THIRD DIVISION

[G.R. No. 132768. September 9, 2005.]

JAIME B. BIANA, petitioner, vs. GEORGE GIMENEZ, respondent.
Victor C. Reyes for petitioner.
Paraalis Navarro & Sales for respondent.
Angeles S. Dizon for B.M. Reyles.
SYLLABUS
CIVIL LAW; OBLIGATIONS AND CONTRACTS; RIGHT OF REDEMPTION;
MERE TENDER OF CHECK IS SUFFICIENT TO COMPEL REDEMPTION. A
close scrutiny of the facts obtaining in PAL reveals that petitioner's reliance on the ruling
thereon is misplaced. First and foremost, what is involved in PAL is the payment of a
judgment obligation and thus, the Civil Code provisions on payment of obligations,
particularly Article 1249 thereof, are applicable. In glaring contrast, the instant case
involves not the payment of an obligation but the exercise of a right, i.e., the right of
redemption. Accordingly, the Civil Code provisions on payment of obligations may not
be applied here. What applies is the settled rule that a mere tender of a check is sufficient
to compel redemption.

DECISION

GARCIA, J :
p

Assailed and sought to be set aside in this petition for review on certiorari under Rule 45
of the Rules of Court are the following issuances of the Court of Appeals in CA-G.R. SP
No. 40208, to wit:
1. Decision dated 9 July 1977, 1 affirming in toto an earlier decision of the
Regional Trial Court at Naga City in a special civil action for mandamus
with damages, thereat commenced by the herein respondent against the
Provincial Sheriff of Camarines Sur and petitioner's predecessor-ininterest, a certain Santos B. Mendones; and

2. Resolution dated 30 January 1998, 2 denying, for lack of merit, petitioner's

motion for reconsideration.

The facts:
In a labor case filed before the Naga City District Office of the Department of Labor and
Employment, entitled Santos B. Mendones vs. Gimenez Park Subdivision and George
Gimenez, thereat docketed as Term Case No. R05-D-008-78, the defendants therein,
which included herein respondent George Gimenez, were ordered to pay Mendones the
sum of P1,520.00 plus P8.00/day starting 1 August 1978 up to the time of Mendones'
reinstatement, as well as P3,168.00 as sheriff's fees and expenses of execution. Deputy
Sheriff Renato Madera computed the judgment obligation at P5,248.50 and demanded its
immediate payment from said defendants.
HSCcTD

For defendants' failure to pay the judgment obligation in that case, Sheriff Madera
proceeded to levy and attach four (4) parcels of urban land situated in Naga City with an
aggregate area of more than 74 hectares and registered, per Transfer Certificate of Title
No. 10249, in the names of Jose F. Gimenez, Tessa F. Gimenez, Maricel G. Gimenez and
herein respondent George Gimenez.
On 6 December 1978, a public auction was conducted by Sheriff Madera for the sale of
the subject parcels of land. Mendones, as sole bidder, won in the execution sale with his
bid of P8,908.50, representing the judgment obligation plus expenses of execution. Thus,
a Provisional Certificate of Sale was issued and registered in the name of Mendones on 7
December 1978.
According to respondent Gimenez, he was not duly informed or notified of the execution
sale conducted by Sheriff Madera. He added that the sale came to his knowledge only
when a representative of the sheriff asked him to pay the publication fee of the execution
sale in the amount of P3,510.00. Immediately, he paid the full publication fee by issuing
checks. For this payment, he was issued O.R. No. 161 on 27 January 1979, or 10 months
and 20 days before the expiration of the one-year redemption period.
For the purpose of paying the redemption price of the parcels of land sold at the
execution sale, respondent Gimenez approached Provincial Sheriff Manuel Garchitorena
since he failed to locate Sheriff Madera. As per computation, Provincial Sheriff
Garchitorena informed respondent Gimenez that the balance of the redemption price
including interest and sheriff's fee amounted to P6,615.89. To facilitate redemption,
respondent Gimenez issued four (4) checks in the name of Provincial Sheriff
Garchitorena, which checks bear the following particulars:
Check No. Date Amount
272377 18 July 1979 P1,500.00

272384 03 August 1979 P1,500.00

272385 18 August 1979 P1,500.00
272386 01 September 1979 P1,115.89 3

For his part, Provincial Sheriff Garchitorena issued a receipt 4 dated 19 July 1979, or 4
months and 18 days before the expiration of the 1-year redemption period, therein
acknowledging that he "received from the Gimenez Park Subdivision and George F.
Gimenez the sum of FIVE THOUSAND SIX HUNDRED FIFTEEN & 89/100 in full
payment and satisfaction of the judgment . . .".
After some time, or more specifically on 3 December 1979, Sheriff Madera wrote a letter
5 addressed to the counsel of respondent Gimenez informing counsel that the 1-year
redemption period will soon expire on 7 December 1979 and that his client still has an
unpaid balance of P4,367.81. Replying thereto, respondent's counsel asked for the details
of said account. To this, Deputy Sheriff Madera submitted an itemization 6 which
includes the sum of P3,510.00 as publication fee due to Bicol Star. Respondent disagreed
with this itemization contending that he had paid the full cost of publication to the
publisher of Bicol Star. Nonetheless, Deputy Sheriff Madera executed in favor of
Mendones a Definite Deed of Sale 7 dated 8 December 1979.
HCETDS

Meanwhile, for allegedly having paid the full redemption price, respondent Gimenez
requested Provincial Sheriff Manuel Garchitorena to execute a deed of redemption in his
favor. His request having been refused, respondent then filed with the Regional Trial
Court at Naga City a special civil action for mandamus with damages to compel
Provincial Sheriff Garchitorena and/or Deputy Sheriff Madera to execute the desired
deed of redemption. In his petition, docketed in said court as Civil Case No. 860,
Gimenez included an alternative prayer that if a definite deed of sale was already issued
in favor of Mendones, the same be declared null and void. 8
Later, Mendones asked for leave, and was permitted, to file an answer-in-intervention,
thereunder contending that no valid redemption was effected within the 1-year
redemption period.
During the pendency of the case, Mendones assigned his right over the 74-hectare land he
acquired on auction to herein petitioner Jaime Biana in consideration of one million pesos
(P1,000,000.00). 9
After due proceedings, the trial court, in a decision 10 dated 20 January 1999, ruled in
favor of respondent Gimenez. Dispositively, the decision reads.

WHEREFORE, by preponderant evidence, JUDGMENT is hereby rendered in

favor of [Gimenez] as against [the Provincial Sheriff and herein petitioner as
assignee of Mendones]. Accordingly, the Court hereby renders, judgment:
a) Setting aside and declaring the Definite Deed of Sale dated December
8, 1979 null and void;
b) Ordering the Provincial Sheriff of Camarines Sur to execute a Deed
of Redemption reconveying the parcels of land covered by TCT
No. 10249 to petitioner George G. Gimenez;
c) Permanently enjoining the Register of Deeds of Naga City from
registering the Definite Deed of Sale issued by the Provincial
Sheriff of Camarines Sur over the above property subject of this
case;
d) Ordering intervenor Jaime B. Biana to pay [Gimenez] moral damages
in the amount of One Hundred Fifty Thousand Pesos
(P150,000.00);
e) Ordering intervenor Jaime B. Biana to pay [Gimenez] attorney's fees
and related expenses of litigation in the amount of Twenty
Thousand (P20,000.00) Pesos;
f) DISMISSING the counterclaim of respondent Provincial Sheriff and
intervenor.
With costs against intervenor.
SO ORDERED.

Unable to accept the judgment, petitioner, joined by the Provincial Sheriff, went to the
Court of Appeals via ordinary appeal, thereat docketed as CA-G.R. SP No. 40208.
As stated at the outset hereof, the Court of Appeals in a Decision dated 9 July 1997,
affirmed in toto the appealed decision of the trial court. With his motion for
reconsideration having been denied by the appellate court in its Resolution of 30 January
1998, petitioner is now with us via the present recourse on his submissions that the Court
of Appeals erred
I
. . . WHEN IT SUSTAINED THE ARBITRARY AND UNWARRANTED
ACT OF THE TRIAL COURT OF CONVERTING THE SPECIAL CIVIL
ACTION OF MANDAMUS INTO AN ORDINARY CIVIL ACTION WITH
MULTIPLE RELIEFS.
TEIHDa

II
. . . WHEN IT ACQUIESCED TO THE OPEN DISREGARD BY THE TRIAL
JUDGE OF THE JUDICIAL IMPARTIALITY AND UNBIASED STANCE
REQUIRED OF HIM IN THE RENDITION OF HIS DECISION.
III
. . . WHEN IT ASSENTED TO THE ERRONEOUS CONCLUSION OF THE
TRIAL JUDGE THAT THE RESPONDENT WAS ABLE TO MAKE A
VALID REDEMPTION BY MEANS OF POSTDATED CHECKS OF
VARYING DATES.
IV
. . . WHEN IT FAILED TO APPRECIATE THE FACT THAT MANDAMUS
AS A SPECIAL CIVIL ACTION IS A REMEDY FOR OFFICIAL INACTION
AND IS UNAVAILING AS A REMEDY FOR THE CORRECTION OF ACTS
ALREADY PERFORMED.
V
. . . WHEN IT FAILED TO CONSIDER THAT THE TRIAL COURT WENT
BEYOND ITS JURISDICTION AND ACTED ARBITRARILY WHEN IT
IMPOSED MORAL DAMAGES AND ATTORNEY'S [sic] FEES UPON
PETITIONER WHEN NO SUCH DEMAND WAS ASKED FOR IN THE
COMPLAINT FOR MANDAMUS WHICH WAS DIRECTED ONLY
AGAINST THE PROVINCIAL SHERIFF OF CAMARINES SUR.
VI
. . . WHEN IT OVERLOOKED THE FACT THAT THE ACT OF
EXECUTING A DEED OF REDEMPTION IN FAVOR OF RESPONDENT
INVOLVES THE EXERCISE OF DISCRETION BY THE PROVINCIAL
SHERIFF OF CAMARINES SUR.

As we see it, petitioner's assigned errors crystallize to one pivotal question: Can the
Provincial Sheriff of Camarines Sur be legally compelled to execute a deed of
redemption in favor of respondent Gimenez?
Petitioner contends that there is yet no redemption in this case because what were
tendered by the respondent by way of exercising of his right of redemption are postdated
checks. To petitioner, the tender did not operate as payment of the redemption price,
hence respondent is not entitled to a deed of redemption. To buttress his argument,
petitioner invokes the ruling in Philippine Airlines, Inc. vs. Hon. Court of Appeals, et al.,

11 where

this Court ruled that payment in check issued in the name of an absconding
sheriff did not operate as payment of the judgment obligation.
On surface, petitioner's posture appears to hold water. However, a close scrutiny of the
facts obtaining in PAL reveals that petitioner's reliance on the ruling thereon is misplaced.
First and foremost, what is involved in PAL is the payment of a judgment obligation and
thus, the Civil Code provisions on payment of obligations, particularly Article 1249 12
thereof, are applicable. In glaring contrast, the instant case involves not the payment of an
obligation but the exercise of a right, i.e., the right of redemption. Accordingly, the Civil
Code provisions on payment of obligations may not be applied here. What applies is the
settled rule that a mere tender of a check is sufficient to compel redemption. In the words
of this Court in Fortunado, et al. vs. Court of Appeals, et al.: 13

We are not, by this decision, sanctioning the use of a check for the payment of
obligations over the objection of the creditor. What we are saying is that a
check may be used for the exercise of the right of redemption, the same
being a right and not an obligation. The tender of a check is sufficient to
compel redemption but is not in itself a payment that relieves the
redemptioner from his liability to pay the redemption price. In other words,
while we hold that the private respondents properly exercise their right of
redemption, they remain liable, of course, for the payment of the redemption
price. (Emphasis supplied).
DHSaCA

Moreover, PAL is casts against a factual backdrop entirely different from the present
case. There, the sheriff in whose name the checks were made payable absconded or
disappeared, making it impossible for the judgment obligee and the court to collect from
him the amount of the judgment obligation. In fact, this Court made it clear in PAL that
the pronouncement therein made was arrived at "under the peculiar circumstances
surrounding [that] case", which, to stress, do not obtain herein.
The records before us are bereft of any evidence indicating that Sheriff Garchitorena
absconded or disappeared with the checks of respondent. Quite the contrary, in the letter
14 of Deputy Sheriff Madera addressed to Santos B. Mendones, the former even stated
that "in this connection, please come to our office on Monday December 10, 1979 to
withrow [sic] the above-mentioned amount, because at present Atty. Manuel
Garchitorena is still on vacation leave". Clearly, therefore, it is not impossible for the
judgment obligee or the court to collect the amount of the judgment obligation from
Sheriff Garchitorena who even issued a receipt bearing date 19 July 1979 acknowledging
that he "received from the Gimenez Park Subdivision and George G. Gimenez the sum of
FIVE THOUSAND SIX HUNDRED FIFTEEN & 89/100 in full payment and
satisfaction of the judgment . . .".

Besides, Sheriff Madera himself deducted the aggregate amount of the four (4) checks
(P5,615.89) from respondent Gimenez' liability when he submitted the itemization 15
requested by the latter's counsel, Atty. Augusto A. Pardalis.
Petitioner argues strongly that it was error for both the trial and appellate courts to have
entertained respondent's suit for mandamus considering that a Deed of Definite Sale
dated 8 December 1979 had already been executed by Deputy Sheriff Madera, and,
therefore, unless that deed is nullified, there was no longer a duty compellable by
mandamus that has yet to be performed. Petitioner adds that respondent's resort to
mandamus is improper since the latter's speedy and adequate remedy was to file an
independent action to nullify the same deed and thereafter ask for the issuance in his
favor of a deed of redemption. On this premise, petitioner faults both courts for nullifying
in the same proceedings the subject Definite Deed of Sale and ordering the Provincial
Sheriff to execute a deed of redemption in respondent's favor.
We are not persuaded.
For, as correctly observed by the Court of Appeals in its challenged decision of 9 July
1997, to which we are in full accord:
From a reading of the petition for mandamus with damages, the petitioner
prayed, among others, that:
"b) in the event that a final confirmation of sale was in fact executed by
respondent Renato Madera, the same be declared null and void ab
initio."
Thus, it cannot be said that the trial court went beyond that which is being asked
for in this case. To us, it is very much appropriate because in the first place,
there was a prayer for such. And secondly, to give effect to the judgment
ordering the Provincial Sheriff of Camarines Sur to execute a Deed of
Redemption in favor of the appellee, it becomes necessary to annul the said
Definite Deed of Sale. It is just in consonance with the finding that [respondent]
had made a valid redemption within the reglementary period for redemption.
Stated otherwise, the grant of the writ of mandamus (commanding the
Provincial Sheriff of Camarines Sur to execute the Deed of Redemption)
without annulling the Definite Deed of Sale would all be nothing but a mere
farce. We cannot, even in our wildest imagination, allow this absurdity to defeat
the purposes of the law, and more so to sanction actions of the parties which we
found to be clearly in violation of the law and settled jurisprudence, on the basis
merely of a technicality brought about by a strict application of the rules. This is
far from the understanding of this court.

As ruled by the appellate court, since the issue of nullification of the aforementioned
Definite Deed of Sale "had already been brought to the attention of the trial court for

resolution in the same mandamus case", an independent action for the nullification
thereof would only result in multiplicity of suit. In this connection, we note from the
records before us that the mandamus case was filed by respondent way back on 25
February 1982, 16 or more than two (2) decades ago.
TAcSCH

Given the above, we agree with the ruling of the two courts below that there has been a
valid payment of the redemption price which would entitle respondent to the issuance of
a Deed of Redemption in his favor.
This brings us to the propriety of the award of moral damages and attorney's fees in favor
of respondent.
Petitioner contends that the Court of Appeals acted wrongly when it sustained the trial
court's award of moral damages and attorney's fees even as no prayer therefor was made
by respondent in the petition he filed with the trial court.
Again, we are not persuaded.
It must be stressed petitioner is the successor-in-interest of Santos Mendones. As such, he
is bound by all the actions made by the latter. To emphasize, the original petition filed
before the trial court is a special civil action for mandamus with damages to compel
Provincial Sheriff Garchitorena and/or Deputy Sheriff Madera to execute in favor of
respondent a deed of redemption. Originally, it was the two sheriffs who were made
respondents in said case. However, during the pendency thereof, Mendones himself filed
an answer-in-intervention after having obtained leave from the trial court. Hence,
Mendones became one of the party-respondents in that mandamus case against whom
Gimenez prays for the award of moral damages and attorney's fees.
Again, to quote from the assailed decision of the appellate court:
As to the award of moral damages and attorney's fees, we find the same to be
appropriately supported with the trial court's findings of facts, and thus, we
affirm the same. We quote with approval the trial court's findings on this point:
. . . However, moral damages may be granted in this case as [respondent]
had expressly suffered mental anguish, extreme humiliation and social
ridicule because of the patently void acts of [the sheriff] in collusion
with intervenor in enforcing and implementing the writ of execution to
satisfy a judgment for a paltry sum of money in the hope of unjustly
enriching themselves had they succeed (sic) in obtaining title over
[respondent's] P40,000,000.00 property. To the Court, [respondent]
had sufficiently established the factual basis for claiming moral damages
which this Court in exercising its discretion hereby fixes at One
Hundred Fifty Thousand Pesos (P150,000.00).

xxx xxx xxx

. . . In this case, the court finds that herein intervenor's successor-ininterest [referring to herein petitioner Biana] had insisted and prodded
the continuation of this litigation despite full knowledge that the claim of
original intervener Mendones was only for something like P10,000.00 in
the hope of reaping unjustly million therefor. In fact, knowing fully well
that the value of the property of the [respondent] at the time of the
commencement for this action was already P40,000,000.00, intervenor
Biana still managed to convince or persuade original intervenor Santos
Mendones to part with his claim for the sum of P1,000,000.00 (Annex
"A", Deed of Sale, pp. 448-451, Records), for which reason, said
intervenor must be called upon to answer for the moral damages suffered
and attorney's fees and related expenses of litigation incurred by herein
petitioner. (Words in bracket ours).

WHEREFORE, the instant petition is DENIED and the assailed Decision and Resolution
of the Court of Appeals AFFIRMED in toto.
Costs against petitioner.

HECTaA

SO ORDERED.
Panganiban, Sandoval-Gutierrez and Corona JJ., concur.
Carpio Morales, J., is on official business.
|||

(Biana v. Gimenez, G.R. No. 132768, [September 9, 2005], 506 PHIL 468-479)

THIRD DIVISION
[G.R. No. 151849. June 23, 2005.]
G & M (PHIL.), INC., petitioner, vs. WILLIE BATOMALAQUE,
respondent.

DECISION

CARPIO MORALES, J :
p

Culled from the records of the case are the following facts material to the appeal of
petitioner.
Sometime in February 1992, Abdul Aziz Abdullah Al Muhaimid Najad Car Maintenance
Association (Abdul Aziz), a Saudi Arabian entity based in Riyadh, hired respondent,
Willie Batomalaque, as a car painter at a monthly salary of US$370.00 1 for a two-year
period 2 through its agent, petitioner G&M (Phil.), Inc.
In accordance with the employment contract, respondent started working for Abdul Aziz
on March 10, 1992 3 at a monthly salary of US$370.00 4 which according to him was
equivalent to 1,200 Saudi riyals. 5
On June 7, 1994 6 respondent was repatriated and on January 3, 1995 he filed a complaint
7 against petitioner, Abdul Aziz, and Country Empire Insurance Company with the
Philippine Overseas Employment Administration 8 for non-payment and underpayment
of salaries and damages.
In his Complaint-Affidavit respondent claimed that for the first four months of
employment, he received a monthly salary of 900 Saudi riyals, 9 and for the fifth month
(July 1992) up to the end of the 12th month (February 1993), he received a monthly
salary of 700 Saudi riyals; 10 that after a one-year stint with Abdul Aziz, the workshop
where he was working was sold but the new owner did not hire him; 11 that for eleven
months he was jobless; 12 that Abdul Aziz hired him again and started working for it in
February 1994 for which he was paid 1,200 Saudi riyals; 13 and that he resigned in May
1994 since he was not paid his salary for the months of March and April 1994, 14 which
2-month salary, was, however, used to purchase his airline ticket on his repatriation to the
Philippines.

