SECOND DIVISION

SIME DARBY PILIPINAS, INC., Petitioner, - versus GOODYEAR PHILIPPINES, INC. and MACGRAPHICS CARRANZ INTERNATIONAL CORPORATION, Respondents. x------------------------------------------x GOODYEAR PHILIPPINES, INC., Petitioner, - versus SIME DARBY PILIPINAS, INC. and MACGRAPHICS CARRANZ INTERNATIONAL CORPORATION, Respondents. G.R. No. 182148

G.R. No. 183210 Present: CARPIO, J., Chairperson, NACHURA, PERALTA, ABAD, and MENDOZA, JJ. Promulgated: June 8, 2011

X -------------------------------------------------------------------------------------- X

DECISION
MENDOZA, J.:
This disposition covers two petitions for review filed separately by Sime Darby Pilipinas, Inc. (Sime Darby) and Goodyear Philippines, [1] Inc. (Goodyear) assailing the February 13, 2008 Decision of the Court of

Appeals (CA) and its March 13, 2008[2]and May 28, 2008[3] Resolutions in CA-G.R. CV No. 86032. The assailed issuances affirmed the November 8, 2004 Decision[4]and the July 20, 2005 Order[5] of the Regional Trial Court, Branch 61, Makati City (RTC), in Civil Case No. 97-561 entitled Goodyear Philippines, Inc. v. Sime Darby Pilipinas, Inc., and/or Macgraphics Carranz International Corporation, for Partial Rescission of a Deed of Assignment plus Damages and which essentially: [1] granted Goodyears complaint for partial rescission against Sime Darby; and [2] ordered Goodyear to pay respondent Macgraphics Carranz International Corporation (Macgraphics)attorneys fees with legal interest thereon. The Facts: Macgraphics owned several billboards across Metro Manila and other surrounding municipalities, one of which was a 35 x 70 neon billboard located at the Magallanes Interchange in Makati City. The Magallanes billboard was leased by Macgraphics toSime Darby in April 1994 at a monthly rental of P120,000.00. [6] The lease had a term of four years and was set to expire on March 30, 1998. Upon signing of the contract, Sime Darby paid Macgraphics a total of P1.2 million representing the ten-month deposit which the latter would apply to the last ten months of the lease. Thereafter, Macgraphics configured the Magallanes billboard to feature Sime Darbys name and logo.

On April 22, 1996, Sime Darby executed a Memorandum of Agreement[7] (MOA) with Goodyear, whereby it agreed to sell its tire manufacturing plants and other assets to the latter for a total of P1.5 billion. Just a day after, on April 23, 1996, Goodyear improved its offer to buy the assets of Sime Darby from P1.5 billion to P1.65 billion. The increase of the purchase price was made in consideration, among others, of the assignment by Sime Darby of the receivables in connection with its billboard advertising in Makati City and Pulilan, Bulacan.

On May 9, 1996, Sime Darby and Goodyear executed a deed entitled Deed of Assignment in connection with Microwave Communication Facility and in connection with Billboard Advertising in Makati City and Pulilan, Bulacan (Deed of Assignment),[8]through which Sime Darby assigned, among others, its leasehold rights and deposits made to Macgraphics pursuant to its lease contract over the Magallanes billboard. Sime Darby then notified Macgraphics of the assignment of the Magallanes billboard in favor of Goodyear through a letter-notice[9] dated May 3, 1996. After submitting a new design for the Magallanes billboard to feature its name and logo, Goodyear requested that Macgraphics submit its proposed quotation for the production costs of the new design. In a letter [10] dated June 21, 1996 Macgraphics informed Goodyear that the monthly rental of the Magallanes billboard is P250,000.00 and explained that the increase in rental was in consideration of the provisions and technical aspects of the submitted design. Goodyear replied on July 8, 1996 stating that due to budget constraints, it could not accept Macgraphics offer to integrate the cost of changing the design to the monthly rental. Goodyear stated that it intended to honor the P120,000.00 monthly rental rate given by Macgraphics to Sime Darby. It then requested that Macgraphics send its quotation for the simple background repainting and relettering of the neon tubing for the Magallanes billboard.[11] Macgraphics then sent a letter[12] to Sime Darby, dated July 11, 1996, informing the latter that it could not give its consent to the assignment of lease to Goodyear. Macgraphics explained that the transfer of Sime Darbys leasehold rights to Goodyear would necessitate drastic changes to the design and the structure of the neon display of the Magallanes billboard and would entail the commitment of manpower and resources that it did not foresee at the inception of the lease. Attaching a copy of this letter to a correspondence [13] dated July 15, 1996, Macgraphics advised Goodyear that any advertising service it intended to get from them would have to wait until after the expiration or valid pre-termination of the lease then existing with Sime Darby.

On September 23, 1996, due to Macgraphics refusal to honor the Deed of Assignment, Goodyear sent Sime Darby a letter,[14] via facsimile, demanding partial rescission of the Deed of Assignment and the refund of P1,239,000.00, the pro-rata value of Sime Darbys leasehold rights over the Magallanes billboard. As Sime Darby refused to accede to Goodyears demand for partial rescission, the latter commenced Civil Case No. 97-561 with the RTC. In its complaint,[15] Goodyear alleged that Sime Darby [1] was unable to deliver the object of the Deed of Assignment and [2] was in breach of its warranty under Title VII, Section B, paragraph 2 of the MOA, stating that no consent of any third party with whom Sime Darby has a contractual relationship is required in connection with the execution and delivery of the MOA, or the consummation of the transactions contemplated therein.[16] Including Macgraphics as an alternative defendant, Goodyear argued that should the court find the partial rescission of the Deed of Assignment not proper, it must be declared to have succeeded in the rights and interest of Sime Darby in the contract of lease and Macgraphics be ordered to pay it the amount of P1,239,000.00. After trial and the submission of the parties of their respective memoranda, the RTC rendered its decision and disposed the case in the following manner:
WHEREFORE, premises considered, the Deed of Assignment of Receivables (Exh. C) is hereby partially rescinded and defendant Sime Darby Pilipinas, Inc. is directed to pay plaintiff Goodyear Philippines, Inc. the amount of P1,239,000.00 with legal interest thereon from June 1996 until fully paid. Plaintiff Goodyear Philippines, Inc. is directed to pay defendant Macgraphics the amount of P50,000.00 as attorneys fees with legal interest thereon from the filing of the complaint until fully paid. SO ORDERED.

The trial court was of the considered view that Sime Darby should have secured the consent of Macgraphics to the assignment of the lease before it could

be effective against the latter. The trial court noted that the contract of lease between Sime Darby and Macgraphics made no mention of any clause that would grant Sime Darby the right to unilaterally assign the lease. Thus, following Article 1649 of the New Civil Code,[17] the trial court ruled that absent any stipulation to the contrary, the assignment of the lease without the consent of Macgraphics was not valid. The RTC also stated that as far as Macgraphics was concerned, its relationship with Goodyear was that of a new client. With Sime Darbys failure to secure the consent of Macgraphics, the trial court considered that it failed to deliver the object of the Deed of Assignment. The RTC, thus, ruled that following Article 1191 of the New Civil Code, [18] Goodyear was entitled to demand rescission of the assignment of the lease over the billboard. Granting the counterclaim of Macgraphics, the trial court found that Goodyear had no legal basis to file the complaint against it. According to the trial court, the consent of Macgraphics was required before any assignment of the lease over the billboard could be effective against it, there being no stipulation allowing Sime Darby to do otherwise. Not satisfied, both Goodyear and Sime Darby sought partial reconsideration of the decision. Their respective pleas, however, were denied by the RTC in its July 20, 2005 Order.[19] Sime Darby and Goodyear thereafter sought relief from the CA. In its February 13, 2008 Decision, however, the CA echoed the findings and conclusions of the trial court and affirmed its decision in toto. The decretal portion of the decision reads:
WHEREFORE, premises considered, the reliefs prayed for in the instant appeal are hereby DENIED. Accordingly, the assailed Decision of the Court a quo dated 08 November 2004 and Order dated 20 July 2005, respectively, STAND. SO ORDERED.

Both Sime Darby and Goodyear sought partial reconsideration of the CA decision, but their motions were denied. Unable to seek relief from the CA, Sime Darby and Goodyear filed their respective petitions before the Court. Sime Darbys petition was docketed as G.R. No. 182148, while Goodyears petition was docketed as G.R. No. 183210. On July 8, 2008, G.R. No. 182148 and G.R. No. 183210 were consolidated. In its Memorandum,[20] Sime Darby insists that Goodyear has no right to rescind the Deed of Assignment as Macgraphics impliedly consented to the assignment of the lease. It argues that Macgraphics, after being notified of the assignment, entertained Goodyears request for a quotation on the cost of a new design for the Magallanes billboard. The fact that there was a negotiation, Sime Darby posits, means that Macgraphics did not really care who the lessee was for as long as it got paid for the lease of the Magallanes billboard. Sime Darby also asserts that Macgraphics, despite refusing to give its consent to the assignment, still entertained Goodyears request to have its logo featured in the Magallanes billboard. In fact, on July 23, 1996, it sent Goodyear another quotation[21] of the cost to make changes on the billboard design. Further, Sime Darby argues that Macgraphics delay of 69 days before its July 11, 1996 letter declining to give its consent to the assignment is unreasonably long. Considering also the lack of explanation on the part of Macgraphics for the reason of the delay, Sime Darby claims that laches has set in. On the other hand, both Goodyear and Macgraphics pray for the affirmance of the decisions of the courts below that rescission is proper. In addition, Goodyear assails the petition of Sime Darby claiming that it raises only questions of fact since the petition essentially revolves around the truth or falsity of the findings of the courts below that Macgraphics never consented to the assignment of Sime Darbys leasehold rights. Goodyear also insists that it is entitled to attorneys fees due to the unjustified refusal of Sime Darby to rescind the Deed of Assignment.

Goodyear, however, asserts that it should not be held liable for the attorneys fees in favor of Macgraphics because it merely impleaded the latter when Sime Darby argued that fault and liability lie with it (Macgraphics). Synthesized, the issues proffered by the two petitions are: [1] Whether partial rescission of the Deed of Assignment is proper; and [2] Whether Macgraphics is entitled to an award of attorneys fees. The Court finds no merit in the petitions. Well-settled is the rule that a petition for review on certiorari under Rule 45 of the Rules of Court should only include questions of law since questions of fact are not reviewable. A question of law arises when there is doubt as to what the law is on a certain state of facts, while a question of fact exists when the doubt arises as to the truth or falsity of the alleged facts. For a question to be one of law, it must not involve an examination of the probative value of the evidence presented by any of the litigants. The resolution of the issue must rest solely on what the law provides under a given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, then the question posed is one of fact. Thus, the test of whether a question is one of law or of fact is not the appellation given to such question by the party raising the same; rather, it is whether the appellate court resolve the questionraised without reviewing or evaluating the evidence, in which case, it is a question of law; otherwise it is a question of fact.[22] Likewise well-settled is the principle that absent grave abuse of discretion, the Court will not disturb the factual findings of the CA. The Court will only exercise its power of review in known exceptions such as gross misappreciation of evidence or a total void of evidence.[23] Whether Macgraphics gave its consent to the assignment of leasehold rights of Sime Darby is a question of fact. It is not reviewable. On this score alone, the petition of Sime Darby fails.

Even if the Court should sidestep this otherwise fatal miscue, the petition of Sime Darby remains bereft of any merit. Article 1649 of the New Civil Code provides:
Art. 1649. The lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation to the contrary. (n)

In an assignment of a lease, there is a novation by the substitution of the person of one of the parties the lessee. [24] The personality of the lessee, who dissociates from the lease, disappears. Thereafter, a new juridical relation arises between the two persons who remain the lessor and the assignee who is converted into the new lessee. The objective of the law in prohibiting the assignment of the lease without the lessors consent is to protect the owner or lessor of the leased property.[25] Broadly, a novation may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. An extinctive novation results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation would have dual functionsone to extinguish an existing obligation, the other to substitute a new one in its place. This requires a conflux of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation.[26] While there is no dispute that the first requisite is present, the Court, after careful consideration of the facts and the evidence on record, finds that the other requirements of a valid novation are lacking. A review of the lease contract between Sime Darby and Macgraphics discloses no stipulation that Sime Darby could assign the lease without the consent of Macgraphics.

Moreover, contrary to the assertions of Sime Darby, the records are bereft of any evidence that clearly shows that Macgraphics consented to the assignment of the lease. As aptly found by the RTC and the CA, Macgraphics was never part of the negotiations between Sime Darby and Goodyear. Neither did it give its conformity to the assignment after the execution of the Deed of Assignment. The consent of the lessor to an assignment of lease may indeed be given expressly or impliedly. It need not be given simultaneously with that of the lessee and of the assignee. Neither is it required to be in any specific or particular form. [27] It must, however, be clearly given. In this case, it cannot be said that Macgraphics gave its implied consent to the assignment of lease. As aptly explained by the CA in its decision:
xxx Neither are We convinced with Appellant SIME DARBY's argument that Appellee MACGRAPHICS impliedly consented to the questioned assignment when it negotiated with Appellant GOODYEAR for the redesigning of Magallanes billboard. In fact, thru its letter dated 11 July 1996 to Appellant SIME DARBY, the Appellee made formal its refusal to give consent to the transfer/assignment to Appellant GOODYEAR of its right in the lease over the billboard located in Magallanes, Makati. The letter reads: xxx RE: Your BILLBOARD LEASE We refer to your letter dated May 23, 1996 notifying us of the assignment and transfer to Goodyear Philippines, Inc. of all your rights in the lease over the billboard located at Wells Photo Building, Magallanes,Makati City. As anticipated, the transfer of your rights over the lease will necessitate drastic changes to the design and structure of the neon spectacular display advertised in the billboard, which would thus entail commitment of manpower and resources which we did not foresee at the inception of the lease. Much as we would like to

accommodate you, these reasons constrained us to decline giving consent to the transfer. We hope that you will understand our position. (Emphasis included) On 15 July 1996, the Appellee likewise sent a letter to Appellant GOODYEAR informing the latter of its refusal to the assignment of the subject lease. The letter essentially states: xxx ATTENTION: MR. CARLOS Q. CARBALLO Manager Distribution, Development & Advertising Gentlemen: In response to your letter dated July 08, 1996, we are furnishing you with a copy of the letter we sent to Sime Darby Pilipinas, Inc., the content of which is self-explanatory. We look forward to servicing your advertising needs at the billboards presently leased to Sime Darby but only after the latter's existing lease thereon has expired or been validly pre-terminated. Until then, we are bound to abide by the terms of the existing lease contract. Should you desire, we have other choice locations which might suit your needs. Please let us know. xxx In the assertion of implied consent allegedly made by the Appellee to the assignment, the Court a quo ratiocinated in this wise: xxx On the issue of whether or not the negotiations between Macgraphics and Goodyear is a separate negotiation or still included in the lease, the Court rules that from the very start of the negotiations

between Goodyear and Macgraphics, the relationship between them, as far as Macgraphics is concerned, was that of Goodyear as a new client. Nonetheless, whether the negotiations is separate or included in the lease between Sime Darby and Macgraphics, the fact remains that Macgraphics did not give its consent to the assignment of the lease. xxx Clearly, there is no implied consent based on the factual backdrop of this case. Evidently, what transpired between Appellant GOODYEAR and the Appellee was a negotiation between a willing service provider and a probable new client. On this regard, the president of the Appellee, ALVIN M. CARRANZA (hereinafter CARRANZA), confirmed on direct examination the contents of his judicial affidavit submitted before the Court a quo in lieu of direct examination. The said judicial affidavit pertinently states viz: xxx Q: A: Do you know plaintiff? Yes.

Q: How do you know the plaintiff? A: I know the plaintiff Goodyear because after Sime Darby sent us the letter dated 03 May 1996, Goodyear requested for a price quote on the cost of changing the billboard design on the Magallanes Interchange. They asked how much the cost would be if Sime Darby's billboard were changed and Goodyear's advertisement displayed instead. Q: What was your reaction to this request? A: Goodyear is a big company, so we tried to be as accommodating as possible in order to attract it as a client.(Underlining supplied) xxx

As aptly pointed out by Appellant GOODYEAR in its Brief filed in response to the appeal filed by the Appellant SIME DARBY, the fact that the Appellee dealt with Appellant GOODYEAR as a new client is corroborated by the testimony of APOLLO DE GALA (hereinafter DE GALA), Acting Manager for Advertising of Appellant GOODYEAR, to wit: Re-direct examination Q: You mentioned during cross-examination that you started negotiating with Macgraphics Carranz for the make-over of the billboard in Magallanes, is it not? A: Yes, sir. Q: And this negotiation participation of Sime Darby? A: Yes, sir. was without the

Q: Now, why did you not include Sime Darby in the negotiation? A: I do not really have any reason to include them that time, because considering that it was just a change over, we were willing to pay for the change over. The thing that included Sime Darby was that Carranz refused to honor. Well, Carranz proposed another scheme for the billboard. In fact, they proposed to us that we do the whole thing over, sir. A new set not considering the Sime Darby logo and Sime Darby agreement, Carranz and Sime Darby. To Carranz, it was already new set of client. xxx (Underlining supplied)

Indeed, Macgraphics and Goodyear never came to terms as to the conditions that would govern their relationship. While it is true, that Macgraphics and Goodyear exchanged proposals, there was never a meeting of minds between them. Contrary to the assertions of Sime Darby, the negotiations between Macgraphics and Goodyear did not translate to its (Macgraphics) consent to the assignment. Negotiations is just a part or a preliminary phase to the birth of an obligation.

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.[28] Regarding laches, it is an issue raised by Sime Darby for the first time only in this Court. Basic is the rule that issues not raised below cannot be raised for the first time on appeal. Points of law, theories, issues and arguments not brought to the attention of the lower court need not be, and ordinarily will not be, considered by the reviewing court, as they cannot be raised for the first time at that late stage. Basic considerations of due process impel the adoption of this rule.
[29]

Notwithstanding, the Court finds that the doctrine of laches cannot be applied in this case. Laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting the presumption that the party entitled to assert it either has abandoned or declined to assert it.[30] There is no absolute rule as to what constitutes laches or staleness of demand; each case is to be determined according to its particular circumstances, with the question of laches addressed to the sound discretion of the court. Because laches is an equitable doctrine, its application is controlled by equitable considerations and should not be used to defeat justice or to perpetuate fraud or injustice.[31] From the records, it appears that Macgraphics first learned of the assignment when Sime Darby sent its letter-notice dated May 3, 1996. From the letters sent by Macgraphics to Goodyear, it is apparent that Macgraphics had to study and determine both the legal and practical implications of entertaining Goodyear as a client. After review, Macgraphics found that consenting to the assignment would entail the commitment of manpower and resources that it did not foresee at the

inception of the lease. It thereafter communicated its non-conformity to the assignment. To the mind of the Court, there was never a delay. In sum, it is clear that by its failure to secure the consent of Macgraphics to the assignment of lease, Sime Darby failed to perform what was incumbent upon it under the Deed of Assignment. The rescission of the Deed of Assignment pursuant to Article 1191 of the New Civil Code is, thus, justified. With regard to the two issues raised by Goodyear on attorneys fees, the Court agrees with the CA which correctly proferred the following ratiocination:
The award of attorney's fees is the exception rather than the rule, and it must have some factual, legal and equitable bases. Nevertheless, Art. 2208 of the Civil Code authorizes an award of attorney's fees and expenses of litigation, other than judicial costs, when as in this case the plaintiff's act or omission has compelled the defendant to litigate and to incur expenses of litigation to protect her interest (par. 2), and where the Court deems it just and equitable that attorney's fees and expenses of litigation should be recovered (par. 11). In the case at bar, even before the filing of the instant case before the Court a quo, it was clear that Appellee MACGRAPHICS was not part of the Deed of Assignment being assailed by the Appellant GOODYEAR. It was also established during the trial that the consent of Appellee MACGRAPHICS was not secured prior to the execution of the subject deed between the Appellants. Thus, it is only equitable that Appellant GOODYEAR be made liable for the unnecessary attorney's fees spent by Appellee MACGRAPHICS to protect its rights and interest due to the filing of a baseless complaint by Appellant GOODYEAR. To stress, attorney's fees may be awarded when a party is compelled to litigate or to incur expenses to protect its interest by reason of an unjustified act by the other. As to the claim of Appellant GOODYEAR that Appellant SIME DARBY be made liable to pay the former attorney's fees, We rule to deny the same.

The grant of attorney's fees depends on the circumstances of each case and lies within the discretion of the court. We are of the view that although the Court a quo was correct in ordering the partial rescission of the deed of assignment, it does not necessarily follow that the award of attorney's fees is a natural consequence. They are not awarded every time a party wins a suit. In the absence of a stipulation, attorney's fees are ordinarily not recoverable; otherwise a premium shall be placed on the right to litigate. Since the Appellant GOODYEAR's claim from Appellant SIME DARBY, to deliver its leasehold rights with Appellee MACGRAPHICS cannot altogether be considered as demandable claim due to latter's lack of consent, Appellant SIME DARBY cannot be made liable to answer for attorney's fees . [Emphases supplied]

In view of all the foregoing, the Court finds no legal, factual, or equitable justification to disturb the findings and conclusions of the courts below. WHEREFORE, the petitions are hereby DENIED. SO ORDERED.

Republic of the Philippines

Supreme Court
Manila
SECOND DIVISION LOMISES ALUDOS, deceased, substituted by FLORA ALUDOS, Petitioner, G.R. No. 165285 Present: CARPIO, J., Chairperson, BRION, PEREZ, SERENO, and REYES, JJ. Promulgated: JOHNNY M. SUERTE, Respondent.
*

- versus -

June 18, 2012

x------------------------------------------------------------------------------------x DECISION BRION, J.:

Before the Court is a petition for review on certiorari filed under Rule 45 of the Rules of Court by Lomises Aludos, through his wife Flora Aludos ( Lomises). [1] Lomises seeks the reversal of the decision [2] dated August 29, 2002 of the Court of Appeals (CA) in CA-G.R. CV No. 63113, as well as the resolution [3] dated August 17, 2004.

THE FACTS Sometime in January 1969, Lomises acquired from the Baguio City Government the right to occupy two stalls in the Hangar Market in Baguio City, as evidenced by a permit issued by the City Treasurer.[4] On September 8, 1984, Lomises entered into an agreement with respondent Johnny M. Suerte for the transfer of all improvements and rights over the two market stalls (Stall Nos. 9 and 10) for the amount of P260,000.00. Johnny gave a down payment of P45,000.00 to Lomises, who acknowledged receipt of the amount in a document[5] executed on the same date as the agreement:
RECEIPT P45,000.00 September 8, 1984

Received the Sum of Forty Five Thousand Pesos (P45,000.00) from JOHNNY M. SUERTE, with postal address at Kamog, Sablan, Benguet Province, Philippine Currency as an advance or partial downpayment of Improvements and Rights over Stall Nos. 9 and 10, situated at Refreshment Section, Hangar Market Compound, Baguio City, and the said amount will be deducted from the agreed proceeds of the transaction in the amount of Two Hundred Sixty Thousand Pesos (P260,000.00), Philippine Currency and payable starting from September 1984 up to December 1985, and/or (16) months. This receipt will be formalise (sic) later, and the Deed of Absolute Transfer of Improvements and Rights over the said Stall be executed immediately upon full payment of the balance stated in the above.

Right hand thumbmark: [Thumbmark affixed] LOMISES F. ALUDOS (Registered Stall Holder) With the Consent of the Wife: [Signature affixed] FLORA MENES (Wife) Witness to Thumbmark and/or Paid in the presence of: [Signature affixed] Domes M. Suerte (witness) [Signature affixed] Ana Comnad (witness) [Signature affixed] Dolores Aludos (with her consent/witness) [Signature affixed] Agnes M. Boras (witness)

Johnny made a subsequent payment of P23,000.00; hence, a total of P68,000.00 of the P260,000.00 purchase price had been made as of 1984. Before full payment could be made, however, Lomises backed out of the agreement and returned the P68,000.00 to Domes and Jaime Suerte, the mother and the father of Johnny, respectively. The return of the P68,000.00 down payment was embodied in a handwritten receipt[6] dated October 9, 1985:
RECEIPT P68,000.00 Received from Mr. Lomises Aludos the sum of Sixty-eight thousand (P68,000.00) Pesos as reimbursement of my money. Baguio City, October 9, 1985.
[Signature affixed] JAIME SUERTE [Signature affixed] DOMES SUERTE

Witnesses [Illegible signature] [Illegible signature]

Through a letter dated October 15, 1985, Johnny protested the return of his money, and insisted on the continuation and enforcement of his agreement with Lomises. When Lomises refused Johnnys protest, Johnny filed a complaint against Lomises before the Regional Trial Court ( RTC), Branch 7, Baguio City, for specific performance with damages, docketed as Civil Case No. 720R. Johnny prayed that, after due proceedings, judgment be rendered ordering Lomises to (1) accept the payment of the balance ofP192,000.00; and (2) execute a final deed of sale and/or transfer the improvements and rights over the two market stalls in his favor. In a decision dated November 24, 1998,[7] the RTC nullified the agreement between Johnny and Lomises for failure to secure the consent of the Baguio City Government to the agreement. The RTC found that Lomises was a mere lessee of the market stalls, and the Baguio City Government was the owner-lessor of the stalls. Under Article 1649 of the Civil Code, [t]he lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation to the contrary. As the permit issued to Lomises did not contain any provision that the lease of the market stalls could further be assigned, and in the absence of the consent of the Baguio City Government to the agreement, the RTC declared the agreement between Lomises and Johnny null and void. The nullification of the agreement required the parties to return what had been received under the agreement; thus, the RTC ordered Lomises to return the down payment made by Johnny, with interest of 12% per annum, computed from the time the complaint was filed until the amount is fully paid. It dismissed the parties claims for damages. Lomises appealed the RTC decision to the CA, arguing that the real agreement between the parties was merely one of loan, and not of sale; he further claimed that the loan had been extinguished upon the return of the P68,000.00 to Johnnys mother, Domes.

In a decision dated August 29, 2002,[8] the CA rejected Lomises claim that the true agreement was one of loan. The CA found that there were two agreements entered into between Johnny and Lomises: one was for the assignment of leasehold rights and the other was for the sale of the improvements on the market stalls. The CA agreed with the RTC that the assignment of the leasehold rights was void for lack of consent of the lessor, the Baguio City Government. The sale of the improvements, however, was valid because these were Lomises private properties. For this reason, the CA remanded the case to the RTC to determine the value of the improvements on the two market stalls, existing at the time of the execution of the agreement. Lomises moved for the reconsideration of the CA ruling, contending that no valid sale of the improvements could be made because the lease contract, dated May 1, 1985, between Lomises and the Baguio City Government, supposedly marked as Exh. A, provided that [a]ll improvements [introduced shall] ipso facto become properties of the City of Baguio.[9] In a resolution dated August 17, 2004,[10] the CA denied the motion after finding that Lomises lawyer, Atty. Rodolfo Lockey, misrepresented Exh. A as the governing lease contract between Lomises and the Baguio City Government; the records reveal that Exh. A was merely a permit issued by the City Treasurer in favor of Lomises. The contract of lease dated May 1, 1985 was never formally offered in evidence before the RTC and could thus not be considered pursuant to the rules of evidence. Lomises now appeals the CA rulings through the present petition for review on certiorari. THE PARTIES ARGUMENTS Lomises insists that the agreement was merely one of loan, not of sale of improvements and leasehold rights. Johnny could not afford to purchase from Lomises the two market stalls for P260,000.00 because the former was a mere college student when the agreement was entered into in 1984 and was dependent on his parents for support. The actual lender of the amount was Johnnys mother, Domes; Johnnys name was placed on the receipt dated September 8, 1984 so that

in case the loan was not paid, the rights over the market stalls would be transferred to Johnnys name, not to Domes who already had a market stall and was thus disqualified from acquiring another. The receipt dated September 8, 1984, Lomises pointed out, bears the signature of Domes, not of Johnny. Even assuming that Johnny was the real creditor, Lomises alleges that the loan had been fully paid when he turned over the amount of P68,000.00 to Johnnys parents, as evidenced by the receipt dated October 9, 1985. Domes claim that she was pressured to accept the amount is an implied admission that payment had nonetheless been received. When Johnny died during the pendency of the case before the RTC, his parents became his successors and inherited all his rights. For having received the full amount of the loan, Johnnys parents can no longer enforce payment of the loan. Lomises contends that there were no improvements made on the market stalls other than the stalls themselves, and these belong to the Baguio City Government as the lessor. A transfer of the stalls cannot be made without a transfer of the leasehold rights, in which case, there would be an indirect violation of the lease contract with the Baguio City Government. Lomises further alleges that, at present, the market stalls are leased by Flora and her daughter who both obtained the lease in their own right and not as Lomises successors. Johnny, through his remaining successor Domes (Johnnys mother), opposed Lomises claim. The receipt dated September 8, 1984 clearly referred to a contract of sale of the market stalls and not a contract of loan that Lomises alleges. Although Johnny conceded that the sale of leasehold rights to the market stalls were void for lack of consent of the Baguio City Government, he alleged that the sale of the improvements should be upheld as valid, as the CA did. THE COURTS RULING The Court does not find the petition meritorious.

The Nature of the Agreement between the Parties Lomises questions the nature of the agreement between him and Johnny, insisting that it was a contract of loan, not an assignment of leasehold rights and sale of improvements. In other words, what existed was an equitable mortgage, as contemplated in Article 1602, in relation with Article 1604, of the Civil Code. An equitable mortgage has been defined as one which although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, there being no impossibility nor anything contrary to law in this intent.[11] Article 1602 of the Civil Code lists down the circumstances that may indicate that a contract is an equitable mortgage:
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws. [Emphases ours.]

Based on Lomises allegations in his pleadings, we consider three circumstances to determine whether his claim is well-supported. First, Johnny was a mere college student dependent on his parents for support when the agreement was executed, and it was Johnnys mother, Domes, who was the party actually interested in acquiring the market stalls. Second, Lomises received onlyP48,000.00 of the P68,000.00 that Johnny claimed he gave as down payment; Lomises said that the P20,000.00 represented interests on the loan. Third, Lomises retained possession of the market stalls even after the execution of the agreement. Whether separately or taken together, these circumstances do not support a conclusion that the parties only intended to enter into a contract of loan. That Johnny was a mere student when the agreement was executed does not indicate that he had no financial capacity to pay the purchase price of P260,000.00. At that time, Johnny was a 26-year old third year engineering student who operated as a businessman as a sideline activity and who helped his family sell goods in the Hangar Market.[12] During trial, Johnny was asked where he was to get the funds to pay the P260,000.00 purchase price, and he said he would get a loan from his grandfather.[13] That he did not have the full amount at the time the agreement was executed does not necessarily negate his capacity to pay the purchase price, since he had 16 months to complete the payment. Apart from Lomises bare claim that it was Johnnys mother, Domes, who was interested in acquiring his market stalls, we find no other evidence supporting the claim that Johnny was merely acting as a dummy for his mother. Lomises contends that of the P68,000.00 given by Johnny, he only received P48,000.00, with the remaining P20,000.00 retained by Johnny as interest on the loan. However, the testimonies of the witnesses presented during trial, including Lomises himself, negate this claim. Judge Rodolfo Rodrigo (RTC of Baguio City, Branch VII) asked Lomises lawyer, Atty. Lockey, if they deny receipt of the P68,000.00; Atty. Lockey said that they were not denying receipt,

and added that they had in fact returned the same amount. [14] Judge Rodrigo accurately summarized their point by stating that there is no need to dispute whether theP68,000.00 was given, because if [Lomises] tried to return that x x x he had received that.[15] Witness Atty. Albert Umaming said he counted the money before he drafted the October 9, 1985 receipt evidencing the return; he said that Lomises returned P68,000.00 in total.[16] Thus, if the transaction was indeed a loan and the P20,000.00 interest was already prepaid by Lomises, the return of the full amount of P68,000.00 by Lomises to Johnny (through his mother, Domes) would not make sense. That Lomises retained possession of the market stalls even after the execution of his agreement with Johnny is also not an indication that the true transaction between them was one of loan. Johnny had yet to complete his payment and, until Lomises decided to forego with their agreement, had four more months to pay; until then, Lomises retained ownership and possession of the market stalls.[17] Lomises cannot feign ignorance of the import of the terms of the receipt of September 8, 1984 by claiming that he was an illiterate old man. A witness (Ana Comnad) testified not only of the fact of the sale, but also that Lomises daughter, Dolores, translated the terms of the agreement from English to Ilocano for Lomises benefit;[18] Lomises himself admitted this fact.[19] If Lomises believed that the receipt of September 8, 1984 did not express the parties true intent, he could have refused to sign it or subsequently requested for a reformation of its terms. Lomises rejected the agreement only after Johnny sought to enforce it. Hence, the CA was correct in characterizing the agreement between Johnny and Lomises as a sale of improvements and assignment of leasehold rights. The Validity of the Agreement Both the RTC and the CA correctly declared that the assignment of the leasehold rights over the two market stalls was void since it was made without the consent of the lessor, the Baguio City Government, as required under Article 1649 of the Civil Code.[20] Neither party appears to have contested this ruling.

Lomises, however, objects to the CA ruling upholding the validity of the agreement insofar as it involved the sale of improvements on the stalls. Lomises alleges that the sale of the improvements should similarly be voided because it was made without the consent of the Baguio City Government, the owner of the improvements, pursuant to the May 1, 1985 lease contract.[21] Lomises further claims that the stalls themselves are the only improvements on the property and a transfer of the stalls cannot be made without transferring the leasehold rights. Hence, both the assignment of leasehold rights and the sale of improvements should be voided. The CA has already rejected the evidentiary value of the May 1, 1985 lease contract between the Baguio City Government and Lomises, as it was not formally offered in evidence before the RTC; in fact, the CA admonished Lomises lawyer, Atty. Lockey, for making it appear that it was part of the records of the case. Under Section 34, Rule 132 of the Rules of Court, the court shall consider no evidence which has not been formally offered. The offer of evidence is necessary because it is the duty of the court to rest its findings of fact and its judgment only and strictly upon the evidence offered by the parties. Unless and until admitted by the court in evidence for the purpose or purposes for which such document is offered, the same is merely a scrap of paper barren of probative weight.[22] Although the contract was referred to in Lomises answer to Johnnys complaint[23] and marked as Exhibit 2 in his pre-trial brief,[24] a copy of it was never attached. In fact, a copy of the May 1, 1985 lease contract surfaced only after Lomises filed a motion for reconsideration of the CA decision. What was formally offered was the 1969 permit, which only stated that Lomises was permitted to occupy a stall in the Baguio City market and nothing else. [25] In other words, no evidence was presented and formally offered showing that any and all improvements in the market stalls shall be owned by the Baguio City Government. Likewise unsupported by evidence is Lomises claim that the stalls themselves were the only improvements. Hence, the CA found it proper to order the remand of the case for the RTC to determine the value of the improvements on the market stalls existing as of September 8, 1984. [26] We agree with the CAs order of remand. We note, however, that Lomises had already returned theP68,000.00 and receipt of the amount has been duly acknowledged by Johnnys mother, Domes. Johnny testified on October 6, 1986 that the money was still with

his mother.[27] Thus, upon determination by the RTC of the actual value of the improvements on the market stalls, the heirs of Johnny Suerte should pay the ascertained value of these improvements to Lomises, who shall thereafter be required to execute the deed of sale over the improvements in favor of the heirs of Johnny. WHEREFORE, under these premises, the Court hereby AFFIRMS the ruling of the Court of Appeals for the remand of the case to the Regional Trial Court of Baguio City, Branch 7, for the determination of the value of the improvements on Stall Nos. 9 and 10 at the Refreshment Section of the Hangar Market Compound, Baguio City as of September 8, 1984. After this determination, the Court ORDERS the heirs of Johnny M. Suerte to pay the amount determined to the heirs of Lomises Aludos, who shall thereafter execute the deed of sale covering the improvements in favor of the heirs of Johnny M. Suerte and deliver the deed to them. Costs against the petitioner. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. L-25048 May 13, 1975 PHOENIX ASSURANCE COMPANY, plaintiff-appellant, vs. MACONDRAY & CO., INC., defendant-appellee. Quasha, Asperilla, Zafra, Tayag and Ancheta for plaintiff-appellant. Ross, Selph, Salcedo, Del Rosario, Bito and Mesa for defendant-appellee.

AQUINO, J.:

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This is a case involving the law of common carriers. There is no dispute as to the facts. On October 24, 1961 the SS Fernbank received from Saco Lowell Shops, Greenville, South Carolina, a shipment consigned to the order of the Commercial Bank and Trust Company, a Manila bank, with arrival notice to Floro Spinning Mills 280 Escolta, Manila. The shipment was insured for $5,450 with Phoenix Assurance Company of New York against all risks including loss or damage. In the bill of lading the shipment is described as one box and one carton containing textile machinery spare parts including ball bearings weighing 930 pounds. The bill of lading contains the following notation below the description of the cargo:
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L/C No. FM-1512/61, COMMERCIAL BANK & TRUST CO. OF THE PHILIPPINES, MANILA, DATED 7/3/61, EXPIRES 10/31/61, AMOUNT: $4183.74 That notation means that on July 3, 1961 the consignee, Floro Spinning Mills, opened a letter of credit through the Commercial Bank and Trust Company for the amount of $4,183.74 which was to expire on October 31, 1961. The bill of lading further shows on its face that the shipper paid to the vessel's agent at the port of loading the sum of $46.20 as freightage based on the gross weight of the shipment. Printed in the smallest type on the back of the bill of lading is the following stipulation limiting the carrier's liability for loss or damage to $500 per package unless the shipper in writing declares the nature of the goods and a higher valuation and pays additional freightage on the basis of such higher valuation:
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17. In case of any loss or damage to or in connection with goods exceeding in actual value $500 lawful money of the United States, per package, or, in case of goods not shipped in packages, per customary freight unit, the value of the goods shall be deemed to be $500 per package or per unit, on which basis the freight is adjusted and the Carrier's liability, if any, shall be determined on the basis of a value of $500 per package or per customary freight unit, unless the nature of the goods and a valuation higher than $500 shall have been declared in writing by the shipper upon delivery to the Carrier and inserted in this bill of lading and extra freight paid if required and in such case if the actual value of the goods per package or per customary freight unit shall exceed such declared value, the value shall nevertheless be deemed to be the declared value. Whenever the value of the goods is less than $500 per package or other freight unit, their value in the calculation and adjustment of claims for which the Carrier may be liable shall for the purpose of avoiding uncertainties and difficulties in fixing value be deemed to be the invoice value, plus freight and insurance if paid, irrespective of whether any other value is greater or less. The limitation of liability and other provisions herein shall inure not only to the benefit of the carrier, its agents, servants and employees, but also to the benefit of any independent contractor performing services including stevedoring in connection with the goods covered hereunder. The bill of lading provides that "in accepting this Bill of Lading, the shipper, owner and consignee of the goods, and the holder of the Bill of Lading agree to be bound by all its stipulations, exceptions and conditions, whether written, stamped or printed, as fully as if they were all signed by such shipper, owner, consignee or holder." The SS Fernbank arrived at the port of Manila on November 23, 1961. The shipment was discharged into the custody of the Manila Port Service. The second carton was in bad order and was almost empty. It contained only a small package containing a steel wire clip which was worthless. The Floro Spinning Mills, which is operated by P. Floro & Sons, Inc., filed claims with Macondray & Co., Inc., the agent of the vessel, and with Ker & Company, Ltd., the agent of the insurance company, for the value of the missing cargo in the total sum of $1,512.78 (including freight, insurance premium and other charges) which was equivalent to P4,554.98 at the prevailing rate of exchange of 3.011. Macondray & Co., Inc. replied that the maximum limitation of the vessel's liability was $500 per package. Phoenix Assurance Company paid the claim of Floro Spinning Mills in the sum of P4,554.98. As subrogee, it filed this action against Macondray & Co., Inc. for the recovery of the actual value of the missing cargo in the sum of P4,554.98. Macondray & Co., Inc. pleaded the defense that it is liable only up to the sum of $500 as stipulated in the aforementioned Clause 17 of the bill of lading. After trial, the lower court rendered judgment, ordering Macondray & Co., Inc. to pay Phoenix Assurance Company the sum of P1,505.50, as the peso equivalent of five hundred dollars at the conversion rate of P3.011 to the dollar, "with costs against the plaintiff, deductible" from the amount of the judgment (Civil Case No. 51900).

Phoenix Assurance Company appealed to this Court on a question of law. Its contention is that, as the assignee of the consignee, it is entitled to collect from the carrier or its agent the sum of P4,554.98 as the actual value of the missing cargo and not $500 only. Phoenix Assurance Company admits that the shipment in question was subject to all the provisions, exceptions and conditions appearing in the bill of lading. It admits that it is bound by the aforequoted Clause 17 of the bill of lading. It admits that under Clause 17 in order that the carrier's liability may exceed $500 the nature of the goods and a valuation higher than $500 should be declared in writing by the shipper and inserted in the bill of lading and that extra freight, "if required", should be paid on the basis of the actual value of the cargo. Appellant company then points out that the nature of the shipment is indicated in the bill of lading as textile machinery spare parts, including ball bearings, and that the value thereof is shown in the aforequoted notation regarding the letter of credit for $4,183.74 which notation was allegedly made by the shipper. It argues that extra freight was not paid because the carrier did not demand the payment of an increased freight. Phoenix Assurance Company specified in its notice of appeal that it is appealing to this Court because the lower court's decision "is contrary to law and applicable jurisprudence." Appellant company is bound by the facts found by the lower court (Millar vs. Nadres, 74 Phil. 307; 2 Moran's Comments on the Rules of Court, 1970 Ed., p.456). It is not necessary in such a case to elevate the evidence to this Court (See. 2, Rule 42, Rules of Court). The lower court found that the notation in the bill of lading as to the amount of the letter of credit was not the declaration of the value of the shipment which was required by Clause 17 and which would render the carrier liable for loss or damage to the cargo in an amount exceeding $500. The lower court said that notation was made for the convenience of the shippers and the bank in processing the letter of credit. The decisive fact in this case is that the shipper paid the freight on the basis of the weight of the cargo and not on the basis of its actual value which was not properly declared. It was not an ad valorem shipment. Had it been an ad valorem shipment the freight rate would have been $213.55 instead of $46.20 (Exh. 2). The lower court did not err in holding that Macondray & Co., Inc. is liable to Phoenix Assurance Company only in the amount of $500 under Clause 17 of the bill of lading. Clause 17 is sanctioned by section 4 of the Carriage of Goods by Sea Act which provides:
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(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in the amount exceeding $500 per package lawful money of the United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading. This declaration, if embodied in the bill of lading, shall be prima facie evidence, but shall not be conclusive on the carrier. By agreement between the carrier, master or agent of the carrier, and the shipper another maximum amount than that mentioned in this paragraph may be fixed: Provided, That such maximum shall not be less than the figure above named. In no event shall the carrier be liable for more than the amount of damage actually sustained.

Neither the carrier nor the ship shall be responsible in any event for loss or damage to or in connection with the transportation of the goods if the nature or value thereof has been knowingly and fraudulently misstated by the shipper in the bill of lading. It has been held that the foregoing provisions on limited liability are as much a part of a bill of lading as though physically in it and as much a part thereof as though placed therein by agreement of the parties (Shackman vs. Cunrad White Star, D.C.N.Y. 1940, 31 F. Supp. 948, 46 USCA 866). The legal issue posed by appellant insurance company is not new. This Court has already upheld the validity of a stipulation limiting the carrier's liability, similar to the stipulation found in Clause 17.

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Common carriers; Bill of lading; Stipulations regarding liability of carrier for loss of damage to crop; Validity of such stipulations . Three kinds of stipulation have often been made in a bill of lading. Thefirst is one exempting the carrier from any and all liability for loss or damage occasioned by its own negligence. The second is one providing for an unqualified limitation of such liability to an agreed valuation. And the third is one limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher value and pays a higher rate of freight. According to an almost uniform weight of authority, the first and second kinds of stipulations are invalid as being contrary to public policy, but the third is valid and enforceable. (Syllabus, H.E., Heacock Company vs. Macondray & Company, Inc., 42 Phil. 205; Freixas and Company vs. Pacific Mail Steamship Co., 42 Phil. 198; McCarthy vs. Barber Steamship Lines, Inc., 45 Phil. 488; Northern Motors, Inc. vs. Prince Line, 107 Phil. 253, 257). Thus, a stipulation that the value of the goods shipped does not exceed $500 per freight ton, or, in proportion for any part of ton, unless the value be expressly stated herein and ad valorem freight paid thereon was regarded as valid (Syllabus, McCarthy vs. Barber Steamship Lines, supra. See Arts. 1749 and 1750, Civil Code. Compare with Shewaram vs. Philippine Air Lines, Inc., L-20099, July 7, 1966, 17 SCRA 606, where the printed limitation of liability in a plane ticket was declared void).. Appellant company in its third assignment of error states that the lower court erred in adjudging costs against it on the basis of section 9, Rule 5 of the Rules of Court which provides that "if the defendant, at any time before the trial, offers in writing to allow judgment to be taken against him for a specified sum, the plaintiff may immediately have judgment therefor, with costs then accrued; but if he does not accept such offer before trial, and fails to recover in the action a sum in excess of the offer, he cannot recover costs, but costs must be adjudged against him, and, if he recovers, be deducted from his recovery. The offer and failure to accept it cannot affect the recovery otherwise than as to costs." The trial court applied section 9 of Rule 5 because defendant Macondray & Co., Inc. pleaded in its answer that "in order to avoid inconvenience and expense of litigation", it had offered to pay Phoenix Assurance Company the equivalent in pesos of $500 as a compromise settlement of its claim (14 Record on Appeal). Section 9 of Rule 5 refers to a trial in inferior courts. The instant case was commenced in the Court of First Instance of Manila.

However, in view of the result arrived at in this appeal, appellant Phoenix Assurance Company, as the defeated party, is liable for the costs of the suit which are allowed to the winning party as a matter of course (Sec. 1, Rule 142, Rules of Court). The lower court decided this case on July 12, 1965. It applied the conversion rate which was current at the time of its decision. In justice to the plaintiff, it should be paid the $500 at the conversion rate prevailing at the time of payment which the trial court should determine if the parties cannot agree on the same. * WHEREFORE, the trial court's judgment is affirmed in the sense that the defendant's liability of $500 to the plaintiff should be paid at the rate of exchange prevailing at the time the judgment is satisfied instead of at the conversion rate prevailing in 1965. Costs against the plaintiff-appellant. SO ORDERED. Fernando (Chairman), Barredo, Antonio and Concepcion, Jr., JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-21438 September 28, 1966

AIR FRANCE, petitioner, vs. RAFAEL CARRASCOSO and the HONORABLE COURT OF APPEALS, respondents. Lichauco, Picazo and Agcaoili for petitioner. Bengzon Villegas and Zarraga for respondent R. Carrascoso.

SANCHEZ, J.: The Court of First Instance of Manila 1 sentenced petitioner to pay respondent Rafael Carrascoso P25,000.00 by way of moral damages; P10,000.00 as exemplary damages; P393.20 representing the difference in fare between first class and tourist class for the portion of the trip Bangkok-Rome, these various amounts with interest at the legal rate, from the date of the filing of the complaint until paid; plus P3,000.00 for attorneys' fees; and the costs of suit. On appeal,2 the Court of Appeals slightly reduced the amount of refund on Carrascoso's plane ticket from P393.20 to P383.10, and voted to affirm the appealed decision "in all other respects", with costs against petitioner. The case is now before us for review on certiorari. The facts declared by the Court of Appeals as " fully supported by the evidence of record", are: Plaintiff, a civil engineer, was a member of a group of 48 Filipino pilgrims that left Manila for Lourdes on March 30, 1958. On March 28, 1958, the defendant, Air France, through its authorized agent, Philippine Air Lines, Inc., issued to plaintiff a "first class" round trip airplane ticket from Manila to Rome. From Manila to Bangkok, plaintiff travelled in "first class", but at Bangkok, the Manager of the defendant airline forced plaintiff to vacate the "first class" seat that he was occupying because, in the words of the witness Ernesto G. Cuento, there was a "white man", who, the Manager alleged, had a "better right" to the seat. When asked to vacate his "first class" seat, the plaintiff, as was to be expected, refused, and told defendant's Manager that his seat would be taken over his dead body; a commotion ensued, and, according to said Ernesto G. Cuento, "many of the Filipino passengers got nervous in the tourist class; when they found out that Mr. Carrascoso was having a hot discussion with the white man [manager], they came all across to Mr. Carrascoso and pacified Mr. Carrascoso to give his seat to the white man" (Transcript, p. 12, Hearing of May 26, 1959); and plaintiff reluctantly gave his "first class" seat in the plane.3

1. The trust of the relief petitioner now seeks is that we review "all the findings" 4 of respondent Court of Appeals. Petitioner charges that respondent court failed to make complete findings of fact on all the issues properly laid before it. We are asked to consider facts favorable to petitioner, and then, to overturn the appellate court's decision. Coming into focus is the constitutional mandate that "No decision shall be rendered by any court of record without expressing therein clearly and distinctly the facts and the law on which it is based". 5 This is echoed in the statutory demand that a judgment determining the merits of the case shall state "clearly and distinctly the facts and the law on which it is based"; 6 and that "Every decision of the Court of Appeals shall contain complete findings of fact on all issues properly raised before it". 7 A decision with absolutely nothing to support it is a nullity. It is open to direct attack. 8 The law, however, solely insists that a decision state the "essential ultimate facts" upon which the court's conclusion is drawn. 9 A court of justice is not hidebound to write in its decision every bit and piece of evidence 10 presented by one party and the other upon the issues raised. Neither is it to be burdened with the obligation "to specify in the sentence the facts" which a party "considered as proved". 11 This is but a part of the mental process from which the Court draws the essential ultimate facts. A decision is not to be so clogged with details such that prolixity, if not confusion, may result. So long as the decision of the Court of Appeals contains the necessary facts to warrant its conclusions, it is no error for said court to withhold therefrom "any specific finding of facts with respect to the evidence for the defense". Because as this Court well observed, "There is no law that so requires". 12 Indeed, "the mere failure to specify (in the decision) the contentions of the appellant and the reasons for refusing to believe them is not sufficient to hold the same contrary to the requirements of the provisions of law and the Constitution". It is in this setting that in Manigque, it was held that the mere fact that the findings "were based entirely on the evidence for the prosecution without taking into consideration or even mentioning the appellant's side in the controversy as shown by his own testimony", would not vitiate the judgment. 13 If the court did not recite in the decision the testimony of each witness for, or each item of evidence presented by, the defeated party, it does not mean that the court has overlooked such testimony or such item of evidence. 14 At any rate, the legal presumptions are that official duty has been regularly performed, and that all the matters within an issue in a case were laid before the court and passed upon by it. 15 Findings of fact, which the Court of Appeals is required to make, maybe defined as "the written statement of the ultimate facts as found by the court ... and essential to support the decision and judgment rendered thereon".16 They consist of the court's "conclusions" with respect to the determinative facts in issue". 17 A question of law, upon the other hand, has been declared as "one which does not call for an examination of the probative value of the evidence presented by the parties." 18 2. By statute, "only questions of law may be raised" in an appeal by certiorari from a judgment of the Court of Appeals. 19 That judgment is conclusive as to the facts. It is not appropriately the business of this Court to alter the facts or to review the questions of fact. 20 With these guideposts, we now face the problem of whether the findings of fact of the Court of Appeals support its judgment. 3. Was Carrascoso entitled to the first class seat he claims? It is conceded in all quarters that on March 28, 1958 he paid to and received from petitioner a first class ticket. But petitioner asserts that said ticket did not represent the true and complete intent and agreement of the parties; that said respondent knew that he did not have confirmed reservations

for first class on any specific flight, although he had tourist class protection; that, accordingly, the issuance of a first class ticket was no guarantee that he would have a first class ride, but that such would depend upon the availability of first class seats. These are matters which petitioner has thoroughly presented and discussed in its brief before the Court of Appeals under its third assignment of error, which reads: "The trial court erred in finding that plaintiff had confirmed reservations for, and a right to, first class seats on the "definite" segments of his journey, particularly that from Saigon to Beirut". 21 And, the Court of Appeals disposed of this contention thus: Defendant seems to capitalize on the argument that the issuance of a first-class ticket was no guarantee that the passenger to whom the same had been issued, would be accommodated in the first-class compartment, for as in the case of plaintiff he had yet to make arrangements upon arrival at every station for the necessary first-class reservation. We are not impressed by such a reasoning. We cannot understand how a reputable firm like defendant airplane company could have the indiscretion to give out tickets it never meant to honor at all. It received the corresponding amount in payment of first-class tickets and yet it allowed the passenger to be at the mercy of its employees. It is more in keeping with the ordinary course of business that the company should know whether or riot the tickets it issues are to be honored or not.22 Not that the Court of Appeals is alone. The trial court similarly disposed of petitioner's contention, thus: On the fact that plaintiff paid for, and was issued a "First class" ticket, there can be no question. Apart from his testimony, see plaintiff's Exhibits "A", "A-1", "B", "B-1," "B-2", "C" and "C-1", and defendant's own witness, Rafael Altonaga, confirmed plaintiff's testimony and testified as follows: Q. In these tickets there are marks "O.K." From what you know, what does this OK mean? A. That the space is confirmed. Q. Confirmed for first class? A. Yes, "first class". (Transcript, p. 169) xxx xxx xxx

Defendant tried to prove by the testimony of its witnesses Luis Zaldariaga and Rafael Altonaga that although plaintiff paid for, and was issued a "first class" airplane ticket, the ticket was subject to confirmation in Hongkong. The court cannot give credit to the testimony of said witnesses. Oral evidence cannot prevail over written evidence, and plaintiff's Exhibits "A", "A-l", "B", "B-l", "C" and "C-1" belie the testimony of said witnesses, and clearly show that the plaintiff was issued, and paid for, a first class ticket without any reservation whatever. Furthermore, as hereinabove shown, defendant's own witness Rafael Altonaga testified that the reservation for a "first class" accommodation for the plaintiff was confirmed. The court cannot believe that after such confirmation defendant had a verbal understanding with plaintiff that the "first class" ticket issued to him by defendant would be subject to confirmation in Hongkong. 23

We have heretofore adverted to the fact that except for a slight difference of a few pesos in the amount refunded on Carrascoso's ticket, the decision of the Court of First Instance was affirmed by the Court of Appeals in all other respects. We hold the view that such a judgment of affirmance has merged the judgment of the lower court. 24 Implicit in that affirmance is a determination by the Court of Appeals that the proceeding in the Court of First Instance was free from prejudicial error and "all questions raised by the assignments of error and all questions that might have been raised are to be regarded as finally adjudicated against the appellant". So also, the judgment affirmed "must be regarded as free from all error". 25 We reached this policy construction because nothing in the decision of the Court of Appeals on this point would suggest that its findings of fact are in any way at war with those of the trial court. Nor was said affirmance by the Court of Appeals upon a ground or grounds different from those which were made the basis of the conclusions of the trial court. 26 If, as petitioner underscores, a first-class-ticket holder is not entitled to a first class seat, notwithstanding the fact that seat availability in specific flights is therein confirmed, then an air passenger is placed in the hollow of the hands of an airline. What security then can a passenger have? It will always be an easy matter for an airline aided by its employees, to strike out the very stipulations in the ticket, and say that there was a verbal agreement to the contrary. What if the passenger had a schedule to fulfill? We have long learned that, as a rule, a written document speaks a uniform language; that spoken word could be notoriously unreliable. If only to achieve stability in the relations between passenger and air carrier, adherence to the ticket so issued is desirable. Such is the case here. The lower courts refused to believe the oral evidence intended to defeat the covenants in the ticket. The foregoing are the considerations which point to the conclusion that there are facts upon which the Court of Appeals predicated the finding that respondent Carrascoso had a first class ticket and was entitled to a first class seat at Bangkok, which is a stopover in the Saigon to Beirut leg of the flight. 27 We perceive no "welter of distortions by the Court of Appeals of petitioner's statement of its position", as charged by petitioner. 28 Nor do we subscribe to petitioner's accusation that respondent Carrascoso "surreptitiously took a first class seat to provoke an issue". 29 And this because, as petitioner states, Carrascoso went to see the Manager at his office in Bangkok "to confirm my seat and because from Saigon I was told again to see the Manager". 30 Why, then, was he allowed to take a first class seat in the plane at Bangkok, if he had no seat? Or, if another had a better right to the seat? 4. Petitioner assails respondent court's award of moral damages. Petitioner's trenchant claim is that Carrascoso's action is planted upon breach of contract; that to authorize an award for moral damages there must be an averment of fraud or bad faith; 31 and that the decision of the Court of Appeals fails to make a finding of bad faith. The pivotal allegations in the complaint bearing on this issue are: 3. That ... plaintiff entered into a contract of air carriage with the Philippine Air Lines for a valuable consideration, the latter acting as general agents for and in behalf of the defendant, under which said contract, plaintiff was entitled to, as defendant agreed to furnish plaintiff, First Class passage on defendant's plane during the entire duration of plaintiff's tour of Europe with Hongkong as starting point up to and until plaintiff's return trip to Manila, ... . 4. That, during the first two legs of the trip from Hongkong to Saigon and from Saigon to Bangkok, defendant furnished to the plaintiff First Class accommodation but only after protestations, arguments and/or insistence were made by the plaintiff with defendant's employees.

5. That finally, defendant failed to provide First Class passage, but instead furnished plaintiff only TouristClass accommodations from Bangkok to Teheran and/or Casablanca, ... the plaintiff has been compelled by defendant's employees to leave the First Class accommodation berths at Bangkok after he was already seated. 6. That consequently, the plaintiff, desiring no repetition of the inconvenience and embarrassments brought by defendant's breach of contract was forced to take a Pan American World Airways plane on his return trip from Madrid to Manila. 32 xxx xxx xxx

2. That likewise, as a result of defendant's failure to furnish First Class accommodations aforesaid, plaintiff suffered inconveniences, embarrassments, and humiliations, thereby causing plaintiff mental anguish, serious anxiety, wounded feelings, social humiliation, and the like injury, resulting in moral damages in the amount of P30,000.00. 33 xxx xxx xxx

The foregoing, in our opinion, substantially aver: First, That there was a contract to furnish plaintiff a first class passage covering, amongst others, the Bangkok-Teheran leg; Second, That said contract was breached when petitioner failed to furnish first class transportation at Bangkok; and Third, that there was bad faith when petitioner's employee compelled Carrascoso to leave his first class accommodation berth "after he was already, seated" and to take a seat in the tourist class, by reason of which he suffered inconvenience, embarrassments and humiliations, thereby causing him mental anguish, serious anxiety, wounded feelings and social humiliation, resulting in moral damages. It is true that there is no specific mention of the term bad faith in the complaint. But, the inference of bad faith is there, it may be drawn from the facts and circumstances set forth therein. 34 The contract was averred to establish the relation between the parties. But the stress of the action is put on wrongful expulsion. Quite apart from the foregoing is that (a) right the start of the trial, respondent's counsel placed petitioner on guard on what Carrascoso intended to prove: That while sitting in the plane in Bangkok, Carrascoso wasousted by petitioner's manager who gave his seat to a white man; 35 and (b) evidence of bad faith in the fulfillment of the contract was presented without objection on the part of the petitioner. It is, therefore, unnecessary to inquire as to whether or not there is sufficient averment in the complaint to justify an award for moral damages. Deficiency in the complaint, if any, was cured by the evidence. An amendment thereof to conform to the evidence is not even required. 36 On the question of bad faith, the Court of Appeals declared: That the plaintiff was forced out of his seat in the first class compartment of the plane belonging to the defendant Air France while at Bangkok, and was transferred to the tourist class not only without his consent but against his will, has been sufficiently established by plaintiff in his testimony before the court, corroborated by the corresponding entry made by the purser of the plane in his notebook which notation reads as follows: "First-class passenger was forced to go to the tourist class against his will, and that the captain refused to intervene", and by the testimony of an eye-witness, Ernesto G. Cuento, who was a co-passenger. The captain of the plane who was asked by the manager of defendant company at Bangkok to intervene even refused to do so. It is noteworthy that no one on behalf of defendant ever contradicted or denied this evidence for the plaintiff. It could have been easy for defendant to

present its manager at Bangkok to testify at the trial of the case, or yet to secure his disposition; but defendant did neither. 37 The Court of appeals further stated Neither is there evidence as to whether or not a prior reservation was made by the white man. Hence, if the employees of the defendant at Bangkok sold a first-class ticket to him when all the seats had already been taken, surely the plaintiff should not have been picked out as the one to suffer the consequences and to be subjected to the humiliation and indignity of being ejected from his seat in the presence of others. Instead of explaining to the white man the improvidence committed by defendant's employees, the manager adopted the more drastic step of ousting the plaintiff who was then safely ensconsced in his rightful seat. We are strengthened in our belief that this probably was what happened there, by the testimony of defendant's witness Rafael Altonaga who, when asked to explain the meaning of the letters "O.K." appearing on the tickets of plaintiff, said "that the space is confirmed for first class. Likewise, Zenaida Faustino, another witness for defendant, who was the chief of the Reservation Office of defendant, testified as follows: "Q How does the person in the ticket-issuing office know what reservation the passenger has arranged with you? A They call us up by phone and ask for the confirmation." (t.s.n., p. 247, June 19, 1959) In this connection, we quote with approval what the trial Judge has said on this point: Why did the, using the words of witness Ernesto G. Cuento, "white man" have a "better right" to the seat occupied by Mr. Carrascoso? The record is silent. The defendant airline did not prove "any better", nay, any right on the part of the "white man" to the "First class" seat that the plaintiff was occupying and for which he paid and was issued a corresponding "first class" ticket. If there was a justified reason for the action of the defendant's Manager in Bangkok, the defendant could have easily proven it by having taken the testimony of the said Manager by deposition, but defendant did not do so; the presumption is that evidence willfully suppressed would be adverse if produced [Sec. 69, par (e), Rules of Court]; and, under the circumstances, the Court is constrained to find, as it does find, that the Manager of the defendant airline in Bangkok not merely asked but threatened the plaintiff to throw him out of the plane if he did not give up his "first class" seat because the said Manager wanted to accommodate, using the words of the witness Ernesto G. Cuento, the "white man".38 It is really correct to say that the Court of Appeals in the quoted portion first transcribed did not use the term "bad faith". But can it be doubted that the recital of facts therein points to bad faith? The manager not only prevented Carrascoso from enjoying his right to a first class seat; worse, he imposed his arbitrary will; he forcibly ejected him from his seat, made him suffer the humiliation of having to go to the tourist class compartment - just to give way to another passenger whose right thereto has not been established. Certainly, this is bad faith. Unless, of course, bad faith has assumed a meaning different from what is understood in law. For, "bad faith" contemplates a "state of mind affirmatively operating with furtive design or with some motive of self-interest or will or for ulterior purpose." 39

And if the foregoing were not yet sufficient, there is the express finding of bad faith in the judgment of the Court of First Instance, thus: The evidence shows that the defendant violated its contract of transportation with plaintiff in bad faith, with the aggravating circumstances that defendant's Manager in Bangkok went to the extent of threatening the plaintiff in the presence of many passengers to have him thrown out of the airplane to give the "first class" seat that he was occupying to, again using the words of the witness Ernesto G. Cuento, a "white man" whom he (defendant's Manager) wished to accommodate, and the defendant has not proven that this "white man" had any "better right" to occupy the "first class" seat that the plaintiff was occupying, duly paid for, and for which the corresponding "first class" ticket was issued by the defendant to him. 40 5. The responsibility of an employer for the tortious act of its employees need not be essayed. It is well settled in law. 41 For the willful malevolent act of petitioner's manager, petitioner, his employer, must answer. Article 21 of the Civil Code says: ART. 21. Any person who willfully 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. In parallel circumstances, we applied the foregoing legal precept; and, we held that upon the provisions of Article 2219 (10), Civil Code, moral damages are recoverable. 42 6. A contract to transport passengers is quite different in kind and degree from any other contractual relation. 43 And this, because of the relation which an air-carrier sustains with the public. Its business is mainly with the travelling public. It invites people to avail of the comforts and advantages it offers. The contract of air carriage, therefore, generates a relation attended with a public duty. Neglect or malfeasance of the carrier's employees, naturally, could give ground for an action for damages. Passengers do not contract merely for transportation. They have a right to be treated by the carrier's employees with kindness, respect, courtesy and due consideration. They are entitled to be protected against personal misconduct, injurious language, indignities and abuses from such employees. So it is, that any rule or discourteous conduct on the part of employees towards a passenger gives the latter an action for damages against the carrier. 44 Thus, "Where a steamship company 45 had accepted a passenger's check, it was a breach of contract and a tort, giving a right of action for its agent in the presence of third persons to falsely notify her that the check was worthless and demand payment under threat of ejection, though the language used was not insulting and she was not ejected." 46 And this, because, although the relation of passenger and carrier is "contractual both in origin and nature" nevertheless "the act that breaks the contract may be also a tort". 47 And in another case, "Where a passenger on a railroad train, when the conductor came to collect his fare tendered him the cash fare to a point where the train was scheduled not to stop, and told him that as soon as the train reached such point he would pay the cash fare from that point to destination, there was nothing in the conduct of the passenger which justified the conductor in using insulting language to him, as by calling him a lunatic," 48 and the Supreme Court of South Carolina there held the carrier liable for the mental suffering of said passenger.
1awphl.nt

Petitioner's contract with Carrascoso is one attended with public duty. The stress of Carrascoso's action as we have said, is placed upon his wrongful expulsion. This is a violation of public duty by the petitioner air carrier a case of quasi-delict. Damages are proper. 7. Petitioner draws our attention to respondent Carrascoso's testimony, thus Q You mentioned about an attendant. Who is that attendant and purser? A When we left already that was already in the trip I could not help it. So one of the flight attendants approached me and requested from me my ticket and I said, What for? and she said, "We will note that you transferred to the tourist class". I said, "Nothing of that kind. That is tantamount to accepting my transfer." And I also said, "You are not going to note anything there because I am protesting to this transfer". Q Was she able to note it? A No, because I did not give my ticket. Q About that purser? A Well, the seats there are so close that you feel uncomfortable and you don't have enough leg room, I stood up and I went to the pantry that was next to me and the purser was there. He told me, "I have recorded the incident in my notebook." He read it and translated it to me because it was recorded in French "First class passenger was forced to go to the tourist class against his will, and that the captain refused to intervene." Mr. VALTE I move to strike out the last part of the testimony of the witness because the best evidence would be the notes. Your Honor. COURT I will allow that as part of his testimony.
49

Petitioner charges that the finding of the Court of Appeals that the purser made an entry in his notebook reading "First class passenger was forced to go to the tourist class against his will, and that the captain refused to intervene" is predicated upon evidence [Carrascoso's testimony above] which is incompetent. We do not think so. The subject of inquiry is not the entry, but the ouster incident. Testimony on the entry does not come within the proscription of the best evidence rule. Such testimony is admissible. 49a Besides, from a reading of the transcript just quoted, when the dialogue happened, the impact of the startling occurrence was still fresh and continued to be felt. The excitement had not as yet died down. Statements then, in this environment, are admissible as part of the res gestae. 50 For, they grow "out of the nervous excitement and mental and physical condition of the declarant". 51 The utterance of the purser regarding his entry in the notebook was spontaneous, and related to the circumstances of the ouster incident. Its trustworthiness has been guaranteed. 52 It thus escapes the operation of the hearsay rule. It forms part of the res gestae.

At all events, the entry was made outside the Philippines. And, by an employee of petitioner. It would have been an easy matter for petitioner to have contradicted Carrascoso's testimony. If it were really true that no such entry was made, the deposition of the purser could have cleared up the matter. We, therefore, hold that the transcribed testimony of Carrascoso is admissible in evidence. 8. Exemplary damages are well awarded. The Civil Code gives the court ample power to grant exemplary damages in contracts and quasi- contracts. The only condition is that defendant should have "acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner." 53 The manner of ejectment of respondent Carrascoso from his first class seat fits into this legal precept. And this, in addition to moral damages.54 9. The right to attorney's fees is fully established. The grant of exemplary damages justifies a similar judgment for attorneys' fees. The least that can be said is that the courts below felt that it is but just and equitable that attorneys' fees be given. 55 We do not intend to break faith with the tradition that discretion well exercised as it was here should not be disturbed. 10. Questioned as excessive are the amounts decreed by both the trial court and the Court of Appeals, thus: P25,000.00 as moral damages; P10,000.00, by way of exemplary damages, and P3,000.00 as attorneys' fees. The task of fixing these amounts is primarily with the trial court. 56 The Court of Appeals did not interfere with the same. The dictates of good sense suggest that we give our imprimatur thereto. Because, the facts and circumstances point to the reasonableness thereof. 57 On balance, we say that the judgment of the Court of Appeals does not suffer from reversible error. We accordingly vote to affirm the same. Costs against petitioner. So ordered. Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Zaldivar and Castro, JJ., concur. Bengzon, J.P., J., took no part.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-20099 July 7, 1966

PARMANAND SHEWARAM, plaintiff and appellee, vs. PHILIPPINE AIR LINES, INC., defendant and appellant. Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendant and appellant. Climaco and Associates for plaintiff and appellee. ZALDIVAR, J.: Before the municipal court of Zamboanga City, plaintiff-appellee Parmanand Shewaram instituted an action to recover damages suffered by him due to the alleged failure of defendant-appellant Philippines Air Lines, Inc. to observe extraordinary diligence in the vigilance and carriage of his luggage. After trial the municipal court of Zamboanga City rendered judgment ordering the appellant to pay appellee P373.00 as actual damages, P100.00 as exemplary damages, P150.00 as attorney's fees, and the costs of the action. Appellant Philippine Air Lines appealed to the Court of First Instance of Zamboanga City. After hearing the Court of First Instance of Zamboanga City modified the judgment of the inferior court by ordering the appellant to pay the appellee only the sum of P373.00 as actual damages, with legal interest from May 6, 1960 and the sum of P150.00 as attorney's fees, eliminating the award of exemplary damages. From the decision of the Court of First Instance of Zamboanga City, appellant appeals to this Court on a question of law, assigning two errors allegedly committed by the lower court a quo, to wit: 1. The lower court erred in not holding that plaintiff-appellee was bound by the provisions of the tariff regulations filed by defendant-appellant with the civil aeronautics board and the conditions of carriage printed at the back of the plane ticket stub. 2. The lower court erred in not dismissing this case or limiting the liability of the defendantappellant to P100.00. The facts of this case, as found by the trial court, quoted from the decision appealed from, are as follows: That Parmanand Shewaram, the plaintiff herein, was on November 23, 1959, a paying passenger with ticket No. 4-30976, on defendant's aircraft flight No. 976/910 from Zamboanga City bound for Manila; that defendant is a common carrier engaged in air line transportation in the Philippines, offering its services to the public to carry and transport passengers and cargoes from and to different points in the Philippines; that on the abovementioned date of November 23, 1959, he checked in three (3) pieces of baggages a suitcase and two (2) other pieces; that the suitcase was mistagged by defendant's personnel

in Zamboanga City, as I.G.N. (for Iligan) with claim check No. B-3883, instead of MNL (for Manila). When plaintiff Parmanand Shewaram arrived in Manila on the date of November 23, 1959, his suitcase did not arrive with his flight because it was sent to Iligan. So, he made a claim with defendant's personnel in Manila airport and another suitcase similar to his own which was the only baggage left for that flight, the rest having been claimed and released to the other passengers of said flight, was given to the plaintiff for him to take delivery but he did not and refused to take delivery of the same on the ground that it was not his, alleging that all his clothes were white and the National transistor 7 and a Rollflex camera were not found inside the suitcase, and moreover, it contained a pistol which he did not have nor placed inside his suitcase; that after inquiries made by defendant's personnel in Manila from different airports where the suitcase in question must have been sent, it was found to have reached Iligan and the station agent of the PAL in Iligan caused the same to be sent to Manila for delivery to Mr. Shewaram and which suitcase belonging to the plaintiff herein arrived in Manila airport on November 24, 1959; that it was also found out that the suitcase shown to and given to the plaintiff for delivery which he refused to take delivery belonged to a certain Del Rosario who was bound for Iligan in the same flight with Mr. Shewaram; that when the plaintiff's suitcase arrived in Manila as stated above on November 24, 1959, he was informed by Mr. Tomas Blanco, Jr., the acting station agent of the Manila airport of the arrival of his suitcase but of course minus his Transistor Radio 7 and the Rollflex Camera; that Shewaram made demand for these two (2) items or for the value thereof but the same was not complied with by defendant. xxx xxx xxx

It is admitted by defendant that there was mistake in tagging the suitcase of plaintiff as IGN. The tampering of the suitcase is more apparent when on November 24, 1959, when the suitcase arrived in Manila, defendant's personnel could open the same in spite of the fact that plaintiff had it under key when he delivered the suitcase to defendant's personnel in Zamboanga City. Moreover, it was established during the hearing that there was space in the suitcase where the two items in question could have been placed. It was also shown that as early as November 24, 1959, when plaintiff was notified by phone of the arrival of the suitcase, plaintiff asked that check of the things inside his suitcase be made and defendant admitted that the two items could not be found inside the suitcase. There was no evidence on record sufficient to show that plaintiff's suitcase was never opened during the time it was placed in defendant's possession and prior to its recovery by the plaintiff. However, defendant had presented evidence that it had authority to open passengers' baggage to verify and find its ownership or identity. Exhibit "1" of the defendant would show that the baggage that was offered to plaintiff as his own was opened and the plaintiff denied ownership of the contents of the baggage. This proven fact that baggage may and could be opened without the necessary authorization and presence of its owner, applied too, to the suitcase of plaintiff which was mis-sent to Iligan City because of mistagging. The possibility of what happened in the baggage of Mr. Del Rosario at the Manila Airport in his absence could have also happened to plaintiffs suitcase at Iligan City in the absence of plaintiff. Hence, the Court believes that these two items were really in plaintiff's suitcase and defendant should be held liable for the same by virtue of its contract of carriage. It is clear from the above-quoted portions of the decision of the trial court that said court had found that the suitcase of the appellee was tampered, and the transistor radio and the camera contained therein were lost, and that the loss of those articles was due to the negligence of the employees of the appellant. The evidence shows that the transistor radio cost P197.00 and the camera cost P176.00, so the total value of the two articles was P373.00.

