondents. Respondents appealed the RTC’s Decision to the Court of
Appeals via a petition for review.

ISSUE:

Who between the parties is entitled to the possession of Lot 978, Cad. 439-D located in
Nalsian, Calasiao, Pangasinan.
RULING:

The Court upholds the Decision of the Court of Appeals, reinstating the decision of the
trial court that respondents are entitled to the possession of Lot 978, Cad. 439-D.

Upon the sale of the subject property by the spouses Emilio and Pilar Torres to
respondents, respondents took possession of the property, and a new transfer certificate
of title was issued in the name of respondents. Hence, respondents had actual, physical
possession of the subject property.  

Moreover, the Court agrees with the finding of the trial court that petitioners’ claim of
being in prior possession of Lot 978 is based on the false assumption that Lot 978 is part
of Lot No. 661.  Petitioners claimed in their Answer that they have long been in actual
possession of Lot 978 when the said lot, including Lot No. 661-A and Lot No. 661-B
originally formed part of an unirrigated riceland recorded as Cadastral Lot No. 661 under
Tax Declaration No. 16357 issued in the names of petitioners.

 
G.R. No. 176868; July 26, 2010

SOLAR HARVEST, INC. vs. DAVAO CORRUGATED CARTON CORP.

FACTS:

In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an agreement
with respondent, Davao Corrugated Carton Corporation, for the purchase of corrugated
carton boxes, specifically designed for petitioner’s business of exporting fresh bananas,
at US$1.10 each. The agreement was not reduced into writing. To get the production
underway, petitioner deposited, on March 31, 1998, US$40,150.00 in respondent’s US
Dollar Savings Account with Westmont Bank, as full payment for the ordered boxes.

 Despite such payment, petitioner did not receive any boxes from respondent. On
January 3, 2001, petitioner wrote a demand letter for reimbursement of the amount
paid. On February 19, 2001, respondent replied that the boxes had been completed as
early as April 3, 1998 and that petitioner failed to pick them up from the former’s
warehouse 30 days from completion, as agreed upon.  Respondent mentioned that
petitioner even placed an additional order of 24,000 boxes, out of which, 14,000 had
been manufactured without any advanced payment from petitioner. Respondent then
demanded petitioner to remove the boxes from the factory and to pay the balance of
US$15,400.00 for the additional boxes and P132,000.00 as storage fee.

On August 17, 2001, petitioner filed a Complaint for sum of money and damages
against respondent. The Complaint averred that the parties agreed that the boxes will
be delivered within 30 days from payment but respondent failed to manufacture and
deliver the boxes within such time.

In its Answer with Counterclaim, respondent insisted that, as early as April 3, 1998, it
had already completed production of the 36,500 boxes, contrary to petitioner’s
allegation. According to respondent, petitioner, in fact, made an additional order of
24,000 boxes, out of which, 14,000 had been completed without waiting for petitioner’s
payment. Respondent stated that petitioner was to pick up the boxes at the factory as
agreed upon, but petitioner failed to do so. Respondent averred that, on October 8,
1998, petitioner’s representative, Bobby Que (Que), went to the factory and saw that the
boxes were ready for pick up. On February 20, 1999, Que visited the factory again and
supposedly advised respondent to sell the boxes as rejects to recoup the cost of the
unpaid 14,000 boxes, because petitioner’s transaction to ship bananas to China did not
materialize.  Respondent claimed that the boxes were occupying warehouse space and
that petitioner should be made to pay storage fee at P60.00 per square meter for every
month from April 1998. As counterclaim, respondent prayed that judgment be rendered
ordering petitioner to pay $15,400.00, plus interest, moral and exemplary damages,
attorney’s fees, and costs of the suit.

         

The Regional Trial Court (RTC) ruled that respondent did not commit any breach of faith
that would justify rescission of the contract and the consequent reimbursement of the
amount paid by petitioner

Petitioner filed a notice of appeal with the CA. 

 On September 21, 2006, the CA denied the appeal for lack of merit. Petitioner moved
for reconsideration, but the motion was denied by the CA.