Respondent thus prayed in his Complaint-Affidavit for the award to him of damages
arising from the following:
a. Non-payment of wages for 11 months from April 1993 to January 1994;

aSCHcA

b. Non-payment of salaries for the months of March and April 1994;

c. Non-payment of salary differentials int (sic) the amount of SR500 per month
for seven months deducted from his salary starting the 5th month of his
work or July 1992 up to February 1993 or the totla (sic) amount of
SR3,500;
d. moral and exemplary damages of P50,000.00;
e. other just and equitable remedies are prayed for. 15 (Emphasis and
underscoring supplied)

Among other claims, petitioner denied respondent's claim that he was underpaid, it
maintaining that he was paid his salaries in full. 16
By Decision 17 of July 22, 1996, Labor Arbiter Fatima Jambaro-Franco credited
respondent's complaint for underpayment of salaries during the first year of his contract
but denied his other claims in this wise:
After due consideration, this Office finds the complaint for underpayment of
salaries and wages meritorious.
Well-settled is the rule that in cases of non-payment and underpayment of
salaries and wages, the employer has the burden of proof to show that the
worker/employee has been paid all his salaries and wages since it has in its
possession the proof of payment such as payrolls and/or vouchers (Sambalonay
vs. Jose Cuevas, NLRC No. RB IV 186447, February 13, 1980) and in the
absence of proof to the contrary, it is deemed that no payment has been made.
In the case at bar, except for their bare allegation that complainant's salaries was
not underpaid, no evidence was adduced to show that complainant's salaries and
wages were fully paid constraining the undersigned to grant the claim of the
complainant as shown in the computation below, to wit:
Agreed Salary SR1,200
Salary Received SR900 for 5 months
SR700 for 8 months
Salary differential

SR1,200 - SR900 = SR300 x 5 mos. = SR1,500

SR1,200 - SR700 = SR500 x 8 mos. = SR4,000

SR5,500
The claim for the non-payment of salaries for eleven (11) months (April 1993 to
January 1994) is, however, untenable. The records show that complainant was
repatriated on June 7, 1994, more than two (2) years from his deployment on
March 9, 1992. While he claims for underpayment of salaries and wages for
thirteen (13) months, he did not claim for illegal dismissal, although he claims
for the payment of salaries from April 1993 to January 1994. 18 This Office is in
a quandary why complainant stayed at the jobsite for eleven (11) months,
without work, yet there was no complaint lodged in the Labor/Consulate Office
in Saudi Arabia. The undersigned opines that if complainant really felt
aggrieved, then he could have easily filed a complaint at the jobsite. However,
complainant did nothing to vindicate his right, in fact, he stayed on until June
1994. Under these circumstances, this Office gives more credence to the
respondents' assertion that complainant completed his 2 years (sic) contract and
even extended for another 2 months before his repatriation. It is worthy to note
that complainant never claimed that he was constructively dismissed rendering
his claim for payment of the unexpired portion of the contract untenable.
The claim for refund of transportation expenses is likewise, not allowable in the
absence of proof that the repatriation cost was actually shouldered by him.
(Underscoring supplied)
The labor arbiter thus disposed as follows:
WHEREFORE, in view of the foregoing, respondents G & M (Phils.), Inc.,
Abdul Aziz Abdullah Al Muhaimid Najad Car Maintenance Association and
Country Empire Insurance Company are hereby ordered to pay jointly and
severally complainant Willie Batomalaque the amount of FIVE THOUSAND
FIVE HUNDRED SAUDI RIYALS (SR5,500) or in Philippine currency at the
prevailing rate of exchange as certified to by the Central Bank at the time of
payment, representing his underpayment of salaries and wages.
All other claims are dismissed for lack of merit.
SO ORDERED. 19 (Emphasis and underscoring supplied)

Petitioner appealed 20 the labor arbiter's decision to the National Labor Relation
Commission (NLRC) which, by Resolution 21 of February 11, 1999, affirmed the same.

Aggrieved, petitioner, via a petition for certiorari 22 under Rule 65, brought the case to
the Court of Appeals which docketed it as CA-G.R. No. 52920. By the assailed decision
23 of April 27, 2001, the Court of Appeals dismissed petitioner's petition, it holding that
the NLRC committed no error much less any grave abuse of discretion.
Petitioner's motion for reconsideration 24 having been denied by the Court of Appeals, by
Resolution 25 of January 8, 2002, it lodged the present petition. 26
Petitioner maintains that respondent had been paid his salaries in full and it was
incumbent upon him to prove otherwise.
cCESaH

Petitioner's claim fails.

It is settled that as a general rule, a party who alleges payment as a defense has the
burden of proving it. 27
Specifically with respect to labor cases, the burden of proving payment of monetary
claims rests on the employer, the rationale being
that the pertinent personnel files, payrolls, records, remittances and other similar
documents which will show that overtime, differentials, service incentive
leave and other claims of workers have been paid are not in the possession of
the worker but in the custody and absolute control of the employer. 28

Aside, however, from its bare allegation that its principal Abdul Aziz had fully paid
respondent's salaries, petitioner did not present any evidence, e.g., payroll or payslips, to
support its defense of payment. Petitioner thus failed to discharge the onus probandi.
Petitioner, as the recruiter and agent of Abdul Aziz, is thus solidarily liable with the latter
for the unpaid wages of respondent. This Court, through Justice Irene Cortes, in Royal
Crown Internationale v. NLRC 29 explains the basis thereof:
. . . Petitioner conveniently overlooks the fact that it had voluntarily assumed
solidary liability under the various contractual undertakings it submitted to the
Bureau of Employment Services. In applying for its license to operate a private
employment agency for overseas recruitment and placement, petitioner was
required to submit, among others, a document or verified undertaking whereby
it assumed all responsibilities for the proper use of its license and the
implementation of the contracts of employment with the workers it recruited and
deployed for overseas employment [Section 2(e), Rule V, Book I, Rules to
Implement the Labor Code (1976)]. It was also required to file with the Bureau
a formal appointment or agency contract executed by the foreign-based
employer in its favor to recruit and hire personnel for the former, which
contained a provision empowering it to sue and be sued jointly and solidarily
with the foreign principal for any of the violations of the recruitment agreement

and the contracts of employment [Section 10 (a) (2), Rule V, Book I of the
Rules to Implement the Labor Code (1976)]. Petitioner was required as well to
post such cash and surety bonds as determined by the Secretary of Labor to
guarantee compliance with prescribed recruitment procedures, rules and
regulations, and terms and conditions of employment as appropriate [Section 1
of Pres. Dec. 1412 (1978) amending Article 31 of the Labor Code].
These contractual undertakings constitute the legal basis for holding
petitioner, and other private employment or recruitment agencies, liable
jointly and severally with its principal, the foreign-based employer, for all
claims filed by recruited workers which may arise in connection with the
implementation of the service agreements or employment contracts [See
Ambraque International Placement and Services v. NLRC, G.R. No. 77970,
January 28, 1988, 157 SCRA 431; Catan v. NLRC, G.R. No. 77279, April 15,
1988, 160 SCRA 691; Alga Moher International Placement Services v. Atienza,
G.R. No. 74610, September 30, 1988] 30 (Emphasis and underscoring supplied;
italics in the original)

Petitioner argues, however, that the foregoing rule has no application in the case at bar
because it applies only to one which raises the issue of non-payment but not one which
raises issues of underpayment, 31 hence, the burden was on respondent to show that he
was indeed underpaid. 32
Petitioner does not persuade.
On repeated occasions, this Court ruled that the debtor has the burden of showing with
legal certainty that the obligation has been discharged by payment. 33 To discharge means
to extinguish an obligation, 34 and in contract law discharge occurs either when the
parties have performed their obligations in the contract, or when an event the conduct of
the parties, or the operation of law releases the parties from performing. 35 Thus, a party
who alleges that an obligation has been extinguished must prove facts or acts giving rise
to the extinction.
The fact of underpayment does not shift the burden of evidence to the plaintiff-herein
respondent because partial payment does not extinguish the obligation. 36 Only when the
debtor introduces evidence that the obligation has been extinguished does the burden of
evidence shift to the creditor who is then under a duty of producing evidence to show
why payment does not extinguish the obligation.
cSTHAC

The lack of merit of petitioner's petition notwithstanding, this Court finds that the
appellate court's affirmance of the award to respondent of salaries for a 13-month period,
as reflected in the computation of salary differential in the decision of the labor arbiter,
calls for modification. Respondent himself alleged in his Complaint-Affidavit having

been underpaid for 12 months 37 albeit, oddly enough, in the above-quoted prayer of his
said Complaint-Affidavit, he prayed for salary differential in the amount of "SR500 per
month for seven [7] months . . . starting the 5th month of his work or July 1992 up to
February 1993 or [a total] amount of SR3,500."
Respondent being entitled to a monthly salary of US$370.00, 38 its equivalent of 1,200
Saudi riyals of which has not been disputed, and his allegation that he received a monthly
salary of 900 Saudi riyals for the first 4 months and 700 Saudi riyals for the 5th month
until the end of the 12th month not having been successfully refuted, he is entitled to
SR5,200, 39 not SR5,500, representing the total deficient payment of his salaries for a
12-month period.
WHEREFORE, the Decision of the Court of Appeals in C.A. G.R. SP. No. 52920 is
AFFIRMED with the MODIFICATION that respondent, Willie Batomalaque, is only
entitled to 5,200 Saudi riyals, instead of 5,500 Saudi riyals. Costs against petitioner.
SO ORDERED.
Panganiban, Sandoval-Gutierrez, Corona and Garcia, JJ., concur.
(G & M (Phil.) Inc. v. Batomalaque, G.R. No. 151849, [June 23, 2005], 499 PHIL 724733)
|||

FIRST DIVISION
[G.R. No. 160016. February 27, 2006.]
ABACUS SECURITIES CORPORATION, petitioner, vs. RUBEN U.
AMPIL, respondent.

DECISION

PANGANIBAN, C.J :
p

Stock market transactions affect the general public and the national economy. The rise and
fall of stock market indices reflect to a considerable degree the state of the economy. Trends
in stock prices tend to herald changes in business conditions. Consequently, securities
transactions are impressed with public interest, and are thus subject to public regulation. In
particular, the laws and regulations requiring payment of traded shares within specified
periods are meant to protect the economy from excessive stock market speculations, and
are thus mandatory.
In the present case, respondent cannot escape payment of stocks validly traded by petitioner
on his behalf. These transactions took place before both parties violated the trading law
and rules. Hence, they fall outside the purview of the pari delicto rule.
The Case
Before the Court is a Petition for Review 1 under Rule 45 of the Rules of Court, challenging
the March 21, 2003 Decision 2 and the September 19, 2003 Resolution 3 of the Court of
Appeals (CA) in CA-G.R. CV No. 68273. The assailed Decision disposed as follows:
"UPON THE VIEW WE TAKE OF THIS CASE THUS, this appeal is hereby
DISMISSED. With costs." 4

The CA denied reconsideration in its September 19, 2003 Resolution.

The Facts
The factual antecedents were summarized by the trial court (and reproduced by the CA in
its assailed Decision) in this wise:

"Evidence adduced by the [petitioner] has established the fact that [petitioner] is
engaged in business as a broker and dealer of securities of listed companies at the
Philippine Stock Exchange Center.
"Sometime in April 1997, [respondent] opened a cash or regular account with
[petitioner] for the purpose of buying and selling securities as evidenced by the
Account Application Form. The parties' business relationship was governed by
the terms and conditions [stated therein] . . . .
"Since April 10, 1997, [respondent] actively traded his account, and as a result of
such trading activities, he accumulated an outstanding obligation in favor of
[petitioner] in the principal sum of P6,617,036.22 as of April 30, 1997.
HSIADc

"Despite the lapse of the period within which to pay his account as well as
sufficient time given by [petitioner] for [respondent] to comply with his proposal
to settle his account, the latter failed to do so. Such that [petitioner] thereafter sold
[respondent's] securities to set-off against his unsettled obligations.
"After the sale of [respondent's] securities and application of the proceeds thereof
against his account, [respondent's] remaining unsettled obligation to [petitioner]
was P3,364,313.56. [Petitioner] then referred the matter to its legal counsel for
collection purposes.
"In a letter dated August 15, 1997, [petitioner] through counsel demanded that
[respondent] settle his obligation plus the agreed penalty charges accruing
thereon equivalent to the average 90-day Treasury Bill rate plus 2% per annum
(200 basis points).
"In a letter dated August [26], 1997, [respondent] acknowledged receipt of
[petitioner's] demand [letter] and admitted his unpaid obligation and at the same
time request[ed] for 60 days to raise funds to pay the same, which was granted by
[petitioner].
"Despite said demand and the lapse of said requested extension, [respondent]
failed and/or refused to pay his accountabilities to [petitioner].
"For his defense, [respondent] claims that he was induced to trade in a stock
security with [petitioner] because the latter allowed offset settlements wherein he
is not obliged to pay the purchase price. Rather, it waits for the customer to sell.
And if there is a loss, [petitioner] only requires the payment of the deficiency (i.e.,
the difference between the higher buying price and the lower selling price). In
addition, it charges a commission for brokering the sale.
"However, if the customer sells and there is a profit, [petitioner] deducts the
purchase price and delivers only the surplus after charging its commission.

"[Respondent] further claims that all his trades with [petitioner] were not paid in
full in cash at anytime after purchase or within the T+4 [4 days subsequent to
trading] and none of these trades was cancelled by [petitioner] as required in
Exhibit 'A-1'. Neither did [petitioner] apply with either the Philippine Stock
Exchange or the SEC for an extension of time for the payment or settlement of
his cash purchases. This was not brought to his attention by his broker and so with
the requirement of collaterals in margin account. Thus, his trade under an offset
transaction with [petitioner] is unlimited subject only to the discretion of the
broker. . . . [Had petitioner] followed the provision under par. 8 of Exh. 'A-1'
which stipulated the liquidation within the T+3 [3 days subsequent to trading],
his net deficit would only be P1,601,369.59. [Respondent] however affirmed that
this is not in accordance with RSA [Rule 25-1 par. C, which mandates that if you
do not pay for the first] order, you cannot subsequently make any further order
without depositing the cash price in full. So, if RSA Rule 25-1, par. C, was
applied, he was limited only to the first transaction. That [petitioner] did not
comply with the T+4 mandated in cash transaction. When [respondent] failed to
comply with the T+3, [petitioner] did not require him to put up a deposit before
it executed its subsequent orders. [Petitioner] did not likewise apply for extension
of the T+4 rule. Because of the offset transaction, [respondent] was induced to
[take a] risk which resulted [in] the filing of the instant suit against him [because
of which] he suffered sleepless nights, lost appetite which if quantified in money,
would amount to P500,000.00 moral damages and P100,000.00 exemplary
damages." 5

In its Decision 6 dated June 26, 2000, the Regional Trial Court (RTC) of Makati City
(Branch 57) held that petitioner violated Sections 23 and 25 of the Revised Securities Act
(RSA) and Rule 25-1 of the Rules Implementing the Act (RSA Rules) when it failed to: 1)
require the respondent to pay for his stock purchases within three (T+3) or four days (T+4)
from trading; and 2) request from the appropriate authority an extension of time for the
payment of respondent's cash purchases. The trial court noted that despite respondent's
non-payment within the required period, petitioner did not cancel the purchases of
respondent. Neither did it require him to deposit cash payments before it executed the buy
and/or sell orders subsequent to the first unsettled transaction. According to the RTC, by
allowing respondent to trade his account actively without cash, petitioner effectively
induced him to purchase securities thereby incurring excessive credits.
HSaIET

The trial court also found respondent to be equally at fault, by incurring excessive credits
and waiting to see how his investments turned out before deciding to invoke the RSA.
Thus, the RTC concluded that petitioner and respondent were in pari delicto and therefore
without recourse against each other.
Ruling of the Court of Appeals
The CA upheld the lower court's finding that the parties were in pari delicto. It castigated
petitioner for allowing respondent to keep on trading despite the latter's failure to pay his

outstanding obligations. It explained that "the reason [behind petitioner's act] is elemental
in its simplicity. And it is not exactly altruistic. Because whether [respondent's] trading
transaction would result in a surplus or deficit, he would still be liable to pay [petitioner]
its commission. [Petitioner's] cash register will keep on ringing to the sound of incoming
money, no matter what happened to [respondent]." 7
The CA debunked petitioner's contention that the trial court lacked jurisdiction to
determine violations of the RSA. The court a quo held that petitioner was estopped from
raising the question, because it had actively and voluntarily participated in the assailed
proceedings.
Hence, this Petition. 8
Issues
Petitioner submits the following issues for our consideration:
"I.
Whether or not the Court of Appeal's ruling that petitioner and respondent are in
pari delicto which allegedly bars any recovery, is in accord with law and
applicable jurisprudence considering that respondent was the first one who
violated the terms of the Account Opening Form, [which was the] agreement
between the parties.
"II.
Whether or not the Court of Appeal's ruling that the petitioner and respondent are
in pari delicto is in accord with law and applicable jurisprudence considering the
Account Opening Form is a valid agreement.
"III.
Whether or not the Court of Appeal's ruling that petitioner cannot recover from
respondent is in accord with law and applicable jurisprudence since the evidence
and admission of respondent proves that he is liable to petitioner for his
outstanding obligations arising from the stock trading through petitioner.
"IV.
Whether or not the Court of Appeal's ruling on petitioner's alleged violation of
the Revised Securities Act [is] in accord with law and jurisprudence since the
lower court has no jurisdiction over violations of the Revised Securities Act." 9

Briefly, the issues are (1) whether the pari delicto rule is applicable in the present case, and
(2) whether the trial court had jurisdiction over the case.
The Court's Ruling
The Petition is partly meritorious.
Main Issue:
Applicability of the
Pari Delicto Principle
In the present controversy, the following pertinent facts are undisputed: (1) on April 8,
1997, respondent opened a cash account with petitioner for his transactions in securities;
10 (2) respondent's purchases were consistently unpaid from April 10 to 30, 1997; 11 (3)
respondent failed to pay in full, or even just his deficiency, 12 for the transactions on April
10 and 11, 1997; 13 (4) despite respondent's failure to cover his initial deficiency, petitioner
subsequently purchased and sold securities for respondent's account on April 25 and 29;
14 (5) petitioner did not cancel or liquidate a substantial amount of respondent's stock
transactions until May 6, 1997. 15

The provisions governing the above transactions are Sections 23 and 25 of the RSA 16 and
Rule 25-1 of the RSA Rules, which state as follows:
"SEC. 23. Margin Requirements.
xxx xxx xxx
(b) It shall be unlawful for any member of an exchange or any broker or dealer,
directly or indirectly, to extend or maintain credit or arrange for the extension or
maintenance of credit to or for any customer
(1) On any security other than an exempted security, in contravention of the rules
and regulations which the Commission shall prescribe under subsection (a) of this
Section;
TDCaSE

(2) Without collateral or on any collateral other than securities, except (i) to
maintain a credit initially extended in conformity with the rules and regulations
of the Commission and (ii) in cases where the extension or maintenance of credit
is not for the purpose of purchasing or carrying securities or of evading or
circumventing the provisions of subparagraph (1) of this subsection.
xxx xxx xxx

"SEC. 25. Enforcement of margin requirements and restrictions on borrowings.

To prevent indirect violations of the margin requirements under Section 23
hereof, the broker or dealer shall require the customer in nonmargin transactions
to pay the price of the security purchased for his account within such period as
the Commission may prescribe, which shall in no case exceed three trading days;
otherwise, the broker shall sell the security purchased starting on the next trading
day but not beyond ten trading days following the last day for the customer to pay
such purchase price, unless such sale cannot be effected within said period for
justifiable reasons. The sale shall be without prejudice to the right of the broker
or dealer to recover any deficiency from the customer. . . . ."
"RSA RULE 25-1
"Purchases and Sales in Cash Account
"(a) Purchases by a customer in a cash account shall be paid in full within three
(3) business days after the trade date.
"(b) If full payment is not received within the required time period, the broker or
dealer shall cancel or otherwise liquidate the transaction, or the unsettled portion
thereof, starting on the next business day but not beyond ten (10) business days
following the last day for the customer to pay, unless such sale cannot be effected
within said period for justifiable reasons.
"(c) If a transaction is cancelled or otherwise liquidated as a result of non-payment
by the customer, prior to any subsequent purchase during the next ninety (90)
days, the customer shall be required to deposit sufficient funds in the account to
cover each purchase transaction prior to execution.
xxx xxx xxx
"(f) Written application for an extension of the period of time required for
payment under paragraph (a) be made by the broker or dealer to the Philippine
Stock Exchange, in the case of a member of the Exchange, or to the Commission,
in the case of a non-member of the Exchange. Applications for the extension must
be based upon exceptional circumstances and must be filed and acted upon before
the expiration of the original payment period or the expiration of any subsequent
extension."

Section 23(b) above the alleged violation of petitioner which provides the basis for
respondent's defense makes it unlawful for a broker to extend or maintain credit on any
securities other than in conformity with the rules and regulations issued by Securities and
Exchange Commission (SEC). Section 25 lays down the rules to prevent indirect violations
of Section 23 by brokers or dealers. RSA Rule 25-1 prescribes in detail the regulations
governing cash accounts.