There is no question that the appellant is a common carrier.1 As such common carrier the appellant, from the nature of its business and for reasons of public policy, is bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by it according to the circumstances of each case. 2 It having been shown that the loss of the transistor radio and the camera of the appellee, costing P373.00, was due to the negligence of the employees of the appellant, it is clear that the appellant should be held liable for the payment of said loss. 3 It is, however, contended by the appellant that its liability should be limited to the amount stated in the conditions of carriage printed at the back of the plane ticket stub which was issued to the appellee, which conditions are embodied in Domestic Tariff Regulations No. 2 which was filed with the Civil Aeronautics Board. One of those conditions, which is pertinent to the issue raised by the appellant in this case provides as follows: The liability, if any, for loss or damage to checked baggage or for delay in the delivery thereof is limited to its value and, unless the passenger declares in advance a higher valuation and pay an additional charge therefor, the value shall be conclusively deemed not to exceed P100.00 for each ticket. The appellant maintains that in view of the failure of the appellee to declare a higher value for his luggage, and pay the freight on the basis of said declared value when he checked such luggage at the Zamboanga City airport, pursuant to the abovequoted condition, appellee can not demand payment from the appellant of an amount in excess of P100.00. The law that may be invoked, in this connection is Article 1750 of the New Civil Code which provides as follows: A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly and freely agreed upon. In accordance with the above-quoted provision of Article 1750 of the New Civil Code, the pecuniary liability of a common carrier may, by contract, be limited to a fixed amount. It is required, however, that the contract must be "reasonable and just under the circumstances and has been fairly and freely agreed upon." The requirements provided in Article 1750 of the New Civil Code must be complied with before a common carrier can claim a limitation of its pecuniary liability in case of loss, destruction or deterioration of the goods it has undertaken to transport. In the case before us We believe that the requirements of said article have not been met. It can not be said that the appellee had actually entered into a contract with the appellant, embodying the conditions as printed at the back of the ticket stub that was issued by the appellant to the appellee. The fact that those conditions are printed at the back of the ticket stub in letters so small that they are hard to read would not warrant the presumption that the appellee was aware of those conditions such that he had "fairly and freely agreed" to those conditions. The trial court has categorically stated in its decision that the "Defendant admits that passengers do not sign the ticket, much less did plaintiff herein sign his ticket when he made the flight on November 23, 1959." We hold, therefore, that the appellee is not, and can not be, bound by the conditions of carriage found at the back of the ticket stub issued to him when he made the flight on appellant's plane on November 23, 1959. The liability of the appellant in the present case should be governed by the provisions of Articles 1734 and 1735 of the New Civil Code, which We quote as follows:

ART. 1734. Common carries are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only: (1) Flood, storm, earthquake, or other natural disaster or calamity; (2) Act of the public enemy in war, whether international or civil; (3) Act or omission of the shipper or owner of the goods; (4) The character of the goods or defects in the packing or in the containers; (5) Order or act of competent public authority.
1wph1.t

ART. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of the preceding article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as required in Article 1733. It having been clearly found by the trial court that the transistor radio and the camera of the appellee were lost as a result of the negligence of the appellant as a common carrier, the liability of the appellant is clear it must pay the appellee the value of those two articles. In the case of Ysmael and Co. vs. Barreto, 51 Phil. 90, cited by the trial court in support of its decision, this Court had laid down the rule that the carrier can not limit its liability for injury to or loss of goods shipped where such injury or loss was caused by its own negligence. Corpus Juris, volume 10, p. 154, says: "Par. 194, 6. Reasonableness of Limitations. The validity of stipulations limiting the carrier's liability is to be determined by their reasonableness and their conformity to the sound public policy, in accordance with which the obligations of the carrier to the public are settled. It cannot lawfully stipulate for exemption from liability, unless such exemption is just and reasonable, and unless the contract is freely and fairly made. No contractual limitation is reasonable which is subversive of public policy. "Par. 195. 7. What Limitations of Liability Permissible. a. Negligence (1) Rule in America (a) In Absence of Organic or Statutory Provisions Regulating Subject aa. Majority Rule. In the absence of statute, it is settled by the weight of authority in the United States, that whatever limitations against its common-law liability are permissible to a carrier, it cannot limit its liability for injury to or loss of goods shipped, where such injury or loss is caused by its own negligence. This is the common law doctrine and it makes no difference that there is no statutory prohibition against contracts of this character. "Par. 196. bb. Considerations on which Rule Based. The rule, it is said, rests on considerations of public policy. The undertaking is to carry the goods, and to relieve the shipper from all liability for loss or damage arising from negligence in performing its contract is to ignore the contract itself. The natural effect of a limitation of liability against negligence is to induce want of care on the part of the carrier in the performance of its duty. The shipper and the common carrier are not on equal terms; the shipper must send his freight by the common carrier, or not at all; he is therefore entirely at the mercy of the carrier unless

protected by the higher power of the law against being forced into contracts limiting the carrier's liability. Such contracts are wanting in the element of voluntary assent. "Par. 197. cc. Application and Extent of Rule (aa) Negligence of Servants. The rule prohibiting limitation of liability for negligence is often stated as a prohibition of any contract relieving the carrier from loss or damage caused by its own negligence or misfeasance, or that of its servants; and it has been specifically decided in many cases that no contract limitation will relieve the carrier from responsibility for the negligence, unskillfulness, or carelessness of its employer." (Cited in Ysmael and Co. vs. Barreto, 51 Phil. 90, 98, 99). In view of the foregoing, the decision appealed from is affirmed, with costs against the appellant. Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Bengzon, J.P. and Sanchez, JJ., concur.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-69044 May 29, 1987 EASTERN SHIPPING LINES, INC., petitioner, vs. INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY CORPORATION,respondents. No. 71478 May 29, 1987 EASTERN SHIPPING LINES, INC., petitioner, vs. THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE INSURANCE CO., LTD.,respondents.

MELENCIO-HERRERA, J.: These two cases, both for the recovery of the value of cargo insurance, arose from the same incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship and cargo. The basic facts are not in controversy: In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe, Japan for transportation to Manila, 5,000 pieces of calorized lance pipes in 28 packages valued at P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare parts valued at P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were insured against marine risk for their stated value with respondent Development Insurance and Surety Corporation. In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment fabrics and accessories, in two (2) containers, consigned to Mariveles Apparel Corporation, and two cases of surveying instruments consigned to Aman Enterprises and General Merchandise. The 128 cartons were insured for their stated value by respondent Nisshin Fire & Marine Insurance Co., for US $46,583.00, and the 2 cases by respondent Dowa Fire & Marine Insurance Co., Ltd., for US $11,385.00. Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship and cargo. The respective respondent Insurers paid the corresponding marine insurance values to the consignees concerned and were thus subrogated unto the rights of the latter as the insured. G.R. NO. 69044

On May 11, 1978, respondent Development Insurance & Surety Corporation (Development Insurance, for short), having been subrogated unto the rights of the two insured companies, filed suit against petitioner Carrier for the recovery of the amounts it had paid to the insured before the then Court of First instance of Manila, Branch XXX (Civil Case No. 6087). Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary fortuitous event, hence, it is not liable under the law. On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the amounts of P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00 as attorney's fees and costs. Petitioner Carrier took an appeal to the then Court of Appeals which, on August 14, 1984, affirmed. Petitioner Carrier is now before us on a Petition for Review on Certiorari. G.R. NO. 71478 On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa Fire & Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against Petitioner Carrier for the recovery of the insured value of the cargo lost with the then Court of First Instance of Manila, Branch 11 (Civil Case No. 116151), imputing unseaworthiness of the ship and non-observance of extraordinary diligence by petitioner Carrier. Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of the ship is an exempting circumstance under Section 4(2) (b) of the Carriage of Goods by Sea Act (COGSA); and that when the loss of fire is established, the burden of proving negligence of the vessel is shifted to the cargo shipper. On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the amounts of US $46,583.00 and US $11,385.00, respectively, with legal interest, plus attorney's fees of P5,000.00 and costs. On appeal by petitioner, the then Court of Appeals on September 10, 1984, affirmed with modification the Trial Court's judgment by decreasing the amount recoverable by DOWA to US $1,000.00 because of $500 per package limitation of liability under the COGSA. Hence, this Petition for Review on certiorari by Petitioner Carrier. Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the First Division, and G. R. No. 71478 on September 25, 1985 by the Second Division. Upon Petitioner Carrier's Motion for Reconsideration, however, G.R. No. 69044 was given due course on March 25, 1985, and the parties were required to submit their respective Memoranda, which they have done. On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the Resolution denying the Petition for Review and moved for its consolidation with G.R. No. 69044, the lowernumbered case, which was then pending resolution with the First Division. The same was granted; the Resolution of the Second Division of September 25, 1985 was set aside and the Petition was given due course. At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica but merely a charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its Petition:

There are about 22 cases of the "ASIATICA" pending in various courts where various plaintiffs are represented by various counsel representing various consignees or insurance companies. The common defendant in these cases is petitioner herein, being the operator of said vessel. ... 1

Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a party's pleading are deemed admissions of that party and binding upon it. 2 And an admission in one pleading in one action may be received in evidence against the pleader or his successor-in-interest on the trial of another action to which he is a party, in favor of a party to the latter action. 3 The threshold issues in both cases are: (1) which law should govern the Civil Code provisions on Common carriers or the Carriage of Goods by Sea Act? and (2) who has the burden of proof to show negligence of the carrier? On the Law Applicable The law of the country to which the goods are to be transported governs the liability of the common carrier in case of their loss, destruction or deterioration. 4 As the cargoes in question were transported from Japan to the Philippines, the liability of Petitioner Carrier is governed primarily by the Civil Code. 5 However, in all matters not regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of Commerce and by special laws. 6 Thus, the Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of the Civil Code. 7 On the Burden of Proof Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over goods, according to all the circumstances of each case. 8 Common carriers are responsible for the loss, destruction, or deterioration of the goods unless the same is due to any of the following causes only: (1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
xxx xxx xxx 9

Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase "natural disaster or calamity. " However, we are of the opinion that fire may not be considered a natural disaster or calamity. This must be so as it arises almost invariably from some act of man or by human means. 10 It does not fall within the category of an act of God unless caused by lightning 11 or by other natural disaster or calamity. 12 It may even be caused by the actual fault or privity of the carrier. 13 Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases of rural lands where a reduction of the rent is allowed when more than one-half of the fruits have been lost due to such event, considering that the law adopts a protection policy towards agriculture. 14 As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735 of the Civil Code provides that all cases than those mention in Article 1734, the common carrier shall be presumed to have been at fault or to have acted negligently, unless it proves that it has observed the extraordinary deligence required by law.

In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the transported goods have been lost. Petitioner Carrier has also proved that the loss was caused by fire. The burden then is upon Petitioner Carrier to proved that it has exercised the extraordinary diligence required by law. In this regard, the Trial Court, concurred in by the Appellate Court, made the following Finding of fact: The cargoes in question were, according to the witnesses defendant placed in hatches No, 2 and 3 cf the vessel, Boatswain Ernesto Pastrana noticed that smoke was coming out from hatch No. 2 and hatch No. 3; that where the smoke was noticed, the fire was already big; that the fire must have started twenty-four 24) our the same was noticed; that carbon dioxide was ordered released and the crew was ordered to open the hatch covers of No, 2 tor commencement of fire fighting by sea water: that all of these effort were not enough to control the fire.
Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the vigilance over the goods. The evidence of the defendant did not show that extraordinary vigilance was observed by the vessel to prevent the occurrence of fire at hatches numbers 2 and 3. Defendant's evidence did not likewise show he amount of diligence made by the crew, on orders, in the care of the cargoes. What appears is that after the cargoes were stored in the hatches, no regular inspection was made as to their condition during the voyage. Consequently, the crew could not have even explain what could have caused the fire. The defendant, in the Court's mind, failed to satisfactorily show that extraordinary vigilance and care had been made by the crew to prevent the occurrence of the fire. The defendant, as a common carrier, is liable to the consignees for said lack of deligence required of it under Article 1733 of the Civil Code. 15

Having failed to discharge the burden of proving that it had exercised the extraordinary diligence required by law, Petitioner Carrier cannot escape liability for the loss of the cargo. And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the Civil Code, it is required under Article 1739 of the same Code that the "natural disaster" must have been the "proximate and only cause of the loss," and that the carrier has "exercised due diligence to prevent or minimize the loss before, during or after the occurrence of the disaster. " This Petitioner Carrier has also failed to establish satisfactorily. Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is provided therein that: Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from (b) Fire, unless caused by the actual fault or privity of the carrier. xxx xxx xxx In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was "actual fault" of the carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire was already big; that the fire must have started twenty-four (24) hours before the same was noticed; " and that "after the cargoes were stored in the hatches, no regular inspection was made as to their condition during the voyage." The foregoing suffices to show that the circumstances under which the fire originated and spread are such as to show that Petitioner Carrier or its servants were negligent

in connection therewith. Consequently, the complete defense afforded by the COGSA when loss results from fire is unavailing to Petitioner Carrier. On the US $500 Per Package Limitation: Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as provided in section 4(5) of the COGSA, which reads: (5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding $500 per package lawful money of the United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in bill of lading. This declaration if embodied in the bill of lading shall be prima facie evidence, but all be conclusive on the carrier. By agreement between the carrier, master or agent of the carrier, and the shipper another maximum amount than that mentioned in this paragraph may be fixed: Provided, That such maximum shall not be less than the figure above named. In no event shall the carrier be Liable for more than the amount of damage actually sustained. xxx xxx xxx Article 1749 of the New Civil Code also allows the limitations of liability in this wise: Art. 1749. A stipulation that the common carrier's liability as limited to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding. It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed amount per package although the Code expressly permits a stipulation limiting such liability. Thus, the COGSA which is suppletory to the provisions of the Civil Code, steps in and supplements the Code by establishing a statutory provision limiting the carrier's liability in the absence of a declaration of a higher value of the goods by the shipper in the bill of lading. The provisions of the Carriage of Goods by.Sea Act on limited liability are as much a part of a bill of lading as though physically in it and as much a part thereof as though placed therein by agreement of the parties. 16 In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-3") 1 7 limiting the carrier's liability for the loss or destruction of the goods. Nor is there a declaration of a higher value of the goods. Hence, Petitioner Carrier's liability should not exceed US $500 per package, or its peso equivalent, at the time of payment of the value of the goods lost, but in no case "more than the amount of damage actually sustained." The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"), which was exactly the amount of the insurance coverage by Development Insurance (Exhibit "A"), and the amount affirmed to be paid by respondent Court. The goods were shipped in 28 packages (Exhibit "C-2") Multiplying 28 packages by $500 would result in a product of $14,000 which, at the current exchange rate of P20.44 to US $1, would be P286,160, or "more than the amount of damage actually sustained." Consequently, the aforestated amount of P256,039 should be upheld.

With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was P92,361.75 (Exhibit "I"), which is likewise the insured value of the cargo (Exhibit "H") and amount was affirmed to be paid by respondent Court. however, multiplying seven (7) cases by $500 per package at the present prevailing rate of P20.44 to US $1 (US $3,500 x P20.44) would yield P71,540 only, which is the amount that should be paid by Petitioner Carrier for those spare parts, and not P92,361.75. In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the amount awarded to DOWA which was already reduced to $1,000 by the Appellate Court following the statutory $500 liability per package, is in order. In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured with NISSHIN, the Appellate Court also limited Petitioner Carrier's liability to $500 per package and affirmed the award of $46,583 to NISSHIN. it multiplied 128 cartons (considered as COGSA packages) by $500 to arrive at the figure of $64,000, and explained that "since this amount is more than the insured value of the goods, that is $46,583, the Trial Court was correct in awarding said amount only for the 128 cartons, which amount is less than the maximum limitation of the carrier's liability." We find no reversible error. The 128 cartons and not the two (2) containers should be considered as the shipping unit. In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin ingots and the shipper of floor covering brought action against the vessel owner and operator to recover for loss of ingots and floor covering, which had been shipped in vessel supplied containers. The U.S. District Court for the Southern District of New York rendered judgment for the plaintiffs, and the defendant appealed. The United States Court of Appeals, Second Division, modified and affirmed holding that: When what would ordinarily be considered packages are shipped in a container supplied by the carrier and the number of such units is disclosed in the shipping documents, each of those units and not the container constitutes the "package" referred to in liability limitation provision of Carriage of Goods by Sea Act. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5). Even if language and purposes of Carriage of Goods by Sea Act left doubt as to whether carrier-furnished containers whose contents are disclosed should be treated as packages, the interest in securing international uniformity would suggest that they should not be so treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A. 1304(5). ... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating a container as a package is inconsistent with the congressional purpose of establishing a reasonable minimum level of liability, Judge Beeks wrote, 414 F. Supp. at 907 (footnotes omitted): Although this approach has not completely escaped criticism, there is, nonetheless, much to commend it. It gives needed recognition to the responsibility of the courts to construe and apply the statute as enacted, however great might be the temptation to "modernize" or reconstitute it by artful judicial gloss. If COGSA's package limitation scheme suffers from internal illness, Congress alone must undertake the surgery. There is, in this regard, obvious wisdom in the Ninth Circuit's conclusion in Hartford that technological advancements,

whether or not forseeable by the COGSA promulgators, do not warrant a distortion or artificial construction of the statutory term "package." A ruling that these large reusable metal pieces of transport equipment qualify as COGSA packages at least where, as here, they were carrier owned and supplied would amount to just such a distortion. Certainly, if the individual crates or cartons prepared by the shipper and containing his goods can rightly be considered "packages" standing by themselves, they do not suddenly lose that character upon being stowed in a carrier's container. I would liken these containers to detachable stowage compartments of the ship. They simply serve to divide the ship's overall cargo stowage space into smaller, more serviceable loci. Shippers' packages are quite literally "stowed" in the containers utilizing stevedoring practices and materials analogous to those employed in traditional on board stowage. In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other grounds, 595 F 2nd 943 (4 Cir. 1979), another district with many maritime cases followed Judge Beeks' reasoning in Matsushita and similarly rejected the functional economics test. Judge Kellam held that when rolls of polyester goods are packed into cardboard cartons which are then placed in containers, the cartons and not the containers are the packages. xxx xxx xxx The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test: Eurygenes concerned a shipment of stereo equipment packaged by the shipper into cartons which were then placed by the shipper into a carrier- furnished container. The number of cartons was disclosed to the carrier in the bill of lading. Eurygenes followed the Mitsui test and treated the cartons, not the container, as the COGSA packages. However, Eurygenes indicated that a carrier could limit its liability to $500 per container if the bill of lading failed to disclose the number of cartons or units within the container, or if the parties indicated, in clear and unambiguous language, an agreement to treat the container as the package. (Admiralty Litigation in Perpetuum: The Continuing Saga of Package Limitations and Third World Delivery Problems by Chester D. Hooper & Keith L. Flicker, published in Fordham International Law Journal, Vol. 6, 1982-83, Number 1) (Emphasis supplied) In this case, the Bill of Lading (Exhibit "A") disclosed the following data: 2 Containers (128) Cartons) Men's Garments Fabrics and Accessories Freight Prepaid

Say: Two (2) Containers Only. Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the number of cartons or units, as well as the nature of the goods, and applying the ruling in the Mitsui and Eurygenes cases it is clear that the 128 cartons, not the two (2) containers should be considered as the shipping unit subject to the $500 limitation of liability. True, the evidence does not disclose whether the containers involved herein were carrier-furnished or not. Usually, however, containers are provided by the carrier. 19 In this case, the probability is that they were so furnished for Petitioner Carrier was at liberty to pack and carry the goods in containers if they were not so packed. Thus, at the dorsal side of the Bill of Lading (Exhibit "A") appears the following stipulation in fine print: 11. (Use of Container) Where the goods receipt of which is acknowledged on the face of this Bill of Lading are not already packed into container(s) at the time of receipt, the Carrier shall be at liberty to pack and carry them in any type of container(s). The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of Lading, meaning that the goods could probably fit in two (2) containers only. It cannot mean that the shipper had furnished the containers for if so, "Two (2) Containers" appearing as the first entry would have sufficed. and if there is any ambiguity in the Bill of Lading, it is a cardinal principle in the construction of contracts that the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 20 This applies with even greater force in a contract of adhesion where a contract is already prepared and the other party merely adheres to it, like the Bill of Lading in this case, which is draw. up by the carrier. 21 On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044 only) Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions of its witnesses in Japan by written interrogatories. We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it failed to do so. On this point, the Trial Court found: xxx xxx xxx Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time from June 27, 1978, when its answer was prepared and filed in Court, until September 26, 1978, when the pre-trial conference was conducted for the last time, the defendant had more than nine months to prepare its evidence. Its belated notice to take deposition on written interrogatories of its witnesses in Japan, served upon the plaintiff on August 25th, just two days before the hearing set for August 27th, knowing fully well that it was its undertaking on July 11 the that the deposition of the witnesses would be dispensed with if by next time it had not yet been obtained, only proves the lack of merit of the defendant's motion for postponement, for which reason it deserves no sympathy from the Court in that regard. The defendant has told the Court since February 16, 1979, that it was going to take the deposition of its witnesses in Japan. Why did it take until August 25, 1979, or more than six months, to prepare its written interrogatories. Only the defendant itself is to blame for its failure to adduce evidence in support of its defenses.

xxx xxx xxx 22

Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain now that it was denied due process when the Trial Court rendered its Decision on the basis of the evidence adduced. What due process abhors is absolute lack of opportunity to be heard. 24 On the Award of Attorney's Fees: Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court affirmed the award by the Trial Court of attorney's fees of P35,000.00 in favor of Development Insurance in G.R. No. 69044, and P5,000.00 in favor of NISSHIN and DOWA in G.R. No. 71478. Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the amount of P5,000.00 would be more reasonable in G.R. No. 69044. The award of P5,000.00 in G.R. No. 71478 is affirmed. WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping Lines shall pay the Development Insurance and Surety Corporation the amount of P256,039 for the twenty-eight (28) packages of calorized lance pipes, and P71,540 for the seven (7) cases of spare parts, with interest at the legal rate from the date of the filing of the complaint on June 13, 1978, plus P5,000 as attorney's fees, and the costs. 2) In G.R.No.71478,the judgment is hereby affirmed. SO ORDERED. Narvasa, Cruz, Feliciano and Gancayco, JJ., concur.

Separate Opinions

YAP, J., concurring and dissenting: With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile materials, and not the two (2) containers, should be considered as the shipping unit for the purpose of applying the $500.00 limitation under the Carriage of Goods by Sea Act (COGSA). The majority opinion followed and applied the interpretation of the COGSA "package" limitation adopted by the Second Circuit, United States Court of Appeals, in Mitsui & Co., Ltd. vs. American Export Lines, Inc., 636 F. 2d 807 (1981) and the Smithgreyhound v. M/V Eurygenes, 666, F 2nd, 746. Both cases adopted the rule that carrier-furnished containers whose contents are fully disclosed are not "packages" within the meaning of Section 4 (5) of COGSA. I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the present case, for the following reasons: (1) The facts in those cases differ materially from those obtaining in the present case; and (2) the rule laid down in those two cases is by no means settled doctrine.

In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company. In Mitsui the Court held: "Certainly, if the individual crates or cartons prepared by the shipper and containing his goods can rightly be considered "packages" standing by themselves, they do not suddenly lose that character upon being stowed in a carrier's container. I would liken these containers to detachable stowage compartments of the ship." Cartons or crates placed inside carrierfurnished containers are deemed stowed in the vessel itself, and do not lose their character as individual units simply by being placed inside container provided by the carrier, which are merely "detachable stowage compartments of the ship. In the case at bar, there is no evidence showing that the two containers in question were carriersupplied. This fact cannot be presumed. The facts of the case in fact show that this was the only shipment placed in containers. The other shipment involved in the case, consisting of surveying instruments, was packed in two "cases." We cannot speculate on the meaning of the words "Say: Two (2) Containers Only, " which appear in the bill of lading. Absent any positive evidence on this point, we cannot say that those words constitute a mere estimate that the shipment could fit in two containers, thereby showing that when the goods were delivered by the shipper, they were not yet placed inside the containers and that it was the petitioner carrier which packed the goods into its own containers, as authorized under paragraph 11 on the dorsal side of the bill of lading, Exhibit A. Such assumption cannot be made in view of the following words clearly stamped in red ink on the face of the bill of lading: "Shipper's Load, Count and Seal Said to Contain." This clearly indicates that it was the shipper which loaded and counted the goods placed inside the container and sealed the latter. The two containers were delivered by the shipper to the carrier already sealed for shipment, and the number of cartons said to be contained inside them was indicated in the bill of lading, on the mere say-so of the shipper. The freight paid to the carrier on the shipment was based on the measurement (by volume) of the two containers at $34.50 per cubic meter. The shipper must have saved on the freight charges by using containers for the shipment. Under the circumstances, it would be unfair to the carrier to have the limitation of its liability under COGSA fixed on the number of cartons inside the containers, rather than on the containers themselves, since the freight revenue was based on the latter. The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation of the COGSA package limitation is in a state of flux, 1 as the courts continue to wrestle with the troublesome problem of applying the statutory limitation under COGSA to containerized shipments. The law was adopted before modern technological changes have revolutionized the shipping industry. There is need for the law itself to be updated to meet the changes brought about by the container revolution, but this is a task which should be addressed by the legislative body. Until then, this Court, while mindful of American jurisprudence on the subject, should make its own interpretation of the COGSA provisions, consistent with what is equitable to the parties concerned. There is need to balance the interests of the shipper and those of the carrier. In the case at bar, the shipper opted to ship the goods in two containers, and paid freight charges based on the freight unit, i.e., cubic meters. The shipper did not declare the value of the shipment, for that would have entailed higher freight charges; instead of paying higher freight charges, the shipper protected itself by insuring the shipment. As subrogee, the insurance company can recover from the carrier only what the shipper itself is entitled to recover, not the amount it actually paid the shipper under the insurance policy. In our view, under the circumstances, the container should be regarded as the shipping unit or "package" within the purview of COGSA. However, we realize that this may not be equitable as far

as the shipper is concerned. If the container is not regarded as a "package" within the terms of COGSA, then, the $500.00 liability limitation should be based on "the customary freight unit." Sec. 4 (5) of COGSA provides that in case of goods not shipped in packages, the limit of the carrier's liability shall be $500.00 "per customary freight unit." In the case at bar, the petitioner's liability for the shipment in question based on "freight unit" would be $21,950.00 for the shipment of 43.9 cubic meters. I concur with the rest of the decision. Sarmiento, J., concur.

Separate Opinions

YAP, J., concurring and dissenting: With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile materials, and not the two (2) containers, should be considered as the shipping unit for the purpose of applying the $500.00 limitation under the Carriage of Goods by Sea Act (COGSA). The majority opinion followed and applied the interpretation of the COGSA "package" limitation adopted by the Second Circuit, United States Court of Appeals, in Mitsui & Co., Ltd. vs. American Export Lines, Inc., 636 F. 2d 807 (1981) and the Smithgreyhound v. M/V Eurygenes, 666, F 2nd, 746. Both cases adopted the rule that carrier-furnished containers whose contents are fully disclosed are not "packages" within the meaning of Section 4 (5) of COGSA. I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the present case, for the following reasons: (1) The facts in those cases differ materially from those obtaining in the present case; and (2) the rule laid down in those two cases is by no means settled doctrine. In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company. In Mitsui the Court held: "Certainly, if the individual crates or cartons prepared by the shipper and containing his goods can rightly be considered "packages" standing by themselves, they do not suddenly lose that character upon being stowed in a carrier's container. I would liken these containers to detachable stowage compartments of the ship." Cartons or crates placed inside carrierfurnished containers are deemed stowed in the vessel itself, and do not lose their character as individual units simply by being placed inside container provided by the carrier, which are merely "detachable stowage compartments of the ship. In the case at bar, there is no evidence showing that the two containers in question were carriersupplied. This fact cannot be presumed. The facts of the case in fact show that this was the only

shipment placed in containers. The other shipment involved in the case, consisting of surveying instruments, was packed in two "cases." We cannot speculate on the meaning of the words "Say: Two (2) Containers Only, " which appear in the bill of lading. Absent any positive evidence on this point, we cannot say that those words constitute a mere estimate that the shipment could fit in two containers, thereby showing that when the goods were delivered by the shipper, they were not yet placed inside the containers and that it was the petitioner carrier which packed the goods into its own containers, as authorized under paragraph 11 on the dorsal side of the bill of lading, Exhibit A. Such assumption cannot be made in view of the following words clearly stamped in red ink on the face of the bill of lading: "Shipper's Load, Count and Seal Said to Contain." This clearly indicates that it was the shipper which loaded and counted the goods placed inside the container and sealed the latter. The two containers were delivered by the shipper to the carrier already sealed for shipment, and the number of cartons said to be contained inside them was indicated in the bill of lading, on the mere say-so of the shipper. The freight paid to the carrier on the shipment was based on the measurement (by volume) of the two containers at $34.50 per cubic meter. The shipper must have saved on the freight charges by using containers for the shipment. Under the circumstances, it would be unfair to the carrier to have the limitation of its liability under COGSA fixed on the number of cartons inside the containers, rather than on the containers themselves, since the freight revenue was based on the latter. The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation of the COGSA package limitation is in a state of flux, 1 as the courts continue to wrestle with the troublesome problem of applying the statutory limitation under COGSA to containerized shipments. The law was adopted before modern technological changes have revolutionized the shipping industry. There is need for the law itself to be updated to meet the changes brought about by the container revolution, but this is a task which should be addressed by the legislative body. Until then, this Court, while mindful of American jurisprudence on the subject, should make its own interpretation of the COGSA provisions, consistent with what is equitable to the parties concerned. There is need to balance the interests of the shipper and those of the carrier. In the case at bar, the shipper opted to ship the goods in two containers, and paid freight charges based on the freight unit, i.e., cubic meters. The shipper did not declare the value of the shipment, for that would have entailed higher freight charges; instead of paying higher freight charges, the shipper protected itself by insuring the shipment. As subrogee, the insurance company can recover from the carrier only what the shipper itself is entitled to recover, not the amount it actually paid the shipper under the insurance policy. In our view, under the circumstances, the container should be regarded as the shipping unit or "package" within the purview of COGSA. However, we realize that this may not be equitable as far as the shipper is concerned. If the container is not regarded as a "package" within the terms of COGSA, then, the $500.00 liability limitation should be based on "the customary freight unit." Sec. 4 (5) of COGSA provides that in case of goods not shipped in packages, the limit of the carrier's liability shall be $500.00 "per customary freight unit." In the case at bar, the petitioner's liability for the shipment in question based on "freight unit" would be $21,950.00 for the shipment of 43.9 cubic meters. I concur with the rest of the decision. Sarmiento, J., concur

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-28673 October 23, 1984 SAMAR MINING COMPANY, INC., plaintiff-appellee, vs. NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-appellants.

CUEVAS, J.:

+.wph!1

This is an appeal taken directly to Us on certiorari from the decision of the defunct Court of First Instance of Manila, finding defendants carrier and agent, liable for the value of goods never delivered to plaintiff consignee. The issue raised is a pure question of law, which is, the liability of the defendants, now appellants, under the bill of lading covering the subject shipment. The case arose from an importation made by plaintiff, now appellee, SAMAR MINING COMPANY, INC., of one (1) crate Optima welded wedge wire sieves through the M/S SCHWABENSTEIN a vessel owned by defendant-appellant NORDEUTSCHER LLOYD, (represented in the Philippines by its agent, C.F. SHARP & CO., INC.), which shipment is covered by Bill of Lading No. 18 duly issued to consignee SAMAR MINING COMPANY, INC. Upon arrival of the aforesaid vessel at the port of Manila, the aforementioned importation was unloaded and delivered in good order and condition to the bonded warehouse of AMCYL. 1 The goods were however never delivered to, nor received by, the consignee at the port of destination Davao. When the letters of complaint sent to defendants failed to elicit the desired response, consignee herein appellee, filed a formal claim for P1,691.93, the equivalent of $424.00 at the prevailing rate of exchange at that time, against the former, but neither paid. Hence, the filing of the instant suit to enforce payment. Defendants-appellants brought in AMCYL as third party defendant. The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of P1,691.93 plus attorney's fees and costs. However, the Court stated that defendants may recoup whatever they may pay plaintiff by enforcing the judgment against third party defendant AMCYL which had earlier been declared in default. Only the defendants appealed from said decision. The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and stipulations which should be examined in the light of pertinent legal provisions and settled jurisprudence. This undertaking is not only proper but necessary as well because of the nature of the bill of lading which operates both as a receipt for the goods; and more importantly, as a contract to transport and deliver the same as stipulated therein. 2 Being a contract, it is the law between the parties thereto 3 who are bound by its terms and conditions 4 provided that these are not contrary to law, morals, good customs, public order and public policy. 5 Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded wedge wire sieves was received by the carrier NORDEUTSCHER LLOYD at the "port of loading" which is

Bremen, Germany, while the freight had been prepaid up to the port of destination or the "port of discharge of goods in this case, Davao, the carrier undertook to transport the goods in its vessel, M/S SCHWABENSTEIN only up to the "port of discharge from ship-Manila. Thereafter, the goods were to be transshipped by the carrier to the port of destination or "port of discharge of goods The stipulation is plainly indicated on the face of the bill which contains the following phrase printed below the space provided for the port of discharge from ship", thus:
t.hqw

if goods are to be transshipped at port of discharge, show destination under the column for "description of contents" 7

As instructed above, the following words appeared typewritten under the column for "description of contents":
t.hqw

PORT OF DISCHARGE OF GOODS: DAVAO FREIGHT PREPAID 8

It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering the same into the custody of AMCYL, the bonded warehouse, appellants were acting in full accord with the contractual stipulations contained in Bill of Lading No. 18. The delivery of the goods to AMCYL was part of appellants' duty to transship the goods from Manila to their port of destination-Davao. The word "transship" means:
t.hqw

to transfer for further transportation from one ship or conveyance to another

The extent of appellant carrier's responsibility and/or liability in the transshipment of the goods in question are spelled out and delineated under Section 1, paragraph 3 of Bill of Lading No. 18, to wit:
t.hqw

The carrier shall not be liable in any capacity whatsoever for any delay, loss or damage occurring before the goods enter ship's tackle to be loaded or after the goods leave ship's tackle to be discharged, transshipped or forwarded ... (Emphasis supplied) and in Section 11 of the same Bill, which provides:
t.hqw

Whenever the carrier or m aster may deem it advisable or in any case where the goods are placed at carrier's disposal at or consigned to a point where the ship does not expect to load or discharge, the carrier or master may, without notice, forward the whole or any part of the goods before or after loading at the original port of shipment, ... This carrier, in making arrangements for any transshipping or forwarding vessels or means of transportation not operated by this carrier shall be considered solely the forwarding agent of the shipper and without any other responsibility whatsoever even though the freight for the whole transport has been collected by him. ... Pending or during forwarding or transshipping the carrier may store the goods ashore or afloat solely as agent of the shipper and at risk and expense of the goods and the carrier shall not be liable for detention nor responsible for the acts, neglect, delay or failure to act of anyone to whom the goods are entrusted or delivered for storage, handling or any service incidental thereto (Emphasis supplied) 10

Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have discharged the same in full and good condition unto the custody of AMCYL at the port of discharge

from ship Manila, and therefore, pursuant to the aforequoted stipulation (Sec. 11) in the bill of lading, their responsibility for the cargo had ceased. 11 We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the carrier from liability for loss or damage to the goods when the same are not in its actual custody has been upheld by Us in PHOENIX ASSURANCE CO., LTD. vs. UNITED STATES LINES, 22 SCRA 674 (1968). Said case matches the present controversy not only as to the material facts but more importantly, as to the stipulations contained in the bill of lading concerned. As if to underline their awesome likeness, the goods in question in both cases were destined for Davao, but were discharged from ship in Manila, in accordance with their respective bills of lading. The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the subject stipulations before Us, provides:
t.hqw

The carrier shall not be liable in any capacity whatsoever for any loss or damage to the goods while the goods are not in its actual custody. (Par. 2, last subpar.) xxx xxx xxx
The carrier or master, in making arrangements with any person for or in connection with all transshipping or forwarding of the goods or the use of any means of transportation or forwarding of goods not used or operated by the carrier, shall be considered solely the agent of the shipper and consignee and without any other responsibility whatsoever or for the cost thereof ... (Par. 16). 12

Finding the above stipulations not contrary to law, morals, good customs, public order or public policy, We sustained their validity 13 Applying said stipulations as the law between the parties in the aforecited case, the Court concluded that:
t.hqw

... The short form Bill of Lading ( ) states in no uncertain terms that the port of discharge of the cargo is Manila, but that the same was to be transshipped beyond the port of discharge to Davao City. Pursuant to the terms of the long form Bill of Lading ( ), appellee's responsibility as a common carrier ceased the moment the goods were unloaded in Manila and in the matter of transshipment, appellee acted merely as an agent of the shipper and consignee. ... (Emphasis supplied) 14

Coming now to the case before Us, We hold, that by the authority of the above pronouncements, and in conformity with the pertinent provisions of the New Civil Code, Section 11 of Bill of Lading No. 18 and the third paragraph of Section 1 thereof are valid stipulations between the parties insofar as they exempt the carrier from liability for loss or damage to the goods while the same are not in the latter's actual custody. The liability of the common carrier for the loss, destruction or deterioration of goods transported from a foreign country to the Philippines is governed primarily by the New Civil Code. 15 In all matters not regulated by said Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws. 16A careful perusal of the provisions of the New Civil Code on common carriers (Section 4, Title VIII, Book IV) directs our attention to Article 1736 thereof, which reads:
t.hqw

Article 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by

the carrier to the consignee, or to the person who has a right to receive them, without prejudice to the provisions of article 1738. Article 1738 referred to in the foregoing provision runs thus:
t.hqw

Article 1738. The extraordinary liability of the common carrier continues to be operative even during the time the goods are stored in a warehouse of the carrier at the place of destination, until the consignee has been advised of the arrival of the goods and has had reasonable opportunity thereafter to remove them or otherwise dispose of them. There is no doubt that Art. 1738 finds no applicability to the instant case. The said article contemplates a situation where the goods had already reached their place of destination and are stored in the warehouse of the carrier. The subject goods were still awaiting transshipment to their port of destination, and were stored in the warehouse of a third party when last seen and/or heard of. However, Article 1736 is applicable to the instant suit. Under said article, the carrier may be relieved of the responsibility for loss or damage to the goods upon actual or constructive delivery of the same by the carrier to the consignee, or to the person who has a right to receive them. In sales, actual delivery has been defined as the ceding of corporeal possession by the seller, and the actual apprehension of corporeal possession by the buyer or by some person authorized by him to receive the goods as his representative for the purpose of custody or disposal. 17 By the same token, there is actual delivery in contracts for the transport of goods when possession has been turned over to the consignee or to his duly authorized agent and a reasonable time is given him to remove the goods. 18 The court a quo found that there was actual delivery to the consignee through its duly authorized agent, the carrier. It becomes necessary at this point to dissect the complex relationship that had developed between appellant and appellee in the course of the transactions that gave birth to the present suit. Two undertakings appeared embodied and/or provided for in the Bill of Lading 19 in question. The first is FOR THE TRANSPORT OF GOODS from Bremen, Germany to Manila. The second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to Davao, with appellant acting as agent of the consignee. 20 At the hiatus between these two undertakings of appellant which is the moment when the subject goods are discharged in Manila, its personality changes from that of carrier to that of agent of the consignee. Thus, the character of appellant's possession also changes, from possession in its own name as carrier, into possession in the name of consignee as the latter's agent. Such being the case, there was, in effect, actual delivery of the goods from appellant as carrier to the same appellant as agent of the consignee. Upon such delivery, the appellant, as erstwhile carrier, ceases to be responsible for any loss or damage that may befall the goods from that point onwards. This is the full import of Article 1736, as applied to the case before Us. But even as agent of the consignee, the appellant cannot be made answerable for the value of the missing goods, It is true that the transshipment of the goods, which was the object of the agency, was not fully performed. However, appellant had commenced said performance, the completion of which was aborted by circumstances beyond its control. An agent who carries out the orders and instructions of the principal without being guilty of negligence, deceit or fraud, cannot be held responsible for the failure of the principal to accomplish the object of the agency, 21 This can be gleaned from the following provisions of the New Civil Code on the obligations of the agent:
t.hqw

Article 1884. The agent is bound by his acceptance to carry out the agency, and is liable for the damages which, through his non-performance, the principal may suffer. xxx xxx xxx

Article 1889. The agent shall be liable for damages if, there being a conflict between his interests and those of the principal, he should prefer his own. Article 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall be responsible for the acts of the substitute: (1) When he was not given the power to appoint one; (2) When he was given such power but without designating the person and the person appointed was notoriously incompetent or insolvent. xxx xxx xxx Article 1909. The agent is responsible not only for fraud, but also for negligence which shall be judged with more or less rigor by the courts, according to whether the agency was or was not for a compensation. The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its representative in the Philippines. Neither is there any showing of notorious incompetence or insolvency on the part of AMCYT, which acted as appellant's substitute in storing the goods awaiting transshipment. The actions of appellant carrier and of its representative in the Philippines being in full faith with the lawful stipulations of Bill of Lading No. 18 and in conformity with the provisions of the New Civil Code on common carriers, agency and contracts, they incur no liability for the loss of the goods in question. WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is hereby DISMISSED. No costs. SO ORDERED.
1wph1.t

Makasiar (Chairman), Guerrero, Abad Santos and Escolin, concur. Aquino, J., concurs in the result. Concepcion Jr., J., took no part.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 171468 August 24, 2011

NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., Petitioner, vs. NYK-FILJAPAN SHIPPING CORP., LEP PROFIT INTERNATIONAL, INC. (ORD), LEP INTERNATIONAL PHILIPPINES, INC., DMT CORP., ADVATECH INDUSTRIES, INC., MARINA PORT SERVICES, INC., SERBROS CARRIER CORPORATION, and SEABOARD-EASTERN INSURANCE CO., INC., Respondents. x - - - - - - - - - - - - - - - - - - - - - - -x G.R. No. 174241 NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., Petitioner, vs. SEABOARD-EASTERN INSURANCE CO., INC., Respondent. DECISION ABAD, J.: These consolidated petitions involve a cargo owners right to recover damages from the loss of insured goods under the Carriage of Goods by Sea Act and the Insurance Code. The Facts and the Case Petitioner New World International Development (Phils.), Inc. (New World) bought from DMT Corporation (DMT) through its agent, Advatech Industries, Inc. (Advatech) three emergency generator sets worth US$721,500.00. DMT shipped the generator sets by truck from Wisconsin, United States, to LEP Profit International, Inc. (LEP Profit) in Chicago, Illinois. From there, the shipment went by train to Oakland, California, where it was loaded on S/S California Luna V59, owned and operated by NYK Fil-Japan Shipping Corporation (NYK) for delivery to petitioner New World in Manila. NYK issued a bill of lading, declaring that it received the goods in good condition. NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX Ruby V/72 that it also owned and operated. On its journey to Manila, however, ACX Ruby encountered typhoon Kadiang whose captain filed a sea protest on arrival at the Manila South Harbor on October 5, 1993 respecting the loss and damage that the goods on board his vessel suffered. Marina Port Services, Inc. (Marina), the Manila South Harbor arrastre or cargo-handling operator, received the shipment on October 7, 1993. Upon inspection of the three container vans separately carrying the generator sets, two vans bore signs of external damage while the third van appeared

unscathed. The shipment remained at Pier 3s Container Yard under Marinas care pending clearance from the Bureau of Customs. Eventually, on October 20, 1993 customs authorities allowed petitioners customs broker, Serbros Carrier Corporation (Serbros), to withdraw the shipment and deliver the same to petitioner New Worlds job site in Makati City. An examination of the three generator sets in the presence of petitioner New Worlds representatives, Federal Builders (the project contractor) and surveyors of petitioner New Worlds insurer, SeaboardEastern Insurance Company (Seaboard), revealed that all three sets suffered extensive damage and could no longer be repaired. For these reasons, New World demanded recompense for its loss from respondents NYK, DMT, Advatech, LEP Profit, LEP International Philippines, Inc. (LEP), Marina, and Serbros. While LEP and NYK acknowledged receipt of the demand, both denied liability for the loss. Since Seaboard covered the goods with a marine insurance policy, petitioner New World sent it a formal claim dated November 16, 1993. Replying on February 14, 1994, Seaboard required petitioner New World to submit to it an itemized list of the damaged units, parts, and accessories, with corresponding values, for the processing of the claim. But petitioner New World did not submit what was required of it, insisting that the insurance policy did not include the submission of such a list in connection with an insurance claim. Reacting to this, Seaboard refused to process the claim. On October 11, 1994 petitioner New World filed an action for specific performance and damages against all the respondents before the Regional Trial Court (RTC) of Makati City, Branch 62, in Civil Case 94-2770. On August 16, 2001 the RTC rendered a decision absolving the various respondents from liability with the exception of NYK. The RTC found that the generator sets were damaged during transit while in the care of NYKs vessel, ACX Ruby. The latter failed, according to the RTC, to exercise the degree of diligence required of it in the face of a foretold raging typhoon in its path. The RTC ruled, however, that petitioner New World filed its claim against the vessel owner NYK beyond the one year provided under the Carriage of Goods by Sea Act (COGSA). New World filed its complaint on October 11, 1994 when the deadline for filing the action (on or before October 7, 1994) had already lapsed. The RTC held that the one-year period should be counted from the date the goods were delivered to the arrastre operator and not from the date they were delivered to petitioners job site.1 As regards petitioner New Worlds claim against Seaboard, its insurer, the RTC held that the latter cannot be faulted for denying the claim against it since New World refused to submit the itemized list that Seaboard needed for assessing the damage to the shipment. Likewise, the belated filing of the complaint prejudiced Seaboards right to pursue a claim against NYK in the event of subrogation. On appeal, the Court of Appeals (CA) rendered judgment on January 31, 2006, 2 affirming the RTCs rulings except with respect to Seaboards liability. The CA held that petitioner New World can still recoup its loss from Seaboards marine insurance policy, considering a) that the submission of the itemized listing is an unreasonable imposition and b) that the one-year prescriptive period under the COGSA did not affect New Worlds right under the insurance policy since it was the Insurance Code that governed the relation between the insurer and the insured. Although petitioner New World promptly filed a petition for review of the CA decision before the Court in G.R. 171468, Seaboard chose to file a motion for reconsideration of that decision. On August 17, 2006 the CA rendered an amended decision, reversing itself as regards the claim against Seaboard. The CA held that the submission of the itemized listing was a reasonable requirement

that Seaboard asked of New World. Further, the CA held that the one-year prescriptive period for maritime claims applied to Seaboard, as insurer and subrogee of New Worlds right against the vessel owner. New Worlds failure to comply promptly with what was required of it prejudiced such right. Instead of filing a motion for reconsideration, petitioner instituted a second petition for review before the Court in G.R. 174241, assailing the CAs amended decision. The Issues Presented The issues presented in this case are as follows: a) In G.R. 171468, whether or not the CA erred in affirming the RTCs release from liability of respondents DMT, Advatech, LEP, LEP Profit, Marina, and Serbros who were at one time or another involved in handling the shipment; and b) In G.R. 174241, 1) whether or not the CA erred in ruling that Seaboards request from petitioner New World for an itemized list is a reasonable imposition and did not violate the insurance contract between them; and 2) whether or not the CA erred in failing to rule that the one-year COGSA prescriptive period for marine claims does not apply to petitioner New Worlds prosecution of its claim against Seaboard, its insurer. The Courts Rulings In G.R. 171468 -Petitioner New World asserts that the roles of respondents DMT, Advatech, LEP, LEP Profit, Marina and Serbros in handling and transporting its shipment from Wisconsin to Manila collectively resulted in the damage to the same, rendering such respondents solidarily liable with NYK, the vessel owner. But the issue regarding which of the parties to a dispute incurred negligence is factual and is not a proper subject of a petition for review on certiorari. And petitioner New World has been unable to make out an exception to this rule.3 Consequently, the Court will not disturb the finding of the RTC, affirmed by the CA, that the generator sets were totally damaged during the typhoon which beset the vessels voyage from Hong Kong to Manila and that it was her negligence in continuing with that journey despite the adverse condition which caused petitioner New Worlds loss. That the loss was occasioned by a typhoon, an exempting cause under Article 1734 of the Civil Code, does not automatically relieve the common carrier of liability. The latter had the burden of proving that the typhoon was the proximate and only cause of loss and that it exercised due diligence to prevent or minimize such loss before, during, and after the disastrous typhoon. 4 As found by the RTC and the CA, NYK failed to discharge this burden. In G.R. 174241 -One. The Court does not regard as substantial the question of reasonableness of Seaboards additional requirement of an itemized listing of the damage that the generator sets suffered. The record shows that petitioner New World complied with the documentary requirements evidencing damage to its generator sets.

The marine open policy that Seaboard issued to New World was an all-risk policy. Such a policy insured against all causes of conceivable loss or damage except when otherwise excluded or when the loss or damage was due to fraud or intentional misconduct committed by the insured. The policy covered all losses during the voyage whether or not arising from a marine peril. 5 Here, the policy enumerated certain exceptions like unsuitable packaging, inherent vice, delay in voyage, or vessels unseaworthiness, among others. 6 But Seaboard had been unable to show that petitioner New Worlds loss or damage fell within some or one of the enumerated exceptions. What is more, Seaboard had been unable to explain how it could not verify the damage that New Worlds goods suffered going by the documents that it already submitted, namely, (1) copy of the Suppliers Invoice KL2504; (2) copy of the Packing List; (3) copy of the Bill of Lading 01130E93004458; (4) the Delivery of Waybill Receipts 1135, 1222, and 1224; (5) original copy of Marine Insurance Policy MA-HO-000266; (6) copies of Damage Report from Supplier and Insurance Adjusters; (7) Consumption Report from the Customs Examiner; and (8) Copies of Received Formal Claim from the following: a) LEP International Philippines, Inc.; b) Marina Port Services, Inc.; and c) Serbros Carrier Corporation.7 Notably, Seaboards own marine surveyor attended the inspection of the generator sets. Seaboard cannot pretend that the above documents are inadequate since they were precisely the documents listed in its insurance policy.8 Being a contract of adhesion, an insurance policy is construed strongly against the insurer who prepared it. The Court cannot read a requirement in the policy that was not there. Further, it appears from the exchanges of communications between Seaboard and Advatech that submission of the requested itemized listing was incumbent on the latter as the seller DMTs local agent. Petitioner New World should not be made to suffer for Advatechs shortcomings. Two. Regarding prescription of claims, Section 3(6) of the COGSA provides that the carrier and the ship shall be discharged from all liability in case of loss or damage unless the suit is brought within one year after delivery of the goods or the date when the goods should have been delivered. But whose fault was it that the suit against NYK, the common carrier, was not brought to court on time? The last day for filing such a suit fell on October 7, 1994. The record shows that petitioner New World filed its formal claim for its loss with Seaboard, its insurer, a remedy it had the right to take, as early as November 16, 1993 or about 11 months before the suit against NYK would have fallen due. In the ordinary course, if Seaboard had processed that claim and paid the same, Seaboard would have been subrogated to petitioner New Worlds right to recover from NYK. And it could have then filed the suit as a subrogee. But, as discussed above, Seaboard made an unreasonable demand on February 14, 1994 for an itemized list of the damaged units, parts, and accessories, with corresponding values when it appeared settled that New Worlds loss was total and when the insurance policy did not require the production of such a list in the event of a claim. Besides, when petitioner New World declined to comply with the demand for the list, Seaboard against whom a formal claim was pending should not have remained obstinate in refusing to process that claim. It should have examined the same, found it unsubstantiated by documents if that were the case, and formally rejected it. That would have at least given petitioner New World a clear signal that it needed to promptly file its suit directly against NYK and the others. Ultimately, the fault for the delayed court suit could be brought to Seaboards doorstep.

Section 241 of the Insurance Code provides that no insurance company doing business in the Philippines shall refuse without just cause to pay or settle claims arising under coverages provided by its policies. And, under Section 243, the insurer has 30 days after proof of loss is received and ascertainment of the loss or damage within which to pay the claim. If such ascertainment is not had within 60 days from receipt of evidence of loss, the insurer has 90 days to pay or settle the claim. And, in case the insurer refuses or fails to pay within the prescribed time, the insured shall be entitled to interest on the proceeds of the policy for the duration of delay at the rate of twice the ceiling prescribed by the Monetary Board. Notably, Seaboard already incurred delay when it failed to settle petitioner New Worlds claim as Section 243 required. Under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is created by the failure of the insurer to pay the claim within the time fixed in Section 243. Consequently, Seaboard should pay interest on the proceeds of the policy for the duration of the delay until the claim is fully satisfied at the rate of twice the ceiling prescribed by the Monetary Board. The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of 12% per annum provided in Central Bank Circular 416, pursuant to Presidential Decree 116. 9 Section 244 of the Insurance Code also provides for an award of attorneys fees and other expenses incurred by the assured due to the unreasonable withholding of payment of his claim. In Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping Lines, Inc., 10 the Court regarded as proper an award of 10% of the insurance proceeds as attorneys fees. Such amount is fair considering the length of time that has passed in prosecuting the claim. 11 Pursuant to the Courts ruling in Eastern Shipping Lines, Inc. v. Court of Appeals, 12 a 12% interest per annum from the finality of judgment until full satisfaction of the claim should likewise be imposed, the interim period equivalent to a forbearance of credit.
1avvphi1

Petitioner New World is entitled to the value stated in the policy which is commensurate to the value of the three emergency generator sets or US$721,500.00 with double interest plus attorneys fees as discussed above. WHEREFORE, the Court DENIES the petition in G.R. 171468 and AFFIRMS the Court of Appeals decision of January 31, 2006 insofar as petitioner New World International Development (Phils.), Inc. is not allowed to recover against respondents DMT Corporation, Advatech Industries, Inc., LEP International Philippines, Inc., LEP Profit International, Inc., Marina Port Services, Inc. and Serbros Carrier Corporation. With respect to G.R. 174241, the Court GRANTS the petition and REVERSES and SETS ASIDE the Court of Appeals Amended Decision of August 17, 2006. The Court DIRECTS Seaboard-Eastern Insurance Company, Inc. to pay petitioner New World International Development (Phils.), Inc. US$721,500.00 under Policy MA-HO-000266, with 24% interest per annum for the duration of delay in accordance with Sections 243 and 244 of the Insurance Code and attorneys fees equivalent to 10% of the insurance proceeds. Seaboard shall also pay, from finality of judgment, a 12% interest per annum on the total amount due to petitioner until its full satisfaction. SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 60673 May 19, 1992 PAN AMERICAN WORLD AIRWAYS, INC., petitioner, vs. JOSE K. RAPADAS and THE COURT OF APPEALS, respondents. Froilan P. Pobre for private respondent.

GUTIERREZ, JR., J.: This is a petition for review assailing the decision of the respondent Court of Appeals which affirmed in toto the trial court decision on the liability of petitioner Pan American World Airways for damages due to private respondent. The trial court ruled that the petitioner can not avail of a limitation of liabilities for lost baggages of a passenger. The dispositive portion of the trial court decision reads: WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered ordering defendant to pay plaintiff by way of actual damages the equivalent peso value of the amount of $5,228.90 and 100 paengs, nominal damages in the amount of P20,000.00 and attorney's fees of P5,000.00, and the costs of the suit. Defendant's counterclaim is dismissed. (Rollo, p. 13) On January 16, 1975, private respondent Jose K. Rapadas held Passenger Ticket and Baggage Claim Check No. 026-394830084-5 for petitioner's Flight No. 841 with the route from Guam to Manila. While standing in line to board the flight at the Guam airport, Rapadas was ordered by petitioner's handcarry control agent to check-in his Samsonite attache case. Rapadas protested pointing to the fact that other co-passengers were permitted to handcarry bulkier baggages. He stepped out of the line only to go back again at the end of it to try if he can get through without having to register his attache case. However, the same man in charge of handcarry control did not fail to notice him and ordered him again to register his baggage. For fear that he would miss the plane if he insisted and argued on personally taking the valise with him, he acceded to checking it in. He then gave his attache case to his brother who happened to be around and who checked it in for him, but without declaring its contents or the value of its contents. He was given a Baggage Claim Tag No. P-749-713. (Exhibit "B" for the plaintiff-respondent) Upon arriving in Manila on the same date, January 16, 1975, Rapadas claimed and was given all his checked-in baggages except the attache case. Since Rapadas felt ill on his arrival, he sent his son, Jorge Rapadas to request for the search of the missing luggage. The petitioner exerted efforts to locate the luggage through the Pan American World Airways-Manila International Airport (PAN AM-MIA) Baggage Service. On January 30, 1975, the petitioner required the private respondent to put the request in writing. The respondent filled in a Baggage Claim Blank Form. Thereafter, Rapadas personally followed up his claim. For several times, he called up Mr. Panuelos, the head of the Baggage Section of PAN AM. He also sent letters demanding and reminding the petitioner of his claim. Rapadas received a letter from the petitioner's counsel dated August 2, 1975 offering to settle the claim for the sum of one hundred sixty dollars ($160.00) representing the petitioner's alleged limit of liability for loss or damage to a passenger's personal property under the contract of carriage between Rapadas and PAN AM. Refusing to accept this kind of settlement, Rapadas filed the instant action for damages on October 1, 1975. Rapadas alleged that PAN AM discriminated or singled him out in ordering that his luggage be checked in. He also alleged that PAN AM neglected its duty in the handling and safekeeping of his attache case from the point of embarkation in Guam to his destination

in Manila. He placed the value of the lost attache case and its contents at US$42,403.90. According to him, the loss resulted in his failure to pay certain monetary obligations, failure to remit money sent through him to relatives, inability to enjoy the fruits of his retirement and vacation pay earned from working in Tonga Construction Company (he retired in August 1974) and inability to return to Tonga to comply with then existing contracts. In its answer, petitioner-defendant PAN AM acknowledged responsibility for the loss of the attache case but asserted that the claim was subject to the "Notice of Baggage Liability Limitations" allegedly attached to and forming part of the passenger ticket. The petitioner argued that the same notice was also conspicuously posted in its offices for the guidance of the passengers. At the trial, private respondent showed proof of his retirement award and vacation pay amounting to $4,750.00. He claimed that the attache case also contained other money consisting of $1,400 allegedly given to him by his son, Jaime, as a round trip fare of his (plaintiff-respondent) wife, but which amount was later found to be actually intended by Jaime as payment for arrears of a lot purchased from Tropical Homes, Inc.; $3,000 allegedly given by his brothers for payment of taxes and for constructing improvements on the Rapadas estates; and $300.00 birthday present of the spouses Mr. and Mrs. Ruben Canonizado to plaintiff-respondent's wife. He also claimed having kept several items in the attache case, namely (1) contracts and records of employment, letters of commendation, testimonials and newspaper clippings on his achievement for 13 years in Tonga, New Zealand and Australia, drafts of manuscripts, photographs and drivers license alleged to be worth $20,000.00; a Polaroid camera, films, calculator, and other personal items worth $403.90; memorabilia, autographs personally acquired from Charles Lindberg, Lawrence Rockefeller and Ryoichi Sasakawa, a commemorative palladium coin worth Tongan 100 paengs and unused Tongan stamps, all totalling $7,500.00; and a plan worth $5,000.00 drawn by his son Jaime, who is an architect, for the construction of a residential house and a 6-story commercial building. Rapadas claimed the amount of the attache case itself to be $25.50. (See Decision in Civil Case No. 99564 in Amended Record on Appeal, pp. 61-85) The lower court ruled in favor of complainant Rapadas after finding no stipulation giving notice to the baggage liability limitation. The court rejected the claim of defendant PANAM that its liability under the terms of the passenger ticket is only up to $160.00. However, it scrutinized all the claims of the plaintiff. It discredited insufficient evidence to show discriminatory acts or bad faith on the part of petitioner PANAM. On appeal, the Court of Appeals affirmed the trial court decision. Hence, this petition. The main issue raised in the case at bar is whether or not a passenger is bound by the terms of a passenger ticket declaring that the limitations of liability set forth in the Warsaw Convention (October 12, 1929; 137 League of Nations Treaty Series II; See Proclamation No. 201 [1955], 51 O.G. 4933 [October, 1955]) as amended by the Hague Protocol (September 28, 1955; 478 UNTS 373; III PTS 515), shall apply in case of loss, damage or destruction to a registered luggage of a passenger. The petitioner maintains that its liability for the lost baggage of respondent Rapadas was limited to $160.00 since the latter did not declare a higher value for his baggage and did not pay the corresponding additional charges. The private respondent, on the other hand, insists that he is entitled to as much damages as those awarded by the court and affirmed by the respondent appellate court. After a review of the various arguments of the opposing parties as well as the records of the case, the Court finds sufficient basis under the particular facts of this case for the availment of the liability limitations under the Warsaw Convention. There is no dispute, and the courts below admit, that there was such a Notice appearing on page two (2) of the airline ticket stating that the Warsaw Convention governs in case of death or injury to a passenger or of loss, damage or destruction to a passenger's luggage. The Notice states: If the passenger's journey involves an ultimate destination or stop in a country other than the country of departure the Warsaw Convention may be applicable and the Convention governs and in most cases limits the liability of carriers for death or personal injury and in respect of loss of or damage to baggage. See also notice headed "Advice to International Passengers on Limitation of

Liability." (The latter notice refers to limited liability for death or personal injury to passengers with proven damages not exceeding US $75,000 per passenger; Exhibit "K" for plaintiff respondent, Table of Exhibits, p. 19) Furthermore, paragraph 2 of the "Conditions of Contract" also appearing on page 2 of the ticket states: 2. Carriage hereunder is subject to the rules and limitations relating to liability established by the Warsaw Convention unless such carriage is not "international carriage" as defined by that Convention. (Exhibit "K", supra) We note that plaintiff-respondent Rapadas presented as proof of the Passenger Ticket and Baggage Check No. 026394830084-5 a xerox copy of its page 2 which contains the Notice and Conditions of Contract, and also page 3 which recites the Advice to International Passengers on Limitation of Liability. He also presented two xerox copies of Flight Coupon No. 3 of the same passenger ticket showing the fares paid for the trips Honolulu to Guam, Guam to Manila, and Manila to Honolulu to prove his obligations which remained unpaid because of the unexpected loss of money allegedly placed inside the missing attache case. Rapadas explained during the trial that the same passenger ticket was returned by him to one Mr. S.L. Faupula of the Union Steam Ship Company of New Zealand, Ltd., Tonga who demanded the payment of the fares or otherwise, the return of the unused plane tickets (including the subject Passenger Ticket & Baggage Check No. 026-394830084-5). The issuance of these tickets was facilitated by Mr. Faupula on credit. Meanwhile, the petitioner offered as evidence Exhibit "1" also showing page 2 of the passenger ticket to prove the notice and the conditions of the contract of carriage. It likewise offered Exhibit "1-A", a xerox copy of a "Notice of Baggage Liability Limitations" which the trial court disregarded and held to be non-existent. The same Exhibit "1-A" contained the following stipulations: NOTICE OF BAGGAGE LIABILITY LIMITATIONS Liability for loss, delay, or damage to baggage is limited as follows unless a higher value is declared in advance and additional charges are paid: (1) for most international travel (including domestic portions of international journeys) to approximately $8.16 per pound ($18.00 per kilo; now $20.00 per Exhibit "13") for checked baggage and $360 (now $400 per Exhibit "13") per passenger for unchecked baggage; (2) for travel wholly between U.S. points, to $500 per passenger on most carriers (a few have lower limits). Excess valuation may not be declared on certain types of valuable articles. Carriers assume no liability for fragile or perishable articles. Further information may be obtained from the carrier. (Table of Exhibits, p. 45) The original of the Passenger Ticket and Baggage Check No. 026-394830084-5 itself was not presented as evidence as it was among those returned to Mr. Faupula. Thus, apart from the evidence offered by the defendant airline, the lower court had no other basis for determining whether or not there was actually a stipulation on the specific amounts the petitioner had expressed itself to be liable for loss of baggage. Although the trial court rejected the evidence of the defendant-petitioner of a stipulation particularly specifying what amounts it had bound itself to pay for loss of luggage, the Notice and paragraph 2 of the "Conditions of Contract" should be sufficient notice showing the applicability of the Warsaw limitations. The Warsaw Convention, as amended, specifically provides that it is applicable to international carriage which it defines in Article 1, par. 2 as follows: (2) For the purposes of this Convention, the expression "international carriage" means any carriage in which, according to the agreement between the parties, the place of departure and the place of destination, whether or not there be a breach in the carriage or a transhipment, are situated either within the territories of two High Contracting Parties or within the territory of a single High Contracting Party if there is an agreed stopping place within the territory of another State, even if that State is not a High Contracting Party. Carriage between two points within the territory of a single High Contracting Party without an agreed stopping place within the territory of another State is not international carriage for the purposes of this Convention. ("High Contracting Party" refers to a state which has ratified or adhered to the Convention, or which has not effectively denounced the Convention [Article 40A(l)]).

Nowhere in the Warsaw Convention, as amended, is such a detailed notice of baggage liability limitations required. Nevertheless, it should become a common, safe and practical custom among air carriers to indicate beforehand the precise sums equivalent to those fixed by Article 22 (2) of the Convention. The Convention governs the availment of the liability limitations where the baggage check is combined with or incorporated in the passenger ticket which complies with the provisions of Article 3, par. l (c). (Article 4, par. 2) In the case at bar, the baggage check is combined with the passenger ticket in one document of carriage. The passenger ticket complies with Article 3, par. l (c) which provides: (l) In respect of the carriage of passengers a ticket shall be delivered containing: (a) . . . (b) . . . (c) a notice to the effect that, if the passenger's journey involves an ultimate destination or stop in a country other than the country of departure, the Warsaw Convention may be applicable and that the Convention governs and in most cases limits the liability of carriers for death or personal injury and in respect of loss of or damage to baggage. We have held in the case of Ong Yiu v. Court of Appeals, supra, and reiterated in a similar case where herein petitioner was also sued for damages, Pan American World Airways v.Intermediate Appellate Court (164 SCRA 268 [1988]) that: It (plane ticket) is what is known as a contract of "adhesion", in regards which it has been said that contracts of adhesion wherein one party imposes a ready made form of contract on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent. (Tolentino, Civil Code, Vol. IV, 1962 ed., p. 462, citing Mr. Justice J.B.L. Reyes, Lawyer's Journal, January 31, 1951, p. 49) And as held in Randolph v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878; Rosenchein v. Trans World Airlines, Inc., 349 S.W. 2d 483, "a contract limiting liability upon an agreed valuation does not offend against the policy of the law forbidding one from contracting against his own negligence. Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he cannot be permitted a recovery in excess of P100.00 . . . (91 SCRA 223 at page 231) We hasten to add that while contracts of adhesion are not entirely prohibited, neither is a blind reliance on them encouraged. In the face of facts and circumstances showing they should be ignored because of their basically one sided nature, the Court does not hesitate to rule out blind adherence to their terms. (See Sweet Lines, Inc. v. Teves, 83 SCRA 361, 368-369[1978]) The arguments of the petitioner do not belie the fact that it was indeed accountable for the loss of the attache case. What the petitioner is concerned about is whether or not the notice, which it did not fail to state in the plane ticket and which it deemed to have been read and accepted by the private respondent will be considered by this Court as adequate under the circumstances of this case. As earlier stated, the Court finds the provisions in the plane ticket sufficient to govern the limitations of liabilities of the airline for loss of luggage. The passenger, upon contracting with the airline and receiving the plane ticket, was expected to be vigilant insofar as his luggage is concerned. If the passenger fails to adduce evidence to overcome the stipulations, he cannot avoid the application of the liability limitations. The facts show that the private respondent actually refused to register the attache case and chose to take it with him despite having been ordered by the PANAM agent to check it in. In attempting to avoid registering the luggage by going back to the line, private respondent manifested a disregard of airline rules on allowable handcarried baggages. Prudence of a reasonably careful person also dictates that cash and jewelry should be removed from checked-inluggage and placed in one's pockets or in a handcarried Manila-paper or plastic envelope.

The alleged lack of enough time for him to make a declaration of a higher value and to pay the corresponding supplementary charges cannot justify his failure to comply with the requirement that will exclude the application of limited liability. Had he not wavered in his decision to register his luggage, he could have had enough time to disclose the true worth of the articles in it and to pay the extra charges or remove them from the checked-in-luggage. Moreover, an airplane will not depart meantime that its own employee is asking a passenger to comply with a safety regulation. Passengers are also allowed one handcarried bag each provided it conforms to certain prescribed dimensions. If Mr. Rapadas was not allowed to handcarry the lost attache case, it can only mean that he was carrying more than the allowable weight for all his luggages or more than the allowable number of handcarried items or more than the prescribed dimensions for the bag or valise. The evidence on any arbitrary behavior of a Pan Am employee or inexcusable negligence on the part of the carrier is not clear from the petition. Absent such proof, we cannot hold the carrier liable because of arbitrariness, discrimination, or mistreatment. We are not by any means suggesting that passengers are always bound to the stipulated amounts printed on a ticket, found in a contract of adhesion, or printed elsewhere but referred to in handouts or forms. We simply recognize that the reasons behind stipulations on liability limitations arise from the difficulty, if not impossibility, of establishing with a clear preponderance of evidence the contents of a lost valise or suitcase. Unless the contents are declared, it will always be the word of a passenger against that of the airline. If the loss of life or property is caused by the gross negligence or arbitrary acts of the airline or the contents of the lost luggage are proved by satisfactory evidence other than the self-serving declarations of one party, the Court will not hesitate to disregard the fine print in a contract of adhesion. (See Sweet Lines Inc. v. Teves, supra) Otherwise, we are constrained to rule that we have to enforce the contract as it is the only reasonable basis to arrive at a just award. We note that the finding on the amount lost is more of a probability than a proved conclusion. The trial court stated: xxx xxx xxx We come now to the actual loss of $4,750.00 which the plaintiff claims was the amount of his retirement award and vacation pay. According to the plaintiff, this was in cash of $100 denominations and was placed in an envelope separate from the other money he was carrying. Plaintiff presented the memorandum award, Exhibit T-1 and the vouchers of payment, Exhibits T-2 and T-3. Under the circumstances, recited by the plaintiff in which the loss occurred, the Court believes that plaintiff could really have placed this amount in the attache case considering that he was originally handcarrying said attache case and the same was looked, and he did not expect that he would be required to check it in. . . . (Amended Record on Appeal, p. 75; Emphasis ours) The above conclusion of the trial court does not arise from the facts. That the attache case was originally handcarried does not beg the conclusion that the amount of $4,750.00 in cash could have been placed inside. It may be noted that out of a claim for US$42,403.90 as the amount lost, the trial court found for only US$5,228.90 and 100 paengs. The court had doubts as to the total claim. The lost luggage was declared as weighing around 18 pounds or approximately 8 kilograms. At $20.00 per kilogram, the petitioner offered to pay $160.00 as a higher value was not declared in advance and additional charges were not paid. We note, however, that an amount of $400.00 per passenger is allowed for unchecked luggage. Since the checking-in was against the will of the respondent, we treat the lost bag as partaking of involuntarily and hurriedly checked-in luggage and continuing its earlier status as unchecked luggage. The fair liability under the petitioner's own printed terms is $400.00. Since the trial court ruled out discriminatory acts or bad faith on the part of Pan Am or other reasons warranting damages, there is no factual basis for the grant of P20,000.00 damages. As to the question of whether or not private respondent should be paid attorney's fees, the Court sustains the finding of the trial court and the respondent appellate court that it is just and equitable for the private respondent to recover expenses for litigation in the amount of P5,000.00. Article 22(4) of the Warsaw Convention, as amended does not preclude an award of attorney's fees. That provision states that the limits of liability prescribed in the instrument "shall not prevent the court from awarding, in accordance with its own law, in addition, the whole or part of the court costs and other expenses of litigation incurred by the plaintiff." We, however, raise the award to P10,000.00 considering the resort to the Court of Appeals and this Court.

WHEREFORE, the petition is hereby GRANTED and the decision of the respondent Court of Appeals is REVERSED and SET ASIDE. The petitioner is ordered to pay the private respondent damages in the amount of US$400.00 or its equivalent in Philippine Currency at the time of actual payment, P10,000.00 in attorney's fees, and costs of the suit. SO ORDERED. Feleciano, Bidin, Davide, Jr. and Romero, JJ., concur.

epublic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 101538 June 23, 1992 AUGUSTO BENEDICTO SANTOS III, represented by his father and legal guardian, Augusto Benedicto Santos, petitioner, vs. NORTHWEST ORIENT AIRLINES and COURT OF APPEALS, respondents.

CRUZ, J.: This case involves the Proper interpretation of Article 28(1) of the Warsaw Convention, reading as follows: Art. 28. (1) An action for damage must be brought at the option of the plaintiff, in the territory of one of the High Contracting Parties, either before the court of the domicile of the carrier or of his principal place of business, or where he has a place of business through which the contract has been made, or before the court at the place of destination. The petitioner is a minor and a resident of the Philippines. Private respondent Northwest Orient Airlines (NOA) is a foreign corporation with principal office in Minnesota, U.S.A. and licensed to do business and maintain a branch office in the Philippines. On October 21, 1986, the petitioner purchased from NOA a round-trip ticket in San Francisco. U.S.A., for his flight from San Francisco to Manila via Tokyo and back. The scheduled departure date from Tokyo was December 20, 1986. No date was specified for his return to San Francisco. 1 On December 19, 1986, the petitioner checked in at the NOA counter in the San Francisco airport for his scheduled departure to Manila. Despite a previous confirmation and re-confirmation, he was informed that he had no reservation for his flight from Tokyo to Manila. He therefore had to be wait-listed. On March 12, 1987, the petitioner sued NOA for damages in the Regional Trial Court of Makati. On April 13, 1987, NOA moved to dismiss the complaint on the ground of lack of jurisdiction. Citing the above-quoted article, it contended that the complaint could be instituted only in the territory of one of the High Contracting Parties, before: 1. the court of the domicile of the carrier; 2. the court of its principal place of business; 3. the court where it has a place of business through which the contract had been made; 4. the court of the place of destination. The private respondent contended that the Philippines was not its domicile nor was this its principal place of business. Neither was the petitioner's ticket issued in this country nor was his destination Manila but San Francisco in the United States.

On February 1, 1988, the lower court granted the motion and dismissed the case. 2 The petitioner appealed to the Court of Appeals, which affirmed the decision of the lower court. 3On June 26, 1991, the petitioner filed a motion for reconsideration, but the same was denied. 4 The petitioner then came to this Court, raising substantially the same issues it submitted in the Court of Appeals. The assignment of errors may be grouped into two major issues, viz: (1) the constitutionality of Article 28(1) of the Warsaw Convention; and (2) the jurisdiction of Philippine courts over the case. The petitioner also invokes Article 24 of the Civil Code on the protection of minors. I THE ISSUE OF CONSTITUTIONALITY A. The petitioner claims that the lower court erred in not ruling that Article 28(1) of the Warsaw Convention violates the constitutional guarantees of due process and equal protection. The Republic of the Philippines is a party to the Convention for the Unification of Certain Rules Relating to International Transportation by Air, otherwise known as the Warsaw Convention. It took effect on February 13, 1933. The Convention was concurred in by the Senate, through its Resolution No. 19, on May 16, 1950. The Philippine instrument of accession was signed by President Elpidio Quirino on October 13, 1950, and was deposited with the Polish government on November 9, 1950. The Convention became applicable to the Philippines on February 9, 1951. On September 23, 1955, President Ramon Magsaysay issued Proclamation No. 201, declaring our formal adherence thereto. "to the end that the same and every article and clause thereof may be observed and fulfilled in good faith by the Republic of the Philippines and the citizens thereof." 5 The Convention is thus a treaty commitment voluntarily assumed by the Philippine government and, as such, has the force and effect of law in this country. The petitioner contends that Article 28(1) cannot be applied in the present case because it is unconstitutional. He argues that there is no substantial distinction between a person who purchases a ticket in Manila and a person who purchases his ticket in San Francisco. The classification of the places in which actions for damages may be brought is arbitrary and irrational and thus violates the due process and equal protection clauses. It is well-settled that courts will assume jurisdiction over a constitutional question only if it is shown that the essential requisites of a judicial inquiry into such a question are first satisfied. Thus, there must be an actual case or controversy involving a conflict of legal rights susceptible of judicial determination; the constitutional question must have been opportunely raised by the proper party; and the resolution of the question is unavoidably necessary to the decision of the case itself. 6 Courts generally avoid having to decide a constitutional question. This attitude is based on the doctrine of separation of powers, which enjoins upon the departments of the government a becoming respect for each other's acts. The treaty which is the subject matter of this petition was a joint legislative-executive act. The presumption is that it was first carefully studied and determined to be constitutional before it was adopted and given the force of law in this country. The petitioner's allegations are not convincing enough to overcome this presumption. Apparently, the Convention considered the four places designated in Article 28 the most convenient forums for the litigation of any claim that may arise between the airline and its passenger, as distinguished from all other places. At any rate, we agree with the respondent court that this case can be decided on other grounds without the necessity of resolving the constitutional issue.