ISSUE:

Whether or not respondent did not completely manufacture the boxes and that it was
respondent which was obliged to deliver the boxes to TADECO.
RULING:

We find no reversible error in the assailed Decision that would justify the grant of this
petition.         

Petitioner’s claim for reimbursement is actually one for rescission (or resolution) of
contract under Article 1191 of the Civil Code, which reads:

       Art. 1191. 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 fulfillment and the rescission of the obligation, with the
payment of damages in either case.  He may also seek rescission, even after he has chosen fulfillment, if the
latter should become impossible.

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

            This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the Mortgage Law.

 The right to rescind a contract arises once the other party defaults in the performance of his obligation. In
determining when default occurs, Art. 1191 should be taken in conjunction with Art. 1169 of the same law,
which provides:

  Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation. 

However, the demand by the creditor shall not be necessary in order that delay may exist:

 (1)               When the obligation or the law expressly so declares; or

(2)               When from the nature and the circumstances of the obligation it appears that the designation of the
time when the thing is to be delivered or the service is to be rendered was a controlling motive for the
establishment of the contract; or

(3)               When demand would be useless, as when the obligor has rendered it beyond his power to
perform         

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation,
delay by the other begins.

 In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of
the parties’ respective obligations should be simultaneous.  Hence, no demand is
generally necessary because, once a party fulfills his obligation and the other party
does not fulfill his, the latter automatically incurs in delay.  But when different dates for
performance of the obligations are fixed, the default for each obligation must be
determined by the rules given in the first paragraph of the present article, that is, the
other party would incur in delay only from the moment the other party demands
fulfillment of the former’s obligation. Thus, even in reciprocal obligations, if the period for
the fulfillment of the obligation is fixed, demand upon the obligee is still necessary
before the obligor can be considered in default and before a cause of action for
rescission will accrue.

Evident from the records and even from the allegations in the complaint was the lack of
demand by petitioner upon respondent to fulfill its obligation to manufacture and deliver
the boxes. The Complaint only alleged that petitioner made a “follow-up” upon
respondent, which, however, would not qualify as a demand for the fulfillment of the
obligation. Petitioner’s witness also testified that they made a follow-up of the boxes, but
not a demand.  Note is taken of the fact that, with respect to their claim for
reimbursement, the Complaint alleged and the witness testified that a demand letter
was sent to respondent.  Without a previous demand for the fulfillment of the obligation,
petitioner would not have a cause of action for rescission against respondent as the
latter would not yet be considered in breach of its contractual obligation.

Even assuming that a demand had been previously made before filing the present case,
petitioner’s claim for reimbursement would still fail, as the circumstances would show
that respondent was not guilty of breach of contract.
 G.R. No.   190696; August 3, 2010

ROLITO CALANG vs. PEOPLE OF THE PHILIPPINES

FACTS:

At around 2:00 p.m. of April 22, 1989, Rolito Calang was driving Philtranco Bus No.
7001, owned by Philtranco along Daang Maharlika Highway in Barangay Lambao, Sta.
Margarita, Samar when its rear left side hit the front left portion of a Sarao jeep coming
from the opposite direction. As a result of the collision, Cresencio Pinohermoso, the
jeep’s driver, lost control of the vehicle, and bumped and killed Jose Mabansag, a
bystander who was standing along the highway’s shoulder. The jeep turned turtle three
(3) times before finally stopping at about 25 meters from the point of impact. Two of the
jeep’s passengers, Armando Nablo and an unidentified woman, were instantly killed,
while the other passengers sustained serious physical injuries.

 The prosecution charged Calang with multiple homicide, multiple serious physical
injuries and damage to property thru reckless imprudence before the Regional Trial
Court (RTC), Branch 31, Calbayog City. The RTC, in its decision dated May 21, 2001,
found Calang guilty beyond reasonable doubt of reckless imprudence resulting to
multiple homicide, multiple physical injuries and damage to property, and sentenced him
to suffer an indeterminate penalty of thirty days of arresto menor, as minimum, to four
years and two months of prision correccional, as maximum. The RTC ordered Calang
and Philtranco, jointly and severally, to pay P50,000.00 as death indemnity to the
heirs of Armando; P50,000.00 as death indemnity to the heirs of Mabansag; and
P90,083.93 as actual damages to the private complainants.