The United States, from which our country's security policies are patterned, 17 abound with
authorities explaining the main purpose of the above statute on margin 18 requirements.
This purpose is to regulate the volume of credit flow, by way of speculative transactions,
into the securities market and redirect resources into more productive uses. Specifically,
the main objective of the law on margins is explained in this wise:
"The main purpose of these margin provisions . . . is not to increase the safety of
security loans for lenders. Banks and brokers normally require sufficient
collateral to make themselves safe without the help of law. Nor is the main
purpose even protection of the small speculator by making it impossible for him
to spread himself too thinly although such a result will be achieved as a
byproduct of the main purpose.
DaTEIc

xxx xxx xxx

"The main purpose is to give a [g]overnment credit agency an effective method
of reducing the aggregate amount of the nation's credit resources which can be
directed by speculation into the stock market and out of other more desirable uses
of commerce and industry . . . ." 19

A related purpose of the governmental regulation of margins is the stabilization of the

economy. 20 Restrictions on margin percentages are imposed "in order to achieve the
objectives of the government with due regard for the promotion of the economy and
prevention of the use of excessive credit." 21
Otherwise stated, the margin requirements set out in the RSA are primarily intended to
achieve a macroeconomic purpose the protection of the overall economy from excessive
speculation in securities. Their recognized secondary purpose is to protect small investors.
The law places the burden of compliance with margin requirements primarily upon the
brokers and dealers. 22 Sections 23 and 25 and Rule 25-1, otherwise known as the
"mandatory close-out rule," 23 clearly vest upon petitioner the obligation, not just the right,
to cancel or otherwise liquidate a customer's order, if payment is not received within three
days from the date of purchase. The word "shall" as opposed to the word "may," is
imperative and operates to impose a duty, which may be legally enforced. For transactions
subsequent to an unpaid order, the broker should require its customer to deposit funds into
the account sufficient to cover each purchase transaction prior to its execution. These duties
are imposed upon the broker to ensure faithful compliance with the margin requirements
of the law, which forbids a broker from extending undue credit to a customer.
It will be noted that trading on credit (or "margin trading") allows investors to buy more
securities than their cash position would normally allow. 24 Investors pay only a portion
of the purchase price of the securities; their broker advances for them the balance of the
purchase price and keeps the securities as collateral for the advance or loan. 25 Brokers

take these securities/stocks to their bank and borrow the "balance" on it, since they have to
pay in full for the traded stock. Hence, increasing margins 26 i.e., decreasing the amounts
which brokers may lend for the speculative purchase and carrying of stocks is the most
direct and effective method of discouraging an abnormal attraction of funds into the stock
market and achieving a more balanced use of such resources.
". . . [T]he . . . primary concern is the efficacy of security credit controls in
preventing speculative excesses that produce dangerously large and rapid
securities price rises and accelerated declines in the prices of given securities
issues and in the general price level of securities. Losses to a given investor
resulting from price declines in thinly margined securities are not of serious
significance from a regulatory point of view. When forced sales occur and put
pressures on securities prices, however, they may cause other forced sales and the
resultant snowballing effect may in turn have a general adverse effect upon the
entire market." 27

The nature of the stock brokerage business enables brokers, not the clients, to verify, at any
time, the status of the client's account. 28 Brokers, therefore, are in the superior position to
prevent the unlawful extension of credit. 29 Because of this awareness, the law imposes
upon them the primary obligation to enforce the margin requirements.
Right is one thing; obligation is quite another. A right may not be exercised; it may even
be waived. An obligation, however, must be performed; those who do not discharge it
prudently must necessarily face the consequence of their dereliction or omission. 30
Respondent
Liable
But Not for the Subsequent Trades

for

the

First,

Nonetheless, these margin requirements are applicable only to transactions entered into by
the present parties subsequent to the initial trades of April 10 and 11, 1997. Thus, we hold
that petitioner can still collect from respondent to the extent of the difference between the
latter's outstanding obligation as of April 11, 1997 less the proceeds from the mandatory
sell out of the shares pursuant to the RSA Rules. Petitioner's right to collect is justified
under the general law on obligations and contracts. 31
Article 1236 (second paragraph) of the Civil Code, provides:
"Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor, he
can recover only insofar as the payment has been beneficial to the debtor."
(Emphasis supplied)
CIDTcH

Since a brokerage relationship is essentially a contract for the employment of an

agent, principles of contract law also govern the broker-principal relationship. 32

The right to collect cannot be denied to petitioner as the initial transactions were entered
pursuant to the instructions of respondent. The obligation of respondent for stock
transactions made and entered into on April 10 and 11, 1997 remains outstanding. These
transactions were valid and the obligations incurred by respondent concerning his stock
purchases on these dates subsist. At that time, there was no violation of the RSA yet.
Petitioner's fault arose only when it failed to: 1) liquidate the transactions on the fourth day
following the stock purchases, or on April 14 and 15, 1997; and 2) complete its liquidation
no later than ten days thereafter, applying the proceeds thereof as payment for respondent's
outstanding obligation. 33

Elucidating further, since the buyer was not able to pay for the transactions that took place
on April 10 and 11, that is at T+4, the broker was duty-bound to advance the payment to
the settlement banks without prejudice to the right of the broker to collect later from the
client. 34
In securities trading, the brokers are essentially the counterparties to the stock transactions
at the Exchange. 35 Since the principals of the broker are generally undisclosed, the broker
is personally liable for the contracts thus made. 36 Hence, petitioner had to advance the
payments for respondent's trades. Brokers have a right to be reimbursed for sums advanced
by them with the express or implied authorization of the principal, 37 in this case,
respondent.
It should be clear that Congress imposed the margin requirements to protect the general
economy, not to give the customer a free ride at the expense of the broker. 38 Not to require
respondent to pay for his April 10 and 11 trades would put a premium on his circumvention
of the laws and would enable him to enrich himself unjustly at the expense of petitioner.
In the present case, petitioner obviously failed to enforce the terms and conditions of its
Agreement with respondent, specifically paragraph 8 thereof, purportedly acting on the
plea 39 of respondent to give him time to raise funds therefor. These stipulations, in relation
to paragraph 4, 40 constituted faithful compliance with the RSA. By failing to ensure
respondent's payment of his first purchase transaction within the period prescribed by law,
thereby allowing him to make subsequent purchases, petitioner effectively converted
respondent's cash account into a credit account. However, extension or maintenance of
credits on nonmargin transactions, are specifically prohibited under Section 23(b). Thus,
petitioner was remiss in its duty and cannot be said to have come to court with "clean
hands" insofar as it intended to collect on transactions subsequent to the initial trades of
April 10 and 11, 1997.
Respondent
for Subsequent Trades

Equally

Guilty

On the other hand, we find respondent equally guilty in entering into the transactions in
violation of the RSA and RSA Rules. We are not prepared to accept his self-serving
assertions of being an "innocent victim" in all the transactions. Clearly, he is not an
unsophisticated, small investor merely prodded by petitioner to speculate on the market
with the possibility of large profits with low or no capital outlay, as he pictures
himself to be. Rather, he is an experienced and knowledgeable trader who is well versed in
the securities market and who made his own investment decisions. In fact, in the Account
Opening Form (AOF), he indicated that he had excellent knowledge of stock investments;
had experience in stocks trading, considering that he had similar accounts with other firms.
41 Obviously, he knowingly speculated on the market, by taking advantage of the "nocash-out" arrangement extended to him by petitioner.
We note that it was respondent who repeatedly asked for some time to pay his obligations
for his stock transactions. Petitioner acceded to his requests. It is only when sued upon his
indebtedness that respondent raised as a defense the invalidity of the transactions due to
alleged violations of the RSA. It was respondent's privilege to gamble or speculate, as he
apparently did so by asking for extensions of time and refraining from giving orders to his
broker to sell, in the hope that the prices would rise. Sustaining his argument now would
amount to relieving him of the risk and consequences of his own speculation and saddling
them on the petitioner after the result was known to be unfavorable. 42 Such contention
finds no legal or even moral justification and must necessarily be overruled. Respondent's
conduct is precisely the behavior of an investor deplored by the law.
DEcSaI

In the final analysis, both parties acted in violation of the law and did not come to court
with clean hands with regard to transactions subsequent to the initial trades made on April
10 and 11, 1997. Thus, the peculiar facts of the present case bar the application of the pari
delicto rule expressed in the maxims "Ex dolo malo non oritur action" and "In pari
delicto potior est conditio defendentis" to all the transactions entered into by the parties.
The pari delecto rule refuses legal remedy to either party to an illegal agreement and leaves
them where they were. 43 In this case, the pari delicto rule applies only to transactions
entered into after the initial trades made on April 10 and 11, 1997.
Since the initial trades are valid and subsisting obligations, respondent is liable for them.
Justice and good conscience require all persons to satisfy their debts. Ours are courts of
both law and equity; they compel fair dealing; they do not abet clever attempts to escape
just obligations. Ineludibly, this Court would not hesitate to grant relief in accordance with
good faith and conscience.
Pursuant to RSA Rule 25-1, petitioner should have liquidated the transaction (sold the
stocks) on the fourth day following the transaction (T+4) and completed its liquidation not
later than ten days following the last day for the customer to pay (effectively T+14).
Respondent's outstanding obligation is therefore to be determined by using the closing
prices of the stocks purchased at T+14 as basis.

We consider the foregoing formula to be just and fair under the circumstances. When
petitioner tolerated the subsequent purchases of respondent without performing its
obligation to liquidate the first failed transaction, and without requiring respondent to
deposit cash before embarking on trading stocks any further, petitioner, as the broker,
violated the law at its own peril. Hence, it cannot now complain for failing to obtain the
full amount of its claim for these latter transactions.
On the other hand, with respect to respondent's counterclaim for damages for having been
allegedly induced by petitioner to generate additional purchases despite his outstanding
obligations, we hold that he deserves no legal or equitable relief consistent with our
foregoing finding that he was not an innocent investor as he presented himself to be.
Second Issue:
Jurisdiction
It is axiomatic that the allegations in the complaint, not the defenses set up in the answer
or in the motion to dismiss determine which court has jurisdiction over an action. 44 Were
we to be governed by the latter rule, the question of jurisdiction would depend almost
entirely upon the defendant. 45
The instant controversy is an ordinary civil case seeking to enforce rights arising from the
Agreement (AOF) between petitioner and respondent. It relates to acts committed by the
parties in the course of their business relationship. The purpose of the suit is to collect
respondent's alleged outstanding debt to petitioner for stock purchases.
To be sure, the RSA and its Rules are to be read into the Agreement entered into between
petitioner and respondent. Compliance with the terms of the AOF necessarily means
compliance with the laws. Thus, to determine whether the parties fulfilled their obligations
in the AOF, this Court had to pass upon their compliance with the RSA and its Rules. This,
in no way, deprived the Securities and Exchange Commission (SEC) of its authority to
determine willful violations of the RSA and impose appropriate sanctions therefor, as
provided under Sections 45 and 46 of the Act.
Moreover, we uphold the SEC in its Opinion, thus:
"As to the issue of jurisdiction, it is settled that a party cannot invoke the
jurisdiction of a court to secure affirmative relief against his opponent and after
obtaining or failing to obtain such relief, repudiate or question that same
jurisdiction.
cHSIDa

"Indeed, after voluntarily submitting a cause and encountering an adverse

decision on the merits, it is too late for petitioner to question the jurisdictional
power of the court. It is not right for a party who has affirmed and invoked the

jurisdiction of a court in a particular matter to secure an affirmative relief, to

afterwards deny that same jurisdiction to escape a penalty." 46

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are hereby
MODIFIED. Respondent is ordered to pay petitioner the difference between the former's
outstanding obligation as of April 11, 1997 less the proceeds from the mandatory sell out
of shares pursuant to the RSA Rules, with interest thereon at the legal rate until fully paid.
The RTC of Makati, Branch 57 is hereby directed to make a computation of respondent's
outstanding obligation using the closing prices of the stocks at T+14 as basis counted
from April 11, 1997 and to issue the proper order for payment if warranted. It may hold
trial and hear the parties to be able to make this determination.
No finding as to costs in this instance.
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.
(Abacus Securities Corp. v. Ampil, G.R. No. 160016, [February 27, 2006], 518 PHIL
477-500)
|||

THIRD DIVISION
[G.R. No. 150806. January 28, 2008.]
EUFEMIA ALMEDA and ROMEL ALMEDA, petitioners, vs.
BATHALA MARKETING INDUSTRIES, INC., respondent.

DECISION

NACHURA, J :
p

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, of the
Decision 1 of the Court of Appeals (CA), dated September 3, 2001, in CA-G.R. CV No.
67784, and its Resolution 2 dated November 19, 2001. The assailed Decision affirmed
with modification the Decision 3 of the Regional Trial Court (RTC), Makati City, Branch
136, dated May 9, 2000 in Civil Case No. 98-411.
Sometime in May 1997, respondent Bathala Marketing Industries, Inc., as lessee,
represented by its president Ramon H. Garcia, renewed its Contract of Lease 4 with
Ponciano L. Almeda (Ponciano), as lessor, husband of petitioner Eufemia and father of
petitioner Romel Almeda. Under the said contract, Ponciano agreed to lease a portion of
the Almeda Compound, located at 2208 Pasong Tamo Street, Makati City, consisting of
7,348.25 square meters, for a monthly rental of P1,107,348.69, for a term of four (4)
years from May 1, 1997 unless sooner terminated as provided in the contract. 5 The
contract of lease contained the following pertinent provisions which gave rise to the
instant case:
SIXTH It is expressly understood by the parties hereto that the rental rate
stipulated is based on the present rate of assessment on the property, and that in
case the assessment should hereafter be increased or any new tax, charge or
burden be imposed by authorities on the lot and building where the leased
premises are located, LESSEE shall pay, when the rental herein provided
becomes due, the additional rental or charge corresponding to the portion
hereby leased; provided, however, that in the event that the present assessment
or tax on said property should be reduced, LESSEE shall be entitled to
reduction in the stipulated rental, likewise in proportion to the portion leased by
him;
SEVENTH In case an extraordinary inflation or devaluation of Philippine
Currency should supervene, the value of Philippine peso at the time of the
establishment of the obligation shall be the basis of payment; 6

During the effectivity of the contract, Ponciano died. Thereafter, respondent dealt with
petitioners. In a letter 7 dated December 29, 1997, petitioners advised respondent that the
former shall assess and collect Value Added Tax (VAT) on its monthly rentals. In
response, respondent contended that VAT may not be imposed as the rentals fixed in the
contract of lease were supposed to include the VAT therein, considering that their
contract was executed on May 1, 1997 when the VAT law had long been in effect. 8
On January 26, 1998, respondent received another letter from petitioners informing the
former that its monthly rental should be increased by 73% pursuant to condition No. 7 of
the contract and Article 1250 of the Civil Code. Respondent opposed petitioners' demand
and insisted that there was no extraordinary inflation to warrant the application of Article
1250 in light of the pronouncement of this Court in various cases. 9
Respondent refused to pay the VAT and adjusted rentals as demanded by petitioners but
continued to pay the stipulated amount set forth in their contract.
On February 18, 1998, respondent instituted an action for declaratory relief for purposes
of determining the correct interpretation of condition Nos. 6 and 7 of the lease contract to
prevent damage and prejudice. 10 The case was docketed as Civil Case No. 98-411
before the RTC of Makati.
On March 10, 1998, petitioners in turn filed an action for ejectment, rescission and
damages against respondent for failure of the latter to vacate the premises after the
demand made by the former. 11 Before respondent could file an answer, petitioners filed a
Notice of Dismissal. 12 They subsequently refiled the complaint before the Metropolitan
Trial Court of Makati; the case was raffled to Branch 139 and was docketed as Civil Case
No. 53596.
Petitioners later moved for the dismissal of the declaratory relief case for being an
improper remedy considering that respondent was already in breach of the obligation and
that the case would not end the litigation and settle the rights of the parties. The trial
court, however, was not persuaded, and consequently, denied the motion.
After trial on the merits, on May 9, 2000, the RTC ruled in favor of respondent and
against petitioners. The pertinent portion of the decision reads:
WHEREFORE, premises considered, this Court renders judgment on the case as
follows:
1) declaring that plaintiff is not liable for the payment of Value-Added Tax
(VAT) of 10% of the rent for [the] use of the leased premises;

2) declaring that plaintiff is not liable for the payment of any rental adjustment,
there being no [extraordinary] inflation or devaluation, as provided in the
Seventh Condition of the lease contract, to justify the same;
3) holding defendants liable to plaintiff for the total amount of P1,119,102.19,
said amount representing payments erroneously made by plaintiff as VAT
charges and rental adjustment for the months of January, February and March,
1999; and
4) holding defendants liable to plaintiff for the amount of P1,107,348.69, said
amount representing the balance of plaintiff's rental deposit still with
defendants.
SO ORDERED. 13

The trial court denied petitioners their right to pass on to respondent the burden of paying
the VAT since it was not a new tax that would call for the application of the sixth clause
of the contract. The court, likewise, denied their right to collect the demanded increase in
rental, there being no extraordinary inflation or devaluation as provided for in the seventh
clause of the contract. Because of the payment made by respondent of the rental
adjustment demanded by petitioners, the court ordered the restitution by the latter to the
former of the amounts paid, notwithstanding the well-established rule that in an action for
declaratory relief, other than a declaration of rights and obligations, affirmative reliefs are
not sought by or awarded to the parties.
Petitioners elevated the aforesaid case to the Court of Appeals which affirmed with
modification the RTC decision. The fallo reads:
WHEREFORE, premises considered, the present appeal is DISMISSED and the
appealed decision in Civil Case No. 98-411 is hereby AFFIRMED with
MODIFICATION in that the order for the return of the balance of the rental
deposits and of the amounts representing the 10% VAT and rental adjustment, is
hereby DELETED.
No pronouncement as to costs.
SO ORDERED. 14

The appellate court agreed with the conclusions of law and the application of the
decisional rules on the matter made by the RTC. However, it found that the trial court
exceeded its jurisdiction in granting affirmative relief to the respondent, particularly the
restitution of its excess payment.
Petitioners now come before this Court raising the following issues:

I.
WHETHER OR NOT ARTICLE 1250 OF THE NEW CIVIL CODE IS
APPLICABLE TO THE CASE AT BAR.
II.
WHETHER OR NOT THE DOCTRINE ENUNCIATED IN FILIPINO PIPE
AND FOUNDRY CORP. VS. NAWASA CASE, 161 SCRA 32 AND
COMPANION CASES ARE (sic) APPLICABLE IN THE CASE AT BAR.
III.
WHETHER OR NOT IN NOT APPLYING THE DOCTRINE IN THE CASE
OF DEL ROSARIO VS. THE SHELL COMPANY OF THE PHILIPPINES, 164
SCRA 562, THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED ON A QUESTION OF LAW.
IV.
WHETHER OR NOT THE FINDING OF THE HONORABLE COURT OF
APPEALS THAT RESPONDENT IS NOT LIABLE TO PAY THE 10%
VALUE ADDED TAX IS IN ACCORDANCE WITH THE MANDATE OF
RA 7716.
V.
WHETHER OR NOT DECLARATORY RELIEF IS PROPER SINCE
PLAINTIFF-APPELLEE WAS IN BREACH WHEN THE PETITION FOR
DECLARATORY RELIEF WAS FILED BEFORE THE TRIAL COURT.

In fine, the issues for our resolution are as follows: 1) whether the action for declaratory
relief is proper; 2) whether respondent is liable to pay 10% VAT pursuant to Republic
Act (RA) 7716; and 3) whether the amount of rentals due the petitioners should be
adjusted by reason of extraordinary inflation or devaluation.
Declaratory relief is defined as an action by any person interested in a deed, will, contract
or other written instrument, executive order or resolution, to determine any question of
construction or validity arising from the instrument, executive order or regulation, or
statute, and for a declaration of his rights and duties thereunder. The only issue that may
be raised in such a petition is the question of construction or validity of provisions in an
instrument or statute. Corollary is the general rule that such an action must be justified, as
no other adequate relief or remedy is available under the circumstances. 15

Decisional law enumerates the requisites of an action for declaratory relief, as follows: 1)
the subject matter of the controversy must be a deed, will, contract or other written
instrument, statute, executive order or regulation, or ordinance; 2) the terms of said
documents and the validity thereof are doubtful and require judicial construction; 3) there
must have been no breach of the documents in question; 4) there must be an actual
justiciable controversy or the "ripening seeds" of one between persons whose interests are
adverse; 5) the issue must be ripe for judicial determination; and 6) adequate relief is not
available through other means or other forms of action or proceeding. 16
It is beyond cavil that the foregoing requisites are present in the instant case, except that
petitioners insist that respondent was already in breach of the contract when the petition
was filed.
We do not agree.
After petitioners demanded payment of adjusted rentals and in the months that followed,
respondent complied with the terms and conditions set forth in their contract of lease by
paying the rentals stipulated therein. Respondent religiously fulfilled its obligations to
petitioners even during the pendency of the present suit. There is no showing that
respondent committed an act constituting a breach of the subject contract of lease. Thus,
respondent is not barred from instituting before the trial court the petition for declaratory
relief.

Petitioners claim that the instant petition is not proper because a separate action for
rescission, ejectment and damages had been commenced before another court; thus, the
construction of the subject contractual provisions should be ventilated in the same forum.
We are not convinced.
It is true that in Panganiban v. Pilipinas Shell Petroleum Corporation 17 we held that the
petition for declaratory relief should be dismissed in view of the pendency of a separate
action for unlawful detainer. However, we cannot apply the same ruling to the instant
case. In Panganiban, the unlawful detainer case had already been resolved by the trial
court before the dismissal of the declaratory relief case; and it was petitioner in that case
who insisted that the action for declaratory relief be preferred over the action for unlawful
detainer. Conversely, in the case at bench, the trial court had not yet resolved the
rescission/ejectment case during the pendency of the declaratory relief petition. In fact,
the trial court, where the rescission case was on appeal, itself initiated the suspension of
the proceedings pending the resolution of the action for declaratory relief.