B. The petitioner claims that the lower court erred in not ruling that Art. 28(1) of the Warsaw Convention is inapplicable because of a fundamental change in the circumstances that served as its basis. The petitioner goes at great lengths to show that the provisions in the Convention were intended to protect airline companies under "the conditions prevailing then and which have long ceased to exist." He argues that in view of the significant developments in the airline industry through the years, the treaty has become irrelevant. Hence, to the extent that it has lost its basis for approval, it has become unconstitutional. The petitioner is invoking the doctrine of rebus sic stantibus. According to Jessup, "this doctrine constitutes an attempt to formulate a legal principle which would justify non-performance of a treaty obligation if the conditions with relation to which the parties contracted have changed so materially and so unexpectedly as to create a situation in which the exaction of performance would be unreasonable." 7 The key element of this doctrine is the vital change in the condition of the contracting parties that they could not have foreseen at the time the treaty was concluded. The Court notes in this connection the following observation made in Day v. Trans World Airlines, Inc.: 8 The Warsaw drafters wished to create a system of liability rules that would cover all the hazards of air travel . . . The Warsaw delegates knew that, in the years to come, civil aviation would change in ways that they could not foresee. They wished to design a system of air law that would be both durable and flexible enough to keep pace with these changes . . . The ever-changing needs of the system of civil aviation can be served within the framework they created. It is true that at the time the Warsaw Convention was drafted, the airline industry was still in its infancy. However, that circumstance alone is not sufficient justification for the rejection of the treaty at this time. The changes recited by the petitioner were, realistically, not entirely unforeseen although they were expected in a general sense only. In fact, the Convention itself, anticipating such developments, contains the following significant provision: Article 41. Any High Contracting Party shall be entitled not earlier than two years after the coming into force of this convention to call for the assembling of a new international conference in order to consider any improvements which may be made in this convention. To this end, it will communicate with the Government of the French Republic which will take the necessary measures to make preparations for such conference. But the more important consideration is that the treaty has not been rejected by the Philippine government. The doctrine of rebus sic stantibus does not operate automatically to render the treaty inoperative. There is a necessity for a formal act of rejection, usually made by the head of State, with a statement of the reasons why compliance with the treaty is no longer required. In lieu thereof, the treaty may be denounced even without an expressed justification for this action. Such denunciation is authorized under its Article 39, viz: Article 39. (1) Any one of the High Contracting Parties may denounce this convention by a notification addressed to the Government of the Republic of Poland, which shall at once inform the Government of each of the High Contracting Parties. (2) Denunciation shall take effect six months after the notification of denunciation, and shall operate only as regards the party which shall have proceeded to denunciation. Obviously. rejection of the treaty, whether on the ground of rebus sic stantibus or pursuant to Article 39, is not a function of the courts but of the other branches of government. This is a political act. The conclusion and renunciation of treaties is the prerogative of the political departments and may not be usurped by the judiciary. The courts are concerned only with the interpretation and application of laws and treaties in force and not with their wisdom or efficacy. C. The petitioner claims that the lower court erred in ruling that the plaintiff must sue in the United States, because this would deny him the right to access to our courts.

The petitioner alleges that the expenses and difficulties he will incur in filing a suit in the United States would constitute a constructive denial of his right to access to our courts for the protection of his rights. He would consequently be deprived of this vital guaranty as embodied in the Bill of Rights. Obviously, the constitutional guaranty of access to courts refers only to courts with appropriate jurisdiction as defined by law. It does not mean that a person can go to any court for redress of his grievances regardless of the nature or value of his claim. If the petitioner is barred from filing his complaint before our courts, it is because they are not vested with the appropriate jurisdiction under the Warsaw Convention, which is part of the law of our land. II THE ISSUE OF JURISDICTION. A. The petitioner claims that the lower court erred in not ruling that Article 28(1) of the Warsaw Convention is a rule merely of venue and was waived by defendant when it did not move to dismiss on the ground of improper venue. By its own terms, the Convention applies to all international transportation of persons performed by aircraft for hire. International transportation is defined in paragraph (2) of Article 1 as follows: (2) For the purposes of this convention, the expression "international transportation" shall mean any transportation in which, according to the contract made by the parties, the place of departure and the place of destination, whether or not there be a break in the transportation or a transshipment, are situated [either] within the territories of two High Contracting Parties . . . Whether the transportation is "international" is determined by the contract of the parties, which in the case of passengers is the ticket. When the contract of carriage provides for the transportation of the passenger between certain designated terminals "within the territories of two High Contracting Parties," the provisions of the Convention automatically apply and exclusively govern the rights and liabilities of the airline and its passenger. Since the flight involved in the case at bar is international, the same being from the United States to the Philippines and back to the United States, it is subject to the provisions of the Warsaw Convention, including Article 28(1), which enumerates the four places where an action for damages may be brought. Whether Article 28(1) refers to jurisdiction or only to venue is a question over which authorities are sharply divided. While the petitioner cites several cases holding that Article 28(1) refers to venue rather than jurisdiction, 9 there are later cases cited by the private respondent supporting the conclusion that the provision is jurisdictional. 10 Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be conferred by consent or waiver upon d court which otherwise would have no jurisdiction over the subject-matter of an action; but the venue of an action as fixed by statute may be changed by the consent of the parties and an objection that the plaintiff brought his suit in the wrong county may be waived by the failure of the defendant to make a timely objection. In either case, the court may render a valid judgment. Rules as to jurisdiction can never be left to the consent or agreement of the parties, whether or not a prohibition exists against their alteration. 11 A number of reasons tends to support the characterization of Article 28(1) as a jurisdiction and not a venue provision. First, the wording of Article 32, which indicates the places where the action for damages "must" be brought, underscores the mandatory nature of Article 28(1). Second, this characterization is consistent with one of the objectives of the Convention, which is to "regulate in a uniform manner the conditions of international transportation by air." Third, the Convention does not contain any provision prescribing rules of jurisdiction other than Article 28(1), which means that the phrase "rules as to jurisdiction" used in Article 32 must refer only to Article 28(1). In fact, the last sentence of Article 32 specifically deals with the exclusive enumeration in Article 28(1) as "jurisdictions," which, as such, cannot be left to the will of the parties regardless of the time when the damage occurred. This issue was analyzed in the leading case of Smith v. Canadian Pacific Airways, Ltd., 12 where it was held:

. . . Of more, but still incomplete, assistance is the wording of Article 28(2), especially when considered in the light of Article 32. Article 28(2) provides that "questions ofprocedure shall be governed by the law of the court to which the case is submitted" (Emphasis supplied). Section (2) thus may be read to leave for domestic decision questions regarding the suitability and location of a particular Warsaw Convention case. In other words, where the matter is governed by the Warsaw Convention, jurisdiction takes on a dual concept. Jurisdiction in the international sense must be established in accordance with Article 28(1) of the Warsaw Convention, following which the jurisdiction of a particular court must be established pursuant to the applicable domestic law. Only after the question of which court has jurisdiction is determined will the issue of venue be taken up. This second question shall be governed by the law of the court to which the case is submitted. The petitioner submits that since Article 32 states that the parties are precluded "before the damages occurred" from amending the rules of Article 28(1) as to the place where the action may be brought, it would follow that the Warsaw Convention was not intended to preclude them from doing so "after the damages occurred." Article 32 provides: Art. 32. Any clause contained in the contract and all special agreements entered into before the damage occurred by which the parties purport to infringe the rules laid down by this convention, whether by deciding the law to be applied, or by altering the rules as to jurisdiction, shall be null and void. Nevertheless for the transportation of goods, arbitration clauses shall be allowed, subject to this convention, if the arbitration is to take place within one of the jurisdictions referred to in the first paragraph of Article 28. His point is that since the requirements of Article 28(1) can be waived "after the damages (shall have) occurred," the article should be regarded as possessing the character of a "venue" and not of a "jurisdiction" provision. Hence, in moving to dismiss on the ground of lack of jurisdiction, the private respondent has waived improper venue as a ground to dismiss. The foregoing examination of Article 28(1) in relation to Article 32 does not support this conclusion. In any event, we agree that even granting arguendo that Article 28(1) is a venue and not a jurisdictional provision, dismissal of the case was still in order. The respondent court was correct in affirming the ruling of the trial court on this matter, thus: Santos' claim that NOA waived venue as a ground of its motion to dismiss is not correct. True it is that NOA averred in its MOTION TO DISMISS that the ground thereof is "the Court has no subject matter jurisdiction to entertain the Complaint" which SANTOS considers as equivalent to "lack of jurisdiction over the subject matter . . ." However, the gist of NOA's argument in its motion is that the Philippines is not the proper place where SANTOS could file the action meaning that the venue of the action is improperly laid. Even assuming then that the specified ground of the motion is erroneous, the fact is the proper ground of the motion improper venue has been discussed therein. Waiver cannot be lightly inferred. In case of doubt, it must be resolved in favor of non-waiver if there are special circumstances justifying this conclusion, as in the petition at bar. As we observed in Javier vs. Intermediate Court of Appeals: 13 Legally, of course, the lack of proper venue was deemed waived by the petitioners when they failed to invoke it in their original motion to dismiss. Even so, the motivation of the private respondent should have been taken into account by both the trial judge and the respondent court in arriving at their decisions. The petitioner also invokes KLM Royal Dutch Airlines v. RTC, 14 a decision of our Court of Appeals, where it was held that Article 28(1) is a venue provision. However, the private respondent avers that this was in effect reversed by the case of Aranas v. United Airlines, 15 where the same court held that Article 28(1) is a jurisdictional provision. Neither of these cases is binding on this Court, of course, nor was either of them appealed to us. Nevertheless, we here express our own preference for the later case of Aranas insofar as its pronouncements on jurisdiction conform to the judgment we now make in this petition.

B. The petitioner claims that the lower court erred in not ruling that under Article 28(1) of the Warsaw Convention, this case was properly filed in the Philippines, because Manila was the destination of the plaintiff. The Petitioner contends that the facts of this case are analogous to those in Aanestad v. Air Canada. 16 In that case, Mrs. Silverberg purchased a round-trip ticket from Montreal to Los Angeles and back to Montreal. The date and time of departure were specified but not of the return flight. The plane crashed while on route from Montreal to Los Angeles, killing Mrs. Silverberg. Her administratrix filed an action for damages against Air Canada in the U.S. District Court of California. The defendant moved to dismiss for lack of jurisdiction but the motion was denied thus: . . . It is evident that the contract entered into between Air Canada and Mrs. Silverberg as evidenced by the ticket booklets and the Flight Coupon No. 1, was a contract for Air Canada to carry Mrs. Silverberg to Los Angeles on a certain flight, a certain time and a certain class, but that the time for her to return remained completely in her power. Coupon No. 2 was only a continuing offer by Air Canada to give her a ticket to return to Montreal between certain dates. . . . The only conclusion that can be reached then, is that "the place of destination" as used in the Warsaw Convention is considered by both the Canadian C.T.C. and the United States C.A.B. to describe at least two "places of destination," viz., the "place of destination" of a particular flight either an "outward destination" from the "point of origin" or from the "outward point of destination" to any place in Canada. Thus the place of destination under Art. 28 and Art. 1 of the Warsaw Convention of the flight on which Mrs. Silverberg was killed, was Los Angeles according to the ticket, which was the contract between the parties and the suit is properly filed in this Court which has jurisdiction. The Petitioner avers that the present case falls squarely under the above ruling because the date and time of his return flight to San Francisco were, as in the Aanestad case, also left open. Consequently, Manila and not San Francisco should be considered the petitioner's destination. The private respondent for its part invokes the ruling in Butz v. British Airways, 17 where the United States District Court (Eastern District of Pennsylvania) said: . . . Although the authorities which addressed this precise issue are not extensive, both the cases and the commentators are almost unanimous in concluding that the "place of destination" referred to in the Warsaw Convention "in a trip consisting of several parts . . . is the ultimate destination that is accorded treaty jurisdiction." . . . But apart from that distinguishing feature, I cannot agree with the Court's analysis in Aanestad; whether the return portion of the ticket is characterized as an option or a contract, the carrier was legally bound to transport the passenger back to the place of origin within the prescribed time and. the passenger for her part agreed to pay the fare and, in fact, did pay the fare. Thus there was mutuality of obligation and a binding contract of carriage, The fact that the passenger could forego her rights under the contract does not make it any less a binding contract. Certainly, if the parties did not contemplate the return leg of the journey, the passenger would not have paid for it and the carrier would not have issued a round trip ticket. We agree with the latter case. The place of destination, within the meaning of the Warsaw Convention, is determined by the terms of the contract of carriage or, specifically in this case, the ticket between the passenger and the carrier. Examination of the petitioner's ticket shows that his ultimate destination is San Francisco. Although the date of the return flight was left open, the contract of carriage between the parties indicates that NOA was bound to transport the petitioner to San Francisco from Manila. Manila should therefore be considered merely an agreed stopping place and not the destination. The petitioner submits that the Butz case could not have overruled the Aanestad case because these decisions are from different jurisdictions. But that is neither here nor there. In fact, neither of these cases is controlling on this Court. If we have preferred the Butz case, it is because, exercising our own freedom of choice, we have decided that it represents the better, and correct, interpretation of Article 28(1).

Article 1(2) also draws a distinction between a "destination" and an "agreed stopping place." It is the "destination" and not an "agreed stopping place" that controls for purposes of ascertaining jurisdiction under the Convention. The contract is a single undivided operation, beginning with the place of departure and ending with the ultimate destination. The use of the singular in this expression indicates the understanding of the parties to the Convention that every contract of carriage has one place of departure and one place of destination. An intermediate place where the carriage may be broken is not regarded as a "place of destination." C. The petitioner claims that the lower court erred in not ruling that under Art. 28(1) of the Warsaw Convention, this case was properly filed in the Philippines because the defendant has its domicile in the Philippines. The petitioner argues that the Warsaw Convention was originally written in French and that in interpreting its provisions, American courts have taken the broad view that the French legal meaning must govern. 18 In French, he says, the "domicile" of the carrier means every place where it has a branch office. The private respondent notes, however, that in Compagnie Nationale Air France vs. Giliberto, 19 it was held: The plaintiffs' first contention is that Air France is domiciled in the United States. They say that the domicile of a corporation includes any country where the airline carries on its business on "a regular and substantial basis," and that the United States qualifies under such definition. The meaning of domicile cannot, however, be so extended. The domicile of a corporation is customarily regarded as the place where it is incorporated, and the courts have given the meaning to the term as it is used in article 28(1) of the Convention. (See Smith v. Canadian Pacific Airways, Ltd. (2d Cir. 1971), 452 F2d 798, 802; Nudo v. Societe Anonyme Belge d' Exploitation de la Navigation Aerienne Sabena Belgian World Airlines (E.D. pa. 1962). 207 F. Supp, 191; Karfunkel v. Compagnie Nationale Air France (S.D.N.Y. 1977), 427 F. Suppl. 971, 974). Moreover, the structure of article 28(1), viewed as a whole, is also incompatible with the plaintiffs' claim. The article, in stating that places of business are among the bases of the jurisdiction, sets out two places where an action for damages may be brought; the country where the carrier's principal place of business is located, and the country in which it has a place of business through which the particular contract in question was made, that is, where the ticket was bought, Adopting the plaintiffs' theory would at a minimum blur these carefully drawn distinctions by creating a third intermediate category. It would obviously introduce uncertainty into litigation under the article because of the necessity of having to determine, and without standards or criteria, whether the amount of business done by a carrier in a particular country was "regular" and "substantial." The plaintiff's request to adopt this basis of jurisdiction is in effect a request to create a new jurisdictional standard for the Convention. Furthermore, it was argued in another case 20 that: . . . In arriving at an interpretation of a treaty whose sole official language is French, are we bound to apply French law? . . . We think this question and the underlying choice of law issue warrant some discussion . . . We do not think this statement can be regarded as a conclusion that internal French law is to be "applied" in the choice of law sense, to determine the meaning and scope of the Convention's terms. Of course, French legal usage must be considered in arriving at an accurate English translation of the French. But when an accurate English translation is made and agreed upon, as here, the inquiry into meaning does not then revert to a quest for a past or present French law to be "applied" for revelation of the proper scope of the terms. It does not follow from the fact that the treaty is written in French that in interpreting it, we are forever chained to French law, either as it existed when the treaty was written or in its present state of development. There is no suggestion in the treaty that French law was intended to govern the meaning of Warsaw's terms, nor have we found any indication to this effect in its legislative history or from our study of its application and interpretation by other courts. Indeed, analysis of the cases indicates that the courts, in interpreting and applying the Warsaw Convention, have, not considered themselves bound to apply French law simply because the Convention is written in French. . . . We agree with these rulings.

Notably, the domicile of the carrier is only one of the places where the complaint is allowed to be filed under Article 28(1). By specifying the three other places, to wit, the principal place of business of the carrier, its place of business where the contract was made, and the place of destination, the article clearly meant that these three other places were not comprehended in the term "domicile." D. The petitioner claims that the lower court erred in not ruling that Art. 28(1) of the Warsaw Convention does not apply to actions based on tort. The petitioner alleges that the gravamen of the complaint is that private respondent acted arbitrarily and in bad faith, discriminated against the petitioner, and committed a willful misconduct because it canceled his confirmed reservation and gave his reserved seat to someone who had no better right to it. In short. the private respondent committed a tort. Such allegation, he submits, removes the present case from the coverage of the Warsaw Convention. He argues that in at least two American cases, 21 it was held that Article 28(1) of the Warsaw Convention does not apply if the action is based on tort. This position is negated by Husserl v. Swiss Air Transport Company, 22 where the article in question was interpreted thus: . . . Assuming for the present that plaintiff's claim is "covered" by Article 17, Article 24 clearly excludes any relief not provided for in the Convention as modified by the Montreal Agreement. It does not, however, limit the kind of cause of action on which the relief may be founded; rather it provides that any action based on the injuries specified in Article 17 "however founded," i.e., regardless of the type of action on which relief is founded, can only be brought subject to the conditions and limitations established by the Warsaw System. Presumably, the reason for the use of the phrase "however founded," in two-fold: to accommodate all of the multifarious bases on which a claim might be founded in different countries, whether under code law or common law, whether under contract or tort, etc.; and to include all bases on which a claim seeking relief for an injury might be founded in any one country. In other words, if the injury occurs as described in Article 17, any relief available is subject to the conditions and limitations established by the Warsaw System, regardless of the particular cause of action which forms the basis on which a plaintiff could seek relief . . . The private respondent correctly contends that the allegation of willful misconduct resulting in a tort is insufficient to exclude the case from the comprehension of the Warsaw Convention. The petitioner has apparently misconstrued the import of Article 25(l) of the Convention, which reads as follows: Art. 25 (1). The carrier shall not be entitled to avail himself of the provisions of this Convention which exclude or limit his liability. if the damage is caused by his willful misconduct or by such default on his part as, in accordance with the law of the court to which the case is submitted, is considered to be equivalent to willful misconduct. It is understood under this article that the court called upon to determine the applicability of the limitation provision must first be vested with the appropriate jurisdiction. Article 28(1) is the provision in the Convention which defines that jurisdiction. Article 22 23 merely fixes the monetary ceiling for the liability of the carrier in cases covered by the Convention. If the carrier is indeed guilty of willful misconduct, it can avail itself of the limitations set forth in this article. But this can be done only if the action has first been commenced properly under the rules on jurisdiction set forth in Article 28(1). III THE ISSUE OF PROTECTION TO MINORS The petitioner calls our attention to Article 24 of the Civil Code, which states:

Art. 24. In all contractual property or other relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his protection. Application of this article to the present case is misplaced. The above provision assumes that the court is vested with jurisdiction to rule in favor of the disadvantaged minor, As already explained, such jurisdiction is absent in the case at bar. CONCLUSION A number of countries have signified their concern over the problem of citizens being denied access to their own courts because of the restrictive provision of Article 28(1) of the Warsaw Convention. Among these is the United States, which has proposed an amendment that would enable the passenger to sue in his own domicile if the carrier does business in that jurisdiction. The reason for this proposal is explained thus: In the event a US citizen temporarily residing abroad purchases a Rome to New York to Rome ticket on a foreign air carrier which is generally subject to the jurisdiction of the US, Article 28 would prevent that person from suing the carrier in the US in a "Warsaw Case" even though such a suit could be brought in the absence of the Convention. The proposal was incorporated in the Guatemala Protocol amending the Warsaw Convention, which was adopted at Guatemala City on March 8, 1971. 24 But it is still ineffective because it has not yet been ratified by the required minimum number of contracting parties. Pending such ratification, the petitioner will still have to file his complaint only in any of the four places designated by Article 28(1) of the Warsaw Convention. The proposed amendment bolsters the ruling of this Court that a citizen does not necessarily have the right to sue in his own courts simply because the defendant airline has a place of business in his country. The Court can only sympathize with the petitioner, who must prosecute his claims in the United States rather than in his own country at least inconvenience. But we are unable to grant him the relief he seeks because we are limited by the provisions of the Warsaw Convention which continues to bind us. It may not be amiss to observe at this point that the mere fact that he will have to litigate in the American courts does not necessarily mean he will litigate in vain. The judicial system of that country in known for its sense of fairness and, generally, its strict adherence to the rule of law. WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so ordered. Narvasa, C.J., Gutierrez, Jr., Paras, Feliciano, Padilla, Bidin, Grio-Aquino, Medialdea, Regalado, Davide, Jr., Romero, Nocon and Bellosillo, JJ., concur.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-42926 September 13, 1985 PEDRO VASQUEZ, SOLEDAD ORTEGA, CLETO B. BAGAIPO, AGUSTINA VIRTUDES, ROMEO VASQUEZ and MAXIMINA CAINAY, petitioners, vs. THE COURT OF APPEALS and FILIPINAS PIONEER LINES, INC., respondents. Emilio D. Castellanes for petitioners. Apolinario A. Abantao for private respondents.

MELENCIO-HERRERA, J.: This litigation involves a claim for damages for the loss at sea of petitioners' respective children after the shipwreck of MV Pioneer Cebu due to typhoon "Klaring" in May of 1966. The factual antecedents, as summarized by the trial Court and adopted by respondent Court, and which we find supported by the record, read as follows: When the inter-island vessel MV "Pioneer Cebu" left the Port of Manila in the early morning of May 15, 1966 bound for Cebu, it had on board the spouses Alfonso Vasquez and Filipinas Bagaipo and a four-year old boy, Mario Marlon Vasquez, among her passengers. The MV "Pioneer Cebu" encountered typhoon "Klaring" and struck a reef on the southern part of Malapascua Island, located somewhere north of the island of Cebu and subsequently sunk. The aforementioned passengers were unheard from since then. Plaintiffs Pedro Vasquez and Soledad Ortega are the parents of Alfonso Vasquez; plaintiffs Cleto Bagaipo and Agustina Virtudes are the parents of Filipinas Bagaipo; and plaintiffs Romeo Vasquez and Maxima Cainay are the parents of the child, Mario Marlon Vasquez. They seek the recovery of damages due to the loss of Alfonso Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez during said voyage. At the pre-trial, the defendant admitted its contract of carriage with Alfonso Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez, and the fact of the sinking of the MV "Pioneer Cebu". The issues of the case were limited to the defenses alleged by the defendant that the sinking of the vessel was caused by force majeure, and that the defendant's liability had been extinguished by the total loss of the vessel. The evidence on record as to the circumstances of the last voyage of the MV "Pioneer Cebu" came mainly, if not exclusively, from the defendant. The MV "Pioneer Cebu" was owned and operated by the defendant and used in the transportation of

goods and passengers in the inter-island shipping. Scheduled to leave the Port of Manila at 9:00 p.m. on May 14, 1966, it actually left port at 5:00 a.m. the following day, May 15, 1966. It had a passenger capacity of three hundred twenty-two (322) including the crew. It undertook the said voyage on a special permit issued by the Collector of Customs inasmuch as, upon inspection, it was found to be without an emergency electrical power system. The special permit authorized the vessel to carry only two hundred sixty (260) passengers due to the said deficiency and for lack of safety devices for 322 passengers (Exh. 2). A headcount was made of the passengers on board, resulting on the tallying of 168 adults and 20 minors, although the passengers manifest only listed 106 passengers. It has been admitted, however, that the headcount is not reliable inasmuch as it was only done by one man on board the vessel. When the vessel left Manila, its officers were already aware of the typhoon Klaring building up somewhere in Mindanao. There being no typhoon signals on the route from Manila to Cebu, and the vessel having been cleared by the Customs authorities, the MV "Pioneer Cebu" left on its voyage to Cebu despite the typhoon. When it reached Romblon Island, it was decided not to seek shelter thereat, inasmuch as the weather condition was still good. After passing Romblon and while near Jintotolo island, the barometer still indicated the existence of good weather condition continued until the vessel approached Tanguingui island. Upon passing the latter island, however, the weather suddenly changed and heavy rains felt Fearing that due to zero visibility, the vessel might hit Chocolate island group, the captain ordered a reversal of the course so that the vessel could 'weather out' the typhoon by facing the winds and the waves in the open. Unfortunately, at about noontime on May 16, 1966, the vessel struck a reef near Malapascua island, sustained leaks and eventually sunk, bringing with her Captain Floro Yap who was in command of the vessel. Due to the loss of their children, petitioners sued for damages before the Court of First Instance of Manila (Civil Case No. 67139). Respondent defended on the plea of force majeure, and the extinction of its liability by the actual total loss of the vessel. After proper proceedings, the trial Court awarded damages, thus: WHEREFORE, judgment is hereby rendered ordering the defendant to pay: (a) Plaintiffs Pedro Vasquez and Soledad Ortega the sums of P15,000.00 for the loss of earning capacity of the deceased Alfonso Vasquez, P2,100.00 for support, and P10,000.00 for moral damages; (b) Plaintiffs Cleto B. Bagaipo and Agustina Virtudes the sum of P17,000.00 for loss of earning capacity of deceased Filipinas Bagaipo, and P10,000.00 for moral damages; and (c) Plaintiffs Romeo Vasquez and Maximina Cainay the sum of P10,000.00 by way of moral damages by reason of the death of Mario Marlon Vasquez. On appeal, respondent Court reversed the aforementioned judgment and absolved private respondent from any and all liability. Hence, this Petition for Review on Certiorari, the basic issue being the liability for damages of private respondent for the presumptive death of petitioners' children.

The trial Court found the defense of caso fortuito untenable due to various decisive factors, thus: ... It is an admitted fact that even before the vessel left on its last voyage, its officers and crew were already aware of the typhoon brewing somewhere in the same general direction to which the vessel was going. The crew of the vessel took a calculated risk when it proceeded despite the typhoon advisory. This is quite evident from the fact that the officers of the vessel had to conduct conferences amongst themselves to decide whether or not to proceed. The crew assumed a greater risk when, instead of seeking shelter in Romblon and other islands the vessel passed en route, they decided to take a change on the expected continuation of the good weather the vessel was encountering, and the possibility that the typhoon would veer to some other directions. The eagerness of the crew of the vessel to proceed on its voyage and to arrive at its destination is readily understandable. It is undeniably lamentable, however, that they did so at the risk of the lives of the passengers on board. Contrariwise, respondent Appellate Court believed that the calamity was caused solely and proximately by fortuitous event which not even extraordinary diligence of the highest degree could have guarded against; and that there was no negligence on the part of the common carrier in the discharge of its duties. Upon the evidence and the applicable law, we sustain the trial Court. "To constitute a caso fortuito that would exempt a person from responsibility, it is necessary that (1) the event must be independent of the human will; (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and that (3) the obligor must be free of participation in, or aggravation of, the injury to the creditor." 1 In the language of the law, the event must have been impossible to foresee, or if it could be foreseen, must have been impossible to avoid. 2There must be an entire exclusion of human agency from the cause of injury or loss. 3 Turning to this case, before they sailed from the port of Manila, the officers and crew were aware of typhoon "Klaring" that was reported building up at 260 kms. east of Surigao. In fact, they had lashed all the cargo in the hold before sailing in anticipation of strong winds and rough waters. 4 They proceeded on their way, as did other vessels that day. Upon reaching Romblon, they received the weather report that the typhoon was 154 kms. east southeast of Tacloban and was moving west northwest. 5 Since they were still not within the radius of the typhoon and the weather was clear, they deliberated and decided to proceed with the course. At Jintotolo Island, the typhoon was already reported to be reaching the mainland of Samar. 6 They still decided to proceed noting that the weather was still "good" although, according to the Chief Forecaster of the Weather Bureau, they were already within the typhoon zone. 7 At Tanguingui Island, about 2:00 A.M. of May 16, 1966, the typhoon was in an area quite close to Catbalogan, placing Tanguingui also within the typhoon zone. Despite knowledge of that fact, they again decided to proceed relying on the forecast that the typhoon would weaken upon crossing the mainland of Samar. 8 After about half an hour of navigation towards Chocolate Island, there was a sudden fall of the barometer accompanied by heavy downpour, big waves, and zero visibility. The Captain of the vessel decided to reverse course and face the waves in the open sea but because the visibility did not improve they were in total darkness and, as a consequence, the vessel ran aground a reef and sank on May 16, 1966 around 12:45 P.M. near Malapascua Island somewhere north of the island of Cebu. Under the circumstances, while, indeed, the typhoon was an inevitable occurrence, yet, having been kept posted on the course of the typhoon by weather bulletins at intervals of six hours, the captain and crew were well aware of the risk they were taking as they hopped from island to island from Romblon up to Tanguingui. They held frequent conferences, and oblivious of the utmost diligence

required of very cautious persons, 9 they decided to take a calculated risk. In so doing, they failed to observe that extraordinary diligence required of them explicitly by law for the safety of the passengers transported by them with due regard for an circumstances 10 and unnecessarily exposed the vessel and passengers to the tragic mishap. They failed to overcome that presumption of fault or negligence that arises in cases of death or injuries to passengers. 11 While the Board of Marine Inquiry, which investigated the disaster, exonerated the captain from any negligence, it was because it had considered the question of negligence as "moot and academic," the captain having "lived up to the true tradition of the profession." While we are bound by the Board's factual findings, we disagree with its conclusion since it obviously had not taken into account the legal responsibility of a common carrier towards the safety of the passengers involved. With respect to private respondent's submission that the total loss of the vessel extinguished its liability pursuant to Article 587 of the Code of Commerce 12 as construed in Yangco vs. Laserna, 73 Phil. 330 [1941], suffice it to state that even in the cited case, it was held that the liability of a shipowner is limited to the value of the vessel or to the insurance thereon. Despite the total loss of the vessel therefore, its insurance answers for the damages that a shipowner or agent may be held liable for by reason of the death of its passengers. WHEREFORE, the appealed judgment is hereby REVERSED and the judgment of the then Court of First Instance of Manila, Branch V, in Civil Case No. 67139, is hereby reinstated. No costs. SO ORDERED. Teehankee (Chairman), Plana, Relova, Gutierrez, Jr., De la Fuente and Patajo, JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-47851 October 3, 1986 JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners, vs. THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC., JUAN J. CARLOS, and the PHILIPPINE BAR ASSOCIATION, respondents. G.R. No. L-47863 October 3, 1986 THE UNITED CONSTRUCTION CO., INC., petitioner, vs. COURT OF APPEALS, ET AL., respondents. G.R. No. L-47896 October 3, 1986 PHILIPPINE BAR ASSOCIATION, ET AL., petitioners, vs. COURT OF APPEALS, ET AL., respondents.

PARAS, J.:

These are petitions for review on certiorari of the November 28, 1977 decision of the Court of Appeals in CA-G.R. No. 51771-R modifying the decision of the Court of First Instance of Manila, Branch V, in Civil Case No. 74958 dated September 21, 1971 as modified by the Order of the lower court dated December 8, 1971. The Court of Appeals in modifying the decision of the lower court included an award of an additional amount of P200,000.00 to the Philippine Bar Association to be paid jointly and severally by the defendant United Construction Co. and by the third-party defendants Juan F. Nakpil and Sons and Juan F. Nakpil. The dispositive portion of the modified decision of the lower court reads: WHEREFORE, judgment is hereby rendered: (a) Ordering defendant United Construction Co., Inc. and third-party defendants (except Roman Ozaeta) to pay the plaintiff, jointly and severally, the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of the filing of the complaint until full payment; (b) Dismissing the complaint with respect to defendant Juan J. Carlos; (c) Dismissing the third-party complaint;

(d) Dismissing the defendant's and third-party defendants' counterclaims for lack of merit; (e) Ordering defendant United Construction Co., Inc. and third-party defendants (except Roman Ozaeta) to pay the costs in equal shares. SO ORDERED. (Record on Appeal p. 521; Rollo, L- 47851, p. 169). The dispositive portion of the decision of the Court of Appeals reads: WHEREFORE, the judgment appealed from is modified to include an award of P200,000.00 in favor of plaintiff-appellant Philippine Bar Association, with interest at the legal rate from November 29, 1968 until full payment to be paid jointly and severally by defendant United Construction Co., Inc. and third party defendants (except Roman Ozaeta). In all other respects, the judgment dated September 21, 1971 as modified in the December 8, 1971 Order of the lower court is hereby affirmed with COSTS to be paid by the defendant and third party defendant (except Roman Ozaeta) in equal shares. SO ORDERED. Petitioners Juan F. Nakpil & Sons in L-47851 and United Construction Co., Inc. and Juan J. Carlos in L-47863 seek the reversal of the decision of the Court of Appeals, among other things, for exoneration from liability while petitioner Philippine Bar Association in L-47896 seeks the modification of aforesaid decision to obtain an award of P1,830,000.00 for the loss of the PBA building plus four (4) times such amount as damages resulting in increased cost of the building, P100,000.00 as exemplary damages; and P100,000.00 as attorney's fees. These petitions arising from the same case filed in the Court of First Instance of Manila were consolidated by this Court in the resolution of May 10, 1978 requiring the respective respondents to comment. (Rollo, L-47851, p. 172). The facts as found by the lower court (Decision, C.C. No. 74958; Record on Appeal, pp. 269-348; pp. 520-521; Rollo, L-47851, p. 169) and affirmed by the Court of Appeals are as follows: The plaintiff, Philippine Bar Association, a civic-non-profit association, incorporated under the Corporation Law, decided to construct an office building on its 840 square meters lot located at the comer of Aduana and Arzobispo Streets, Intramuros, Manila. The construction was undertaken by the United Construction, Inc. on an "administration" basis, on the suggestion of Juan J. Carlos, the president and general manager of said corporation. The proposal was approved by plaintiff's board of directors and signed by its president Roman Ozaeta, a third-party defendant in this case. The plans and specifications for the building were prepared by the other third-party defendants Juan F. Nakpil & Sons. The building was completed in June, 1966. In the early morning of August 2, 1968 an unusually strong earthquake hit Manila and its environs and the building in question sustained major damage. The front columns of the building buckled, causing the building to tilt forward dangerously. The tenants vacated the building in view of its precarious condition. As a temporary remedial measure, the building was shored up by United Construction, Inc. at the cost of P13,661.28.

On November 29, 1968, the plaintiff commenced this action for the recovery of damages arising from the partial collapse of the building against United Construction, Inc. and its President and General Manager Juan J. Carlos as defendants. Plaintiff alleges that the collapse of the building was accused by defects in the construction, the failure of the contractors to follow plans and specifications and violations by the defendants of the terms of the contract. Defendants in turn filed a third-party complaint against the architects who prepared the plans and specifications, alleging in essence that the collapse of the building was due to the defects in the said plans and specifications. Roman Ozaeta, the then president of the plaintiff Bar Association was included as a third-party defendant for damages for having included Juan J. Carlos, President of the United Construction Co., Inc. as party defendant. On March 3, 1969, the plaintiff and third-party defendants Juan F. Nakpil & Sons and Juan F. Nakpil presented a written stipulation which reads: 1. That in relation to defendants' answer with counterclaims and third- party complaints and the third-party defendants Nakpil & Sons' answer thereto, the plaintiff need not amend its complaint by including the said Juan F. Nakpil & Sons and Juan F. Nakpil personally as parties defendant. 2. That in the event (unexpected by the undersigned) that the Court should find after the trial that the above-named defendants Juan J. Carlos and United Construction Co., Inc. are free from any blame and liability for the collapse of the PBA Building, and should further find that the collapse of said building was due to defects and/or inadequacy of the plans, designs, and specifications p by the third-party defendants, or in the event that the Court may find Juan F. Nakpil and Sons and/or Juan F. Nakpil contributorily negligent or in any way jointly and solidarily liable with the defendants, judgment may be rendered in whole or in part. as the case may be, against Juan F. Nakpil & Sons and/or Juan F. Nakpil in favor of the plaintiff to all intents and purposes as if plaintiff's complaint has been duly amended by including the said Juan F. Nakpil & Sons and Juan F. Nakpil as parties defendant and by alleging causes of action against them including, among others, the defects or inadequacy of the plans, designs, and specifications prepared by them and/or failure in the performance of their contract with plaintiff. 3. Both parties hereby jointly petition this Honorable Court to approve this stipulation. (Record on Appeal, pp. 274-275; Rollo, L-47851,p.169). Upon the issues being joined, a pre-trial was conducted on March 7, 1969, during which among others, the parties agreed to refer the technical issues involved in the case to a Commissioner. Mr. Andres O. Hizon, who was ultimately appointed by the trial court, assumed his office as Commissioner, charged with the duty to try the following issues: 1. Whether the damage sustained by the PBA building during the August 2, 1968 earthquake had been caused, directly or indirectly, by: (a) The inadequacies or defects in the plans and specifications prepared by thirdparty defendants; (b) The deviations, if any, made by the defendants from said plans and specifications and how said deviations contributed to the damage sustained;

(c) The alleged failure of defendants to observe the requisite quality of materials and workmanship in the construction of the building; (d) The alleged failure to exercise the requisite degree of supervision expected of the architect, the contractor and/or the owner of the building; (e) An act of God or a fortuitous event; and (f) Any other cause not herein above specified. 2. If the cause of the damage suffered by the building arose from a combination of the above-enumerated factors, the degree or proportion in which each individual factor contributed to the damage sustained; 3. Whether the building is now a total loss and should be completely demolished or whether it may still be repaired and restored to a tenantable condition. In the latter case, the determination of the cost of such restoration or repair, and the value of any remaining construction, such as the foundation, which may still be utilized or availed of (Record on Appeal, pp. 275-276; Rollo, L-47851, p. 169). Thus, the issues of this case were divided into technical issues and non-technical issues. As aforestated the technical issues were referred to the Commissioner. The non-technical issues were tried by the Court. Meanwhile, plaintiff moved twice for the demolition of the building on the ground that it may topple down in case of a strong earthquake. The motions were opposed by the defendants and the matter was referred to the Commissioner. Finally, on April 30, 1979 the building was authorized to be demolished at the expense of the plaintiff, but not another earthquake of high intensity on April 7, 1970 followed by other strong earthquakes on April 9, and 12, 1970, caused further damage to the property. The actual demolition was undertaken by the buyer of the damaged building. (Record on Appeal, pp. 278-280; Ibid.) After the protracted hearings, the Commissioner eventually submitted his report on September 25, 1970 with the findings that while the damage sustained by the PBA building was caused directly by the August 2, 1968 earthquake whose magnitude was estimated at 7.3 they were also caused by the defects in the plans and specifications prepared by the third-party defendants' architects, deviations from said plans and specifications by the defendant contractors and failure of the latter to observe the requisite workmanship in the construction of the building and of the contractors, architects and even the owners to exercise the requisite degree of supervision in the construction of subject building. All the parties registered their objections to aforesaid findings which in turn were answered by the Commissioner. The trial court agreed with the findings of the Commissioner except as to the holding that the owner is charged with full nine supervision of the construction. The Court sees no legal or contractual basis for such conclusion. (Record on Appeal, pp. 309-328; Ibid). Thus, on September 21, 1971, the lower court rendered the assailed decision which was modified by the Intermediate Appellate Court on November 28, 1977.

All the parties herein appealed from the decision of the Intermediate Appellate Court. Hence, these petitions. On May 11, 1978, the United Architects of the Philippines, the Association of Civil Engineers, and the Philippine Institute of Architects filed with the Court a motion to intervene as amicus curiae. They proposed to present a position paper on the liability of architects when a building collapses and to submit likewise a critical analysis with computations on the divergent views on the design and plans as submitted by the experts procured by the parties. The motion having been granted, the amicus curiae were granted a period of 60 days within which to submit their position. After the parties had all filed their comments, We gave due course to the petitions in Our Resolution of July 21, 1978. The position papers of the amicus curiae (submitted on November 24, 1978) were duly noted. The amicus curiae gave the opinion that the plans and specifications of the Nakpils were not defective. But the Commissioner, when asked by Us to comment, reiterated his conclusion that the defects in the plans and specifications indeed existed. Using the same authorities availed of by the amicus curiae such as the Manila Code (Ord. No. 4131) and the 1966 Asep Code, the Commissioner added that even if it can be proved that the defects in theconstruction alone (and not in the plans and design) caused the damage to the building, still the deficiency in the original design and jack of specific provisions against torsion in the original plans and the overload on the ground floor columns (found by an the experts including the original designer) certainly contributed to the damage which occurred. (Ibid, p. 174). In their respective briefs petitioners, among others, raised the following assignments of errors: Philippine Bar Association claimed that the measure of damages should not be limited to P1,100,000.00 as estimated cost of repairs or to the period of six (6) months for loss of rentals while United Construction Co., Inc. and the Nakpils claimed that it was an act of God that caused the failure of the building which should exempt them from responsibility and not the defective construction, poor workmanship, deviations from plans and specifications and other imperfections in the case of United Construction Co., Inc. or the deficiencies in the design, plans and specifications prepared by petitioners in the case of the Nakpils. Both UCCI and the Nakpils object to the payment of the additional amount of P200,000.00 imposed by the Court of Appeals. UCCI also claimed that it should be reimbursed the expenses of shoring the building in the amount of P13,661.28 while the Nakpils opposed the payment of damages jointly and solidarity with UCCI. The pivotal issue in this case is whether or not an act of God-an unusually strong earthquake-which caused the failure of the building, exempts from liability, parties who are otherwise liable because of their negligence. The applicable law governing the rights and liabilities of the parties herein is Article 1723 of the New Civil Code, which provides: Art. 1723. The engineer or architect who drew up the plans and specifications for a building is liable for damages if within fifteen years from the completion of the structure the same should collapse by reason of a defect in those plans and specifications, or due to the defects in the ground. The contractor is likewise responsible for the damage if the edifice fags within the same period on account of defects in the construction or the use of materials of inferior quality furnished by him,

or due to any violation of the terms of the contract. If the engineer or architect supervises the construction, he shall be solidarily liable with the contractor. Acceptance of the building, after completion, does not imply waiver of any of the causes of action by reason of any defect mentioned in the preceding paragraph. The action must be brought within ten years following the collapse of the building. On the other hand, the general rule is that no person shall be responsible for events which could not be foreseen or which though foreseen, were inevitable (Article 1174, New Civil Code). An act of God has been defined as an accident, due directly and exclusively to natural causes without human intervention, which by no amount of foresight, pains or care, reasonably to have been expected, could have been prevented. (1 Corpus Juris 1174). There is no dispute that the earthquake of August 2, 1968 is a fortuitous event or an act of God. To exempt the obligor from liability under Article 1174 of the Civil Code, for a breach of an obligation due to an "act of God," the following must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor. (Vasquez v. Court of Appeals, 138 SCRA 553; Estrada v. Consolacion, 71 SCRA 423; Austria v. Court of Appeals, 39 SCRA 527; Republic of the Phil. v. Luzon Stevedoring Corp., 21 SCRA 279; Lasam v. Smith, 45 Phil. 657). Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as provided for in Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot escape liability. The principle embodied in the act of God doctrine strictly requires that the act must be one occasioned exclusively by the violence of nature and all human agencies are to be excluded from creating or entering into the cause of the mischief. When the effect, the cause of which is to be considered, is found to be in part the result of the participation of man, whether it be from active intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it were, and removed from the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175). Thus it has been held that when the negligence of a person concurs with an act of God in producing a loss, such person is not exempt from liability by showing that the immediate cause of the damage was the act of God. To be exempt from liability for loss because of an act of God, he must be free from any previous negligence or misconduct by which that loss or damage may have been occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan, 49 O.G. 4379; Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657). The negligence of the defendant and the third-party defendants petitioners was established beyond dispute both in the lower court and in the Intermediate Appellate Court. Defendant United Construction Co., Inc. was found to have made substantial deviations from the plans and specifications. and to have failed to observe the requisite workmanship in the construction as well as to exercise the requisite degree of supervision; while the third-party defendants were found to have inadequacies or defects in the plans and specifications prepared by them. As correctly assessed by

both courts, the defects in the construction and in the plans and specifications were the proximate causes that rendered the PBA building unable to withstand the earthquake of August 2, 1968. For this reason the defendant and third-party defendants cannot claim exemption from liability. (Decision, Court of Appeals, pp. 30-31). It is well settled that the findings of facts of the Court of Appeals are conclusive on the parties and on this court (cases cited in Tolentino vs. de Jesus, 56 SCRA 67; Cesar vs. Sandiganbayan, January 17, 1985, 134 SCRA 105, 121), unless (1) the conclusion is a finding grounded entirely on speculation, surmise and conjectures; (2) the inference made is manifestly mistaken; (3) there is grave abuse of discretion; (4) the judgment is based on misapprehension of facts; (5) the findings of fact are conflicting , (6) the Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions of both appellant and appellees (Ramos vs. Pepsi-Cola Bottling Co., February 8, 1967, 19 SCRA 289, 291-292; Roque vs. Buan, Oct. 31, 1967, 21 SCRA 648, 651); (7) the findings of facts of the Court of Appeals are contrary to those of the trial court; (8) said findings of facts are conclusions without citation of specific evidence on which they are based; (9) the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondents (Garcia vs. CA, June 30, 1970, 33 SCRA 622; Alsua-Bett vs. Court of Appeals, July 30, 1979, 92 SCRA 322, 366); (10) the finding of fact of the Court of Appeals is premised on the supposed absence of evidence and is contradicted by evidence on record (Salazar vs. Gutierrez, May 29, 1970, 33 SCRA 243, 247; Cited in G.R. No. 66497-98, Sacay v. Sandiganbayan, July 10, 1986). It is evident that the case at bar does not fall under any of the exceptions above-mentioned. On the contrary, the records show that the lower court spared no effort in arriving at the correct appreciation of facts by the referral of technical issues to a Commissioner chosen by the parties whose findings and conclusions remained convincingly unrebutted by the intervenors/ amicus curiae who were allowed to intervene in the Supreme Court. In any event, the relevant and logical observations of the trial court as affirmed by the Court of Appeals that "while it is not possible to state with certainty that the building would not have collapsed were those defects not present, the fact remains that several buildings in the same area withstood the earthquake to which the building of the plaintiff was similarly subjected," cannot be ignored. The next issue to be resolved is the amount of damages to be awarded to the PBA for the partial collapse (and eventual complete collapse) of its building. The Court of Appeals affirmed the finding of the trial court based on the report of the Commissioner that the total amount required to repair the PBA building and to restore it to tenantable condition was P900,000.00 inasmuch as it was not initially a total loss. However, while the trial court awarded the PBA said amount as damages, plus unrealized rental income for one-half year, the Court of Appeals modified the amount by awarding in favor of PBA an additional sum of P200,000.00 representing the damage suffered by the PBA building as a result of another earthquake that occurred on April 7, 1970 (L-47896, Vol. I, p. 92). The PBA in its brief insists that the proper award should be P1,830,000.00 representing the total value of the building (L-47896, PBA's No. 1 Assignment of Error, p. 19), while both the NAKPILS and UNITED question the additional award of P200,000.00 in favor of the PBA (L- 47851, NAKPIL's Brief as Petitioner, p. 6, UNITED's Brief as Petitioner, p. 25). The PBA further urges that the unrealized rental income awarded to it should not be limited to a period of one-half year but should be computed on a continuing basis at the rate of P178,671.76 a year until the judgment for the principal amount shall have been satisfied L- 47896, PBA's No. 11 Assignment of Errors, p. 19).

The collapse of the PBA building as a result of the August 2, 1968 earthquake was only partial and it is undisputed that the building could then still be repaired and restored to its tenantable condition. The PBA, however, in view of its lack of needed funding, was unable, thru no fault of its own, to have the building repaired. UNITED, on the other hand, spent P13,661.28 to shore up the building after the August 2, 1968 earthquake (L-47896, CA Decision, p. 46). Because of the earthquake on April 7, 1970, the trial court after the needed consultations, authorized the total demolition of the building (L47896, Vol. 1, pp. 53-54). There should be no question that the NAKPILS and UNITED are liable for the damage resulting from the partial and eventual collapse of the PBA building as a result of the earthquakes. We quote with approval the following from the erudite decision penned by Justice Hugo E. Gutierrez (now an Associate Justice of the Supreme Court) while still an Associate Justice of the Court of Appeals: There is no question that an earthquake and other forces of nature such as cyclones, drought, floods, lightning, and perils of the sea are acts of God. It does not necessarily follow, however, that specific losses and suffering resulting from the occurrence of these natural force are also acts of God. We are not convinced on the basis of the evidence on record that from the thousands of structures in Manila, God singled out the blameless PBA building in Intramuros and around six or seven other buildings in various parts of the city for collapse or severe damage and that God alone was responsible for the damages and losses thus suffered. The record is replete with evidence of defects and deficiencies in the designs and plans, defective construction, poor workmanship, deviation from plans and specifications and other imperfections. These deficiencies are attributable to negligent men and not to a perfect God. The act-of-God arguments of the defendants- appellants and third party defendantsappellants presented in their briefs are premised on legal generalizations or speculations and on theological fatalism both of which ignore the plain facts. The lengthy discussion of United on ordinary earthquakes and unusually strong earthquakes and on ordinary fortuitous events and extraordinary fortuitous events leads to its argument that the August 2, 1968 earthquake was of such an overwhelming and destructive character that by its own force and independent of the particular negligence alleged, the injury would have been produced. If we follow this line of speculative reasoning, we will be forced to conclude that under such a situation scores of buildings in the vicinity and in other parts of Manila would have toppled down. Following the same line of reasoning, Nakpil and Sons alleges that the designs were adequate in accordance with pre-August 2, 1968 knowledge and appear inadequate only in the light of engineering information acquired after the earthquake. If this were so, hundreds of ancient buildings which survived the earthquake better than the two-year old PBA building must have been designed and constructed by architects and contractors whose knowledge and foresight were unexplainably auspicious and prophetic. Fortunately, the facts on record allow a more down to earth explanation of the collapse. The failure of the PBA building, as a unique and distinct construction with no reference or comparison to other buildings, to weather the severe earthquake forces was traced to design deficiencies and defective construction, factors which are neither mysterious nor esoteric. The theological allusion of appellant United that God acts in mysterious ways His wonders to perform impresses us to be inappropriate. The evidence reveals defects

and deficiencies in design and construction. There is no mystery about these acts of negligence. The collapse of the PBA building was no wonder performed by God. It was a result of the imperfections in the work of the architects and the people in the construction company. More relevant to our mind is the lesson from the parable of the wise man in the Sermon on the Mount "which built his house upon a rock; and the rain descended and the floods came and the winds blew and beat upon that house; and it fen not; for it was founded upon a rock" and of the "foolish upon the sand. And the rain descended and man which built his house the floods came, and the winds blew, and beat upon that house; and it fell and great was the fall of it. (St. Matthew 7: 24-27)." The requirement that a building should withstand rains, floods, winds, earthquakes, and natural forces is precisely the reason why we have professional experts like architects, and engineers. Designs and constructions vary under varying circumstances and conditions but the requirement to design and build well does not change. The findings of the lower Court on the cause of the collapse are more rational and accurate. Instead of laying the blame solely on the motions and forces generated by the earthquake, it also examined the ability of the PBA building, as designed and constructed, to withstand and successfully weather those forces. The evidence sufficiently supports a conclusion that the negligence and fault of both United and Nakpil and Sons, not a mysterious act of an inscrutable God, were responsible for the damages. The Report of the Commissioner, Plaintiff's Objections to the Report, Third Party Defendants' Objections to the Report, Defendants' Objections to the Report, Commissioner's Answer to the various Objections, Plaintiffs' Reply to the Commissioner's Answer, Defendants' Reply to the Commissioner's Answer, Counter-Reply to Defendants' Reply, and Third-Party Defendants' Reply to the Commissioner's Report not to mention the exhibits and the testimonies show that the main arguments raised on appeal were already raised during the trial and fully considered by the lower Court. A reiteration of these same arguments on appeal fails to convince us that we should reverse or disturb the lower Court's factual findings and its conclusions drawn from the facts, among them: The Commissioner also found merit in the allegations of the defendants as to the physical evidence before and after the earthquake showing the inadequacy of design, to wit: Physical evidence before the earthquake providing (sic) inadequacy of design; 1. inadequate design was the cause of the failure of the building. 2. Sun-baffles on the two sides and in front of the building; a. Increase the inertia forces that move the building laterally toward the Manila Fire Department. b. Create another stiffness imbalance. 3. The embedded 4" diameter cast iron down spout on all exterior columns reduces the cross-sectional area of each of the columns and the strength thereof.

4. Two front corners, A7 and D7 columns were very much less reinforced. Physical Evidence After the Earthquake, Proving Inadequacy of design; 1. Column A7 suffered the severest fracture and maximum sagging. Also D7. 2. There are more damages in the front part of the building than towards the rear, not only in columns but also in slabs. 3. Building leaned and sagged more on the front part of the building. 4. Floors showed maximum sagging on the sides and toward the front corner parts of the building. 5. There was a lateral displacement of the building of about 8", Maximum sagging occurs at the column A7 where the floor is lower by 80 cm. than the highest slab level. 6. Slab at the corner column D7 sagged by 38 cm. The Commissioner concluded that there were deficiencies or defects in the design, plans and specifications of the PBA building which involved appreciable risks with respect to the accidental forces which may result from earthquake shocks. He conceded, however, that the fact that those deficiencies or defects may have arisen from an obsolete or not too conservative code or even a code that does not require a design for earthquake forces mitigates in a large measure the responsibility or liability of the architect and engineer designer. The Third-party defendants, who are the most concerned with this portion of the Commissioner's report, voiced opposition to the same on the grounds that (a) the finding is based on a basic erroneous conception as to the design concept of the building, to wit, that the design is essentially that of a heavy rectangular box on stilts with shear wan at one end; (b) the finding that there were defects and a deficiency in the design of the building would at best be based on an approximation and, therefore, rightly belonged to the realm of speculation, rather than of certainty and could very possibly be outright error; (c) the Commissioner has failed to back up or support his finding with extensive, complex and highly specialized computations and analyzes which he himself emphasizes are necessary in the determination of such a highly technical question; and (d) the Commissioner has analyzed the design of the PBA building not in the light of existing and available earthquake engineering knowledge at the time of the preparation of the design, but in the light of recent and current standards. The Commissioner answered the said objections alleging that third-party defendants' objections were based on estimates or exhibits not presented during the hearing that the resort to engineering references posterior to the date of the preparation of the plans was induced by the third-party defendants themselves who submitted computations of the third-party defendants are erroneous. The issue presently considered is admittedly a technical one of the highest degree. It involves questions not within the ordinary competence of the bench and the bar to

resolve by themselves. Counsel for the third-party defendants has aptly remarked that "engineering, although dealing in mathematics, is not an exact science and that the present knowledge as to the nature of earthquakes and the behaviour of forces generated by them still leaves much to be desired; so much so "that the experts of the different parties, who are all engineers, cannot agree on what equation to use, as to what earthquake co-efficients are, on the codes to be used and even as to the type of structure that the PBA building (is) was (p. 29, Memo, of third- party defendants before the Commissioner). The difficulty expected by the Court if tills technical matter were to be tried and inquired into by the Court itself, coupled with the intrinsic nature of the questions involved therein, constituted the reason for the reference of the said issues to a Commissioner whose qualifications and experience have eminently qualified him for the task, and whose competence had not been questioned by the parties until he submitted his report. Within the pardonable limit of the Court's ability to comprehend the meaning of the Commissioner's report on this issue, and the objections voiced to the same, the Court sees no compelling reasons to disturb the findings of the Commissioner that there were defects and deficiencies in the design, plans and specifications prepared by third-party defendants, and that said defects and deficiencies involved appreciable risks with respect to the accidental forces which may result from earthquake shocks. (2) (a) The deviations, if any, made by the defendants from the plans and specifications, and how said deviations contributed to the damage sustained by the building. (b) The alleged failure of defendants to observe the requisite quality of materials and workmanship in the construction of the building. These two issues, being interrelated with each other, will be discussed together. The findings of the Commissioner on these issues were as follows: We now turn to the construction of the PBA Building and the alleged deficiencies or defects in the construction and violations or deviations from the plans and specifications. All these may be summarized as follows: a. Summary of alleged defects as reported by Engineer Mario M. Bundalian. (1) Wrongful and defective placing of reinforcing bars. (2) Absence of effective and desirable integration of the 3 bars in the cluster. (3) Oversize coarse aggregates: 1-1/4 to 2" were used. Specification requires no larger than 1 inch. (4) Reinforcement assembly is not concentric with the column, eccentricity being 3" off when on one face the main bars are only 1 1/2' from the surface. (5) Prevalence of honeycombs,

(6) Contraband construction joints, (7) Absence, or omission, or over spacing of spiral hoops, (8) Deliberate severance of spirals into semi-circles in noted on Col. A-5, ground floor, (9) Defective construction joints in Columns A-3, C-7, D-7 and D-4, ground floor, (10) Undergraduate concrete is evident, (11) Big cavity in core of Column 2A-4, second floor, (12) Columns buckled at different planes. Columns buckled worst where there are no spirals or where spirals are cut. Columns suffered worst displacement where the eccentricity of the columnar reinforcement assembly is more acute. b. Summary of alleged defects as reported by Engr. Antonio Avecilla. Columns are first (or ground) floor, unless otherwise stated. (1) Column D4 Spacing of spiral is changed from 2" to 5" on centers, (2) Column D5 No spiral up to a height of 22" from the ground floor, (3) Column D6 Spacing of spiral over 4 l/2, (4) Column D7 Lack of lateral ties, (5) Column C7 Absence of spiral to a height of 20" from the ground level, Spirals are at 2" from the exterior column face and 6" from the inner column face, (6) Column B6 Lack of spiral on 2 feet below the floor beams, (7) Column B5 Lack of spirals at a distance of 26' below the beam, (8) Column B7 Spirals not tied to vertical reinforcing bars, Spirals are uneven 2" to 4", (9) Column A3 Lack of lateral ties, (10) Column A4 Spirals cut off and welded to two separate clustered vertical bars, (11) Column A4 (second floor Column is completely hollow to a height of 30" (12) Column A5 Spirals were cut from the floor level to the bottom of the spandrel beam to a height of 6 feet, (13) Column A6 No spirals up to a height of 30' above the ground floor level,

(14) Column A7 Lack of lateralties or spirals, c. Summary of alleged defects as reported by the experts of the Third-Party defendants. Ground floor columns. (1) Column A4 Spirals are cut, (2) Column A5 Spirals are cut, (3) Column A6 At lower 18" spirals are absent, (4) Column A7 Ties are too far apart, (5) Column B5 At upper fourth of column spirals are either absent or improperly spliced, (6) Column B6 At upper 2 feet spirals are absent, (7) Column B7 At upper fourth of column spirals missing or improperly spliced. (8) Column C7 Spirals are absent at lowest 18" (9) Column D5 At lowest 2 feet spirals are absent, (10) Column D6 Spirals are too far apart and apparently improperly spliced, (11) Column D7 Lateral ties are too far apart, spaced 16" on centers. There is merit in many of these allegations. The explanations given by the engineering experts for the defendants are either contrary to general principles of engineering design for reinforced concrete or not applicable to the requirements for ductility and strength of reinforced concrete in earthquake-resistant design and construction. We shall first classify and consider defects which may have appreciable bearing or relation to' the earthquake-resistant property of the building. As heretofore mentioned, details which insure ductility at or near the connections between columns and girders are desirable in earthquake resistant design and construction. The omission of spirals and ties or hoops at the bottom and/or tops of columns contributed greatly to the loss of earthquake-resistant strength. The plans and specifications required that these spirals and ties be carried from the floor level to the bottom reinforcement of the deeper beam (p. 1, Specifications, p. 970, Reference 11). There were several clear evidences where this was not done especially in some of the ground floor columns which failed. There were also unmistakable evidences that the spacings of the spirals and ties in the columns were in many cases greater than those called for in the plans and

specifications resulting again in loss of earthquake-resistant strength. The assertion of the engineering experts for the defendants that the improper spacings and the cutting of the spirals did not result in loss of strength in the column cannot be maintained and is certainly contrary to the general principles of column design and construction. And even granting that there be no loss in strength at the yield point (an assumption which is very doubtful) the cutting or improper spacings of spirals will certainly result in the loss of the plastic range or ductility in the column and it is precisely this plastic range or ductility which is desirable and needed for earthquakeresistant strength. There is no excuse for the cavity or hollow portion in the column A4, second floor, and although this column did not fail, this is certainly an evidence on the part of the contractor of poor construction. The effect of eccentricities in the columns which were measured at about 2 1/2 inches maximum may be approximated in relation to column loads and column and beam moments. The main effect of eccentricity is to change the beam or girder span. The effect on the measured eccentricity of 2 inches, therefore, is to increase or diminish the column load by a maximum of about 1% and to increase or diminish the column or beam movements by about a maximum of 2%. While these can certainly be absorbed within the factor of safety, they nevertheless diminish said factor of safety. The cutting of the spirals in column A5, ground floor is the subject of great contention between the parties and deserves special consideration. The proper placing of the main reinforcements and spirals in column A5, ground floor, is the responsibility of the general contractor which is the UCCI. The burden of proof, therefore, that this cutting was done by others is upon the defendants. Other than a strong allegation and assertion that it is the plumber or his men who may have done the cutting (and this was flatly denied by the plumber) no conclusive proof was presented. The engineering experts for the defendants asserted that they could have no motivation for cutting the bar because they can simply replace the spirals by wrapping around a new set of spirals. This is not quite correct. There is evidence to show that the pouring of concrete for columns was sometimes done through the beam and girder reinforcements which were already in place as in the case of column A4 second floor. If the reinforcement for the girder and column is to subsequently wrap around the spirals, this would not do for the elasticity of steel would prevent the making of tight column spirals and loose or improper spirals would result. The proper way is to produce correct spirals down from the top of the main column bars, a procedure which can not be done if either the beam or girder reinforcement is already in place. The engineering experts for the defendants strongly assert and apparently believe that the cutting of the spirals did not materially diminish the strength of the column. This belief together with the difficulty of slipping the spirals on the top of the column once the beam reinforcement is in place may be a sufficient motivation for the cutting of the spirals themselves. The defendants, therefore, should be held responsible for the consequences arising from the loss of strength or ductility in column A5 which may have contributed to the damages sustained by the building.

The lack of proper length of splicing of spirals was also proven in the visible spirals of the columns where spalling of the concrete cover had taken place. This lack of proper splicing contributed in a small measure to the loss of strength. The effects of all the other proven and visible defects although nor can certainly be accumulated so that they can contribute to an appreciable loss in earthquakeresistant strength. The engineering experts for the defendants submitted an estimate on some of these defects in the amount of a few percent. If accumulated, therefore, including the effect of eccentricity in the column the loss in strength due to these minor defects may run to as much as ten percent. To recapitulate: the omission or lack of spirals and ties at the bottom and/or at the top of some of the ground floor columns contributed greatly to the collapse of the PBA building since it is at these points where the greater part of the failure occurred. The liability for the cutting of the spirals in column A5, ground floor, in the considered opinion of the Commissioner rests on the shoulders of the defendants and the loss of strength in this column contributed to the damage which occurred. It is reasonable to conclude, therefore, that the proven defects, deficiencies and violations of the plans and specifications of the PBA building contributed to the damages which resulted during the earthquake of August 2, 1968 and the vice of these defects and deficiencies is that they not only increase but also aggravate the weakness mentioned in the design of the structure. In other words, these defects and deficiencies not only tend to add but also to multiply the effects of the shortcomings in the design of the building. We may say, therefore, that the defects and deficiencies in the construction contributed greatly to the damage which occurred. Since the execution and supervision of the construction work in the hands of the contractor is direct and positive, the presence of existence of all the major defects and deficiencies noted and proven manifests an element of negligence which may amount to imprudence in the construction work. (pp. 42-49, Commissioners Report). As the parties most directly concerned with this portion of the Commissioner's report, the defendants voiced their objections to the same on the grounds that the Commissioner should have specified the defects found by him to be "meritorious"; that the Commissioner failed to indicate the number of cases where the spirals and ties were not carried from the floor level to the bottom reinforcement of the deeper beam, or where the spacing of the spirals and ties in the columns were greater than that called for in the specifications; that the hollow in column A4, second floor, the eccentricities in the columns, the lack of proper length of splicing of spirals, and the cut in the spirals in column A5, ground floor, did not aggravate or contribute to the damage suffered by the building; that the defects in the construction were within the tolerable margin of safety; and that the cutting of the spirals in column A5, ground floor, was done by the plumber or his men, and not by the defendants. Answering the said objections, the Commissioner stated that, since many of the defects were minor only the totality of the defects was considered. As regards the objection as to failure to state the number of cases where the spirals and ties were not carried from the floor level to the bottom reinforcement, the Commissioner specified groundfloor columns B-6 and C-5 the first one without spirals for 03 inches at the top, and in the latter, there were no spirals for 10 inches at the bottom. The Commissioner likewise specified the first storey columns where the spacings were greater than that called for in the specifications to be columns B-5, B-6, C-7, C-6, C-5, D-5 and B-7. The objection to the failure of the Commissioner to specify the number of columns where there was lack of proper length of splicing of spirals, the Commissioner mentioned groundfloor columns B-6 and B-5 where all

the splices were less than 1-1/2 turns and were not welded, resulting in some loss of strength which could be critical near the ends of the columns. He answered the supposition of the defendants that the spirals and the ties must have been looted, by calling attention to the fact that the missing spirals and ties were only in two out of the 25 columns, which rendered said supposition to be improbable. The Commissioner conceded that the hollow in column A-4, second floor, did not aggravate or contribute to the damage, but averred that it is "evidence of poor construction." On the claim that the eccentricity could be absorbed within the factor of safety, the Commissioner answered that, while the same may be true, it also contributed to or aggravated the damage suffered by the building. The objection regarding the cutting of the spirals in Column A-5, groundfloor, was answered by the Commissioner by reiterating the observation in his report that irrespective of who did the cutting of the spirals, the defendants should be held liable for the same as the general contractor of the building. The Commissioner further stated that the loss of strength of the cut spirals and inelastic deflections of the supposed lattice work defeated the purpose of the spiral containment in the column and resulted in the loss of strength, as evidenced by the actual failure of this column. Again, the Court concurs in the findings of the Commissioner on these issues and fails to find any sufficient cause to disregard or modify the same. As found by the Commissioner, the "deviations made by the defendants from the plans and specifications caused indirectly the damage sustained and that those deviations not only added but also aggravated the damage caused by the defects in the plans and specifications prepared by third-party defendants. (Rollo, Vol. I, pp. 128-142) The afore-mentioned facts clearly indicate the wanton negligence of both the defendant and the third-party defendants in effecting the plans, designs, specifications, and construction of the PBA building and We hold such negligence as equivalent to bad faith in the performance of their respective tasks. Relative thereto, the ruling of the Supreme Court in Tucker v. Milan (49 O.G. 4379, 4380) which may be in point in this case reads: One who negligently creates a dangerous condition cannot escape liability for the natural and probable consequences thereof, although the act of a third person, or an act of God for which he is not responsible, intervenes to precipitate the loss. As already discussed, the destruction was not purely an act of God. Truth to tell hundreds of ancient buildings in the vicinity were hardly affected by the earthquake. Only one thing spells out the fatal difference; gross negligence and evident bad faith, without which the damage would not have occurred. WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances of this case, We deem it reasonable to render a decision imposing, as We do hereby impose, upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra, p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with the exception of attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be imposed upon afore-mentioned amounts from finality until paid. Solidary costs against the defendant and third-party defendants (except Roman Ozaeta). SO ORDERED.

Feria (Chairman), Fernan, Alampay and Cruz, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-12541 August 28, 1959

ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs-appellants, vs. YANG CHIAO SENG, defendant-appellee. Punzalan, Yabut, Eusebio & Tiburcio for appellants. Augusto Francisco and Julian T. Ocampo for appellee. LABRADOR, J.: Appeal from the judgment of the Court of First Instance of Manila, Hon. Bienvenido A. Tan, presiding, dismissing plaintiff's complaint as well as defendant's counterclaim. The appeal is prosecuted by plaintiff. The record discloses that on June 17, 1945, defendant Yang Chiao Seng wrote a letter to the palintiff Mrs. Rosario U. Yulo, proposing the formation of a partnership between them to run and operate a theatre on the premises occupied by former Cine Oro at Plaza Sta. Cruz, Manila. The principal conditions of the offer are (1) that Yang Chiao Seng guarantees Mrs. Yulo a monthly participation of P3,000 payable quarterly in advance within the first 15 days of each quarter, (2) that the partnership shall be for a period of two years and six months, starting from July 1, 1945 to December 31, 1947, with the condition that if the land is expropriated or rendered impracticable for the business, or if the owner constructs a permanent building thereon, or Mrs. Yulo's right of lease is terminated by the owner, then the partnership shall be terminated even if the period for which the partnership was agreed to be established has not yet expired; (3) that Mrs. Yulo is authorized personally to conduct such business in the lobby of the building as is ordinarily carried on in lobbies of theatres in operation, provided the said business may not obstruct the free ingress and agrees of patrons of the theatre; (4) that after December 31, 1947, all improvements placed by the partnership shall belong to Mrs. Yulo, but if the partnership agreement is terminated before the lapse of one and a half years period under any of the causes mentioned in paragraph (2), then Yang Chiao Seng shall have the right to remove and take away all improvements that the partnership may place in the premises. Pursuant to the above offer, which plaintiff evidently accepted, the parties executed a partnership agreement establishing the "Yang & Company, Limited," which was to exist from July 1, 1945 to December 31, 1947. It states that it will conduct and carry on the business of operating a theatre for the exhibition of motion and talking pictures. The capital is fixed at P100,000, P80,000 of which is to be furnished by Yang Chiao Seng and P20,000, by Mrs. Yulo. All gains and profits are to be distributed among the partners in the same proportion as their capital contribution and the liability of Mrs. Yulo, in case of loss, shall be limited to her capital contribution (Exh. "B"). In June , 1946, they executed a supplementary agreement, extending the partnership for a period of three years beginning January 1, 1948 to December 31, 1950. The benefits are to be divided

between them at the rate of 50-50 and after December 31, 1950, the showhouse building shall belong exclusively to the second party, Mrs. Yulo. The land on which the theatre was constructed was leased by plaintiff Mrs. Yulo from Emilia Carrion Santa Marina and Maria Carrion Santa Marina. In the contract of lease it was stipulated that the lease shall continue for an indefinite period of time, but that after one year the lease may be cancelled by either party by written notice to the other party at least 90 days before the date of cancellation. The last contract was executed between the owners and Mrs. Yulo on April 5, 1948. But on April 12, 1949, the attorney for the owners notified Mrs. Yulo of the owner's desire to cancel the contract of lease on July 31, 1949. In view of the above notice, Mrs. Yulo and her husband brought a civil action to the Court of First Instance of Manila on July 3, 1949 to declare the lease of the premises. On February 9, 1950, the Municipal Court of Manila rendered judgment ordering the ejectment of Mrs. Yulo and Mr. Yang. The judgment was appealed. In the Court of First Instance, the two cases were afterwards heard jointly, and judgment was rendered dismissing the complaint of Mrs. Yulo and her husband, and declaring the contract of lease of the premises terminated as of July 31, 1949, and fixing the reasonable monthly rentals of said premises at P100. Both parties appealed from said decision and the Court of Appeals, on April 30, 1955, affirmed the judgment. On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her share in the profits of the business. Yang answered the letter saying that upon the advice of his counsel he had to suspend the payment (of the rentals) because of the pendency of the ejectment suit by the owners of the land against Mrs. Yulo. In this letter Yang alleges that inasmuch as he is a sublessee and inasmuch as Mrs. Yulo has not paid to the lessors the rentals from August, 1949, he was retaining the rentals to make good to the landowners the rentals due from Mrs. Yulo in arrears (Exh. "E"). In view of the refusal of Yang to pay her the amount agreed upon, Mrs. Yulo instituted this action on May 26, 1954, alleging the existence of a partnership between them and that the defendant Yang Chiao Seng has refused to pay her share from December, 1949 to December, 1950; that after December 31, 1950 the partnership between Mrs. Yulo and Yang terminated, as a result of which, plaintiff became the absolute owner of the building occupied by the Cine Astor; that the reasonable rental that the defendant should pay therefor from January, 1951 is P5,000; that the defendant has acted maliciously and refuses to pay the participation of the plaintiff in the profits of the business amounting to P35,000 from November, 1949 to October, 1950, and that as a result of such bad faith and malice on the part of the defendant, Mrs. Yulo has suffered damages in the amount of P160,000 and exemplary damages to the extent of P5,000. The prayer includes a demand for the payment of the above sums plus the sum of P10,000 for the attorney's fees. In answer to the complaint, defendant alleges that the real agreement between the plaintiff and the defendant was one of lease and not of partnership; that the partnership was adopted as a subterfuge to get around the prohibition contained in the contract of lease between the owners and the plaintiff against the sublease of the said property. As to the other claims, he denies the same and alleges that the fair rental value of the land is only P1,100. By way of counterclaim he alleges that by reason of an attachment issued against the properties of the defendant the latter has suffered damages amounting to P100,000. The first hearing was had on April 19, 1955, at which time only the plaintiff appeared. The court heard evidence of the plaintiff in the absence of the defendant and thereafter rendered judgment ordering the defendant to pay to the plaintiff P41,000 for her participation in the business up to December, 1950; P5,000 as monthly rental for the use and occupation of the building from January 1, 1951 until defendant vacates the same, and P3,000 for the use and occupation of the lobby from July 1, 1945 until defendant vacates the property. This decision, however, was set aside on a motion for reconsideration. In said motion it is claimed that defendant failed to appear at the hearing

because of his honest belief that a joint petition for postponement filed by both parties, in view of a possible amicable settlement, would be granted; that in view of the decision of the Court of Appeals in two previous cases between the owners of the land and the plaintiff Rosario Yulo, the plaintiff has no right to claim the alleged participation in the profit of the business, etc. The court, finding the above motion, well-founded, set aside its decision and a new trial was held. After trial the court rendered the decision making the following findings: that it is not true that a partnership was created between the plaintiff and the defendant because defendant has not actually contributed the sum mentioned in the Articles of Partnership, or any other amount; that the real agreement between the plaintiff and the defendant is not of the partnership but one of the lease for the reason that under the agreement the plaintiff did not share either in the profits or in the losses of the business as required by Article 1769 of the Civil Code; and that the fact that plaintiff was granted a "guaranteed participation" in the profits also belies the supposed existence of a partnership between them. It. therefore, denied plaintiff's claim for damages or supposed participation in the profits. As to her claim for damages for the refusal of the defendant to allow the use of the supposed lobby of the theatre, the court after ocular inspection found that the said lobby was very narrow space leading to the balcony of the theatre which could not be used for business purposes under existing ordinances of the City of Manila because it would constitute a hazard and danger to the patrons of the theatre. The court, therefore, dismissed the complaint; so did it dismiss the defendant's counterclaim, on the ground that the defendant failed to present sufficient evidence to sustain the same. It is against this decision that the appeal has been prosecuted by plaintiff to this Court. The first assignment of error imputed to the trial court is its order setting aside its former decision and allowing a new trial. This assignment of error is without merit. As that parties agreed to postpone the trial because of a probable amicable settlement, the plaintiff could not take advantage of defendant's absence at the time fixed for the hearing. The lower court, therefore, did not err in setting aside its former judgment. The final result of the hearing shown by the decision indicates that the setting aside of the previous decision was in the interest of justice. In the second assignment of error plaintiff-appellant claims that the lower court erred in not striking out the evidence offered by the defendant-appellee to prove that the relation between him and the plaintiff is one of the sublease and not of partnership. The action of the lower court in admitting evidence is justified by the express allegation in the defendant's answer that the agreement set forth in the complaint was one of lease and not of partnership, and that the partnership formed was adopted in view of a prohibition contained in plaintiff's lease against a sublease of the property. The most important issue raised in the appeal is that contained in the fourth assignment of error, to the effect that the lower court erred in holding that the written contracts, Exhs. "A", "B", and "C, between plaintiff and defendant, are one of lease and not of partnership. We have gone over the evidence and we fully agree with the conclusion of the trial court that the agreement was a sublease, not a partnership. The following are the requisites of partnership: (1) two or more persons who bind themselves to contribute money, property, or industry to a common fund; (2) intention on the part of the partners to divide the profits among themselves. (Art. 1767, Civil Code.). In the first place, plaintiff did not furnish the supposed P20,000 capital. In the second place, she did not furnish any help or intervention in the management of the theatre. In the third place, it does not appear that she has ever demanded from defendant any accounting of the expenses and earnings of the business. Were she really a partner, her first concern should have been to find out how the business was progressing, whether the expenses were legitimate, whether the earnings were correct, etc. She was absolutely silent with respect to any of the acts that a partner should have done; all that she did was to receive her share of P3,000 a month, which can not be interpreted in any manner than a payment for the use of the premises which she had leased from the owners.