 The petitioners appealed the RTC decision to the Court of Appeals (CA), docketed as
CA-G.R. CR No. 25522. The CA, in its decision dated November 20, 2009, affirmed the
RTC decision in toto.  The CA ruled that petitioner Calang failed to exercise due care
and precaution in driving the Philtranco bus.  According to the CA, various eyewitnesses
testified that the bus was traveling fast and encroached into the opposite lane when it
evaded a pushcart that was on the side of the road.  In addition, he failed to slacken his
speed, despite admitting that he had already seen the jeep coming from the opposite
direction when it was still half a kilometer away. The CA further ruled that Calang
demonstrated a reckless attitude when he drove the bus, despite knowing that it was
suffering from loose compression, hence, not roadworthy.

 The CA added that the RTC correctly held Philtranco jointly and severally liable with
petitioner Calang, for failing to prove that it had exercised the diligence of a good father
of the family to prevent the accident.

The petitioners filed with this Court a petition for review on certiorari. In our Resolution
dated February 17, 2010, we denied the petition for failure to sufficiently show any
reversible error in the assailed decision to warrant the exercise of this Court’s
discretionary appellate jurisdiction.

ISSUE:

Whether or not there was no basis to hold Philtranco jointly and severally liable with
Calang because the former was not a party in the criminal case (for multiple homicide
with multiple serious physical injuries and damage to property thru reckless
imprudence) before the RTC.

RULING:

We partly grant the motion.

Liability of Philtranco

We, however, hold that the RTC and the CA both erred in holding Philtranco jointly and
severally liable with Calang. We emphasize that Calang was charged criminally before
the RTC. Undisputedly, Philtranco was not a direct party in this case. Since the cause of
action against Calang was based on delict, both the RTC and the CA erred in holding
Philtranco jointly and severally liable with Calang, based on quasi-delict under Articles
2176 and 2180 of the Civil Code. Articles 2176 and 2180 of the Civil Code pertain to the
vicarious liability of an employer for quasi-delicts that an employee has committed. Such
provision of law does not apply to civil liability arising from delict.

 If at all, Philtranco’s liability may only be subsidiary. Article 102 of the Revised Penal
Code states the subsidiary civil liabilities of innkeepers, tavernkeepers and proprietors
of establishments, as follows:

 
In default of the persons criminally liable, innkeepers,
tavernkeepers, and any other persons or corporations shall be civilly liable
for crimes committed in their establishments, in all cases where a violation
of municipal ordinances or some general or special police regulations shall
have been committed by them or their employees.
 
Innkeepers are also subsidiary liable for the restitution of goods
taken by robbery or theft within their houses from guests lodging therein,
or for the payment of the value thereof, provided that such guests shall
have notified in advance the innkeeper himself, or the person representing
him, of the deposit of such goods within the inn; and shall furthermore
have followed the directions which such innkeeper or his representative
may have given them with respect to the care of and vigilance over such
goods.  No liability shall attach in case of robbery with violence against or
intimidation of persons unless committed by the innkeeper’s employees.
 
    The foregoing subsidiary liability applies to employers, according to Article 103 of the
Revised Penal Code, which reads:
 
The subsidiary liability established in the next preceding article shall
also apply to employers, teachers, persons, and corporations engaged in
any kind of industry for felonies committed by their servants, pupils,
workmen, apprentices, or employees in the discharge of their duties.