We are not unmindful of the doctrine enunciated in Teodoro, Jr. v. Mirasol 18 where the
declaratory relief action was dismissed because the issue therein could be threshed out in
the unlawful detainer suit. Yet, again, in that case, there was already a breach of contract
at the time of the filing of the declaratory relief petition. This dissimilar factual milieu
proscribes the Court from applying Teodoro to the instant case.
Given all these attendant circumstances, the Court is disposed to entertain the instant
declaratory relief action instead of dismissing it, notwithstanding the pendency of the
ejectment/rescission case before the trial court. The resolution of the present petition
would write finis to the parties' dispute, as it would settle once and for all the question of
the proper interpretation of the two contractual stipulations subject of this controversy.
Now, on the substantive law issues.
Petitioners repeatedly made a demand on respondent for the payment of VAT and for
rental adjustment allegedly brought about by extraordinary inflation or devaluation. Both
the trial court and the appellate court found no merit in petitioners' claim. We see no
reason to depart from such findings.
As to the liability of respondent for the payment of VAT, we cite with approval the
ratiocination of the appellate court, viz.:
Clearly, the person primarily liable for the payment of VAT is the lessor who
may choose to pass it on to the lessee or absorb the same. Beginning January 1,
1996, the lease of real property in the ordinary course of business, whether for
commercial or residential use, when the gross annual receipts exceed
P500,000.00, is subject to 10% VAT. Notwithstanding the mandatory payment
of the 10% VAT by the lessor, the actual shifting of the said tax burden upon
the lessee is clearly optional on the part of the lessor, under the terms of the
statute. The word "may" in the statute, generally speaking, denotes that it is
directory in nature. It is generally permissive only and operates to confer
discretion. In this case, despite the applicability of the rule under Sec. 99 of the
NIRC, as amended by R.A. 7716, granting the lessor the option to pass on to the
lessee the 10% VAT, to existing contracts of lease as of January 1, 1996, the
original lessor, Ponciano L. Almeda did not charge the lessee-appellee the 10%
VAT nor provided for its additional imposition when they renewed the contract
of lease in May 1997. More significantly, said lessor did not actually collect a
10% VAT on the monthly rental due from the lessee-appellee after the
execution of the May 1997 contract of lease. The inevitable implication is that
the lessor intended not to avail of the option granted him by law to shift the 10%
VAT upon the lessee-appellee. . . . . 19

In short, petitioners are estopped from shifting to respondent the burden of paying the
VAT.

Petitioners' reliance on the sixth condition of the contract is, likewise, unavailing. This
provision clearly states that respondent can only be held liable for new taxes imposed
after the effectivity of the contract of lease, that is, after May 1997, and only if they
pertain to the lot and the building where the leased premises are located. Considering that
RA 7716 took effect in 1994, the VAT cannot be considered as a "new tax" in May 1997,
as to fall within the coverage of the sixth stipulation.
Neither can petitioners legitimately demand rental adjustment because of extraordinary
inflation or devaluation.
Petitioners contend that Article 1250 of the Civil Code does not apply to this case
because the contract stipulation speaks of extraordinary inflation or devaluation while the
Code speaks of extraordinary inflation or deflation. They insist that the doctrine
pronounced in Del Rosario v. The Shell Company, Phils. Limited 20 should apply.
Essential to contract construction is the ascertainment of the intention of the contracting
parties, and such determination must take into account the contemporaneous and
subsequent acts of the parties. This intention, once ascertained, is deemed an integral part
of the contract. 21
While, indeed, condition No. 7 of the contract speaks of "extraordinary inflation or
devaluation" as compared to Article 1250's "extraordinary inflation or deflation," we find
that when the parties used the term "devaluation," they really did not intend to depart
from Article 1250 of the Civil Code. Condition No. 7 of the contract should, thus, be read
in harmony with the Civil Code provision.
That this is the intention of the parties is evident from petitioners' letter 22 dated January
26, 1998, where, in demanding rental adjustment ostensibly based on condition No. 7,
petitioners made explicit reference to Article 1250 of the Civil Code, even quoting the
law verbatim. Thus, the application of Del Rosario is not warranted. Rather,
jurisprudential rules on the application of Article 1250 should be considered.
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the
obligation shall be the basis of payment, unless there is an agreement to the
contrary.

Inflation has been defined as the sharp increase of money or credit, or both, without a
corresponding increase in business transaction. There is inflation when there is an
increase in the volume of money and credit relative to available goods, resulting in a
substantial and continuing rise in the general price level. 23 In a number of cases, this
Court had provided a discourse on what constitutes extraordinary inflation, thus:

[E]xtraordinary inflation exists when there is a decrease or increase in the

purchasing power of the Philippine currency which is unusual or beyond the
common fluctuation in the value of said currency, and such increase or decrease
could not have been reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the establishment of the obligation. 24

The factual circumstances obtaining in the present case do not make out a case of
extraordinary inflation or devaluation as would justify the application of Article 1250 of
the Civil Code. We would like to stress that the erosion of the value of the Philippine
peso in the past three or four decades, starting in the mid-sixties, is characteristic of most
currencies. And while the Court may take judicial notice of the decline in the purchasing
power of the Philippine currency in that span of time, such downward trend of the peso
cannot be considered as the extraordinary phenomenon contemplated by Article 1250 of
the Civil Code. Furthermore, absent an official pronouncement or declaration by
competent authorities of the existence of extraordinary inflation during a given period,
the effects of extraordinary inflation are not to be applied. 25
WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court
of Appeals in CA-G.R. CV No. 67784, dated September 3, 2001, and its Resolution dated
November 19, 2001, are AFFIRMED.
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Corona * and Reyes, JJ., concur.
(Almeda v. Bathala Marketing Industries, Inc., G.R. No. 150806, [January 28, 2008],
566 PHIL 458-472)
|||

SECOND DIVISION
[G.R. No. 158086. February 14, 2008.]
ASJ CORPORATION and ANTONIO SAN JUAN, petitioners, vs.
SPS. EFREN & MAURA EVANGELISTA, respondents.

DECISION

QUISUMBING, J :
p

For review on certiorari is the Decision 1 dated April 30, 2003 of the Court of Appeals in
CA-G.R. CV No. 56082, which had affirmed the Decision 2 dated July 8, 1996 of the
Regional Trial Court (RTC) of Malolos, Bulacan, Branch 9 in Civil Case No. 745-M-93.
The Court of Appeals, after applying the doctrine of piercing the veil of corporate fiction,
held petitioners ASJ Corporation (ASJ Corp.) and Antonio San Juan solidarily liable to
respondents Efren and Maura Evangelista for the unjustified retention of the chicks and
egg by-products covered by Setting Report Nos. 108 to 113. 3
The pertinent facts, as found by the RTC and the Court of Appeals, are as follows:
Respondents, under the name and style of R.M. Sy Chicks, are engaged in the large-scale
business of buying broiler eggs, hatching them, and selling their hatchlings (chicks) and
egg by-products 4 in Bulacan and Nueva Ecija. For the incubation and hatching of these
eggs, respondents availed of the hatchery services of ASJ Corp., a corporation duly
registered in the name of San Juan and his family.
Sometime in 1991, respondents delivered to petitioners various quantities of eggs at an
agreed service fee of 80 centavos per egg, whether successfully hatched or not. Each
delivery was reflected in a "Setting Report" indicating the following: the number of eggs
delivered; the date of setting or the date the eggs were delivered and laid out in the
incubators; the date of candling or the date the eggs, through a lighting system, were
inspected and determined if viable or capable of being hatched into chicks; and the date of
hatching, which is also the date respondents would pick-up the chicks and by-products.
Initially, the service fees were paid upon release of the eggs and by-products to
respondents. But as their business went along, respondents' delays on their payments were
tolerated by San Juan, who just carried over the balance, as there may be, into the next
delivery, out of keeping goodwill with respondents.

From January 13 to February 3, 1993, respondents had delivered to San Juan a total of
101,3[50] 5 eggs, detailed as follows: 6
Date Set SR Number No. of eggs delivered Date hatched/Pick-up date
1/13/1993 SR 108 32,566 eggs February 3, 1993
1/20/1993 SR 109 21,485 eggs February 10, 1993
1/22/1993 SR 110 7,213 eggs February 12, 1993
1/28/1993 SR 111 14,495 eggs February 18, 1993
1/30/1993 SR 112 15,346 eggs February 20, 1993
2/3/1993 SR 113 10,24[5] 7 eggs February 24, 1993

TOTAL 101,350 eggs

On February 3, 1993, respondent Efren went to the hatchery to pick up the chicks and byproducts covered by Setting Report No. 108, but San Juan refused to release the same due
to respondents' failure to settle accrued service fees on several setting reports starting from
Setting Report No. 90. Nevertheless, San Juan accepted from Efren 10,245 eggs covered
by Setting Report No. 113 and P15,000.00 8 in cash as partial payment for the accrued
service fees.
On February 10, 1993, Efren returned to the hatchery to pick up the chicks and by-products
covered by Setting Report No. 109, but San Juan again refused to release the same unless
respondents fully settle their accounts. In the afternoon of the same day, respondent Maura,
with her son Anselmo, tendered P15,000.00 9 to San Juan, and tried to claim the chicks
and by-products. She explained that she was unable to pay their balance because she was
hospitalized for an undisclosed ailment. San Juan accepted the P15,000.00, but insisted on
the full settlement of respondents' accounts before releasing the chicks and by-products.
Believing firmly that the total value of the eggs delivered was more than sufficient to cover
the outstanding balance, Maura promised to settle their accounts only upon proper
accounting by San Juan. San Juan disliked the idea and threatened to impound their vehicle
and detain them at the hatchery compound if they should come back unprepared to fully
settle their accounts with him.

On February 11, 1993, respondents directed their errand boy, Allan Blanco, to pick up the
chicks and by-products covered by Setting Report No. 110 and also to ascertain if San Juan
was still willing to settle amicably their differences. Unfortunately, San Juan was firm in
his refusal and reiterated his threats on respondents. Fearing San Juan's threats, respondents
never went back to the hatchery.
The parties tried to settle amicably their differences before police authorities, but to no
avail. Thus, respondents filed with the RTC an action for damages based on petitioners'
retention of the chicks and by-products covered by Setting Report Nos. 108 to 113.
On July 8, 1996, the RTC ruled in favor of respondents and made the following findings:
(1) as of Setting Report No. 107, respondents owed petitioners P102,336.80; 10 (2)
petitioners withheld the release of the chicks and by-products covered by Setting Report
Nos. 108-113; 11 and (3) the retention of the chicks and by-products was unjustified and
accompanied by threats and intimidations on respondents. 12 The RTC disregarded the
corporate fiction of ASJ Corp., 13 and held it and San Juan solidarily liable to respondents
for P529,644.80 as actual damages, P100,000.00 as moral damages, P50,000.00 as
attorney's fees, plus interests and costs of suit. The decretal portion of the decision reads:
WHEREFORE, based on the evidence on record and the laws/jurisprudence
applicable thereon, judgment is hereby rendered ordering the defendants to pay,
jointly and severally, unto the plaintiffs the amounts of P529,644.80, representing
the value of the hatched chicks and by-products which the plaintiffs on the
average expected to derive under Setting Reports Nos. 108 to 113, inclusive, with
legal interest thereon from the date of this judgment until the same shall have
been fully paid, P100,000.00 as moral damages and P50,000.00 as attorney's fees,
plus the costs of suit.
SO ORDERED. 14

Both parties appealed to the Court of Appeals. Respondents prayed for an additional award
of P76,139.00 as actual damages for the cost of other unreturned by-products and
P1,727,687.52 as unrealized profits, while petitioners prayed for the reversal of the trial
court's entire decision.
On April 30, 2003, the Court of Appeals denied both appeals for lack of merit and affirmed
the trial court's decision, with the slight modification of including an award of exemplary
damages of P10,000.00 in favor of respondents. The Court of Appeals, applying the
doctrine of piercing the veil of corporate fiction, considered ASJ Corp. and San Juan as
one entity, after finding that there was no bona fide intention to treat the corporation as
separate and distinct from San Juan and his wife Iluminada. The fallo of the Court of
Appeals' decision reads:

WHEREFORE, in view of the foregoing, the Decision appealed from is hereby

AFFIRMED, with the slight modification that exemplary damages in the
amount of P10,000.00 are awarded to plaintiffs.
Costs against defendants.
SO ORDERED. 15

Hence, the instant petition, assigning the following errors:

I.
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING, AS DID THE COURTA QUO, THAT PETITIONERS
WITHHELD/OR FAILED TO RELEASE THE CHICKS AND BYPRODUCTS COVERED BY SETTING REPORT NOS. 108 AND 109.
II.
THE HONORABLE COURT OF APPEALS ERRED IN ADMITTING THE
HEARSAY TESTIMONY OF MAURA EVANGELISTA SUPPORTIVE OF
ITS FINDINGS THAT PETITIONERS WITHHELD/OR FAILED TO
RELEASE THE CHICKS AND BY-PRODUCTS COVERED BY SETTING
REPORT NOS. 108 AND 109.
III.
THE HONORABLE COURT OF APPEALS, AS DID THE COURT A QUO,
ERRED IN NOT FINDING THAT RESPONDENTS FAILED TO RETURN TO
THE PLANT TO GET THE CHICKS AND BY-PRODUCTS COVERED BY
SETTING REPORT NOS. 110, 111, 112 AND 113.
IV.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING, AS DID THE

COURT A QUO, THAT THE PIERCING OF THE VEIL OF CORPORATE ENTITY IS
JUSTIFIED, AND CONSEQUENTLY HOLDING PETITIONERS JOINTLY AND
SEVERALLY LIABLE TO PAY RESPONDENTS THE SUM OF P529,644.[80].
V.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONERS HAVE VIOLATED THE PRINCIPLES ENUNCIATED IN
ART. 19 OF THE NEW CIVIL CODE AND CONSEQUENTLY IN
AWARDING MORAL DAMAGES, EXEMPLARY DAMAGES AND
ATTORNEY'S FEES.

VI.
THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING
PETITIONERS' COUNTERCLAIM. 16

Plainly, the issues submitted for resolution are: First, did the Court of Appeals err when
(a) it ruled that petitioners withheld or failed to release the chicks and by-products covered
by Setting Report Nos. 108 and 109; (b) it admitted the testimony of Maura; (c) it did not
find that it was respondents who failed to return to the hatchery to pick up the chicks and
by-products covered by Setting Report Nos. 110 to 113; and (d) it pierced the veil of
corporate fiction and held ASJ Corp. and Antonio San Juan as one entity? Second, was it
proper to hold petitioners solidarily liable to respondents for the payment of P529,644.80
and other damages?
In our view, there are two sets of issues that the petitioners have raised.
The first set is factual. Petitioners seek to establish a set of facts contrary to the factual
findings of the trial and appellate courts. However, as well established in our jurisprudence,
only errors of law are reviewable by this Court in a petition for review under Rule 45. 17
The trial court, having had the opportunity to personally observe and analyze the demeanor
of the witnesses while testifying, is in a better position to pass judgment on their credibility.
18 More importantly, factual findings of the trial court, when amply supported by evidence
on record and affirmed by the appellate court, are binding upon this Court and will not be
disturbed on appeal. 19 While there are exceptional circumstances 20 when these findings
may be set aside, none of them is present in this case.

Based on the records, as well as the parties' own admissions, the following facts were
uncontroverted: (1) As of Setting Report No. 107, respondents were indebted to petitioners
for P102,336.80 as accrued service fees for Setting Report Nos. 90 to 107; 21 (2)
Petitioners, based on San Juan's own admission, 22 did not release the chicks and byproducts covered by Setting Report Nos. 108 and 109 for failure of respondents to fully
settle their previous accounts; and (3) Due to San Juan's threats, respondents never returned
to the hatchery to pick up those covered by Setting Report Nos. 110 to 113. 23
Furthermore, although no hard and fast rule can be accurately laid down under which the
juridical personality of a corporate entity may be disregarded, the following probative
factors of identity justify the application of the doctrine of piercing the veil of corporate
fiction 24 in this case: (1) San Juan and his wife own the bulk of shares of ASJ Corp.; (2)
The lot where the hatchery plant is located is owned by the San Juan spouses; (3) ASJ
Corp. had no other properties or assets, except for the hatchery plant and the lot where it is
located; (4) San Juan is in complete control of the corporation; (5) There is no bona fide
intention to treat ASJ Corp. as a different entity from San Juan; and (6) The corporate

fiction of ASJ Corp. was used by San Juan to insulate himself from the legitimate claims
of respondents, defeat public convenience, justify wrong, defend crime, and evade a
corporation's subsidiary liability for damages. 25 These findings, being purely one of fact,
26 should be respected. We need not assess and evaluate the evidence all over again where
the findings of both courts on these matters coincide.
On the second set of issues, petitioners contend that the retention was justified and did not
constitute an abuse of rights since it was respondents who failed to comply with their
obligation. Respondents, for their part, aver that all the elements on abuse of rights were
present. They further state that despite their offer to partially satisfy the accrued service
fees, and the fact that the value of the chicks and by-products was more than sufficient to
cover their unpaid obligations, petitioners still chose to withhold the delivery.
The crux of the controversy, in our considered view, is simple enough. Was petitioners'
retention of the chicks and by-products on account of respondents' failure to pay the
corresponding service fees unjustified? While the trial and appellate courts had the same
decisions on the matter, suffice it to say that a modification is proper. Worth stressing,
petitioners' act of withholding the chicks and by-products is entirely different from
petitioners' unjustifiable acts of threatening respondents. The retention had legal basis; the
threats had none.
To begin with, petitioners' obligation to deliver the chicks and by-products corresponds to
three dates: the date of hatching, the delivery/pick-up date and the date of respondents'
payment. On several setting reports, respondents made delays on their payments, but
petitioners tolerated such delay. When respondents' accounts accumulated because of their
successive failure to pay on several setting reports, petitioners opted to demand the full
settlement of respondents' accounts as a condition precedent to the delivery. However,
respondents were unable to fully settle their accounts.
Respondents' offer to partially satisfy their accounts is not enough to extinguish their
obligation. Under Article 1248 27 of the Civil Code, the creditor cannot be compelled to
accept partial payments from the debtor, unless there is an express stipulation to that effect.
More so, respondents cannot substitute or apply as their payment the value of the chicks
and by-products they expect to derive because it is necessary that all the debts be for the
same kind, generally of a monetary character. Needless to say, there was no valid
application of payment in this case.
Furthermore, it was respondents who violated the very essence of reciprocity in contracts,
consequently giving rise to petitioners' right of retention. This case is clearly one among
the species of non-performance of a reciprocal obligation. Reciprocal obligations are those
which arise from the same cause, wherein each party is a debtor and a creditor of the other,
such that the performance of one is conditioned upon the simultaneous fulfillment of the

other. 28 From the moment one of the parties fulfills his obligation, delay by the other party
begins. 29
Since respondents are guilty of delay in the performance of their obligations, they are liable
to pay petitioners actual damages of P183,416.80, computed as follows: From respondents'
outstanding balance of P102,336.80, as of Setting Report No. 107, we add the
corresponding services fees of P81,080.00 30 for Setting Report Nos. 108 to 113 which
had remain unpaid.
Nonetheless, San Juan's subsequent acts of threatening respondents should not
remain among those treated with impunity. Under Article 19 31 of the Civil Code, an
act constitutes an abuse of right if the following elements are present: (a) the existence
of a legal right or duty; (b) which is exercised in bad faith; and (c) for the sole intent
of prejudicing or injuring another. 32 Here, while petitioners had the right to withhold
delivery, the high-handed and oppressive acts of petitioners, as aptly found by the two
courts below, had no legal leg to stand on. We need not weigh the corresponding
pieces of evidence all over again because factual findings of the trial court, when
adopted and confirmed by the appellate court, are binding and conclusive and will not
be disturbed on appeal. 33
Since it was established that respondents suffered some pecuniary loss anchored on
petitioners' abuse of rights, although the exact amount of actual damages cannot be
ascertained, temperate damages are recoverable. In arriving at a reasonable level of
temperate damages of P408,852.10, which is equivalent to the value of the chicks and byproducts, which respondents, on the average, are expected to derive, this Court was guided
by the following factors: (a) award of temperate damages will cover only Setting Report
Nos. 109 to 113 since the threats started only on February 10 and 11, 1993, which are the
pick-up dates for Setting Report Nos. 109 and 110; the rates of (b) 41% and (c) 17%,
representing the average rates of conversion of broiler eggs into hatched chicks and egg
by-products as tabulated by the trial court based on available statistical data which was
unrebutted by petitioners; (d) 68,784 eggs, 34 or the total number of broiler eggs under
Setting Report Nos. 109 to 113; and (e) P14.00 and (f) P1.20, or the then unit market price
of the chicks and by-products, respectively.
Thus, the temperate damages of P408,852.10 is computed as follows:
[b X (d X e) + c X (d X f)] = Temperate Damages
41% X (68,784 eggs X P14) = P394,820.16
17% X (68,784 eggs X P1.20) = P14,031.94
[P394,820.16 + P14,031.94] = P408,852.10

At bottom, we agree that petitioners' conduct flouts the norms of civil society and justifies
the award of moral and exemplary damages. As enshrined in civil law jurisprudence:
Honeste vivere, non alterum laedere et jus suum cuique tribuere. To live virtuously, not to
injure others and to give everyone his due. 35 Since exemplary damages are awarded,
attorney's fees are also proper. Article 2208 of the Civil Code provides that:
In the absence of stipulation, attorney's fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
xxx xxx xxx

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated April 30, 2003
of the Court of Appeals in CA-G.R. CV No. 56082 is hereby MODIFIED as follows:
a. Respondents are ORDERED to pay petitioners P183,416.80 as actual damages,
with interest of 6% from the date of filing of the complaint until fully paid,
plus legal interest of 12% from the finality of this decision until fully paid.
b. The award of actual damages of P529,644.80 in favor of respondents is hereby
REDUCED to P408,852.10, with legal interest of 12% from the date of
finality of this judgment until fully paid.
c. The award of moral damages, exemplary damages and attorney's fees of
P100,000.00, P10,000.00, P50,000.00, respectively, in favor of
respondents is hereby AFFIRMED.
d. All other claims are hereby DENIED.