Clearly, plaintiff had always acted in accordance with the original letter of defendant of June 17, 1945 (Exh. "A"), which shows that both parties considered this offer as the real contract between them. Plaintiff claims the sum of P41,000 as representing her share or participation in the business from December, 1949. But the original letter of the defendant, Exh. "A", expressly states that the agreement between the plaintiff and the defendant was to end upon the termination of the right of the plaintiff to the lease. Plaintiff's right having terminated in July, 1949 as found by the Court of Appeals, the partnership agreement or the agreement for her to receive a participation of P3,000 automatically ceased as of said date. We find no error in the judgment of the court below and we affirm it in toto, with costs against plaintiff-appellant. Paras C.J., Padilla, Bautista Angelo, Endencia, and Barrera, JJ., concur.

Republic of the Philippines

Supreme Court
Manila
THIRD DIVISION

HEIRS OF JOSE LIM, represented by ELENITO LIM, Petitioners,

G.R. No. 172690 Present: CORONA, J., Chairperson, VELASCO, JR., NACHURA, DEL CASTILLO,* and MENDOZA, JJ. Promulgated:

- versus -

JULIET VILLA LIM, Respondent.

March 3, 2010

x------------------------------------------------------------------------------------x DECISION NACHURA, J.: Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Civil Procedure, assailing the Court of Appeals (CA) Decision [2] dated June 29, 2005, which reversed and set aside the decision [3] of the Regional Trial Court (RTC) ofLucena City, dated April 12, 2004.

The facts of the case are as follows: Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow Cresencia Palad (Cresencia); and their children Elenito, Evelia, Imelda, Edelyna and Edison, all surnamed Lim (petitioners), represented by Elenito Lim (Elenito). They filed a Complaint[4] for Partition, Accounting and Damages against respondent Juliet Villa Lim (respondent), widow of the late Elfledo Lim (Elfledo), who was the eldest son of Jose and Cresencia. 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 fathers 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 Elfledos 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 husbands 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, thus:
WHEREFORE, premises considered, judgment is hereby rendered:

1) Ordering the partition of the above-mentioned properties equally between the plaintiffs and heirs of Jose Lim and the defendant Juliet Villa-Lim; and 2) Ordering the defendant to submit an accounting of all incomes, profits and rentals received by her from said properties. SO ORDERED.

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,[5] which the CA, however, denied in its Resolution[6] dated May 8, 2006.

Hence, this Petition, raising the sole question, viz.:

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?[7]

In essence, petitioners argue that according to the testimony of Jimmy, the sole surviving partner, Elfledo was not a partner; and that he and Norberto entered into a partnership with Jose. Thus, the CA erred in not giving that testimony greater weight than that of Cresencia, who was merely the spouse of Jose and not a party to the partnership.[8] Respondent counters that the issue raised by petitioners is not proper in a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure, as

it would entail the review, evaluation, calibration, and re-weighing of the factual findings of the CA. Moreover, respondent invokes the rationale of the CA decision that, in light of the admissions of Cresencia and Edison and the testimony of respondent, the testimony of Jimmy was effectively refuted; accordingly, the CA's reversal of the RTC's findings was fully justified.[9] We resolve first the procedural matter regarding the propriety of the instant Petition. Verily, the evaluation and calibration of the evidence necessarily involves consideration of factual issues an exercise that is not appropriate for a petition for review on certiorari under Rule 45. This rule provides that the parties may raise only questions of law, because the Supreme Court is not a trier of facts. Generally, we are not duty-bound to analyze again and weigh the evidence introduced in and considered by the tribunals below.[10] When supported by substantial evidence, the findings of fact of the CA are conclusive and binding on the parties and are not reviewable by this Court, unless the case falls under any of the following recognized exceptions:
(1) When the conclusion is a finding grounded entirely on speculation, surmises and conjectures; (2) When the inference made is manifestly mistaken, absurd or impossible; (3) (4) facts; (5) When the findings of fact are conflicting; Where there is a grave abuse of discretion; When the judgment is based on a misapprehension of

(6) When the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) When the findings are contrary to those of the trial court;

(8) When the findings of fact are conclusions without citation of specific evidence on which they are based; (9) When the facts set forth in the petition as well as in the petitioners' main and reply briefs are not disputed by the respondents; and (10) When the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and contradicted by the evidence on record.[11]

We note, however, that the findings of fact of the RTC are contrary to those of the CA. Thus, our review of such findings is warranted.

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.[12] 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. Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of evidence against respondent. It must be considered and weighed along with petitioners' other evidence vis--vis respondent's contrary evidence. In civil cases, the party having the burden of proof must establish his case by a preponderance of evidence. "Preponderance of evidence" is the weight, credit, and value of the aggregate evidence on either side and is usually considered synonymous with the term "greater weight of the evidence" or "greater weight of the credible evidence." "Preponderance of evidence" is a phrase that, in the last analysis, means probability of the truth. It is evidence that is more convincing to the court as worthy of belief than that which is offered in opposition thereto. [13] Rule 133, Section 1 of the Rules of Court provides the guidelines in determining preponderance of evidence, thus:
SECTION I. Preponderance of evidence, how determined. In civil cases, the party having burden of proof must establish his case by a

preponderance of evidence. In determining where the preponderance or superior weight of evidence on the issues involved lies, the court may consider all the facts and circumstances of the case, the witnesses' manner of testifying, their intelligence, their means and opportunity of knowing the facts to which they are testifying, the nature of the facts to which they testify, the probability or improbability of their testimony, their interest or want of interest, and also their personal credibility so far as the same may legitimately appear upon the trial. The court may also consider the number of witnesses, though the preponderance is not necessarily with the greater number.

At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals [14] 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;[15] (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;[16] (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; [17] 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,[18] 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. [19] 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.[20] Finally, we agree with the judicious findings of the CA, to wit:
The above testimonies prove that Elfledo was not just a hired help but one of the partners in the trucking business, active and visible in the running of its affairs from day one until this ceased operations upon his demise. The extent of his control, administration and management of the partnership and its business, the fact that its properties were placed in his name, and that he was not paid salary or other compensation by the partners, are indicative of the fact that Elfledo was a partner and a controlling one at that. It is apparent that the other partners only contributed in the initial capital but had no say thereafter on how the business was ran. Evidently it was through Elfredos efforts and hard work that the partnership was able to acquire more trucks and otherwise prosper. Even the appellant participated in the affairs of the partnership by acting as the bookkeeper sans salary. It is notable too that Jose Lim died when the partnership was barely a year old, and the partnership and its business not only continued but also flourished. If it were true that it was Jose Lim and not Elfledo who was the partner, then upon his death the partnership should have been dissolved and its assets liquidated. On the contrary, these were not done but instead its operation continued under the helm of Elfledo and without any participation from the heirs of Jose Lim. Whatever properties appellant and her husband had acquired, this was through their own concerted efforts and hard work. Elfledo did not limit himself to the business of their partnership but engaged in other lines of businesses as well.

In sum, we find no cogent reason to disturb the findings and the ruling of the CA as they are amply supported by the law and by the evidence on record. WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals Decision dated June 29, 2005 isAFFIRMED. Costs against petitioners.

SO ORDERED.

FIRST DIVISION

J. TIOSEJO INVESTMENT CORP., Petitioner,

G.R. No. 174149

Present:

CORONA, C.J., Chairperson, - versus VELASCO, JR., LEONARDO-DE CASTRO, PEREZ, and MENDOZA,* JJ.

SPOUSES BENJAMIN ELEANOR ANG, s.

AND

Promulgated:

Respondent

September 8, 2010

x -------------------------------------------------x

DECISION

PEREZ, J.:

Filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, the petition for review at bench seeks the reversal of the Resolutions dated 23 May 2006 and 9 August 2006 issued by the Third Division of the Court of Appeals (CA) in CA-G.R. SP No. 93841 which, respectively, dismissed the petition for review of petitioner J. Tiosejo Investment Corp. (JTIC) for having been filed out of time[1] and denied the motion for reconsideration of said dismissal.[2]

The Facts

On 28 December 1995 petitioner entered into a Joint Venture Agreement (JVA) with Primetown Property Group, Inc. (PPGI) for the development of a residential condominium project to be known as The Meditel on the formers 9,502 square meter property along Samat St., Highway Hills, Mandaluyong City. [3] With petitioner contributing the same property to the joint venture and PPGI undertaking to develop the condominium, the JVA provided, among other terms and conditions, that the developed units shall be shared by the former and the latter at a ratio of 17%-83%, respectively.[4] While both parties were allowed, at their own individual responsibility, to pre-sell the units pertaining to them,[5] PPGI further undertook to use all proceeds from the pre-selling of its saleable units for the completion of the Condominium Project. [6]

On 17 June 1996, the Housing and Land Use Regulatory Board (HLURB) issued License to Sell No. 96-06-2854 in favor of petitioner and PPGI as project owners. [7] By virtue of said license, PPGI executed Contract to Sell No. 0212 with Spouses Benjamin and Eleanor Ang on 5 February 1997, over the 35.45-square meter condominium unit denominated as Unit A-1006, for the agreed contract price of P52,597.88 per square meter or a total P2,077,334.25.[8] On the same date PPGI and respondents also executed Contract to Sell No. 0214 over the 12.50 square meter parking space identified as Parking Slot No. 0405, for the stipulated consideration of P26,400.00 square meters or a total of P313,500.00.[9]

On 21 July 1999, respondents filed against petitioner and PPGI the complaint for the rescission of the aforesaid Contracts to Sell docketed before the HLURB as HLURB Case No. REM 07219910567. Contending that they were assured by petitioner and PPGI that the subject condominium unit and parking space would be available for turn-over and occupancy in December 1998, respondents averred, among other matters, that in view of the non-completion of the project according to said representation, respondents instructed petitioner and PPGI to stop depositing the post-dated checks they issued and to cancel said Contracts to Sell; and, that despite several demands, petitioner and PPGI have failed and refused to refund the P611,519.52 they already paid under the circumstances. Together with the refund of said amount and interests thereon at the rate of 12% per annum, respondents prayed for the grant of their claims for moral and exemplary damages as well as attorneys fees and the costs. [10]

Specifically denying the material allegations of the foregoing complaint, PPGI filed its 7 September 1999 answer alleging that the delay in the completion of the project was attributable to the economic crisis which affected the country at the time; that the unexpected and unforeseen inflation as well as increase in interest rates and cost of building materials constitute force majeure and were beyond its control; that aware of its responsibilities, it offered several alternatives to its buyers like respondents for a transfer of their investment to its other feasible projects and for the amounts they already paid to be considered as partial payment for the replacement unit/s; and, that the complaint was prematurely filed in view of the on-going negotiations it is undertaking with its buyers and prospective joint venture partners. Aside from the dismissal of the complaint, PPGI sought the readjustment of the contract price and the grant of its counterclaims for attorneys fees and litigation expenses. [11]

Petitioner also specifically denied the material allegations of the complaint in separate answer dated 5 February 2002[12] which it amended on 20 May 2002. Calling attention to the fact that its prestation under the JVA consisted in contributing the property on which The Meditel was to be constructed, petitioner asseverated that, by the terms of the JVA, each party was individually responsible for the marketing and sale of the units pertaining to its share; that not being privy to the Contracts to Sell executed by PPGI and respondents, it did not receive any portion of the payments made by the latter; and, that without any contributory fault and negligence on its part, PPGI breached its undertakings under the JVA by failing to complete the condominium project. In addition to the dismissal of the complaint and the grant of its counterclaims for exemplary damages, attorneys fees, litigation expenses and the costs, petitioner interposed a cross-claim against PPGI for full

reimbursement of any sum it may be adjudged liable to pay respondents.[13]

Acting on the position papers and draft decisions subsequently submitted by the parties, [14] Housing and Land Use (HLU) Arbiter Dunstan T. San Vicente went on to render the 30 July 2003 decision declaring the subject Contracts to Sell cancelled and rescinded on account of the non-completion of the condominium project. On the ground that the JVA created a partnership liability on their part, petitioner and PPGI, as coowners of the condominium project, were ordered to pay: (a) respondents claim for refund of the P611,519.52 they paid, with interest at the rate of 12% per annum from 5 February 1997; (b) damages in the sum ofP75,000.00; (c) attorneys fees in the sum of P30,000.00; (d) the costs; and, (e) an administrative fine in the sum of P10,000.00 for violation of Sec. 20 in relation to Sec. 38 of Presidential Decree No. 957. [15] Elevated to the HLURB Board of Commissioners via the petition for review filed by petitioner, [16] the foregoing decision was modified to grant the latters crossclaim in the 14 September 2004 decision rendered by said administrative bodys Second Division in HLURB Case No. REM-A031007-0240,[17]to wit:

Wherefore, the petition for review of the respondent Corporation is dismissed. However, the decision of the Office below dated July 30, 2003 is modified, hence, its dispositive portion shall read:

1. Declaring the contracts to sell, both dated February 5, 1997, as cancelled and rescinded, and ordering the respondents to immediately pay the complainants the following:

a.

The amount of P611,519.52, with interest at the legal rate reckoned from February 5, 1997 until fully paid; Damages of P75,000.00; Attorneys fees equivalent to P30,000.00; and The Cost of suit;

b. c. d.

2. Ordering respondents to pay this Office administrative fine of P10,000.00 for violation of Section 20 in relation to Section 38 of P.D. 957; and

3.

Ordering respondent Primetown to reimburse the entire amount which the respondent Corporation will be constrained to pay the complainants.

So ordered.[18]

With the denial of its motion for reconsideration of the foregoing decision,[19] petitioner filed a Notice of Appeal dated 28 February 2005 which was docketed before the Office of the President (OP) as O.P. Case No. 05-B-072. [20] On 3 March 2005, the OP issued an order directing petitioner to submit its appeal memorandum within 15 days from receipt thereof. [21] Acting on the motion therefor filed, the OP also issued another order on the same date, granting petitioner a period of 15 days from 28 February 2005 or until 15 March 2005 within which to file its appeal memorandum.[22] In view of petitioners filing of a second motion for extension dated 15 March 2005, [23] the OP issued the 18 March 2005 order granting the former an additional 10 days from 15 March 2005 or until 25 March 2005 within which to file its appeal memorandum, provided no further extension shall be

allowed.[24] Claiming to have received the aforesaid 3 March 2005 order only on 16 March 2005, however, petitioner filed its 31 March 2005 motion seeking yet another extension of 10 days or until 10 April 2005 within which to file its appeal memorandum.
[25]

On 7 April 2005, respondents filed their opposition to the 31 March 2005 motion for extension of petitioner [26] which eventually filed its appeal memorandum by registered mail on 11 April 2005 in view of the fact that 10 April 2005 fell on a Sunday. [27] On 25 October 2005, the OP rendered a decision dismissing petitioners appeal on the ground that the latters appeal memorandum was filed out of time and that the HLURB Board committed no grave abuse of discretion in rendering the appealed decision. [28] Aggrieved by the denial of its motion for reconsideration of the foregoing decision in the 3 March 2006 order issued by the OP,[29] petitioner filed before the CA its 29 March 2006 motion for an extension of 15 days from 31 March 2006 or until 15 April 2006 within which to file its petition for review. [30] Accordingly, a non-extendible period of 15 days to file its petition for review was granted petitioner in the 31 March 2006 resolution issued by the CA Third Division in CA-G.R, SP No. 93841. [31]

Maintaining that 15 April 2006 fell on a Saturday and that pressures of work prevented its counsel from finalizing its petition for review, petitioner filed a motion on 17 April 2006, seeking for an additional time of 10 days or until 27 April 2006 within which to file said pleading.[32] Although petitioner filed by registered mail a motion to admit its attached petition for review on 19 April 2006,[33] the CA issued the herein assailed 23 May 2006 resolution,[34] disposing of the formers pending motion for extension as well as the petition itself in the following wise:

We resolve to DENY the second extension motion and rule to DISMISS the petition for being filed late.

Settled is that heavy workload is by no means excusable ( Land Bank of the Philippines vs. Natividad, 458 SCRA 441 [2005] ). If the failure of the petitioners counsel to cope up with heavy workload should be considered a valid justification to sidestep the reglementary period, there would be no end to litigations so long as counsel had not been sufficiently diligent or experienced ( LTS Philippine Corporation vs. Maliwat, 448 SCRA 254, 259-260 [2005], citing Sublay vs. National Labor Relations Commission, 324 SCRA 188 [2000]).

Moreover, lawyers should not assume that their motion for extension or postponement will be granted the length of time they pray for (Ramos vs. Dajoyag, 378 SCRA 229 [2002]).

SO ORDERED.[35]

Petitioners motion for reconsideration of the foregoing resolution[36] was denied for lack of merit in the CAs second assailed 9 August 2006 resolution,[37] hence, this petition.

The Issues

Petitioner seeks the reversal of the assailed resolutions on the following grounds, to wit:

I.

THE COURT OF DISMISSING THE TECHNICALITY;

APPEALS PETITION

ERRED IN ON MERE

II.

THE COURT OF APPEALS ERRED IN REFUSING TO RESOLVE THE PETITION ON THE MERITS THEREBY AFFIRMING THE OFFICE OF THE PRESIDENTS DECISION (A) DISMISSING JTICS APPEAL ON A MERE TECHNICALITY; (B) AFFIRMING THE HLURB BOARDS DECISION INSOFAR AS IT FOUND JTIC SOLIDARILY LIABLE WITH PRIMETOWN TO PAY SPOUSES ANG DAMAGES, ATTORNEYS FEES AND THE COST OF THE SUIT; AND (C) AFFIRMING THE HLURB BOARDS DECISION INSOFAR AS IT FAILED TO AWARD JITC ITS COUNTERCLAIMS AGAINST SPOUSES ANG.[38]

The Courts Ruling

We find the petition bereft of merit.

While the dismissal of an appeal on purely technical grounds is concededly frowned upon,[39] it bears emphasizing that the procedural requirements of the rules on appeal are not harmless and trivial technicalities that litigants can just discard and disregard at will. [40] Neither being a natural right nor a part of due process, the rule is settled that the right to appeal is merely a

statutory privilege which may be exercised only in the manner and in accordance with the provisions of the law. [41] The perfection of an appeal in the manner and within the period prescribed by law is, in fact, not only mandatory but jurisdictional. [42] Considering that they are requirements which cannot be trifled with as mere technicality to suit the interest of a party, [43] failure to perfect an appeal in the prescribed manner has the effect of rendering the judgment final and executory. [44]

Fealty to the foregoing principles impels us to discount the error petitioner imputes against the CA for denying its second motion for extension of time for lack of merit and dismissing its petition for review for having been filed out of time. Acting on the29 March 2006 motion filed for the purpose, after all, the CA had already granted petitioner an inextendible period of 15 days from 31 March 2006 or until 15 April 2006 within which to file its petition for review. Sec. 4, Rule 43 of the 1997 Rules of Civil Procedure provides as follows:

Sec. 4. Period of appeal. The appeal shall be taken within fifteen (15) days from notice of the award, judgment, final order or resolution, or from the date of its last publication, if publication is required by law for its effectivity, or of the denial of petitioners motion for new trial or reconsideration duly filed in accordance with the governing law of the court or agency a quo. Only one (1) motion for reconsideration shall be allowed. Upon proper motion and payment of the full amount of the docket fee before the expiration of the reglementary period, the Court of Appeals may grant an additional period of fifteen (15) days only within which to file the petition for review. No further extension shall be granted except for the most compelling reason and in no case to exceed fifteen (15) days. (Underscoring supplied)

The record shows that, having been granted the 15-day extension sought in its first motion, petitioner filed a second motion for extension praying for an additional 10 days from 17 April 2006 within which to file its petition for review, on the ground that pressures of work and the demands posed by equally important cases prevented its counsel from finalizing the same. As correctly ruled by the CA, however, heavy workload cannot be considered as a valid justification to sidestep the reglementary period[45] since to do so would only serve to encourage needless delays and interminable litigations. Indeed, rules prescribing the time for doing specific acts or for taking certain proceedings are considered absolutely indispensable to prevent needless delays and to orderly and promptly discharge judicial business.[46] Corollary to the principle that the allowance or denial of a motion for extension of time is addressed to the sound discretion of the court,[47] moreover, lawyers cannot expect that their motions for extension or postponement will be granted[48] as a matter of course.

Although technical rules of procedure are not ends in themselves, they are necessary for an effective and expeditious administration of justice and cannot, for said reason, be discarded with the mere expediency of claiming substantial merit. [49] This holds particularly true in the case at bench where, prior to the filing of its petition for review before the CA, petitioners appeal before the OP was likewise dismissed in view of its failure to file its appeal memorandum within the extensions of time it had been granted by said office. After being granted an initial extension of 15 days to do the same, the records disclose that petitioner was granted by the OP a second extension of 10 days from 15 March 2005 or until 25 March 2005 within which to file its appeal memorandum, on the condition that no further extensions shall be allowed. Aside from not heeding said proviso, petitioner had, consequently, no more time to extend when it filed its 31 March

2005 motion seeking yet another extension of 10 days or until 10 April 2005 within which to file its appeal memorandum.

With the foregoing procedural antecedents, the initial 15day extension granted by the CA and the injunction under Sec. 4, Rule 43 of the 1997 Rules of Civil Procedure against further extensions except for the most compelling reason, it was clearly inexcusable for petitioner to expediently plead its counsels heavy workload as ground for seeking an additional extension of 10 days within which to file its petition for review. To our mind, petitioner would do well to remember that, rather than the low gate to which parties are unreasonably required to stoop, procedural rules are designed for the orderly conduct of proceedings and expeditious settlement of cases in the courts of law. Like all rules, they are required to be followed [50] and utter disregard of the same cannot be expediently rationalized by harping on the policy of liberal construction [51] which was never intended as an unfettered license to disregard the letter of the law or, for that matter, a convenient excuse to substitute substantial compliance for regular adherence thereto. When it comes to compliance with time rules, the Court cannot afford inexcusable delay. [52]

Even prescinding from the foregoing procedural considerations, we also find that the HLURB Arbiter and Board correctly held petitioner liable alongside PPGI for respondents claims and the P10,000.00 administrative fine imposed pursuant to Section 20 in relation to Section 38 of P.D. 957. By the express terms of the JVA, it appears that petitioner not only retained ownership of the property pending completion of the condominium project[53] but had also bound itself to answer liabilities proceeding from contracts entered into by PPGI with

third parties. Article VIII, Section 1 of the JVA distinctly provides as follows:

Sec. 1. Rescission and damages. Non-performance by either party of its obligations under this Agreement shall be excused when the same is due to Force Majeure. In such cases, the defaulting party must exercise due diligence to minimize the breach and to remedy the same at the soonest possible time. In the event that either party defaults or breaches any of the provisions of this Agreement other than by reason of Force Majeure, the other party shall have the right to terminate this Agreement by giving notice to the defaulting party, without prejudice to the filing of a civil case for damages arising from the breach of the defaulting party.

In the event that the Developer shall be rendered unable to complete the Condominium Project, and such failure is directly and solely attributable to the Developer, the Owner shall send written notice to the Developer to cause the completion of the Condominium Project. If the developer fails to comply within One Hundred Eighty (180) days from such notice or, within such time, indicates its incapacity to complete the Project, the Owner shall have the right to take over the construction and cause the completion thereof. If the Owner exercises its right to complete the Condominium Project under these circumstances, this Agreement shall be automatically rescinded upon written notice to the Developer and the latter shall hold the former free and harmless from any and all liabilities to third persons arising from such rescission. In any case, the Owner shall respect and strictly comply with any covenant entered into by the Developer and third parties with respect to any of its units in the Condominium Project. To enable the owner to comply with this contingent liability, the Developer shall furnish the Owner with a copy of its contracts with the said buyers on a month-to-month basis. Finally, in case the Owner would be constrained to assume the obligations of the Developer to its own buyers, the Developer shall lose its right to ask for indemnity for whatever it may have spent in the Development of the Project.

Nevertheless, with respect to the buyers of the Developer for the First Phase, the area intended for the Second Phase shall not be

bound and/or subjected to the said covenants and/or any other liability incurred by the Developer in connection with the development of the first phase. (Underscoring supplied)

Viewed in the light of the foregoing provision of the JVA, petitioner cannot avoid liability by claiming that it was not in any way privy to the Contracts to Sell executed by PPGI and respondents. As correctly argued by the latter, moreover, a joint venture is considered in this jurisdiction as a form of partnership and is, accordingly, governed by the law of partnerships. [54] Under Article 1824 of the Civil Code of the Philippines, all partners are solidarily liable with the partnership for everything chargeable to the partnership, including loss or injury caused to a third person or penalties incurred due to any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of his co-partners.[55] Whether innocent or guilty, all the partners are solidarily liable with the partnership itself.[56]

WHEREFORE, premises considered, the petition for review is DENIED for lack of merit.

SO ORDERED.

SECOND DIVISION

JOSEFINA P. REALUBIT, Petitioner,

G.R. No. 178782

Present: - versus VELASCO, JR.,* J., BRION,** Acting Chairperson, ABAD,*** PEREZ, and SERENO, JJ.

PROSENCIO D. JASO andEDEN G. JASO, Respondents.

Promulgated: September 21, 2011

x---------------------------------------------------------- -x

DECISION PEREZ, J.: The validity as well as the consequences of an assignment of rights in a joint venture are at issue in this petition for review filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure,[1] assailing the 30 April 2007 Decision[2] rendered by the Court of Appeals (CA) then Twelfth Division in CA-G.R. CV No. 73861, [3] the dispositive portion of which states:

WHEREFORE, the Decision appealed from is SET ASIDE and we order the dissolution of the joint venture between defendant-appellant Josefina Realubit and Francis Eric Amaury Biondo and the subsequent conduct of accounting, liquidation of assets and division of shares of the joint venture business. Let a copy hereof and the records of the case be remanded to the trial court for appropriate proceedings.[4]

The Facts

On 17 March 1994, petitioner Josefina Realubit (Josefina) entered into a Joint Venture Agreement with Francis Eric Amaury Biondo (Biondo), a French national, for the operation of an ice manufacturing business. With Josefina as the industrial partner and Biondo as the capitalist partner, the parties agreed that they would each receive 40% of the net profit, with the remaining 20% to be used for the payment of the ice making machine which was purchased for the business. [5] For and in consideration of the sum ofP500,000.00, however, Biondo subsequently executed a Deed of Assignment dated 27 June 1997, transferring all his rights and interests in the business in favor of respondent Eden Jaso (Eden), the wife of respondent Prosencio Jaso.[6] With Biondos eventual departure from the country, the Spouses Jaso caused their lawyer to send Josefina a letter dated 19 February 1998, apprising her of their acquisition of said Frenchmans share in the business and formally demanding an accounting and inventory thereof as well as the remittance of their portion of its profits.[7]

Faulting Josefina with unjustified failure to heed their demand, the Spouses Jaso commenced the instant suit with the filing of their 3 August 1998 Complaint against Josefina, her husband, Ike Realubit (Ike), and their alleged dummies, for

specific performance, accounting, examination, audit and inventory of assets and properties, dissolution of the joint venture, appointment of a receiver and damages. Docketed as Civil Case No. 98-0331 before respondent Branch 257 of the Regional Trial Court (RTC) of Paraaque City, said complaint alleged, among other matters, that the Spouses Realubit had no gainful occupation or business prior to their joint venture with Biondo; that with the income of the business which earned not less than P3,000.00 per day, they were, however, able to acquire the two-storey building as well as the land on which the joint ventures ice plant stands, another building which they used as their office and/or residence and six (6) delivery vans; and, that aside from appropriating for themselves the income of the business, the Spouses Realubit have fraudulently concealed the funds and assets thereof thru their relatives, associates or dummies.[8]

Served with summons, the Spouses Realubit filed their Answer dated 21 October 1998, specifically denying the material allegations of the foregoing complaint. Claiming that they have been engaged in the tube ice trading business under a single proprietorship even before their dealings with Biondo, the Spouses Realubit, in turn, averred that their said business partner had left the country in May 1997 and could not have executed the Deed of Assignment which bears a signature markedly different from that which he affixed on their Joint Venture Agreement; that they refused the Spouses Jasos demand in view of the dubious circumstances surrounding their acquisition of Biondos share in the business which was established at Don Antonio Heights, Commonwealth Avenue, Quezon City; that said business had already stopped operations on 13 January 1996 when its plant shut down after its power supply was disconnected by MERALCO for non-payment of utility bills; and, that it was their own tube ice trading business which had been moved to 66-C Cenacle Drive, Sanville Subdivision, Project 6, Quezon City that the Spouses Jaso mistook for the ice manufacturing business established in partnership with Biondo.[9]

The issues thus joined and the mandatory pre-trial conference subsequently terminated, the RTC went on to try the case on its merits and, thereafter, to render

its Decision dated 17 September 2001, discounting the existence of sufficient evidence from which the income, assets and the supposed dissolution of the joint venture can be adequately reckoned. Upon the finding, however, that the Spouses Jaso had been nevertheless subrogated to Biondos rights in the business in view of their valid acquisition of the latters share as capitalist partner, [10] the RTC disposed of the case in the following wise:

WHEREFORE, defendants are ordered to submit to plaintiffs a complete accounting and inventory of the assets and liabilities of the joint venture from its inception to the present, to allow plaintiffs access to the books and accounting records of the joint venture, to deliver to plaintiffs their share in the profits, if any, and to pay the plaintiffs the amount of P20,000. for moral damages. The claims for exemplary damages and attorneys fees are denied for lack of basis. [11]

On appeal before the CA, the foregoing decision was set aside in the herein assailed Decision dated 30 April 2007, upon the following findings and conclusions: (a) the Spouses Jaso validly acquired Biondos share in the business which had been transferred to and continued its operations at 66-C Cenacle Drive, Sanville Subdivision, Project 6, Quezon City and not dissolved as claimed by the Spouses Realubit; (b) absent showing of Josefinas knowledge and consent to the transfer of Biondos share, Eden cannot be considered as a partner in the business, pursuant to Article 1813 of the Civil Code of the Philippines; (c) while entitled to Biondosshare in the profits of the business, Eden cannot, however, interfere with the management of the partnership, require information or account of its transactions and inspect its books; (d) the partnership should first be dissolved before Eden can seek an accounting of its transactions and demand Biondos share in the business; and, (e) the evidence adduced before the RTC do not support the award of moral damages in favor of the Spouses Jaso.[12]

The Spouses Realubits motion for reconsideration of the foregoing decision was denied for lack of merit in the CAs 28 June 2007 Resolution, [13] hence, this petition.

The Issues

The Spouses Realubit urge the reversal of the assailed decision upon the negative of the following issues, to wit:

A.

WHETHER OR NOT THERE WAS A VALID ASSIGNMENT OF RIGHTS TO THE JOINT VENTURE. WHETHER THE COURT MAY ORDER PETITIONER [JOSEFINA REALUBIT] AS PARTNER IN THE JOINT VENTURE TO RENDER [A]N ACCOUNTING TO ONE WHO IS NOT A PARTNER IN SAID JOINT VENTURE. WHETHER PRIVATE RESPONDENTS [SPOUSES JASO] HAVE ANY RIGHT IN THE JOINT VENTURE AND IN THE SEPARATE ICE BUSINESS OF PETITIONER[S]. [14]

B.

C.

The Courts Ruling

We find the petition bereft of merit.

The Spouses Realubit argue that, in upholding its validity, both the RTC and the CA inordinately gave premium to the notarization of the 27 June 1997 Deed of Assignment executed by Biondo in favor of the Spouses Jaso. Calling attention to

the latters failure to present before the RTC said assignor or, at the very least, the witnesses to said document, the Spouses Realubit maintain that the testimony of Rolando Diaz, the Notary Public before whom the same was acknowledged, did not suffice to establish its authenticity and/or validity. They insist that notarization did not automatically and conclusively confer validity on said deed, since it is still entirely possible that Biondo did not execute said deed or, for that matter, appear before said notary public.[15] The dearth of merit in the Spouses Realubits position is, however, immediately evident from the settled rule that documents acknowledged before notaries public are public documents which are admissible in evidence without necessity of preliminary proof as to their authenticity and due execution.[16]

It cannot be gainsaid that, as a public document, the Deed of Assignment Biondo executed in favor of Eden not only enjoys a presumption of regularity[17] but is also considered prima facie evidence of the facts therein stated. [18] A party assailing the authenticity and due execution of a notarized document is, consequently, required to present evidence that is clear, convincing and more than merely preponderant.[19] In view of the Spouses Realubits failure to discharge this onus, we find that both the RTC and the CA correctly upheld the authenticity and validity of said Deed of Assignment upon the combined strength of the abovediscussed disputable presumptions and the testimonies elicited from Eden [20] and Notary Public Rolando Diaz.[21] As for the Spouses Realubits bare assertion that Biondos signature on the same document appears to be forged, suffice it to say that, like fraud,[22]forgery is never presumed and must likewise be proved by clear and convincing evidence by the party alleging the same. [23] Aside from not being borne out by a comparison of Biondos signatures on the Joint Venture Agreement[24] and the Deed of Assignment,[25] said forgery is, moreover debunked by Biondos duly authenticated certification dated 17 November 1998, confirming the transfer of his interest in the business in favor of Eden.[26]

Generally understood to mean an organization formed for some temporary purpose, a joint venture is likened to a particular partnership or one which has for

its object determinate things, their use or fruits, or a specific undertaking, or the exercise of a profession or vocation.[27] The rule is settled that joint ventures are governed by the law on partnerships [28] which are, in turn, based on mutual agency or delectus personae.[29] Insofar as a partners conveyance of the entirety of his interest in the partnership is concerned, Article 1813 of the Civil Code provides as follows:
Art. 1813. A conveyance by a partner of his whole interest in the partnership does not itself dissolve the partnership, or, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his contracts the profits to which the assigning partners would otherwise be entitled. However, in case of fraud in the management of the partnership, the assignee may avail himself of the usual remedies. In the case of a dissolution of the partnership, the assignee is entitled to receive his assignors interest and may require an account from the date only of the last account agreed to by all the partners.

From the foregoing provision, it is evident that (t)he transfer by a partner of his partnership interest does not make the assignee of such interest a partner of the firm, nor entitle the assignee to interfere in the management of the partnership business or to receive anything except the assignees profits. The assignment does not purport to transfer an interest in the partnership, but only a future contingent right to a portion of the ultimate residue as the assignor may become entitled to receive by virtue of his proportionate interest in the capital. [30] Since a partners interest in the partnership includes his share in the profits, [31] we find that the CA committed no reversible error in ruling that the Spouses Jaso are entitled to Biondos share in the profits, despite Juanitas lack of consent to the assignment of said Frenchmans interest in the joint venture. Although Eden did not, moreover, become a partner as a consequence of the assignment and/or acquire the right to

require an accounting of the partnership business, the CA correctly granted her prayer for dissolution of the joint venture conformably with the right granted to the purchaser of a partners interest under Article 1831 of the Civil Code.[32]

Considering that they involve questions of fact, neither are we inclined to hospitably entertain the Spouses Realubits insistence on the supposed fact that Josefinas joint venture with Biondo had already been dissolved and that the ice manufacturing business at 66-C Cenacle Drive, Sanville Subdivision, Project 6, Quezon City was merely a continuation of the same business they previously operated under a single proprietorship. It is well-entrenched doctrine that questions of fact are not proper subjects of appeal by certiorari under Rule 45 of the Rules of Court as this mode of appeal is confined to questions of law. [33] Upon the principle that this Court is not a trier of facts, we are not duty bound to examine the evidence introduced by the parties below to determine if the trial and the appellate courts correctly assessed and evaluated the evidence on record.[34] Absent showing that the factual findings complained of are devoid of support by the evidence on record or the assailed judgment is based on misapprehension of facts, the Court will limit itself to reviewing only errors of law.[35]

Based on the evidence on record, moreover, both the RTC[36] and the CA[37] ruled out the dissolution of the joint venture and concluded that the ice manufacturing business at the aforesaid address was the same one established by Juanita and Biondo. As a rule, findings of fact of the CA are binding and conclusive upon this Court,[38] and will not be reviewed or disturbed on appeal[39]unless the case falls under any of the following recognized exceptions: (1) when the conclusion is a finding grounded entirely on speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) where there is a grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the CA, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings of fact are

conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners' main and reply briefs are not disputed by the respondents; and, (10) when the findings of fact of the CA are premised on the supposed absence of evidence and contradicted by the evidence on record.[40] Unfortunately for the Spouses Realubits cause, not one of the foregoing exceptions applies to the case.

WHEREFORE, the petition is DENIED for lack of merit and the assailed CA Decision dated 30 April 2007 is, accordingly,AFFIRMED in toto.

SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. L-22493 July 31, 1975 ISLAND SALES, INC., plaintiff-appellee, vs. UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL defendants. BENJAMIN C. DACO,defendant-appellant. Grey, Buenaventura and Santiago for plaintiff-appellee. Anacleto D. Badoy, Jr. for defendant-appellant.

CONCEPCION JR., J.: This is an appeal interposed by the defendant Benjamin C. Daco from the decision of the Court of First Instance of Manila, Branch XVI, in Civil Case No. 50682, the dispositive portion of which reads: WHEREFORE, the Court sentences defendant United Pioneer General Construction Company to pay plaintiff the sum of P7,119.07 with interest at the rate of 12% per annum until it is fully paid, plus attorney's fees which the Court fixes in the sum of Eight Hundred Pesos (P800.00) and costs. The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto Palisoc are sentenced to pay the plaintiff in this case with the understanding that the judgment against these individual defendants shall be enforced only if the defendant company has no more leviable properties with which to satisfy the judgment against it. . The individual defendants shall also pay the costs. On April 22, 1961, the defendant company, a general partnership duly registered under the laws of the Philippines, purchased from the plaintiff a motor vehicle on the installment basis and for this purpose executed a promissory note for P9,440.00, payable in twelve (12) equal monthly installments of P786.63, the first installment payable on or before May 22, 1961 and the subsequent installments on the 22nd day of every month thereafter, until fully paid, with the condition that failure to pay any of said installments as they fall due would render the whole unpaid balance immediately due and demandable. Having failed to receive the installment due on July 22, 1961, the plaintiff sued the defendant company for the unpaid balance amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona,

Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were included as co-defendants in their capacity as general partners of the defendant company. Daniel A. Guizona failed to file an answer and was consequently declared in default. 1 Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the defendant Romulo B. Lumauig is concerned. 2 When the case was called for hearing, the defendants and their counsels failed to appear notwithstanding the notices sent to them. Consequently, the trial court authorized the plaintiff to present its evidence ex-parte 3 , after which the trial court rendered the decision appealed from. The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision claiming that since there are five (5) general partners, the joint and subsidiary liability of each partner should not exceed one-fifth ( 1/ 5 ) of the obligations of the defendant company. But the trial court denied the said motion notwithstanding the conformity of the plaintiff to limit the liability of the defendants Daco and Sim to only one-fifth ( 1/ 5 ) of the obligations of the defendant company. 4 Hence, this appeal. The only issue for resolution is whether or not the dismissal of the complaint to favor one of the general partners of a partnership increases the joint and subsidiary liability of each of the remaining partners for the obligations of the partnership. Article 1816 of the Civil Code provides: Art. 1816. All partners including industrial ones, shall be liable pro rata with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership, under its signature and by a person authorized to act for the partnership. However, any partner may enter into a separate obligation to perform a partnership contract. In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held: The partnership of Yulo and Palacios was engaged in the operation of a sugar estate in Negros. It was, therefore, a civil partnership as distinguished from a mercantile partnership. Being a civil partnership, by the express provisions of articles l698 and 1137 of the Civil Code, the partners are not liable each for the whole debt of the partnership. The liability is pro rata and in this case Pedro Yulo is responsible to plaintiff for only one-half of the debt. The fact that the other partner, Jaime Palacios, had left the country cannot increase the liability of Pedro Yulo. In the instant case, there were five (5) general partners when the promissory note in question was executed for and in behalf of the partnership. Since the liability of the partners is pro rata, the liability of the appellant Benjamin C. Daco shall be limited to only one-fifth ( 1/ 5 ) of the obligations of the defendant company. The fact that the complaint against the defendant Romulo B. Lumauig was dismissed, upon motion of the plaintiff, does not unmake the said Lumauig as a general partner in the defendant company. In so moving to dismiss the complaint, the plaintiff merely condoned Lumauig's individual liability to the plaintiff. WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED, without pronouncement as to costs.

SO ORDERED. Makalintal, C.J., Fernando (Chairman), Barredo and Aquino, JJ., concur.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-27343 February 28, 1979 MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. ESPINOS, BACOLOD SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN, INC., plaintiffs-appellees, vs. ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO LEON GARIBAY, TIMOTEO TUBUNGBANUA, and THE PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL, defendants, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO, defendants-appellants.

FERNANDEZ, J.: This is an appeal to the Court of Appeals from the judgment of the Court of First Instance of Negros Occidental in Civil Cage No. 5343, entitled "Manuel G. Singson, et all vs. Isabela Sawmill, et al.,", the dispositive portion of which reads: IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held. (1) that the contract, Appendix "F", of the Partial Stipulation of Facts, Exh. "A", has not created a chattel mortgage lien on the machineries and other chattels mentioned therein, all of which are property of the defendant partnership "Isabela Sawmill", (2) that the plaintiffs, as creditors of the defendant partnership, have a preferred right over the assets of the said partnership and over the proceeds of their sale at public auction, superior to the right of the defendant Margarita G. Saldajeno, as creditor of the partners Leon Garibay and Timoteo Tubungbanua; (3) that the defendant Isabela Sawmill' is indebted to the plaintiff Oppen, Esteban, Inc. in the amount of P1,288.89, with legal interest thereon from the filing of the complaint on June 5, 1959; (4) that the same defendant is indebted to the plaintiff Manuel G. Singsong in the total amount of P5,723.50, with interest thereon at the rate of 1 % per month from May 6, 1959, (the date of the statements of account, Exhs. "L" and "M"), and 25% of the total indebtedness at the time of payment, for attorneys' fees, both interest and attorneys fees being stipulated in Exhs. "I" to "17", inclusive; (5) that the same defendant is indebted to the plaintiff Agustin E. Tonsay in the amount of P933.73, with legal interest thereon from the filing of the complaint on June 5, 1959; (6) that the same defendant is indebted to the plaintiff Jose L. Espinos in the amount of P1,579.44, with legal interest thereon from the filing of the complaint on June 5, 1959; (7) that the same defendant is indebted to the plaintiff Bacolod Southern Lumber Yard in the amount of Pl,048.78, with legal interest thereon from the filing of the complaint on June 5, 1959; (8) that the same defendant is indebted to the plaintiff Jose Belzunce in the amount of P2,052.10, with legal interest thereon from the filing of the complaint on June 5. 1959; (9) that the defendant Margarita G. Saldajeno, having purchased at public auction the assets of the defendant partnership over which the plaintiffs have a preferred right, and having sold said assets for P 45,000.00, is bound to pay to each of the plaintiffs the respective amounts for which

the defendant partnership is held indebted to, them, as above indicated and she is hereby ordered to pay the said amounts, plus attorneys fees equivalent to 25% of the judgment in favor of the plaintiff Manuel G. Singson, as stipulated in Exhs. "I" "to I17", inclusive, and 20% of the respective judgments in favor of the other plaintiffs, pursuant to. Art. 2208, pars. (5) and (11), of the Civil Code of the Philippines; (10) The defendants Leon Garibay and Timoteo Tibungbanua are hereby ordered to pay to the plaintiffs the respective amounts adjudged in their favor in the event that said plaintiffs cannot recover them from the defendant Margarita G. Saldajeno and the surety on the bond that she has filed for the lifting of the injunction ordered by this court upon the commencement of this case. The cross-claim cf the defendant Margarita G. Saldajeno against the defendants Leon Garibay arid Timoteo Tubungbanua is hereby discussed Margarita G. Saldajeno shall pay the costs.
SO ORDERED. 1

In a resolution promulgated on February 3, 1967, the Court of Appeals certified the records of this case to the Supreme Court "considering that the resolution of this appeal involves purely questions or question of law over which this Court has no jurisdiction ... 2 On June 5. 1959, Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay, Jose L. Espinos, Bacolod Southern Lumber Yard, and Oppen, Esteban, Inc. filed in the Court of first Instance of Negros Occidental, Branch I, against "Isabela Sawmill", Margarita G. Saldajeno and her husband Cecilio Saldajeno, Leon Garibay, Timoteo Tubungbanua and the Provincial Sheriff of Negros Occidental a complaint the prayer of which reads: WHEREFORE, the plaintiffs respectfully pray: (1) That a writ of preliminary injunction be issued restraining the defendant Provincial Sheriff of Negros Occidental from proceeding with the sales at public auction that he advertised in two notices issued by him on May 18, 1959 in connection with Civil Case No. 5223 of this Honorable Court, until further orders of this Court; and to make said injunction permanent after hearing on the merits: (2) That after hearing, the defendant partnership be ordered; to pay to the plaintiff Manuel G. Singson the sum of P3,723.50 plus 1% monthly interest thereon and 25% attorney's fees, and costs; to pay to the plaintiff JoseBelzunce the sum of P2,052.10, plus 6% annual interest thereon and 25% for attorney's fees, and costs;to pay to the plaintiff Agustin E. Tonsay the sum of P993.73 plus 6% annual interest thereon and 25% attorney's fees, and costs; to pay to the plaintiff Bacolod Southern Lumber Yard the sum of P1,048.78, plus 6% annual interest thereon and 25% attorney's fees, and costs; and to pay to the plaintiff Oppen, Esteban, Inc. the sum of P1,350.89, plus 6% annual interest thereon and 25% attorney's fees and costs: (3) That the so-called Chattel Mortgage executed by the defendant Leon Garibay and Timoteo Tubungbanua in favor of the defendant Margarita G. Saldajeno on May 26, 1958 be declared null and void being in fraud of creditors of the defendant partnership and without valuable consideration insofar as the said defendant is concerned:

(4) That the Honorable Court order the sale of public auction of the assets of the defendnat partnership in case the latter fails to pay the judgment that the plaintiffs may recover in the action, with instructions that the proceeds of the sale b e applied in payment of said judgment before any part of saod proceeds is paid to the defendant Margarita G. Saldajeno; (5) That the defendant Leon Garibay, Timoteo Tubungbanua, and Margarita G. Saldajeno be declared jointly liable to the plaintifs for whatever deficiency may remain unpaid after the proceeds of the sale of the assets of the defendnt partnership are supplied in payment of the judgment that said plaintiffs may recover in this action; (6) The plaintiffs further pray for all other remedies to which the Honorable Court will find them entitled to, with costs to the defendants.
Bacolod City, June 4, 1959. 3

The action was docketed as Civil Case No. 5343 of said court. In their amended answer, the defendants Margarita G. Saldajeno and her husband, Cecilio Saldajeno, alleged the following special and affirmative defenses: xxx xxx xxx 2. That the defendant Isabela Sawmill has been dissolved by virtue of an action entitled "In the matter of: Dissolution of Isabela Sawmill as partnership, etc. Margarita G. Saldajeno et al. vs. Isabela Sawmill, et al. , Civil Case No. 4787, Court of First Instance of Negros Occidental; 3. That as a result of the said dissolution and the decision of the Court of First Instance of Negros Occidental in the aforesaid case, the other defendants herein Messrs. Leon Garibay and Timoteo Tubungbanua became the successors-in-interest to the said defunct partnership and have bound themselves to answere for any and all obligations of the defunct partnership to its creditors and third persons; 4. That to secure the performance of the obligations of the other defendants Leon Garibay and Timoteo Tubungbanua to the answering defendant herein, the former have constituted a chattel mortgage over the properties mentioned in the annexes to that instrument entitled "Assignment of Rights with Chattel Mortgage" entered into on May 26, 1968 and duly registered in the Register of Deeds of Negros Occidental on the same date: 5. That all the plaintiffs herein, with the exceptionof the plaintiff Oppen, Esteban, Inc. are creditors of Messrs. Leon Garibay and Timoteo Tubungbanua and not of the defunct Isabela Sawmill and as such they have no cause of action against answering defendant herein and the defendant Isabela Sawmill; 6. That all the plaintiffs herein, except for the plaintiff Oppen, Esteban, Inc. granted cash advances, gasoline, crude oil, motor oil, grease, rice and nipa to the defendants Leon Garibay and Timoteo Tubungbanua with the knowledge and notice that the Isabela Sawmill as a former partnership of defendants Margarita G. Isabela Sawmill

as a former partnership of defendants Margarita G. Saldajeno, Leon Garibay and Timoteo Tubungbanua, has already been dissolved; 7. That this Honorable Court has no jurisdictionover the claims of the plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos, and the Bacolod Southern Lumber Yard, it appearing that the amounts sought to be recovered by them in this action is less than P2,000.00 each, exclusive of interests; 8. That in so far as the claims of these alleged creditors plaintiffs are concerned, there is a misjoinder of parties because this is not a class suit, and therefore this Honorable Court cannot take jurisdictionof the claims for payment; 9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc. go beyond the limit mentioned inthe statute of frauds, Art. 1403 of the Civil Code, and are therefor unenforceable, even assuming that there were such credits and claims;
10. That this Honorable Court has no jurisdiction in this case for it is well settled in law and in jurisprudence that a court of first instance has no power or jurisdiction to annul judgments or decrees of a coordinate court because other function devolves upon the proper appellate court; (Lacuna, et al. vs. Ofilada, et al., G.R. No. L-13548, September 30, 1959; Cabigao vs. del Rosario, 44 Phil. 182; PNB vs. Javellana, 49 O.G. No. 1, p.124), as it appears from the complaint in this case to annul the decision of this same court, but of another branch (Branch II, Judge Querubin presiding). 4

Said defendants interposed a cross-claim against the defendsants Leon Garibay and Timoteo Tubungbanua praying "that in the event that judgment be rendered ordering defendant cross claimant to pay to the plaintiffs the amount claimed in the latter's complaint, that the cross claimant whatever amount is paid by the latter to the plaintiff in accordance to the said judgment. ... 5 After trial, judgment was rendered in favor of the plaintiffs and against the defendants. The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, appealed to the Court of Appeals assigning the following errors: I THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE CASE. II THE COURT A QUO ERRED IN HOLDING THAT THE ISSUE WITH REFERENCE TO THE WITHDRAWAL OF DEFENDANT-APPELLANT MARGARITA G. SALDAJENO FROM THE PARTNERSHIP "SABELA SAWMILL" WAS WHETHER OR NOT SUCH WITHDRAWAL CAUSED THE "COMPLETE DISAPPEARANCE" OR "EXTINCTION" OF SAID PARTNERSHIP. III THE COURT A QUO ERRED IN OT HOLDING THAT THE WITHDRAWAL OF DEFENDANT-APPELLANT MARGARITA G. SALDAJENO AS A PARTNER THEREIN DISSOLVED THE PARTNERSHIP "ISABELA SAWMILL" (FORMED ON

JAN. 30, 1951 AMONG LEON GARIBAY, TIMOTEO TUBUNGBANUA AND SAID MARGARITA G. SALDAJENO). IV THE COURT A QUO ERRED IN ISSUING THE WRIT OF PRELIMINARY INJUNCTION. V THE COURT A QUO ERRED IN HOLDING THAT THE CHATTEL MORTGAGE DATED MAY 26, 1958, WHICH CONSTITUTED THE JUDGMENT IN CIVIL CASE NO. 4797 AND WHICH WAS FORECLOSED IN CIVIL CASE NO. 5223 (BOTH OF THE COURT OF FIRST INSTANCE OF NEGROS OCCIDENTAL) WAS NULL AND VOID. VI THE COURT A QUO ERRED IN HOLDING THAT THE CHATTLES ACQUIRED BY DEFENDANT-APPELLANT MARGARITA G. SALDAJENO IN THE FORECLOSURE SALE IN CIVIL CASE NO. 5223 CONSTITUTED 'ALL THE ASSETS OF THE DEFENDNAT PARTNERSHIP. VII THE COURT A QUO ERRED IN HOLDING THAT DEFENDANT-APPELLANT MARGARITA G. SALDAJENO BECAME PRIMARILY LIABLE TO THE PLAINTFFSAPPELLEES FOR HAVING ACQUIRED THE MORTGAGED CHATTLES IN THE FORECLOSURE SALE CONDUCTED IN CONNECTION WITH CIVIL CASE NO. 5223. VIII THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G. SALDAJENO LIABLE FOR THE OBLIGATIONS OF MESSRS. LEON GARIBAY AND TIMOTEO TUBUNGBANUA, INCURRED BY THE LATTER AS PARTNERS IN THE NEW 'ISABELA SAWMILL', AFTER THE DISSOLUTION OF THE OLD PARTNERSHIP IN WHICH SAID MARGARITA G. SALDAJENO WAS A PARTNER. IX THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G. SALDAJENO LIABLE TO THE PLAINTIFFS-APPELLEES FOR ATTORNEY'S FEES. X THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF THE PLAINTIFFS-APPELLEES.

XI
THE COURT A QUO ERRED IN DISMISSING THE CROSS-CLAIM OF DEFENDANTAPPELLANT MARGARITA G. SALDAJENO AGAINST CROSS-DEFENDANTS LEON GARIBAY AND TIMOTEO TUBUNGBANUA. 6

The facts, as found by the trial court, are: At the commencement of the hearing of the case on the merits the plaintiffs and the defendant Cecilio and Margarita g. Saldajeno submittee a Partial Stipulation of Facts that was marked as Exh. "A". Said stipulation reads as folows: 1. That on January 30, 1951 the defendants Leon Garibay, Margarita G. Saldejeno, and Timoteo Tubungbanua entered into a Contract of Partnership under the firm name "Isabela Sawmill", a copy of which is hereto attached Appendix "A". 2. That on February 3, 1956 the plaintiff Oppen, Esteban, Inc. sold a Motor Truck and two Tractors to the partnership Isabela Sawmill for the sum of P20,500.00. In order to pay the said purcahse price, the said partnership agreed to make arrangements with the International Harvester Company at Bacolod City so that the latter would sell farm machinery to Oppen, Esteban, Inc. with the understanding that the price was to be paid by the partnership. A copy of the corresponding contract of sle is attached hereto as Appendix "B". 3. That through the method of payment stipulated in the contract marked as Appendix "B" herein, the International Harvester Company has been paid a total of P19,211.11, leaving an unpaid balance of P1,288.89 as shown in the statements hereto attached as Appendices "C", "C-1", and "C-2". 4. That on April 25, 1958 Civil Case No. 4797 was filed by the spouses Cecilio Saldajeno and Margarita G. Saldajeno against the Isabela Sawmill, Leon Garibay, and Timoteo Tubungbanua, a copy of which Complaint is attached as Appendix 'D'. 5. That on April 27, 1958 the defendants LeonGaribay, Timoteo Tubungbanua and Margarita G. Saldajeno entered into a "Memorandum Agreement", a copy of which is hereto attached as Appendix 'E' in Civil Case 4797 of the Court of First Instance of Negros Occidental. 6. That on May 26, 1958 the defendants Leon Garibay, Timoteo Tubungbanua and Margarita G. Saldajeno executed a document entitled "Assignment of Rights with Chattel Mortgage", a copy of which documents and its Annexes "A" to "A-5" forming a part of the record of the above mentioned Civil Case No. 4797, which deed was referred to in the Decision of the Court ofFirst Instance of Negros Occidental in Civil Case No. 4797 dated May 29, 1958, a copy of which is hereto attached as Appendix "F" and "F-1" respectively.

7. That thereafter the defendants Leon Garibay and Timoteo Tubungbanua did not divide the assets and properties of the "Isabela Sawmill" between them, but they continued the business of said partnership under the same firm name "Isabela Sawmill". 8. That on May 18, 1959 the Provincial Sheriff of Negros Occidental published two (2) notices that he would sell at public auction on June 5, 1959 at Isabela, Negros Occidental certain trucks, tractors, machinery, officeequipment and other things that were involved in Civil Case No. 5223 of the Court of First Instance of Negros Occidental, entitled "Margarita G. Saldajeno vs. Leon Garibay, et al." See Appendices "G" and "G-1". 9. That on October 15, 1969 the Provincial Sheriff of Negros Occidental executed a Certificate ofSale in favor of the defendant Margarita G. Saldajeno, as a result of the sale conducted by him on October 14 and 15, 1959 for the enforcement of the judgment rendered in Civil Case No. 5223 of the Court of First Instance of Negros Occidental, a certified copy of which certificte of sale is hereto attached as Appendix "H". 10. That on October 20, 1959 the defendant Margarita G. Saldajeno executed a deed of sale in favor of the Pan Oriental Lumber Company transfering to the latter for the sum of P45,000.00 the trucks, tractors, machinery, and other things that she had purchashed at a public auction referred to in the foregoing paragraph, a certified true copy of which Deed of Sale is hereto attached as Appendix "I". 11. The plaintiffs and the defendants Cecilio Saldajeno and Margarita G. Saldajeno reserve the right to present additional evidence at the hearing of this case. Forming parts of the above copied stipulation are documents that were marked as Appendices "A", "B", "C", "C-1", "C-2", "D", "E", "F", "F-1", "G", "G-1", "H", and "I". The plaintiffs and the defendants Cecilio and Margarita G. Saldajeno presented additional evidence, mostly documentary, while the cross-defendants did not present any evidence. The case hardly involves quetions of fact at all, but only questions of law. The fact that the defendnat 'Isabela Sawmill' is indebted to theplaintiff Oppen, Esteban, Inc. in the amount of P1,288.89 as the unpaid balance of an obligation of P20,500.00 contracted on February 3, 10956 is expressly admitted in paragraph 2 and 3 of the Stipulation, Exh. "A" and its Appendices "B", "C", "C-1", and "C-2". The plaintiff Agustin E. Tonssay proved by his own testimony and his Exhs. "B" to"G" that from October 6, 1958 to November 8, 1958 he advanced a total of P4,200.00 to the defendant 'Isabela Sawmill'. Agaist the said advances said defendant delivered to Tonsay P3,266.27 worth of lumber, leavng an unpaid balance of P933.73, which balance was confirmed on May 15, 1959 by the defendant Leon Garibay, as Manager of the defendant partnership.

The plaintiff Manuel G. Singsong proved by his own testimony and by his Exhs. "J" to "L" that from May 25, 1988 to January 13, 1959 he sold on credit to the defendnat "Isabela Sawmill" rice and bran, on account of which business transaction there remains an unpaid balance of P3,580.50. The same plaintiff also proved that the partnership ownes him the sum of P143.00 for nipa shingles bought from him on credit and unpaid for. The plaintiff Jose L. Espinos proved through the testimony of his witness Cayetano Palmares and his Exhs. "N" to "O-3" that he owns the "Guia Lumber Yard", that on October 11, 1958 said lumber yard advanced the sum of P2,500.00 to the defendant "Isabela Sawmill", that against the said cash advance, the defendant partnership delivered to Guia Lumber Yard P920.56 worth of lumber, leaving an outstanding balance of P1,579.44. The plaintiff Bacolod Southern Lumber Yard proved through the testimony of the witness Cayetano Palmares an its Exhs. "P" to "Q-1" that on October 11, 1958 said plaintiff advanced the sum of P1,500.00 to the defendsant 'Isabela Sawmill', that against the said cash advance, the defendant partnership delivered to the said plaintiff on November 19, 1958 P377.72 worth of lumber, and P73.54 worth of lumber on January 27, 1959, leaving an outstanding balance of P1,048.78. The plaintiff Jose Balzunce proved through the testimony of Leon Garibay whom he called as his witness, and through the Exhs. "R" to "E" that from September 14, 1958 to November 27, 1958 he sold to the defedant "Isabela Sawmill" gasoline, motor fuel, and lubricating oils, and that on account of said transactions, the defendant partnersip ownes him an unpaid balance of P2,052.10. Appendix "H" of the stipulation Exh. "A" shows that on October 13 and 14, 1959 the Provincial Sheriff sold to the defendant Margrita G. Saldajeno for P38,040.00 the assets of the defendsant "Isabela Sawmill" which the defendants Leon G. Garibay and Timoteo Tubungbanua had mortgaged to her, and said purchase price was applied to the judgment that she has obtained against he said mortgagors in Civil Case No. 5223 of this Court. Appendix "I" of the same stipulation Exh. "A" shows that on October 20, 1959 the defendant Margarita G. Saldajeno sold to the PAN ORIENTAL LUMBER COMPANY for P45,000.00 part of the said properties that she had bought at public aucton one week before.
xxx xxx xxx 7

It is contended by the appellants that the Court of First Instance of Negros Occidental had no jurisdiction over Civil Case No. 5343 because the plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos and the Bacolod Southern Lumber Yard sought to collect sums of moeny, the biggest amount of which was less than P2,000.00 and, therefore, within the jurisdiction of the municipal court. This contention is devoid of merit because all the plaintiffs also asked for the nullity of the assignment of right with chattel mortgage entered into by and between Margarita G. Saldajeno and her former partners Leon Garibay and Timoteo Tubungbanua. This cause of action is not capable of pecuniary estimation and falls under the jurisdiction of the Court of First Instnace. Where the basic issue is something more than the right to recover a sum of money and where the money claim is

purely incidental to or a consequence of the principal relief sought, the action is as a case where the subject of the litigation is not capable of pecuniary estimation and is cognizable exclusively by the Court of First Instance. The jurisdiction of all courts in the Philippines, in so far as the authority thereof depends upon the nature of litigation, is defined in the amended Judiciary Act, pursuant to which courts of first instance shall have exclusive original jurisdiction over any case the subject matter of which is not capable of pecuniary estimation. An action for the annulment of a judgment and an order of a court of justice belongs to th category. 8 In determining whether an action is one the subject matter of which is not capable of pecuniary estimation this Court has adopted the criterion of first ascertaining the nature of the principal action or remedy sought. If it is primarily for the recovery of a sum of money, the cliam is considered capable of pecuniary estimation, and whether jurisdiciton is in the municipal courts or in the courts of first instance would depend on the amount of the claim. However, where the basic issue is something other than the right to recover a sum of money, where the money claim is purely incidental to, or a consequence of, the principal relief sought, this Court has considered such actions as cases where the subject ogf the litigation may not be estimated in terms of money, and are cognizable exclusively by courts of first instance. In Andres Lapitan vs. SCANDIA, Inc., et al., 9 this Court held: Actions for specific performance of contracts have been expressly prounounced to be exclusively cognizable by courts of first instance: De Jesus vs. Judge Garcia, L26816, February 28, 1967;Manufacturers' Distributors, Inc. vs. Yu Siu Liong , L21285, April 29, 1966. And no cogent reason appears, and none is here advanced by the parties, why an actin for rescission (or resolution) should be differently treated, a "rescission" being a counterpart, so to speak, of "specific performance'. In both cases, the court would certainly have to undertake an investigation into facts that would justify one act of the other. No award for damages may be had in an action for resicssion without first conducting an inquiry into matters which would justify the setting aside of a contract, in the same manner that courts of first instance would have to make findings of fact and law in actions not capable of pecuniary estimnation espressly held to be so by this Court, arising from issues like those arised in Arroz v. Alojado, et al., L-22153, March 31, 1967 (the legality or illegality of the conveyance sought for and the determination of the validity of the money deposit made); De Ursua v. Pelayo, L-13285, April 18, 1950 (validity of a judgment); Bunayog v. Tunas, L-12707, December 23, 1959 (validity of a mortgage); Baito v. Sarmiento, L-13105, August 25, 1960 (the relations of the parties, the right to support created by the relation, etc., in actions for support); De Rivera, et al. v. Halili, L-15159, September 30, 1963 (the validity or nullity of documents upon which claims are predicated). Issues of the same nature may be raised by a party against whom an action for rescission has been brought, or by the plaintiff himself. It is, therefore, difficult to see why a prayer for damages in an action for rescission should be taken as the basis for concluding such action for resiccison should be taken as the basis for concluding such action as one cpable of pecuniary estimation - a prayer which must be included in the main action if plaintiff is to be compensated for what he may have suffered as a result of the breach committed by defendant, and not later on precluded from recovering damages by the rule against splitting a cause of action and discouraging multiplicitly of suits.

The foregoing doctrine was reiterated in The Good Development Corporation vs. Tutaan , 10 where this Court held: On the issue of which court has jurisdiction, the case of SENO vs. Pastolante, et al., is in point. It was ruled therein that although the purposes of an action is to recover an amount plus interest which comes within the original jurisidction of the Justice of the Peace Court, yet when said action involves the foreclosure of a chattel mortgage covering personal properties valued at more than P2,000, (now P10,000.00) the action should be instituted before the Court of First Instance. In the instanct, case, the action is to recover the amount of P1,520.00 plus interest and costs, and involves the foreclosure of a chattel mortgage of personal properties valued at P15,340.00, so that it is clearly within the competence of the respondent court to try and resolve. In the light of the foregoing recent rulings, the Court of First Instance of Negros Occidental did no err in exercising jurisidction over Civil Case No. 5343. The appellants also contend that the chattel mortgage may no longer be annulled because it had been judicially approved in Civil Case No. 4797 of the Court of First Instance of Negros Occidental and said chattel mortgage had been ordered foreclosed in Civil Case No. 5223 of the same court. On the question of whether a court may nullify a final judgment of another court of co-equal, concurrent and coordinate jusridiction, this Court originally ruled that: A court has no power to interfere with the judgments or decrees of a court of concurrent or coordinate jurisdiction having equal power to grant the relief sought by the injunction.
The various branches of the Court of First Instance of Manila are in a sense coordinate courts and cannot be allowed to interfere with each others' judgments or decrees. 11

The foregoing doctrine was reiterated in a 1953 case 12 where this Court said: The rule which prohibits a Judge from intertering with the actuations of the Judge of another branch of the same court is not infringed when the Judge who modifies or annuls the order isued by the other Judge acts in the same case and belongs to the same court (Eleazar vs. Zandueta, 48 Phil. 193. But the rule is infringed when the Judge of a branch of the court issues a writ of preliminary injunction in a case to enjoint the sheriff from carrying out an order by execution issued in another case by the Judge of another branch of the same court. (Cabigao and Izquierdo vs. Del Rosario et al., 44 Phil. 182). This ruling was maintained in 1967. In Mas vs. Dumaraog, 13 the judgment sought to be annulled was rendered by the Court of First Instance of Iloilo and the action for annullment was filed with the Court of First Instance of Antique, both courts belonging to the same Judicial District. This Court held that: The power to open, modify or vacant a judgment is not only possessed by but restricted to the court in which the judgment was rendered. The reason of this Court was:

Pursuant to the policy of judicial stability, the judgment of a court of competent jurisdiction may not be interfered with by any court concurrrent jurisdiction. Again, in 1967 this Court ruled that the jurisdiction to annul a judgement of a branch of the court of First Instance belongs solely to the very same branch which rendered the judgement. 14 Two years later, the same doctrine was laid down in the Sterling Investment case. 15 In December 1971, however, this court re-examined and reversed its earlier doctrine on the matter. In Dupla v. Court of Appeals, 16 this Tribunal, speaking through Mr. Justice Villamor declared: ... the underlying philosophy expressed in the Dumara-og case, the policy of judicial stability, to the end that the judgment of a court of competent jurisdiction may not be interfered with by any court of concurrent jurisdiction may not be interfered with by any court of concurrent jurisdiciton, this Court feels that this is as good an occasion as any to re-examine the doctrine laid down ... In an action to annul the judgment of a court, the plaintiff's cause of action springs from the alleged nullity of the judgment based on one ground or another, particularly fraud, which fact affords the plaintiff a right to judicial interference in his behalf. In such a suit the cause of action is entirely different from that in the actgion which grave rise to the judgment sought to be annulled, for a direct attack against a final and executory judgment is not a incidental to, but is the main object of the proceeding. The cause of action in the two cases being distinct and separate from each other, there is no plausible reason why the venue of the action to annul the judgment should necessarily follow the venue of the previous action ... The present doctrine which postulate that one court or one branch of a court may not annul the judgment of another court or branch, not only opens the door to a violation of Section 2 of Rule 4, (of the Rules of Court) but also limit the opportunity for the application of said rule. Our conclusion must therefore be that a court of first instance or a branch thereof has the authority and jurisdiction to take cognizance of, and to act in, suit to annul final and executory judgment or order rendered by another court of first instance or by another branch of the same court... In February 1974 this Court reiterated the ruling in the Dulap case. 17 In the light of the latest ruling of the Supreme Court, there is no doubt that one branch of the Court of First Instance of Negros Occidental can take cognizance of an action to nullify a final judgment of the other two branches of the same court. It is true that the dissolution of a partnership is caused by any partner ceasing to be associated in the carrying on of the business. 18 However, on dissolution, the partnershop is not terminated but continuous until the winding up to the business. 19 The remaining partners did not terminate the business of the partnership "Isabela Sawmill". Instead of winding up the business of the partnership, they continued the business still in the name of said partnership. It is expressly stipulated in the memorandum-agreement that the remaining partners had constituted themselves as the partnership entity, the "Isabela Sawmill". 20

There was no liquidation of the assets of the partnership. The remaining partners, Leon Garibay and Timoteo Tubungbanua, continued doing the business of the partnership in the name of "Isabela Sawmill". They used the properties of said partnership. The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon Garibay and Timoteo Tubungbanua, belonged to the partnership "Isabela Sawmill." The appellant, Margarita G. Saldajeno, was correctly held liable by the trial court because she purchased at public auction the properties of the partnership which were mortgaged to her. It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership was published in the newspapers. The appellees and the public in general had a right to expect that whatever, credit they extended to Leon Garibay and Timoteo Tubungbanua doing the business in the name of the partnership "Isabela Sawmill" could be enforced against the proeprties of said partnership. The judicial foreclosure of the chattel mortgage executed in favor of Margarita G. Saldajeno did not relieve her from liability to the creditors of the partnership. The appellant, margrita G. Saldajeno, cannot complain. She is partly to blame for not insisting on the liquidaiton of the assets of the partnership. She even agreed to let Leon Garibay and Timoteo Tubungbanua continue doing the business of the partnership "Isabela Sawmill" by entering into the memorandum-agreement with them. Although it may be presumed that Margarita G. Saldajeno had action in good faith, the appellees aslo acted in good faith in extending credit to the partnership. Where one of two innocent persons must suffer, that person who gave occasion for the damages to be caused must bear the consequences. Had Margarita G. Saldajeno not entered into the memorandum-agreement allowing Leon Garibay and Timoteo Tubungbanua to continue doing the business of the aprtnership, the applees would not have been misled into thinking that they were still dealing with the partnership "Isabela Sawmill". Under the facts, it is of no moment that technically speaking the partnership "Isabela Sawmill" was dissolved by the withdrawal therefrom of Margarita G. Saldajeno. The partnership was not terminated and it continued doping business through the two remaining partners. The contention of the appellant that the appleees cannot bring an action to annul the chattel mortgage of the propertiesof the partnership executed by Leon Garibay and Timoteo Tubungbanua in favor of Margarita G. Saldajeno has no merit. As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a contract prejudices the rights of a third person, he may file an action to annul the contract. This Court has held that a person, who is not a party obliged principally or subsidiarily under a contract, may exercised an action for nullity of the contract if he is prejudiced in his rights with respect to one of the contracting parties, and can show detriment which would positively result to him from the contract in which he has no intervention. 21 The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel mortgage over the properties of the partnership "Isabela Sawmill" in favopr of Margarita G. Saldajeno by the remaining partners, Leon Garibay and Timoteo Tubungbanua. Hence, said appelees have a right to file the action to nullify the chattel mortgage in question. The portion of the decision appealed from ordering the appellants to pay attorney's fees to the plaintiffs-appellees cannot be sustained. There is no showing that the appellants displayed a wanton

disregard of the rights of the plaintiffs. Indeed, the appellants believed in good faith, albeit erroneously, that they are not liable to pay the claims. The defendants-appellants have a right to be reimbursed whatever amounts they shall pay the appellees by their co-defendants Leon Garibay and Timoteo Tubungbanua. In the memorandumagreement, Leon Garibay and Timoteo Tubungbaun undertook to release Margarita G. Saldajeno from any obligation of "Isabela Sawmill" to third persons. 22 WHEREFORE, the decision appealed from is hereby affirmed with the elimination of the portion ordering appellants to pay attorney's fees and with the modification that the defendsants, Leon Garibay and Timoteo Tubungbanua, should reimburse the defendants-appellants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, whatever they shall pay to the plaintiffs-appellees, without pronouncement as to costs. SO ORDERED. Teehankee (Chairman), Makasiar, Guerrero, De Castro and Melencio-Herrera, JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 75640 April 5, 1990 NATIONAL FOOD AUTHORITY, (NFA), petitioner, vs. INTERMEDIATE APPELLATE COURT, SUPERIOR (SG) SHIPPING CORPORATION, respondents. Zapanta, Gloton & Ulejorada for petitioner. Sison, Ortiz & Associates for private respondents.

PARAS, J.: This is a petition for review on certiorari made by National Food Authority (NFA for brevity) then known as the National Grains Authority or NGA from the decision 1 of the Intermediate Appellate Court affirming the decision 2 of the trial court, the decretal portion of which reads: WHEREFORE, defendants Gil Medalla and National Food Authority are ordered to pay jointly and severally the plaintiff: a. the sum of P25,974.90, with interest at the legal rate from October 17, 1979 until the same is fully paid; and, b. the sum of P10,000.00 as and for attorney's fees. Costs against both defendants. SO ORDERED. (p. 22, Rollo) Hereunder are the undisputed facts as established by the then Intermediate Appellate Court (now Court of Appeals), viz: On September 6, 1979 Gil Medalla, as commission agent of the plaintiff Superior Shipping Corporation, entered into a contract for hire of ship known as "MV Sea Runner" with defendant National Grains Authority. Under the said contract Medalla obligated to transport on the "MV Sea Runner" 8,550 sacks of rice belonging to defendant National Grains Authority from the port of San Jose, Occidental Mindoro, to Malabon, Metro Manila. Upon completion of the delivery of rice at its destination, plaintiff on October 17, 1979, wrote a letter requesting defendant NGA that it be allowed to collect the

amount stated in its statement of account (Exhibit "D"). The statement of account included not only a claim for freightage but also claims for demurrage and stevedoring charges amounting to P93,538.70. On November 5, 1979, plaintiff wrote again defendant NGA, this time specifically requesting that the payment for freightage and other charges be made to it and not to defendant Medalla because plaintiff was the owner of the vessel "MV Sea Runner" (Exhibit "E"). In reply, defendant NGA on November 16, 1979 informed plaintiff that it could not grant its request because the contract to transport the rice was entered into by defendant NGA and defendant Medalla who did not disclose that he was acting as a mere agent of plaintiff (Exhibit "F"). Thereupon on November 19, 1979, defendant NGA paid defendant Medalla the sum of P25,974.90, for freight services in connection with the shipment of 8,550 sacks of rice (Exhibit "A"). On December 4, 1979, plaintiff wrote defendant Medalla demanding that he turn over to plaintiff the amount of P27,000.00 paid to him by defendant NFA. Defendant Medalla, however, "ignored the demand." Plaintiff was therefore constrained to file the instant complaint. Defendant-appellant National Food Authority admitted that it entered into a contract with Gil Medalla whereby plaintiffs vessel "MV Sea Runner" transported 8,550 sacks of rice of said defendant from San Jose, Mindoro to Manila. For services rendered, the National Food Authority paid Gil Medalla P27,000.00 for freightage. Judgment was rendered in favor of the plaintiff. Defendant National Food Authority appealed to this court on the sole issue as to whether it is jointly and severally liable with defendant Gil Medalla for freightage. (pp. 61-62, Rollo) The appellate court affirmed the judgment of the lower court, hence, this appeal by way of certiorari, petitioner NFA submitting a lone issue to wit: whether or not the instant case falls within the exception of the general rule provided for in Art. 1883 of the Civil Code of the Philippines. It is contended by petitioner NFA that it is not liable under the exception to the rule (Art. 1883) since it had no knowledge of the fact of agency between respondent Superior Shipping and Medalla at the time when the contract was entered into between them (NFA and Medalla). Petitioner submits that "(A)n undisclosed principal cannot maintain an action upon a contract made by his agent unless such principal was disclosed in such contract. One who deals with an agent acquires no right against the undisclosed principal." Petitioner NFA's contention holds no water. It is an undisputed fact that Gil Medalla was a commission agent of respondent Superior Shipping Corporation which owned the vessel "MV Sea Runner" that transported the sacks of rice belonging to petitioner NFA. The context of the law is clear. Art. 1883, which is the applicable law in the case at bar provides: Art. 1883. If an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted; neither have such persons against the principal.