The provisions of the Revised Penal Code on subsidiary liability – Articles 102 and 103
– are deemed written into the judgments in cases to which they are applicable. Thus, in
the dispositive portion of its decision, the trial court need not expressly pronounce the
subsidiary liability of the employer. Nonetheless, before the employers’ subsidiary
liability is enforced, adequate evidence must exist establishing that (1) they are indeed
the employers of the convicted employees; (2) they are engaged in some kind of
industry; (3) the crime was committed by the employees in the discharge of their duties;
and (4) the execution against the latter has not been satisfied due to insolvency.  The
determination of these conditions may be done in the same criminal action in which the
employee’s liability, criminal and civil, has been pronounced, in a hearing set for that
precise purpose, with due notice to the employer, as part of the proceedings for the
execution of the judgment.

Liability of Calang

 We see no reason to overturn the lower courts’ finding on Calang’s culpability.  The
finding of negligence on his part by the trial court, affirmed by the CA, is a question of
fact that we cannot pass upon without going into factual matters touching on the finding
of negligence.  In petitions for review on certiorari under Rule 45 of the Revised Rules of
Court, this Court is limited to reviewing only errors of law, not of fact, unless the factual
findings complained of are devoid of support by the evidence on record, or the assailed
judgment is based on a misapprehension of facts.
G.R. No.  179577; August 25, 2010

VON MADARANG Y MONTEMAYOR  vs. PEOPLE OF THE PHILIPPINES 

FACTS:

Teresita Ramirez (Teresita), sole owner/proprietress of Makati-based T.E.R. Trading, a

firm engaged in the business of supplying and selling Business Registration Aluminum
Plates (registration plates), transacted business in certain towns of Isabela and
Santiago City through the help of Cecilia Dy (Cecilia), the wife of then Isabela Governor
Benjamin Dy. Sometime in October 1997, Von Madarang y Montemayor (petitioner)
whom Cecilia introduced to Teresita agreed to assist in the selling of registration plates
at a price fixed by Teresita, the overprice to serve as his and Cecilia’s commission. It
appears that on petitioner’s request, Teresita executed a Special Power of Attorney.

It further appears that on petitioner’s request, Teresita executed another SPA, also
notarized on January 20, 1998 (SPA-Exh. “A”), to include Santiago City as among the
places from which petitioner could collect payments.

Based on Certifications separately issued by Santiago City, Cordon and San Mateo,
petitioner had collected full payments of registration plates sold there in the amounts of
P345,600, P57,600 and P33,290.91, respectively. From Teresita’s records denominated
as the “Von Madarang Accounts,” she noted that petitioner failed to remit P132,000
representing the balance of unremitted collections. Her demands, the last for which was
by letter of July 22, 2002,  for the remittance of petitioner’s balance having remained
unheeded, the Makati City Prosecutor’s Office, on Teresita’s complaint, filed before the
Makati RTC an Information for Estafa against petitioner.

Petitioner asserted that under SPA dated January 23 [sic], 1998 executed by Teresita
(SPA-Exh. “1”), he was under no obligation to remit the collections from Santiago City
and San Mateo as his authority thereunder was to collect payments only from Cordon,
Cauayan and Ramon.

Petitioner in fact claimed that he was not an agent, but a business partner of Teresita,
thereby dispensing with the obligation to remit the collections from Santiago City, as
well as from San Mateo, which represented his and Cecilia’s share in the transactions.

The trial court nevertheless credited petitioner’s contention that any balance he owed
Teresita was only P95,000, and that such “mathematical inaccuracy . . . will not result in
serious doubt as to warrant the acquittal of the accused of the offense charged. . . .”

At the Court of Appeals before which he appealed, petitioner assigned as main errors
the trial court’s non-recognition of: (1) Teresita’s erroneous accounting and the
existence of the conflicting SPAs (Exhs. “A,” “1” and “2-A”) which amounted to
reasonable doubt to warrant his acquittal, and (2) the existence of a partnership
between him and Teresita.

The appellate court affirmed petitioner’s conviction but reduced his unaccounted
collections to P67,500 (P32,500 from Santiago City plus P35,000 from Cordon) since
San Mateo is not listed under SPA-Exh. “A” as one of those from which petitioner was
authorized to collect payments. 