No pronouncement as to costs.
SO ORDERED.
Carpio, Carpio-Morales, Tinga and Velasco, Jr., JJ., concur.
(ASJ Corp. v. Spouses Evangelista, G.R. No. 158086, [February 14, 2008], 569 PHIL
22-36)
|||

THIRD DIVISION
[G.R. No. 137884. March 28, 2008.]
THE INSULAR LIFE ASSURANCE COMPANY, LTD., petitioner, vs.
TOYOTA BEL-AIR, INC., respondent.

DECISION

AUSTRIA-MARTINEZ, J :
p

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
assailing the Decision 1 dated September 30, 1998 of the Regional Trial Court (RTC),
Branch 148, Makati City in Civil Case No. 98-2075 which nullified the Writ of Execution
dated August 12, 1998 issued by the Metropolitan Trial Court (MeTC), Branch 63, Makati
City in Civil Case No. 59089, and the RTC Order 2 dated March 5, 1999 denying the
Motion for Reconsideration.
The principal issue raised in the present petition pertains to the propriety of the decision of
the RTC in declaring as void the writ of execution issued by the MeTC and in ordering the
consignation of rentals. Being pure questions of law, direct resort to this Court is proper
under Section 2 (c), Rule 41 of the Rules of Court.
The factual antecedents of the case are as follows:
Toyota Bel-Air, Inc. (Toyota) entered into a Contract of Lease 3 over a 3,700-square meter
lot and building owned by Insular Life Assurance Company, Ltd. (Insular Life) in Pasong
Tamo Street, Makati City, for a five-year period, from April 16, 1992 to April 15, 1997.
Upon expiration of the lease, Toyota remained in possession of the property. Despite
repeated demands, Toyota refused to vacate the property. Thus, on January 28, 1998,
Insular Life filed a Complaint 4 for unlawful detainer against Toyota in the MeTC.
On July 3, 1998, MeTC rendered a Decision, 5 the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of [Insular Life] and against
[Toyota]. The Court hereby orders [Toyota]:
1. and all persons claiming possession of the premises through [Toyota], to vacate
the leased properties and return possession thereof to [Insular Life];

2. to pay reasonable compensation at the rate of P585,640.00 a month until

possession of the subject premises is surrendered to the [Insular Life].
3. to pay attorney's fees in the sum of P50,000.00;
4. to pay expenses of litigation in the amount of P20,000.00;
5. to pay the costs of the suit.
SO ORDERED. 6 (Emphasis supplied).

On July 23, 1998, Insular Life filed a Motion for Execution 7 of the decision. Toyota, on
the other hand, filed a Notice of Appeals 8 of the decision. Subsequently, Insular Life filed
a Notice of Partial Appeal 9 of the decision insofar as the issue of monthly compensation
was concerned. Both parties, however, later filed separate motions to withdraw their
respective appeals. 10
On August 12, 1998, the MeTC issued an Order approving the withdrawal of notice of
appeal of both parties. It also issued a Writ of Execution, 11 on the following premise:
WHEREAS, in a certain action for "EJECTMENT" of the following described
premises, to wit: a parcel of Land and Building located at Pasong Tamo, Makati
City under TCT No. 64737 of the Registry of Deeds of Rizal, . . . judgment was
rendered on the 3rd day of July, 1998 that [Insular Life] and all persons claiming
under him/her/them have restitution of the premises and also that he/she/they
recover the sum of P585,640.00 a month from April 15, 1997 until possession of
the subject premises is surrendered to plaintiff; to recover the sum of P50,000.00
as and for attorney's fees; P20,000.00 as expenses of litigation and costs of suit.
12 . . . (Emphasis supplied)

Subsequently, the Deputy Sheriff of the MeTC executed the writ by levying on Toyota's
personal and real properties, and garnishing its bank accounts. He scheduled the auction of
the levied properties on August 28, 1998.
On August 24, 1998, Toyota filed a Petition for Certiorari 13 with prayer for injunctive
relief in the RTC. It charged the MeTC with grave abuse of discretion in issuing the Writ
of Execution since the writ amended the dispositive portion of the decision it sought to
execute by giving retroactive effect to the payment of reasonable compensation of
P585,640.00 by the inclusion of the phrase "from April 15, 1997."
On August 27, 1998, the RTC issued a temporary restraining order (TRO) enjoining the
auction sale of Toyota's levied properties. 14

On August 28, 1998, Insular Life filed with the MeTC a Motion to Clarify Decision Dated
July 3, 1998 15 praying that the court issue an order clarifying the dispositive portion of
the Decision dated July 3, 1998.
On September 14, 1998, the MeTC issued an Order, 16 clarifying paragraph 2 of the
dispositive portion of the Decision dated July 3, 1998 to read as: "2. to pay reasonable
compensation in the amount of P585,640.00 as of April 15, 1997 until possession of the
subject premises is surrendered to plaintiff." 17
On September 25, 1998, Toyota filed with the RTC a Motion to Consignate P1,171,280.00
in favor of Insular Life and to submit the case for decision. 18 The amount of P1,171,280.00
represented the reasonable compensation for the months of July and August 1998.
Five days later, or on September 30, 1998, the RTC rendered the herein assailed Decision,
19 holding that the MeTC acted with grave abuse of discretion in issuing the Writ of
Execution dated August 12, 1998 by giving retroactive effect to the reasonable
compensation judgment of P585,640.00 by inserting the date "April 15, 1997" which was
not provided for in the dispositive portion of the MeTC Decision; that the clarificatory
order issued by the MeTC did not cure the ambiguity in the decision since it omitted the
phrase "a month" as originally stated in the Decision; that considering the Writ of
Execution is void, the levy effected by the Sheriff is also void; and that consignation of
rentals is proper since Toyota has been in possession of the property since July 3, 1998.
On October 13, 1998, Insular Life filed a Motion for Reconsideration 20 of the RTC
Decision. On the same day, it filed with the MeTC a Second Motion to Clarify Decision
Dated July 3, 1998. 21
On October 28, 1998, the MeTC issued its second clarificatory order to correct paragraph
2 of the dispositive portion of the Decision dated July 3, 1998 to read as: "2. [t]o pay
reasonable compensation at the rate of P585,640.00 a month as of April 15, 1997 until
possession of the subject premises is surrendered to the plaintiff." 22
On March 5, 1999, the RTC issued an Order 23 denying Insular Life's motion for
reconsideration.
On April 19, 1999, Insular Life then filed herein Petition for Review on Certiorari 24 with
this Court anchored on the following grounds:
I
THE RTC COMMITTED A GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR IN EXCESS OF ITS JURISDICTION IN
VOIDING THE WRIT OF EXECUTION ISSUED BY THE MTC.

i. THE WRIT OF EXECUTION IS IN HARMONY WITH THE

INTENT, SPIRIT AND TERMS OF THE MTC'S DECISION
DATED JULY 3, 1998.
ii. THE WRIT OF EXECUTION IS VALID AND ENFORCEABLE.
iii. THE RTC SANCTIONED TBA'S CRAFTY CIRCUMVENTION OF
THE RULES.
II
ASSUMING ARGUENDO THAT THE MTC EXCEEDED ITS
JURISDICTION IN ORDERING IN THE WRIT OF EXECUTION THAT THE
REASONABLE COMPENSATION BE COMPUTED FROM APRIL 15, 1997,
STILL, THE RTC COMMITTED A GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR IN EXCESS OF ITS JURISDICTION IN
VOIDING THE ENTIRE WRIT OF EXECUTION.
III
THE RTC COMMITTED A GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR IN EXCESS OF ITS JURISDICTION IN
ORDERING IN THE CERTIORARI PROCEEDING A QUO THE
CONSIGNATION OF RENTALS.
IV
THE RTC COMMITTED A GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR IN EXCESS OF ITS JURISDICTION IN NOT
DISMISSING THE CERTIORARI PETITION A QUO FOR TBA
(PETITIONER BELOW) HAD A PLAIN, SPEEDY AND ADEQUATE
REMEDY IN THE COURSE OF LAW AND DID NOT AVAIL OF THE
SAME. 25

Insular Life contends that the case falls within the recognized exceptions to the rule that
only the dispositive portion of the decision controls the execution of judgment; that the
pleadings, findings of fact and conclusion of law expressed in the text of the MeTC's
Decision dated July 13, 1998 should be resorted to, to clarify the ambiguity in the
dispositive portion of the decision; that the intent to order payment of rent as reasonable
compensation from April 15, 1997, when possession became unlawful, can be inferred
from the text of the decision; that the RTC should not have nullified the entire Writ of
Execution since only the matter of reasonable compensation from April 15, 1997 was at
issue; that consignation of rentals was improper since the office of a writ of certiorari is to
correct defects in jurisdiction solely and the legal requisites for a valid consignation were
not present; and that Toyota failed to resort to available remedies before availing itself of

the extraordinary remedy of certiorari. On the matter of the compromise agreement,

Insular Life reiterated that the agreement was a conditional compromise agreement which
was voided for Toyota's failure to comply with the conditions. 26
Toyota claims that the parties had entered into a Compromise Agreement dated May 7,
1999 whereby Toyota was obligated to pay Insular Life P8 million under the following
terms and conditions: (a) the delivery of 3 Toyota vehicles worth P1.5 million; (b) the
issuance of 12 postdated corporate checks to answer for the balance of P6.5 million in 12
monthly installments; and (c) the posting of a surety bond which shall guarantee payment
of installments. 27 Toyota insists that the Compromise Agreement dated May 7, 1999
should be given effect considering that the preconditions contained in the Compromise
Agreement were complied with, or at the very least substantially complied with; 28 and
prayed that the case should be remanded to the lower court for the purpose of approving
the Compromise Agreement dated May 7, 1999. 29
In a Resolution dated August 8, 2001, the Court remanded the case to the RTC for further
proceedings to determine whether Toyota had complied with the conditions contained in
the Compromise Agreement dated May 7, 1999 and thereafter elevate its findings and
records thereof to the Court. 30

In its Compliance 31 dated March 24, 2003, the RTC found that Toyota failed to comply
with conditions in the Compromise Agreement dated May 7, 1999 relating to the issuance
of the 12 postdated corporate checks and the posting of a surety bond; that the postdated
checks were not accepted since they were drawn from Toyota's garnished Metrobank
account; that the checks could have been encashed had Insular Life lifted the garnishment;
that the surety bond was rejected for not having been issued by a surety company that is
among Insular Life's list of acceptable surety companies; that as substitute collateral,
Toyota offered a Bukidnon real property but Insular Life turned it down since the owner's
duplicate of title could not be found and the property was not owned by Toyota but by three
corporations; that a subsequent reconstitution of the title and the authorization by the three
co-owner corporations to mortgage the Bukidnon real property and to use it to stand as
security for the postdated checks failed to entice Insular Life to accept the proposal; and
that Toyota acted in good faith in dealing with Insular Life when it tried to comply with
the conditions in the Compromise Agreement.
By Resolution 32 dated August 27, 2003, the Court required both parties to submit
supplemental memoranda, taking into account the Compliance dated March 24, 2003 of
the RTC.
In its Supplemental Memorandum, 33 Insular Life maintains that Toyota failed to comply
with the conditions relating to the postdated checks and the surety bond; that the

garnishment of Toyota's bank accounts was a known fact; that it would have been
absolutely foolhardy for Insular Life to cause the immediate lifting of the garnishment upon
Toyota's mere delivery to it of the postdated checks; that the lifting of the garnishment is
one of the consequences once all the conditions of the compromise are met; that Toyota
admitted in a Letter dated May 21, 1999 to Insular Life its inability to comply with the
surety bond requirement; that Toyota's good faith is immaterial; that Toyota cannot claim
substantial compliance since it failed to comply with the conditions of the Compromise
Agreement.
On the other hand, in its Supplemental Memorandum, 34 Toyota submits that it
substantially complied with the terms of the Compromise Agreement since the
compromised amount was reduced from P8 million to P6.5 million upon delivery of the
three Toyota vehicles worth P1.5 million; that it could have complied with the requirement
of the delivery of 12 postdated checks had Insular Life lifted the garnishment on Toyota's
bank accounts effected by virtue of the Writ of Execution dated August 12, 1998; that since
the Writ of Execution was voided by the RTC, the garnishment was also nullified; and that
Insular Life's unjustified refusal to give due course to the postdated checks, by not lifting
the garnishment, prevented said checks from being encashed.
It is necessary to resolve the matter involving the efficacy of the Compromise Agreement
between the parties before the merits of the petition can be discussed.
Jurisprudence teaches us that when a contract is subject to a suspensive condition, its birth
or effectivity can take place only if and when the event which constitutes the condition
happens or is fulfilled, 35 and if the suspensive condition does not take place, the parties
would stand as if the conditional obligation has never existed. 36
In this case, the Compromise Agreement clearly stipulates that it shall become valid and
binding only upon the occurrence of all the conditions in the agreement, to wit:
2. This Agreement when signed by the parties shall take effect and shall become
valid and binding only upon the occurrence of all of the following based
on a certification or acknowledgment certified and issued by
INSULAR LIFE:
2.1. transfer of ownership and delivery of the aforementioned three (3)
motor vehicles in favor of INSULAR LIFE in accordance with the
provisions of Section 1.1. hereof;
2.2. TBA's execution, issuance and delivery of twelve (12) post-dated
TBA corporate checks signed by ROBERT L. YUPANGCO in
favor of INSULAR LIFE in accordance with the provisions of this
Agreement;

2.3. the issuance of the Surety Company and delivery of the Bond in the
amount of PESOS: SIX MILLION FIVE HUNDRED
THOUSAND (P6,500,000.00) to and in favor of INSULAR LIFE
under this Agreement. 37 . . . (Emphasis supplied)

Thus, the issuance of 12 postdated checks and the posting of a surety bond are positive
suspensive conditions of the Compromise Agreement, the non-compliance with which was
not a breach, casual or serious, but a situation that prevented the obligation under the
Compromise Agreement from acquiring obligatory force. For its non-fulfillment, there was
no contract or agreement to speak of, Toyota having failed to comply or perform the
suspensive conditions which enforce a juridical relation. 38 Since Toyota was unable to
comply with the last two conditions of the agreement, which were suspensive conditions,
Insular Life cannot be compelled to comply with its obligation to end the present litigation.
No right in favor of Toyota arose and no obligation on the part of Insular Life was created.
39
Toyota faults Insular Life for its failure to comply with the requirements of the
Compromise Agreement because Insular Life refused to accept checks from Toyota's
garnished account. However, Insular Life should not be blamed for this. It would be
imprudent and foolhardy on Insular Life's part to lift the garnishment on Toyota's bank
accounts. The garnishment was one of the effects of the issuance of the Writ of Execution,
and while the RTC nullified the Writ of Execution, its decision on the matter is not yet final
as it is, in fact, subject of the present petition.
Besides, even if Insular Life accepted the postdated checks, Toyota still failed to comply
with the requirement of posting of a surety bond from Insular Life's list of acceptable
sureties which would guarantee the payment of installments. Even the substitute collateral
proposed by Toyota was not accepted by Insular Life. Since the conditions of the
Compromise Agreement were not met or fulfilled by Toyota, the parties stand as if no
agreement to end the litigation was reached.
And now on the merits of the petition.
The Court finds the petition impressed with merit for the following reasons:
First, the RTC erred in giving due course to Toyota's petition for certiorari. The filing of
the petition for certiorari was premature and unwarranted. The cardinal rule is that before
a petition for certiorari can be brought against an order of the lower court, all remedies
available in that court must first be exhausted. Thus, for the special civil action for
certiorari to prosper, there must be "no appeal nor any plain, speedy and adequate remedy
in the ordinary course of law." 40 The court must be given sufficient opportunity to correct
the error it may have committed. The reason for this rule is that issues, which courts of first
instance are bound to decide, should not be taken summarily from them and submitted to

an appellate court, without first giving the lower courts an opportunity to dispose of the
same with due deliberation. 41
While there are exceptions to the rule, such as where the order complained of is void for
being violative of due process; or there are special circumstances which warrant immediate
and more direct action; or the lower court has taken an unreasonably long time to resolve
the motions before it and a further delay would prejudice the party concerned; or the motion
will raise the same point which has already been squarely stated before the court; or the
proceeding in which the order occurred is a patent nullity, as the court acted without
jurisdiction, Toyota failed to show that any of the exceptions apply. Toyota may not
arrogate to itself the determination of whether recourse to an available remedy is necessary
or not. 42 In the instant case, it appears that Toyota had adequate remedies under the law.
It could have filed with the MeTC a motion to quash the writ of execution or a motion to
clarify the dispositive portion of the decision. There is no showing that either motion would
not be a prompt and adequate remedy, or that there was such urgent necessity for relief that
only recourse to certiorari was proper.
Second, while the general rule is that the portion of a decision that becomes the subject of
execution is that ordained or decreed in the dispositive part thereof, there are recognized
exceptions to this rule: (a) where there is ambiguity or uncertainty, the body of the opinion
may be referred to for purposes of construing the judgment, because the dispositive part of
a decision must find support from the decision's ratio decidendi; 43 and (b) where extensive
and explicit discussion and settlement of the issue is found in the body of the decision. 44
Considering the circumstances of the instant case, the Court finds that the exception to the
general rule applies to the instant case. The RTC should have referred to the body of the
decision for purposes of construing the reasonable compensation judgment, because the
dispositive part of a decision must find support from the decision's ratio decidendi.
Findings of the court are to be considered in the interpretation of the dispositive portion of
the judgment. 45
Indeed, to grasp and delve into the true intent and meaning of a decision, no specific portion
thereof should be resorted to the decision must be considered in its entirety. 46 The
Court may resort to the pleadings of the parties, its findings of fact and conclusions of law
as expressed in the body of the decision to clarify any ambiguities caused by any
inadvertent omission or mistake in the dispositive portion thereof. 47
In Reinsurance Company of the Orient, Inc. v. Court of Appeals, 48 the Court held:

In Republic Surety and Insurance Company, Inc. v. Intermediate Appellate Court,

the Court applying the above doctrine said:

. . . We clarify, in other words, what we did affirm. What is involved here

is not what is ordinarily regarded as a clerical error in the dispositive part
of the decision of the Court of First Instance, which type of error is
perhaps best typified by an error in arithmetical computation. At the same
time, what is involved here is not a correction of an erroneous judgment
or dispositive portion of a judgment. What we believe is involved here is
in the nature of an inadvertent omission on the part of the Court of
First Instance (which should have been noticed by private respondent's
counsel who had prepared the complaint), of what might be described
as a logical follow-through of something set forth both in the body of
the decision and in the dispositive portion thereof: the inevitable
follow-through, or translation into, operational or behavioral terms, of the
annulment of the Deed of Sale with Assumption of Mortgage, from which
petitioners' title or claim of title embodied in TCT 133153 flow. 49
(Emphasis supplied)

In the present case, the omission of the award of payment of rental from April 15, 1997
was obviously through mere inadvertence. The pleadings, findings of fact and conclusions
of law of the MeTC bear out that upon the termination of the lease on April 15, 1997,
Toyota's possession of the property became unlawful; thus, from that date, payment of rents
must be reckoned. The importance of April 15, 1997 as termination date of the lease was
emphasized by the MeTC in the body of its Decision, thus:
The claim of [Toyota] that notice to vacate was made on them only on December
9, 1997 is belied by Exhibits C, D, E and F which are attached to the affidavit of
Januario Flores, the Asst. Vice-President of [Insular Life]. These exhibits are
letters written by Asst. Vice-President Flores to Mr. Isidro Laforteza VicePresident of [Toyota] dated March 1, 1994, March 4, 1996, March 3, 1997 and
April 14, 1997, respectively. These letters show that as early as 1994, [Insular
Life] had already informed [Toyota] if its intention to take back possession
of the leased premises by not renewing the lease contract upon its expiration
on April 15, 1997. Hence the continued possession of [Toyota] after the
expiration of the lease contract did not bear the acquiescence of [Insular
Life]. In fact, [Toyota] was informed by [Insular Life] to vacate the leased
premises on or before April 30, 1997 (Exh. "F" to the affidavit of Mr. Flores).
The existence of Exh. "F" negates that an implied lease was established between
[Insular Life] and [Toyota]. It is now apparent that [Toyota] is unlawfully
withholding possession of the leased premises.
xxx xxx xxx
[Toyota], having enjoyed the use and possession of the leased property over the
objection of [Insular Life] . . . [Insular Life] is entitled to reasonable compensation
of Five Hundred Eighty Five Thousand Six Hundred Forty Pesos (P585,640.00)
a month until possession thereof is returned to [Insular Life] which amount is

double the amount of the last monthly rental paid by [Toyota] to [Insular Life].
50 . . . (Emphasis supplied).