In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal . The provision of this article shall be understood to be without prejudice to the actions between the principal and agent. Consequently, when things belonging to the principal (in this case, Superior Shipping Corporation) are dealt with, the agent is bound to the principal although he does not assume the character of such agent and appears acting in his own name. In other words, the agent's apparent representation yields to the principal's true representation and that, in reality and in effect, the contract must be considered as entered into between the principal and the third person (Sy Juco and Viardo v. Sy Juco, 40 Phil. 634). Corollarily, if the principal can be obliged to perform his duties under the contract, then it can also demand the enforcement of its rights arising from the contract. WHEREFORE, PREMISES CONSIDERED, the petition is hereby DENIED and the appealed decision is hereby AFFIRMED. SO ORDERED. Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 145817 October 19, 2011

URBAN BANK, INC, Petitioner, vs. MAGDALENO M. PEA, Respondent. x - - - - - - - - - - - - - - - - - - - - - - -x G.R. No. 145822 DELFIN C. GONZALEZ, JR., BENJAMIN L. DE LEON, and ERIC L. LEE, Petitioners, vs. MAGDALENO M. PEA, Respondent. x - - - - - - - - - - - - - - - - - - - - - - -x G.R. No. 162562 MAGDALENO M. PEA, Petitioner, vs. URBAN BANK, INC., TEODORO BORLONGAN, DELFIN C. GONZALEZ, JR., BENJAMIN L. DE LEON, P. SIERVO H. DIZON, ERIC L. LEE, BEN T. LIM, JR., CORAZON BEJASA, and ARTURO MANUEL, JR.,Respondents. DECISION SERENO, J.: These consolidated petitions began as a simple case for payment of services rendered and for reimbursement of costs. The case spun a web of suits and counter-suits because of: (1) the size of the award for agents fee rendered in favor of Atty. Magdaleno Pea (Pea) PhP24,000,000 rendered by the trial court; (2) the controversial execution of the full judgment award of PhP28,500,000 (agents fee plus reimbursement for costs and other damages) pending appeal; and (3) the finding of solidary liability against Urban Bank, Inc., and several of its corporate officers and directors together with the concomitant levying and sale in execution of the personal (even conjugal) properties of those officers and directors; and (4) the fact that assets with declared conservative values of at least PhP181 Million which, together with those with undeclared values could reach very much more than such amount,1 were levied or sold on execution pending appeal to satisfy the PhP28.5 Million award in favor of Atty. Pea. Incidentally, two supersedeas bonds worth PhP80 Million (2.8 times the amount of the judgment) were filed by Urban Bank and some of its officers and directors to stay the execution pending appeal. Had the four attendant circumstances not afflicted the original case, it would have been an openand-shut review where this Court, applying even just the minimum equitable principle against unjust

enrichment would have easily affirmed the grant of fair recompense to Atty. Pea for services he rendered for Urban Bank if such had been ordered by the trial court. That Atty. Pea should be paid something by Urban Bank is not in dispute the Court of Appeals (CA) and the Regional Trial Court (RTC) of Bago City, agreed on that. What they disagreed on is the basis and the size of the award. The trial court claims that the basis is an oral contract of agency and the award should be PhP28,5000,000; while, the appellate court said that Atty. Pea can only be paid under the legal principle against unjust enrichment, and the total award in his favor should only amount to PhP3,000,000. In the eyes of the trial court, the controlling finding is that Atty. Pea should be believed when he testified that in a telephone conversation, the president of Urban Bank, Teodoro Borlongan, a respondent herein, agreed to pay him for his services 10% of the value of the property then worth PhP240,000,000, or PhP24,000,000. Costs and other awards additionally amount to PhP4,500,000, for a total award of PhP28,500,000 according to the trial court. To the Court of Appeals, such an award has no basis, as in fact, no contract of agency exists between Atty. Pea and Urban Bank. Hence, Atty. Pea should only be recompensed according to the principle of unjust enrichment, and that he should be awarded the amount of PhP3,000,000 only for his services and reimbursements of costs. The disparity in the size of the award given by the trial court vis--vis that of the Court of Appeals (PhP28,500,000 v. PhP3,000,000) must be placed in the context of the service that Atty. Pea proved that he rendered for Urban Bank. As the records bear, Atty. Peas services consisted of causing the departure of unauthorized sub-tenants in twenty-three commercial establishments in an entertainment compound along Roxas Boulevard. It involved the filing of ejectment suits against them, Peas personal defense in the counter-suits filed against him, his settlement with them to the tune of PhP1,500,000, which he advanced from his own funds, and his retention of security guards and expenditure for other costs amounting to more or less PhP1,500,000. There is no claim by Atty. Pea of any service beyond those. He claims damages from the threats to his life and safety from the angry tenants, as well as a vexatious collection suit he had to face from a creditor-friend from whom he borrowed PhP3,000,000 to finance the expenses for the services he rendered Urban Bank. At the time the award of PhP28,500,000 by the trial court came out in 1999, the net worth of Urban Bank was PhP2,219,781,104. 2 While the bank would be closed by the Bangko Sentral ng Pilipinas (BSP) a year later for having unilaterally declared a bank holiday contrary to banking rules, there was no reason to believe that at the time such award came out it could not satisfy a judgment of PhP28,500,000, a sum that was only 1% of its net worth, and a miniscule 0.2% of its total assets of PhP11,933,383,630.3 In fact, no allegation of impending insolvency or attempt to abscond was ever raised by Atty. Pea and yet, the trial court granted execution pending appeal. Interestingly, Pea had included as co-defendants with Urban Bank in the RTC case, several officers and board directors of Urban Bank. Not all board directors were sued, however. With respect to those included in the complaint, other than against Teodoro Borlongan, Corazon Bejasa, and Arturo Manuel, no evidence was ever offered as to their individual actions that gave rise to Atty. Peas cause of action the execution of the agency contract and its breach and yet, these officers and directors were made solidarily liable by the trial court with Urban Bank for the alleged breach of the alleged corporate contract of agency. Execution pending appeal was also granted against them for this solidary liability resulting in the levy and sale in execution pending appeal of not only corporate properties of Urban Bank but also personal properties of the individual bank officers and directors. It would have been interesting to find out what drove Atty. Pea to sue the bank officers and directors of Urban Bank and why he chose to sue only some, but not all of the board directors of Urban Bank, but there is nothing on the record with which this analysis can be pursued.

Before us are: (a) the Petitions of Urban Bank (G. R. No. 145817) and the De Leon Group (G R. No. 145822) questioning the propriety of the grant of execution pending appeal, and (b) the Petition of Atty. Pea (G. R. No. 162562) assailing the CAs decision on the substantive merits of the case with respect to his claims of compensation based on an agency agreement. Ordinarily, the final resolution by the Supreme Court of an appeal from a trial court decision would have automatic, generally-understood consequences on an order issued by the trial court for execution pending appeal. But this is no ordinary case, and the magnitude of the disproportions in this case is too mind-boggling that this Court must exert extra effort to correct whatever injustices have been occasioned in this case. Thus, our dispositions will include detailed instructions for several judicial officials to implement. At core, these petitions can be resolved if we answer the following questions: 1. What is the legal basis for an award in favor of Pea for the services he rendered to Urban Bank? Should it be a contract of agency the fee for which was orally agreed on as Pea claims? Should it be the application of the Civil Code provisions on unjust enrichment? Or is it to be based on something else or a combination of the legal findings of both the RTC and the CA? How much should the award be? 2. Are the officers and directors of Urban Bank liable in their personal capacities for the amount claimed by Pea? 3. What are the effects of our answers to questions (1) and (2), on the various results of the execution pending appeal that happened here? Factual Background of the Controversy Urban Bank, Inc. (both petitioner and respondent in these two consolidated cases), 4 was a domestic Philippine corporation, engaged in the business of banking. 5 The eight individual respondents in G. R. No. 162562 were officers and members of Urban Banks board of directors, who were sued in their official and personal capacities.6On the other hand, Benjamin L. De Leon, Delfin C. Gonzalez, Jr., and Eric L. Lee, (hereinafter the de Leon Group), are the petitioners in G. R. No. 145822 and are three of the same bank officers and directors, who had separately filed the instant Petition before the Court. Petitioner-respondent Atty. Magdaleno M. Pea (Pea) 7 is a lawyer by profession and was formerly a stockholder, director and corporate secretary of Isabel Sugar Company, Inc. (ISCI). 8 ISCI owned a parcel of land9 located in Pasay City (the Pasay property).10 In 1984, ISCI leased the Pasay property for a period of 10 years.11 Without its consent12 and in violation of the lease contract,13 the lessee subleased the land to several tenants, who in turn put up 23 establishments, mostly beer houses and night clubs, inside the compound. 14 In 1994, a few months before the lease contract was to expire, ISCI informed the lessee15and his tenants16 that the lease would no longer be renewed and that it intended to take over the Pasay property 17 for the purpose of selling it.18 Two weeks before the lease over the Pasay property was to expire, ISCI and Urban Bank executed a Contract to Sell, whereby the latter would pay ISCI the amount of PhP241,612,000 in installments for the Pasay property.19Both parties agreed that the final installment of PhP25,000,000 would be released by the bank upon ISCIs delivery of full and actual possession of the land, free from any

tenants.20 In the meantime, the amount of the final installment would be held by the bank in escrow. The escrow provision in the Contract to Sell, thus, reads: "The SELLER (ISCI) agrees that from the proceeds of the purchase prices of the subject Property (Pasay property), the BUYER (Urban Bank) shall withhold the amount of PHP 25,000,000.00 by way of escrow and shall release this amount to the SELLER only upon its delivery to the BUYER of the full and actual possession and control of the Subject Property, free from tenants, occupants, squatters or other structures or from any liens, encumbrances, easements or any other obstruction or impediment to the free use and occupancy by the buyer of the subject Property or its exercise of the rights to ownership over the subject Property, within a period of sixty (60) days from the date of payment by the BUYER of the purchase price of the subject Property net of the amounts authorized to be deducted or withheld under Item II (a) of this Contract. 21 (Emphasis supplied) ISCI then instructed Pea, who was its director and corporate secretary, to take over possession of the Pasay property22 against the tenants upon the expiration of the lease. ISCIs president, Mr. Enrique G. Montilla III (Montilla), faxed a letter to Pea, confirming the latters engagement as the corporations agent to handle the eviction of the tenants from the Pasay property, to wit: 23 MEMORANDUM TO: Atty. Magdaleno M. Pena Director FROM: Enrique G. Montilla III President DATE: 26 November 1994 You are hereby directed to recover and take possession of the property of the corporation situated at Roxas Boulevard covered by TCT No. 5382 of the Register of Deeds for Pasay City immediately upon the expiration of the contract of lease over the said property on 29 November 1994. For this purpose you are authorized to engage the services of security guards to protect the property against intruders. You may also engage the services of a lawyer in case there is a need to go to court to protect the said property of the corporation. In addition you may take whatever steps or measures are necessary to ensure our continued possession of the property. (sgd.) ENRIQUE G. MONTILLA III President24 On 29 November 1994, the day the lease contract was to expire, ISCI and Urban Bank executed a Deed of Absolute Sale25 over the Pasay property for the amount agreed upon in the Contract to Sell, but subject to the above escrow provision. 26 The title to the land was eventually transferred to the name of Urban Bank on 05 December 1994.27 On 30 November 1994, the lessee duly surrendered possession of the Pasay property to ISCI, 28 but the unauthorized sub-tenants refused to leave the area. 29 Pursuant to his authority from ISCI, Pea had the gates of the property closed to keep the sub-tenants out. 30 He also posted security guards at the property,31 services for which he advanced payments.32 Despite the closure of the gates and the posting of the guards, the sub-tenants would come back in the evening, force open the gates, and

proceed to carry on with their businesses.33 On three separate occasions, the sub-tenants tried to break down the gates of the property, threw stones, and even threatened to return and inflict greater harm on those guarding it.34 In the meantime, a certain Marilyn G. Ong, as representative of ISCI, faxed a letter to Urban Bank addressed to respondent Corazon Bejasa, who was then the banks Senior Vice-President requesting the issuance of a formal authority for Pea. 35 Two days thereafter, Ms. Ong faxed another letter to the bank, this time addressed to its president, respondent Teodoro Borlongan. 36 She repeated therein the earlier request for authority for Pea, since the tenants were questioning ISCIs authority to take over the Pasay property.37 In response to the letters of Ms. Ong, petitioner-respondent bank, through individual respondents Bejasa and Arturo E. Manuel Senior Vice-President and Vice-President, respectively advised Pea38 that the bank had noted the engagement of his services by ISCI and stressed that ISCI remained as the lawyers principal.39 To prevent the sub-tenants from further appropriating the Pasay property, 40 petitioner-respondent Pea, as director and representative of ISCI, filed a complaint for injunction 41 (the First Injunction Complaint) with the RTC-Pasay City.42 Acting on ISCIs prayer for preliminary relief, the trial court favorably issued a temporary restraining order (TRO),43 which was duly implemented.44 At the time the First Injunction Complaint was filed, a new title to the Pasay property had already been issued in the name of Urban Bank.45 On 19 December 1994, when "information reached the judge that the Pasay property had already been transferred by ISCI to Urban Bank, the trial court recalled the TRO and issued a break-open order for the property. According to Pea, it was the first time that he was apprised of the sale of the land by ISCI and of the transfer of its title in favor of the bank." 46 It is not clear from the records how such information reached the judge or what the break-open order was in response to. On the same day that the TRO was recalled, petitioner-respondent Pea immediately contacted ISCIs president, Mr. Montilla, who in turn confirmed the sale of the Pasay property to Urban Bank.47 Pea told Mr. Montilla that because of the break-open order of the RTC-Pasay City, he (Pea) would be recalling the security guards he had posted to secure the property. Mr. Montilla, however, asked him to suspend the planned withdrawal of the posted guards, so that ISCI could get in touch with petitioner-respondent bank regarding the matter. 48 Later that same day, Pea received a telephone call from respondent Bejasa. After Pea informed her of the situation, she allegedly told him that Urban Bank would be retaining his services in guarding the Pasay property, and that he should continue his efforts in retaining possession thereof. He insisted, however, on talking to the Banks president. Respondent Bejasa gave him the contact details of respondent Borlongan, then president of Urban Bank.49 The facts regarding the following phone conversation and correspondences are highly-controverted. Immediately after talking to respondent Bejasa, Pea got in touch with Urban Banks president, respondent Borlongan. Pea explained that the policemen in Pasay City were sympathetic to the tenants and were threatening to force their way into the premises. He expressed his concern that violence might erupt between the tenants, the city police, and the security guards posted in the Pasay property. Respondent Borlongan supposedly assured him that the bank was going to retain his services, and that the latter should not give up possession of the subject land. Nevertheless, petitioner-respondent Pea demanded a written letter of authority from the bank. Respondent Borlongan acceded and instructed him to see respondent Bejasa for the letter. 50

In the same telephone conversation, respondent Borlongan allegedly asked Pea to maintain possession of the Pasay property and to represent Urban Bank in any legal action that might be instituted relative to the property. Pea supposedly demanded 10% of the market value of the property as compensation and attorneys fees and reimbursement for all the expenses incurred from the time he took over land until possession was turned over to Urban Bank. Respondent Borlongan purportedly agreed on condition that possession would be turned over to the bank, free of tenants, not later than four months; otherwise, Pea would lose the 10% compensation and attorneys fees. 51 Later that afternoon, Pea received the banks letter dated 19 December 1994, which was signed by respondents Bejasa and Manuel, and is quoted below: This is to confirm the engagement of your services as the authorized representative of Urban Bank, specifically to hold and maintain possession of our abovecaptioned property [Pasay property] and to protect the same from former tenants, occupants or any other person who are threatening to return to the said property and/or interfere with your possession of the said property for and in our behalf. You are likewise authorized to represent Urban Bank in any court action that you may institute to carry out the aforementioned duties, and to prevent any intruder, squatter or any other person not otherwise authorized in writing by Urban [B]ank from entering or staying in the premises.52 (Emphasis supplied) On even date, ISCI sent Urban Bank a letter, which acknowledged ISCIs engagement of Pea and commitment to pay for any expenses that may be incurred in the course of his services. ISCIs letter reads: This has reference to your property located along Roxas Boulevard, Pasay City [Pasay property] which you purchased from Isabela Sugar Company under a Deed of Absolute Sale executed on December 1, 1994. In line with our warranties as the Seller of the said property and our undertaking to deliver to you the full and actual possession and control of said property, free from tenants, occupants or squatters and from any obstruction or impediment to the free use and occupancy of the property by Urban Bank, we have engaged the services of Atty. Magdaleno M. Pea to hold and maintain possession of the property and to prevent the former tenants or occupants from entering or returning to the premises. In view of the transfer of the ownership of the property to Urban Bank, it may be necessary for Urban Bank to appoint Atty. Pea likewise as its authorized representative for purposes of holding/maintaining continued possession of the said property and to represent Urban Bank in any court action that may be instituted for the abovementioned purposes. It is understood that any attorneys fees, cost of litigation and any other charges or expenses that may be incurred relative to the exercise by Atty. Pea of his abovementioned duties shall be for the account of Isabela Sugar Company and any loss or damage that may be incurred to third parties shall be answerable by Isabela Sugar Company.53 (Emphasis supplied) The following narration of subsequent proceedings is uncontroverted. Pea then moved for the dismissal of ISCIs First Injunction Complaint, filed on behalf of ISCI, on the ground of lack of personality to continue the action, since the Pasay property, subject of the suit, had already been transferred to Urban Bank.54 The RTC-Pasay City dismissed the complaint and recalled its earlier break-open order. 55

Thereafter, petitioner-respondent Pea, now in representation of Urban Bank, filed a separate complaint56 (the Second Injunction Complaint) with the RTC-Makati City, to enjoin the tenants from entering the Pasay property.57Acting on Urban Banks preliminary prayer, the RTC-Makati City issued a TRO.58 While the Second Injunction Complaint was pending, Pea made efforts to settle the issue of possession of the Pasay property with the sub-tenants. During the negotiations, he was exposed to several civil and criminal cases they filed in connection with the task he had assumed for Urban Bank, and he received several threats against his life. 59 The sub-tenants eventually agreed to stay off the property for a total consideration of PhP1,500,000. 60Pea advanced the payment for the full and final settlement of their claims against Urban Bank.61 Pea claims to have borrowed PhP3,000,000 from one of his friends in order to maintain possession thereof on behalf of Urban Bank.62 According to him, although his creditor-friend granted him several extensions, he failed to pay his loan when it became due, and it later on became the subject of a separate collection suit for payment with interest and attorneys fees. 63 This collection suit became the basis for Atty. Peas request for discretionary execution pending appeal later on. On 07 February 1995, within the four-month period allegedly agreed upon in the telephone conversation, Pea formally informed Urban Bank that it could already take possession of the Pasay property.64 There was however no mention of the compensation due and owed to him for the services he had rendered. On 31 March 1995, the bank subsequently took actual possession of the property and installed its own guards at the premises.65 Pea thereafter made several attempts to contact respondents Borlongan and Bejasa by telephone, but the bank officers would not take any of his calls. On 24 January 1996, or nearly a year after he turned over possession of the Pasay property, Pea formally demanded from Urban Bank the payment of the 10% compensation and attorneys fees allegedly promised to him during his telephone conversation with Borlongan for securing and maintaining peaceful possession of the property.66 Proceedings on the Complaint for Compensation On 28 January 1996, when Urban Bank refused to pay for his services in connection with the Pasay property, Pea filed a complaint67 for recovery of agents compensation and expenses, damages and attorneys fees in RTC-Bago City in the province of Negros Occidental. 68 Interestingly, Pea sued only six out of the eleven members of the Board of the Directors of Urban Bank. 69 No reason was given why the six directors were selected and the others excluded from Peas complaint. In fact, as pointed out, Atty. Pea mistakenly impleaded as a defendant, Ben Y. Lim, Jr., who was never even a member of the Board of Directors of Urban Bank; while, Ben T. Lim, Sr., father and namesake of Ben Y. Lim, Jr., who had been a director of the bank, already passed away in 1997. 70 In response to the complaint of Atty. Pea, Urban Bank and individual bank officers and directors argued that it was ISCI, the original owners of the Pasay property, that had engaged the services of Pea in securing the premises; and, consequently, they could not be held liable for the expenses Pea had incurred.71 On 28 May 1999, the RTC-Bago City72 ruled in favor of Pea, after finding that an agency relationship had indeed been created between him and Urban Bank. The eight directors and bank officers were found to be solidarily liable with the bank for the payment of agencys fees. The trial

court thus ordered Urban Bank and all eight defendant bank directors and officers whom Pea sued to pay the total amount of PhP28,500,000 (excluding costs of suit): WHEREFORE, premised from the foregoing, judgment is hereby rendered ordering defendants to pay plaintiff jointly and severally the following amounts: 1. P24,000,000 as compensation for plaintiffs services plus the legal rate of interest from the time of demand until fully paid; 2. P3,000,000 as reimbursement of plaintiffs expenses; 3. P1,000,000 as and for attorneys fees; 4. P500,000 as exemplary damages; 5. Costs of suit. SO ORDERED.73 Urban Bank and the individual defendant bank directors and officers filed a common Notice of Appeal,74 which was given due course.75 In the appeal, they questioned the factual finding that an agency relationship existed between the bank and Pea. 76 Although they put up a single defense in the proceedings in the lower court, Urban Bank and individual defendants contracted different counsel and filed separate Briefs on appeal in the appellate court. In its Brief,77 Urban Bank78 assigned as errors the trial courts reliance on the purported oral contract of agency and Peas claims for compensation during the controverted telephone conversation with Borlongan, which were allegedly incredible. Meanwhile, Benjamin L. de Leon, Delfin Gonzalez, Jr., and Eric L. Lee (the De Leon Group), 79 the petitioners in the instant Petition docketed as G. R. No. 145822, argued that, even on the assumption that there had been an agency contract with the bank, the trial court committed reversible error in holding them as bank directors solidarily liable with the corporation. 80 On the other hand, Teodoro Borlongan, Corazon M. Bejasa, Arturo Manuel, Jr., Ben Y. Lim, Jr., and P. Siervo H. Dizon (the Borlongan Group)81 reiterated similar arguments as those of the De Leon Group, adding that the claimed compensation of 10% of the purchase price of the Pasay property was not reasonable.82 Pea refuted all of their arguments83 and prayed that the trial courts Decision be affirmed. 84 Acting favorably on the appeal, the Court of Appeals 85 annulled the Decision of the RTC-Bago City and ruled that no agency relationship had been created. Nevertheless, it ordered Urban Bank to reimburse Pea for his expenses and to give him reasonable compensation for his efforts in clearing the Pasay property of tenants in the amount of PhP3,000,000, but absolved the bank directors and officers from solidary liability. The dispositive portion of the CA decision reads as follows: WHEREFORE, in view of the foregoing considerations, the May 28, 2000 Decision [sic] and the October 19, 2000 [sic] Special Order of the RTC of Bago City, Branch 62, 86 are hereby ANNULLED

AND SET ASIDE. However, the plaintiff-appellee [Pea] in CA GR CV No. 65756 is awarded the amount of P3 Million as reimbursement for his expenses as well as reasonable compensation for his efforts in clearing Urban Banks property of unlawful occupants. The award of exemplary damages, attorneys fees and costs of suit are deleted, the same not having been sufficiently proven. The petition for Indirect Contempt against all the respondents is DISMISSED for utter lack of merit. 87 (Emphasis supplied) Pea duly filed a Motion for Reconsideration of the unfavorable CA Decision. 88 The appellate court, however, denied his motion.89 The CA Decision and Resolution were appealed by Pea to this Court, through one of the three consolidated Rule 45 Petitions before us (G. R. No. 162562). Execution Pending Appeal On 07 June 1999, prior to the filing of the notice of appeal of Urban Bank and individual bank officers,90 Pea moved for execution pending appeal 91 of the Decision rendered by the RTC-Bago City,92 which had awarded him a total of PhP28,500,000 in compensation and damages. 93 In supporting his prayer for discretionary execution, Pea cited the pending separate civil action for collection filed against him by his creditor-friend, who was demanding payment of a PhP3,000,000 loan.94 According to Pea, he had used the proceeds of the loan for securing the banks Pasay property. No other reason for the prayer for execution pending appeal was given by Pea other than this collection suit.95 In opposition to the motion, Urban Bank countered that the collection case was not a sufficient reason for allowing execution pending appeal.96 On 29 October 1999, the RTC-Bago City, through Judge Henry J. Trocino, 97 favorably granted Peas motion and issued a Special Order authorizing execution pending appeal. 98 In accordance with this Special Order, Atty. Josephine Mutia-Hagad, the clerk of court and ex officio sheriff, issued a Writ of Execution99 on the same day.100The Special Order and Writ of Execution were directed at the properties owned by Urban Bank as well as the properties of the eight individual bank directors and officers. On 04 November 1999, affected by the trial courts grant of execution pending appeal, Urban Bank101 filed a Rule 65 Petition with the CA to enjoin the Special Order and Writ of Execution issued by the trial court with a prayer for a TRO.102 On 09 November 1999, the appellate court favorably granted the TRO and preliminarily prohibited the implementation of the Special Order and Writ of Execution. 103 On 12 January 2000, the CA eventually granted Urban Banks Rule 65 Petition, and the RTCs Special Order and Writ of Execution, which permitted execution pending appeal, were annulled. The appellate court ruled:104 WHEREFORE, the instant petition is GRANTED. The Special Order and writ of execution, both dated October 29, 1999, are ANNULLED and SET ASIDE. Respondents are directed to desist from further implementing the writ of execution and to lift the garnishment and levy made pursuant thereto. 105

On 02 February 2000, Pea moved for the reconsideration of the CAs Decision; 106 while petitioners filed their corresponding Comment/Opposition thereto.107 During the pendency of Peas Motion for Reconsideration, Urban Bank declared a bank holiday on 26 April 2000 and was placed under receivership of the Philippine Deposit Insurance Corporation (PDIC).108 In its Amended Decision dated 18 August 2000, the CA109 favorably granted Peas Motion for Reconsideration, and reversed its earlier Decision to allow execution pending appeal. 110 The appellate court found that the bank holiday declared by the BSP after the promulgation of its earlier Decision, PDICs receivership of Urban Bank, and the imminent insolvency thereof constituted changes in the banks conditions that would justify execution pending appeal. 111 On 29 August 2000, Urban Bank and its officers moved for the reconsideration of the Amended Decision.112 The De Leon Group subsequently filed several Supplemental Motions for Reconsideration.113 Thereafter, respondents Teodoro Borlongan and Corazon M. Bejasa also filed their separate Supplemental Motion for Reconsideration, 114as did petitioner Ben T. Lim, Jr.115 On 19 October 2000, the Court of Appeals denied the motion for reconsideration for lack of merit and the other subsequent Supplemental Motions for Reconsideration for being filed out of time.116 The appellate court also ordered Pea to post an indemnity bond. 117 The Amended Decision and the Resolution were the subjects of several Rule 45 Petitions filed by Urban Bank and individual petitioners (G. R. Nos. 145817, 145818 and 145822). On the same day the CA denied its Motion for Reconsideration, the De Leon Group immediately moved for the stay of execution pending appeal upon the filing of a supersedeas bond. 118 On 31 October 2000, the CA119 granted the stay of the execution upon the filing by the De Leon Group of a PhP40,000,000 bond in favor of Pea. 120 Pea moved for the reconsideration of the stay order.121 1avvphil In its Resolution dated 08 December 2000,122 the appellate court denied Peas Motion for Reconsideration and a stay order over the execution pending appeal was issued in favor of the De Leon Group, after they had filed their supersedeas bond. 123 The stay of execution pending appeal, however, excluded Urban Bank.124 On 08 December 2000, Pea posted his indemnity bond as required by the CA. 125 As mentioned earlier, Urban Bank, the De Leon Group, and the Borlongan Group filed around December 2000 separate Rule 45 Petitions in this Court, to assail the unfavorable CA Amended Decision and Resolution that affirmed the execution pending appeal. The details of these Rule 45 Petitions will be discussed in detail later on. In the meantime, Export and Industry Bank (EIB) submitted its proposal for rehabilitation of Urban Bank to the BSP, and requested that the troubled bank be removed from receivership of the PDIC. On 12 July 2001, or almost a year after the Court of Appeals amended its decision to allow execution pending appeal, the rehabilitation plan of Urban Bank was approved by the Monetary

Board of the BSP.126 Thus, the Monetary Board subsequently lifted PDICs statutory receivership of the bank.127 On 14 September 2001, Urban Bank, trying to follow the lead of the De Leon Group, made a similar request with the Court of Appeals for approval of its own supersedeas bond, 128 for the same amount of PhP40,000,000, and prayed that the execution of the RTC-Bago Citys Decision against it be stayed as well.129 Sometime in September and October 2001, Urban Bank began receiving notices of levy and garnishment over its properties. After it received Notice of the impending public execution sale of its shares in the Tagaytay Highlands International Golf Club, 130 Urban Bank reiterated its request for the approval of the supersedeas bond with the Court of Appeals and the issuance of the corresponding stay order.131 The appellate court, however, merely noted Urban Banks motion on the ground that there was no showing whether a petition to the Supreme Court had been filed or given due course or denied. 132 After the denial by the Court of Appeals of Urban Banks motion for approval of its supersedeas bond, some of the levied properties of Urban Bank and the other bank officers were sold on public auction. The table below lists the properties that appear on record to have been levied and/or sold on execution pending appeal and the approximate value of some of these properties. They do not include properties covered by the Petition docketed as G. R. No. 145818. Table of Levied, Garnished and/or Executed Properties Pending Appeal
1avvphi1

Owner/ Defendant

Property Description Three Club Shares Tagaytay Highlands International Golf Club133 Three Club Shares in Makati Sports, Club, Inc. (MSCI) [Covered by Stock Certificate Nos. A1893, A-2305 and B-762]135

Estimated Value or Price at Public Auction As of 06 December 1999, one share was selling at P1.6 Million.134 As of 06 December 1999, MSCI Club Shares "A" and "B" were selling at PhP650,000 and PhP700,000, respectively.136

Total Amount

Remarks

4,800,000

2,000,000137

Urban Bank

Atty. Pea was one of the winning bidders in the auction sale together with his creditor friend, Roberto Ignacio, and Atty. Ramon Ereeta. Intervenor Unimega purchased the 10 condominium units in the auction sale for P1M each or a total of P10 M.140

85 Condominium Units in the Urban Bank Plaza, Makati City138

The highest bid price obtained for the condominium units was PhP1M at the time of the execution sale.139

85,000,000

A 155 sqm. condominium unit, Makati City (CCT No. 57697) 141 A 12.5 sqm. condominium parking space (Parking Three, Unit P-46) in Makati City (CCT No. 57698)143 Estimates are based on report of Urban Bank142

12,400,000

500,000

A 64,677 sqm. land Value based on in Tagaytay City estimate of Urban (TCT No. 20471)144 Bank145 One Club Share in Manila Polo Club (No. 3433)146 One Club Share in Subic Bay Yacht Club149 One Club Share in Baguio Country Club151 One Club Share in MSCI153 Borlongans club share was estimated to be valued at P1,000,000.147 One club share was estimated to be valued at P500,000.150 As of 06 December 1999, one share was selling at P870,000.152 As of 06 December 1999, MSCI Club Shares "A" and "B" were selling at PhP650,000 and PhP700,000 respectively.154 No estimate available on record.

35,572,350

1,000,000

Notice of Sale on Execution on Personal Property dated 25 August 2000148

500,000

870,000

Teodoro Borlongan

650,000

Real Property155

One Club Share in Manila Polo Club (No. 3818)156 Delfin C. Gonzales, Jr. One Club Share in Baguio Country Club.159 One Club Share in

Gonzales club share was estimated to be 4,000,000 valued at P4,000,000.157 Gonzales club share 1,077,000 was estimated to be valued at P1,077,000.160 Gonzales club share 2,000,000

Notice of Sale on Execution on Personal Property dated 25 August 2000158

Alabang Country Club (Member No. 550)161 30,585 shares of stock in D. C. Gonzales, Jr., Inc.163 40 Shares of stock in D. C. Gonzales, Jr., Inc.165 One Club Share in Manila Polo Club (with Associate Membership) [No. 0597]167 Benjamin L. de Leon One Club Share in MSCI (Stock Certificate No. A175)170 One Club Share in Baguio Country Club (5523)172

was estimated to be valued at P2,000,000.162 P20.00 per share164 611,700

P50.00 per share166

2,000

De Leons Share was estimated at P4 M for the share and P1.05 5,050,000 M for the associate membership.168 De Leons share was 450,000 estimated at P450,000.171 As of 06 December 1999, one share was selling at least P870,000.173 870,000

Notice of Sale on Execution on Personal Property dated 25 August 2000169

P. Siervo G. Dizon

No records available as to properties levied, garnished or executed pending appeal. One Club Share in Manila Polo Club (2038)174 One Club Share in Manila Golf Club, Inc.177 Lees club share was estimated to be 4,000,000 valued at 175 P4,000,000. Lees club share was 15,750,000 estimated to be valued at P15,750,000.178 Lees club share was 2,000,000 estimated to be valued at P2,000,000.180 Lees club shares were estimated to be valued at P1,000,000.182 1,000,000 Notice of Sale on Execution on Personal Property dated 25 August Notice of Sale on Execution on Personal Property dated 25 August 2000176

Eric L. Lee One Club Share in Sta. Elena Golf Club, Inc. (Class "A" Share) 179 Two Club Shares in Tagaytay Highlands Intl Golf Club, Inc. 181

2000183 One Club Share in Lees club share was 500,000 Subic Yacht Club184 estimated to be valued at P500,000.185 60,757 Shares of stock in EQL Properties, Inc.186 40 Shares of stock in EQL Properties, Inc. 187 Cash garnished from BPI Account188 P20.00 per share 1,214,140

P50.00 per share

2,000

100,000 No records available as to properties levied, garnished or executed pending appeal.

Ben T. Lim, Jr.

Corazon Bejasa Arturo Manuel, Jr.,

Real Property189 Real Property190 TOTAL VALUE

No estimated value. No estimated value. 181,919,190

The sum of PhP181,919,190 does not include many other properties and it is not difficult to believe that the total value covered reached more than that. 191 In summary, the estimated values and/or purchase prices at the auction sale of the properties of Urban Bank and its officers amounted to no less than PhP181,919,190 already. This amounts to almost six times the value of the award given by the trial court. Otherwise stated, Pea, as judgment creditor, was overly secured by the levied and/or garnished properties for the amount of PhP28,500,000, where the judgment award was still subject of reversal on appeal. On 22 October 2001, Urban Bank, with respect to its pending Rule 45 Petition in this Court, moved for the approval of its PhP40,000,000 supersedeas bond 192 and requested that the Court stay the execution pending appeal.193 Pea opposed the motion on the ground that it had already been rendered moot and academic by the sale of the properties of the bank. 194 On 23 October 2002, or almost a year after some of the condominium units were sold in a public auction, EIB, as the successor of Urban Bank, expressed to the sheriff of RTC-Bago City an intent to redeem the said condominium units.195 Thus, EIB tendered three managers checks in the total amount of PhP22,108,800196 to redeem the properties that were previously under the name of Urban Bank.197 Although the trial court noted the banks Manifestation, 198 the sheriff returned the EIBs managers checks. Thus, on 29 October 2002, EIB, through a motion, was prompted to turn over the checks to the trial court itself.199

When Urban Bank supposedly failed to redeem the condominium units according to the sheriff,200 final Certificates of Sale were issued in favor of Unimega on 04 November 2002. 201 Upon the latters motion, RTC-Bago City, in its Order dated 13 November 2002, ordered the Register of Deeds of Makati to transfer the Condominium Certificates of Title to the name of Unimega. 202 It has not been shown, though, whether this Order was followed. This Court, acting on Urban Banks earlier motion to approve its supersedeas bond, granted the same in its Resolution dated 19 November 2001.203 Pea moved for reconsideration of the approval,204 but his motion was subsequently denied by the Court. 205 Proceedings in the Supreme Court (G. R. Nos. 145817, 145818 & 145822) On 21 December 2000, Urban Bank,206 represented by its receiver, PDIC,207 filed a Rule 45 Petition with this Court (docketed as G. R. No. 145817) to assail the CAs Amended Decision and Resolution granting execution pending appeal.208 In response, Pea moved for the denial of the petition on the grounds of lack merit, violation of the rule against forum shopping, and non-payment of docket fees, among others.209 In a separate Comment,210 Pea also argued that the appellate court had committed no error when it considered the banks "imminent insolvency" as a good reason for upholding the validity of the execution pending appeal. On the other hand, the Borlongan Group211 filed a separate Rule 45 Petition questioning the same Decision and Resolution, docketed as G. R. No. 145818. 212 This Court initially denied their petition on the ground that it failed to sufficiently show that the CA committed reversible order. 213 The Borlongan Group twice moved for the reconsideration of the denial of their petition; but the Court nonetheless denied both motions for lack of merit.214This denial of the petition in G. R. No. 145818 became final and executory, with the issuance of the Entry of Judgment. 215 Meanwhile, another Rule 45 Petition (G. R. No. 145822) 216 was filed by the De Leon Group, assailing the same Decisions of the appellate court. The Court also preliminarily denied this petition on the ground that the De Leon Group failed to file the appeal within the reglementary period and to pay certain fees.217 Despite the denial of the Rule 45 Petition in G. R. No. 145822 filed by the De Leon Group, the Court nonetheless ordered that the case be consolidated with Urban Banks own Rule 45 Petition in G. R. No. 145817.218 The Court subsequently gave due course to both of these petitions. 219 In compliance with the Courts Order,220 Urban Bank221 and the De Leon Group222 filed their respective Memoranda. As detailed earlier, the Court granted and approved Urban Banks supersedeas bond and stayed the execution pending appeal. Considering the favorable stay of execution pending appeal, EIB, as the new owner and successor of Urban Bank, immediately wrote to tell223 the corporate secretary of MSCI not to effect the cancellation or transfer of Urban Banks three MSCI stock certificates previously sold in a public auction. 224 In reply, MSCI explained that since there was no injunction or stay order, it had no other option but to comply with the trial courts Order for the transfer. Eventually, however, it could not effect the transfer of one of the shares to Pea because a club share had already been previously registered in his name, and the clubs bylaws prohibited a natural person from owning more than one share.225 Meanwhile, one of the winning bidders in the public auction sale of the MSCI shares wrote to the latter to demand that the club share previously owned by Urban Bank be transferred to him. 226

On 04 February 2002, considering the conflicting claims of Urban Bank (through EIB) and the winning bidders of the club shares, MSCI filed a Motion for Clarification of the Courts Resolution staying the execution pending appeal. 227 In its Motion for Clarification dated 06 August 2002, Urban Bank likewise requested clarification of whether the stay order suspended, as well, its right to redeem the properties sold at a public auction.228 The copy of Urban Banks motion for clarification intended for Pea was mistakenly sent to the wrong counsel. In its Resolution dated 13 November 2002, the Court explained that its earlier stay order prohibited the MSCI from transferring the shares, and that the one-year period for redemption of the banks properties was likewise suspended: WHEREFORE, the Court hereby RESOLVES to clarify that as a consequence of its approval of the supersedeas bond, the running of the one-year period for petitioner Urban Bank to redeem the properties sold at the public auctions held on October 4, 11 and 25, 2001 as well as the consolidation of the titles in favor of the buyers, is SUSPENDED OR STAYED. MSCI is also prohibited from transferring petitioner Urban Banks MSCI club shares to the winning bidders in the execution sale held on October 11, 2001.229 (Emphasis supplied) On 09 December 2002, Pea moved that the Courts Resolution be recalled, because he was not given an opportunity to be heard on Urban Banks Motion for Clarification, which was sent to a different counsel.230Interposing its objection, the bank argued that the error in mistakenly sending the Motion for clarification to a different counsel was by sheer inadvertence, 231 but Pea was nonetheless aware of the motion, and that the Courts clarification did not create or diminish his rights in any case. 232 The Motion for Clarification filed by Urban Bank, the Courts Resolution dated 13 November 2002 and Peas Omnibus Motion praying for the recall of the said Resolution became the subject of an administrative case (Administrative Case No. 6332), which was treated as a separate matter and later on de-consolidated with the instant Petitions. 233 The Court had even called for an executive session234 in which Pea, among others, appeared and was questioned by the then members of the Courts First Division, namely retired Chief Justice Hilario Davide, Justices Jose Vitug, Antonio Carpio and Adolfo Azcuna. Although the Petitions had earlier been assigned to Justice Carpio, he has since taken no part in the proceedings of this case and this resulted in the re-raffling of the Petitions. The transfer and unloading of the case by the subsequently assigned Justices as well as Peas numerous motions for inhibition and/or re-raffle has likewise cause considerable delay in the disposition of the instant Petitions and the Administrative Case. Unimega, which was the winning bidder of some of the publicly executed condominium units of Urban Bank, moved to intervene in the case and to have the Courts same Resolution suspending the one-year period of redemption of the properties be reconsidered. 235 Unimega claimed that ownership of the banks titles to the 10 condominium units had already been transferred to the former at the time the Court issued the Resolution; and, thus, there was no more execution to be suspended or stayed. Only Urban Bank236 opposed the motion237 of intervenor Unimega on the ground that the latter was not a buyer in good faith, and that the purchase price was grossly disproportional to the fair market value of the condominium units. 238 The Court eventually granted the Motion to Intervene considering that the intervenors title to the condominium units purchased at the public auction would be affected, favorably or otherwise, by the judgment of the Court in this case. However, it held in abeyance the resolution of intervenors Motion for Reconsideration, which might preempt the decision with respect to the propriety of execution

pending appeal.239 Thereafter, the bank adopted its earlier Opposition to the intervention as its answer to Unimegas petition-in-intervention. 240 Also in answer thereto, the De Leon Group adopted its earlier Manifestation and Comment.241 Intervenor Unimega then requested that a writ of possession be issued in its favor covering the 10 condominium units sold during the public auction. 242 The Court required the parties to file their comments on the request.243The Lim244 and Borlongan Groups245 manifested separately that they would not be affected by a resolution of the request of intervenor Unimega, since the latter was not among the contending parties to the incident. Pea similarly interposed no objection to the issuance of the writ of possession.246 In contrast, Urban Bank opposed the application of Unimega on the ground that the latter was not entitled to possession of the levied properties, because the rules of extrajudicial foreclosure were not applicable to execution sales under Rule 39, and that intervenor was also not a buyer in good faith.247 In a similar vein, the De Leon Group opposed the application for a writ of possession, and further argued that the Court had already suspended the running of the one-year period of redemption in the execution sale. 248 Accordingly, intervenor Unimega countered that the right of redemption of the levied properties had already expired without having been exercised by the judgment debtor.249 In summary, the Court shall resolve the substantial issues in the following: (a) the Petition of Pea (G. R. No. 162562) assailing the CAs decision on the substantive merits of the case with respect to his claims of compensation based on an agency agreement; and (b) the Petitions of Urban Bank (G. R. No. 145817) and the De Leon Group (G R. No. 145822) questioning the propriety of the grant of execution pending appeal. OUR RULING I Pea is entitled to payment for compensation for services rendered as agent of Urban Bank, but on the basis of the principles of unjust enrichment and quantum meruit, and not on the purported oral contract. The Court finds that Pea should be paid for services rendered under the agency relationship that existed between him and Urban Bank based on the civil law principle against unjust enrichment, but the amount of payment he is entitled to should be made, again, under the principle against unjust enrichment and on the basis of quantum meruit. In a contract of agency, agents bind themselves to render some service or to do something in representation or on behalf of the principal, with the consent or authority of the latter. 250 The basis of the civil law relationship of agency is representation, 251 the elements of which include the following: (a) the relationship is established by the parties consent, express or implied; (b) the object is the execution of a juridical act in relation to a third person; (c) agents act as representatives and not for themselves; and (d) agents act within the scope of their authority. 252 Whether or not an agency has been created is determined by the fact that one is representing and acting for another.253 The law makes no presumption of agency; proving its existence, nature and extent is incumbent upon the person alleging it.254 With respect to the status of Atty. Peas relationship with Urban Bank, the trial and the appellate courts made conflicting findings that shall be reconciled by the Court. On one end, the appellate court made a definitive ruling that no agency relationship existed at all between Pea and the bank, despite the services performed by Pea with respect to the Pasay property purchased by the bank.

Although the Court of Appeals ruled against an award of agents compensation, it still saw fit to award Pea with Ph3,000,000 for expenses incurred for his efforts in clearing the Pasay property of tenants.255 On the other extreme, the trial court heavily relied on the sole telephone conversation between Pea and Urban Banks President to establish that the principal-agent relationship created between them included an agreement to pay Pea the huge amount of PhP24,000,000. In its defense, Urban Bank insisted that Pea was never an agent of the bank, but an agent of ISCI, since the latter, as seller of the Pasay property committed to transferring it free from tenants. Meanwhile, Pea argues on the basis of his successful and peaceful ejectment of the sub-tenants, who previously occupied the Pasay property. Based on the evidence on records and the proceedings below, the Court concludes that Urban Bank constituted Atty. Pea as its agent to secure possession of the Pasay property. This conclusion, however, is not determinative of the basis of the amount of payment that must be made to him by the bank. The context in which the agency was created lays the basis for the amount of compensation Atty. Pea is entitled to. The transactional history and context of the sale between ISCI and Urban Bank of the Pasay property, and Atty. Peas participation in the transfer of possession thereof to Urban Bank provide crucial linkages that establish the nature of the relationship between the lawyer and the landownerbank. The evidence reveals that at the time that the Contract to Sell was executed on 15 November 1994, and even when the Deed of Absolute Sale was executed two weeks later on 29 November 1994, as far as Urban Bank was concerned, Pea was nowhere in the picture. All discussions and correspondences were between the President and Corporate Secretary of Urban Bank, on one hand, and the President of ISCI, on the other. The title to the Pasay property was transferred to Urban Bank on 5 December 1994. Interestingly, Pea testifies that it was only on 19 December 1994 that he learned that the land had already been sold by ISCI to Urban Bank, notwithstanding the fact that Pea was a director of ISCI. Pea was not asked to render any service for Urban Bank, neither did he perform any service for Urban Bank at that point. ISCI undertook in the Contract to Sell, to physically deliver the property to Urban Bank, within 60 days from 29 November 1994,256 under conditions of "full and actual possession and control ..., free from tenants, occupants, squatters or other structures or from any liens, encumbrances, easements or any other obstruction or impediment to the free use and occupancy by the buyer of the subject Property or its exercise of the rights to ownership over the subject Property...." 257 To guarantee this undertaking, ISCI agreed to the escrow provision where PhP25,000,000 (which is a little over 10% of the value of the Pasay property) would be withheld by Urban Bank from the total contract price until there is full compliance with this undertaking. Apparently to ensure that ISCI is able to deliver the property physically clean to Urban Bank, it was ISCIs president, Enrique Montilla who directed on 26 November 1994 one of its directors, Pea, to immediately recover and take possession of the property upon expiration of the contract of lease on 29 November 1994.258 Pea thus first came into the picture as a director of ISCI who was constituted as its agent to recover the Pasay property against the lessee as well as the sub-tenants who were occupying the property in violation of the lease agreement. 259 He was able to obtain possession of the property from the lessee on the following day, but the unauthorized sub-tenants refused to vacate the property. It was only on 7 December 1994, that Urban Bank was informed of the services that Pea was rendering for ISCI. The faxed letter from ISCIs Marilyn Ong reads:

Atty. Magdaleno M. Pea, who has been assigned by Isabela Sugar Company, Inc., to take charge of inspecting the tenants would like to request an authority similar to this from the Bank, as new owners. Can you please issue something like this today as he needs this. 260 Two days later, on 9 December 1994, ISCI sent Urban Bank another letter that reads: Dear Mr. Borlongan, I would like to request for an authorization from Urban Bank as per attached immediately as the tenants are questioning the authority of the people there who are helping us to take over possession of the property. (Emphasis supplied)261 It is clear from the above that ISCI was asking Urban Bank for help to comply with ISCIs own contractual obligation with the bank under the terms of the sale of the Pasay property. Urban Bank could have ignored the request, since it was exclusively the obligation of ISCI, as the seller, to deliver a clean property to Urban Bank without any help from the latter. A full-bodied and confident interpretation of the contracts between ISCI and Urban Bank should have led the latter to inform the unauthorized sub-tenants that under its obligation as seller to Urban Bank, it was under duty and had continuing authority to recover clean possession of the property, despite the transfer of title. Yet, what unauthorized sub-tenant, especially in the kind of operations being conducted within the Pasay property, would care to listen or even understand such argument? Urban Bank thus chose to cooperate with ISCI without realizing the kind of trouble that it would reap in the process. In an apparent attempt to allow the efforts of ISCI to secure the property to succeed, it recognized Peas role in helping ISCI, but stopped short of granting him authority to act on its behalf. In response to the two written requests of ISCI, Urban Bank sent this letter to Pea on 15 December 1994: This is to advise you that we have noted the engagement of your services by Isabela Sugar Company to recover possession of the Roxas Boulevard property formerly covered by TCT No. 5382, effective November 29, 1994. It is understood that your services have been contracted by and your principal remains to be the Isabela Sugar Company, which as seller of the property and under the terms of our Contract to Sell dated November 29, 1994, has committed to deliver the full and actual possession of the said property to the buyer, Urban Bank, within the stipulated period. 262 (Emphasis supplied) Up to this point, it is unmistakable that Urban Bank was staying clear from making any contractual commitment to Pea and conveyed its sense that whatever responsibilities arose in retaining Pea were to be shouldered by ISCI. According to the RTC-Bago City, in the reversed Decision, Atty. Pea only knew of the sale between ISCI and Urban Bank at the time the RTC-Pasay City recalled the TRO and issued a break-open order: " when information reached the (Pasay City) judge that the Pasay property had already been transferred by ISCI to Urban Bank, the trial court recalled the TRO and issued a break-open order for the property. According to Pea, it was the first time that he was apprised of the sale of the land by ISCI and of the transfer of its title in favor of the bank." 263 There is something contradictory between some of the trial courts factual findings and Peas claim that it was only on 19 December 1994 that he first learned of the sale of the property to Urban Bank. It is difficult to believe Pea on this point considering: (1) that he was a board director of ISCI and a

sale of this significant and valuable property of ISCI requires the approval of the board of directors of ISCI; and (2) that ISCI twice requested Urban Bank for authority to be issued in his favor (07 and 9 December 1994), 12 and 10 days before 19 December 1994, since it would be contrary to human experience for Pea not to have been informed by an officer of ISCI beforehand that a request for authority for him was being sent to Urban Bank. The sequence of fast-moving developments, edged with a sense of panic, with respect to the decision of the RTC-Pasay City to recall the temporary restraining order and issue a break-open order on 19 December 1994 in the First Injunction Complaint, is highly enlightening to this Court. First, Pea allegedly called up the president of ISCI, Montilla, who, according to Pea, confirmed to him that the Pasay property had indeed been sold to Urban Bank. Second, Pea allegedly told Montilla that he (Pea) would be withdrawing his guards from the property because of the break-open order from the RTC-Pasay City. Third, Montilla requested Pea to suspend the withdrawal of the guards while ISCI gets in touch with Urban Bank. Fourth, apparently in view of Montillas efforts, Bejasa, an officer of Urban Bank called Pea and according to the latter, told him that Urban Bank would continue retaining his services and for him to please continue with his effort to secure the property. Fifth, this statement of Bejasa was not enough for Pea and he insisted that he be enabled to talk with no less than the President of Urban Bank, Borlongan. At this point, Bejasa gave him the phone number of Borlongan. Sixth, immediately after the conversation with Bejasa, Pea calls Borlongan and tells Borlongan that violence might erupt in the property because the Pasay City policemen, who were sympathetic to the tenants, were threatening to force their way through the property. At this point, if indeed this conversation took place, which Borlongan contests, what would have been the response of Borlongan? Any prudent president of a bank, which has just purchased a PhP240,000,000 property plagued by unauthorized and unruly sub-tenants of the previous owner, would have sought to continue the possession of ISCI, thru Pea, and he would have agreed to the reasonable requests of Pea. Borlongan could also have said that the problem of having the subtenants ejected is completely ISCIs and ISCI should resolve the matter on its own that without bothering the bank, with all its other problems. But the specter of violence, especially as night was approaching in a newly-bought property of Urban Bank, was not something that any publicly-listed bank would want publicized. To the extent that the violence could be prevented by the president of Urban Bank, it is expected that he would opt to have it prevented. But could such response embrace the following legal consequences as Pea claims to have arisen from the telephone conversation with Borlongan: (1) A contract of agency was created between Pea and Urban Bank whereby Borlongan agreed to retain the services of Pea directly; (2) This contract of agency was to be embodied in a written letter of authority from Urban Bank; and (3) The agency fee of Pea was to be 10% of the market value as "attorneys fees and compensation" and reimbursement of all expenses of Pea from the time he took over the land until possession is turned over to Urban Bank.

This Court concludes that the legal consequences described in statements (1) and (2) above indeed took place and that the facts support them. However, the evidence does not support Peas claim that Urban Bank agreed to "attorneys fees and compensation" of 10% of the market value of the property. Urban Banks letter dated 19 December 1994 confirmed in no uncertain terms Peas designation as its authorized representative to secure and maintain possession of the Pasay property against the tenants. Under the terms of the letter, petitioner-respondent bank confirmed his engagement (a) "to hold and maintain possession" of the Pasay property; (b) "to protect the same from former tenants, occupants or any other person who are threatening to return to the said property and/or interfere with your possession of the said property for and in our behalf"; and (c) to represent the bank in any instituted court action intended to prevent any intruder from entering or staying in the premises. 264 These three express directives of petitioner-respondent banks letter admits of no other construction than that a specific and special authority was given to Pea to act on behalf of the bank with respect to the latters claims of ownership over the property against the tenants. Having stipulated on the due execution and genuineness of the letter during pretrial, 265 the bank is bound by the terms thereof and is subject to the necessary consequences of Peas reliance thereon. No amount of denial can overcome the presumption that we give this letter that it means what it says. In any case, the subsequent actions of Urban Bank resulted in the ratification of Peas authority as an agent acting on its behalf with respect to the Pasay property. By ratification, even an unauthorized act of an agent becomes an authorized act of the principal. 266 Both sides readily admit that it was Pea who was responsible for clearing the property of the tenants and other occupants, and who turned over possession of the Pasay property to petitionerrespondent bank.267 When the latter received full and actual possession of the property from him, it did not protest or refute his authority as an agent to do so. Neither did Urban Bank contest Peas occupation of the premises, or his installation of security guards at the site, starting from the expiry of the lease until the property was turned over to the bank, by which time it had already been vested with ownership thereof. Furthermore, when Pea filed the Second Injunction Complaint in the RTCMakati City under the name of petitioner-respondent bank, the latter did not interpose any objection or move to dismiss the complaint on the basis of his lack of authority to represent its interest as the owner of the property. When he successfully negotiated with the tenants regarding their departure from its Pasay property, still no protest was heard from it. After possession was turned over to the bank, the tenants accepted PhP1,500,000 from Pea, in "full and final settlement" of their claims against Urban Bank, and not against ISCI.268 In all these instances, petitioner-respondent bank did not repudiate the actions of Pea, even if it was fully aware of his representations to third parties on its behalf as owner of the Pasay property. Its tacit acquiescence to his dealings with respect to the Pasay property and the tenants spoke of its intent to ratify his actions, as if these were its own. Even assuming arguendo that it issued no written authority, and that the oral contract was not substantially established, the bank duly ratified his acts as its agent by its acquiescence and acceptance of the benefits, namely, the peaceful turnover of possession of the property free from sub-tenants. Even if, however, Pea was constituted as the agent of Urban Bank, it does not necessarily preclude that a third party would be liable for the payment of the agency fee of Pea. Nor does it preclude the legal fact that Pea while an agent of Urban Bank, was also an agent of ISCI, and that his agency from the latter never terminated. This is because the authority given to Pea by both ISCI and Urban Bank was common to secure the clean possession of the property so that it may be turned over to Urban Bank. This is an ordinary legal phenomenon that an agent would be an agent for the

purpose of pursuing a shared goal so that the common objective of a transferor and a new transferee would be met. Indeed, the Civil Code expressly acknowledged instances when two or more principals have granted a power of attorney to an agent for a common transaction. 269 The agency relationship between an agent and two principals may even be considered extinguished if the object or the purpose of the agency is accomplished.270 In this case, Peas services as an agent of both ISCI and Urban Bank were engaged for one shared purpose or transaction, which was to deliver the property free from unauthorized sub-tenants to the new owner a task that Pea was able to achieve and is entitled to receive payment for. That the agency between ISCI and Pea continued, that ISCI is to shoulder the agency fee and reimbursement for costs of Pea, and that Urban Bank never agreed to pay him a 10% agency fee is established and supported by the following: First, the initial agency relationship between ISCI and Pea persisted. No proof was ever offered that the letter of 26 November 1994 of Mr. Montilla of ISCI to Pea, for the latter "to immediately recover and take possession of the property upon expiration of the contract of lease on 29 November 1994" was terminated. It is axiomatic that the appointment of a new agent for the same business or transaction revokes the previous agency from the day on which notice thereof was given to the former agent.271 If it is true that the agency relationship was to be borne by Urban Bank alone, Pea should have demonstrated that his previous agency relationship with ISCI is incompatible with his new relationship with Urban Bank, and was thus terminated. Second, instead, what is on the record is that ISCI confirmed the continuation of this agency between Pea and itself and committed to pay for the services of Pea, in its letter to Urban Bank dated 19 December 1994 which reads: In line with our warranties as the Seller of the said property and our undertaking to deliver to you the full and actual possession and control of said property, free from tenants, occupants or squatters and from any obstruction or impediment to the free use and occupancy of the property by Urban Bank, we have engaged the services of Atty. Magdaleno M. Pea to hold and maintain possession of the property and to prevent the former tenants or occupants from entering or returning to the premises. In view of the transfer of the ownership of the property to Urban Bank, it may be necessary for Urban Bank to appoint Atty. Pea likewise as its authorized representative for purposes of holding/maintaining continued possession of the said property and to represent Urban Bank in any court action that may be instituted for the abovementioned purposes. It is understood that any attorneys fees, cost of litigation and any other charges or expenses that may be incurred relative to the exercise by Atty. Pea of his abovementioned duties shall be for the account of Isabela Sugar Company and any loss or damage that may be incurred to third parties shall be answerable by Isabela Sugar Company.272 (Emphasis supplied) Third, Pea has never shown any written confirmation of his 10% agency fee, whether in a note, letter, memorandum or board resolution of Urban Bank. An agency fee amounting to PhP24,000,000 is not a trifling amount, and corporations do not grant their presidents unilateral authority to bind the corporation to such an amount, especially not a banking corporation which is closely supervised by the BSP for being a business seriously imbued with public interest. There is nothing on record except the self-serving testimony of Pea that Borlongan agreed to pay him this amount in the controverted telephone conversation.

Fourth, while ordinarily, uncontradicted testimony will be accorded its full weight, we cannot grant full probative value to the testimony of Pea for the following reasons: (a) Pea is not a credible witness for testifying that he only learned of the sale of the property of 19 December 1994 when the acts of ISCI, of Urban Bank and his own up to that point all indicated that he must have known about the sale to Urban Bank; and (b) it is incredible that Urban Bank will agree to add another PhP24,000,000 to the cost of the property by agreeing to the agency fee demanded by Pea. No prudent and reasonable person would agree to expose his corporation to a new liability of PhP24,000,000 even if, in this case, a refusal would lead to the Pasay City policemen and unauthorized sub-tenants entering the guarded property and would possibly erupt in violence. Peas account of an oral agreement with Urban Bank for the payment of PhP24,000,000 is just too much for any court to believe. Whatever may be the agreement between Pea and ISCI for compensation is not before this Court. This is not to say, however, that Urban Bank has no liability to Pea. It has. Payment to him is required because the Civil Code demands that no one should be unjustly enriched at the expense of another. This payment is to be measured by the standards of quantum meruit. Amount of Compensation Agency is presumed to be for compensation. But because in this case we find no evidence that Urban Bank agreed to pay Pea a specific amount or percentage of amount for his services, we turn to the principle against unjust enrichment and on the basis of quantum meruit. Since there was no written agreement with respect to the compensation due and owed to Atty. Pea under the letter dated 19 December 1994, the Court will resort to determining the amount based on the well-established rules on quantum meruit. Agency is presumed to be for compensation. 273 Unless the contrary intent is shown, a person who acts as an agent does so with the expectation of payment according to the agreement and to the services rendered or results effected.274 We find that the agency of Pea comprised of services ordinarily performed by a lawyer who is tasked with the job of ensuring clean possession by the owner of a property. We thus measure what he is entitled to for the legal services rendered. A stipulation on a lawyers compensation in a written contract for professional services ordinarily controls the amount of fees that the contracting lawyer may be allowed to collect, unless the court finds the amount to be unconscionable. 275 In the absence of a written contract for professional services, the attorneys fees are fixed on the basis of quantum meruit,276 i.e., the reasonable worth of the attorneys services.277 When an agent performs services for a principal at the latters request, the law will normally imply a promise on the part of the principal to pay for the reasonable worth of those services.278 The intent of a principal to compensate the agent for services performed on behalf of the former will be inferred from the principals request for the agents. 279 In this instance, no extra-ordinary skills employing advanced legal training nor sophisticated legal maneuvering were required to be employed in ejecting 23 sub-tenants who have no lease contract with the property owner, and whose only authority to enter the premises was unlawfully given by a former tenant whose own tenancy has clearly expired. The 23 sub-tenants operated beer houses and nightclubs, ordinary retail establishments for which no sophisticated structure prevented easy entry. After Pea succeeded in locking the gate of the compound, the sub-tenants would open the padlock and resume their businesses at night. Indeed, it appears that only security guards, chains and padlocks were needed to keep them out. It was only the alleged connivance of Pasay City policemen that Peas ability to retain the possession was rendered insecure. And how much did it take Pea to enter into a settlement agreement with them and make all these problems go away? By

Peas own account, PhP1,500,000 only. That means that each tenant received an average of PhP65,217.40 only. Surely, the legal services of Pea cannot be much more than what the subtenants were willing to settle for in the first place. We therefore award him the equivalent amount of PhP1,500,000 for the legal and other related services he rendered to eject the illegally staying tenants of Urban Banks property. The Court of Appeals correctly reversed the trial court and found it to have acted with grave abuse of discretion in granting astounding monetary awards amounting to a total of PhP28,500,000 without any basis.280 For the lower court to have latched on to the self-serving claims of a telephone agreement as sufficient support for extending a multi-million peso award is highly irregular. Absent any clear basis for the amount of the lawyers compensation, the trial court should have instinctively resorted to quantum meruit, instead of insisting on a figure with circumstantial and spurious justification. We cannot also agree with the Decision penned by Judge Edgardo L. Catilo characterizing Penas 10% fee as believable because it is nearly congruent to the PhP25 Million retention money held in escrow for ISCI until a clean physical and legal turn-over of the property is effected: We now come to the reasonableness of the compensation prayed for by the plaintiff which is 10% of the current market value which defendants claim to be preposterous and glaringly excessive. Plaintiff [Pea] testified that defendant Borlongan agreed to such an amount and this has not been denied by Ted Borlongan. The term "current market value of the property" is hereby interpreted by the court to mean the current market value of the property at the time the contract was entered into. To interpret it in accordance with the submission of the plaintiff that it is the current market value of the property at the time payment is made would be preposterous. The only evidence on record where the court can determine the market value of the property at the time the contract of agency was entered into between plaintiff and defendant is the consideration stated in the sales agreement between Isabela Sugar Company, Inc. and Urban bank which is P241,612,000.00. Ten percent of this amount is a reasonable compensation of the services rendered by the plaintiff considering the "no cure, no pay" arrangement between the parties and the risks which plaintiff had to undertake. 281 In the first place, the Decision of Judge Catilo makes Peas demand of an agency fee of PhP24 Million, an additional burden on Urban Bank. The Decision does not make the retention money responsible for the same, or acquit Urban Bank of any liability to ISCI if it pays the PhP24 Million directly to Pena instead of ISCI. In the second place, the amount of money that is retained by transferees of property transactions while the transferor is undertaking acts to ensure a clean and peaceful transfer to the transferee does not normally approximate a one-to-one relationship to the services of ejecting unwanted occupants. They may be inclusive of other costs, and not only legal costs, with enough allowances for contingencies, and may take into consideration other liabilities as well. The amount can even be entirely arbitrary, and may have been caused by the practice followed by Urban Bank as advised by its officers and lawyers or by industry practice in cases where an expensive property has some tenancy problems. In other words, Judge Catilos statement is a non sequitur, is contrary to normal human experience, and sounds like an argument being made to fit Peas demand for a shocking pay-out. In any case, 10% of the purchase price of the Pasay property a staggering PhP24,161,200 is an unconscionable amount, which we find reason to reduce. Neither will the Court accede to the settlement offer of Pea to Urban Bank of at least PhP38,000,000 for alleged legal expenses incurred during the course of the proceedings,282 an amount that he has not substantiated at any time.

Lawyering is not a business; it is a profession in which duty to public service, not money, is the primary consideration.283 The principle of quantum meruit applies if lawyers are employed without a price agreed upon for their services, in which case they would be entitled to receive what they merit for their services, or as much as they have earned. 284 In fixing a reasonable compensation for the services rendered by a lawyer on the basis of quantum meruit, one may consider factors such as the time spent and extent of services rendered; novelty and difficulty of the questions involved; importance of the subject matter; skill demanded; probability of losing other employment as a result of acceptance of the proffered case; customary charges for similar services; amount involved in the controversy and the resulting benefits for the client; certainty of compensation; character of employment; and professional standing of the lawyer.285 Hence, the Court affirms the appellate courts award of PhP3,000,000 to Pea, for expenses incurred corresponding to the performance of his services. An additional award of PhP1,500,000 is granted to him for the services he performed as a lawyer in securing the rights of Urban Bank as owner of the Pasay property. II The corporate officers and directors of Urban Bank are not solidarily or personally liable with their properties for the corporate liability of Urban Bank to Atty. Pea. The obligation to pay Peas compensation, however, falls solely on Urban Bank. Absent any proof that individual petitioners as bank officers acted in bad faith or with gross negligence or assented to a patently unlawful act, they cannot be held solidarily liable together with the corporation for services performed by the latters agent to secure possession of the Pasay property. Thus, the trial court had indeed committed grave abuse of discretion when it issued a ruling against the eight individual defendant bank directors and officers and its Decision should be absolutely reversed and set aside. A corporation, as a juridical entity, may act only through its directors, officers and employees.286 Obligations incurred as a result of the acts of the directors and officers as corporate agents are not their personal liabilities but those of the corporation they represent. 287 To hold a director or an officer personally liable for corporate obligations, two requisites must concur: (1) the complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and (2) the complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith. 288 "To hold a director, a trustee or an officer personally liable for the debts of the corporation and, thus, pierce the veil of corporate fiction, bad faith or gross negligence by the director, trustee or officer in directing the corporate affairs must be established clearly and convincingly." 289 Pea failed to allege and convincingly show that individual defendant bank directors and officers assented to patently unlawful acts of the bank, or that they were guilty of gross negligence or bad faith. Contrary to his claim, the Complaint 290 in the lower court never alleged that individual defendants acquiesced to an unlawful act or were grossly negligent or acted in bad faith. 291 Neither is there any specific allegation of gross negligence or action in bad faith that is attributable to the individual defendants in performance of their official duties. In any event, Pea did not adduce any proof that the eight individual defendants performed unlawful acts or were grossly negligent or in bad faith. Aside from the general allegation that they were corporate officers or members of the board of directors of Urban Bank, no specific acts were alleged and proved to warrant a finding of solidary liability. At most, petitioners Borlongan, Bejasa and Manuel were identified as those who had processed the agency agreement with Pea through their telephone conversations with him and/or written authorization letter.

Aside from Borlongan, Bejasa and Manuel, Atty. Pea in the complaint pointed to no specific act or circumstance to justify the inclusion of Delfin C. Gonzalez, Jr., Benjamin L. de Leon, P. Siervo H. Dizon, Eric L. Lee, and Ben T. Lim, Jr., except for the fact that they were members of the Board of Directors of Urban Bank at that time. That the five other members of the Board of Directors were excluded from Peas complaint highlights the peculiarity of their inclusion. What is more, the complaint mistakenly included Ben Y. Lim, Jr., who had not even been a member of the Board of Directors of Urban Bank. In any case, his father and namesake, Ben T. Lim, Sr., who had been a director of the bank at that time, had already passed away in 1997. In ruling for the solidary liability of the other bank directors, the decision of the trial court hinged solely on the purported admission of Arturo Manuel, Jr., that the transactions with Atty. Pea were approved by the Board of Directors: In this case, plaintiff testified as to the personal participation of defendants Ted Borlongan and Corazon Bejasa in the subject transaction. On the other hand, with respect to the other defendants, it was the defendants themselves, through witness Arturo Manuel, Jr., who admitted that all the transactions involved in this case were approved by the board of directors. Thus, the court has sufficient basis to hold the directors jointly and severally liable with defendant Urban Bank, Inc.292 (Emphasis supplied) The Decision of the RTC-Bago City must be utterly rejected on this point because its conclusion of any cause of action, much less actual legal liability on the part of Urban Banks corporate officers and directors are shorn of any factual finding. That they assented to the transactions of the bank with respect to Atty. Peas services without any showing that these corporate actions were patently unlawful or that the officers were guilty of gross negligence or bad faith is insufficient to hold them solidarily liable with Urban Bank. It seems absurd that the trial court will hold the impleaded selected members of the Board of Directors only, but not the others who also purportedly approved the transactions. Neither is the reason behind the finding of "solidariness" with Urban Bank in such liability explained at all. It is void for completely being devoid of facts and the law on which the finding of liability is based. The Court of Appeals correctly rejected the claim of personal liability against the individual petitioners when it held as follows: The plaintiff-appellees complaint before the court a quo does not point to any particular act of either one or all of the defendants-appellants that will subject them to personal liability. His complaint merely asserts that defendant Borlongan and Atty. Bejasa acted for and in behalf of Urban Bank in securing his services in protecting the banks newly acquired property. Hence, We cannot allow the same.293 Pea had argued that individual defendant bank directors and officers should be held personally and solidarily liable with petitioner-respondent bank, since they failed to argue for limited corporate liability.294 The trial court subscribed to his reasoning and held that the failure to resort to the said defense constituted a waiver on the part of individual defendants. 295 The Court is not persuaded. As the complainant on the trial court level, Pea carried the burden of proving that the eight individual defendants performed specific acts that would make them personally liable for the obligations of the corporation. This he failed to do. He cannot capitalize on their alleged failure to offer a defense, when he had not discharged his responsibility of establishing their personal liabilities in the first place. This Court cannot sustain the individual liabilities of the bank officers when Pea, at the onset, has not persuasively demonstrated their assent to patently unlawful acts of the bank, or that they were guilty of gross negligence or bad faith, regardless of the weaknesses of the defenses

raised. This is too basic a requirement that this Court must demand sufficient proof before we can disregard the separate legal personality of the corporation from its offices. Hence, only Urban Bank, not individual defendants, is liable to pay Peas compensation for services he rendered in securing possession of the Pasay property. Its liability in this case is, however, without prejudice to its possible claim against ISCI for reimbursement under their separate agreements. III Considering the absolute nullification of the trial courts Decision, the proceedings arising from the execution pending appeal based on the said Decision is likewise completely vacated. Since the trial courts main Decision awarding PhP28,500,000 in favor of Pea has been nullified above, the execution pending appeal attendant thereto, as a result, no longer has any leg to stand on and is thus completely vacated. To recall, prior to the filing of Urban Bank of its notice of appeal in the main case, 296 Pea moved on 07 June 1999 for execution pending appeal 297 of the Decision,298 which had awarded him a total of PhP28,500,000 in compensation and damages.299 In supporting his prayer for discretionary execution, Pea cited no other reason than the pending separate civil action for collection filed against him by a creditor, who was demanding payment of a PhP3,000,000 loan. 300 According to him, he had used the proceeds of the loan for securing the banks Pasay property. 301 In opposition to the motion, Urban Bank countered that the collection case was not a sufficient reason for allowing execution pending appeal.302 Favorably acting on Peas motion, the RTC-Bago City, through Judge Henry J. Trocino, 303 issued a Special Order authorizing execution pending appeal on the basis of Peas indebtedness to his creditor-friend.304 In accordance with this Special Order, Atty. Josephine Mutia-Hagad, the clerk of court and ex officio sheriff, expeditiously issued a Writ of Execution on the same day. 305 The trial courts Special Order and Writ of Execution were the subjects of a Rule 65 Petition filed by Urban Bank with the CA.306 Both the Special Order and Writ of Execution are nullified for two reasons: (1) Since the Decision of the RTC-Bago City is completely vacated, all its issuances pursuant to the Decision, including the Special Order and the Writ of Execution are likewise vacated; and (2) The Special Order authorizing execution pending appeal based on the collection suit filed against Atty. Pea had no basis under the Rules of Court, and the same infirmity thus afflicts the Writ of Execution issued pursuant thereto. Since the Decision of the RTC-Bago City is vacated, all orders and writs pursuant thereto are likewise vacated. Considering that the Special Order and Writ of Execution was a result of the trial courts earlier award of PhP28,500,000, the nullification or complete reversal of the said award necessarily translates to the vacation as well of the processes arising therefrom, including all the proceedings for the execution pending appeal.

Considering the unconscionable award given by the trial court and the unjustified imposition of solidary liability against the eight bank officers, the Court is vacating the Decision of the RTC-Bago City Decision. The trial court erroneously made solidarily liable Urban Banks directors and officers without even any allegations, much less proof, of any acts of bad faith, negligence or malice in the performance of their duties. In addition, the trial court mistakenly anchored its astounding award of damages amounting PhP28,500,000 on the basis of the mere account of Atty. Pea of a telephone conversation, without even considering the surrounding circumstances and the sheer disproportion to the legal services rendered to the bank. A void judgment never acquires finality.307 In contemplation of law, that void decision is deemed nonexistent.308Quod nullum est, nullum producit effectum. 309 Hence, the validity of the execution pending appeal will ultimately hinge on the courts findings with respect to the decision in which the execution is based. Although discretionary execution can proceed independently while the appeal on the merits is pending, the outcome of the main case will greatly impact the execution pending appeal, especially in instances where as in this case, there is a complete reversal of the trial courts decision. Thus, if the decision on the merits is completely nullified, then the concomitant execution pending appeal is likewise without any effect. In fact, the Rules of Court expressly provide for the possibility of reversal, complete or partial, of a final judgment which has been executed on appeal. 310 Precisely, the execution pending appeal does not bar the continuance of the appeal on the merits, for the Rules of Court explicitly provide for restitution according to equity and justice in case the executed judgment is reversed on appeal.311 Considering that the Decision of the RTC-Bago City has been completely vacated and declared null and void, it produces no effect whatsoever. Thus, the Special Order and its concomitant Writ of Execution pending appeal is likewise annulled and is also without effect. Consequently, all levies, garnishment and sales executed pending appeal are declared null and void, with the concomitant duty of restitution under the Rules of Court, as will be discussed later on. In any case, the trial courts grant of execution pending appeal lacks sufficient basis under the law and jurisprudence. We rule that the pendency of a collection suit by a third party creditor which credit was obtained by the winning judgment creditor in another case, is not a sufficiently good reason to allow execution pending appeal as the Rules of Court provide. Execution pending appeal is an extraordinary remedy allowed only when there are reasons to believe that the judgment debtor will not be able to satisfy the judgment debt if the appeals process will still have to be awaited. It requires proof of circumstances such as insolvency or attempts to escape, abscond or evade a just debt. In Florendo v. Paramount Insurance, Corp.,312 the Court explained that the execution pending appeal is an exception to the general rule that execution issues as a matter of right, when a judgment has become final and executory: As such exception, the courts discretion in allowing it must be strictly construed and firmly grounded on the existence of good reasons. "Good reasons," it has been held, consist of compelling circumstances that justify immediate execution lest the judgment becomes illusory. The circumstances must be superior, outweighing the injury or damages that might result should the losing party secure a reversal of the judgment. Lesser reasons would make of execution pending appeal, instead of an instrument of solicitude and justice, a tool of oppression and inequity. (Emphasis supplied)

Indeed, the presence or the absence of good reasons remains the yardstick in allowing the remedy of execution pending appeal, which should consist of exceptional circumstances of such urgency as to outweigh the injury or damage that the losing party may suffer, should the appealed judgment be reversed later.313 Thus, the Court held that even the financial distress of the prevailing company is not sufficient reason to call for execution pending appeal: In addressing this issue, the Court must stress that the execution of a judgment before its finality must be founded upon good reasons. The yardstick remains the presence or the absence of good reasons consisting of exceptional circumstances of such urgency as to outweigh the injury or damage that the losing party may suffer, should the appealed judgment be reversed later. Good reason imports a superior circumstance that will outweigh injury or damage to the adverse party. In the case at bar, petitioner failed to show "paramount and compelling reasons of urgency and justice." Petitioner cites as good reason merely the fact that "it is a small-time building contractor that could ill-afford the protracted delay in the reimbursement of the advances it made for the aforesaid increased costs of . . . construction of the [respondent's] buildings." Petitioner's allegedly precarious financial condition, however, is not by itself a jurisprudentially compelling circumstance warranting immediate execution. The financial distress of a juridical entity is not comparable to a case involving a natural person such as a very old and sickly one without any means of livelihood, an heir seeking an order for support and monthly allowance for subsistence, or one who dies. Indeed, the alleged financial distress of a corporation does not outweigh the long standing general policy of enforcing only final and executory judgments. Certainly, a juridical entity like petitioner corporation has, other than extraordinary execution, alternative remedies like loans, advances, internal cash generation and the like to address its precarious financial condition. (Emphasis supplied) In Philippine Bank of Communications v. Court of Appeals, 314 the Court denied execution pending appeal to a juridical entity which allegedly was in financial distress and was facing civil and criminal suits with respect to the collection of a sum of money. It ruled that the financial distress of the prevailing party in a final judgment which was still pending appeal may not be likened to the situation of a natural person who is ill, of advanced age or dying as to justify execution pending appeal: It is significant to stress that private respondent Falcon is a juridical entity and not a natural person. Even assuming that it was indeed in financial distress and on the verge of facing civil or even criminal suits, the immediate execution of a judgment in its favor pending appeal cannot be justified as Falcons situation may not be likened to a case of a natural person who may be ill or may be of advanced age. Even the danger of extinction of the corporation will not per se justify a discretionary execution unless there are showings of other good reasons, such as for instance, impending insolvency of the adverse party or the appeal being patently dilatory. But even as to the latter reason, it was noted in Aquino vs. Santiago (161 SCRA 570 [1988]), that it is not for the trial judge to determine the merit of a decision he rendered as this is the role of the appellate court. Hence, it is not within competence of the trial court, in resolving a motion for execution pending appeal, to rule that the appeal is patently dilatory and rely on the same as its basis for finding good reason to grant the motion. Only an appellate court can appreciate the dilatory intent of an appeal as an additional good reason in upholding an order for execution pending appeal which may have been issued by the trial court for other good reasons, or in cases where the motion for execution pending appeal is filed with the appellate court in accordance with Section 2, paragraph (a), Rule 39 of the 1997 Rules of Court.