Reconsideration having been denied by Resolution of September 11, 2007, petitioner

filed the present petition invoking the same grounds as those raised before the
appellate court.
ISSUE:

Whether or not a contract of agency exist.

RULING:

In fine, mere mathematical inaccuracy or error in the accounting document-basis of the

amounts alleged to have been misappropriated in the Information does not engender
doubt on appellant’s culpability, especially since the exact amount of his civil liability has
been ascertained from the evidence adduced during the trial.

Petitioner’s claim that a partnership agreement between him and Teresita existed
deserves scant consideration.  SPA-Exh. “A” showing the existence of a contract of
agency belies such claim.

WHEREFORE, the petition is DENIED.

G.R. No. 179918;  September 8, 2010

SHELL PHILIPPINES  EXPLORATION B.V. vs. JALLOS, ET. AL

FACTS:

On December 11, 1990 petitioner Shell Philippines Exploration B.V. (Shell) and the
Republic of the Philippines entered into Service Contract 38 for the exploration and
extraction of petroleum in northwestern Palawan. Two years later, Shell discovered
natural gas in the Camago-Malampaya area and pursued its development of the well
under the Malampaya Natural Gas Project.  This entailed the construction and
installation of a pipeline from Shell’s production platform to its gas processing plant in
Batangas.  The pipeline spanned 504 kilometers and crossed the Oriental Mindoro Sea.

 On May 19, 2003, respondents Efren Jalos, Joven Campang, Arnaldo Mijares, and 75
other individuals (Jalos, et al) filed a complaint for damages against Shell before the
Regional Trial Court (RTC), Branch 41, Pinamalayan, Oriental Mindoro.  Jalos, et al
claimed that they were all subsistence fishermen from the coastal barangay of Bansud,
Oriental Mindoro whose livelihood was adversely affected by the construction and
operation of Shell’s natural gas pipeline.

Jalos, et al claimed that their fish catch became few after the construction of the
pipeline.  As a result, their average net income per month fell from a high of P4,848.00
to only P573.00.  They said that “the pipeline greatly affected biogenically hard-
structured communities such as coral reefs and led [to] stress to the marine life in the
Mindoro Sea.”  They now have to stay longer and farther out at sea to catch fish, as the
pipeline’s operation has driven the fish population out of coastal waters.

Instead of filing an answer, Shell moved for dismissal of the complaint.  It alleged that
the trial court had no jurisdiction over the action, as it is a “pollution case” under
Republic Act (R.A.) 3931, as amended by Presidential Decree (P.D.) 984 or the
Pollution Control Law.  Under these statutes, the Pollution Adjudication Board (PAB)
has primary jurisdiction over pollution cases and actions for related damages.

 Shell also claimed that it could not be sued pursuant to the doctrine of state immunity
without the State’s consent.  Shell said that under Service Contract 38, it served merely
as an agent of the Philippine government in the development of the Malampaya gas
reserves.           

 Moreover, said Shell, the complaint failed to state a cause of action since it did not
specify any actionable wrong or particular act or omission on Shell’s part that could
have caused the alleged injury to Jalos, et al.  The complaint likewise failed to comply
with requirements of a valid class suit, verification and certification against forum
shopping, and the requisites for a suit brought by pauper litigants.    On March 24, 2004
the RTC dismissed the complaint.  It ruled that the action was actually pollution-related,
although denominated as one for damages.  The complaint should thus be brought first
before the PAB, the government agency vested with jurisdiction over pollution-related
cases.

Jalos, et al assailed the RTC’s order through a petition for certiorari before the Court of
Appeals (CA).  In due course, the latter court reversed such order and upheld the
jurisdiction of the RTC over the action.  It said that Shell was not being sued for
committing pollution, but for constructing and operating a natural gas pipeline that
caused fish decline and considerable reduction in the fishermen’s income.  The claim
for damages was thus based on a quasi-delict over which the regular courts have
jurisdiction.