Third, the RTC erred in granting Toyota's motion for consignation. It was precipitate and
unauthorized. It is basic that certiorari under Rule 65 is a remedy narrow in scope and
inflexible in character. It is not a general utility tool in the legal workshop. 51 It offers only
a limited form of review. Its principal function is to keep an inferior tribunal within its
jurisdiction. 52 It can be invoked only for an error of jurisdiction, that is, one in which the
act complained of was issued by the court, officer or a quasi-judicial body without or in
excess of jurisdiction, or with grave abuse of discretion which was tantamount to lack or
excess of jurisdiction; 53 it is not to be used for any other purpose, 54 such as to cure errors
in proceedings or to correct erroneous conclusions of law or fact. 55
The only issue involved in the RTC was whether the writ of execution issued by the MeTC
was issued in excess of jurisdiction.
The determination of the propriety of consignation as ordered by the RTC is a factual
matter which by the weight of judicial precedents cannot be inquired into by the RTC in a
petition for certiorari. The sole office of the writ of certiorari is the correction of errors of
jurisdiction including the commission of grave abuse of discretion amounting to lack or
excess of jurisdiction.
Nevertheless, in the interest of prompt disposition of the present case, the Court opts to
resolve the question whether consignation is proper under the undisputed circumstances.
Consignation is the act of depositing the thing due with the court or judicial authorities
whenever the creditor cannot accept or refuses to accept payment and it generally requires
a prior tender of payment. 56 In order that consignation may be effective, the debtor must
show that: (1) there was a debt due; (2) the consignation of the obligation was made because
the creditor to whom tender of payment had been made refused to accept it or was absent
or incapacitated, or because several persons claimed to be entitled to receive the amount
due, or because the title to the obligation was lost; (3) previous notice of the consignation
was given to the person interested in the performance of the obligation; (4) the amount due
was placed at the disposal of the court; and (5) after the consignation had been made, the
person interested was notified thereof. 57 Failure in any of these requirements is enough
ground to render a consignation ineffective.
In the present case, Toyota failed to allege (2) and (3) above, much less prove that any of
the requirements was present. The mere fact that Toyota had been in possession of the
property since July 3, 1998, when the MeTC Decision was promulgated, is not a sufficient
justification to grant the motion to consign the rents due.

Finally, the Court cannot help but call the RTC's attention to the prejudice it has wittingly
or unwittingly caused Insular Life by voiding the entire writ of execution when what was
assailed was simply the inclusion of the phrase "from April 15, 1997" in the reasonable
compensation judgment of the MeTC. The order for Toyota to vacate the lease properties
and return possession thereof to Insular Life, and pay attorney's fees and litigation expenses
was not assailed and should have been enforced.
The factual milieu of the present case demonstrates eloquently that Toyota misused all
known technicalities and remedies to prolong the proceedings in a simple ejectment case.
The equitable remedy provided by the summary nature of ejectment proceedings has been
frustrated by Toyota to the great prejudice of Insular Life and the time of this Court.
Ironically, the precipitate action of the RTC in giving due course to Toyota's petition for
certiorari prolonged the litigation and unnecessarily delayed the case, in the process
causing the very evil it apparently sought to avoid. Instead of unclogging dockets, it has
actually increased the work load of the justice system as a whole. Such action does not
inspire public confidence in the administration of justice.
WHEREFORE, the petition is hereby GRANTED. The Decision dated September 30, 1998
and Order dated March 5, 1999 of the Regional Trial Court, Branch 148, Makati City are
REVERSED and SET ASIDE. The Writ of Execution dated August 12, 1998 as clarified
in the Order dated October 28, 1998 of the Metropolitan Trial Court, Branch 63, Makati,
is declared VALID.
Double costs against petitioner.
SO ORDERED.
Tinga, * Chico-Nazario, Nachura and Reyes, JJ., concur.

(The Insular Life Assurance Co., Ltd. v. Toyota Bel-Air, Inc., G.R. No. 137884, [March
28, 2008], 573 PHIL 222-240)
|||

SECOND DIVISION
[G.R. No. 173856. November 20, 2008.]
DAO HENG BANK, INC., now BANCO DE ORO UNIVERSAL
BANK, petitioner, vs. SPS. LILIA and REYNALDO LAIGO,
respondents.

DECISION

CARPIO-MORALES, J :
p

The Spouses Lilia and Reynaldo Laigo (respondents) obtained loans from Dao Heng
Bank, Inc. (Dao Heng) in the total amount of P11 Million, to secure the payment of
which they forged on October 28, 1996, November 18, 1996 and April 18, 1997 three
Real Estate Mortgages covering two parcels of land registered in the name of respondent
"Lilia D. Laigo, . . . married to Reynaldo Laigo", one containing 569 square meters and
the other containing 537 square meters.
aDcEIH

The mortgages were duly registered in the Registry of Deeds of Quezon City.
The loans were payable within 12 months from the execution of the promissory notes
covering the loans. As of 2000, respondents failed to settle their outstanding obligation,
drawing them to verbally offer to cede to Dao Heng one of the two mortgaged lots by
way of dacion en pago. To appraise the value of the mortgaged lands, Dao Heng in fact
commissioned an appraiser whose fees were shouldered by it and respondents.
There appears to have been no further action taken by the parties after the appraisal of the
properties.
HScDIC

Dao Heng was later to demand the settlement of respondents' obligation by letter of
August 18, 2000 1 wherein it indicated that they had an outstanding obligation of
P10,385,109.92 inclusive of interests and other charges. Respondents failed to heed the
demand, however.
Dao Heng thereupon filed in September 2000 an application to foreclose the real estate
mortgages executed by respondents. The properties subject of the mortgage were sold for
P10,776,242 at a public auction conducted on December 20, 2000 to Banco de Oro
Universal Bank (hereafter petitioner) which was the highest bidder.

It appears that respondents negotiated for the redemption of the mortgages for by a June
29, 2001 letter 2 to them, petitioner, to which Dao Heng had been merged, through its
Vice President on Property Management & Credit Services Department, advised
respondent Lilia Laigo as follows:
This is to formally advise you of the bank's response to your proposal
pertaining to the redemption of the two (2) foreclosed lots located in Fairview,
Quezon City as has been relayed to you last June 13, 2001 as follows:
1. Redemption price shall be P11.5MM plus 12% interest based on
diminishing balance payable in staggered payments up to
January 2, 2002 as follows:
a. P3MM immediately upon receipt of this approval
b. Balance payable in staggered payments (plus interest) up to
January 2, 2002
2. Release Values for Partial Redemption:
a. TCT No. 92257 (along Commonwealth) P7.500 MM*
b. TCT No. N-146289 (along Regalado) P4.000 MM*
* excluding 12% interest
3. Other Conditions:
a. Payments shall be covered by post dated checks
b. TCT No. 92257 shall be the first property to be released upon
payment of the first P7.5MM plus interest
c. Arrangement to be covered by an Agreement
If you are agreeable to the foregoing terms and conditions, please affix
your signature showing your conformity thereto at the space provided
below. (Emphasis and underscoring in the original; italics supplied)

Nothing was heard from respondents, hence, petitioner by its Manager, Property
Management & Credit Services Department, advised her by letter of December 26, 2001
3 that in view of their failure to conform to the conditions set by it for the redemption of
the properties, it would proceed to consolidate the titles immediately after the expiration
of the redemption period on January 2, 2002.

Six days before the expiration of the redemption period or on December 27, 2001,
respondents filed a complaint before the Regional Trial Court (RTC) of Quezon City, for
Annulment, Injunction with Prayer for Temporary Restraining Order (TRO), praying for
the annulment of the foreclosure of the properties subject of the real estate mortgages and
for them to be allowed "to deliver by way of 'dacion en pago' one of the mortgaged
properties as full payment of [their] mortgaged obligation" and to, in the meantime, issue
a TRO directing the defendant-herein petitioner to desist from consolidating ownership
over their properties.
By respondents' claim, Dao Heng verbally agreed to enter into a dacion en pago.
In its Opposition to respondents' Application for a TRO, 4 petitioner claimed that there
was no meeting of the minds between the parties on the settlement of respondents' loan
via dacion en pago.
A hearing on the application for a TRO was conducted by Branch 215 of the RTC of
Quezon City following which it denied the same.
Petitioner thereupon filed a Motion to Dismiss the complaint on the ground that the claim
on which respondents' action is founded is unenforceable under the Statute of Frauds and
the complaint states no cause of action. Respondents opposed the motion, contending that
their delivery of the titles to the mortgaged properties constituted partial performance of
their obligation under the dacion en pago to take it out from the coverage of the Statute
of Frauds.
The trial court granted petitioner's Motion to Dismiss in this wise:
[P]laintiffs' claim must be based on a document or writing evidencing the
alleged dacion en pago, otherwise, the same cannot be enforced in an action in
court. The Court is not persuaded by plaintiffs' contention that their case is an
exception to the operation of the rule on statute of frauds because of their partial
performance of the obligation in the dacion en pago consisting of the delivery of
the titles of the properties to the defendants. As correctly pointed out by the
defendants, the titles were not delivered to them pursuant to the dacion en
pago but by reason of the execution of the mortgage loan agreement. If
indeed a dacion en pago agreement was entered into between the parties, it is
inconceivable that a written document would not be drafted considering the
magnitude of the amount involved. 5 (Emphasis and underscoring supplied)

Respondents assailed the dismissal of their complaint via Petition for Review before this
Court which referred it to the Court of Appeals for disposition.
Reversing the trial court's dismissal of the complaint, the appellate court, by Decision of
January 26, 2006, 6 reinstated respondents' complaint. 7

In ordering the reinstatement of respondents' complaint, the appellate court held that the
complaint states a cause of action, respondents having alleged that there was partial
performance of the agreement to settle their obligation via dacion en pago when they
agreed to have the properties appraised to thus place their agreement within the
exceptions provided under Article 1403 8 of the Civil Code on Statute of Frauds. Thus
the appellate court ratiocinated:
Particularly, in seeking exception to the application of the Statute of Frauds,
petitioners[-herein respondents] averred partial performance of the supposed
verbal dacion en pago. In paragraph 5 of their complaint, they stated: "As part
of the agreement, defendant Dao Heng Bank had the mortgaged property
appraised to determine which of the two shall be delivered as full payment of
the mortgage obligation; Also as part of the deal, plaintiffs for their part paid
P5,000.00 for the appraisal expense. As reported by the appraiser commissioned
by Defendant Dao Heng, the appraised value of the mortgaged properties were
as follows: . . ." Having done so, petitioners are at least entitled to a reasonable
opportunity to prove their case in the course of a full trial, to which the
respondents may equally present their evidence in refutation of the formers'
case. (Underscoring supplied)

Petitioner's Motion for Reconsideration having been denied by the appellate court by
Resolution of July 19, 2006, the present petition was filed faulting the appellate court in
ruling:
I.
. . . THAT THE COMPLAINT ALLEGED A SUFFICIENT CAUSE OF
ACTION DESPITE THE ALLEGATIONS, AS WELL AS ADMISSIONS
FROM THE RESPONDENTS, THAT THERE WAS NO PERFECTED
DACION EN PAGO CONTRACT;
II.
. . . THAT THE ALLEGED DACION EN PAGO IS NOT UNENFORCEABLE
UNDER THE STATUTE OF FRAUDS, DESPITE THE ABSENCE OF A
WRITTEN & BINDING CONTRACT;
III.
. . . THAT THE COMPLAINT SUFFICIENTLY STATED A CAUSE OF
ACTION. 9

Generally, the presence of a cause of action is determined from the facts alleged in the
complaint.

In their complaint, respondents alleged:

xxx xxx xxx
4. Sometime in the middle of the year 2000, defendant Dao Heng Bank as the
creditor bank agreed to the full settlement of plaintiffs' mortgage obligation of
P9 Million through the assignment of one of the two (2) mortgaged properties;
[5] As part of the agreement, defendant Dao Heng Bank had the mortgaged
properties appraised to determine which of the two (2) mortgaged properties
shall be delivered as full payment of the mortgage obligation; Also as part of the
deal, plaintiffs for their part paid P5,000.00 for the appraisal expense; As
reported by the appraiser commissioned by defendant Dao Heng, the appraised
value of the mortgaged properties were as follows:
(a) Property No. 1 T.C.T. No. 92257: P12,518,000.00 L2A Blk 12
Don Mariano Marcos Ave., Fairview, QC
(b) Property No. 2 T.C.T. No. 146289: P8,055,000.00 L36 Blk 87
Regalado Ave. Cor. Ipil St., Neopolitan, QC
[6] Sometime in December, year 2000, the protest of plaintiffs notwithstanding
and in blatant breach of the agreed "Dacion en Pago" as the mode of full
payment of plaintiffs' mortgage obligation, defendant Dao Heng Bank
proceeded to foreclose the mortgaged properties above-described and sold said
properties which were aggregately valued at more than P20 Million for only
P10,776,242.00, an unconscionably very low price; (Underscoring supplied)

Even if a complaint states a cause of action, however, a motion to dismiss for

insufficiency of cause of action may be granted if the evidence discloses facts sufficient
to defeat the claim and enables the court to go beyond the disclosures in the complaint. In
such instances, the court can dismiss a complaint on this ground, even without a hearing,
by taking into account the discussions in said motion to dismiss and the disposition
thereto. 10

In its Opposition to respondents' application for the issuance of a TRO, 11 petitioner,

responding to respondents' allegation that it agreed to the settlement of their obligation
via the assignment of one of the two mortgaged properties, alleged that there was no
meeting of the minds thereon:
4. Plaintiffs' claim that defendant Dao Heng Bank[s] foreclosure sale of the
mortgaged properties was improper because there was an agreement to dacion
one of the two (2) mortgaged properties as full settlement of the loan obligation

and that defendant Dao Heng Bank and Banco de Oro were already negotiating
and colluding for the latter's acquisition of the mortgaged [properties] for the
unsconscionably low price of P10,776,242.00 are clearly WITHOUT BASIS.
Quite to the contrary, there was no meeting of the minds between defendant
Dao Heng Bank and the plaintiffs to dacion any of the mortgaged properties as
full settlement of the loan. Although there was a PROPOSAL and
NEGOTIATIONS to settle the loan by way of dacion, nothing came out of said
proposal, much less did the negotiations mature into the execution of a dacion
en pago instrument. Defendant Dao Heng Bank found the offer to settle by way
of dacion not acceptable and thus, it opted to foreclose on the mortgage.
The law clearly provides that "the debtor of a thing cannot compel the creditor
to receive a different one, although the latter may be of the same value, or more
valuable than that which is due" (Article 1244, New Civil Code). "The obligee
is entitled to demand fulfillment of the obligation or performance as stipulated"
(Palmares v. Court of Appeals, 288 SCRA 422 at p. 444 [1998]). "The power to
decide whether or not to foreclose on the mortgage is the sole prerogative of the
mortgagee" (Rural Bank of San Mateo, Inc. vs. Intermediate Appellate Court,
146 SCRA 205, at 213 [1986]) Defendant Dao Heng Bank merely opted to
exercise such prerogative. 12 (Emphasis in the original; capitalization and
underscoring supplied)

Dacion en pago as a mode of extinguishing an existing obligation partakes of the nature

of sale whereby property is alienated to the creditor in satisfaction of a debt in money. 13
It is an objective novation of the obligation, hence, common consent of the parties is
required in order to extinguish the obligation.
. . . In dacion en pago, as a special mode of payment, the debtor offers another
thing to the creditor who accepts it as equivalent of payment of an outstanding
debt. The undertaking really partakes in one sense of the nature of sale, that is,
the creditor is really buying the thing or property of the debtor, payment for
which is to be charged against the debtor's debt. As such the elements of a
contract of sale, namely, consent, object certain, and cause or consideration
must be present. In its modern concept, what actually takes place in dacion en
pago is an objective novation of the obligation where the thing offered as an
accepted equivalent of the performance of an obligation is considered as the
object of the contract of sale, while the debt is considered the purchase price. In
any case, common consent is an essential prerequisite, be it sale or novation, to
have the effect of totally extinguishing the debt or obligation." 14 (Emphasis,
italics and underscoring supplied; citation omitted)

Being likened to that of a contract of sale, dacion en pago is governed by the law on
sales. 15 The partial execution of a contract of sale takes the transaction out of the
provisions of the Statute of Frauds so long as the essential requisites of consent of the

contracting parties, object and cause of the obligation concur and are clearly established
to be present. 16
Respondents claim that petitioner's commissioning of an appraiser to appraise the value
of the mortgaged properties, his services for which they and petitioner paid, and their
delivery to petitioner of the titles to the properties constitute partial performance of their
agreement to take the case out of the provisions on the Statute of Frauds.
There is no concrete showing, however, that after the appraisal of the properties,
petitioner approved respondents' proposal to settle their obligation via dacion en pago.
The delivery to petitioner of the titles to the properties is a usual condition sine qua non
to the execution of the mortgage, both for security and registration purposes. For if the
title to a property is not delivered to the mortgagee, what will prevent the mortgagor from
again encumbering it also by mortgage or even by sale to a third party.
Finally, that respondents did not deny proposing to redeem the mortgages, 17 as reflected
in petitioner's June 29, 2001 letter to them, dooms their claim of the existence of a
perfected dacion en pago.
WHEREFORE, the Court of Appeals Decision of January 26, 2006 is REVERSED and
SET ASIDE. The Resolution of July 2, 2002 of the Regional Trial Court of Quezon City,
Branch 215 dismissing respondents' complaint is REINSTATED.
SO ORDERED.
Quisumbing, Tinga, Velasco, Jr. and Brion, JJ., concur.
(Dao Heng Bank, Inc. v. Spouses Laigo, G.R. No. 173856, [November 20, 2008], 592
PHIL 172-182)
|||

THIRD DIVISION
[G.R. No. 158621. December 10, 2008.]
ROYAL CARGO CORPORATION, petitioner, vs. DFS SPORTS
UNLIMITED, INC., respondent.

DECISION

AUSTRIA-MARTINEZ, J :
p

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
assailing the Decision 1 of the Court of Appeals (CA) in CA-G.R. CV No. 61800
promulgated on January 24, 2003, and its Resolution, dated June 4, 2003, denying
petitioner's Motion for Reconsideration.
The facts of the case, as summarized by the trial court and adopted by the CA, are as
follows:
DTAcIa

From the evidence offered by the parties and their admissions in their respective
pleadings, the Court has clearly gathered that the plaintiff [herein petitioner] and
the defendant [herein respondent] are domestic corporations organized under the
laws of the Philippines. [Petitioner] is an international freight forwarder, which
offers trucking, brokerage, storage and other services to the public, and serves as
conduit between shippers, consignees, and carriers for the transportation of
cargos from one point of the globe to another. [Respondent], on the other hand,
is one of the concessionaires of the Subic Bay Metropolitan Authority (SBMA).
It is principally engaged in the importation and local sale of duty-free sporting
goods and other similar products.
Sometime in October 1993, the [respondent] engaged the services of the
[petitioner] to attend and undertake the former's brokerage and trucking
requirements.
Between the period from April to July, 1994 [petitioner] rendered trucking,
brokerage, storage and other services to the [respondent] in connection with the
latter's importation business, and as a consequence it incurred expenses for
brokerage forms, stamps, notarial fees, arrastre charges, wharfage fees, storage
charges, guarding fees, telegrams, LCL charges, photostat copies, trucking
charges, processing fees, ocean freight charges, collection fees, brokerage fees,
insurance premiums, and 10% VAT, which amounted to the total of P248,449.63,
which the [respondent] fails and refuses to pay despite [petitioner's] demands. 2

On April 19, 1995, petitioner filed against respondent a Complaint for Collection of Sum
of Money 3 with the Regional Trial Court (RTC) of Manila seeking the recovery of the
amount of P248,449.63 plus legal interest as well as attorney's fees and costs of suit.
Respondent filed its Answer with Counterclaim 4 contending that, except for a single
occasion which happened sometime in May 1994, it never engaged the services of
petitioner for the importation of various products and that it is under no legal obligation to
heed the demand of plaintiff. As counterclaim, respondent alleged that petitioner owes it
the sum of P200,000.00 representing the value of the imported goods respondent lost by
reason of the gross negligence as well as illegal activities of petitioner in the transshipment
of respondent's goods. Respondent also sought to recover the amount of P44,710.00 which
it gave to petitioner as payment of the taxes and customs duties for the goods it (respondent)
imported but which were not paid by petitioner. Respondent prayed for the grant of actual,
moral and exemplary damages as well as attorney's fees and cost of suit.
IaEScC

Petitioner filed its Answer to respondent's Counterclaim denying the allegations contained
therein. 5
Subsequently, the parties filed their respective Pre-Trial Briefs. 6 Pre-trial conferences
were conducted on October 12, 1995 and March 14, 1997.
Thereafter, trial ensued.
In the course of the trial, the parties made their respective formal offers of evidence.
Petitioner presented as part of its evidence, 34 carbon copies of invoices, marked as
Exhibits "A" to "A-33", to prove respondent's indebtedness. 7 These were objected to by
respondent on the ground that they are self-serving, immaterial and have no factual and
legal basis. However, they were admitted by the RTC per its Order 8 dated August 1, 1997.
On the other hand, respondent presented, 28 original copies of the 34 invoices submitted
by petitioner 9 for the purpose of proving payment of the amount sought to be recovered
by the latter. Petitioner objected on the ground that the evidence contradicts respondent's
claim in its Answer that it never engaged the services of petitioner for the importation of
various products. In its Order 10 dated January 30, 1998, the RTC admitted the abovementioned invoices as part of the evidence for the respondent.
On June 3, 1998, the RTC of Manila, Branch 35, rendered a Decision 11 dismissing
petitioner's complaint and respondent's counterclaim.
Petitioner filed an appeal with the CA. Respondent did not appeal the RTC Decision.