What is worse, only one case was actually filed against Falcon and this is the complaint for collection filed by Solidbank. The other cases are "impending", so it is said. Other than said Solidbank case, Falcons survival as a body corporate cannot be threatened by anticipated litigation. This notwithstanding, and even assuming that there was a serious threat to Falcons continued corporate existence, we hold that it is not tantamount nor even similar to an impending death of a natural person. The material existence of a juridical person is not on the same plane as that of human life. The survival of a juridical personality is clearly outweighed by the long standing general policy of enforcing only final and executory judgments. (Emphasis supplied) In this case, the trial court supported its discretionary grant of execution based on the alleged collection suit filed against Pea by his creditor friend for PhP3,000,000: It has been established that the plaintiff secured the loan for the purpose of using the money to comply with the mandate of defendant bank to hold and maintain possession of the parcel of land in Pasay City and to prevent intruders and former tenants from occupying the said property. The purpose of the loan was very specific and the same was made known to defendant bank through defendant Teodoro Borlongan. The loan was not secured for some other purpose. Truth to tell, the plaintiff accomplished his mission in clearing the property of tenants, intruders and squatters, long before the deadline given him by the defendant bank. The plaintiff was assured by no less than the President of defendant bank of the availability of funds for his compensation and reimbursement of his expenses. Had he been paid by defendant bank soon after he had fulfilled his obligation, he could have settled his loan obligation with his creditor. Defendants were benefitted by the services rendered by the plaintiff. While plaintiff has complied with the undertaking, the defendants, however, failed to perform their obligation to the plaintiff. The plaintiff stands to suffer greatly if the collection case against him is not addressed. Firstly, as shown in Exhibit "C", plaintiffs total obligation with Roberto Ignacio as of May 1999 is PhP24,192,000.00. This amount, if left unpaid, will continue to increase due to interest charges being imposed by the creditor to the prejudice of plaintiff. Secondly, a preliminary attachment has already been issued and this would restrict the plaintiff from freely exercising his rights over his property during the pendency of the case. In their opposition, defendants claim that plaintiffs indebtedness is a ruse, however, defendants failed to adduce evidence to support its claim. The court finds that the pendency of the case for collection of money against plaintiff is a good reason for immediate execution. 315 The mere fact that Atty. Pea was already subjected to a collection suit for payment of the loan proceeds he used to perform his services for Urban Bank is not an acceptable reason to order the execution pending appeal against the bank. Financial distress arising from a lone collection suit and not due to the advanced age of the party is not an urgent or compelling reason that would justify the immediate levy on the properties of Urban Bank pending appeal. That Pea would made liable in the collection suit filed by his creditor-friend would not reasonably result in rendering illusory the final judgment in the instant action for agents compensation. Peas purported difficulty in paying the loan proceeds used to perform his services does not outweigh the injury or damages that might result should Urban Bank obtain a reversal of the judgment, as it did in this case. Urban Bank even asserts that the collection suit filed against Pea was a mere ruse to provide justification for the execution pending appeal, no matter how flimsy. 316 As quoted above, the trial court noted Atty. Peas total obligation to his creditor-friend as of May 1999

was already the incredible amount of PhP24,192,000.00, even when the Complaint dated 03 April 1999 itself, which spawned the collection suit included only a prayer for payment of PhP3,500,000 with attorneys fees of PhP100,000.317 It seems absurd that Atty. Pea would agree to obtaining a loan from his own friend, when the Promissory Notes provided for a penalty of 5% interest per month or 60% per annum for delay in the payment. 318 It sounds more like a creative justification of the immediate execution of the PhP28.5 Million judgment notwithstanding the appeal. In fact, the Court of Appeals noted Atty. Peas admission of sufficient properties to answer for any liability arising from the collection suit arising from his creditor-friend. In initially denying the execution pending appeal, the appellate court held that: On the other hand, private respondents claim that the only way he could pay his indebtedness to Roberto Ignacio is through the money that he expects to receive from petitioners in payment of his services is belied by his testimony at the hearing conducted by the trial court on the motion for execution pending appeal wherein petitioners were able to secure an admission from him that he has some assets which could be attached by Roberto Ignacio and that he would probably have other assets left even after the attachment.319 Hence, to rule that a pending collection suit against Atty. Pea, which has not been shown to result in his insolvency, would be to encourage judgment creditors to indirectly and indiscriminately instigate collection suits or cite pending actions, related or not, as a "good reason" to routinely avail of the remedy of discretionary execution. 320 As an exception to the general rule on execution after final and executory judgment, the reasons offered by Atty. Pea to justify execution pending appeal must be strictly construed. Neither will the Court accept the trial courts unfounded assumption that Urban Banks appeal was merely dilatory, as in fact, the PhP28,500,000 award given by the trial court was overturned by the appellate court and eventually by this Court. Moreover, at the time the Special Order of Judge Henry Trocio of the RTC-Bago City came out in 1999, Urban Bank had assets worth more than PhP11 Billion and had a net worth of more than PhP2 Billion. There was no reason then to believe that Urban Bank could not satisfy a judgment of PhP28,500,000, a sum that was only 1% of its net worth, and 1/5 of 1% of its total assets of PhP11,933,383,630.321 Urban Bank was even given a Solvency, Liquidity and Management Rating of 82.89 over 100 by no less than the BSP322 and reportedly had liquid assets amounting to PhP2,036,878.323 In fact, no allegation of impending insolvency or attempt to abscond was ever raised by Atty. Pea and yet, the trial court granted execution pending appeal. Since the original order granting execution pending appeal was completely void for containing no justifiable reason, it follows that any affirmance of the same by the Court of Appeals is likewise void. The Decision of the Court of Appeals in the case docketed as CA-G.R. SP No. 55667, finding a new reason for granting execution pending appeal, i.e., the receivership of Urban Bank, is likewise erroneous, notwithstanding this Courts ruling in Lee v. Trocino. 324 In accordance with the subsequent Resolution of the Court in abovementioned case of Lee v. Trocino, 325 we directly resolve the issue of the insufficiency of the reasons that led to the grant of execution pending appeal. In cases where the two or more defendants are made subsidiarily or solidarily liable by the final judgment of the trial court, discretionary execution can be allowed if all the defendants have been found to be insolvent. Considering that only Urban Bank, and not the other eight individual defendants, was later on considered by the Court of Appeals to have been "in danger of insolvency,"

is not sufficient reason to allow execution pending appeal, since the liability for the award to Pea was made (albeit, mistakenly) solidarily liable together with the bank officers. In Flexo Manufacturing Corp. v. Columbus Food, Inc., and Pacific Meat Company, Inc., 326 both Columbus Food, Inc., (Columbus Food) and Pacific Meat Company, Inc., (Pacific Meat) were found by the trial court therein to be solidarily liable to Flexo Manufacturing, Inc., (Flexo Manufacturing) for the principal obligation of PhP2,957,270.00. The lower court also granted execution pending appeal on the basis of the insolvency of Columbus Food, even if Pacific Meat was not found to be insolvent. Affirming the reversal ordered by the Court of Appeals, this Court ruled that since there was another party who was solidarily liable to pay for the judgment debt, aside from the insolvent Columbus Food, there was no good reason to allow the execution pending appeal: Regarding the state of insolvency of Columbus, the case of Philippine National Bank v. Puno, held: "While this Court in several cases has held that insolvency of the judgment debtor or imminent danger thereof is a good reason for discretionary execution, otherwise to await a final and executory judgment may not only diminish but may nullify all chances for recovery on execution from said judgment debtor, We are constrained to rule otherwise in this particular case. In the aforecited cases, there was either only one defeated party or judgment debtor who was, however, insolvent or there were several such parties but all were insolvent, hence the aforesaid rationale for discretionary execution was present. In the case at bar, it is undisputed that, assuming MMIC is insolvent, its codefendant PNB is not. It cannot, therefore, be plausibly assumed that the judgment might become illusory; if MMIC cannot satisfy the judgment, PNB will answer for it. It will be observed that, under the dispositive portion of the judgment hereinbefore quoted, the liability of PNB is either subsidiary or solidary. Thus, when there are two or more defendants and one is not insolvent, the insolvency of a codefendant is not a good reason to justify execution pending appeal if their liability under the judgment is either subsidiary or solidary. In this case, Pacific was adjudged to be solidarily liable with Columbus. Therefore, the latter is not the only party that may be answerable to Flexo. Its insolvency does not amount to a good reason to grant execution pending appeal. (Emphasis supplied) Similarly, the trial court in this case found Urban Bank and all eight individual bank officers solidarily liable to Atty. Pea for the payment of the PhP28,500,000 award. Hence, had the judgment been upheld on appeal, Atty. Pea could have demanded payment from any of the nine defendants. Thus, it was a mistake for the Court of Appeals to have affirmed execution pending appeal based solely on the receivership of Urban Bank, when there were eight other individual defendants, who were solidarily liable but were not shown to have been insolvent. Since Urban Banks co-defendants were not found to have been insolvent, there was no good reason for the Court of Appeals to immediately order execution pending appeal, since Atty. Peas award could have been satisfied by the eight other defendants, especially when the de Leon Group filed its supersedeas bond. It seems incongruous for Atty. Pea to be accorded the benefit of erroneously impleading several bank directors, who had no direct hand in the transaction, but at the same time, concentrating solely on Urban Banks inability to pay to justify execution pending appeal, regardless of the financial capacity of its other co-defendants. Worse, he capitalized on the insolvency and/or receivership of Urban Bank to levy or garnish properties of the eight other individual defendants, who were never shown to have been incapable of paying the judgment debt in the first place. The disposition on the execution pending appeal may have been different had Atty. Pea filed suit against Urban Bank alone minus the bank officers and the same bank was found solely liable for the award and later on declared under receivership.

In addition, a judgment creditor of a bank, which has been ordered by the BSP to be subject of receivership, has to fall in line like every other creditor of the bank and file its claim under the proper procedures for banks that have been taken over by the PDIC. Under Section 30 of Republic Act No. 7653, otherwise known as the New Central Bank Act, which prevailed at that time, once a bank is under receivership, the receiver shall immediately gather and take charge of all the assets and liabilities of the bank and administer the same for the benefit of its creditors and all of the banks assets shall be considered as under custodial legis and exempt from any order of garnishment, levy, attachment or execution.327 In the Minute Resolution of the Monetary Board of the BSP, Urban Bank was not only prevented from doing business in the Philippines but its asset and affairs were placed under receivership as provided for under the same law. 328 In fact, even Pea himself assured the PDIC, as receiver of Urban Bank, that he would not schedule or undertake execution sales of the banks assets for as long as the bank remains in receivership. 329 Until the approval of the rehabilitation or the initiation of the liquidation proceedings, all creditors of the bank under receivership shall stand on equal footing with respect to demanding satisfaction of their debts, and cannot be extended preferred status by an execution pending appeal with respect to the banks assets: [t]o execute the judgment would unduly deplete the assets of respondent bank to the obvious prejudice of other creditors. After the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all the depositors and creditors. After its insolvency, one creditor cannot obtain an advantage or preference over another by an attachment, execution or otherwise. Until there is an approved rehabilitation or the initiation of the liquidation proceedings, creditors of the bank stand on equal footing with respect to demanding satisfaction of their debts, and cannot be afforded special treatment by an execution pending appeal with respect to the banks assets. 330 (Emphasis supplied) Moreover, assuming that the CA was correct in finding a reason to justify the execution pending appeal because of the supervening event of Urban Banks closure, the assumption by the EIB of the liabilities of Urban Bank meant that any execution pending appeal can be granted only if EIB itself is shown to be unable to satisfy Peas judgment award of PhP28,500,000. That is not at all the case. In just one particular sale on execution herein, EIB offered to answer in cash for a substantial part of Peas claims, as evidenced by EIBs capacity and willingness to redeem the executed properties (condominium units sold to intervenor Unimega) by tendering managers checks for more than PhP22 Million331 which is already 77.57% of Peas total award from the trial court.332 The fact that EIBs offer to take over Urban Bank means it was able to satisfy the BSPs concern that all legitimate liabilities of Urban Bank be duly discharged. As an exception to the general rule that only final judgments may be executed, 333 the grant of execution pending appeal must perforce be based on "good reasons." These reasons must consist of compelling or superior circumstances demanding urgency which will outweigh the injury or damages suffered, should the losing party secure a reversal of the judgment or final order. 334 The circumstances that would reasonably justify superior urgency, demanding interim execution of Peas claims for compensation and/or damages, have already been settled by the financial capacity of the eight other co-defendants, the approval of the supersedeas bonds, the subsequent takeover by EIB, and the successor banks stable financial condition, 335 which can answer for the judgment debt. Thus, Peas interest as a judgment creditor is already well-protected. While there is a general rule that a final and executory judgment in the main case will render moot and academic a petition questioning the exercise of the trial courts discretion in allowing execution pending appeal, we find it necessary to rule categorically on this question because of the magnitude of the aberrations that attended the execution pending appeal in the Decision of the RTC-Bago City.

Irregularities in the Levy and Sale on Execution Pending Appeal Assuming that the Special Order granting execution pending appeal were valid, issues have been raised on alleged irregularities that mar the levy and sale on execution of the properties of Urban Bank and its officers and directors. Many of the facts have not been sufficiently litigated before the trial and appellate courts for us to fully rule on the issue, nevertheless, from what is on record, the following are the observations of this Court: First, contrary to the general rules on execution, no opportunity was given to Urban Bank or the other co-defendants to pay the judgment debt in cash or certified check. 336 Before proceeding on the levying and garnishing personal and real properties, demand must be made by the sheriff against the judgment debtors, Urban Bank and the eight other individual bank officers, for the immediate payment of the award subject of the execution pending appeal. It has not been shown whether Urban Bank and its officers and directors were afforded such an opportunity. Instead of garnishing personal properties of the bank, the sheriff inexplicably proceeded to levy substantial real properties of the bank and its officers at the onset. Second, assuming that Urban Bank and its officers did not possess sufficient cash or funds to pay for the judgment debt pending appeal, they should have been given the option to choose which of their properties to be garnished and/or levied. In this case, Urban Bank exercised its option by presenting to the sheriff various parcels of land, whose values amount to more than PhP76,882,925 and were sufficient to satisfy the judgment debt. 337Among those presented by the bank, only the property located in Tagaytay was levied upon by the sheriff. 338 No sufficient reason was raised why the banks chosen properties were rejected or inadequate for purposes of securing the judgment debt pending appeal. Worse, the Sheriff proceeded with garnishing and levying on as many properties of Urban Bank and its officers, in disregard of their right to choose under the rules. Third, the public auction sales conducted in the execution pending appeal sold more properties of Urban Bank and the directors than what was sufficient to satisfy the debt. Indeed, the conservative value of the properties levied herein by the sheriff amounting to more than PhP181,919,190, consisting of prime condominium units in the heart of the Makati Business district, a lot in Tagaytay City, shares in exclusive clubs, and shares of stock, among others, was more than sufficient to answer for the PhP28,500,000 judgment debt six times over. Rather than stop when the properties sold had approximated the monetary award, the execution sale pending appeal continued and unduly benefitted Atty. Pea, who, as judgment creditor and, at times, the winning bidder, purchased most of the properties sold. Fourth, it was supremely disconcerting how Urban Bank, through its successor EIB, was unduly deprived of the opportunity to redeem the properties, even after presenting managers checks339 equal to the purchase price of the condominium units sold at the execution sale. No reason was offered by the trial court340 or the sheriff341 for rejecting the redemption price tendered by EIB in order to recover the properties executed and sold in public auction pending appeal. Finally, the Court cannot turn a blind eye to the fact that there was already a sufficient supersedeas bond given to answer for whatever monetary award will be given in the end. To recall, the De Leon Group had already tendered a supersedeas bond of PhP40,000,000 in the Court of Appeals to prevent execution pending appeal over their properties. In fact, even Urban Bank tendered a separate supersedeas bond of equal amount with this Court, for a total of PhP80,000,000 to secure any judgment to be awarded to Atty. Pea. That execution sales over the properties of judgment debtors proceeded despite the three-fold value of securities compared to the amount of the award indicates bad faith, if not malice, with respect to the conduct of the execution pending appeal.

Inasmuch as the RTC Decision has already been vacated and an independent finding has been made by this Court of the complete nullity of the order granting execution pending appeal, it follows that all acts pursuant to such order and its writ are also void. It does not follow however, that the Courts Decision in Co v. Sillador, 342 is nullified, inasmuch as an equally-important legal doctrine the immutability of Supreme Court final decisions is also to be considered. In any case, the factual circumstances and the ruling on that case were limited to the actions of Sheriff Allan Sillador with respect to properties levied under the same Special Order and Writ of Execution, which were subject of third party claims made by the spouses of Teodoro Borlongan, Corazon Bejasa and Arturo Manuel, Jr.343 It does not encompass other specific events and acts committed in the course of the execution pending appeal that may warrant administrative or disciplinary actions. Having said that, this Court leaves it to the parties to explore avenues for redress in such a situation. The observation on the irregularities above-enumerated are made for the purpose of correcting the injustice that has been committed herein, by allowing the Court to pursue the question of who was responsible for such gross violation of the rules on execution, and for the Court to find measures to improve the safeguards against abuse of court processes. It is for this reason that the Office of the Court Administrator will be given a special task by the Court on this matter. Judge Henry Trocino of RTC-Bago City, who issued the Special Order and had supervisory authority over the proceedings of the execution pending appeal, would have been included under such administrative investigation by the Office of the Court Administrator, were it not for his retirement from the judicial service. The Courts Suspension Order of Execution Pending Appeal Acting on Atty. Peas Omnibus Motion dated 09 December 2002 344 and Unimegas Motion for Reconsideration dated 10 December 2002 345 with respect to the Courts Order dated 13 November 2002346 that clarified the earlier stay order against the execution pending appeal, 347 the Court hereby denies both motions. The Court is fully correct in suspending the period for the running of the redemption period of the properties of Urban Bank and its officers and directors that were levied and subject of execution sale to satisfy the judgment debt in favor of Atty. Pea, the Court having conclusively determined that the supersedeas bond filed was sufficient and considering the subsequent finding that the said execution pending appeal lacks any sufficient ground for the grant thereof. As to the theory of Atty. Pea that the actuations of Justice Carpio, the then ponente of this case, in drafting the questioned Order should positively impact his motion for reconsideration of the same, the Court finds this argument utterly devoid of merit. In the first place, that questioned Order was not the decision of only a single member of the Court, Justice Carpio, but of the entire division to which he belonged, then composed of retired Chief Justice Hilario Davide, Justices Jose Vitug, Consuelo Ynares-Santiago and Adolfo Azcuna. This Order was affirmed by the same Division as its duly-promulgated order. In relation to this, the affirmation by the Division of this Order demonstrates that there is no truth to Atty. Peas claim that Justice Carpio fabricated the Order. In the second place, Atty. Peas claim of undue interest against Justice Carpio specifically with respect to the latter having the instant case transferred to his new Division, is based on ignorance of the system of assignment of cases in the Supreme Court. When a reorganization of the Court takes place in the form of a change in the composition of Divisions, due to the retirement or loss of a member, the Justices do not thereby lose their case assignments but bring the latter with them to their new Divisions.348 The cases are then transferred to the Justices new Divisions, by way of the corresponding request from each justice. Each justice is in fact, required to make this request,

otherwise the rollo of the cases of which he is Member-in-Charge will be retained by a Division in which he is no longer a member. Indeed, Atty. Peas imagination has gotten the better of him. Thirdly, his insinuation (which he denies) that Justice Carpio may have been bribed because the latter has a new Mercedes Benz349 is highly offensive and has no place where his points should have been confined to legal reasons and arguments. Incidentally, Atty. Pea has voiced the fear in the Letter of Complaint filed in the Courts Committee on Ethics and Ethical Standards,350 which he brought against the ponente of this Decision, that she will suppress material information regarding the issuance of the Order suspending the redemption period because of her close relationship to Justice Carpio. Contrary to this fear, this Decision is frontally disposing of this claim by stating that there is no basis to believe that the questioned Order was anything than the joint decision of the five members of the then First Division, and that his arguments in his motion to reconsider does not persuade this Court to vary in any form the questioned order. Moreover, our disposition of this case renders moot his motion to reconsider the order. It must be emphasized that the prolonged resolution of the procedural issue in the Petitions in G. R. Nos. 145817 and 145822 on the execution pending appeal is due in no small part to the delays arising from Peas peculiar penchant for filing successive motions for inhibition and re-raffle. 351 The Court cannot sanction Peas repeated requests for voluntary inhibition of members of the Court based on the sole ground of his own self-serving allegations of lack of faith and trust, and would like to reiterate, at this point, the policy of the Court not to tolerate acts of litigants who, for just about any conceivable reason, seek to disqualify a judge (or justice) for their own purpose, under a plea of bias, hostility, prejudice or prejudgment. 352 The Court cannot allow the unnecessary and successive requests for inhibition, lest it opens the floodgates to forum-shopping where litigants look for a judge more friendly and sympathetic to their cause than previous ones. 353 Restitution of the Banks Executed Properties The Court is still confronted with the supervening acts related to the execution pending appeal and the reversal of the award of damages, which affect the rights of the parties as well as of the intervenors to the case, specifically, intervenor Unimega. In completely resolving the differing claims and performing its educational function, the Court shall briefly encapsulate and restate the operational rules governing execution pending appeal when there has been a reversal of the trial courts Decision on the award of damages in order to guide the parties as well as the bench and bar in general. The necessity of making these detailed instructions is prompted by the most natural question an ordinary person with a sense of justice will ask after reading the facts: How can an obligation to pay for the services of a lawyer so that 23 unwanted tenants leave a corporation's property lead to the loss or the impairment of use of more than PhP181 Million worth of properties of that corporation and of its officers and directors? Obviously, this Court must undertake corrective actions swiftly. The rule is that, where the executed judgment is reversed totally or partially, or annulled on appeal or otherwise the trial court may, on motion, issue such orders of restitution or reparation of damages as equity and justice may warrant under the circumstances. 354 The Rules of Court precisely provides for restitution according to equity, in case the executed judgment is reversed on appeal.355 "In an execution pending appeal, funds are advanced by the losing party to the prevailing party with the implied obligation of the latter to repay the former, in case the appellate court cancels or reduces the monetary award."356

In disposing of the main case subject of these Petitions, the Court totally reversed the staggering amount of damages given by the trial court, and limited on a quantum meruit basis the agents compensation to PhP4,500,000 only. However, properties of Urban Bank and individual petitioners have been garnished and levied upon in the amount of supposedly more than PhP85,399,350. 357 Applying the foregoing rules, petitioner-respondent bank is entitled to complete and full restitution of its levied properties, subject to the payment of the PhP4,500,000. Meanwhile, petitioners bank officers, all of whom have not been found individually or solidarily liable, are entitled to full restitution of all their properties levied upon and garnished, since they have been exonerated from corporate liability with respect to the banks agency relationship with Pea. Considering the monetary award to Pea and the levy on and execution of some of its properties pending appeal, Urban Bank, now EIB, may satisfy the judgment in the main case and at the same time fully recover all the properties executed owing to the complete reversal of the trial courts awarded damages. It must immediately and fully pay the judgment debt before the entire lot of levied properties, subject of the execution pending appeal, is restored to it. 358 Due to the complete reversal of the trial courts award for damages, which was the basis of the Special Order and Writ of Execution allowing execution pending appeal, intervenor Unimega and other bidders who participated in the public auction sales are liable to completely restore to petitioner-respondent bank all of the properties sold and purchased therein. Although execution pending appeal is sanctioned under the rules and jurisprudence, when the executed decision is reversed, the premature execution is considered to have lost its legal bases. The situation necessarily requires equitable restitution to the party prejudiced thereby. 359 As a matter of principle, courts are authorized at any time to order the return of property erroneously ordered to be delivered to one party, if the order is found to have been issued without jurisdiction. 360 As a purchaser of properties under an execution sale, with an appeal on the main case still pending, intervenor Unimega knew or was bound to know that its title to the properties, purchased in the premature public auction sale, was contingent on the outcome of the appeal and could possibly be reversed. Until the judgment on the main case on which the execution pending appeal hinges is rendered final and executory in favor of the prevailing judgment creditor, it is incumbent on the purchasers in the execution sale to preserve the levied properties. They shall be personally liable for their failure to do so, especially if the judgment is reversed, as in this case. 361 In fact, if specific restitution becomes impracticable such as when the properties pass on to innocent third parties the losing party in the execution even becomes liable for the full value of the property at the time of its seizure, with interest. The Court has ruled: When a judgment is executed pending appeal and subsequently overturned in the appellate court, the party who moved for immediate execution should, upon return of the case to the lower court, be required to make specific restitution of such property of the prevailing party as he or any person acting in his behalf may have acquired at the execution sale. If specific restitution becomes impracticable, the losing party in the execution becomes liable for the full value of the property at the time of its seizure, with interest. While the trial court may have acted judiciously under the premises, its action resulted in grave injustice to the private respondents. It cannot be gainsaid that it is incumbent upon the plaintiffs in execution (Arandas) to return whatever they got by means of the judgment prior to its reversal. And if perchance some of the properties might have passed on to innocent third parties as happened in the case at bar, the Arandas are duty bound nonetheless to return the corresponding value of said properties as mandated by the Rules. (Emphasis supplied) 362

In this case, the rights of intervenor Unimega to the 10 condominium units bought during the public auction sale under the Special Order are rendered nugatory by the reversal of the award of unconscionable damages by the trial court. It cannot claim to be an innocent third-party purchaser of the levied condominium units, since the execution sale was precisely made pending appeal. It cannot simply assume that whatever inaction or delay was incurred in the process of the appeal of the main Decision would automatically render the remedy dilatory in character. 363 Whatever rights were acquired by intervenor Unimega from the execution sale under the trial courts Special Orders are conditional on the final outcome of the appeal in the main case. Unlike in auction sales arising from final and executory judgments, both the judgment creditor and the third parties who participate in auction sales pending appeal are deemed to knowingly assume and voluntarily accept the risks of a possible reversal of the decision in the main case by the appellate court. Therefore, intervenor Unimega is required to restore the condominium units to Urban Bank. Although the intervenor has caused the annotation of the sale and levied on the titles to those units, the titles have remained under the name of the bank, owing to the supersedeas bond it had filed and the Courts own orders that timely suspended the transfer of the titles and further execution pending appeal. The obligation to restore the properties to petitioner-respondent bank is, however, without prejudice to the concurrent right of intervenor Unimega to the return of the PhP10,000,000 the latter paid for the condominium units, which Pea received as judgment creditor in satisfaction of the trial courts earlier Decision.364Consequently, intervenors earlier request for the issuance of a writ of possession365 over those units no longer has any leg to stand on. Not being entitled to a writ of possession under the present circumstances, Unimegas ex parte petition is consequently denied. Upon the reversal of the main Decision, the levied properties itself, subject of execution pending appeal must be returned to the judgment debtor, if those properties are still in the possession of the judgment creditor, plus compensation to the former for the deprivation and the use thereof. 366 The obligation to return the property itself is likewise imposed on a third-party purchaser, like intervenor Unimega, in cases wherein it directly participated in the public auction sale, and the title to the executed property has not yet been transferred. The third-party purchaser shall, however, be entitled to reimbursement from the judgment creditor, with interest. Considering the foregoing points, the Court adopts with modification the rules of restitution expounded by retired Justice Florenz D. Regalado in his seminal work on civil procedure, 367 which the appellate court itself cited earlier. 368 In cases in which restitution of the prematurely executed property is no longer possible, compensation shall be made in favor of the judgment debtor in the following manner: a. If the purchaser at the public auction is the judgment creditor, he must pay the full value of the property at the time of its seizure, with interest. b. If the purchaser at the public auction is a third party, and title to the property has already been validly and timely transferred to the name of that party, the judgment creditor must pay the amount realized from the sheriffs sale of that property, with interest. c. If the judgment award is reduced on appeal, the judgment creditor must return to the judgment debtor only the excess received over and above that to which the former is entitled under the final judgment, with interest. In summary, Urban Bank is entitled to complete restoration and return of the properties levied on execution considering the absolute reversal of the award of damages, upon the payment of the

judgment debt herein amounting to PhP4,500,000, with interest as indicated in the dispositive portion. With respect to individual petitioners, they are entitled to the absolute restitution of their executed properties, except when restitution has become impossible, in which case Pea shall be liable for the full value of the property at the time of its seizure, with interest. Whether Urban Bank and the bank officers and directors are entitled to any claim for damages against Pea and his indemnity bond is best ventilated before the trial court, as prescribed under the procedural rules on execution pending appeal. WHEREFORE, the Court DENIES Atty. Magdaleno Peas Petition for Review dated 23 April 2004 (G. R. No. 162562) and AFFIRMS WITH MODIFICATION the Court of Appeals Decision dated 06 November 2003 having correctly found that the Regional Trial Court of Bago City gravely abused its discretion in awarding unconscionable damages against Urban Bank, Inc., and its officers. The Decision of the Regional Trial Court of Bago City dated 28 May 1999 is hence VACATED. Nevertheless, Urban Bank, Inc., is ORDERED to pay Atty. Pea the amount of PhP3,000,000 as reimbursement for his expenses and an additional PhP1,500,000 as compensation for his services, with interest at 6% per annum from 28 May 1999, without prejudice to the right of Urban Bank to invoke payment of this sum under a right of set-off against the amount of PhP25,000,000 that has been placed in escrow for the benefit of Isabela Sugar Company, Inc. The Complaint against the eight other individual petitioners, namely Teodoro Borlongan (+), Delfin C. Gonzales, Jr., Benjamin L. de Leon, P. Siervo G. Dizon, Eric L. Lee, Ben Y. Lim, Jr., Corazon Bejasa, and Arturo Manuel, Jr., is hereby DISMISSED. The Petitions for Review on Certiorari filed by petitioners Urban Bank (G. R. No. 145817) and Benjamin L. de Leon, Delfin Gonzalez, Jr., and Eric L. Lee (G. R. No. 145822) are hereby GRANTED under the following conditions: a. Urban Bank, Teodoro Borlongan, Delfin C. Gonzalez, Jr., Benjamin L. de Leon, P. Siervo H. Dizon, Eric L. Lee, Ben Y. Lim, Jr., Corazon Bejasa, and Arturo Manuel, Jr., (respondent bank officers) shall be restored to full ownership and possession of all properties executed pending appeal; b. If the property levied or garnished has been sold on execution pending appeal and Atty. Magdaleno Pea is the winning bidder or purchaser, he must fully restore the property to Urban Bank or respondent bank officers, and if actual restitution of the property is impossible, then he shall pay the full value of the property at the time of its seizure, with interest; c. If the property levied or garnished has been sold to a third party purchaser at the public auction, and title to the property has not been validly and timely transferred to the name of the third party, the ownership and possession of the property shall be returned to Urban Bank or respondent bank officers, subject to the third partys right to claim restitution for the purchase price paid at the execution sale against the judgment creditor; d. If the purchaser at the public auction is a third party, and title to the property has already been validly and timely transferred to the name of that party, Atty. Pea must pay Urban Bank or respondent bank officers the amount realized from the sheriffs sale of that property, with interest from the time the property was seized. The Omnibus Motion dated 09 December 2002 filed by Atty. Pea and Motion for Reconsideration dated 10 December 2002 filed by Unimega with respect to the Courts Order dated 13 November 2002 is hereby DENIED.

The Office of the Court Administrator is ordered to conduct an investigation into the possible administrative liabilities of Atty. Josephine Mutia-Hagad, the then RTC-Bago Citys Clerk of Court, and Allan D. Sillador, the then Deputy Sheriff of Bago City, for the irregularities attending the execution pending appeal in this case, including all judicial officers or sheriffs in the various places in which execution was implemented, and to submit a report thereon within 120 days from receipt of this Decision. The Office of the Court Administrator is also directed to make recommendations for the prevention of abuses of judicial processes in relation to executions, especially those pending appeal, whether thru administrative circulars from this Court or thru a revision of the Rules of Court, within 30 days from submission of the report on administrative liabilities adverted to above. Let a copy of the Courts Decision in this case be sent to the Office of the Court Administrator. The Presiding Judge of RTC Bago City shall make a full report on all incidents related to the execution in this case, including all returns on the writ of execution herein. Because so much suspicious circumstances have attended the execution in this case by the Regional Trial Court of Bago City, the proceedings with respect to any restitution due and owing under the circumstances shall be transferred to the Regional Trial Court in the National Capital Region, Makati City, a court with venue to hear cases involving Urban Bank/Export and Industry Bank whose headquarters is located in Makati City. The Executive Judge of the Regional Trial Court of Makati City is ordered to include the execution of the Decision and the proceedings for the restitution of the case in the next available raffle. The Regional Trial Court of Makati City, to which the case shall be raffled, is hereby designated as the court that will fully implement the restorative directives of this Decision with respect to the execution of the final judgment, return of properties wrongfully executed, or the payment of the value of properties that can no longer be restored, in accordance with Section 5, Rule 39 of the Rules of Court. The parties are directed to address the implementation of this part of the Decision to the sala to which the case will be raffled. No pronouncement as to costs. SO ORDERED. MARIA LOURDES P. A. SERENO Associate Justice WE CONCUR: ARTURO D. BRION Associate Justice Acting Chairperson MARTIN S. VILLARAMA, JR.* Associate Justice JOSE C. MENDOZA** Associate Justice

ESTELA M. PERLAS-BERNABE*** Associate Justice ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ARTURO D. BRION Associate Justice Acting Chairperson, Second Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Acting Chairpersons Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Footnotes
*

Additional member vice J. Antonio T. Carpio per Raffle dated 7 June 2010. Additional member vice J. Bienvenido L. Reyes per Raffle dated 17 October 2011. Additional member vice J. Jose P. Perez per S.O. No. 1114.

**

***

The actual ceiling amount for the levied, garnished or executed properties pending appeal is uncertain because of the dearth of records. It seems that the figure could turn out to be very high, considering that the entire Urban Bank Plaza located in Sen. Gil Puyat Avenue, corner Chino Roces Avenue, Makati City in the name of Urban Bank was appraised at a value of PhP2,830,559,000 as of 16 April 2002. Since 85 of the 160 or almost half of the condominium units of Urban Bank Plaza were levied, it is reasonable to assume that more than PhP1.4 Billion worth of bank properties were subject of execution pending appeal. (Appraisal Report as of 16 April 2002 of the Cuervo Appraisers; rollo [G. R. No. 145817], Vol. 2, at 1396-1423)
1

Report of Independent Public Accountants dated 25 February 2000 by the Sycip Gorres & Velayo, Co. (http://www.urbanbank.info/urbanweb/ubi_financial.htm last visited 07 October 2011)
2 3

Id.

Urban Bank is a petitioner in G. R. No. 145817; while it is a respondent in G. R. No. 162562.

4

Urban Bank was placed under receivership by the Philippine Deposit Insurance Corporation (PDIC), and was eventually succeeded by Export and Industry Bank (EIB), after the PDIC approved the banks rehabilitation plan. (BSP Minute Resolution No. 37 dated 12 July 2001; rollo [G.R. No. 145817], Vol. 1, at 843-845)
5

(1) Teodoro Borlongan, (2) Delfin C. Gonzales, Jr., (3) Benjamin L. de Leon, (4) P. Siervo H. Dizon, (5) Eric L. Lee, (6) Ben T. Lim, Jr., (7) Corazon Bejasa, and (8) Arturo Manuel, Jr.
6

Atty. Pea is the respondents in both the Petitions docketed as G. R. Nos. 145817 and 145822, while he is the petitioner in the Petition docketed as G. R. No. 162562.
7

Regional Trial Court (RTC) Bago City Decision dated 28 May 1999, at 2; rollo (G. R. No. 162562), Vol. 1, at 506.
8

The 8,629 square meter parcel of land hosted what was then known as the Pasay International Food and Karaoke Club Compound, which is along Roxas Boulevard. (Exhibit "F," RTC records, Vol. 3, at 583)
9

The Pasay property was covered by Transfer Certificate of Title (TCT) No. T-5382, under the name of ISCI. (RTC Decision dated 28 May 1999, at 1; rollo [G. R. No. 145817], Vol. 1, at 78)
10

The Pasay property was leased to Mr. Ernesto P. Ochoa from 29 November 1984 to 29 November 1994. (Contract of Lease dated 29 November 1984; rollo [G.R. No. 162562], Vol. 1, at 278-280)
11

ISCI Complaint dated 08 December 1994, par. 5, at 3. (Exhibit "E-2," RTC records, Vol. 3, at 574)
12

"SUBLEASE PROHIBITED. That as distinguished from LESSEEs [Mr. Ochoa] rent-out operations above-mentioned, the LESSEE [Mr. Ochoa] shall not assign, cede or convey this lease, nor undertake to sub-lease the whole or substantially all of the lease premises [Pasay property] to any single third party, without the LESSORs [ISCIs] consent in writing; " (Contract of Lease dated 29 November 1984, par. 5 at 2; rollo [G.R. No. 162562], Vol. 1, at 279)
13 14

RTC Decision dated 28 May 1999, at 1; rollo (G. R. No. 162562), Vol. 1, at 505.

"Being the President, I find it proper to inform you about the non-renewal of the lease between you as lessee and our company as lessor over the companys property situated at Pasay City, when the lease expires on November 29, instant." (ISCIs Letter dated 04 February 1994; rollo [G. R. No. 162562], Vol. 1, at 283)
15

"We would also like to take this opportunity to inform you and the other establishments that you represent that the lease contract of Mr. Ochoa on said property [Pasay property] will expire on November 29, 1994. It may even be terminated earlier because of continued violations of and non-compliance with the terms and conditions of the contract. Thereafter, we will recover possession of the property and all improvements thereon shall belong to our company [ISCI]." (ISCIs Letter dated 31 May 1994; rollo [G. R. No. 162562], Vol. 1, at 285)
16

ISCI Complaint dated 08 December 1994, par. 6, at 3. (Exhibit "E-2," RTC records, Vol. 3, at 574)
17

"BOARD RESOLUTION No. 003 Series of 1994. BE IT RESOLVES, AS IT IS HEREBY RESOLVED that the reception of offers to buy the Pasay property be centralized and the President be empowered and authorized to receive, review, admit and analyze all offers for
18

the purchase of the Roxas Boulevard property, more specifically Lot No. 2251 covered by TCT No. T-5382, consisting of an area of 8,629 square meters, more or less." (ISCIs Secretarys Certificate dated 04 February 1994; rollo [G. R. No. 162562], Vol. 1, at 284)
19

Contract to Sell dated 15 November 1994. (Exhibit "16," RTC records [Vol. 4] at 846-849) Id. Id. RTC Decision dated 28 May 1999, at 2; rollo (G. R. No. 162562), Vol. 1, at 506.

20

21

22

RTC Decision dated 28 May 1999, at 8; rollo (G. R. No. 162562), Vol. 1, at 512). See also ISCIs letter dated 31 May 1994; rollo (G. R. No. 162562), Vol. 1, at 285.
23 24

ISCIs fax letter dated 26 November 1994; Exhibit "3," RTC records, Vol. 4, at 810.

Deed of Absolute Sale dated 29 November 1994; Exhibit "6-G" to "6-I," RTC records, Vol. 4, at 817-819.
25

Deed of Absolute Sale dated 29 November 1994; Exhibit "6-G" to "6-I," RTC records, Vol. 4, at 817-819.
26

TCT No. 134451 in the name of petitioner Urban Bank dated 05 December 1994; Exhibit "A," RTC records, Vol. 3, at 564-567.
27

ISCI Complaint dated 08 December 1994, par. 7, at 3; Exhibit "E-2," RTC records, Vol.3, at 574.
28 29

RTC Decision dated 28 May 1999, at 1; rollo (G. R. No. 162562), Vol. 1, at 505. RTC Decision dated 28 May 1999, at 2; rollo (G. R. No. 162562), Vol. 1, at 506. Id.

30

31

Pea allegedly paid PhP641,547.41 to the Perm Security and Investigation Agency, Inc., for security services rendered in guarding the Pasay property from 30 November 1994 to 31 March 1995. (Letter and Certification both dated 19 November 1997; Exhibits "AA" and "AA1," RTC records, Vol. 3, at 755-756).
32

"The scenario continued for days when the gates would be closed in the morning and would be forced open in the evening by the operators of the night spots constructed on the subject property." (RTC Decision dated 28 May 1999, at 2; rollo [G. R. No. 162562], Vol. 1, at 506)
33

ISCIs Complaint dated 08 December 1994, par. 10, at 4. (Exhibit "E-3," RTC records, Vol. 3, at 575)
34

"Atty. Magdaleno M. Pea, who has been assigned by Isabela Sugar Company, Inc., to take charge of inspecting the tenants would like to request an authority similar to this from
35

the Bank [petitioner Urban Bank], as new owners. Can you please issue something like this today as he needs this." (ISCIs letter dated 07 December 1994; Exhibit "1," RTC records, Vol. 4, at 808) "Dear Mr. Borlongan, I would like to request for an authorization from Urban Bank as per attached immediately as the tenants are questioning the authority of the people there who are helping us to take over possession of the property. (Sgd.) MARILYN G. ONG" (ISCIs fax letter dated 09 December 1994; Exhibit "2," RTC records, Vol. 4, at 809)
36 37

RTC Decision dated 28 May 1999, at 8; rollo (G. R. No. 162562), Vol. 1, at 512.

"This is to advise you [Pea] that we [petitioner Urban Bank] have noted the engagement of your services by Isabela Sugar Company to recover possession of the Roxas Boulevard property formerly covered by TCT No. 5382, effective November 29, 1994. It is understood that your services have been contracted by and your principal remains to be Isabela Sugar Company, which as Seller of the property and under the terms of our Contract to Sell dated November 29, 1994, has committed to deliver the full and actual possession of the said property to the buyer, Urban Bank, within the stipulated period." (Emphasis supplied; petitioner Urban Banks letter dated 15 December 1994; Exhibit "4," RTC records, Vol. 4, at 811)
38 39

RTC Decision dated 28 May 1999, at 8; rollo (G. R. No. 162562), Vol. 1, at 512. RTC Decision dated 28 May 1999, at 2; rollo (G. R. No. 162562), Vol. 1, at 506.

40

ISCIs Complaint dated 08 December 1994; Exhibit "E" to "E-6," RTC records, Vol.3, at 572-578.
41 42

ISCIs Complaint for injunction was docketed as Civil Case No. 94-1275. (Id.)

"WHEREFORE, to prevent the main cause of action or principal relief sought by plaintiff (ISCI) from becoming moot and academic, the parties herein are directed to maintain the status quo more specifically, restraining defendants (tenants) and all persons acting in their behaves (sic), from harassing and threatening plaintiffs personnel and from forcefully and unlawfully interfering with plaintiffs possession of the property until further orders from this Court. " (RTC Order dated 13 December 1994 in Civil Case No. 94-1275; Exhibit "E-7" to "E-7-c," RTC records, Vol. 3, at 579-582)
43

"The Regional Trial Court of Pasay City issued a Temporary Restraining Order in favor of plaintiff on December 13, 1994 and was implemented on December 17, 1994." (RTC Decision dated 28 May 1999, at 3; rollo [G. R. No. 162562], Vol. 1, at 507)
44

Title to the Pasay property (TCT No. 134451) was issued on 05 December 1994, which was four days before the First Injunction Complaint was filed with the RTC Pasay City on 09 December 1994.
45

This is according to the Decision of RTC-Bago City. (RTC Decision dated 28 May 1999, at 3; rollo [G R. No. 162562], Vol. 1, at 507) The records of the case in RTC-Pasay city are NOT with the Court, as none of the issues raised therein are before Us.
46 47

Peas Petition for Review dated 23 April 2004, at 6; rollo (G. R. No. 162562), Vol. 1, at 13.

48

RTC Decision dated 28 May 1999, at 3; rollo (G. R. No. 162562), Vol. 1, at 507. RTC Decision dated 28 May 1999, at 3-4; rollo (G. R. No. 162562), Vol. 1, at 507-508. RTC Decision dated 28 May 1999, at 4; rollo (G. R. No. 162562), Vol. 1, at 508. RTC Decision dated 28 May 1999, at 4-5; rollo (G. R. No. 162562), Vol. 1, at 508-509.

49

50

51

Petitioner Urban Banks Letter dated 19 December 1994; Exhibit "B," RTC records, Vol.3, at 568.
52

ISCIs Letter dated 19 December 1994 signed by Herman Ponce and Julie Abad; Exhibit "5," RTC records, Vol. 4, at 812.
53

ISCIs Urgent Ex-parte Motion/Notice to Dismiss dated 21 December 1994; Exhibit "I" to "I2," RTC records, Vol. 3, at 586-588.
54 55

RTC Decision dated 28 May 1999, at 6; rollo (G. R. No. 162562), Vol. I at 510.

Petitioner Urban Banks Complaint dated 04 January 1995; Exhibit "J" to "J-6," RTC records, Vol. 3, at 589-595.
56 57

Petitioner Urban Banks Complaint was docketed as Civil Case No. 95-029. RTC-Makati Citys Order dated 06 January 1995; Exhibit "K," RTC records, Vol. 3, at 599. RTC Decision dated 28 May 1999, at 6; rollo (G. R. No. 162562), Vol. 1, at 510. Id.

58

59

60

Receipt dated 28 April 1995 issued by Atty. Noel B. Malaya from Pea for the amount of PhP1,500,000; Exhibit "BB," RTC records, Vol. 3 at 757.
61

The PhP3,000,000 loan of Mr. Roberto Ignacio to Pea is covered by three Promissory Notes dated 30 November 1994, 20 December 1994 and 27 April 1995 for PhP1,000,000 each. The three loans were all due on 30 May 1995 with an express stipulation of five percent (5%) interest for every month of delay. (Rollo [G. R. No. 145817], Vol. 1, at 286-288)
62

Mr. Ignacios Complaint dated 03 April 1999 (Civil Case No. 99-93952); rollo (G. R. No. 145817), Vol. 1, at 281-285.
63

Peas letter dated 07 February 1995 to petitioner Urban Bank; Exhibit "C," RTC records, Vol. 3, at 569.
64 65

RTC Decision dated 28 May 1999, at 6-7; rollo (G. R. No. 162562), Vol. 1, at 510-511. Peas letter dated 24 January 1996; Exhibit "D," RTC records, Vol. 3, at 570. Peas Complaint dated 28 February 1996; RTC records, Vol. 1 at 1-6.

66

67

68

CA Amended Decision dated 18 August 2000, at 2; rollo (G. R. No. 145817), Vol. 1, at 11.

At the time the complaint was filed in 1996, the eleven members of the Board of Directors of Urban Bank included: (1) Teodoro C. Borlongan; (2) Benjamin L. de Leon; (3) Claudio R. de Luzuriaga, Jr.; (4) P. Siervo H. Dizon; (5) Francisco C. Eizmendi, Jr., (6) Delfin C. Gonzalez, Jr.; (7) Noel A. Laman; (8) Eric L. Lee; (9) Ben T. Lim Sr.; (10) Jose P. Magno, Jr., (11) Carlos C. Salinas. (Urban Bank List of Members of the Board of Directors for Year Ending 1995; rollo (G. R. No. 162562), Vol. 1, at 840)
69

Comment dated 30 March 2005 of Ben Y. Lim, Jr., and P. Siervo H. Dizon; rollo (G. R. No. 162562), Vol. 1, at 804-817.
70

Petitioners Answer with Compulsory Counterclaim dated 28 October 1996; rollo (G. R. No. 145817), Vol. 1, at 245-252.
71 72

The Decision of the RTC-Bago City was then rendered by Judge Edgardo L. Catilo. RTC Decision dated 28 May 1999, at 24; rollo (G. R. No. 145817 ), Vol. 1, at 101. Notice of Appeal dated 15 June 1999; RTC records, Vol. 5, at 1016. RTC Order dated 23 June 1999; RTC records, Vol. 5, at 1022. The appeal was docketed in the Court of Appeals as CA-G. R. CV No. 65756.

73

74

75

76

Brief for Defendant-Appellant Urban Bank, Inc., dated 25 January 2002; CA rollo (CA-G.R. CV No. 65756), Vol. 1, at 110-175.
77

The Singson Valdez & Associates Law Office entered its appearance for petitioner Urban Bank. (Notice of Appearance dated 07 November 2001; CA rollo [CA-G.R. CV No. 65756], Vol. 1, at 57-59) Although petitioner Urban Banks previous counsel, the Poblador Bautista & Reyes Law Office, withdrew its appearance, it remained as counsel for the other individual petitioners. (Withdrawal of Appearance dated 07 August 2001; CA rollo [CA-G.R. CV No. 65756], Vol. 1, at 36-37).
78 79

The De Leon Group was represented by the Abello Concepcion Regala & Cruz Law Office.

De Leon Groups Appellants Brief dated 28 January 2002; CA rollo (CA-G.R. CV No. 65756), Vol. 2, at 177-312.
80

The Poblador Bautista & Reyes Law Office initially represented petitioner Borlongan Group, but was replaced by the Chato Eleazar Lagmay & Arreza Law Office. (Entry of Appearance dated 05 May 2003; CA rollo, [CA-G.R. CV No. 65756], Vol. 2, at 1201-1203) However, Benjamin Y. Lim and P. Siervo H. Dizon (the Lim Group) retained the Poblador Bautista & Reyes Law Office. (Withdrawal of Appearance dated 15 January 2003; CA rollo [CA-G.R. CV No. 65756], Vol. 2, at 1164-1166)
81

Petitioner Borlongan Groups Brief for Appellants dated 18 April 2002; CA rollo (CA-G.R. CV No. 65756), Vol. 2, at 675-735.
82

Peas Appellees Brief dated 07 September 2002; CA rollo (CA-G.R. CV No. 65756), Vol. 2, at 892-972.
83

In a separate original petition under Rule 71, Pea also asked that Urban Bank and the individual officers and directors as well as their counsel be cited for indirect contempt for, among others, withholding material information from the appellate court as well as for misrepresenting the appearance of witnesses in the proceedings below. (Petition dated 05 September 2002; CA rollo [CA-G.R. SP No. 72698], Vol. 1, at 2-14) This petition for indirect contempt was later consolidated with the appeal of the main case. (CA Resolution dated 25 November 2002; CA rollo [CA-G.R. SP No. 72698], Vol. 1, at 295)
84

The Court of Appeals Sixth Division was then composed of CA Justices Delilah VidallonMagtolis, Jose L. Sabio, Jr., (ponente) and Hakim S. Abdulwahid.
85

The dates of the trial courts orders appearing in the dispositive portion were later corrected by the CA and now reads "the May 28, 1999 Decision and the October 29, 2000 Special Order." (CA Resolution dated 08 March 2004, at 2; rollo [G. R. No. 162562], Vol. 1, at 80)
86

CA Decision (CA GR SP No. 72698 & CV No. 65756) dated 06 November 2003; rollo (G.R. No. 162562), Vol. 1, at 82-111.
87

Peas Motion for Reconsideration dated 04 December 2003; rollo (G. R. No. 162562), Vol. 1, at 533-565.
88

CA Resolution (CA GR SP No. 72698 & CV NO. 65756) dated 08 March 2004; rollo (G.R. No. 162562), Vol. 1, at 79-80.
89 90

Notice of Appeal dated 15 June 1999; RTC records (Vol. V) at 1016.

Peas Motion for Execution dated 07 June 1999; rollo (G. R. No. 145817), Vol. 1, at 277279; see Peas Memorandum dated 13 October 1999; rollo (G. R. No. 145822), Vol. 1, at 371-376.
91 92

RTC Decision dated 28 May 1999, at 24; rollo (G. R. No. 145817 ), Vol. 1, at 101.

PhP 24,000,000 (compensation) + PhP3,000,000 (reimbursement) + PhP1,000,000 (attorneys fees) + PhP500,000 (exemplary damages) = PhP28,500,000 (excluding costs of suit)
93

The Complaint filed against Pea was a civil action for collection of PhP3,500,000 and PhP100,000 attorneys fees, which was filed by Mr. Roberto R. Ignacio and was docketed as Civil Case No. 99-93952 with the Regional Trial Court of Manila. (Complaint dated 03 April 1999; rollo [G. R. No. 145822], Vol. 1, at 213-217)
94

"4. Plaintiff has been unable to pay his loan precisely because defendants have not paid him his fees. Since. Mr. Ignacio has been a long time friend of his, he has been granted several extensions but on 4 June 1999, plaintiff received a summons issued by the Regional Trial Court of Manila, Branch 16 for a collection case filed [by] said Mr. Ignacio.
95

"6. It is imperative therefore that this Honorable Courts Decision be executed immediately so that he could settle the obligation which he would not have

contracted had defendants not engaged his services." (Peas Motion for Execution dated 07 June 1999, at 2; rollo [G. R. No. 145817], Vol. 1, at 278) Petitioner Urban Banks Opposition (to Motion for Execution) dated 15 June 1999; rollo (G. R. No. 145817), Vol. 1, at 289-300; see Petitioner Urban Banks Memorandum dated 12 October 1999; rollo (G. R. No. 145822), Vol. 1, at 309-331.
96

Petitioner Urban Bank had earlier moved for the voluntary inhibition of Judge Catilo. (Petitioner Urban Banks Motion for Voluntary Inhibition by the Presiding Judge dated 15 June 1999; rollo [G.R. No. 145817], Vol. 1, at 301-306)
97 98

RTC Special Order dated 29 October 1999; rollo (G.R. No. 145817), Vol. 1, at 880-889. Writ of Execution dated 28 May 1999; rollo (G. R. No. 145822), Vol. 1, at 152-154.

99

The trial courts Special Order and Writ of Execution were the subjects of a Rule 65 Petition filed by Urban Bank with the CA, and later docketed as CA-G. R. SP No. 55667. (Urban Banks Petition for Certiorari and Prohibition dated 29 November 1999; rollo [G. R. No. 145817], Vol. 1, at 307-345)
100

Petitioner Urban Bank was represented in this Rule 65 Petition by the Poblador Bautista & Reyes Law Offices.
101

Respondent Penas Petition for Certiorari and Prohibition with Application for Temporary Restraining Order and Writ of Preliminary Injunction dated 04 November 1999; rollo (G. R. No. 145817), Vol. 1, at 307-338.
102 103

CA Resolution dated 09 November 1999.

CA Twelfth Division composed of Justices Godardo A. Jacinto, Marina V. Buzon (ponente) and Edgardo P. Cruz.
104 105

CA Decision dated 12 January 2000; rollo (G. R. No. 145817), Vol. 1, at 346-358.

Peas Motion for Reconsideration dated 02 February 2000; rollo (G. R. No. 145817), Vol. 1, at 359-380.
106

Petitioners Comment/Opposition dated 14 April 2000; rollo (G. R. No. 145817), Vol. 1, at 381-401.
107

The Bangko Sentral ng Pilipinas (BSP) issued Monetary Board Resolution No. 22 placing petitioner Urban Bank under receivership of the Philippine Deposit Insurance Corporation (PDIC), considering that the bank was suffering from illiquidity and its capital was deficient. (Minutes of Board Resolution No. 22 dated 26 April 2000; rollo [G. R. No. 145817], Vol. 1, at 232)
108

CA Former Special Twelfth Division, Justices Godardo A. Jacinto, Roberto A. Barrios and Edgardo P. Cruz (ponente).
109

This CA Amended Decision is the subject of petitioner Urban Banks Rule 45 Petition in G. R. No. 145817. (Rollo [G. R. No. 145817], Vol. 1, at 10-21).
110

"In the instant case, although petitioner Banks imminent insolvency may not have been considered by the court a quo in allowing immediate execution, such ground, which has in the meantime arisen, may be relied upon by this Court in deciding the propriety of the execution pending appeal." (CA Amended Decision dated 18 August 2000, at 8; rollo (G. R. No. 145817), Vol. 1, at 17)
111

Petitioners Motion for Reconsideration dated 29 August 2000; rollo (G. R. No. 145817), Vol. 1, at 402-419.
112

Petitioner De Leon Groups Supplemental Motion for Reconsideration dated 21 September 2000 (rollo [G. R. No. 145822], Vol. 1, at 791-815) and Second Supplemental Motion for Reconsideration dated 11 October 2000 (rollo [G. R. No. 145822], Vol. 1, at 851-867); see also CA Resolution dated 19 October 2000, at 1 (rollo [G. R. No. 145817], Vol. 1, at 23).
113

Benjamin de Leon, Delfin C. Gonzales and Eric L Lee filed three separate Supplemental Motions for Reconsideration on 22 September 2000, 11 October 2000 and 16 October 2000. (CA Resolution dated 19 October 2000, at 1; rollo [G. R. No. 145817], Vol. 1, at 23)
114

Petitioner Lims Supplemental Motion for Reconsideration and Application for Temporary Restraining Order and Writ of Preliminary Injunction dated 13October 2000; rollo (G. R. No. 162562), Vol. 1, at 818-824.
115

CA Resolution dated 19 October 2000 (CA-G.R. SP No. 55667); rollo (G.R. No. 145817), Vol. 1, at 23-26.
116

"Respondent Magdaleno M. Pea is directed to post, within five (5) days from notice, an indemnity bond in the amount of P15,000,000.00 to answer for the damages which petitioners may suffer in case of reversal on appeal of the trial courts decision." (CA Resolution dated 19 October 2000, at 4; rollo [G.R. No. 145817], Vol. 1, at 26).
117

Petitioner De Leon Groups Ex Abundanti Cautela Urgent Motion to Stay Execution Pending Appeal Upon Filing of Supersedeas Bond dated 19 October 2000; rollo (G. R. No. 145822), Vol. 1, at 869-879.
118

The Special Former Special Twelfth Division was composed of Justices Bienvenido L. Reyes, Roberto A. Barrios, and Perlita J. Tria Tirona (ponente).
119

CA Resolution dated 31 October 2000 (CA-G.R. SP No. 55667); rollo (G.R. No. 145817), Vol. 1, at 668-669.
120

Peas Urgent Motion for Reconsideration dated 06 November 2000 and Supplemental Motion dated 13 November 2000; rollo (G. R. No. 145822), Vol. 1, at 995-1008.
121

CA Resolution dated 08 December 2000 (CA-G.R. SP No. 55667); rollo (G.R. No. 145817), Vol. 1, at 670-674.
122

Petitioner De Leon Groups Compliance with Motion to Approve Supersedeas Bond dated 08 November 2000; rollo (G. R. No. 145822), Vol. 1, at 990-994.
123

CA Resolution dated 08 December 2000 (CA-G.R. SP No. 55667); rollo (G.R. No. 145817), Vol. 1, at 670-674.
124

Peas Compliance dated 08 December 2000; rollo (G. R. No. 145822), Vol. 1, at 10581060); see Peas Comment dated 30 April 2001, at 12; rollo (G. R. No. 145817), Vol. 1, at 521.
125

BSP Minute Resolution No. 37 dated 12 July 2001; rollo (G.R. No. 145817), Vol. 1, at 843845.
126

Petitioner Urban Banks Urgent Motion to Approve Supersedeas Bond and to Stay Execution Pending Appeal dated 22 October 2001; rollo (G.R. No. 145817), Vol. 1, at 660667.
127

Surety Bond (MICO Bond No. 200104456) dated 13 September 2001; rollo (G.R. No. 145817), Vol. 1, at 740-741.
128

Petitioner Urban Banks Compliance with Motion to Approve Supersedeas Bond dated 14 September 2001 in CA-G.R. SP No. 55667; rollo (G.R. No. 145817), Vol. 1, at 675-709.
129

Notice of Sale on Execution of Personal Property dated 27 September 2001; rollo (G.R. No. 145817), Vol. 1, at 714.
130

Petitioner Urban Banks Urgent Manifestation and Motion dated 02 October 2001; rollo (G.R. No. 145817), Vol. 1, at 710-712.
131

CA Resolution dated 05 October 2001 in CA-G.R. SP No. 55667; rollo (G.R. No. 145817), Vol. 1, at 715-716.
132

Notice of Sale on Execution of Personal Property dated 27 September 2001; rollo (G.R. No. 145817), Vol. 1, at 714.
133

Quotes from GG&A Club Shares and Metroland Holdings, Corp., dated 06 December 1999; rollo (G. R. No. 145822), Vol. 1, at 708. (At present, one share in Tagaytay Highlands International Golf Club is selling at PhP560,000 [http://www.ggaclubshares.com/ last visited 17 October 2011].)
134

Notice of Sale on Execution of Personal Property dated 03 October 2001; rollo (G.R. No. 145817), Vol. 1, at 717; RTC Orders all dated 15 October 2001; rollo (G. R. No. 145822), Vol. 2, at 2923-2928.
135

Quotes from GG&A Club Shares and Metroland Holdings, Corp., dated 06 December 1999; rollo (G. R. No. 145822), Vol. 1, at 708. (At present, Makati Sports Club Shares "A" and "B" are now selling at P200,000 and P230,000 respectively [http://www.ggaclubshares.com/ last visited 17 October 2011])
136

Two MSCI "A" Club Shares at PhP650,000 each and one MSCI "B" Club Share at PhP700,000.
137

Notice of Sale on Execution of Real Property dated 03 October 2001, covering Condominium Certificates of Title (CCT) Nos. 56034-39, 56052-69, 56088-56147, and 56154; rollo (G.R. No. 145817), Vol. 1, at 718-739. See Certifications dated 26 October 2001 and 31 October 2001 attesting to the sale of the CCTs covering units in Makati City registered under the name of Urban Bank; rollo (G. R. No. 145817), Vol. 1, at 769-770.
138

Most of the condominium units were sold anywhere for as low as PhP100,000 to PhP1,000,000. The whole lot of 85 condominiums units in Urban Bank Plaza were sold for a total of PhP27,400,000 only. (c/f Properties levied and attached; rollo [G. R. No. 145817], Vol. 1, at 976-980)
139

Ten Certificates of Sale all dated 25 October 2001; rollo (G.R. No. 145817), Vol. 1, at 1005-1035.
140

Notice of Levy on Execution dated 05 November 1999 and Condominium Certificate of Title No. 57697 under the name of Urban Bank; RTC records, Vol. 5, at 1315-1318.
141

Urban Bank Properties, Annex of Urban Banks Letter dated 09 November 1999; RTC records, Vol. 5, at 1310.
142

Notice of Levy on Execution dated 05 November 1999 and Condominium Certificate of Title No. 57698 under the name of Urban Bank; RTC records, Vol. 5, at 1319-1322.
143 144

Notice of Levy on Execution dated 05 November 1999; RTC records, Vol. 5, at 1332-1333.

Urban Bank Properties, Annex of Urban Banks Letter dated 09 November 1999; RTC records, Vol. 5, at 1310.
145

Letter dated 08 November 1999 of Manila Polo Club; RTC records, Vol. 5, at 1312; RTC Order dated 19 December 2000; rollo (G. R. No. 145822), Vol. 2, at 2550-2552.
146

Petitioner Urban Banks Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817), Vol. 2, at 1721-1722. See also Petitioner De Leon Groups Memorandum dated 20 January 2004, at 15-16; rollo (G. R. No. 145822), Vol. 1, at 12351236. (At present, one club share in Manila Polo Club sells at PhP7 Million. [http://www.ggaclubshares.com last visited 17 October 2011])
147 148

Rollo (G. R. No. 145817), Vol. 1, at 422.

RTC Order dated 31 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2542-2543; RTC Amended Order dated 13 December 2000; rollo (G. R. No. 145822), Vol. 2, at 2546-2549; see also Lee v. Trocino, G. R. No. 164648, 06 August 2008, 561 SCRA 178.
149

Petitioner Urban Banks Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817), Vol. 2, at 1721-1722. See also Petitioner De Leon Groups Memorandum dated 20 January 2004, at 15-16; rollo (G. R. No. 145822), Vol. 1, at 12351236. (At present, one club share in Subic Bay Yacht Club sells at PhP150,000. [http://www.ggaclubshares.com last visited 17 October 2011])
150 151

RTC Order dated 27 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2540-41.

Quotes from GG&A Club Shares and Metroland Holdings, Corp., dated 06 December 1999; rollo (G. R. No. 145822), Vol. 1, at 708. (At present, one share in Baguio Country Club is selling at PhP650,000 [http://www.ggaclubshares.com/ last visited 17 October 2011].)
152 153

RTC Order dated 27 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2540-41;

Quotes from GG&A Club Shares and Metroland Holdings, Corp., dated 06 December 1999; rollo (G. R. No. 145822), Vol. 1, at 708. (At present, Makati Sports Club Shares "A" and "B" are now selling at P200,000 and P230,000 respectively [http://www.ggaclubshares.com/ last visited 17 October 2011])
154 155

Co v. Sillador, A. M. No. P-07-2342, 31 August 2007, 531 SCRA 657.

Letter dated 08 November 1999 of Manila Polo Club; RTC records, Vol. 5, at 1312; RTC Order dated 19 December 2000; rollo (G. R. No. 145822), Vol. 2, at 2550-2552; RTC Order dated 09 March 2001; rollo (G. R. No. 145822), Vol. 2, at 2558-2561.
156

Petitioner Urban Banks Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817), Vol. 2, at 1721-1722. See also Petitioner De Leon Groups Memorandum dated 20 January 2004, at 15-16; rollo (G. R. No. 145822), Vol. 1, at 12351236. (At present, one club share in Manila Polo Club sells at PhP7 Million. [http://www.ggaclubshares.com last visited 17 October 2011])
157 158

Rollo (G. R. No. 1458177), Vol. 1, at 420.

Notice of Sale on Execution of Personal Property dated 22 September 2000; rollo (G. R. No. 145822). Vol. 2, at 2520; RTC Order dated 12 October 2000; rollo (G. R. No. 145822), Vol. 2, at 2526-2527; RTC Order dated 24 January 2001; rollo (G. R. No. 145822), Vol. 2, at 2554-2557; see also Urban Banks Manifestation and Motion dated 20 September 2005, at 4; rollo (G. R. No. 145817), Vol. 2, at 1722.
159

Petitioner Urban Banks Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817), Vol. 2, at 1721-1722. See also Petitioner De Leon Groups Memorandum dated 20 January 2004, at 15-16; rollo (G. R. No. 145822), Vol. 1, at 12351236. (At present, one share in Baguio Country Club is selling at PhP650,000 [http://www.ggaclubshares.com/ last visited 17 October 2011].)
160

Notice of Sale on Execution of Personal Property dated 09 October 2000; rollo (G. R. No. 145822). Vol. 2, at 2523; RTC Order dated 18 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2528-2529; see also Urban Banks Manifestation and Motion dated 20 September 2005, at 4; rollo (G. R. No. 145817), Vol. 2, at 1722.
161

Petitioner Urban Banks Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817), Vol. 2, at 1721-1722. See also Petitioner De Leon Groups Memorandum dated 20 January 2004, at 15-16; rollo (G. R. No. 145822), Vol. 1, at 12351236. (At present, Alabang Country Club Shares "A" and "B" are selling at PhP1.95 M and PhP2.95M, respectively [http://www.ggaclubshares.com/ last visited 17 October 2011].)
162

Notice of Garnishment dated 29 October 1999; rollo (G. R. No. 145822), Vol. 2, at 25712572; Notice of Sale on Execution of Personal Property dated 20 October 2000; rollo (G. R. No. 145822), Vol. 2, at 2539; RTC Order dated 31 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2542-2543; RTC Amended Order dated 13 December 2000; rollo (G. R. No. 145822), Vol. 2, at 2546-2549; see also Lee v. Trocino, id.
163 164

RTC Order dated 31 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2542-2543.

Notice of Sale on Execution of Personal Property dated 20 October 2000; rollo (G. R. No. 145822). Vol. 2, at 2539; RTC Order dated 31 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2544-2545; RTC Amended Order dated 13 December 2000; rollo (G. R. No. 145822), Vol. 2, at 2546-2549; see also Lee v. Trocino, id.
165 166

RTC Order dated 31 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2544-2545.

Letter dated 08 November 1999 of Manila Polo Club; RTC records, Vol. 5, at 1312; RTC Order dated 19 December 2000; rollo (G. R. No. 145822), Vol. 2, at 2550-2552; RTC Order dated 09 March 2001; rollo (G. R. No. 145822), Vol. 2, at 2558-2561.
167

Petitioner Urban Banks Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817), Vol. 2, at 1721-1722. See also Petitioner De Leon Groups Memorandum dated 20 January 2004, at 15-16; rollo (G. R. No. 145822), Vol. 1, at 12351236. (At present, one club share in Manila Polo Club sells at PhP7 Million. [http://www.ggaclubshares.com last visited 17 October 2011])
168 169

Rollo (G. R. No. 145817), Vol. 1, at 425.

Notice of Sale on Execution of Personal Property dated 22 September 2000; rollo (G. R. No. 145822), Vol. 2, at 2522; RTC Order dated 27 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2540-41; see also Petitioner Urban Banks Manifestation and Motion dated 20 September 2005, at 3; rollo (G. R. No. 145817), Vol. 2, at 1721.
170

Urban Banks Manifestation and Motion dated 20 September 2005, at 3; rollo (G. R. No. 145817), Vol. 2, at 1721. (At present, a Makati Sports Club Share "A" is now selling at P200,000 [http://www.ggaclubshares.com/ last visited 17 October 2011])
171

Notice of Sale on Execution of Personal Property dated 22 September 2000; rollo (G. R. No. 145822). Vol. 2, at 2521; RTC Order dated 27 October 2000; rollo (G. R. No. 145822), Vol. 2, at 2540-2541.
172

Quotes from GG&A Club Shares and Metroland Holdings, Corp., dated 06 December 1999; rollo (G. R. No. 145822), Vol. 1, at 708. (At present, one share in Baguio Country Club is selling at PhP650,000 [http://www.ggaclubshares.com/ last visited 17 October 2011].)
173

Letter dated 08 November 1999 of Manila Polo Club; RTC records, Vol. 5, at 1312; RTC Order dated 19 December 2000; rollo (G. R. No. 145822), Vol. 2, at 2550-2552; RTC Order dated 09 March 2001; rollo (G. R. No. 145822), Vol. 2, at 2558-2561.
174

Petitioner Urban Banks Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817), Vol. 2, at 1721-1722. See also Petitioner De Leon Groups Memorandum dated 20 January 2004, at 15-16; rollo (G. R. No. 145822), Vol. 1, at 12351236. (At present, one club share in Manila Polo Club sells at PhP7 Million. [http://www.ggaclubshares.com last visited 17 October 2011])
175 176

Rollo (G. R. No. 1458177), Vol. 1, at 421.

Notice of Sale on Execution of Personal Property dated 22 September 2000; rollo (G. R. No. 145822). Vol. 2, at 2519; RTC Order dated 04 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2525; RTC Order dated 20 December 2000; rollo (G. R. No. 145822), Vol. 2, at
177

2553; see also Urban Banks Manifestation and Motion dated 20 September 2005, at 4; rollo (G. R. No. 145817), Vol. 2, at 1722. Petitioner Urban Banks Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817), Vol. 2, at 1721-1722. See also Petitioner De Leon Groups Memorandum dated 20 January 2004, at 15-16; rollo (G. R. No. 145822), Vol. 1, at 12351236. (At present, one club share in Manila Golf Club sells at PhP26.5 Million. [http://www.ggaclubshares.com last visited 17 October 2011])
178

Notice of Sale on Execution of Personal Property dated 09 October 2000; rollo (G. R. No. 145822). Vol. 2, at 2524; RTC Order dated 18 October 2000; rollo (G. R. No. 145822), Vol. 2, at 2530-2531; see also Urban Banks Manifestation and Motion dated 20 September 2005, at 4; rollo (G. R. No. 145817), Vol. 2, at 1722.
179

Petitioner Urban Banks Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817), Vol. 2, at 1721-1722. See also Petitioner De Leon Groups Memorandum dated 20 January 2004, at 15-16; rollo (G. R. No. 145822), Vol. 1, at 12351236. (At present, one club share in Sta. Elena Club (both "A" and "B") sells at PhP2.3 Million. [http://www.ggaclubshares.com last visited 17 October 2011])
180

RTC Order dated 19 December 2000; rollo (G. R. No. 145822), Vol. 2, at 2550-2552; Urban Banks Manifestation and Motion dated 20 September 2005, at 4; rollo (G. R. No. 145817), Vol. 2, at 1722.
181

Petitioner Urban Banks Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817), Vol. 2, at 1721-1722. See also Petitioner De Leon Groups Memorandum dated 20 January 2004, at 15-16; rollo (G. R. No. 145822), Vol. 1, at 12351236. (At present, one club share in Tagaytay Highlands Intl Gold Club sells at PhP560,000. [http://www.ggaclubshares.com last visited 17 October 2011])
182 183

Rollo (G. R. No. 1458177), Vol. 1, at 423-424.

Notice of Sale on Execution of Personal Property dated 20 October 2000; rollo (G. R. No. 145822). Vol. 2, at 2538; see also Urban Banks Manifestation and Motion dated 20 September 2005, at 4; rollo (G. R. No. 145817), Vol. 2, at 1722.
184

Petitioner Urban Banks Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817), Vol. 2, at 1721-1722. See also Petitioner De Leon Groups Memorandum dated 20 January 2004, at 15-16; rollo (G. R. No. 145822), Vol. 1, at 12351236. (At present, one club share in Subic Yacht Club sells at PhP150,000. [http://www.ggaclubshares.com last visited 17 October 2011])
185

RTC Order dated 31 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2542-2543; RTC Amended Order dated 13 December 2000; rollo (G. R. No. 145822), Vol. 2, at 2546-2549; see also Lee v. Trocino, id.
186

RTC Order dated 31 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2544-2545; RTC Amended Order dated 13 December 2000; rollo (G. R. No. 145822), Vol. 2, at 2546-2549; see also Lee v. Trocino, id.
187

Petitioner Urban Banks Manifestation and Motion dated 20 September 2005, at 4; rollo (G. R. No. 145817), Vol. 2, at 1722.
188 189

Co v. Sillador, Id. Id.