The CA also rejected Shell’s assertion that the suit was actually against the State.  It
observed that the government was not even impleaded as party defendant.  It gave
short shrift to Shell’s insistence that, under the service contract, the government was
solidarily liable with Shell for damages caused to third persons.  Besides, the State
should be deemed to have given its consent to be sued when it entered into the contract
with Shell.

 The CA also held that the complaint sufficiently alleged an actionable wrong. Jalos, et
al invoked their right to fish the sea and earn a living, which Shell had the correlative
obligation to respect.  Failure to observe such obligation resulted in a violation of the
fishermen’s rights and thus gave rise to a cause of action for damages.

 Shell moved for reconsideration of the CA’s decision but the same was denied.  Hence,
it filed this petition for review under Rule 45.

ISSUE:

Whether or not, the Republic appointed Shell as the exclusive party to conduct
petroleum operations in the Camago-Malampayo area under the State’s full control and
supervision, it does not follow that Shell has become the State’s “agent” within the
meaning of the law.

RULING:

Shell claims that it cannot be sued without the State’s consent under the doctrine of
state immunity from suit.  But, to begin with, Shell is not an agent of the Republic of the
Philippines.  It is but a service contractor for the exploration and development of one of
the country’s natural gas reserves.  While the Republic appointed Shell as the exclusive
party to conduct petroleum operations in the Camago-Malampayo area under the
State’s full control and supervision, it does not follow that Shell has become the State’s
“agent” within the meaning of the law.

An agent is a person who binds himself to render some service or to do something in

representation or on behalf of another, with the consent or authority of the latter.  The
essence of an agency is the agent’s ability to represent his principal and bring about
business relations between the latter and third persons.  An agent’s ultimate
undertaking is to execute juridical acts that would create, modify or extinguish relations
between his principal and third persons.  It is this power to affect the principal’s
contractual relations with third persons that differentiates the agent from a service
contractor.  

Shell’s main undertaking under Service Contract 38 is to “[p]erform all petroleum

operations and provide all necessary technology and finance” as well as other
connected services to the Philippine government.  As defined under the contract,
petroleum operation means the “searching for and obtaining Petroleum within the
Philippines”, including the “transportation, storage, handling and sale” of petroleum
whether for export or domestic consumption.  Shell’s primary obligation under the
contract is not to represent the Philippine government for the purpose of transacting
business with third persons. Rather, its contractual commitment is to develop and
manage petroleum operations on behalf of the State.

Consequently, Shell is not an agent of the Philippine government, but a provider of

services, technology and financing for the Malampaya Natural Gas Project.  It is not
immune from suit and may be sued for claims even without the State’s consent.
Notably, the Philippine government itself recognized that Shell could be sued in relation
to the project.  This is evident in the stipulations agreed upon by the parties under
Service Contract 38.

 Article II, paragraph 8, Annex “B” of Service Contract 38 states that legal expenses,
including “judgments obtained against the Parties or any of them on account of the
Petroleum Operations”, can be recovered by Shell as part of operating expenses to be
deducted from gross proceeds.  Article II, paragraph 9B of the same document allows a
similar recovery for “[a]ll actual expenditures incurred and paid by CONTRACTOR
[Shell] in settlement of any and all losses, claims, damages, judgments, and any other
expenses not covered by insurance, including legal services.”  This signifies that the
State itself acknowledged the suability of Shell.  Since payment of claims and damages
pursuant to a judgment against Shell can be deducted from gross proceeds, the State
will not be required to perform any additional affirmative act to satisfy such a judgment. 

In sum, while the complaint in this case sufficiently alleges a cause of action, the same
must be filed with the PAB, which is the government agency tasked to adjudicate
pollution-related cases.  Shell is not an agent of the State and may thus be sued before
that body for any damages caused by its operations.  The parties may appeal the PAB’s
decision to the CA.  But pending prior determination by the PAB, courts cannot take
cognizance of the complaint.

WHEREFORE, the Court GRANTS the petition and REVERSES the decision of the
Court of Appeals in CA-G.R. CV 82404 dated November 20, 2006.