On January 24, 2003, the CA rendered the presently assailed Decision 12 affirming the
RTC Decision.
EHCaDS

Petitioner filed a Motion for Reconsideration but it was denied by the CA in its Resolution
13 dated June 4, 2003.
Hence, the present petition raising the following issues:
I. WHETHER OR NOT THE BURDEN OF EVIDENCE LIES WITH THE
DEBTOR TO PROVE THAT PAYMENT HAS BEEN MADE.
II. WHETHER OR NOT MERE PRESENTATION BY THE DEBTOR OF
ORIGINAL INVOICES ALONE SUFFICIENTLY PROVES
PAYMENT OF ITS DEBT.
III. WHETHER OR NOT AN INVOICE IS DEEMED A CREDIT
INSTRUMENT WHICH, UPON PRESENTATION BY THE DEBTOR,
RAISES THE DISPUTABLE PRESUMPTION OF PAYMENT AS PER
RULE 131, SECTION 3(h) OF THE RULES OF COURT THAT
STATES THAT A DISPUTABLE PRESUMPTION OF PAYMENT IS
RAISED WHEN AN OBLIGATION IS DELIVERED TO A DEBTOR.

14

EAICTS

Petitioner contends that the CA erred in ruling that the burden of evidence is on petitioner
who claims that respondent failed to pay its obligation to the former; that, on the contrary,
the burden of proving payments lies with respondent, consistent with the rule that one who
pleads payment has the burden of proving it; that, in the instant case, respondent's
presentation of the original invoices in its possession is not sufficient to prove payment of
its debt; that the original invoices are mere evidence of the transaction between petitioner
and respondent but can never be relied upon as proof of payment; that the best proof of
payment is either a receipt, return check, bank record or document proving that the creditor
received the amount owed; that the disputable presumption that an obligation delivered up
to a debtor is paid applies only to credit instruments delivered to the debtor; that an invoice
is not a credit instrument.
Respondent counters that the issues raised by petitioner are factual; the factual findings of
the RTC, especially when affirmed by the CA, are conclusive upon the parties, and; in a
petition for review on certiorari under Rule 45 of the Rules of Court, the Supreme Court
only reviews errors of law and not of fact.
The Court finds the petition meritorious.
The Court shall deal first with the question of whether the issues raised by petitioner are
factual.

An issue is factual when the doubt or difference arises as to the truth or falsehood of alleged
facts, or when the query invites calibration of the whole evidence considering mainly the
credibility of witnesses, existence and relevancy of specific surrounding circumstances,
their relation to each other and to the whole, and the probabilities of the situation. 15 On
the other hand, an issue is one of law when the doubt or difference arises as to what the
law is on a certain state of facts. 16
In the present case, the main issues raised by petitioner are: (1) whether respondent, who
is the debtor, has the burden of proving payment; and (2) whether the subject invoices
prove such payment or at least raise a disputable presumption that payment has been made.
Clearly, the first issue is not factual as it does not require calibration of evidence. However,
the second issue is factual because it requires an examination of the probative value of the
evidence of the parties.
cIADTC

The settled rule is that issues of fact are not proper subjects of a petition for review before
this Court. 17 Nonetheless, there are recognized exceptions to this rule, among which are:
(1) the conclusion is grounded on speculations, surmises or conjectures; (2) the inference
is manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the
judgment is based on a misapprehension of facts; (5) the findings of facts are
conflicting; (6) there is no citation of specific evidence on which the factual findings are
based; (7) the finding of absence of facts is contradicted by the presence of evidence on
record; (8) the findings of the CA are contrary to the findings of the trial court; (9) the CA
manifestly overlooked certain relevant and undisputed facts that, if properly considered,
would justify a different conclusion; (10) the findings of the CA are beyond the issues of
the case; and (11) such findings are contrary to the admissions of both parties. 18 The Court
finds that petitioner was able to demonstrate that the instant case falls under the fourth
exception as will be discussed forthwith.
As to the first issue raised, the settled rule is that one who pleads payment has the burden
of proving it. 19 Even where the creditor alleges non-payment, the general rule is that the
onus rests on the debtor to prove payment, rather than on the creditor to prove nonpayment. 20 The debtor has the burden of showing with legal certainty that the obligation
has been discharged by payment. 21 Where the debtor introduces some evidence of
payment, the burden of going forward with the evidence as distinct from the general
burden of proof shifts to the creditor, who is then under a duty of producing some
evidence to show non-payment. 22
Since respondent claims that it had already paid petitioner for the services rendered by the
latter, it follows that the former carries the burden of proving such payment.

This brings us to the second issue.

At the outset, it should be noted that respondent's defense of payment was only raised
during the testimony of its first witness, Adora Co (Adora) on August 7, 1997. In its
Answer, respondent merely alleged that, except for a transaction it had with petitioner
sometime in May 1994, it never engaged the services of the latter for the importation of
various products between April and July 1994; and that for the goods it imported in May
1994, it had given petitioner the amount of P44,710.00 to answer for the customs duties
and taxes due thereon. Respondent further asserted that the goods were seized by Customs
authorities because of petitioner's alleged falsification of receipts covering the payment of
customs duties and taxes on the said goods; that by reason of such seizure, the goods, which
were kept in open air, lost their commercial value amounting to P200,000.00. Respondent
claims that it was not able to recover the value of its seized property nor did petitioner
return the amount of P44,710.00 given to it by respondent.
IADaSE

Moreover, it is significant to note that the only issues raised by respondent in its Pre-Trial
Brief are the following:
(a) Has plaintiff (herein petitioner) been engaged by defendant (herein
respondent) at any time prior to the filing of the present Complaint in the
"importation of various products"?
(b) Is [petitioner] guilty of gross negligence on account of the seizure of
[respondent's] products due to fake or spurious receipt of payment of customs
duties and taxes?
(c) Is [petitioner] liable to refund [respondent] the amount of P44,710.00,
received by the former from the latter for the payment of customs duties and taxes
assessed on said imported goods?
(d) Is [petitioner] liable to reimburse the amount of P44,710.00 to [respondent]
after the latter has paid the said amount to the Bureau of Customs for the release
of the imported goods which [petitioner] undertook to release and deliver to
[respondent's] customer in Makati City? and
(e) Is [petitioner] liable to defendant for damages and attorney's fees incurred by
the latter due to [petitioner's] gross negligence? 23

Nowhere in its Answer or in its Pre-Trial Brief did respondent raise the defense that it had
already paid petitioner its obligations. As earlier mentioned, respondent denied having
entered into the subject transactions for which petitioner seeks payment. To repeat, it was
only during the testimony of respondent's witness, Adora, that respondent claimed payment
by presenting in evidence 28 original copies of the subject invoices which Adora claimed
to have found two days before she was due to testify in court.

Preliminarily, it is necessary to discuss the effect of failure of petitioner to plead payment

of its obligations.
HCDaAS

Section 1, Rule 9 of the Rules of Court provides:

Section 1. Defenses and objections not pleaded. Defenses and objections not
pleaded either in a motion to dismiss or in the answer are deemed waived.
However, when it appears from the pleadings or the evidence on record that the
court has no jurisdiction over the subject matter, that there is another action
pending between the same parties for the same cause, or that the action is barred
by prior judgment or by statute of limitations, the court shall dismiss the claim.

In the present case, despite failure of the respondent to raise the defense of payment in its
answer, the trial court cannot be faulted for admitting the testimonial and documentary
evidence of respondent to prove payment, over the objection of petitioner. The trial court's
action is in consonance with Section 5, Rule 10 of the Rules of Court, to wit:
Section 5. Amendment to conform to or authorize presentation of evidence.
When issues not raised by the pleadings are tried with the express or implied
consent of the parties, they shall be treated in all respects as if they had been
raised in the pleadings. Such amendment of the pleadings as may be necessary to
cause them to conform to the evidence and to raise these issues may be made
upon motion of any party at any time, even after judgment; but failure to amend
does not affect the result of the trial of these issues. If evidence is objected to at
the trial on the ground that it is not within the issues made by the pleadings, the
court may allow the pleadings to be amended and shall do so with liberality if the
presentation of the merits of the action and the ends of substantial justice will be
subserved thereby. The court may grant a continuance to enable the amendment
to be made.

Interpreting Section 4, Rule 17 of the Rules of Court prior to its amendment in 1997, the
provisions of which were essentially the same as the above-quoted Section 5, Rule 10, the
Court in Co Tiamco v. Diaz 24 held that:
. . . when evidence is offered on a matter not alleged in the pleadings, the court
may admit it even against the objection of the adverse party, where the latter fails
to satisfy the court that the admission of the evidence would prejudice him in
maintaining his defense upon the merits, and the court may grant him continuance
to enable him to meet the new situation created by the evidence. 25

The above pronouncement was reiterated in the more recent case of Ong v. Court of
Appeals. 26
aAHTDS

In the instant case, there is no showing that the admission of respondent's evidence would
unduly prejudice petitioner in maintaining his claims. Besides, petitioner was given ample
opportunity to refute the evidence presented by respondent.
Furthermore, even if respondent's answer was not amended to conform to the evidence it
presented, it does not preclude the trial court from adjudicating the issue of payment. Citing
of Bank of America, NT & SA v. American Realty Corporation 27 and Talisay-Silay Milling
Co., Inc. v. Asociacion de Agricultores de Talisay-Silay, Inc., 28 this Court held in
Mercader v. Development Bank of the Philippines (Cebu Branch) 29 that:
The failure of a party to amend a pleading to conform to the evidence adduced
during trial does not preclude adjudication by the court on the basis of such
evidence which may embody new issues not raised in the pleadings. . . . Although,
the pleading may not have been amended to conform to the evidence submitted
during trial, judgment may nonetheless be rendered, not simply on the basis of
the issues alleged but also on the issues discussed and the assertions of fact proved
in the course of the trial. The court may treat the pleading as if it had been
amended to conform to the evidence, although it had not been actually
amended. . . . Clearly, a court may rule and render judgment on the basis of the
evidence before it even though the relevant pleading had not been previously
amended, so long as no surprise or prejudice is thereby caused to the adverse
party. Put a little differently, so long as the basic requirements of fair play had
been met, as where the litigants were given full opportunity to support their
respective contentions and to object to or refute each other's evidence, the
court may validly treat the pleadings as if they had been amended to conform
to the evidence and proceed to adjudicate on the basis of all the evidence
before it. 30 (Emphasis supplied)
AIHDcC

This principle is in consonance with the one enunciated by the Court in Sy v. Court of
Appeals, 31 that where there is a variance in the defendant's pleadings and the
evidence adduced at the trial, the court may treat the pleading as amended to conform
to the evidence.
The next question is: whether the evidence presented by respondent supported its claim of
payment.
First, the Court does not agree with the finding of the CA that petitioner no longer
questioned the ruling of the RTC regarding the probative value of the duplicate copies of
the invoices presented in evidence by petitioner, more specifically the six invoices marked
as Exhibits "A-2", "A-5", "A-30", "A-31", "A-32" and "A-33", the original copies of which
were not produced by respondent as part of its evidence. A perusal of petitioner's appeal
brief shows that petitioner specifically raised the issue of whether the RTC erred in failing
to accord evidentiary weight to the invoices presented in evidence by petitioner.

Moreover, the RTC correctly admitted Exhibits "A" to "A-33" in its Order dated August 1,
1997. 32 Contrary to the claim of respondent that these pieces of evidence presented by
petitioner to prove respondent's indebtedness are mere duplicate copies, the same are
considered as original copies because they are carbon copies of the invoices which are in
the possession of respondent and they may be introduced in evidence without accounting
for the non-production of the other copies. 33 Hence, they serve as sufficient proof of the
indebtedness of respondent.
Respondent's main evidence consists of 28 original copies of invoices showing the
transactions that it had with petitioner. Stamped on the face of each original invoice are the
words "PAID" and "AUDITED", duly initialed.
Are these original invoices sufficient to prove payment or, at the least, do the same raise a
disputable presumption that respondent had indeed discharged its obligations to petitioner?
The Court rules in the negative.
cDTHIE

An invoice or bill is a commercial document issued by a seller to the buyer indicating the
products, quantities and agreed prices for product or services the seller has provided the
buyer. 34 An invoice indicates the buyer must pay the seller according to the payment
terms. 35 From the point of view of a seller, an invoice is a sales invoice. 36 From the point
of view of a buyer, an invoice is a purchase invoice. 37 The document indicates the buyer
and seller, but the term "invoice" indicates money is owed or owing. 38 The context of the
term "invoice" is usually used to clarify its meaning, such as "We sent them an invoice"
(they owe us money) or "We received an invoice from them" (we owe them money). 39

In Commissioner of Internal Revenue v. Manila Mining Corporation, 40 "sales or

commercial invoice" is defined as a written account of goods sold or services rendered
indicating the prices charged therefor or a list by whatever name it is known which is used
in the ordinary course of business evidencing sale and transfer or agreement to sell or
transfer goods and services. On the other hand, the same case defines "receipt" as a written
acknowledgment of the fact of payment in money or other settlement between seller and
buyer of goods, debtor or creditor, or person rendering services, and client or customer. 41
Black's Law Dictionary 42 defines an invoice as an itemized list of goods or services
furnished by a seller to a buyer, usually specifying the price and terms of a sale; a bill of
costs.
From the foregoing definitions, an invoice, in and by itself, and as opposed to a receipt,
may not be considered evidence of payment. In addition, it does not mean that possession
by a debtor of an invoice raises the presumption that it has already paid its obligation. An
invoice is simply a list sent to a purchaser, factor, consignee, etc., containing the items,

together with the prices and charges, of merchandise sent or to be sent to him; a mere
detailed statement of the nature, quantity and cost or price of the things invoiced. 43
caADIC

A close examination of the invoices reveals that the words "PAID" and "AUDITED" were
stamped on each of them. However, Adora, who is an employee of respondent in charge of
all paid accounts, testified that the word "PAID" were stamped on the documents by the
accounting department of respondent and not by the petitioner, and that the word
"AUDITED" was stamped by respondent's auditor. 44 This is not rebutted by respondent.
Thus, the Court finds that the trial court committed a serious error in appreciating the
evidence when it discredited petitioner's claim that its purpose in sending the subject
invoices to respondent was only to collect the latter's debt, not to evidence payment by the
latter.
Furthermore, respondent's defense of payment is made more untenable by its failure to
present any supporting evidence, such as official receipts or the testimony of its employee
who actually paid or the one who had direct knowledge of the payment allegedly made in
petitioner's favor, to prove that it had indeed paid its obligations to the latter. Respondent
is a corporation engaged in the business of importation and local sale of duty-free sporting
goods and similar products. It is presumed that it takes ordinary care of its concerns. In
fact, as part of its evidence, respondent presented Official Receipt No. 52715 45 for the
amount of P4,472.00 which it paid as advance freight payment in favor of petitioner.
Respondent also presented other copies of official receipts for payments it made to another
company, PAC-Atlantic Lines (Philippines) Inc. for the amounts of P10,152.12 and
P21,144.92, respectively. 46 On this basis, it is difficult to see why respondent did not
present any receipt or at least show that it had demanded an official receipt as proof of its
payment with respect to the 34 transactions for which payment is being claimed by
petitioner. Some of the amounts involved in said transactions were larger than the payments
respondent made for which it was issued official receipts. Respondent's witness, Adora,
failed to sufficiently explain why it did not have receipts in its possession to prove payment.
The witness simply reasoned out that even in the absence of any receipt, she assumed that
an account was paid once the accounting department of respondent forwarded to her the
original invoice which was stamped "PAID". 47 Such testimony, as well as the invoices
which were stamped paid, are all self-serving and do not, by themselves, prove respondent's
claim of payment.
Settled is the rule that in the course of trial in a civil case, once the plaintiff makes out
aprima facie case in his favor, the duty or the burden of evidence shifts to the defendant to
controvert the plaintiff's prima facie case; otherwise, a verdict must be returned in favor of
the plaintiff. 48 In the instant case, respondent's indebtedness to petitioner has been
established. However, respondent failed to meet its burden of proving payment. Hence,
judgment must be rendered in petitioner's favor.

Aside from the principal amount of P248,449.63, petitioner also seeks recovery of interests
thereon. As to computation of legal interest, the seminal ruling in Eastern Shipping Lines,
Inc. v. Court of Appeals 49 controls, to wit:
xxx xxx xxx
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof,
is imposed, as follows:
THIASE

1. When an obligation is breached, and it consists in the payment of a sum

of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from
the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money,
is breached, an interest on the amount of damages awarded may
be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit. 50

In the present case, respondent's obligation does not constitute a loan or forbearance of
money. Hence, the principal amount owed to petitioner shall earn interest of 6% per annum
to be computed from the time extrajudicial demand for payment was made on February 10,
1995 51 until finality of this decision. Thereafter, the amount due shall earn interest of 12%
per annum computed from such finality until the same is fully paid.

The award of attorney's fees depends on the circumstances of each case and lies within the
discretion of the court. 52 They 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 party. 53
aHcACT

In the instant case, the Court finds that petitioner is entitled to attorney's fees. First, Article
2208 (2) of the Civil Code provides that attorney's fees may be recovered in cases where
the defendant's act or omission has compelled the plaintiff to litigate with third persons or
to incur expenses to protect his interest. Second, there is a stipulation in the subject invoices
allowing petitioner to recover attorney's fees in case it is compelled to file an action to
enforce collection. Third, Article 2208 (5) of the same Code provides that attorney's fees
may also be recovered where the defendant acted in gross and evident bad faith in refusing
to satisfy the plaintiff's plainly valid, just and demandable claim. In the instant case, it is
established that respondent's refusal to satisfy petitioner's claim is unreasonable and is, in
fact, without basis which compelled petitioner to resort to the instant case to recover what
is due it.
The subject invoices stipulate that in case of judicial proceedings to enforce collection,
respondent shall pay petitioner an amount equivalent to not less than 20% of the amount
due for and as attorney's fees, in addition to costs of suit. However, the Court finds that the
rate of 20% is excessive. Accordingly, the award for attorney's fees is reduced to a more
reasonable rate of 10% of the total amount due. 54
WHEREFORE, the petition for review is GRANTED. The Decision dated January 24,
2003 and the Resolution of June 4, 2003 of the Court of Appeals as well as the Decision of
the Regional Trial Court dated June 3, 1998 are REVERSED and SET ASIDE. Respondent
is ORDERED to pay petitioner: (1) the amount of Two Hundred Forty-Eight Thousand
Four Hundred Forty-Nine Pesos and Sixty-Three Centavos (P248,449.63) plus legal
interest of 6% per annum from February 10, 1995 until this Decision becomes final and
executory; (2) the legal interest of 12% per annum on the total amount due from such
finality until fully paid; (3) 10% of the total amount due as and by way of attorney's fees,
and (4) the costs of suit.
SO ORDERED.
Ynares-Santiago, Chico-Nazario, Nachura and Reyes, JJ., concur.

(Royal Cargo Corp. v. DFS Sports Unlimited, Inc., G.R. No. 158621, [December 10,
2008], 594 PHIL 73-95)
|||

THIRD DIVISION
[G.R. No. 164521. December 18, 2008.]
ALLANDALE SPORTSLINE, INC., and MELBAROSE R. SASOT,
petitioners, vs. THE GOOD DEVELOPMENT CORPORATION,
respondent.