190

Based on the Appraisal Report as of 16 April 2002 conducted by Cuervo Appraisers, Inc., submitted by Urban Bank in their Opposition (To Motion for Reconsideration with Intervention) dated 29 April 2003, the ten condominium units alone purchased by Unimega for PhP10 Million (Units 21-2, 21-3, 21-5, 21-6, and 22-1 to 22-6) was already worth PhP146,851,900. Meanwhile, the fair market value of the entire lot of 85 condominium units sold on execution pending appeal could reach as even as much as PhP1.4 Billion. (Appraisal Report; rollo [G. R. No. 145817], Vol. 2, at 1396-1423)
191

Malaysian Insurance Surety Bond (MICO Bond No. 200104456) dated 13 September 2001; rollo (G. R. No. 145817), Vol. 1, at 740-741
192

Petitioner Urban Banks Urgent Motion to Approve Supersedeas Bond and to Stay Execution Pending Appeal dated 22 October 2001; rollo (G. R. No. 145817). Vol. 1, at 660667.
193 194

Peas Opposition dated 31 October 2001; rollo (G. R. No. 145817), Vol. 1, at 752-768. EIB letter dated 23 October 2002; rollo (G.R. No. 145817), Vol. 2, at 1277.

195

The following managers checks were attached to the Manifestation: (a) Managers Check No. 80571 (PhP224,000); (b) Manager Check No. 80572 (PhP13,440,000); and (c) Managers Check No. 80573 (PhP 8,440,800). (Rollo [G. R. No. 145817], Vol. 2, at 1281)
196

Petitioner Urban Banks Manifestation with Tender of Payment of the Redemption Price dated 24 October 2002; rollo (G.R. No. 145817), Vol. 2, at 1278-1281.
197 198

RTC-Bago Citys Order dated 28 October 2002; rollo (G. R. No. 145817), Vol. 2, at 1286.

Petitioner Urban Banks Motion with Manifestation dated 29 October 2002; rollo (G. R. No. 145817), Vol. 2, at 1287-1291.
199

Sheriff Silladors Affidavits of Non-Redemption both dated 04 November 2002; rollo (G.R. No. No. 145817), Vol. 1, at 1072-1074.
200

Sheriffs Certificates of Final Sale both dated 04 November 2002; rollo (G.R. No. 145817), Vol. 1, at 1065-1071.
201

RTC-Bago Citys Order dated 13 November 2002; rollo (G.R. No. 145817), Vol. 1, at 1086-1089.
202 203

SC Resolution dated 19 November 2001; rollo (G. R. No. 145817), Vol. 1, at 794-795.

Peas Motion for Reconsideration (of the Resolution Approving the Supersedeas Bond) dated 07 December 2001; rollo (G.R. No. 145817), Vol. 1, at 846-862.
204

205

SC Resolution dated 24 September 2003; rollo (G.R. No. 145817), Vol. 1, at 1151-1152.

Petitioner Urban Banks counsel, the Poblador Bautista & Reyes Law Office, was substituted by the Office of the Chief Legal Counsel of PDIC, which had become the banks receiver at that time. (Substitution of Counsel dated 24 November 2000; rollo [G. R. No. 145817], Vol. 1, at 27-30)
206

PDIC, as receiver of petitioner Urban Bank, was represented by the Ongkiko Kalaw Manhit & Acorda Law Offices. (Entry of Appearance dated 21 December 2000; rollo [G. R. No. 145817], Vol. 1, at 183-185)
207

Petitioner Urban Banks Petition for Review on Certiorari dated 21 December 2000; rollo (G. R. No. 145817), Vol. 1, at 186-213.
208

Peas Comment with Motion to Cite for Contempt and Urgent Motion to Dismiss dated 12 January 2001; rollo (G. R. No. 145817), Vol. 1, at 32-77.
209 210

Peas Comment dated 30 April 2001; rollo (G. R. No. 145817), at 510-555.

Petitioner Borlongan Group, comprised of individual bank directors and officers Teodoro Borlongan, Corazon M. Bejasa, Arturo Manuel, Jr., Ben Y. Lim, Jr., and P. Siervo H. Dizon, was then represented by the Poblador Bautista & Reyes Law Offices.
211

Petitioner Borlongan Groups Petition for Review on Certiorari dated 21 November 2000; rollo (G. R. No. 145822), Vol. 1, at 887-950.
212

"Considering the allegations, issues and arguments adduced in the petition for review on Certiorari of the amended decision and resolution of the Court of Appeals dated August 18, 2000 and October 19, 2000, respectively, as well as respondents comments thereon, the Court further Resolves to DENY the petition for failure of the petitioners to sufficiently show that the Court of Appeals committed any reversible error in the challenged amended decision and resolution as to warrant the exercise by this Court of its discretionary appellate jurisdiction in this case." (SC Resolution dated 29 January 2001 in G. R. No. 145818; rollo (G. R. No. 145822), Vol. 1, at 955-956)
213

SC Resolution dated 25 June 2001 in G.R. No. 145818; rollo (G.R. No. 145817), Vol. 1, at 620-621.
214

SC Entry of Judgment dated 11 May 2001 in G.R. No. 145818; rollo (G.R. No. 145817), Vol. 1, at 657-658.
215

Petitioner De Leon Groups Petition for Review on Certiorari dated 06 December 2000; rollo (G. R. No. 145822), Vol. 1, at 14-75.
216 217

SC Resolution dated 13 December 2000; rollo (G. R. No. 145822), Vol. 1, at 955-956. SC Resolution dated 12 November 2001; rollo (G. R. No. 145817), Vol. 1, at 796. SC Resolution dated 24 September 2003; rollo (G. R. No. 145817), Vol. 1, at 1151-1152. Id.

218

219

220

Petitioner Urban Banks Memorandum dated 28 January 2004; rollo (G. R. No. 145822), Vol. 1, at 1267-1288.
221

Petitioner De Leon Groups Memorandum dated 20 January 2004; rollo (G. R. No. 145822), Vol. 1, at 1221-1266.
222

EIB letter dated 10 December 2001; rollo (G.R. No. 145817), Vol. 1, at 896-897; see also EIB letter dated 24 October 2001 (rollo [G.R. No. 145817], Vol. 1, at 956) and EIB letter dated 06 June 2002 (rollo [G.R. No. 145817], Vol. 1, at 939)
223

Petitioner Urban Banks three shares in the Makati Sports Club were previously sold in a public auction last 11 October 2001, conducted by the sheriff of RTC-Bago City. (RTC Orders all dated 15 October 2001; rollo [G.R. No. 145817], Vol. 1, at 890-895)
224

MSCIs letter dated 26 November 2001; Annex "C" of MSCIs Motion for Clarification; rollo (G.R. No. 145817), Vol. 1, at 875-899.
225

Atty. Ereetas letter dated 16 January 2002 (rollo [G.R. No. 145817], Vol. 1, at 898-899); Atty. Ereetas letter dated 30 May 2002 (rollo [G.R. No. 145817], Vol. 1, at 898-938). See also Atty. Ereetas Motion to Cite in Contempt of Court dated 22 July 2002 in Civil Case No. 754 (rollo [G.R. No. 145817], Vol. 1, at 944-948).
226

Makati Sports Clubs Motion for Clarification dated 04 February 2002; rollo (G.R. No. 145817), Vol. 1, at 875-879.
227

Petitioner Urban Banks Motion for Clarification dated 6 August 2002; rollo (G.R. No. 145817),Vol. 1, at 972-975. See also petitioner Urban Banks Urgent Motion to Resolve dated 21 October 2002; rollo (G.R. No. 145817), Vol. 1, at 982-987.
228 229

SC Resolution dated 13 November 2002; rollo (G.R. No. 145817), Vol. 1, at 988-990.

Peas Urgent Omnibus Motion dated 09 December 2002 (rollo [G. R. No. 145817], Vol. 1, at 1090-1102); see also Peas Supplement to the Urgent Omnibus Motion dated 19 December 2002 (rollo [G. R. No. 145817], Vol. 1, at 1106-1110)
230

Urban Bank attributed the mistake allegedly due to the fact that in one of the Courts Resolution (SC Resolution dated 13 February 2002), the ACCRA Law Office was mentioned as the "counsel of respondent." (Opposition [To Urgent Omnibus Motion and Supplement to Urgent Omnibus Motion] dated 28 February 2003, at 2-4; rollo [G.R. No. 145817], Vol. 2, at 1220-1222).
231

Petitioner Urban Banks Opposition dated 28 February 2003; rollo (G.R. No. 145817), Vol. 2, at 1219-1227.
232 233

SC Resolution dated 31 August 2011. SC Resolution dated 17 February 2003; rollo (G.R. No. 145822), Vol. 3, at 3220-3221.

234

Intervenor Unimegas Motion for Reconsideration with Intervention dated 10 December 2002; rollo (G.R. No. 145817), Vol. 1, at 991-1004.
235

Petitioner De Leon Group manifested that Unimegas intervention was only with respect to petitioner Urban Banks properties (condominium units), but opposed the legal and factual conclusions of Unimega insofar as it deemed the titles to the executed properties to be consolidated in Unimegas name. (Petitioner De Leon Groups Manifestation and Comment dated 24 February; rollo [G. R. No. 145817], Vol. 2, at 1191-196)
236

Petitioner Urban Banks Opposition (to Motion for Reconsideration with Intervention) dated 29 April 2003; rollo (G.R. No. 145817), Vol. 2, at 1386-1394.
237

According to petitioner Urban Bank, the fair market value of the condominium units (of varying sizes) purchased by Unimega, inclusive of the parking lots attached to the units, amounted to PhP175,849,850, which is grossly disproportional to the PhP10,000,000 paid by Unimega for all the 10 units during the auction sale. (Petitioner Urban Banks Opposition dated 29 April 2003, at 4; rollo, [G. R. No. 145817], Vol. 2, at 1389)
238 239

SC Resolution dated 01 August 2005; rollo (G.R. No. 145817), Vol. 2, at 1623-1630.

Petitioner Urban Banks Manifestation and Motion dated 20 September 2005; rollo (G. R. No. 145817), Vol. 2, at 1719-1725.
240

Petitioner De Leon Groups Manifestation dated 12 September 2005; rollo (G. R. No. 145817), Vol. 2, at 1759-1763.
241

Intervenor Unimegas Ex Parte Petition for the Issuance of a Writ of Possession dated 28 June 2006; rollo (G. R. No. 162562), Vol. 2, at 1156-1169.
242 243

SC Resolution dated 06 September 2006; rollo (G. R. No. 162562), Vol. 2, at 1171-1172.

Petitioner Lim Groups Compliance and Comment dated 25 October 2006; rollo (G. R. No. 162562), Vol. 2, at 1181-1184.
244

Petitioner Borlongan Groups (composed of the heirs of Borlongan, Bejasa and Manuel, Jr.) Compliance dated 30 October 2006; rollo (G. R. No. 162562), Vol. 2, at 1188-1189.
245

Peas Compliance and Comment dated 07 January 2008; rollo (G. R. No. 162562), Vol. 2, at 1233-1241.
246

Petitioner Urban Banks Opposition (to Ex Parte Petition for the Issuance of a Writ of Possession) dated 08 November 2006; rollo (G. R. No. 162562), Vol. 2, at 1196-1201.
247

Petitioner De Leon Groups Manifestation and Comment dated 17 November 2006; rollo (G. R. No. 162562), Vol. 2, at 1204-1211.
248

Intervenor Unimegas Reply/Comment (to the Opposition of Urban Bank and Manifestation/Comment of Petitioners Gonzales, Jr., De Leon and Lee) dated 07 February 2007; rollo (G. R. No. 162562), Vol. 2, at 1212-1224.
249 250

Civil Code, Art. 1868.

Victorias Milling Co., Inc. v. CA, G. R. No. 117356, 19 June 2000, 33 SCRA 663, citing Bordador v. Luz, 283 SCRA 374, 382 (1997).
251

Eurotech Industrial Technologies v. Cuizon, G. R. No. 167552, 23 April 2007, 521 SCRA 584, citing Yu Eng Cho v. Pan American World Airways, Inc., 385 Phil. 453, 465 (2000).
252

Yun Kwan Byung v. PAGCOR, G. R. No. 163553, 11 December 2009, 608 SCRA 107, citing Angeles v. Philippine National Railways, 500 SCRA 444, 452 (2006).
253

Tuason v. Heirs of Ramos, G. R. No. 156262, 14 July 2005, 463 SCRA 408, citing Victorias Milling Co., Inc. v. CA, 389 Phil. 184, 196 (2000); Lim v. CA, 321 Phil. 782, 794, (1995).
254

"WHEREFORE, in view of the foregoing considerations, the May 28, 2000 Decision [sic] and the October 19, 2000 [sic] Special Order of the RTC of Bago City, Branch 62, are hereby ANNULLED AND SET ASIDE. However, the plaintiff-appellee in CA GR CV No. 65756 is awarded the amount of P3 Million as reimbursement for his expenses as well as reasonable compensation for his efforts in clearing Urban Banks property of unlawful occupants. The award of exemplary damages, attorneys fees and costs of suit are deleted, the same not having been sufficiently proven. The petition for Indirect Contempt against all the respondents is DISMISSED for utter lack of merit." (CA Decision [CA GR SP No. 72698 & CV No. 65756] dated 06 November 2003; rollo [G.R. No. 162562], Vol. 1, at 82-111)
255

When Urban Bank paid the purchase price less authorized retention money under the Deed of Absolute Sale.
256 257

Contract to Sell dated 15 November 1994. (Exhibit "16," RTC records [Vol. 4] at 846-849) ISCIs fax letter dated 26 November 1994; Exhibit "3," RTC records, Vol. 4, at 810.

258

"SUBLEASE PROHIBITED. That as distinguished from LESSEEs [Mr. Ochoa] rent-out operations above-mentioned, the LESSEE [Mr. Ochoa] shall not assign, cede or convey this lease, nor undertake to sub-lease the whole or substantially all of the lease premises [Pasay property] to any single third party, without the LESSORs [ISCIs] consent in writing; " (Contract of Lease dated 29 November 1984, par. 5 at 2; rollo [G.R. No. 162562], Vol. 1, at 279)
259 260

ISCIs letter dated 07 December 1994; Exhibit "1," RTC records, Vol. 4, at 808. ISCIs fax letter dated 09 December 1994; Exhibit "2," RTC records, Vol. 4, at 809. Urban Banks letter dated 15 December 1994; Exhibit "4," RTC records, Vol. 4, at 811.

261

262

RTC Decision dated 28 May 1999, at 3; rollo (G R. No. 162562), Vol. 1, at 507. However, the records of the case in RTC-Pasay City with respect to the First Injunction Complaint filed by Pea on behalf of ISCI are NOT with this Court, as none of the issues raised therein are before Us.
263

Petitioner Urban Banks letter dated 19 December 1994; Exhibit "B," RTC records, Vol. 3, at 568.
264

"The due execution and genuineness of the letter dated December 19, 1994 sent by the defendant Urban Bank to the plaintiff; "(Pre-Trial Order dated 23 September 1997, at 3; RTC records, Vol. 2, at 501)
265

Cua v. Ocampo Tan, G. R. No. 181455-56&182008, 04 December 2009, 607 SCRA 645, citing Yasuma v. Heirs of Cecilio S. de Villa , 499 SCRA 466, 471-472 (2006).
266

RTCs Order dated 04 November 1997, modifying the Pre-trial Order dated 23 September 1997; RTC records, Vol. 2, at 514-519.
267

"Received from Atty. Magdaleno M. Pea the amount of One Million Five Hundred Thousand Pesos (PhP1,500,000) representing full and final settlement of our claims against Urban Bank Incorporated arising from the closure of the Australian Club located in the former International Food Complex along Roxas Boulevard, Pasay City, Metro Manila." (Receipt dated 28 April 1995; Exhibit "BB," RTC records, Vol.3, at 757)
268

"When two or more principals have granted a power of attorney for a common transaction, any one of them may revoke the same without the consent of the others." (Civil Code, Art. 1925)
269

"Agency is extinguished: (5) By the accomplishment of the object or purpose of the agency; ." (Civil Code, Art. 1919)
270 271

Civil Code, Art. 1923.

ISCIs Letter dated 19 December 1994 signed by Herman Ponce and Julie Abad; Exhibit "5," RTC records, Vol. 4, at 812.
272

Civil Code, Art. 1875; cf. National Brewery & Allied Industries Labor Union of the Phils. v. San Miguel Brewery, Inc., G. R. No. L-18170, 31 August 1963, 8 SCRA 805.
273

3 Am. Jur. 2d. 246, citing Monroe v. Grolier Soc. of London, 208 Cal. 447, 281 P. 604, 65 A.L.R. 989 (1929); Chamberlain v. Abeles, 88 Cal. App. 2d 291, 198 P.2d 927 (2d Dist. 1948).
274

Rules of Court, Rule 138, Sec. 24; Orocio v. Anguluan, G. R. No. 179892-93, 30 January 2009, 577 SCRA 531.
275

"Quantum meruit means that in an action for work and labor, payment shall be made in such amount as the plaintiff reasonably deserves." (H. L. Carlos Construction, Inc., v. Marina Properties Corp., G. R. No. 147614, 29 January 2004, 421 SCRA 428, citing Republic v. Court of Appeals, 359 Phil. 530, 640 [1998])
276

Rayos v. Hernandez, G. R. No. 169079, 12 February 2007, 515 SCRA 517; Bach v. Ongkiko Kalaw Manhit & Acorda Law Offices, G. R. No. 160334, 11 September 2006, 501 SCRA 192.
277

Transcontinental Underwriters Agency, S. R. L., v. American Agency Underwriters, 680 F.2d 298, 300 (18 May 1982), citing Miller v. Wilson, 24 Pa. 114 (1854).
278 279

Id. CA Decision dated 06 November 2003, at 23; rollo (G. R. No. 162562), Vol. 1, at 104. RTC Decision dated 28 May 1999, at 21; RTC records, Vol. 4, at 962.

280

281

"12. It is true that Atty. Singson had been offering the amount of P25 million to respondent but the latter could not agree to the said amount because his legal expenses alone since this case started in 1996 (and considering that it spawned several other case) would already have reached P10 million. In clearing the Roxas Boulevard property, he had to borrow P3 million (an amount which had been earning interest since 1995) from his good friend Mr. Roberto Ignacio. When respondents services were engaged by petitioner, he was promised ten (10%) of the propertys value which was at least P25 million. Thus, even if respondent agreed to forego the interests that had accrued since 1996, and even if Mr. Ignacio agreed to collect from him only the principal loaned amount, he would still be entitled to at least P38 million. To respondents mind, therefore, P25 million was out of the question." (Peas Consolidated Reply dated 01 April 2003, at 6-7; rollo [G. R. No. 145822], Vol. 3, at 33593360)
282 283

Adrimisin v. Javier, A. C. No. 2591, 08 September 2006, 501 SCRA 192.

Quilban v. Robinol, A. C. Nos. 2144 & 2180, 10 April 1989, 171 SCRA 768; see Traders Royal Bank Employees Union, v. NLRC, G. R. No. 120592, 14 March 1997, 269 SCRA 733.
284

Catly v. Navarro, G. R. No. 167239, 05 May 2010, 620 SCRA 151, citing Orocio v. Anguluan, 577 SCRA 531, 551-552 (2009).
285

Lambert Pawnbrokers and Jewelry Corp., v. Binamira, G. R. No. 170464, 12 July 2010, 624 SCRA 705.
286 287

Id.

Francisco v. Mallen, Jr., G. R. No. 173169, 22 September 2010, 631 SCRA 118, citing Section 31 of the Corporation Code and Ramoso v. Court of Appeals, 400 Phil. 1260 (2000).
288 289

Magaling v. Ong, G. R. No. 173333, 13 August 2008, 562 SCRA .

"7. The defendant URBAN BANK through its President, defendant TEODORO BORLONGAN, and the defendants Board [of] Directors as well as its Senior Vice President CORAZON BEJASA and VICE President, Arturo Manuel, Jr., entered into an agency agreement with the plaintiff, whereby the latter in behalf of defendant URBAN BANK, shall hold and maintain possession of the aforedescribed property, prevent entry of intruders, interlopers, and squatters therein and finally turnover peaceful possession thereof to defendant URBAN BANK; it was further agreed that for the services rendered as its agent, defendant URBAN BANK shall pay plaintiff a fee in an amount equivalent to 10% of the market value of the property prevailing at the time of the payment." (Peas Complaint dated 28 February 1996, at 2; RTC records, Vol. 1, at 2)
290 291

Peas Petition dated 23 April 2004, at 61-65; rollo (G. R. No. 162562), Vol. 1, at 68-72. RTC Decision dated 28 May 1999, at 23; RTC records, Vol. 4, at 964.

292

CA Decision dated 06 November 2003, at 24-25; rollo (G. R. No. 162562), Vol. 1, at 105106.
293 294

Peas Petition dated 23 April 2004, supra note 126.

"Impleaded as defendants in this case are the members of the board of directors of Urban bank who were sought to be held liable in the same manner as the bank. Their failure to raise the defense of limited corporate liability in their Motion to Dismiss or in their Answer in consequence with the provision of Rule 9 of the 1997 Rules of Civil Procedure constitute a waiver on their part to bring up this defense. Thus, this warrants the court to hold all the defendants in this case jointly and severally liable with Urban Bank, Inc., This pronouncement finds basis in plaintiffs general prayer for such further or other relief as may be deemed just or equitable." (RTC Decision 28 May 1999, at 22-23; RTC records, Vol. 4, at 963-964)
295 296

Notice of Appeal dated 15 June 1999; RTC records (Vol. V) at 1016-1017.

Peas Motion for Execution dated 07 June 1999; rollo (G. R. No. 145817), Vol. 1, at 277279; see Peas Memorandum dated 13 October 1999; rollo (G. R. No. 145822), Vol. 1, at 371-376.
297 298

RTC Decision dated 28 May 1999, at 24; rollo (G. R. No. 145817 ), Vol. 1, at 101.

PhP 24,000,000 (compensation) + PhP3,000,000 (reimbursement) + PhP1,000,000 (attorneys fees) + PhP500,000 (exemplary damages) = PhP28,500,000 (excluding costs of suit)
299

"4. Plaintiff has been unable to pay his loan precisely because defendants have not paid him his fees. Since. Mr. Ignacio has been a long time friend of his, he has been granted several extensions but on 4 June 1999, plaintiff received a summons issued by the Regional Trial Court of Manila, Branch 16 for a collection case filed [by] said Mr. Ignacio.
300

"6. It is imperative therefore that this Honorable Courts Decision be executed immediately so that he could settle the obligation which he would not have contracted had defendants not engaged his services." (Peas Motion for Execution dated 07 June 1999, at 2; rollo [G. R. No. 145817], Vol. 1, at 278) The Complaint filed against Pea was a civil action for collection of PhP3,500,000 and PhP100,000 attorneys fees, which was filed by Mr. Roberto R. Ignacio and was docketed as Civil Case No. 99-93952 with the Regional Trial Court of Manila. (Complaint dated 03 April 1999; rollo [G. R. No. 145822], Vol. 1, at 213-217)
301

Petitioner Urban Banks Opposition (to Motion for Execution) dated 15 June 1999; rollo (G. R. No. 145817), Vol. 1, at 289-300; see Petitioner Urban Banks Memorandum dated 12 October 1999; rollo (G. R. No. 145822), Vol. 1, at 309-331.
302

Petitioner Urban Bank had earlier moved for the voluntary inhibition of Judge Catilo. (Petitioner Urban Banks Motion for Voluntary Inhibition by the Presiding Judge dated 15 June 1999; rollo [G.R. No. 145817], Vol. 1, at 301-306)
303

"The court finds that the pendency of the case for collection of money against plaintiff is a good reason for immediate execution." (RTC Special Order dated 29 October 1999, at 7; rollo [G.R. No. 145817], Vol. 1, at 886)
304 305

Writ of Execution dated 28 May 1999; rollo (G. R. No. 145822), Vol. 1, at 152-154.

The said Rule 65 Petition in the Court of Appeals was docketed as CA-G. R. SP No. 55667. (Petitioner Urban Banks Petition for Certiorari and Prohibition dated 29 November 1999; rollo [G. R. No. 145817], Vol. 1, at 307-345)
306 307

Nazareno v. Court of Appeals, G. R. No. 111610, 27 February 2002, 378 SCRA 28. Id.

308

"That which is a nullity produces no effect." (Maagad v. Maagad, G. R. No. 171762, 05 June 2009, 588 SCRA 649)
309 310

Rules of Court, Rule 39, Sec. 5. Silverio v. Court of Appeals, G. R. No. L-39861, 17 March 1986, 141 SCRA 527. G. R. No. 167976, 20 January 2010, 610 SCRA 377.

311

312

Diesel Construction Company, Inc., v. Jollibee Foods Corp., G. R. No. 136805, 28 January 2000, 323 SCRA 844.
313

Philippine Bank of Communications v. Court of Appeals, G. R. No. 126158, 23 September 1997, 279 SCRA 364.
314

RTC Special Order dated 29 October 1999, at 6-7; rollo (G. R. No. 145817), Vol. 1, at 885886.
315

"17. More likely than not, the "Mr. Ignacio case" was a convenient ruse employed by Private Respondent [Pea]. It should be noted that Mr. Ignacio stated in his complaint that "(Private Respondents) assurance that his client (Petitioner Bank) was going to pay him before (30 May 1995) was what induced (Ignacio) to grant the loans in the first place." However, on 30 November 1994, the day of the first alleged "loan" of P1,000,000, Petitioner Bank was not even in the picture yet. In fact, "it was only (on December 19,1994), that plaintiff Private Respondent herein) was appraised (sic) that the property had already been sold and the title thereto ha[d] already been transferred to Urban Bank." How then could Petitioner Bank have assured payment to Private Respondent by 30 May 1995, which assurances were allegedly what induced the release of the loan? On the other hand, if the 30 November 1994 loan was taken out because Private Respondents was "instructed by his relatives" at ISCI to clear the property of occupants, why in the world would Private Respondents have to take out the loan with his friend, in his own name?" (Petition for Certiorari and Prohibition dated 04November 1999, at 14-15; rollo (G. R. No. 145817), Vol. 1, at 320-321; emphasis supplied and citations omitted)
316

"WHEREFORE, plaintiff respectfully prays that upon the filing of this Complaint, a writ of preliminary attachment be issued ex-parte to cover all of defendants property and that after due proceedings, defendant be made to pay the principal amount of P3,500,000.00 plus interests and attorneys fees in the amount of P100,000.00." (Mr. Roberto Ignacios Complaint dated 03 April 1999, at 3-4; RTC records, Vol. 4, at 983-984)
317

"It is understood that default on my part will entitle payee to 5% interest for every month of delay." (Promissory Notes dated 30 November 1994, 20 December 1994, and 27 April 1995; RTC records, Vol. 4, 986-988)
318

CA Decision dated 12 January 2000 in C. A.-G. R. SP No. 55667, at 11-12; rollo (G. R. No. 145817), Vol. 1, at 356-357.
319

"[E]xecution pending appeal must be strictly construed being an exception to the general rule. So, too, execution pending appeal is not to be availed of and applied routinely, but only in extraordinary circumstances." (Corona International, Inc., v. Court of Appeals, G. R. No. 127851, 18 October 2000, 343 SCRA 512)
320 321

http://www.urbanbank.info/urbanweb/ubi_financial.htm last visited 07 October 2011. BSP Letter dated 04 December 1998; rollo (G. R. No. 145822), Vol. 1, at 622.

322

Business World Special Report, The Commercial Banking System, Selected Balance Sheet Accounts as of 27 September 1999; rollo (G. R. No. 145822), Vol. 1, at 624.
323

"We agree with the appellate court's ratiocination in CA-G.R. SP No. 55667 that there is good ground to order execution pending appeal. Records show that on April 26, 2000, Urban Bank declared a bank holiday, and the Bangko Sentral ng Pilipinas (BSP) ordered its closure. Subsequently, Urban Bank was placed under receivership of the Philippine Deposit Insurance Corporation (PDIC); five of its senior officials, including defendants (in the trial court) Borlongan and Bejasa, were placed in the hold-departure list of the Bureau of Immigration and Deportation pending investigation for alleged anomalous transactions (e.g. violation of the Single Borrower's Limit provision of Republic Act No. 8791, or the General Banking Law of 2000) and bank fraud which led to Urban Bank's financial collapse. Furthermore, several administrative, criminal and civil cases had been filed against Urban Bank officials, who are defendants in Civil Case No. 754. Also, in the Pea disbarment case, the Court found the existence of an agency relation between Pea and Urban Bank, thereby entitling the former to collection of fees for his services. Impending insolvency of the adverse party constitutes good ground for execution pending appeal." (Lee v. Trocino, G.R. No. 164648, 06 August 2008, 561 SCRA 178)
324

"Nevertheless, in the interest of an orderly and judicious administration of justice, we resolve to amend specific portions of our Decision which do not affect in any significant manner the integrity of our original disposition of the case. Thus, with regard to whether or not there exists an agency relationship between Urban Bank and Pea, the matter should be left to the final determination of the Court in G.R. No. 162562. Anent the soundness of the lower court's grant of execution pending appeal, which necessarily settles the validity of the Special Order and Writ of Execution, the decision in G.R. No. 145822 must be awaited. Accordingly, our original dispositions regarding Urban Bank's liability to Pea and finding good reasons for execution pending appeal are hereby withdrawn in order to make way for their resolution in the other petitions pending with the Court." (Lee v. Trocino, G.R. No. 164648, 19 June 2009, 590 SCRA 32)
325 326

G.R. No. 164857, 11 April 2005, 455 SCRA 272.

"The receiver shall immediately gather and take charge of all the assets and liabilities of the institution, administer the same for the benefit of its creditors, and exercise the general powers of a receiver under the Revised Rules of Court but shall not, with the exception of administrative expenditures, pay or commit any act that will involve the transfer or disposition of any asset of the institution: Provided, That the receiver may deposit or place the funds of the institution in non-speculative investments. The receiver shall determine as soon as possible, but not later than ninety (90) days from take over, whether the institution may be
327

rehabilitated or otherwise placed in such a condition so that it may be permitted to resume business with safety to its depositors and creditors and the general public: Provided, That any determination for the resumption of business of the institution shall be subject to prior approval of the Monetary Board. (2) The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver and shall, from the moment the institution was placed under such receivership or liquidation, be exempt from any order of garnishment, levy, attachment, or execution. ." (Republic Act No. 7653, Sec. 30) "1. To prohibit the bank from doing business in the Philippines and to place its assets and affairs under receivership in accordance with Section 30 of R. A. No. 7653; " (Monetary Boards Minute Resolution No. 22 dated 26 April 2000; rollo [G. R. No. 145817] , Vol. 1, at 232)
328

"In connection with the above-referenced cases, please be informed that neither the undersigned [Pea] nor the sheriff of RTC Br. 62, Bago City, has initiated execution sale activities against the properties and assets of Urban Bank (UB) after the latter was ordered closed by the Bangko Sentral ng Pilipinas and placed under receivership of the PDIC.
329

"As the judgment creditor in the aforementioned cases, I would like to assure you that no execution sale of UBs assets shall be scheduled or undertaken for as long as the bank remains under receivership." (Peas Letter dated 19 December 2000; rollo [G. R. No. 145817], Vol. 1, at 599) Philippine Veterans Bank v. Intermediate Appellate Court, G. R. No. 73162, 23 October 1989, 178 SCRA 645.
330

Petitioner Urban Bank, through EIB, had previously expressed its intent to redeem the 10 condominium units sold to intervenor Unimega during the public execution sale.
331

The RTC-Bago City in the Decision in the main case awarded Pea a total of PhP28,500,000 in compensation and/or damages; EIB tendered three managers checks totaling PhP22,108,800 to redeem the 10 condominium units sold to intervenor Unimega, an amount that is more than three-fourths of the award in the main case.
332

Florendo v. Paramount Insurance Corp., G. R. No. 167976, 20 January 2010, 610 SCRA 377, citing City of Iligan v. Principal Management Group, Inc., 455 Phil. 335, 344 (2003).
333

Stronghold Insurance, Co., Inc., v. Felix, G. R. No. 148090, 28 November 2006, 508 SCRA 357, citing Heirs of Macabangkit Sangkay v. National Power Corporation, 489 SCRA 401, 417 (2006).
334

"UBI is expected to reopen by end of August 2011. Upon reopening liabilities (as provided in the memorandum of agreement) up to P500,000 (inclusive of the P100,000 insured deposit) shall be paid and the balance payable in the next three (3) years with the first 30% serviced on the first year, 30% on the second year and 40% on the third year." (PDIC Letter dated 13 August 2001 to Atty. Pea; rollo [G. R. No. 145817], Vol. 1, at 654)
335

336

Rule 39, Sec. 9 (a).

Letter dated 09 November 1999; RTC records, Vol. 5, at 1308-1309; Petitioner Urban Banks Memorandum dated 28 January 2004, par. 12, at 4; rollo (G. R. No. 145822), Vol. 1, at 1270; see also petitioner De Leon Groups Memorandum dated 20 January 2004, par. 1.12, at 6; rollo (G. R. No. 145822), Vol. 1, at 1226.
337 338

Id.

The following managers checks were attached to the Manifestation: (a) Managers Check No. 80571 (PhP224,000); (b) Manager Check No. 80572 (PhP13,440,000); and (c) Managers Check No. 80573 (PhP 8,440,800). (Rollo [G. R. No. 145817], Vol. 2, at 1281)
339 340

RTC Order dated 13 November 2002; rollo (G. R. No. 145817), Vol. 1, at 1086-1089.

Sheriff Silladors Affidavits of Non-Redemption both dated 04 November 2002; rollo (G.R. No. No. 145817), Vol. 1, at 1072-1074.
341

In that case, Sheriff Allan Sillador of RTC-Bago City levied and sold on public auction supposedly conjugal properties of Teodoro Borlongan, Corazon Bejasa and Arturo Manuel, Jr., despite the third party claims asserted by their respective spouse. The Court found Sheriff Sillador administratively liable for his failure to comply with the mandatory procedures for the conduct of the auction sale. (A. M. No. P-07-2342, 31 August 2007, 531 SCRA 657)
342

After the RTC-Bago City granted execution pending appeal in the main case, judgment obligors Teodoro Borlongan, Corazon Bejasa and Arturo Manuel, Jr., received a notice of sale on execution of real properties involving their respective lots. Their respective spouses filed Notices/Affidavits of Third Party Claim with Sheriff Allan Sillador and claimed that the levied properties are included in their conjugal estates. The said administrative complaint was filed with respect to the irregularities attendant the auction sale of these conjugal properties conducted by Sheriff Sillador. Sheriff Sillador was found to found guilty of simple neglect of duty and suspended for a period of 1 month without pay with a stern warning that a repetition of the same or similar acts will be dealt with more severely. (Co. v. Sillador, id.)
343

Peas Urgent Omnibus Motion dated 09 December 2002 (rollo [G. R. No. 145817], Vol. 1, at 1090-1102); see also Peas Supplement to the Urgent Omnibus Motion dated 19 December 2002 (rollo [G. R. No. 145817], Vol. 1, at 1106-1110)
344

Intervenor Unimegas Motion for Reconsideration with Intervention dated 10 December 2002; rollo (G.R. No. 145817), Vol. 1, at 991-1004.
345 346

SC Resolution dated 13 November 2002; rollo (G.R. No. 145817), Vol. 1, at 988-990. SC Resolution dated 19 November 2001; rollo (G. R. No. 145817), Vol. 1, at 794-795.

347

"Effect of reorganization of Divisions on assigned cases. In the reorganization of the membership of Divisions, cases already assigned to a Member-in-Charge shall be transferred to the Division to which the Member-in-Charge moves, subject to the rule on the resolution of motions for reconsideration under Section 7 of this Rule. The Member-inCharge is the Member given the responsibility of overseeing the progress and disposition of
348

a case assigned by raffle." (Internal Rules of the Supreme Court [A. M. No. 10-4-20-SC, as amended], Rule 2, Sec. 9) "Private respondent [Pea] composed himself and tried to recall if there was any pending incident with this Honorable Court regarding the suspension of the redemption period but he could not remember any. In an effort to hide his discomfort, respondent teased Atty. Singson about bribing the ponente to get such an order. Much to his surprise, Atty. Singson did not even bother to deny and in fact explained that they obviously had to exert extra effort because they could not afford to lose the properties involved (consisting mainly of almost all the units in the Urban Bank Plaza in Makati City) as it might cause the bank (now Export Industry Bank) to close down." (Peas Urgent Motion to Inhibit and to Resolve Respondents Urgent Omnibus Motion dated 30 January 2006, at 2-3; see SC TSN dated 03 March 2002, at 55-58)
349

Letter Complaint dated 16 September 2011 (Re: Justices Carpio and Sereno) filed with the Courts Committee on Ethics and Ethical Standards; see Supplement to the Very Urgent Motion for Re-Raffle dated 20 September 2011.
350

1. Peas Motion to Inhibit (Re: Justice Artemio V. Panganiban) dated 12 January 2001; 2. Urgent Motion to Inhibit (Re: Justice Arturo Buena) dated 20 August 2001; 3. Letter Complaint (Re: Justice Buena) dated 28 October 2001; 4. Motion to Inhibit (Re: Justice Panganiban) dated 18 February 2002; 5. Reply (Re: Justice Panganiban) dated 15 March 2001; 6. Urgent Motion to Inhibit (re: ponente) dated 30 January 2003; 7. Motion to Inhibit (Re: Justice Leonardo A. Quisumbing) dated 08 July 2004; 8. Motion to Inhibit (Re: Justice Panganiban) dated 28 December 2004; 9. Motion to Inhibit (Re: Justice Eduardo Antonio B. Nachura) dated 17 December 2007; 10. Motion for Inhibition (Re: Justice Panganiban) dated 28 December 2004; 11. Reiteratory Motion to Recuse dated 03 March 2006 (Re: Justice Panganiban); 12. Motion to Inhibit (Re: Justice Nachura) dated 07 January 2008; 13. Urgent Consolidated Motion to Reiterate Request for Inhibition (Re: Justice Antonio T. Carpio) dated 02 June 2008; 14. Urgent Motion for Re-Raffle (Re: Justice Presbitero J. Velasco) dated 10 July 2008; 15. Supplement to the Urgent Motion for Re-Raffle (Re: Justices Conchita Carpio Morales and Dante O. Tinga) dated 04 August 2008; 16. Urgent Consolidated Motion for ReRaffle (Re: Justices Carpio Morales, Tinga and Velasco) dated 14 August 2008; 17. Urgent Consolidated Motion for Re-Raffle (Re: Justices Arturo D. Brion, Leonardo A. Quisumbing, Carpio Morales, Tinga, Velasco, Quisumbing) dated 28 August 2008; 18. Motion to Inhibit (Re: Justice Carpio) dated 21 January 2010; 19. Very Urgent Motion to Inhibit (Re: Justices Carpio Morales and Ma. Lourdes P. A. Sereno) dated 30 March 2011; 20. Very Urgent Motion to Inhibit dated 22 August 2011 (Re: Justice Sereno); and 21. Very Urgent Motion to Re-Raffle dated 01 September 2011 (Re: Justices Carpio, Jose Perez and Sereno).
351

Pasricha v. Don Luis Dison Realty, Inc., G. R. No. 136409, 14 March 2008, 548 SCRA 273.
352

"We agree that judges have the duty of protecting the integrity of the judiciary as an institution worthy of public trust and confidence. But under the circumstances here, we also agree that unnecessary inhibition of judges in a case would open the floodgates to forumshopping. More so, considering that Judge Magpale was not the first judge that TAN had asked to be inhibited on the same allegation of prejudgment. To allow successive inhibitions would justify petitioners' apprehension about the practice of certain litigants shopping for a judge more friendly and sympathetic to their cause than previous ones.
353

"As held in Mateo, Jr. v. Hon. Villaluz, the invitation for judges to disqualify themselves need not always be heeded. It is not always desirable that they should do so. It might amount in certain cases to their being recreant about their duties. It could also be an instrument whereby a party could inhibit a judge in the hope of getting another more amenable to his persuasion." (Chin, v. Court of Appeals, G. R. No. 144618, 15 August 2003, 409 SCRA 206; emphasis supplied)
354

Rules of Court, Rule 39, Sec. 5. Legaspi v. Ong, G. R. No. 141311, 26 May 2005, 459 SCRA 122. Pilipinas Bank v. Court of Appeals, G. R. No. 97873, 12 August 1993, 225 SCRA 268.

355

356

Petitioner De Leon Groups Memorandum dated 20 January 2004; at 15-16; rollo (G. R. No. 145822), Vol. 1, at 1235-1236.
357 358

Rules of Court, Rule 39, Sec. 9 (a).

"Legal solutions in pari materia are not wanting. Section 2 of Rule 39 of the Rules of Court authorize for goods reasons, the immediate execution of decisions of the Courts of First Instance during the pendency of an appeal, but then, evidently to avoid injustice, Section 5 of the same Rule provides: When the judgment executed is reversed totally or partially on appeal, the trial court, on motion, after the case is remanded to it, may issue such order of restitution as equity and justice may warrant under the circumstances. I am aware of no better principle than that underlying this provision that can be applied to the case at bar, for here, as in the case before Us, the order of immediate execution is concededly authorized when issued, but it is considered, in effect, as losing its legal basis after the executed decision is reversed or modified, hence the necessity of equitable restitution to the party prejudiced by the premature execution." (Dissenting Opinion of Justice Antonio P. Barredo in Yarcia v. City of Baguio, G. R. No. L-27562, 29 May 1970, 33 SCRA 419; emphasis supplied)
359

"The gist of the appeal is that since the order for the dismissal of the case was issued on August 20, 1960, and said dismissal had become final, the court could no longer issue its order of December 9, 1960 directing the return of the property. The argument while apparently correct would be productive of clear injustice. As a matter of principle courts should be authorized, as in this case, at any time to order the return of property erroneously ordered to be delivered to one party, if the order was found to have been issued without jurisdiction. Authority for the return of the property is expressed under the provision of Section 5 of Rule 39, Rules of Court " (Esler v. Ellama, G. R. No. L-18236, 31 January 1964, 10 SCRA 138)
360

"It is no defense that, prior to the finality of the judgment of the appellate court, the land and its products had been already distributed among the heirs of the late Ceferino Datoon. His administratrix, appellant herein, personally knew of the claim of appellee Salas; she also knew, and was bound to know, that the judgment of the Court of First Instance dismissing the complaint had been appealed, and could be reversed. It was, therefore, incumbent upon her to reserve the land and its products from distribution among the heirs of Datoon until final judgment was rendered, and she is personally answerable for her failure to do so, apart from the obligation of the heirs themselves not to profit from what is not theirs." (Salas v. Quinga, G. R. No. L-20294, 30 January 1965, 13 SCRA 143)
361

Aranda v. Court of Appeals, G. R. No. 63188, 13 June 1990, 186 SCRA 456, citing Po Pauco v. Tan Junco, 49 Phil. 349 (1926) and Hilario v. Hicks, 40 Phil. 576 (1919).
362

"It is submitted that under the premises movant-intervenor acted in good faith when it proceeded to participate in the execution sale despite the pendency of the appeal of the petitioner to this Honorable Court considering that at the time of the sale this Honorable Court have not yet acted on the said appeal inspite of the fact that the same was filed before the scheduled execution sale. In such case, the movant-intervenor can assume in good faith that the inaction on the appeal taking into account the urgency of the situation, would mean that the appeal was only dilatory in character." (Intervenor Unimegas Reply dated 22 May 2003, at 2; rollo (G. R. No. 145822), Vol. 3, at 3524)
363

"Recovery of price if sale not effective; revival of judgment. If the purchaser of real property sold on execution, or his successor in interest, fails to recover the possession thereof, or is evicted therefrom, in consequence of irregularities in the proceedings concerning the sale, or because the judgment has been reversed or set aside, or because the property sold was exempt from execution, or because a third person has vindicated his claim to the property, he may on motion in the same action or in a separate action recover from the judgment obligee the price paid, with interest, or so much thereof as has not been delivered to the judgment obligor, or he may, on motion, have the original judgment revived in his name for the whole price with interest, or so much thereof as has been delivered to the judgment obligor. The judgment so revived shall have the same force and effect as an original judgment would have as of the date of the revival and no more." (Rules of Court, Rule 39, Sec. 34; emphasis supplied)
364

Intervenor Unimegas Ex Parte Petition for the Issuance of a Writ of Possession dated 28 June 2006; rollo (G. R. No. 162562), Vol. 2, at 1156-1169.
365 366

Florenz D. Regalado, Remedial Law Compendium II 8th ed. (2002), at 424. Regalado, id. at 424, citing Po Pauco v. Tan Juco, 49 Phil. 349 (1926). CA Resolution dated 19 October 2000, at 3-4; rollo (G. R. No. 145817), Vol. 1, at 25-26.

367

368

DE LA RAMA STEAMSHIP v TAN (May 21, 1956)

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-21813 July 30, 1966

AMPARO G. PEREZ, ET AL., plaintiffs and appellees, vs. PHILIPPINE NATIONAL BANK, Binalbagan Branch, ET AL., defendants and appellants. Tomas Besa and A. Galang for defendants and appellants. Jose U. Carbonell and Celso B. Zamora for plaintiffs and appellees. REYES, J.B.L., J.: Appeal from a decision, in Civil Case No. 100 of the Court of First Instance of Negros Occidental, annulling the extra-judicial foreclosure sale of Lot No. 286-E of the Kabankalan Cadastre, standing in the name of Vicente Perez, in favor of the Philippine National Bank, as well as the cancellation of the mortgagor's Original Certificate of Title No. 29530 and the issuance of a new Certificate T-32066 in the Bank's name; and ordering the said Bank to pay the heirs of Vicente Perez P3,000 damages and P2,000 attorney's fees, and costs. The antecedents of the case were as follows: On August 29, 1939, Vicente Perez mortgaged Lot No. 286-E of the Kabankalan Cadastre, with Transfer certificate of Title No. 29530, to the appellant Philippine National Bank, Bacolod Branch, in order to secure payment of a loan of P2,500, plus interest, payable in yearly installments. On October 7, 1942, Vicente Perez, mortgagor, died intestate, survived by his widow and children (appellees herein). At that time, there was an outstanding balance of P1,917.00, and corresponding interest, on the mortgage indebtedness. On October 18, 1956, the widow of Perez instituted Special Proceedings No. 512 of the Court of First Instance of Occidental Negros for the settlement of the estate of Vicente Perez. The widow was appointed Administratrix and notice to creditors was duly published. The Bank did not file a claim. The project of partition was submitted on July 18, 1956; it was approved and the properties distributed accordingly. Special Proceedings No. 512 was then closed. It appears also that, as early as March of 1947, the widow of the late Vicente Perez inquired by letter from the Bank the status of her husband's account; and she was informed that there was an outstanding balance thereon of P2,758.84 earning a daily interest of P0.4488. She was furnished a copy of the mortgage and, on April 2, 1947, a copy of the Tax Declaration (Rec. App. pp. 45-48). On January 2, 1963, the Bank, pursuant to authority granted it in the mortgage deed, caused the mortgaged properties to be extrajudicially foreclosed. The Provincial Sheriff accordingly sold Lot No. 286-E at auction, and it was purchased by the Bank. In the ordinary course after the lapse of the year of redemption, Certificate of Title No. T-29530 in the name of Vicente Perez was cancelled, and Certificate T-32066, dated May 11, 1962, was issued in the name of the Bank. The widow and heirs were not notified.
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Three months later, on August 15, 1962, the widow and heirs of Vicente Perez instituted this case against the Bank in the court below, seeking to annul the extra-judicial foreclosure sale and the transfer of the Certificate of Title as well as to recover damages, claiming that the Bank had acted illegally and in bad faith. The Bank answered, denying the charges. After trial, the court a quo, on December 15, 1962, rendered judgment holding that, according to the doctrine of this Supreme Court in Pasno vs. Ravina 54 Phil. 382, the Bank should have foreclosed its mortgage in court; that the power to sell contained in the deed of mortgage had terminated upon the death of the mortgagor, Vicente Perez. Wherefore, the trial court declared null and void the extra-judicial foreclosure sale to the Bank, as well as the cancellation of the Certificate of Title of Vicente Perez and issuance in it's stead of a new certificate in the name of the Bank, and ordered the latter to pay the plaintiffs P3,000 damages and P2,000 attorney's fees and cost. The Bank appealed to this Supreme Court. The main issue in this appeal is the application of section 7, Rule 87, of the original Rules of Court adopted in 1941 (now Section 7, Rule 68, of the 1964 Revised Rules), and which was, in turn, a reproduction of section 708 of the Code of Civil Procedure (Act 190). The text is as follows: SEC. 7. Mortgage debt due from estate. A creditor holding a claim against the deceased secured by mortgage or other, collateral security, may abandon the security and prosecute his claim in the manner provided in this rule, and share in the general distribution of the assets of the estate; or he may foreclose his mortgage or realize upon his security, by action in court, making the executor or administrator a party defendant, and if there is a judgment for a deficiency, after the sale of the mortgaged premises, or the property pledged, in the foreclosure or other proceeding to realize upon the security, he may claim his deficiency judgment in the manner provided in the preceding section; or he may rely upon his mortgage other security alone, and foreclose the same at any time within the period of the statute of limitations, and in that event he shall not be admitted as a creditor and shall receive no share in the distribution of the other assets of the estate, but nothing herein contained shall prohibit the executor or administrator from redeeming the property mortgaged or pledged, by paying the debt for which it is held as security, under the direction of the court, if the court shall adjudge it to be for the best interest of the estate that such redemption shall be made. The lower court held that the Rule inhibits any extrajudicial foreclosure of the mortgage constituted by a deceased debtor-mortgagor, following the majority opinion of five justices in Pasno vs. Ravina, 54 Phil. 382 said the Court in that case (382): The power of sale given in a mortgage is a power coupled with an interest which survives the death of the grantor. One case, that of Carter vs. Slocomb ([1898], 122 N.C., 475), has gone so far as to hold that a sale after the death of the mortgagor is valid without notice to the heirs of the mortgagor. However that may be, conceding that the power of sale is not revoked by the death of the mortgagor, nevertheless in view of the silence of Act No. 3135 and in view of what is found in section 708 of the Code of Civil Procedure, it would be preferable to reach the conclusion that the mortgage with a power of sale should be made to foreclose the mortgage in conformity with the procedure pointed out in section 708 of the Code of Civil Procedure. That would safeguard the interests of the estate by putting the estate on notice while it would not jeopardize any rights of the mortgagee. The only result is to suspend temporarily the power to sell so as not to interfere with the orderly administration of the estate of a decedent. A contrary holding would be inconsistent with the portion of the settlement of estates of deceased persons.

A vigorous and able dissenting opinion, subscribed by Justices Street, Villamor and Ostrand, held that an extrajudicial foreclosure was authorized (cas. cit. pp. 383-385). The dissent argues: The opinion of the Court refers to section 708 of the Code of Civil Procedure as determining the proposition that, after the death of the mortgagor, foreclosure can be effected only by an ordinary action in court; but if this section be attentively examined, it will be seen that the bringing of an action to foreclose is necessary only when the mortgagee wishes to obtain a judgment over for the deficiency remaining unpaid after foreclosure is effected. In fact this section gives to the mortgagee three distinct alternatives, which are first, to waive his security and prove his credit as an ordinary debt against the estate of the deceased; secondly to foreclose the mortgage by ordinary action in court and recover any deficiency against the estate in administration; and, thirdly, to foreclose without action at any time within the period allowed by the statute of limitations. The third mode of procedure is indicated in that part of section 708 which is expressed in these words: "Or he may rely upon his mortgage or other security alone, and foreclose the same at any time, within the period of the statute of limitations, and in that event he shall not be admitted as a creditor, and shall receive no share in the distribution of the other assets of the estate." The alternative here contemplated is, evidently, foreclosure under power of sale contained in the mortgage. It must be so, since there are no other modes of foreclosure known to the law than by ordinary action and foreclosure under power, and the procedure by action is covered in that part of section 708 which immediately precedes the words which we have quoted above. It will be noted that the result of adopting the last mode of foreclosure is that the creditor waives his right to recover any deficiency from the estate. In addition to what is said above, we submit that the policy of the court in requiring foreclosure by action in case of the death of a mortgagor, where a power of sale is inserted in the mortgage, will prove highly prejudicial to the estates of deceased mortgagors. Nowadays nearly every mortgage executed in this country contains a stipulation for the payment of attorney's fees and expenses of foreclosure, usually in an amount not less than 20 or 25 per cent of the mortgage debt. This means, in practical effect, that the creditor can recover, for attorney's fee and expenses, whatever the Court will allow a reasonable, within the stipulated limit. On the other hand, if an extra-judicial foreclosure is effected under the power of sale, the expenses of foreclosure are limited to the cost of advertising and other actual expenses of the sale, not including the attorney's fee. Again, if foreclosure is effected extrajudicially, under the power, in conformity with the provisions of Act No. 3135, the mortgagor or his representative has a full year, from the date of the sale, within which to redeem the property, this being the same period of time that is allowed to judgment debtors for redeeming after sale under execution. On the other hand, the provisions of the Code of Civil Procedure relative to the foreclosure of mortgages by action allows no fixed period for redemption after sale; and although, in the closing words of section 708 of the Code of Civil Procedure the court is authorized to permit the administrator to redeem mortgaged property, this evidently refers to redemption to be effected before the foreclosure becomes final.

When account is further taken of the fact that a creditor who elects to foreclose by extrajudicial sale waives all right to recover against the estate of the deceased debtor for any deficiency remaining unpaid after the sale, it will be readily seen that the decision in this case will impose a burden upon the estates of deceased persons who have mortgaged real property for the security debts, without any compensatory advantage. The ruling in Pasno vs. Ravina not having been reiterated in any other case, We have carefully reexamined the same after mature deliberation have reached the conclusion that the dissenting opinion is more in conformity with reason and law. Of the three alternative courses that section 7, Rule 87 (now Rule 86), offers the mortgage creditor, to wit, (1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim; (2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and (3) to rely on the mortgage exclusively, foreclosing the same at any time before it is barred by prescription, without right to file a claim for any deficiency, the majority opinion in Pasno vs. Ravina, in requiring a judicial foreclosure, virtually wipes out the third alternative conceded by the Rules to the mortgage creditor, and which would precisely include extra-judicial foreclosures by contrast with the second alternative. This result we do not consider warranted by the text of the Rules; and, in addition, the recognition of creditor's right to foreclose extra-judicially presents undoubted advantages for the estate of the mortgagor, as pointed out by the dissenting opinion in Pasno vs. Ravina, supra. In the light of these considerations, we have decided to overrule the majority decision in said case, and uphold the right of the mortgage creditor to foreclose extra-judicially in accordance with section 7, Rule 86, of the Revised Rules (old Rule 87). The argument that foreclosure by the Bank under its power of sale is barred upon death of the debtor, because agency is extinguished by the death of the principal, under Article 1732 of the Civil Code of 1889 and Article 1919 of the Civil Code of the Philippines, neglects to take into account that the power to foreclose is not an ordinary agency that contemplates exclusively the representation of the principal by the agent but is primarily an authority conferred upon the mortgagee for the latter's own protection. It is, in fact, an ancillary stipulation supported by the same causa or consideration for the mortgage and forms an essential and inseparable part of that bilateral agreement. As can be seen in the preceding quotations from Pasno vs. Ravina, 54 Phil. 382, both the majority and the dissenting opinions conceded that the power to foreclose extrajudicially survived the death of the mortgagor, even under the law prior to the Civil Code of the Philippines now in force. Nevertheless, while upholding the validity of the appellant Bank's foreclosure, We can not close our eyes to the fact that the Bank was apprised since 1947 of the death of its debtor, Vicente Perez, yet it failed and neglected to give notice of the foreclosure to the latter's widow and heirs as expressly found by the court a quo. Such failure, in effect, prevented them from blocking the foreclosure through seasonable payment, as well as impeded their effectuating a seasonable redemption. In view of these circumstances, it is our view that both justice and equity would be served by permitting herein appellees to redeem the foreclosed property within a reasonable time, by paying the capital and interest of the indebtedness up to the time of redemption, plus foreclosure and useful expenses, less any rents and profits obtained by the Bank from and after the same entered into its possession. Wherefore, the judgment appealed from is hereby modified, as follows: (1) Declaring valid and effective the extra-judicial foreclosure of the mortgage over Lot 286-E of the Kabankalan Cadastre; (2) Upholding and confirming the cancellation of Transfer Certificate of Title No. 29350 of the Registry of Deeds of Occidental Negros in the name of the late Vicente Perez, as well as its

replacement by Certificate of Title T-32066 of the same Registry in the name of appellant Philippine National Bank; (3) Declaring the appellees herein, widow and other heirs of Vicente Perez entitled to redeem the property in question by paying or tendering to the Bank the capital of the debt of Vicente Perez, with the stipulated interest to the date of foreclosure, plus interest thereafter at 12% per annum; and reimbursing the Bank the value of any useful expenditures on the said property but deducting from the amounts thus payable the value of any rents and profits derived by the appellee National Bank from the property in question. Such payment to be made within sixty (60) days after the balance is determined by the court of origin. Neither party to recover damages or costs. Let the records be returned to the court of origin for further proceedings in conformity with this decision. So ordered. Concepcion, C.J., Barrera, Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 163720 December 16, 2004

GENEVIEVE LIM, petitioner, vs. FLORENCIO SABAN, respondents.

DECISION

TINGA, J.: Before the Court is a Petition for Review on Certiorari assailing the Decision1 dated October 27, 2003 of the Court of Appeals, Seventh Division, in CA-G.R. V No. 60392. 2 The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square meter lot in Cebu City (the "lot"), entered into anAgreement and Authority to Negotiate and Sell (Agency Agreement) with respondent Florencio Saban (Saban) on February 8, 1994. Under the Agency Agreement, Ybaez authorized Saban to look for a buyer of the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark up the selling price to include the amounts needed for payment of taxes, transfer of title and other expenses incident to the sale, as well as Sabans commission for the sale. 3 Through Sabans efforts, Ybaez and his wife were able to sell the lot to the petitioner Genevieve Lim (Lim) and the spouses Benjamin and Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of the lot as indicated in the Deed of Absolute Sale is Two Hundred Thousand Pesos (P200,000.00).4 It appears, however, that the vendees agreed to purchase the lot at the price of Six Hundred Thousand Pesos (P600,000.00), inclusive of taxes and other incidental expenses of the sale. After the sale, Lim remitted to Saban the amounts of One Hundred Thirteen Thousand Two Hundred Fifty Seven Pesos (P113,257.00) for payment of taxes due on the transaction as well as Fifty Thousand Pesos (P50,000.00) as brokers commission.5 Lim also issued in the name of Saban four postdated checks in the aggregate amount of Two Hundred Thirty Six Thousand Seven Hundred Forty Three Pesos (P236,743.00). These checks were Bank of the Philippine Islands (BPI) Check No. 1112645 dated June 12, 1994 for P25,000.00; BPI Check No. 1112647 dated June 19, 1994 for P18,743.00; BPI Check No. 1112646 dated June 26, 1994 for P25,000.00; and Equitable PCI Bank Check No. 021491B dated June 20, 1994 for P168,000.00. Subsequently, Ybaez sent a letter dated June 10, 1994 addressed to Lim. In the letter Ybaez asked Lim to cancel all the checks issued by her in Sabans favor and to "extend another partial payment" for the lot in his (Ybaezs) favor.6

After the four checks in his favor were dishonored upon presentment, Saban filed a Complaint for collection of sum of money and damages against Ybaez and Lim with the Regional Trial Court (RTC) of Cebu City on August 3, 1994. 7 The case was assigned to Branch 20 of the RTC. In his Complaint, Saban alleged that Lim and the Spouses Lim agreed to purchase the lot for P600,000.00, i.e.,with a mark-up of Four Hundred Thousand Pesos (P400,000.00) from the price set by Ybaez. Of the total purchase price of P600,000.00, P200,000.00 went to Ybaez, P50,000.00 allegedly went to Lims agent, andP113,257.00 was given to Saban to cover taxes and other expenses incidental to the sale. Lim also issued four (4) postdated checks 8 in favor of Saban for the remaining P236,743.00.9 Saban alleged that Ybaez told Lim that he (Saban) was not entitled to any commission for the sale since he concealed the actual selling price of the lot from Ybaez and because he was not a licensed real estate broker. Ybaez was able to convince Lim to cancel all four checks. Saban further averred that Ybaez and Lim connived to deprive him of his sales commission by withholding payment of the first three checks. He also claimed that Lim failed to make good the fourth check which was dishonored because the account against which it was drawn was closed. In his Answer, Ybaez claimed that Saban was not entitled to any commission because he concealed the actual selling price from him and because he was not a licensed real estate broker. Lim, for her part, argued that she was not privy to the agreement between Ybaez and Saban, and that she issued stop payment orders for the three checks because Ybaez requested her to pay the purchase price directly to him, instead of coursing it through Saban. She also alleged that she agreed with Ybaez that the purchase price of the lot was only P200,000.00. Ybaez died during the pendency of the case before the RTC. Upon motion of his counsel, the trial court dismissed the case only against him without any objection from the other parties. 10 On May 14, 1997, the RTC rendered its Decision11 dismissing Sabans complaint, declaring the four (4) checks issued by Lim as stale and non-negotiable, and absolving Lim from any liability towards Saban. Saban appealed the trial courts Decision to the Court of Appeals. On October 27, 2003, the appellate court promulgated its Decision12 reversing the trial courts ruling. It held that Saban was entitled to his commission amounting to P236,743.00.13 The Court of Appeals ruled that Ybaezs revocation of his contract of agency with Saban was invalid because the agency was coupled with an interest and Ybaez effected the revocation in bad faith in order to deprive Saban of his commission and to keep the profits for himself. 14 The appellate court found that Ybaez and Lim connived to deprive Saban of his commission. It declared that Lim is liable to pay Saban the amount of the purchase price of the lot corresponding to his commission because she issued the four checks knowing that the total amount thereof corresponded to Sabans commission for the sale, as the agent of Ybaez. The appellate court further ruled that, in issuing the checks in payment of Sabans commission, Lim acted as an accommodation party. She signed the checks as drawer, without receiving value therefor, for the purpose of lending her name to a third person. As such, she is liable to pay Saban as the holder for value of the checks.15

Lim filed a Motion for Reconsideration of the appellate courts Decision, but her Motion was denied by the Court of Appeals in a Resolution dated May 6, 2004.16 Not satisfied with the decision of the Court of Appeals, Lim filed the present petition. Lim argues that the appellate court ignored the fact that after paying her agent and remitting to Saban the amounts due for taxes and transfer of title, she paid the balance of the purchase price directly to Ybaez.17 She further contends that she is not liable for Ybaezs debt to Saban under the Agency Agreement as she is not privy thereto, and that Saban has no one but himself to blame for consenting to the dismissal of the case against Ybaez and not moving for his substitution by his heirs. 18 Lim also assails the findings of the appellate court that she issued the checks as an accommodation party for Ybaez and that she connived with the latter to deprive Saban of his commission. 19 Lim prays that should she be found liable to pay Saban the amount of his commission, she should only be held liable to the extent of one-third (1/3) of the amount, since she had two co-vendees (the Spouses Lim) who should share such liability.20 In his Comment, Saban maintains that Lim agreed to purchase the lot for P600,000.00, which consisted of theP200,000.00 which would be paid to Ybaez, the P50,000.00 due to her broker, the P113,257.00 earmarked for taxes and other expenses incidental to the sale and Sabans commission as broker for Ybaez. According to Saban, Lim assumed the obligation to pay him his commission. He insists that Lim and Ybaez connived to unjustly deprive him of his commission from the negotiation of the sale.21 The issues for the Courts resolution are whether Saban is entitled to receive his commission from the sale; and, assuming that Saban is entitled thereto, whether it is Lim who is liable to pay Saban his sales commission. The Court gives due course to the petition, but agrees with the result reached by the Court of Appeals. The Court affirms the appellate courts finding that the agency was not revoked since Ybaez requested that Lim make stop payment orders for the checks payable to Saban only after the consummation of the sale on March 10, 1994. At that time, Saban had already performed his obligation as Ybaezs agent when, through his (Sabans) efforts, Ybaez executed the Deed of Absolute Sale of the lot with Lim and the Spouses Lim. To deprive Saban of his commission subsequent to the sale which was consummated through his efforts would be a breach of his contract of agency with Ybaez which expressly states that Saban would be entitled to any excess in the purchase price after deducting the P200,000.00 due to Ybaez and the transfer taxes and other incidental expenses of the sale. 22 In Macondray & Co. v. Sellner,23 the Court recognized the right of a broker to his commission for finding a suitable buyer for the sellers property even though the seller himself consummated the sale with the buyer.24 The Court held that it would be in the height of injustice to permit the principal to terminate the contract of agency to the prejudice of the broker when he had already reaped the benefits of the brokers efforts.

In Infante v. Cunanan, et al.,25 the Court upheld the right of the brokers to their commissions although the seller revoked their authority to act in his behalf after they had found a buyer for his properties and negotiated the sale directly with the buyer whom he met through the brokers efforts. The Court ruled that the sellers withdrawal in bad faith of the brokers authority cannot unjustly deprive the brokers of their commissions as the sellers duly constituted agents. The pronouncements of the Court in the aforecited cases are applicable to the present case, especially considering that Saban had completely performed his obligations under his contract of agency with Ybaez by finding a suitable buyer to preparing the Deed of Absolute Sale between Ybaez and Lim and her co-vendees. Moreover, the contract of agency very clearly states that Saban is entitled to the excess of the mark-up of the price of the lot after deducting Ybaezs share of P200,000.00 and the taxes and other incidental expenses of the sale. However, the Court does not agree with the appellate courts pronouncement that Sabans agency was one coupled with an interest. Under Article 1927 of the Civil Code, an agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in the contract of partnership and his removal from the management is unjustifiable. Stated differently, an agency is deemed as one coupled with an interest where it is established for the mutual benefit of the principal and of the agent, or for the interest of the principal and of third persons, and it cannot be revoked by the principal so long as the interest of the agent or of a third person subsists. In an agency coupled with an interest, the agents interest must be in the subject matter of the power conferred and not merely an interest in the exercise of the power because it entitles him to compensation. When an agents interest is confined to earning his agreed compensation, the agency is not one coupled with an interest, since an agents interest in obtaining his compensation as such agent is an ordinary incident of the agency relationship. 26 Sabans entitlement to his commission having been settled, the Court must now determine whether Lim is the proper party against whom Saban should address his claim. Sabans right to receive compensation for negotiating as broker for Ybaez arises from the Agency Agreement between them. Lim is not a party to the contract. However, the record reveals that she had knowledge of the fact that Ybaez set the price of the lot at P200,000.00 and that the P600,000.00the price agreed upon by her and Sabanwas more than the amount set by Ybaez because it included the amount for payment of taxes and for Sabans commission as broker for Ybaez. According to the trial court, Lim made the following payments for the lot: P113,257.00 for taxes, P50,000.00 for her broker, and P400.000.00 directly to Ybaez, or a total of Five Hundred Sixty Three Thousand Two Hundred Fifty Seven Pesos (P563,257.00).27 Lim, on the other hand, claims that on March 10, 1994, the date of execution of the Deed of Absolute Sale, she paid directly to Ybaez the amount of One Hundred Thousand Pesos (P100,000.00) only, and gave to Saban P113,257.00 for payment of taxes and P50,000.00 as his commission,28and One Hundred Thirty Thousand Pesos (P130,000.00) on June 28, 1994,29 or a total of Three Hundred Ninety Three Thousand Two Hundred Fifty Seven Pesos (P393,257.00). Ybaez, for his part, acknowledged that Lim and her co-vendees paid him P400,000.00 which he said was the full amount for the sale of the lot.30 It thus appears that he received P100,000.00 on March 10, 1994, acknowledged receipt (through Saban) of the P113,257.00 earmarked for taxes and P50,000.00 for commission, and received the balance of P130,000.00 on June 28, 1994. Thus, a total of P230,000.00 went directly to Ybaez. Apparently, although the amount actually paid by Lim wasP393,257.00, Ybaez rounded off the amount to P400,000.00 and waived the difference.

Lims act of issuing the four checks amounting to P236,743.00 in Sabans favor belies her claim that she and her co-vendees did not agree to purchase the lot at P600,000.00. If she did not agree thereto, there would be no reason for her to issue those checks which is the balance of P600,000.00 less the amounts of P200,000.00 (due to Ybaez), P50,000.00 (commission), and the P113,257.00 (taxes). The only logical conclusion is that Lim changed her mind about agreeing to purchase the lot at P600,000.00 after talking to Ybaez and ultimately realizing that Sabans commission is even more than what Ybaez received as his share of the purchase price as vendor. Obviously, this change of mind resulted to the prejudice of Saban whose efforts led to the completion of the sale between the latter, and Lim and her co-vendees. This the Court cannot countenance. The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is enlightening for the facts therein are similar to the circumstances of the present case. In that case, Consejo Infante asked Jose Cunanan and Juan Mijares to find a buyer for her two lots and the house built thereon for Thirty Thousand Pesos (P30,000.00) . She promised to pay them five percent (5%) of the purchase price plus whatever overprice they may obtain for the property. Cunanan and Mijares offered the properties to Pio Noche who in turn expressed willingness to purchase the properties. Cunanan and Mijares thereafter introduced Noche to Infante. However, the latter told Cunanan and Mijares that she was no longer interested in selling the property and asked them to sign a document stating that their written authority to act as her agents for the sale of the properties was already cancelled. Subsequently, Infante sold the properties directly to Noche for Thirty One Thousand Pesos (P31,000.00). The Court upheld the right of Cunanan and Mijares to their commission, explaining that [Infante] had changed her mind even if respondent had found a buyer who was willing to close the deal, is a matter that would not give rise to a legal consequence if [Cunanan and Mijares] agreed to call off the transaction in deference to the request of [Infante]. But the situation varies if one of the parties takes advantage of the benevolence of the other and acts in a manner that would promote his own selfish interest. This act is unfair as would amount to bad faith. This act cannot be sanctioned without according the party prejudiced the reward which is due him. This is the situation in which [Cunanan and Mijares] were placed by [Infante]. [Infante] took advantage of the services rendered by [Cunanan and Mijares], but believing that she could evade payment of their commission, she made use of a ruse by inducing them to sign the deed of cancellation.This act of subversion cannot be sanctioned and cannot serve as basis for [Infante] to escape payment of the commission agreed upon.31 The appellate court therefore had sufficient basis for concluding that Ybaez and Lim connived to deprive Saban of his commission by dealing with each other directly and reducing the purchase price of the lot and leaving nothing to compensate Saban for his efforts. Considering the circumstances surrounding the case, and the undisputed fact that Lim had not yet paid the balance of P200,000.00 of the purchase price of P600,000.00, it is just and proper for her to pay Saban the balance of P200,000.00. Furthermore, since Ybaez received a total of P230,000.00 from Lim, or an excess of P30,000.00 from his asking price of P200,000.00, Saban may claim such excess from Ybaezs estate, if that remedy is still available,32 in view of the trial courts dismissal of Sabans complaint as against Ybaez, with Sabans express consent, due to the latters demise on November 11, 1994. 33 The appellate court however erred in ruling that Lim is liable on the checks because she issued them as an accommodation party. Section 29 of the Negotiable Instruments Law defines an accommodation party as a person "who has signed the negotiable instrument as maker, drawer,

acceptor or indorser, without receiving value therefor, for the purpose of lending his name to some other person." The accommodation party is liable on the instrument to a holder for value even though the holder at the time of taking the instrument knew him or her to be merely an accommodation party. The accommodation party may of course seek reimbursement from the party accommodated.34 As gleaned from the text of Section 29 of the Negotiable Instruments Law, the accommodation party is one who meets all these three requisites, viz: (1) he signed the instrument as maker, drawer, acceptor, or indorser; (2) he did not receive value for the signature; and (3) he signed for the purpose of lending his name to some other person. In the case at bar, while Lim signed as drawer of the checks she did not satisfy the two other remaining requisites. The absence of the second requisite becomes pellucid when it is noted at the outset that Lim issued the checks in question on account of her transaction, along with the other purchasers, with Ybaez which was a sale and, therefore, a reciprocal contract. Specifically, she drew the checks in payment of the balance of the purchase price of the lot subject of the transaction. And she had to pay the agreed purchase price in consideration for the sale of the lot to her and her co-vendees. In other words, the amounts covered by the checks form part of the cause or consideration from Ybaezs end, as vendor, while the lot represented the cause or consideration on the side of Lim, as vendee.35 Ergo, Lim received value for her signature on the checks. Neither is there any indication that Lim issued the checks for the purpose of enabling Ybaez, or any other person for that matter, to obtain credit or to raise money, thereby totally debunking the presence of the third requisite of an accommodation party. WHEREFORE, in view of the foregoing, the petition is DISMISSED. SO ORDERED. Puno, J., Chairman, Austria-Martinez, Chico-Nazario, JJ. concur. Callejo, Sr., on leave.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. L-40683 June 27, 1975 ARTURO SAMONTE, ET AL., plaintiffs, vs. FAUSTINO SAMONTE, ET AL., defendants. FAUSTINO SAMONTE AND LOURDES MANUEL, defendants-appellees, vs. CAYETANO SAMONTE, ET AL., defendants-appellants. Sixto T. Antonio for plaintiffs-appellees. Ernesto M. Tomaneng for defendants-appellants. Rodrigo Law Office for defendants-appellees.

MARTIN, J.: Appeal taken by the defendants-appellants Cayetano Samonte, et al. from a judgment of the Court of First Instance of Bulacan in Civil Case No. 3521, entitled "Arturo Samonte, et al. vs. Faustino Samonte, et al." which was certified to this Court by the Honorable Court of Appeals, purely on questions of law being raised therein. The records before Us reveal that plaintiffs Arturo and Francisco and defendants Ricardo and Cayetano and Raul and Lourdes all surnamed Samonte are the children of defendant Faustino Samonte by his first marriage with Bernardina Rodriguez (now deceased). Raul Samonte during his lifetime married and begot Jaime Samonte. Lourdes Samonte also during her lifetime married Alejandro Villanueva and begot Cipriano, Ernesto and Teresita, all surnamed Villanueva. During the first marriage of defendant Faustino Samonte with Bernardina Rodriguez, they acquired conjugal properties consisting of three (3) parcels of unregistered land described in the complaint and a residential house. When Bernardina Rodriguez died in February 1935, defendant Faustino Samonte continued to hold and administer the above-described parcels of land, together with a parcel of land of Bernardina Rodriguez 1situated at Bambang, Bulacan for the benefit of the aforementioned children and of his own. With the income from the properties and with a borrowed capital secured by them, defendant Faustino Samonte, with the help of his sons and son-in-law by his first wife entered in long term leases of first class fishponds in Bulacan, Bulacan among which are fishponds known as the "Kay Bituin", the "Kay Sombrero", the "Kay Gogue", the "Kay Katwiran", the "Kay Katig", and the "Kay Tubong". In their complaint plaintiffs Arturo Samonte and Francisco Samonte claim that defendant Faustino Samonte contracted his second marriage with defendant Lourdes Manuel, without liquidating the conjugal properties and the income therefrom of his first marriage and as a matter of fact used their rights, interests and participation in said properties as his capital in the conjugal partnership with his

second wife, defendant Lourdes Manuel. They therefore contend that whatever defendant Faustino Samonte has acquired during his second marriage as well as the income derived from the operations of the leased fishponds should be divided into two parts one part to his children by the first marriage and the other to form part of the conjugal partnership between him and defendant Lourdes Manuel. Thus plaintiffs requested the defendant-spouses Faustino Samonte and Lourdes Manuel to account, partition and settle what is due to them out of the properties brought by defendant Faustino Samonte from the first to the second marriage and of the products from the leased fishponds, which request was unceremoniously ignored. To restrain defendant-spouses Faustino Samonte and Lourdes Manuel from gathering and harvesting the products of the properties in question and of the leased fishponds, plaintiff prayed for the issuance of a writ of preliminary injunction ex parte upon the filing of the corresponding bond until such time that a receiver shall have been appointed for all the properties in litigation. Most importantly, they prayed that they be declared as co-owners with defendant Faustino Samonte of all the properties described in paragraph 5 of the complaint and as one-half co-owners with defendant-spouses Faustino Samonte and Lourdes Manuel of all the properties described in paragraph 11 thereof and that said defendantspouses Faustino Samonte and Lourdes Manuel be ordered to render a complete accounting of all the fruits and income of all the properties in litigation, including that of the leased fishponds, and to pay plaintiffs attorney's fees in the amount of P20,000.00. On June 30, 1967 defendant-spouses Faustino Samonte and Lourdes Manuel filed their answer 2 admitting partially some of the material allegations of the plaintiffs' complaint and denying the others and by way of special defenses claim that the complaint has no cause of action inasmuch as he (defendant Faustino Samonte) was even before the filing of the complaint willing to partition the properties acquired by him during his first marriage with plaintiffs' mother and that said plaintiffs have absolutely no participation whatsoever with the properties acquired by him in his second marriage with defendant Lourdes Manuel. By way of counter-claim, defendant-spouses claim for moral damages and attorney's fees. On August 8, 1967 defendants Cayetano Samonte, Alejandro Villanueva, Cipriano Villanueva, Ernesto Villanueva, Teresita Villanueva, Jaime Samonte and Juliana Vda. de Samonte filed their answer 3 to the plaintiffs' complaint denying the material allegations therein and by way of cross-claim against defendant-spouses Faustino Samonte and Lourdes Manuel allege that they have joined the two in their business venture with the owner of the fishpond "Kay Bituin" who agreed to lease to them for 20 years the fishpond with a yearly rental of P4,000.00 payable in advance every rive years or sooner. In this business venture Cayetano Samonte, et al. agreed to place all contracts of leases of fishponds in the name of defendant Faustino Samonte with Raul Samonte as manager and administrator of all the fishponds they will lease. Cayetano Samonte was to help Raul. Under the set-up, several fishponds were taken by defendants Cayetano Samonte, et al. for long term lease, among which was fishponds, the "Kay Katwiran". When Raul Samonte died, Cayetano Samonte with the help of Jaime and Ricardo Samonte took over the management of the leased fishponds. Sensing that defendant-spouses Faustino Samonte and Lourdes Manuel would take away from him the management of the leased fishponds, Cayetano Samonte and the other defendants who joined the latter in the business set-up were forced to file an ex parte motion to restrain defendant-spouses Faustino Samonte and Lourdes Manuel from disturbing and/or modifying the agreed business arrangement. On September 1, 1967 defendants Cayetano Samonte, et al. filed an urgent motion for preliminary injunction 4 to restrain defendant-spouses Faustino Samonte and Lourdes Manuel from executing or signing any contract whatsoever relative to the leased fishponds until further orders from the Court. On September 15, 1967 plaintiffs Arturo Samonte, Francisco Samonte and Deogracias Samonte and defendants Ricardo Samonte, Jaime Samonte, Cayetano Samonte, Romeo Samonte, Cipriano

Villanueva, Teresita Villanueva, Ernesto Villanueva and Alejandro Villanueva and defendantspouses Faustino Samonte and Lourdes Manuel signed and executed a compromise agreement which reads as follows: COMPROMISE AGREEMENT COME NOW the undersigned parties in the above-entitled case, and to this Honorable Court, respectfully submit the following agreement: 1. That defendants spouses Faustino Samonte and Lourdes Manuel, Cayetano Samonte, Ricardo Samonte, Romeo Samonte, Jaime Samonte, Cipriano Villanueva, Ernesto Villanueva agree to pay as they have paid to plaintiffs the total sum of P40,000.00 in consideration of the latter's claim for accounting and further agree to give to said plaintiffs whatever share they are entitled under the law in the property acquired by Faustino Samonte with his first wife; 2. That plaintiffs Arturo Samonte, Francisco Samonte and Deogracias Samonte, together with Romeo Samonte and Consolacion Donato, hereby waive any and all claims for accounting and partition of the properties in question; 3. That defendants Faustino Samonte, Lourdes Manuel, Alejandro Villanueva, Cayetano Samonte, Jaime Samonte and Ricardo Samonte are partners in capital of all the fishponds under leasehold mentioned in the complaint and cross-claim; 4. That the fishponds known as Katwiran and Sombrero now under the leasehold of said defendants shall pertain to defendants Cayetano Samonte, Alejandro Villanueva, Jaime Samonte and Ricardo Samonte; however, with respect to the improvements to be introduced thereon, defendants spouses Faustino Samonte and Lourdes Manuel agree to share one-half of whatever amount to be spent in excess of P5,000.00; 5. That the fishpond Kay Katig now under leasehold of said defendants shall pertain to the spouses Faustino Samonte and Lourdes Manuel to the exclusion of the other defendants; 6. That defendants Alejandro Villanueva, Cayetano Samonte, Jaime Samonte and Ricardo Samonte hereby waived and renounced whatever capital they have invested in the partnership, 7. That upon the signing of this Agreement, the partnership among the defendants for the lease of the aforementioned fishponds shall be deemed terminated and each and every partner hereby warrant to each other their complete and peaceful possession of the fishpond that each will respectively occupy and manage; WHEREUPON, the parties hereby pray that the foregoing Compromise Agreement be approved and that judgment be rendered in accordance therewith. Malolos, Bulacan, September 15, 1967. On September 19, 1967, the lower court rendered a decision 5 approving the compromise agreement and enjoining the parties to comply strictly with the terms and conditions thereof.

On March 14, 1968, defendants Cayetano Samonte, et al. filed a motion 6 to suspend the compromise agreement dated September 15, 1967 and to maintain status quo alleging that they have agreed to accept the fishpond "Kay Katwiran" on the understanding and representation of defendant-spouses Faustino Samonte and Lourdes Manuel that the leasehold of said fishpond will expire yet in 1972 as per contract which said spouses promised to show in some future date; but which lease they later learned was to expire in 1970 instead of 1972. Because of the misrepresentation they were allegedly deprived of the benefits and enjoyment of the lease contract for two years. On March 25, 1968 the lower court issued an order 7 denying the motion to suspend the compromise agreement for lack of merit. On April 10, 1968, defendants Cayetano Samonte, et al. filed a motion 8 to set aside the aforesaid judgment claiming that they did not have any knowledge thereof until the hearing of the motion to suspend the compromise agreement on March 21, 1968 when they received a copy of the aforesaid decision. On April 25, 1968 defendant-spouses Faustino Samonte and Lourdes Manuel filed an oppositions 9 to the motion to set aside the judgment in question on the ground that it was filed beyond the 6-month period from the date of said judgment and beyond 60 days from knowledge of the same; that the allegations in the motion do not constitute any of the grounds provided for by law to set aside the judgment and that the motion to set aside is fatally defective because it is not verified and the affidavits of merits are deficient. After several exchanges of pleadings between the party-litigants relative to the question as to whether the aforesaid judgment based on the compromise agreement could still be set aside, the lower court finally issued an order 10 denying the aforesaid motion. From said order of the lower court, defendants Cayetano Samonte, et al. have taken an appeal to the Honorable court of Appeals. However, after finding that no question of fact is involved in the controversy, the Honorable Court of Appeals 11 has certified the same to this Court pursuant to Section 3, Rule 50 of the Rules of Court in relation to Section 17 (4) of the Judiciary Act of 1948, as amended by Section 2 of Republic Act No. 5440. In their appeal, defendants-appellants Cayetano Samonte, et al. raised the following assignment of errors: 1. The lower court erred in denying the motion to set aside the judgment filed by the defendants-appellants dated April 4, 1968. 2. The lower court erred in not declaring and holding that the lease of the fishpond "Kay Katwiran' will expire in 1972 as expressly and impliedly admitted by the defendants-appellees. 3. The lower court erred in not exercising its inherent power of amending its decision so as to make it conformable to law and justice. The threshold issue in this appeal is whether or not the lower court committed a mistake in denying the motion filed by defendants-appellants Cayetano Samonte, et al. to set aside the judgment of the lower court approving the compromise agreement submitted by the parties-litigants. Defendantsappellants contend that they have thirty (30) days from receipt of the decision by their counsel within

which to set aside pursuant to Section 1, Rule 37 12in relation to Section 3 Rule 41 13 of the Rules of Court. Since the motion to set aside said judgment was filed on April 10, 1968 or 20 days from receipt of the judgment by their counsel, they submit that said motion was well within the period. Defendants-appellants Cayetano Samonte, et al. claim that although they signed the compromise agreement in question on September 15, 1967, they never received a copy of the decision of the lower court based on the compromise agreement. It was only their counsel who received officially a copy of the same on March 21, 1968. Thus, they reason out that the period within which to file their motion to set aside the judgment or order in question should be reckoned with from the date their counsel was formally notified of said decision as notice to their lawyer is the one recognized as notice in law (citing cases of Chainani vs. Tancinco, et al., G.R. No. L-4782, February 29, 1952; Palad vs. Cue, et al., 28 Phil. 44, 48). A more incisive reading of Section 1, Rule 37 of the Rules of Court will reveal that only when a judgment is not yet final and therefore appealable may the aggrieved party move the trial court to set aside the judgment and grant new trial. However, when the judgment has already become final and executory because the period for perfecting the appeal has already prescribed, the aggrieved party can no longer avail himself of the remedy provided in Rule 37. It is by now a well established doctrine that a judgment of the court approving a compromise agreement is final and immediately executory. 14 In the words of the Supreme Court it is "right there and then writes finish to the controversy." 15 The reason why a judgment based on a compromise agreement is final and immediately executory is that when the parties agree to settle their differences to end up a litigation and request the court to render judgment on the basis of their agreement, there is an implied waiver of their right to appeal from the judgment. 16 But of course there is an exception to this rule. A party to a compromise agreement may move to set it aside on the ground of fraud, mistake or duress in which case an appeal may be taken from the order denying the motion. 17 The question then is, under what provision of the Rules of Court can the judgment be set aside? Certainly not under Rule 37 for as earlier expounded said Rule 37 contemplates a judgment that is not yet final and is therefore still appealable. But could not the defendants-appellants Cayetano Samonte, et al. have recoursed to Section 3, Rule 38 of the Rules of Court. 18 Pursuant to said provision a motion, to set aside a judgment must be filed within 60 days after the petitioner learned of the judgment, order or other proceeding to be set aside, and not more than six (6) months after such judgment or order was entered, or such proceeding was taken. In the instant case, have the defendants-appellants Cayetano Samonte, et al. come within the two periods fixed in the provision? Was their motion to set aside filed within the 60-day period from the time they learned of the judgment but not more than six (6) months after such judgment was entered? Admittedly the parties signed the compromise agreement on September 15, 1967 and submitted it to the Court for approval and prayed that judgment be rendered thereon on the same date. On September 19, 1967 the lower court issued and promulgated a decision approving said compromise agreement. Defendants-appellants Cayetano Samonte, et al. therefore cannot deny that they have learned the judgment approving their compromise agreement on the very day the same was rendered on September 19, 1967 since they were themselves concerned in its immediate implementation. From September 19, 1967 therefore their right to set aside the judgment in question has commenced and since they filed their motion only on April 15, 1968, unmistakably they were way out of time out of the 60-day period from the time they learned of the judgment and out of the 6-month period from the time such judgment or order was entered or such proceeding was taken. Elucidating on the two periods set forth in Section 3 of Rule 38, the Supreme Court explicitly said: The law does not say six months after the date of the default order. No mention there is made of the date of rendition of the judgment or order. Neither does it speak of the date of the finality of the judgment or order. It does say, in plain terms six months

after the judgment or order "was entered" (Dirige vs. Biranya, Vol. 17, SCRA, p. 840,849).
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And according to Section 2, Rule 36 of the Rules of Court. the judgment or order shall be entered by the clerk if no appeal or motion for new trial is filed within the time provided in these rules. The recording of the judgment or order in the book of entries of judgments constitutes its entry. The record shall contain the dispositive part of the judgment or order and shall be signed by the clerk, with a certificate that such judgment or order has become final and executory. This, of course, applies to judgment or order that has to be entered, but as to the alternative phrase "such proceeding was taken" as used in Section 3 of Rule 38, the Supreme Court in the same case ofDirige vs. Biranya, supra., further explained: The alternative phrase "or such proceeding was taken" employed in Section 3, of Rule 38 could be taken to mean other proceeding which are not to be "entered", such as a writ of execution (Aquino vs. Blanco, 79 Phil. 647, 650) and an order approving a compromise agreement (Bodiongan vs. Ceniza, 102 Phil. 750). In such case, the period must have to commence from the date of occurrence because entry is either unnecessary or inconsequential. In the light of the foregoing doctrine, it can be safely concluded that the six-month period within which defendants-appellants Cayetano Samonte, et al. could file their motion to set aside the judgment in question should have started from September 19, 1967 the date of the occurrence of the "proceeding which need not be entered." And since they filed the motion only on April 10, 1968, they were not only out of the 60-day period from knowledge of the judgment but also beyond the sixmonth limit from its rendition. Evidently, even under Rule 38 of the Rules of Court their right to set aside the judgment in question had been foreclosed by their omission to plead on time. Granting that defendants-appellants Cayetano Samonte, et al. were on time to set aside the judgment in question they have to show that there was fraud in the procurement of the judgment and not merely fraud in the original cause of action. 19 Fraud in the procurement of a judgment means any trick or device which prevents the adversary from presenting defense or conceals from him pendency of action. 20 The fraud must be perpetrated upon the Court in rendering the judgment, 21 and it must also appear that there is a valid defense to the judgment. In the present case, the fraud was allegedly committed by the defendants-spouses Faustino Samonte and Lourdes Manuel when they made representation and assurances that the lease contract on the fishpond, the "Kay Katwiran" was to expire in 1972 when it actually expired in 1970 and it was because of such representation and assurances that defendants-appellants Cayetano Samonte, et al. entered into a compromise agreement with defendants-spouses Faustino Samonte and Lourdes Manuel. It is evident then that the alleged fraud was not employed in the procurement of the judgment. It was not perpetrated upon the court. It did not prevent the parties from having a trial or from presenting all of their case to court. If at all the alleged fraud could at most be considered intrinsic and not extrinsic. Extrinsic fraud is that where the alleged deceit was not on a matter raised, controverted or decided. 22 The alleged representation and assurances made by the defendants-spouses Faustino Samonte and Lourdes Manuel that the lease on the fishpond the "Kay Katwiran" will expire in 1972 relates to a lease of the fishpond which was a matter raised and controverted in the pleadings of the parties. As a matter of fact, defendants-appellants Cayetano Samonte, et al. in their motion to set aside the judgment in question claim that the matter of lease of the fishpond the "Kay Katwiran" was discussed in the in-chambers meeting of the parties with the trial judge. Besides the claim of defendants-appellants Cayetano Samonte, et al. that they were the victims of fraud and misrepresentations in entering into a compromise agreement with the defendants-spouses Faustino Samonte and Lourdes Manuel appears to be baseless in the face of the admission of defendantsappellants Cayetano Samonte, et al. in their pleadings that they were in partnership with defendants-

spouses Faustino Samonte and Lourdes Manuel over the lease of the fishponds, including the "Kay Katwiran" in which partnership defendant-appellant Cayetano Samonte took over as the manager after Raul Samonte died. As manager therefore of the partnership, he had every reason to know the period of the leases of the fishponds covered by the partnership. How could defendants-appellants Cayetano Samonte, et al. allege that they were defrauded in entering into the aforesaid compromise agreement? Vainly, defendants-appellants Cayetano Samonte, et al. submit that their motion to suspend the compromise agreement and to maintain status quo of the case filed on March 14, 1968 could have served the same purpose as a motion to set aside the judgment in question under Section 3, Rule 38 of the Rules of Court. To this contention, the Court cannot concede for the motion to suspend the compromise agreement failed to meet the essential requirements of Section 3 of Rule 38. It was not accompanied by an affidavit of merits showing the fraud, mistake, or excusable negligence relied upon and the facts constituting the petitioner's good and substantial cause of action or defense, as the case may be. Consequently from March 14, 1968 when they filed the motion to suspend the compromise agreement up to March 25 when the same was denied, the 6-month period has not stopped to run so that when defendants-appellants Cayetano Samonte, et al. filed their motion to set aside the judgment on April 10, 1968, they were way beyond the 6-month period. This is particularly so in view of the established doctrine that the periods provided for in Section 3, Rule 38 is unextendible and is not subject to any conditions or contingency. 23 Finally, in their futile attempt to impugn the judgment in question, Cayetano Samonte, et al. contend that a judgment based on the compromise agreement is no judgment at all, mistakingly invoking the doctrine laid down in the case of Saminiada vs. Mata, 92 Phil. 426, 431, wherein the Supreme Court held: ... A decision must state clearly and distinctly the facts and the law upon which it is based. Where the so-called "decision" embodying a compromise agreement lacks these essentials of a judgment, it is not a decision. When a litigation is adjusted between the parties and said adjustment is sanctioned by a decree of the court, the agreement or settlement does not have the effect of a final judgment or the character of res judicata, the court's approval being considered mainly as an administrative recording of what has been agreed between the parties. It must be noted, however, that in the case of Vda. de Corpus vs. Phodaca-Ambrosio 24 the Court ruled that theSaminiada vs. Mata case is no longer authority for the contention that a decision based on a compromise agreement is not a judgment. This is so because the view that a decision based upon a compromise agreement does not become immediately final and executory, was arrived at only by four members of the Supreme Court, which view is inconsistent with what was adhered to in subsequent cases and the explicit provision of Article 2037 of the Civil Code. Besides, even the four justices of the Supreme Court acknowledged, in the Saminiada case, that a decision based upon a compromise agreement is a judgment. . May not the defendants-appellants Cayetano Samonte, et al. contend that since the compromise agreement was signed by the parties-litigants without the assistance of their counsels, the same should not have any force and effect against them? The Court is not aware of any provision of law or of any existing jurisprudence that has pronounced a compromise agreement entered into by partieslitigants without being assisted by their counsel to be null and void and of no legal effect. On the contrary, there is authority to the effect that an attorney by virtue of his general authority as such, has the exclusive control of the litigation in which he represents his client, 25 his client on the other hand, is generally conceded to have the exclusive control over the subject-matter of the litigation 26 and may, according to the great weight of authority, at any time before judgment, if acting

in good faith, compromise, settle and adjust his cause of action out of court without his attorney's intervention, knowledge, or consent 27 and, even though he has agreed with his attorney not to do so. 28 The parties may ordinarily settle and adjust their cause without the intervention of their attorneys. 29 But even granting that defendants-appellants Cayetano Samonte, et al. could take recourse to the provisions of Rule 38 of the Rules of Court, still they could not get any relief therefrom for the reason that the motion to set aside filed by them suffered from two fatal defects (1) the petition for relief has not been verified and (2) the petition was not accompanied by affidavits of merits. A close examination of the motion to set aside in question shows these two fatal defects. The lack of verification is strikingly obvious. So is the absence of the required affidavits of merits. IN VIEW OF THE FOREGOING, the judgment of the lower court is hereby affirmed in toto with costs against defendants-appellants Cayetano Samonte, et al. SO ORDERED. Makatintal, C.J., Castro, Makasiar and Esguerra, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-21836 April 22, 1975 CARRIED LUMBER COMPANY, plaintiff-appellee, vs. AGRICULTURAL CREDIT AND COOPERATIVE FINANCING ADMINISTRATION (ACCFA), defendant-appellant. Primicias, Del Castillo and Macaraeg for plaintiff-appellee. Deogracias E. Lerma and Domingo D. Panis for defendant-appellant.

AQUINO, J.:

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This is a case regarding concurrence and preference of credits. The Agricultural Credit and Cooperative Financing Administration (ACCFA) * appealed on pure questions of law from the decision of the Court of First Instance of Pangasinan, holding that the Carried Lumber Company has a lien over the warehouse and ricemill building of the Sta. Barbara Facoma in the amount of P5,610.50 plus P45 as sheriff's fee (Civil Case No. D-1174). In that decision it was further held that the lien was superior to the ACCFA's mortgage credit and that the company was entitled to the material possession of the warehouse and ricemill building if the ACCFA did not satisfy its claim. Moreover, the ACCFA was ordered to pay the company the sum of P2,000 as expenses, damages and attorney's fees plus costs (99-100 Record on Appeal). The documentary evidence and the parties' stipulation disclose the following facts: Lumber company's materialman's lien . From October 11 to November 8, 1954 the Sta. Barbara Farmer's Cooperative Marketing Association, Inc. (Facoma) purchased on credit from the Carried Lumber Company lumber and materials which were used in the construction of the Facoma's warehouse (Exh. H and H-1). The company extended credit to the Facoma after having been informed by the ACCFA's General Manager in a telegram dated October 23, 1954 that a loan of P27,200 had been approved for the construction of the Facoma's warehouse (Exh. G and G-1). On October 27, 1954, after the company had supplied the Facoma with lumber and construction materials worth P4,999.40, they executed a contract whereby it was agreed that the company would sell lumber and construction materials to the Facoma with a value not exceeding P27,200 (Exh. F-1). For the construction of the warehouse, the company actually delivered to the Facoma Lumber and construction materials valued at P8,233.55. The Facoma made partial payments. As of January 1,

1955 it had not paid to the company the balance of its account amounting to P4,733.55. On May 18, 1959 the company sued the Facoma for the recovery of that amount (Exh. F). In a decision dated September 26, 1960, based on a compromise, the lower court ordered the Facoma to pay the company the sum of P5,500 in monthly installments from October 31, 1960 to March 31, 1961, subject to the acceleration proviso that failure on the part of the Facoma to pay any installment would render the whole unpaid balance due and demandable (Exh. A, Civil Case No. D-899; 24-25 Record on Appeal). In view of the Facoma's failure to pay the stipulated installments, the Carried Lumber Company secured a writ of execution to enforce the judgment. The sheriff levied upon the Facoma's lease rights, warehouse and ricemill building. On January, 3, 1961 he issued a notice scheduling the sale of the attached properties on January 31, 1961 (Exh. C; 28-30 Record on Appeal). On January 25, 1961 the ACCFA filed a third-party claim with the sheriff. Its provincial director informed the sheriff that the properties levied upon had already been sold to the ACCFA on November 5, 1960. For that reason, it contended that the same could not again be sold at public auction. It formally objected to the proposed auction sale (Exh. 7; 79-81 Record on Appeal). As scheduled, the sheriff on January 31, 1961 sold for P5,610.50 the Facoma's lease rights, warehouse and ricemill building to the Carried Lumber Company, as the highest bidder. On that same date, he issued a certificate of sale to the company (Exh. D; 31-32 Record on Appeal). There being no redemption within the one-year period, the sheriff on June 29, 1962 issued a final deed of sale in favor of the Carried Lumber Company for the said lease rights, warehouse and ricemill building (Exh. E). ACCFA's mortgage lien. As already stated, the Facoma obtained from the ACCFA a loan of P27,200 for the construction of its warehouse. As security for that loan, the Facoma on November 10, 1954 mortgaged to the ACCFA its lease rights over a parcel of land located at Barrio Maningding Sta. Barbara, Pangasinan and the warehouse to be constructed on the said land together with the other improvements existing thereon (Exh. 1). The mortgage was recorded on November 13, 1954 in the registration book provided for in Act No. 3344 (53 Record on Appeal). Two supplementary mortgages dated February 19 and October 19, 1955 were executed by the Facoma in favor of the ACCFA as security for other loans amounting to P11,600 and P15,408.80, respectively. The other loans were used by the Facoma for the construction of a ricemill building and for the purchase of a ricemill which were also mortgaged to the ACCFA (Exh. 2 and 3). The two instruments were recorded in the chattel mortgage register on February 22 and November 17, 1955, respectively (59, 66 Record on Appeal). The Facoma also defaulted in the payment of its mortgage obligations. The ACCFA in a letter dated September 19, 1960 requested the Provincial Sheriff of Pangasinan to foreclose the mortgages extrajudicially (Exh. 4). The sheriff issued a notice of auction sale dated October 13, 1960. He scheduled the sale on November 5, 1960 (Exh. 5). In a letter dated October 20, 1960 the Carried Lumber Company notified the sheriff and the Facoma that pursuant to article 2242(4) of the Civil Code, it had a preferential lien over the warehouse of the Facoma for having furnished the lumber and materials used in its construction and the cost of which had not been fully paid for. The company specified that its unpaid claim amounted to P5,500 and that it was evidenced by a judgment dated September 26, 1960 (Exh. B; 26-28 Record on Appeal).

The sheriff proceeded with the foreclosure sale. On November 5, 1960 he sold the mortgaged properties to the ACCFA, as the highest bidder for the sum of P68,067.35. On that date, he issued a certificate of sale covering the Facoma's lease rights, warehouse, ricemill, ricemill building and a diesel engine (Exh. 6). Upon application with the Court of First Instance, the ACCFA was placed in possession of the mortgaged properties by virtue of a writ of possession dated January 27, 1961 (Exh. 8, 9 and 10) or four days before the auction sale which the sheriff conducted at the instance of the Carried Lumber Company (Exh. D). The certificate of sale was registered on March 23, 1961. Proceedings in this case. On March 1, 1961 or after the execution of the Carried Lumber Company's judgment against the Facoma and the issuance of the certificate of sale in its favor, the company sued the ACCFA for the purpose of asserting its preferential lien over the Facoma's warehouse and ricemill building and in order to obtain possession thereof. One of ACCFA's defenses was that the company waived its lien when it filed an ordinary action to recover its claim instead of enforcing its lien. After trial, the lower court held that the lumber company's materialman's lien was superior to the ACCFA's mortgage lien because the company's lien is sanctioned by paragraph 4 of article 2242 of the Civil Code, whereas the ACCFA's mortgage lien is covered by paragraph 5 of the same article. The lower court reasoned out that the company's lien "existed ahead" of the ACCFA's mortgage lien. It noted that the ACCFA was aware of the company's claim because the company sent to the ACCFA on October 23, 1954 a telegraphic inquiry as to the loan which the ACCFA would extend to the Facoma for the construction of its warehouse and the ACCFA confirmed in a telegraph answer that the loan would be granted to the Facoma (Exh. G). The ACCFA contends in this appeal that the lumber company's unregistered judgment credit was not preferred; that while its materialman's lien might have enjoyed preference under article 2242 of the Civil Code, that preferential status was lost when it secured a judgment for its credit as an ordinary claim, and that, in the alternative, the company's credit, if preferred, and the ACCFA's mortgage credit should be paid pro rata pursuant to article 2249, of the Civil Code. Ruling. As this is a clear case of concurrence of credits with respect to an immovable property, the Facoma warehouse, it has to be resolved under the following provisions of the Civil Code:
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ART. 2242. With reference to specific immovable property and real rights of the debtor, the following claims, mortgages and liens shall be preferred, and shall constitute an encumbrance on the immovable or real right: xxx xxx xxx (4) Claims of furnishers of materials used in the construction, reconstruction, or repair of buildings, canals or other works, upon said buildings, canals or other works: (5) Mortgage credits recorded in the Registry of Property, upon the real estate mortgaged; xxx xxx xxx (1923a) ART. 2243. The claims or credits enumerated in the preceding articles (2241 and 2242) shall be considered as mortgages or pledges of real or personal property, or liens within the purview of legal provisions governing insolvency. Taxes mentioned in No. 1, article 2241, and No. 1 article 2242, shall first be satisfied. (n)

ART. 2249. If there are two or more credits with respect to the same specific real property or real rights, they shall be satisfied pro rata, after the payment of the taxes and assessments upon the immovable properties or real right. (1927a) The term pro rata in article 2249 means in proportion or ratably or a division according to share, interest or liability of each (72 C.J.S. 967-8). The trial court erred in holding that the lumber company's lien over the warehouse is superior to the ACCFA's mortgage lien. It was mistaken in assuming that the enumeration of ten claims, mortgages and liens in article 2242 creates an order of preference. It is not correct to say that the materialman's (mechanic's) lien or refectionary credit of the lumber company, being listed as No. 4 in article 2242, is superior to the ACCFA's mortgage credit which is listed as No. 5. The enumeration in article 2242 is not an order of preference. That article lists the credits which may concur with respect to specific real properties and which would be satisfied pro rata according to article 2249. There is no dispute that the Facoma warehouse was constructed by means of the materials supplied by Carried Lumber Company and that the construction was financed by the ACCFA which had loaned P27,200 to the Facoma (Exh. 1). Therefore, it is just and proper that the two creditors should have pro rata shares in that warehouse. The lower court's solution of awarding the warehouse to the lumber company was an unwarranted disregard of the ACCFA's claim. On the other hand, the sheriff's adjudication of the whole warehouse to the ACCFA nullifies the lumber company's claim. Neither solution is just because it results in unjust enrichment by one party at the expense of the other. The instant case is different from Luzon Lumber & Hardware Co. vs. Quiambao , 94 Phil, 663, where the defendant spouses mortgaged their three lots and the two buildings to be constructed thereon to the Rehabilitation Finance Corporation (RFC) to secure a loan. The mortgage was registered on September 13, 1948. The materials used in the construction of the two buildings were bought on credit by the defendant spouses from plaintiff lumber company during the period from October, 1948 to March, 1949 or after the registration of the mortgage. To cover the unpaid balance of the price of the materials, plaintiff lumber company sued defendant spouses. The RFC was impleaded as a defendant after it had foreclosed the mortgage and bought the lots and building as the highest bidder at the auction sale. It was held that the mortgage credit of the RFC was superior to the refectionary credit ( credito refacionario) held by the lumber company. The RFC loan was used to defray the cost of constructing the two buildings. By express stipulation, the mortgage included all the improvements which would be constructed on the lots. The mortgage lien over the buildings attached thereto as of the recording of the mortgage and not as of the time of their construction. (Under article 1923 of the old Code a refectionary credit should be registered and, if not recorded, it is inferior to a registered mortgage credit). Also inapplicable to this case is the ruling that in order to implement the pro rata sharing among the creditors mentioned in article 2242, as directed in article 2249, the said creditors "must necessarily be convened and the import of their claims ascertained" and that, to do so, "there must be first some proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of a decedent's estate under Rule 87 (now 86) of the Rules of Court, or other liquidation proceedings of similar import" (Resolution of the motion for reconsideration in De Barretto vs. Villanueva, 110 Phil. 896, 904, 906).

The Barretto ruling was predicated on the assumption that such an insolvency proceeding is necessary in order "to enable the court to ascertain the pro rata dividend corresponding to each" of the two creditors as well as the "other creditors" entitled to preference under article 2242. Where, as in this case, it appears that there are no other creditors aside from the Carried Lumber Company and the ACCFA, the requirement that the pro rata dividend should be ascertained in an insolvency or similar proceeding should not be enforced. Moreover, the instant case has features that easily distinguish it from the Barretto case. Here, the lumber company, before the registration of the mortgage, inquired from the ACCFA whether it would extend a loan to the Facoma. The lumber company continued to supply lumber to the Facoma after the ACCFA had made the telegraphic assurance that it would extend a loan of P27,200 to the Facoma. In effect, the ACCFA had prior notice of the lumber company materialman's lien. Furthermore, in the Barretto case, the controversy was between the supposed unpaid vendor and the mortgage who had acted in good faith and was unaware of the vendor's lien for the unpaid price (No. 2 in article 2242). This Court found that the vendor's lien was questionable and could not stand on equal footing with the mortgage lien. As already noted, the ACCFA has been in possession of the warehouse since January 27, 1961 (Exh. 10). The trial court should ascertain whether the warehouse has yielded any income during the time that the ACCFA has been in possession thereof. In any event, the rental value of the warehouse should be determined. The ACCFA is entitled to deduct from the earnings of the warehouse or its rental value the taxes and necessary and useful expenses which it had incurred for the said warehouse. By reason of its lien, the Carried Lumber Company has a pro rata share in the net earnings or rental value of the warehouse. There is another aspect of this case which has eluded the attention of the parties. The lumber company in its original complaint asserted a lien not only over the Facoma's warehouse but also over its ricemill building. The trial court sustained the lumber company's lien over the Facoma's ricemill building. That is an error. The evidence for the lumber company shows that it supplied materials only for the construction of the warehouse (Exh. F, F-1). The company in its letter to the sheriff specified that it was asserting a lien only over the warehouse (Exh. B). It did not mention the ricemill building. It has no materialman's lien on the ricemill building. On the other hand, the ACCFA had a mortgage lien on the ricemill building (Exh. 2). It foreclosed its mortgage and bought the ricemill building at the auction sale held on November 5, 1960 (Exh. 5, 6). WHEREFORE, the trial court's judgment is reversed. It is hereby adjudged that the Carried Lumber Company and the ACCFA have concurrent liens on the Sta. Barbara Facoma warehouse in the proportion of their credits amounting to P5,655.50 (including the sheriff's fee of P45) and P41,370.11 (Exh. 4), respectively. Should the parties within a period of thirty (30) days from the finality of this judgment be unable to agree as to how their liens over the Facoma warehouse should be satisfied, then the Warehouse may be sold at public auction by the sheriff to the highest bidder, and the net proceeds of the sale should be allocated pro rata to the lumber company and the ACCFA. The trial court should ascertain the net earnings or net rental value of the warehouse from January 27, 1961, when the ACCFA was placed in possession thereof, up to the time the carried Lumber

Company's lien is satisfied. Such net earnings or net rental value should also be allocated pro rata to the lumber company and the ACCFA. No pronouncement as to costs. Makalintal, C.J., Castro, Fernando, Teehankee, Barredo, Antonio, Munoz Palma and Concepcion Jr., JJ., concur.
1wph1.t

Makasiar, J, is on leave.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 152580 June 26, 2008

CONSUELO METAL CORPORATION, petitioner, vs. PLANTERS DEVELOPMENT BANK and ATTY. JESUSA PRADO-MANINGAS, in her capacity as Ex-officio Sheriff of Manila, respondents. DECISION CARPIO, J.: The Case This is a petition for review1 seeking to reverse the 14 December 2001 Decision 2 and the 6 March 2002 Resolution3 of the Court of Appeals in CA-G.R. SP No. 65069. In its 14 December 2001 Decision, the Court of Appeals dismissed petitioner Consuelo Metal Corporations (CMC) petition for certiorari and affirmed the 25 April 2001 Order4 of the Regional Trial Court, Branch 46, Manila (trial court). In its 6 March 2002 Resolution, the Court of Appeals partially granted CMCs motion for reconsideration and remanded the case to the Securities and Exchange Commission (SEC) for further proceedings. The Facts On 1 April 1996, CMC filed before the SEC a petition to be declared in a state of suspension of payment, for rehabilitation, and for the appointment of a rehabilitation receiver or management committee under Section 5(d) of Presidential Decree No. 902-A. 5 On 2 April 1996, the SEC, finding the petition sufficient in form and substance, declared that "all actions for claims against CMC pending before any court, tribunal, office, board, body and/or commission are deemed suspended immediately until further order" from the SEC.6 In an Order dated 13 September 1999, the SEC directed the creation of a management committee to undertake CMCs rehabilitation and reiterated the suspension of all actions for claims against CMC.7 On 29 November 2000, upon the management committees recommendation, 8 the SEC issued an Omnibus Order directing the dissolution and liquidation of CMC. 9 The SEC also directed that "the proceedings on and implementation of the order of liquidation be commenced at the Regional Trial Court to which this case shall be transferred." 10 Thereafter, respondent Planters Development Bank (Planters Bank), one of CMCs creditors, commenced the extra-judicial foreclosure of CMCs real estate mortgage. Public auctions were scheduled on 30 January 2001 and 6 February 2001.

CMC filed a motion for the issuance of a temporary restraining order and a writ of preliminary injunction with the SEC to enjoin the foreclosure of the real estate mortgage. On 29 January 2001, the SEC issued a temporary restraining order to maintain the status quo and ordered the immediate transfer of the case records to the trial court.11 The case was then transferred to the trial court. In its 25 April 2001 Order, the trial court denied CMCs motion for issuance of a temporary restraining order. The trial court ruled that since the SEC had already terminated and decided on the merits CMCs petition for suspension of payment, the trial court no longer had legal basis to act on CMCs motion. On 28 May 2001, the trial court denied CMCs motion for reconsideration. 12 The trial court ruled that CMCs petition for suspension of payment could not be converted into a petition for dissolution and liquidation because they covered different subject matters and were governed by different rules. The trial court stated that CMCs remedy was to file a new petition for dissolution and liquidation either with the SEC or the trial court. CMC filed a petition for certiorari with the Court of Appeals. CMC alleged that the trial court acted with grave abuse of discretion amounting to lack of jurisdiction when it required CMC to file a new petition for dissolution and liquidation with either the SEC or the trial court when the SEC clearly retained jurisdiction over the case. On 13 June 2001, Planters Bank extra-judicially foreclosed the real estate mortgage. 13 The Ruling of the Court of Appeals On 14 December 2001, the Court of Appeals dismissed the petition and upheld the 25 April 2001 Order of the trial court. The Court of Appeals held that the trial court correctly denied CMCs motion for the issuance of a temporary restraining order because it was only an ancillary remedy to the petition for suspension of payment which was already terminated. The Court of Appeals added that, under Section 121 of the Corporation Code,14 the SEC has jurisdiction to hear CMCs petition for dissolution and liquidation. CMC filed a motion for reconsideration. CMC argued that it does not have to file a new petition for dissolution and liquidation with the SEC but that the case should just be remanded to the SEC as a continuation of its jurisdiction over the petition for suspension of payment. CMC also asked that Planters Banks foreclosure of the real estate mortgage be declared void. In its 6 March 2002 Resolution, the Court of Appeals partially granted CMCs motion for reconsideration and ordered that the case be remanded to the SEC under Section 121 of the Corporation Code. The Court of Appeals also ruled that since the SEC already ordered CMCs dissolution and liquidation, Planters Banks foreclosure of the real estate mortgage was in order. Planters Bank filed a motion for reconsideration questioning the remand of the case to the SEC. In a resolution dated 19 July 2002, the Court of Appeals denied the motion for reconsideration. Not satisfied with the 6 March 2002 Resolution, CMC filed this petition for review on certiorari. The Issues CMC raises the following issues:

1. Whether the present case falls under Section 121 of the Corporation Code, which refers to the SECs jurisdiction over CMCs dissolution and liquidation, or is only a continuation of the SECs jurisdiction over CMCs petition for suspension of payment; and 2. Whether Planters Banks foreclosure of the real estate mortgage is valid. The Courts Ruling The petition has no merit. The SEC has jurisdiction to order CMCs dissolution but the trial court has jurisdiction over CMCs liquidation. While CMC agrees with the ruling of the Court of Appeals that the SEC has jurisdiction over CMCs dissolution and liquidation, CMC argues that the Court of Appeals remanded the case to the SEC on the wrong premise that the applicable law is Section 121 of the Corporation Code. CMC maintains that the SEC retained jurisdiction over its dissolution and liquidation because it is only a continuation of the SECs jurisdiction over CMCs original petition for suspension of payment which had not been "finally disposed of as of 30 June 2000." On the other hand, Planters Bank insists that the trial court has jurisdiction over CMCs dissolution and liquidation. Planters Bank argues that dissolution and liquidation are entirely new proceedings for the termination of the existence of the corporation which are incompatible with a petition for suspension of payment which seeks to preserve corporate existence. Republic Act No. 8799 (RA 8799)15 transferred to the appropriate regional trial courts the SECs jurisdiction defined under Section 5(d) of Presidential Decree No. 902-A. Section 5.2 of RA 8799 provides: The Commissions jurisdiction over all cases enumerated under Sec. 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.(Emphasis supplied) The SEC assumed jurisdiction over CMCs petition for suspension of payment and issued a suspension order on 2 April 1996 after it found CMCs petition to be sufficient in form and substance. While CMCs petition was still pending with the SEC as of 30 June 2000, it was finally disposed of on 29 November 2000 when the SEC issued its Omnibus Order directing the dissolution of CMC and the transfer of the liquidation proceedings before the appropriate trial court. The SEC finally disposed of CMCs petition for suspension of payment when it determined that CMC could no longer be successfully rehabilitated. However, the SECs jurisdiction does not extend to the liquidation of a corporation. While the SEC has jurisdiction to order the dissolution of a corporation, 16 jurisdiction over the liquidation of the corporation now pertains to the appropriate regional trial courts. This is the reason why the SEC, in its 29 November 2000 Omnibus Order, directed that "the proceedings on and implementation of the

order of liquidation be commenced at the Regional Trial Court to which this case shall be transferred." This is the correct procedure because the liquidation of a corporation requires the settlement of claims for and against the corporation, which clearly falls under the jurisdiction of the regular courts. The trial court is in the best position to convene all the creditors of the corporation, ascertain their claims, and determine their preferences. Foreclosure of real estate mortgage is valid. CMC maintains that the foreclosure is void because it was undertaken without the knowledge and previous consent of the liquidator and other lien holders. CMC adds that the rules on concurrence and preference of credits should apply in foreclosure proceedings. Assuming that Planters Bank can foreclose the mortgage, CMC argues that the foreclosure is still void because it was conducted in violation of Section 15, Rule 39 of the Rules of Court which states that the sale "should not be earlier than nine oclock in the morning and not later than two oclock in the afternoon." On the other hand, Planters Bank argues that it has the right to foreclose the real estate mortgage because of non-payment of the loan obligation. Planters Bank adds that the rules on concurrence and preference of credits and the rules on insolvency are not applicable in this case because CMC has been not been declared insolvent and there are no insolvency proceedings against CMC. In Rizal Commercial Banking Corporation v. Intermediate Appellate Court ,17 we held that if rehabilitation is no longer feasible and the assets of the corporation are finally liquidated, secured creditors shall enjoy preference over unsecured creditors, subject only to the provisions of the Civil Code on concurrence and preference of credits. Creditors of secured obligations may pursue their security interest or lien, or they may choose to abandon the preference and prove their credits as ordinary claims.18 Moreover, Section 2248 of the Civil Code provides: Those credits which enjoy preference in relation to specific real property or real rights, exclude all others to the extent of the value of the immovable or real right to which the preference refers. In this case, Planters Bank, as a secured creditor, enjoys preference over a specific mortgaged property and has a right to foreclose the mortgage under Section 2248 of the Civil Code. The creditor-mortgagee has the right to foreclose the mortgage over a specific real property whether or not the debtor-mortgagor is under insolvency or liquidation proceedings. The right to foreclose such mortgage is merely suspended upon the appointment of a management committee or rehabilitation receiver19 or upon the issuance of a stay order by the trial court. 20However, the creditor-mortgagee may exercise his right to foreclose the mortgage upon the termination of the rehabilitation proceedings or upon the lifting of the stay order. 21 Foreclosure proceedings have in their favor the presumption of regularity and the burden of evidence to rebut the same is on the party that seeks to challenge the proceedings. 22 CMCs challenge to the foreclosure proceedings has no merit. The notice of sale clearly specified that the auction sale will be held "at 10:00 oclock in the morning or soon thereafter, but not later than 2:00 oclock in the afternoon."23 The Sheriffs Minutes of the Sale stated that "the foreclosure sale was actually opened at 10:00 A.M. and commenced at 2:30 P.M." 24 There was nothing irregular about the foreclosure proceedings. WHEREFORE, we DENY the petition. We REINSTATE the 29 November 2000 Omnibus Order of the Securities and Exchange Commission directing the Regional Trial Court, Branch 46, Manila to

immediately undertake the liquidation of Consuelo Metal Corporation. We AFFIRM the ruling of the Court of Appeals that Planters Development Banks extra-judicial foreclosure of the real estate mortgage is valid. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 172041 December 18, 2008

GATEWAY ELECTRONICS CORPORATION and GERONIMO B. DELOS REYES, JR., petitioners, vs. ASIANBANK CORPORATION, respondent. DECISION VELASCO, JR., J.: This petition for review under Rule 45 seeks to nullify and set aside the Decision 1 dated October 28, 2005 of the Court of Appeals (CA) in CA-G.R. CV No. 80734 and its Resolution 2 of March 17, 2006 denying petitioners motion for reconsideration. The Facts Petitioner Gateway Electronics Corporation (Gateway) is a domestic corporation that used to be engaged in the semi-conductor business. During the period material, petitioner Geronimo B. delos Reyes, Jr. was its president and one Andrew delos Reyes its executive vice-president. On July 23, 1996, Geronimo and Andrew executed separate but almost identical deeds of suretyship for Gateway in favor of respondent Asianbank Corporation (Asianbank), pertinently providing: I/We Geronimo B. de los Reyes, Jr. x x x warrant to the ASIANBANK CORPORATION, x x x due and punctual payment by the following individuals/companies/firms, hereinafter called the DEBTOR(S), of such amounts whether due or not, as indicated opposite their respective names, to wit: NAME OF DEBTOR(S) GATEWAY ELECTRONICS CORPORATION *P10,000,000.00 *DOMESTIC BILLS [PURCHASED LINE] AMOUNT OF OBLIGATION *US$3,000,000.00 *OMNIBUS CREDIT LINE

owing to the said ASIANBANK CORPORATION, hereafter called the CREDITOR, as evidenced by all notes, drafts, overdrafts and other [credit] obligations of every kind and nature contracted/incurred by said DEBTOR(S) in favor of said CREDITOR. In case of default by any and/or all of the DEBTOR(S) to pay the whole part of said indebt nbsp nbsp nbsp nbsp erein secured at maturity, I/WE BR vs. and severally agree and engage to the CREDITOR, its successors and assigns, the prompt

payment, x x x of such notes, drafts, overdrafts and other credit obligations on which the DEBTOR(S) may now be indebted or may hereafter become indebted to the CREDITOR, together with all interests, penalty and other bank charges as may accrue thereon x x x. I/WE further warrant the due and faithful performance by the DEBTOR(S) of all obligations to be performed under any contracts evidencing indebtedness/obligations and any supplements, amendments, changes or modifications made thereto, including but not limited to, the due and punctual payment by the said DEBTOR(S). MY/OUR liability on this Deed of Suretyship shall be solidary, direct and immediate and not contingent upon the pursuit by the CREDITOR x x x of whatever remedies it or they may have against the DEBTOR(S) or the securities or liens it or they may possess; and I/WE hereby agree to be and remain bound upon this suretyship, x x x and notwithstanding also that all obligations of the DEBTOR(S) to you outstanding and unpaid at any time may exceed the aggregate principal sum hereinabove stated.3 Later developments saw Asianbank extending to Gateway several export packing loans in the total aggregate amount of USD 1,700,883.48. This loan package was later consolidated with Dollar Promissory Note (PN) No. FCD-0599-27494 for the amount of USD 1,700,883.48 and secured by a chattel mortgage over Gateways equipment for USD 2 million. Gateway initially made payments on its loan obligations, but eventually defaulted. Upon Gateways request, Asianbank extended the maturity dates of the loan several times. These extensions bore the conformity of three of Gateways officers, among them Andrew. On July 15 and 30, 1999, Gateway issued two Philippine Commercial International Bank checks for the amounts of USD 40,000 and USD 20,000, respectively, as payment for its arrearages and interests for the periods June 30 and July 30, 1999; but both checks were dishonored for insufficiency of funds. Asianbanks demands for payment made upon Gateway and its sureties went unheeded. As of November 23, 1999, Gateways obligation to Asianbank, inclusive of principal, interest, and penalties, totaled USD 2,235,452.17. Thus, on December 15, 1999, Asianbank filed with the Regional Trial Court (RTC) in Makati City a complaint for a sum of money against Gateway, Geronimo, and Andrew. The complaint, as later amended, was eventually raffled to Branch 60 of the court and docketed as Civil Case No. 99-2102 entitled Asian Bank Corporation v. Gateway Electronics Corporation, Geronimo B. De Los Reyes, Jr. and Andrew S. De Los Reyes. In its answer to the amended complaint, Gateway traced the cause of its financial difficulties, described the steps it had taken to address its mounting problem, and faulted Asianbank for trying to undermine its efforts toward recovery. Andrew also filed an answer alleging, among other things, that the deed of suretyship he executed covering the PhP 10 million-Domestic Bills Purchased Line and the USD 3 million-Omnibus Credit Line did not include PN No. FCD-0599-2749, the payment of which was extended several times without his consent. Geronimo, on the other hand, alleged that the subject deed of suretyship, assuming the authenticity of his signature on it, was signed without his wifes consent and should, thus, be considered as a mere continuing offer. Like Andrew, Geronimo argued that he ought to be relieved of his liability under the surety agreement inasmuch as he too never consented to the repeated loan maturity date extensions given by Asianbank to Gateway.

After due hearing, the RTC rendered judgment dated October 7, 2003 5 in favor of Gateway, the dispositive portion of which states: WHEREFORE then, in view of the foregoing, judgment is rendered holding defendants Gateway Electronics Corporation, Geronimo De Los Reyes and Andrew De Los Reyes jointly and severally liable to pay the plaintiff the following: a) The sum of $2,235,452.17 United States Currency with interest to be added on at the prevailing market rate over a given thirty day London Interbank Offered Rate (LIBOR) plus a spread of 5.5358 percent or ten and [45,455/100,000] percent per annum for the first 35 days and every thirty days beginning November 23, 1999 until fully paid; b) a penalty charge after November 23, 1999 of two percent (2%) per month until fully paid; c) attorneys fees of twenty percent (20%) of the total amount due and unpaid; and d) costs of the suit. SO ORDERED. Thereafter, Gateway, Geronimo, and Andrew appealed to the CA, their recourse docketed as CAG.R. CV No. 80734. Following the filing of its and Geronimos joint appellants brief, Gateway filed on November 10, 2004 a petition for voluntary insolvency 6 with the RTC in Imus, Cavite, Branch 22, docketed as SEC Case No. 037-04, in which Asianbank was listed in the attached Schedule of Obligations as one of the creditors. On March 16, 2005, Metrobank, as successor-in-interest of Asianbank, via a Notice of Creditors Claim, prayed that it be allowed to participate in the Gatewayss creditors meeting. In its Decision dated October 28, 2005, the CA affirmed the decision of the Makati City RTC. In time, Gateway and Geronimo interposed a motion for reconsideration. This was followed by a Supplemental Motion for Reconsideration dated January 20, 2006, stating that in SEC Case No. 037-04, the RTC in Imus, Cavite had issued an Order dated December 2, 2004, declaring Gateway insolvent and directing all its creditors to appear before the court on a certain date for the purpose of choosing among themselves the assignee of Gateways estate which the courts sheriff has meanwhile placed in custodia legis.7 Gateway and Geronimo thus prayed that the assailed decision of the Makati City RTC be set aside, the insolvency court having acquired exclusive jurisdiction over the properties of Gateway by virtue of Section 60 of Act No. 1956, without prejudice to Asianbank pursuing its claim in the insolvency proceedings. In its March 17, 2006 Resolution, however, the CA denied the motion for reconsideration and its supplement. Hence, Gateway and Geronimo filed this petition anchored on the following grounds: I The [CA] erred in disregarding the established rule that an action commenced by a creditor against a judicially declared insolvent for the recovery of his claim should be dismissed and referred to the insolvency court. Where, therefore, as in this case, petitioner GEC [referring

to Gateway] has been declared insolvent x x x, respondent Asianbanks claim for the payment of GECs loans should be ventilated before the insolvency court x x x. II The [CA] erred in admitting as evidence the Deed of Surety purportedly signed by petitioner GBR [referring to Geronimo] despite the unexplained failure of respondent Asianbank to present the originals of the Deed of Surety during the trial. III The [CA] erred in holding that the repeated extensions granted by respondent Asianbank to GEC without notice to and the express consent of petitioner GBR did not discharge petitioner GBR from his liabilities as surety GEC in that: A. An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. B. The [CA] interpreted the supposed Deed of Surety of petitioner GBR as "too comprehensive and all encompassing as to amount to absurdity." C. The repeated extensions granted by Asianbank to GEC prevented petitioner GBR from exercising his right of subrogation under Article 2080 of the Civil Code. As such, petitioner GBR should be released from his obligations as surety of GEC. IV It is a well-settled rule that when a bank deviates from normal banking practice in a transaction and sustains injury as a result thereof, the bank is deemed to have assumed the risk and no right of payment accrues to the latter against any party to the transaction. By repeatedly extending the period for the payment of GECs obligations and granting GEC other loans after the suretyship agreement despite GECs default and in failing to foreclose the chattel mortgage constituted as security for GECs loan contrary to normal banking practices, Asianbank failed to exercise reasonable caution for its own protection and assumed the risk of non-payment through its own acts, and thus has no right to proceed against petitioner GBR as surety for the payment of GECs loans. V In Agcaoili v. GSIS, this Honorable Court had occasion to state that in determining the precise relief to give, the court will "balance the equities" or the respective interests of the parties and take into account the relative hardship that one relief or another may occasion to them. Upon a balancing of interests of both petitioner GBR and respondent Asianbank, greater and irreparable harm and injury would be suffered by petitioner GBR than respondent Asianbank if the assailed Decision and Resolution of the [CA] would be upheld x x x. This Honorable Court x x x should thus exercise its equity jurisdiction in the instant case to the end that it may render complete justice to both parties and declare petitioner GBR as released and discharged from any liability in respect of respondent Asianbanks claims. 8 The Ruling of the Court

Gateway May Be Discharged from Liability But Not Geronimo Gateway, having been declared insolvent, argues that jurisdiction over all claims against all of its properties and assets properly pertains to the insolvency court. Accordingly, Gateway adds, citing Sec. 60 of Act No. 1956,9 as amended, or the Insolvency Law, any pending action against its properties and assets must be dismissed, the claimant relegated to the insolvency proceedings for the claimants relief. The contention, as formulated, is in a qualified sense meritorious. Under Sec. 18 of Act No. 1956, as couched, the issuance of an order declaring the petitioner insolvent after the insolvency court finds the corresponding petition for insolvency to be meritorious shall stay all pending civil actions against the petitioners property. For reference, said Sec. 18, setting forth the effects and contents of a voluntary insolvency order,10 pertinently provides: Section 18. Upon receiving and filing said petition, schedule, and inventory, the court x x x shall make an order declaring the petitioner insolvent, and directing the sheriff of the province or city in which the petition is filed to take possession of, and safely keep, until the appointment of a receiver or assignee, all the deeds, vouchers, books of account, papers, notes, bonds, bills, and securities of the debtor and all his real and personal property, estate and effects x x x. Said order shall further forbid the payment to the creditor of any debts due to him and the delivery to the debtor, or to any person for him, of any property belonging to him, and the transfer of any property by him, and shall further appoint a time and place for a meeting of the creditors to choose an assignee of the estate. Said order shall [be published] x x x. Upon the granting of said order, all civil proceedings pending against the said insolvent shall be stayed. When a receiver is appointed, or an assignee chosen, as provided in this Act, the sheriff shall thereupon deliver to such receiver or assignee, as the case may be all the property, assets, and belongings of the insolvent which have come into his possession x x x. (Emphasis supplied.) Complementing Sec. 18 which appropriately comes into play "upon the granting of [the] order" of insolvency is the succeeding Sec. 60 which properly applies to the period "after the commencement of proceedings in insolvency." The two provisions may be harmonized as follows: Upon the filing of the petition for insolvency, pending civil actions against the property of the petitioner are not ipso facto stayed, but the insolvent may apply with the court in which the actions are pending for a stay of the actions against the insolvents property. If the court grants such application, pending civil actions against the petitioners property shall be stayed; otherwise, they shall continue. Once an order of insolvency nevertheless issues, all civil proceedings against the petitioners property are, by statutory command, automatically stayed. Sec. 60 is reproduced below: SECTION 60. Creditors proving claims cannot sue; Stay of action.No creditor, proving his debt or claim, shall be allowed to maintain any suit therefor against the debtor, but shall be deemed to have waived all right of action and suit against him, and all proceedings already commenced, or any unsatisfied judgment already obtained thereon, shall be deemed to be discharged and surrendered thereby; and after the debtors discharge, upon proper application and proof to the court having jurisdiction, all such proceedings shall be, dismissed, and such unsatisfied judgments satisfied of record: Provided, x x x. A creditor proving his debt or claim shall not be held to have waived his right of action or suit against the debtor when a discharge has have been refused or the proceedings have been determined to the without a discharge. No creditor whose debt is provable under this Act shall be allowed, after the commencement of proceedings in insolvency, to prosecute to final judgment any action therefor against the debtor until the question of the debtors discharge shall have been determined, and any such suit proceeding shall,

upon the application of the debtor or of any creditor, or the assignee, be stayed to await the determination of the court on the question of discharge : Provided, That if the amount due the creditor is in dispute, the suit, by leave of the court in insolvency, may proceed to judgment for purpose of ascertaining the amount due, which amount, when adjudged, may be allowed in the insolvency proceedings, but execution shall be stayed aforesaid. (Emphasis supplied.) Applying the aforequoted provisions, it can rightfully be said that the issuance of the insolvency order of December 2, 2004 had the effect of automatically staying the civil action for a sum of money filed by Asianbank against Gateway. In net effect, the proceedings before the CA in CA-G.R. CV No. 80734, but only insofar as the claim against Gateway was concerned, was, or ought to have been, suspended after December 2, 2004, Asianbank having been duly notified of and in fact was a participant in the insolvency proceedings. The Court of course takes stock of the proviso in Sec. 60 of Act No. 1956 which in a way provided the CA with a justifying tool to continue and to proceed to judgment in CA-G.R. CV No. 80734, but only for the purpose of ascertaining the amount due from Gateway. At any event, on the postulate that jurisdiction over the properties of the insolvent-declared Gateway lies with the insolvency court, execution of the CA insolvency judgment against Gateway can only be pursued before the insolvency court. Asianbank, no less, tends to agree to this conclusion when it stated: "[E]ven it if is assumed that the declaration of insolvency of petitioner Gateway can be taken cognizance of, such fact does relieve petitioner Geronimo and/or Andrew delos Reyes from performing their obligations based on the Deeds of Suretyship x x x." 11 Geronimo, however, is a different story. Asianbank argues that the stay of the collection suit against Gateway is without bearing on the liability of Geronimo as a surety, adding that claims against a surety may proceed independently from that against the principal debtor. Pursuing the point, Asianbank avers that Geronimo may not invoke the insolvency of Gateway as a defense to evade liability. Geronimo counters with the argument that his liability as a surety cannot be separated from Gateways liability. As surety, he continues, he is entitled to avail himself of all the defenses pertaining to Gateway, including its insolvency, suggesting that if Gateway is eventually released from what it owes Asianbank, he, too, should also be so relieved. Geronimos above contention is untenable. Suretyship is covered by Article 2047 of the Civil Code, which states: By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. The Courts disquisition in Palmares v. Court of Appeals on suretyship is instructive, thus: A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. A suretyship is an undertaking that the debt shall be paid x x x. Stated differently, a surety promises to pay the principals debt if the principal will not pay, while a guarantor agrees that the creditor, after proceeding against the principal, may proceed against the

guarantor if the principal is unable to pay. A surety binds himself to perform if the principal does not, without regard to his ability to do so. x x x In other words, a surety undertakes directly for the payment and is so responsible at once if the principal debtor makes default x x x. xxxx A creditors right to proceed against the surety exists independently of his right to proceed against the principal. Under Article 1216 of the Civil Code, the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The rule, therefore, is that if the obligation is joint and several, the creditor has the right to proceed even against the surety alone. Since, generally, it is not necessary for the creditor to proceed against a principal in order to hold the surety liable, where, by the terms of the contract, the obligation of the surety is the same as that of the principal, then soon as the principal is in default, the surety is likewise in default, and may be sued immediately and before any proceedings are had against the principal. Perforce, x x x a surety is primarily liable, and with the rule that his proper remedy is to pay the debt and pursue the principal for reimbursement, the surety cannot at law, unless permitted by statute and in the absence of any agreement limiting the application of the security, require the creditor or obligee, before proceeding against the surety, to resort to and exhaust his remedies against the principal, particularly where both principal and surety are equally bound. 12 Clearly, Asianbanks right to collect payment for the full amount from Geronimo, as surety, exists independently of its right against Gateway as principal debtor; 13 it could thus proceed against one of them or file separate actions against them to recover the principal debt covered by the deed on suretyship, subject to the rule prohibiting double recovery from the same cause. 14 This legal postulate becomes all the more cogent in case of an insolvency situation where, as here, the insolvency court is bereft of jurisdiction over the sureties of the principal debtor. As Asianbank aptly points out, a suit against the surety, insofar as the suretys solidary liability is concerned, is not affected by an insolvency proceeding instituted by or against the principal debtor. The same principle holds true with respect to the surety of a corporation in distress which is subject of a rehabilitation proceeding before the Securities and Exchange Commission (SEC). As we held in Commercial Banking Corporation v. CA, a surety of the distressed corporation can be sued separately to enforce his liability as such, notwithstanding an SEC order declaring the former under a state of suspension of payment.15 Geronimo also states that, as things stand, his liability, as compared to that of Gateway, is contextually more onerous and burdensome, precluded as he is from seeking recourse against the insolvent corporation. From this premise, Geronimo claims that since Gateway cannot, owing to the order of insolvency, be made to pay its obligation, he, too, being just a surety, cannot also be made to pay, obviously having in mind Art. 2054 of the Civil Code, as follows: A guarantor may bind himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the conditions. Should he have bound himself for more, his obligations shall be reduced to the limits of that of the debtor. The Court is not convinced. The above article enunciates the rule that the obligation of a guarantor may be less, but cannot be more than the obligation of the principal debtor. The rule, however, cannot plausibly be stretched to mean that a guarantor or surety is freed from liability as such guarantor or surety in the event the principal debtor becomes insolvent or is unable to pay the

obligation. This interpretation would defeat the very essence of a suretyship contract which, by definition, refers to an agreement whereunder one person, the surety, engages to be answerable for the debt, default, or miscarriage of another known as the principal. 16 Geronimos position that a surety cannot be made to pay when the principal is unable to pay is clearly specious and must be rejected. The CA Did Not Err in Admitting the Deed of Suretyship as Evidence Going to the next ground, Geronimo maintains that the CA erred in admitting the Deed of Suretyship purportedly signed by him, given that Asianbank failed to present its original copy. This contention is bereft of merit. As may be noted, paragraph 6 of Asianbanks complaint alleged the following: 6. The loan was secured by the Deeds of Suretyship dated July 23, 1996 that were executed by defendants Geronimo B. De Los Reyes, Jr. and Andrew S. De Los Reyes. Attached as Annexes "B" and "C," respectively, are photocopies of the Deeds of Suretyship executed by defendants Geronimo B. De Los Reyes, Jr. and Andrew S. De Los Reyes. Subsequently, a chattel mortgage over defendant Gateways equipment for $2 million, United States currency, was executed.17 Geronimo traversed in his answer the foregoing allegation in the following wise: "2.5. Paragraph 6 is denied, subject to the special and affirmative defenses and allegations hereinafter set forth." The ensuing special and affirmative defenses were raised in Gateways answer: 15. Granting even that [Geronimo] signed the Deed of Suretyship, his wife x x x had not given her consent thereto. Accordingly, the security created by the suretyship shall be construed only as a continuing offer on the part of [Geronimo] and plaintiff and may only be perfected as a binding contract upon acceptance by Mrs. Delos Reyes. x x x 17. Moreover, assuming, gratia argumenti, that [Geronimo] may be bound by the suretyship agreement, there is no showing that he has consented to the repeated extensions made by plaintiff in favor of GEC or to a waiver of notice of such extensions. It should be pointed out that Mr. Geronimo delos Reyes executed the suretyship agreement in his personal capacity and not in his capacity as Chairman of the Board of GEC. His consent, insofar as the continuing application of the suretyship agreement to GECs obligations in view of the repeated extension extended by plaintiff [is concerned], is therefore necessary. Obviously, plaintiff cannot now hold him liable as a surety to GECs obligations. 18 The Rules of Court prescribes, under its Secs. 7 and 8, Rule 8, the procedure should a suit or defense is predicated on a written document, thus: Sec. 7. Action or defense based on document.Whenever an action or defense is based upon a written instrument or document, the substance of such instrument or document shall be set forth in the pleading, and the original or a copy thereof shall be attached to the pleading as an exhibit, which shall be deemed to be a part of the pleading, or said copy may with like effect be set forth in the pleading.

Sec. 8. How to contest such documents.When an action or defense is founded upon a written instrument, copied in or attached to the corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts; but the requirement of an oath does not apply when the adverse party does not appear to be a party to the instrument or when compliance with an order for an inspection of the original instrument is refused. (Emphasis supplied.) Given the above perspective, Asianbank, by attaching a photocopy of the Deed of Suretyship to its underlying complaint, hewed to the requirements of the above twin provisions. Asianbank, thus, effectively alleged the due execution and genuineness of the said deed. From that point, Geronimo, if he intended to contest the surety deed, should have specifically denied the due execution and genuineness of the deed in the manner provided by Sec. 10, Rule 8 of the Rules of Court, thus: Sec. 10. Specific denial.A defendant must specify each material allegation of fact the truth of which he does not admit and, whenever practicable, shall set forth the substance of the matters upon which he relies to support his denial. Where a defendant desires to deny only a part of an averment, he shall specify so much of it as is true and material and shall deny only the remainder. Where a defendant is without knowledge or information sufficient to form a belief as to the truth of a material averment made in the complaint, he shall so state, and this shall have the effect of a denial. (Emphasis supplied.) In the instant case, Geronimo should have categorically stated that he did not execute the Deed of Suretyship and that the signature appearing on it was not his or was falsified. His Answer does not, however, contain any such statement. Necessarily then, Geronimo had not specifically denied, and, thus, is deemed to have admitted, the genuineness and due execution of the deed in question. In this regard, Sec. 11, Rule 8 of the Rules of Court states: Sec. 11. Allegations not specifically denied deemed admitted .Material averment in the complaint, other than those as to the amount of unliquidated damages, shall be deemed admitted when not specifically denied. x x x Owing to Geronimos virtual admission of the genuineness and due execution of the deed of suretyship, Asianbank, contrary to the view of Gateway and Geronimo, need not present the original of the deed during the hearings of the case. Sec. 4, Rule 129 of the Rules says so: Sec. 4. Judicial admissions.An admission, verbal or written, made by the party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made. (Emphasis supplied.) Geronimo Is Liable for PN No. FCD-0599-2749 under His Deed of Suretyship This brings us to the third ground which involves the issue of the coverage of the suretyship. Preliminarily, an overview on the process of taking out loans should first be made. Generally, especially for large loans, banks first approve a line or facility out of which a client may avail itself of loans in the form of promissory notes without need of further processing and/or approval every time a draw down is made. In the instant case, Asianbank approved in favor of Gateway the PhP 10 million-Domestic Bills Purchased Line and the USD 3 million-Omnibus Credit Line. Asianbank approved these credit lines which were covered by a chattel mortgage as well as the deeds of suretyship, such that loans extended from these lines would already be secured and pre-approved.

In other words, these facilities are not financial obligations yet. Asianbank did not yet lend out any money to Gateway with the approval of these lines. The loan transaction occurred or the principal obligation, as secured by a surety agreement, was born after the execution of loan documents, such as PN No. FCD-0599-2749. Geronimo now excepts from the ruling that the deed of suretyship he executed covered PN No. FCD-0599-2749 which embodied several export packing loans issued by Asianbank to Gateway. He claims that the deed only secured the PhP 10 million-Domestic Bills Purchased Line and the USD 3 million-Omnibus Credit Line. Geronimo describes as absurd the notion that a deed of suretyship would secure a loan obligation contracted three (3) years after the execution of the surety deed. Geronimos thesis that the deed in question cannot be accorded prospective application is erroneous. To be sure, the provisions of the subject deed of suretyship indicate a continuing suretyship. In Fortune Motors (Phils.) v. Court of Appeals ,19 the Court, citing cases, defined and upheld the validity of a continuing suretyship in this wise: "x x x Of course, a surety is not bound under any particular principal obligation until that principal obligation is born. But there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born, any more than there would be in saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition precedent. Comprehensive or continuing surety agreements are in fact quite commonplace in present day financial and commercial practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular company, commonly requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor."20 In Dio vs. Court of Appeals,21 we again had occasion to discourse on continuing guaranty/suretyship thus: "x x x A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. Otherwise stated, a continuing guaranty is one which covers all transactions, including those arising in the future, which are within the description or contemplation of the contract, of guaranty, until the expiration or termination thereof. A guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period x x x. In other jurisdictions, it has been held that the use of particular words and expressions such as payment of any debt, any indebtedness, any deficiency, or any sum, or the guaranty of any transaction or money to be furnished the principal debtor at any time, or on such time that the principal debtor may require, have been construed to indicate a continuing guaranty." (Emphasis supplied.)

By its nature, a continuing suretyship covers current and future loans, provided that, with respect to future loan transactions, they are, to borrow from Dio, as cited above, "within the description or contemplation of the contract of guaranty." The Deed of Suretyship Geronimo signed envisaged a continuing suretyship when, by the express terms of the deed, he warranted payment of the PhP 10 million-Domestic Bills Purchased Line and the USD 3 million-Omnibus Credit Line, as evidenced by: x x x notes, drafts, overdrafts and other credit obligations on which the DEBTOR(S) may now be indebted or may hereafter become indebted to the CREDITOR, together with all interests, penalty and other bank charges as may accrue thereon and all expenses which may be incurred by the latter in collecting any or all such instruments. 22 Evidently, under the deed of suretyship, Geronimo undertook to secure all obligations obtained under the Domestic Bills Purchased Line and Omnibus Credit Line, without any specification as to the period of the loan. Geronimos application of Garcia v. Court of Appeals, a case covering two separate loans, denominated as SWAP Loan and Export Loan, is quite misplaced. There, the Court ruled that the continuing suretyship only covered the SWAP Loan as it was only this loan that was referred to in the continuing suretyship. The Court wrote in Garcia: Particular attention must be paid to the statement appearing on the face of the Indemnity [Suretyship] Agreement x x x "evidenced by those certain loan documents dated April 20, 1982" x x x. From this statement, it is clear that the Indemnity Agreement refers only to the loan document of April 20, 1982 which is the SWAP loan. It did not include the EXPORT loan. Hence, petitioner cannot be held answerable for the EXPORT loan. 23 (Emphasis supplied.) The Indemnity Agreement in Garcia specifically identified loan documents evidencing obligations of the debtor that the agreement was intended to secure. In the present case, however, the suretyship Geronimo assumed did not limit itself to a specific loan document to the exclusion of another. The suretyship document merely mentioned the Domestic Bills Purchased Line and Omnibus Credit Line as evidenced by "all notes, drafts x x x contracted/incurred by [Gateway] in favor of [Asianbank]."24 As explained earlier, such credit facilities are not loans by themselves. Thus, the Deed of Suretyship was intended to secure future loans for which these facilities were opened in the first place. Lest it be overlooked, both the trial and appellate courts found the Omnibus Credit Line referred to in the Deed of Suretyship as covering the export packing credit loans Asianbank extended to Gateway. We agree with this factual determination. By the very use of the term "omnibus," and in practice, an omnibus credit line refers to a credit facility whence a borrower may avail of various kinds of credit loans. Defined as such, an omnibus line is broad enough to refer to or cover an export packing credit loan. Geronimos allegation that an export packing credit loan is separate and distinct from an omnibus credit line is but a bare and self-serving assertion bereft of any factual or legal basis. One who alleges something must prove it: a mere allegation is not evidence. 25 Geronimo has not discharged his burden of proof. His contention cannot be given any weight. As a final and major ground for his release as surety, Geronimo alleges that Asianbank repeatedly extended the maturity dates of the obligations of Gateway without his knowledge and consent. Pressing this point, he avers that, contrary to the findings of the CA, he did not waive his right to notice of extensions of Gateways obligations.

Such contention is unacceptable as it glosses over the fact that the waiver to be notified of extensions is embedded in surety document itself, built in the ensuing provision: In case of default by any and/or all of the DEBTOR(S) to pay the whole part of said indebtedness herein secured at maturity, I/WE jointly and severally, agree and engage to the CREDITOR, its successors and assigns, the prompt payment, without demand or notice from said CREDITOR of such notes, drafts, overdrafts and other credit obligations on which the DEBTOR(S) may now be indebted or may hereafter become indebted to the CREDITOR, together with all interests, penalty and other bank charges as may accrue thereon and all expenses which may be incurred by the latter in collecting any or all such instruments.26 (Emphasis supplied.) In light of the above provision, Geronimo verily waived his right to notice of the maturity of notes, drafts, overdraft, and other credit obligations for which Gateway shall become indebted. This waiver necessarily includes new agreements resulting from the novation of previous agreements due to changes in their maturity dates. Additionally, Geronimos lament about losing his right to subrogation is erroneous. He argues that by virtue of the order of insolvency issued by the insolvency court, title and right to possession to all the properties and assets of Gateway were vested upon Gateways assignee in accordance with Sec. 32 of the Insolvency Law. The transfer of Gateways property to the insolvency assignee, if this be the case, does not negate Geronimos right of subrogation, for such right may be had or exercised in the insolvency proceedings. The possibility that he may only recover a portion of the amount he is liable to pay is the risk he assumed as a surety of Gateway. Such loss does not, however, render ineffectual, let alone invalidate, his suretyship. Geronimos other arguments to escape liability are puerile and really partake more of a plea for liberality. They need not detain us long. In gist, Geronimo argues: first, that he is a gratuitous surety of Gateway; second, Asianbank deviated from normal banking practice, such as when it extended the period for payment of Gateways obligation and when it opted not to foreclose the chattel mortgage constituted as guarantee of Gateways loan obligation; and third, implementing the appealed CAs decision would cause him great harm and injury. Anent the first argument, suffice it to state that Geronimo was then the president of Gateway and, as such, was benefited, albeit perhaps indirectly, by the loan thus granted by Asianbank. And as we said in Security Pacific Assurance Corporation , the surety is liable for the debt of another although the surety possesses no direct or personal interest over the obligation nor does the surety receive any benefit from it.27 Whether or not Asianbank really deviated from normal banking practice by extending the period for Gateway to comply with its loan obligation or by not going after the chattel mortgage adverted to is really of no moment. Banks are primarily in the business of extending loans and earn income from their lending operations by way of service and interest charges. This is why Asianbank opted to give Gateway ample opportunity to pay its obligations instead of foreclosing the chattel mortgage and in the process holding on to assets of which the bank has really no direct use. The following excerpts from Palmares are in point: We agree with respondent corporation that its mere failure to immediately sue petitioner on her obligation does not release her from liability. Where a creditor refrains from proceeding

against the principal, the surety is not exonerated. In other words, mere want of diligence or forbearance does not affect the creditors rights vis--vis the surety, unless the surety requires him by appropriate notice to sue on the obligation. Such gratuitous indulgence of the principal does not discharge the surety whether given at the principals request or without it, and whether it is yielded by the creditor through sympathy or from an inclination to favor the principal x x x. The neglect of the creditor to sue the principal at the time the debt falls due does not discharge the surety, even if such delay continues until the principal becomes insolvent. And, in the absence of proof of resultant injury, a surety is not discharged by the creditors mere statement that the creditor will not look to the surety, or that he need not trouble himself. The consequences of the delay, such as the subsequent insolvency of the principal, or the fact that the remedies against the principal may be lost by lapse of time, are immaterial.28 The Courts Equity Jurisdiction Finds No Application to the Instant Case Geronimo urges the Court to release and discharge him from any liability arising from Asianbanks claims if what he terms as "complete justice" is to be served. He cites, as supporting reference, Agcaoili v. GSIS,29 presenting in the same breath the following arguments : first, the Deed of Suretyship is a gratuitous contract from which he did not benefit; second, Asianbank assured him that the deed would not be enforced against him; third, the enforcement of the judgment of the CA would reduce Geronimo and his family to a life of penury; and fourth, Geronimo would be unable to exercise his right of subrogation, Gateway having already been declared as insolvent. The first and last arguments have already been addressed and found to be without merit. The second argument is a matter of defense which has remained unproved and even belied by Asianbank by its filing of the complaint. We see no need to further belabor any of them. As regards the third allegation, suffice it to state that the predicament Geronimo finds himself in is his very own doing. His misfortune is but the result of the implementation of a bona fide contract he freely executed, the terms of which he is presumed to have thoroughly examined. He was not at all compelled to act as surety; he had a choice. It may be more offensive to public policy or good customs if he be allowed to go back on his undertaking under the surety contract. The Court cannot be a party to the contracts impairment and relieve a surety from the effects of an unwise but nonetheless a valid surety contract. WHEREFORE, the instant petition is hereby DENIED. The appealed Decision dated October 28, 2005 of the CA and its March 17, 2006 Resolution in CA-G.R. CV No. 80734 are hereby AFFIRMED with the modification that any claim of Asianbank or its successor-in-interest against Gateway, if any, arising from the judgment in this suit shall be pursued before the RTC, Branch 22 in Imus, Cavite as the insolvency court. Costs against petitioners. SO ORDERED.