DECISION

AUSTRIA-MARTINEZ, J :
p

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court, assailing the May 15, 2003 Decision 1 of the Court of Appeals (CA) in CA-G.R.
CV No. 59475 which dismissed the petition of Allandale Sportsline, Inc. and Melbarose
R. Sasot from the January 13, 1998 Decision 2 of the Regional Trial Court (RTC) of
Pasig City, Branch 158 in Civil Case No. 61053; and the June 12, 2004 CA Resolution 3
which denied petitioners' motion for reconsideration.
HECaTD

The relevant facts are as follows:

Allandale Sportsline, Inc. (ASI) obtained a loan of P204,000.00 from The Good
Development Corp. (GDC) under a Promissory Note signed by Melbarose R. Sasot
(Melbarose) and Allandale R. Sasot (Allandale), President and Vice-President,
respectively, of ASI, with Theresa L. Manipon (Manipon) as one of three co-makers. 4
The Promissory Note provides that the loan is payable in daily equal installments of
P2,000.00 with interest at the rate of 26.002% per annum. In case of default in the
payment of any installment, the entire balance of the obligation shall become
immediately due and payable, and subject to liquidated penalty/collection charge
equivalent to 2% of the principal. 5
To provide additional security, ASI and Melbarose executed in favor of GDC a Deed of
Mortgage 6 in which they acceded that:
. . . should the MORTGAGORS fail to comply with any of the terms of the
promissory note and this mortgage contract, the MORTGAGEE shall
automatically have the absolute right without need of prior notice or demand
to forthwith judicially or extrajudicially foreclose this mortgage and proceed
against all or any of the mortgaged rights, interests and properties for the full
satisfaction of the MORTGAGORS' entire obligation to the MORTGAGEE
and, in such event, the MORTGAGORS shall be further liable to the

MORTGAGEE in the same judicial or extrajudicial foreclosure proceedings for

payment of attorney's fees in an amount equivalent to twenty five (25%) per
cent of the unpaid indebtedness but in no case less than Five hundred pesos
(500.00); liquidated damages in an amount equivalent to twenty-five (25%)
percent of said outstanding obligation and all the expenses and costs incidental
to the above proceeding . . . . 7 (Emphasis supplied)

The properties subject of the mortgage are itemized in an inventory attached to the deed.
They include: List A all the merchandise and stocks in trade found in the commercial
establishment owned by ASI and Melbarose at #514 M.V. delos Santos St., Sampaloc,
Manila, valued at P100,000.00; List B all the furniture, fixtures, appliances, equipment
and other personal property found in said business establishment, valued at P3,500.00;
and List C one Toyota Corona 2DR. HT. with Motor No. 18R-1474348, valued at
P40,000.00 and one Toyota Corolla 4DR. SDN with Motor No. 4K-5872110, valued at
P35,000.00. 8
On June 24, 1991, GDC demanded that Melbarose pay the unpaid account of
P179,000.00 or surrender the mortgaged chattels within five days from notice. 9
When no payment was made, GDC filed with the RTC a Complaint 10 for Replevin
and/or Sum of Money with Damages against ASI, Melbarose, Manipon, Florante Edrino
and John Doe. 11 It is significant that plaintiff GDC prayed for alternative reliefs, to wit:
AcEIHC

WHEREFORE, for all the foregoing it is most respectfully prayed of this

Honorable Court that:
1. A Writ of Replevin be issued ordering the seizure of the above described
chattels or personal property with all the accessories or equipments and
directing their transfer to Plaintiff for the purposes of foreclosure &/or transfer
in accordance with the law to satisfy Defendants' obligation in favor of Plaintiff;
and
2. After due notice and trial:
a. to enforce said seizure and Plaintiff's right over aforedescribed
chattels and/or personal property; and
b. to order Defendants to pay Plaintiff jointly and severally the sum of
P43,750.00 as and for attorney's fees and the sum equivalent to 25% of
the obligation as and for liquidated damages, plus other expenses of
litigation and costs of suit.
SHEIDC

On the Alternative Cause of Action, in the event that manual delivery of said
chattels or personal property cannot be obtained for some reason or another, to

render judgment ordering Defendants to pay plaintiff, jointly and severally as

follows:
1. The sum of P175,000.00 plus interest thereon at 26.002% per annum from
date of maturity until said sum shall have been fully paid.
2. The sum of P43,750.00 as and for Attorney's fees, the sum equivalent to 25%
of the obligation as and for liquidated damages, such other expenses of litigation
and costs of suit. 12

The RTC issued a Writ of Replevin, 13 and by virtue thereof, the Sheriff seized and
delivered to GDC only one unit of Toyota Corona with Motor No. 18R-1474348 and two
appliances. 14
On December 2, 1991, GDC filed an Amended Complaint to include in its application for
replevin the items under List A. 15 After admitting the Amended Complaint, the RTC
issued an Alias Writ of Replevin 16 over the items in List A, and, by virtue thereof, the
Sheriff seized and delivered to GDC the assorted items enumerated therein. 17
It appears that a Second Alias Writ of Replevin 18 was issued over one unit Toyota
Corolla with Motor No. 4K-5872110, but the records do not indicate that the Sheriff
made a return on the writ.
ACIDSc

Meanwhile, ASI and Melbarose filed their Answer with Counterclaim. 19 They claimed
that their loan obligation to GDC was only for P200,000.00, and after deducting
P18,000.00, which amount was retained by GDC as advanced interest payment, and
P29,000.00, which represents payments made from June 4, 1991 to July 8, 1991, their
unpaid obligation was only P171,000.00; 20 that they repeatedly tendered payment of this
amount, but GDC rejected their efforts for no valid reason; that the unreasonable refusal
of GDC to accept their tender of payment relieved them of their loan obligation; 21 that
its Complaint being obviously without merit, GDC should be held liable to them for
damages. 22
Manipon filed a separate Answer in which she did not deny the authenticity of her
signature on the Promissory Note, but argued that she did not knowingly or voluntarily
sign the instrument as a co-maker, for at that time she was under the impression that the
instrument she was signing was her own loan application with GDC. 23
In its Pre-Trial Order dated May 22, 1992, the RTC identified only these issues: (a)
whether GDC was entitled to collect P175,000.00, as well as the interests, attorney's fees
and other expenses and costs; (b) whether ASI and Melbarose made a valid tender of
payment; (c) whether Manipon was a real party-in-interest; and (d) whether the prevailing
party was entitled to damages. 24

However, it is significant that at the trial that ensued, GDC disclosed that after it obtained
possession of the properties subject of the writs of replevin, it caused the auction sale of
some of them and realized proceeds amounting to P78,750.00.
While there is no certificate of sale in the records of the case, respondent's witness
Leonila Buenviaje testified thus:
ATTY. MAMARIL:
xxx xxx xxx
Q- In this case, Miss witness, you were able to seize by way of a writ of
replevin some properties of the defendants. What did you do with these
properties?
A- It was being sold by auction sale.
Q- Could you tell this Honorable Court if the auction sale pushed through?

ADEaHT

A- Yes, sir.
Q- How much were you able to realize from the auction sale?
xxx xxx xxx
A- We had pulled amounting to P55,050.00. The Karaoke P3,200.00; the t.v.
P500.00; and athletic uniforms amounting to P20,000.00.
Q- So, all in all how much could that be?
xxx xxx xxx
A- More than P78,000.00. I think P78,750.00. 25

On cross-examination, the same witness further described the auction sale:

ATTY. QUINONES:
xxx xxx xxx
Q- Are you sure that these has been sold already, Miss Buenviaje?
A- Yes, sir.
Q- When was it sold?

aHTCIc

A- I forgot the exact date.

Q- Do you have any document that those items were already sold?
A- We have a certificate of sale from the Sheriff.
xxx xxx xxx
Q- And the car Toyota Corona was also seized and sold?
A- Yes, sir.
Q- And in turn you were able to sell it to a third party?
A- Yes, sir.
Q- And that car was sold already in the amount of P56,000.00, is that correct?
A- P55,000.00. 26

Moreover, GDC presented to the RTC a Statement of Account dated August 24, 1992,
which indicated that the total outstanding balance of the loan obligation of ASI and
Melbarose was reduced to P191,111.82 after the proceeds of the auction sale conducted
on June 19, 1992 in the amount of P78,750.00 was deducted from the earlier balance of
P266,126.17. 27
The RTC rendered a Decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is rendered in favor of the
plaintiff Good Development Corporation against defendants Melbarose Sasot,
Allandale Sportsline Inc., and Ma. Theresa Manipon ordering them to pay the
plaintiff jointly and severally the amount of P269,611.82 plus legal interest
thereon effective to date until the full amount is fully paid, and 25% of the
total amount due as liquidated damages.
DTESIA

SO ORDERED. 28 (Emphasis supplied)

ASI, Sasot and Manipon appealed to the CA, which rendered the Decision assailed
herein, to wit:

WHEREFORE, premises considered, the instant appeal is DENIED. The

assailed decision of the RTC of Pasig City, Branch 158 in Civil Case No. 61053
is hereby AFFIRMED.

SO ORDERED. 29

Their Motion for Reconsideration was also denied by the CA. 30

Only ASI and Sasot (petitioners) took the present recourse, raising the following issues:
I. Whether or not petitioners' check payment of Php171,000.00, PCIB Check
No. 851688, to cover the total balance of their loan to respondent,
became a valid tender of payment by virtue of the respondent's
acceptance thereof;
II. Whether or not the "parol evidence rule" applies on the promissory note in
question when the co-makers thereon are total strangers to one another;
III. Whether or not petitioners are entitled to the return of their properties
pursuant to Section 9, Rule 60 of the Rules of Court.
IV. Whether or not there is legal basis in the award of liquidated damages. 31

The second issue deserves scant consideration for lack of basis. Manipon did not join in
the petition. Hence, the finding of the RTC, as affirmed by the CA, that she was a comaker of Promissory Note and a real party-in-interest is already final and conclusive.
Petitioners cannot now question this finding by raising the defense that Manipon signed
the promissory note without knowledge of the nature of her liability under the instrument.
Such defense is personal to Manipon and cannot be invoked by petitioners, unless it is
shown that their interests are so interwoven with and dependent on Manipon's as to be
inseparable. 32 However, in their pleadings, petitioners do not deny the authenticity and
due execution of the Promissory Note, whereas Manipon has maintained that said
instrument was not duly executed; hence, their defenses are clearly separate and distinct.
ISTHED

Only three issues are left to be resolved.

Anent the first issue, petitioners contend that they were relieved of their obligation to pay
GDC (respondent) when they made several attempts to tender payment but respondent
refused to accept them without any valid reason. Petitioners claim that the first tender of
payment was made on July 3, 1991 when petitioner Sasot sent respondent a PCIB check
postdated October 31, 1991 in the amount of P171,000.00. 33 Respondent rejected the
check, citing that the amount was insufficient for, as of July 4, 1991, the balance of the
principal loan was P175,000.00, not P171,000.00; and its maturity was September 13,
1991, not October 31, 1991. 34
On October 15, 1997, petitioners tendered payment of P171,000.00 in cash, 35 but
respondent refused to accept it due to the insufficiency of the amount. 36 Instead,

respondent sent petitioners a Statement of Account dated October 29, 1991, indicating
that as of October 15, 1991 the total balance due was P228,071.61. 37
On October 29, 1991, petitioners tendered cash payment of P174,986.96, 38 but
respondent still refused to accept it for insufficiency of the amount. 39
The question then is whether petitioners' tender of payment and respondent's refusal
thereof discharged petitioners from their obligation.
Tender of payment, without more, produces no effect; rather, tender of payment must be
followed by a valid consignation in order to produce the effect of payment and extinguish
an obligation. 40
Tender of payment is but a preparatory act to consignation. It is the manifestation by the
debtor of a desire to comply with or pay an obligation. If refused without just cause, the
tender of payment will discharge the debtor of the obligation to pay but only after a valid
consignation of the sum due shall have been made with the proper court. 41
Consignation is the deposit of the proper amount with a judicial authority, before whom
the debtor must establish compliance with the following mandatory requirements: (1)
there was a debt due; (2) the consignation of the obligation had been made because the
creditor to whom tender of payment was made refused to accept it, or because he was
absent or incapacitated, or because several persons claim to be entitled to receive the
amount due, or because the title to the obligation has been lost; (3) previous notice of the
consignation had been given to the person interested in the performance of the obligation;
(4) the amount due was placed at the disposal of the court; and (5) after the consignation
had been made, the person interested was notified thereof. Failure to prove any of these
requirements is enough ground to render a consignation ineffective. 42
AIaHES

Petitioners did not allege or prove that after their tender of payment was refused by
respondents, they attempted or pursued consignation of the payment with the proper
court. Their tender of payment not having been followed by a valid consignation, it
produced no effect whatsoever, least of all the extinguishment of the loan obligation.
Therefore, the first issue of the validity or invalidity of their tender of payment is
completely moot and academic, for either way the discussion will go, it will lead to no
other conclusion but that, without an accompanying valid consignation, the tender of
payment did not result in the payment and extinguishment of the loan obligation. The
Court cannot take cognizance of such a purely hypothetical issue. 43
The third and fourth issues are interrelated because their resolution depends on the nature
of the remedy which respondent actually adopted.

As emphasized at the outset, the reliefs respondent prayed for in its Complaint and
Amended Complaint are in the alternative: delivery of the mortgaged properties
preparatory to foreclosure or payment of the unpaid loan. 44
Moreover, after respondent acquired possession of the mortgaged properties through the
writs of replevin, it caused the auction sale of assorted sports outfits, one unit Sansio
Karaoke, one unit Sony T.V. Set and one unit Toyota Corona, and earned proceeds
amounting to P78,750.00. 45 While it appears that respondent failed to obtain the other
personal properties covered by the Deed of Mortgage and the writs of replevin, there is
no doubt that it had effectively elected the remedy of extra-judicial foreclosure of the
mortgage security over the remedy of collection of the unpaid loan.
The RTC was aware that respondent had elected one remedy. In its Decision, it cited the
fact that some of the mortgaged properties which were delivered to respondent by means
of the Writs of Replevin had been sold on auction, and acknowledged that the proceeds
from said auction sale should be deducted from the loan account of petitioners. The RTC
noted:
The seized pieces of personal properties by virtue of the writ of replevin and
alias writ of replevin were sold in an auction sale where [respondent] realized
P78,750.00 from the sale. 46
xxx xxx xxx
[Respondent] realized P78,500.00[sic] from the auction sale of the seized
personal property by virtue of the writ of replevin. The amount realized from
the auction sale is clearly insufficient to cover the unpaid balance, interest,
attorney's fees, costs of the suit and other expenses incidental to litigation. This
amount was deducted from the [petitioners'] total obligation in the amount of
P269,111.82 [sic] resulting in the net total obligation of P191,111.82 as of
August 24, 1992. 47 (Emphasis supplied)

Yet, it is curious that in the dispositive portion of its Decision, the RTC granted
respondent the remedy of collection of sum of money. The dispositive portion of the RTC
Decision is reproduced below for emphasis:
WHEREFORE, in view of the foregoing, judgment is rendered in favor of the
[respondent] Good Development Corporation against [petitioners] Melbarose
Sasot, Allandale Sportsline Inc., and Ma. Theresa Manipon ordering them to
pay the [respondent] jointly and severally the amount of P269,611.82 [sic] plus
legal interest thereon effective to date until the full amount is fully paid, and
25% of the total amount due as liquidated damages.
aEHIDT

SO ORDERED.

Not only is there no more reference to the conduct of the auction sale of the mortgaged
properties, there is also no longer any acknowledgment that the proceeds earned from the
auction sale should be deducted from the total unpaid loan.
This is a glaring error.
In Bachrach Motor Co., Inc. v. Icarangal, 48 the Court held that the remedies available to
any mortgage creditor are alternative, not cumulative or successive, 49 viz.:
For non-payment of a note secured by mortgage, the creditor has a single cause
of action against the debtor. This single cause of action consists in the recovery
of the credit with execution of the security. In other words, the creditor in his
action may make two demands, the payment of the debt and the foreclosure of
his mortgage. But both demands arise from the same cause, the non-payment of
the debt, and for that reason, they constitute a single cause of action. Though the
debt and the mortgage constitute separate agreements, the latter is subsidiary to
the former, and both refer to one and the same obligation. Consequently, there
exists only one cause of action for a single breach of that obligation. Plaintiff,
then, by applying the rules above stated, cannot split up his single cause of
action by filing a complaint for payment of the debt, and thereafter another
complaint for foreclosure of the mortgage. If he does so, the filing of the first
complaint will bar the subsequent complaint. By allowing the creditor to file
two separate complaints simultaneously or successively, one to recover his
credit and another to foreclose his mortgage, we will, in effect, be authorizing
him plural redress for a single breach of contract at so much cost to the courts
and with so much vexation and oppression to the debtor. (Emphasis supplied)

By causing the auction sale of the mortgaged properties, respondent effectively adopted
and pursued the remedy of extra-judicial foreclosure, 50 using the writ of replevin as a
tool to get hold of the mortgaged properties. 51 As emphasized in Bachrach, one effect of
respondent's election of the remedy of extra-judicial foreclosure is its waiver of the
remedy of collection of the unpaid loan.

Therefore, there was no more legal basis for the RTC to grant respondent the relief of
collecting from petitioners "the amount of Php269,611.82 [sic] plus legal interest thereon
effective to date until the full amount is fully paid", nor for the CA to affirm it.
However, another effect of its election of the remedy of extra-judicial foreclosure is that
whatever deficiency remains after applying the proceeds of the auction sale to the total
loan obligation may still be recovered by respondent. 52
EHDCAI

But to recover any deficiency after foreclosure, the rule is that a mortgage creditor must
institute an independent civil action. 53 However, in PCI Leasing & Finance, Inc. v. Dai

54 the Court held that the claim should at least be included in the pre-trial brief. In said
case, the mortgage-creditor had foreclosed on the mortgaged properties and sold the same
at public auction during the trial on the action for damages with replevin. After judgment
on the replevin case was rendered, the mortgage-creditor filed another case, this time for
the deficiency amount. The Court dismissed the second case on the ground of res
judicata, noting that:
Petitioner ignores the fact that it prayed in the replevin case that in the event
manual delivery of the vessel could not be effected, the court "render judgment
in its favor by ordering [herein respondents] to pay . . . the sum of
P3,502,095.00 plus interest and penalty thereon from October 12, 1994 until
fully paid as provided in the Promissory Note."
Since petitioner had extrajudicially foreclosed the chattel mortgage over the
vessel even before the pre-trial of the case, it should have therein raised as
issue during the pre-trial the award of a deficiency judgment. After all, the
basis of its above-stated alternative prayer was the same as that of its prayer for
replevin the default of respondents in the payment of the monthly
installments of their loan. But it did not. (Emphasis supplied)

The question in the present case therefore is whether respondent instituted the proper
action for the deficiency amount or raised its claim at the pre-trial.
An examination of the Complaint and Amended Complaint reveals that respondent did
not allege any deficiency account. Nor did it raise the matter in its Pre-Trial Brief. 55
This is only to be expected because the auction sale of the properties was apparently
conducted on June 19, 1992, long after it filed its Complaint/Amended Complaint and
Pre-trial Brief.
However, the Court notes that evidence on the deficiency amount was duly presented by
respondent and examined by petitioners. Respondent's employee Leonila Buenviaje
testified that the proceeds respondent earned from the auction sale of the mortgaged
properties amounted to only P78,750.00. 56 Another employee, Grace Borja, testified
that after applying the proceeds of P78,750 to the unpaid account of petitioners, there
remained a deficiency of P91,111.82. 57 Documentary evidence of the deficiency amount
was also presented in the form of the August 24, 1992 Statement of Account marked
Exhibits "F-1" and "F-2". 58 Thus, an independent action to recover the deficiency will
merely entail the presentation of the same evidence of the same claim, in the process
taxing the time and resources of the parties and the courts. 59 Therefore, in the higher
interest of justice and equity, the Court takes it upon itself to grant the claim of
respondent to the deficiency amount of P191,111.82, as stated in its August 24, 1992
Statement of Account.
cEASTa

Yet another effect of the election by respondent of the remedy of extra-judicial

foreclosure is the inapplicability of Section 9, Rule 60 of the Rules of Court, which
states:
Section 9. Judgment. After trial of the issues, the court shall determine who
has the right of possession to and the value of the property and shall render
judgment in the alternative for the delivery thereof to the party entitled to the
same, or for its value in case delivery can not be made and also for such
damages as either party may prove, with costs.

As already discussed, the properties of petitioners which were seized by virtue of the
Writs of Replevin were extra-judicially foreclosed and sold at public auction by
respondent in the exercise of its absolute right under the contract entered into by the
parties, without need of prior notice or demand to forthwith judicially or extra-judicially
foreclose this mortgage and proceed against all or any of the mortgaged rights, interests
and properties for the full satisfaction of the mortgagors' entire obligation to the
mortgagee.
Finally, under the same Deed of Mortgage, it is provided that in case of default,
petitioners shall be liable for liquidated penalty/collection charge in the amount
equivalent to "twenty-five (25%) percent of said outstanding obligation". It being settled
that petitioners defaulted on their loan obligation to respondent, the former are liable for
liquidated damages.
WHEREFORE, the Court PARTLY GRANTS the petition and MODIFIES the May 15,
2003 Decision and June 12, 2004 Resolution of the Court of Appeals (CA) in CA-G.R.
CV No. 59475, as follows:
1. The award in the January 13, 1998 Decision of the Regional Trial Court of Pasig City,
Branch 158 in Civil Case No. 61053, in favor of respondent, in "the amount of
Php269,611.82 plus legal interest thereon effective to date until the full amount is fully
paid" is DELETED;
ITCHSa

2. Respondent The Golden Development Corporation is AWARDED P191,111.82 as the

deficiency amount subject to legal interest effective September 12, 1997 up to the date of
full payment;
3. Respondent is AWARDED 25% of the deficiency amount as liquidated damages.

TaDIHc

The claim of petitioners Allandale Sportsline, Inc. and Melbarose R. Sasot to recover
properties subject of the writs of replevin is DENIED.
No costs.

SO ORDERED.
Ynares-Santiago, Chico-Nazario, Nachura and Brion, * JJ., concur.
(Allandale Sportsline, Inc. v. The Good Development Corporation, G.R. No. 164521,
[December 18, 2008], 595 PHIL 265-284)
|||

THIRD DIVISION
[G.R. No. 177828. February 13, 2009.]
ANNABELLE DELA PEA and ADRIAN VILLAREAL,
petitioners,vs.THE COURT OF APPEALS and RURAL BANK OF
BOLINAO, INC., respondents.

DECISION

NACHURA, J :
p

This petition for review on certiorari filed by petitioners Annabelle dela Pea
and Adrian Villareal (petitioners) seeks to nullify and set aside the October 31, 2006
Decision 1 and May 8, 2007 Resolution 2 of the Court of Appeals (CA) in CA-G.R. SP
No. 91338.
On October 20, 1983, respondent Rural Bank of Bolinao, Inc. (respondent)
extended a loan of Eighty-One Thousand Pesos (P81,000.00) to petitioners. The loan
was evidenced by a promissory note, 3 and was payable on or before October 14, 1984.
Petitioners failed to pay their obligation in full when it became due. Demands
for payment 4 were made by respondent, but these were not heeded. Consequently,
respondent filed a collection case against the petitioners with the Municipal Trial Court
(MTC) of Bolinao, Pangasinan, docketed as Civil Case No. 838. 5
At the pre-trial conference set on October 17, 1995, petitioners did not appear.
Consequently, upon motion by respondent, petitioners were declared as in default, and
respondent was allowed to present its evidence ex parte.
ADcSHC

On November 2, 1995, the MTC rendered a Decision 6 decreeing that:

WHEREFORE, the Court hereby renders judgment in favor of the [respondent]
and against the [petitioners],to wit:
1. ORDERING, the [petitioners] to jointly and severally pay the [respondent] the
remaining principal loan in the sum of P77,722.67 outstanding as of October 17,
1995, plus interest of 12% per annum and penalty of 3% per annum, until full
payment of the principal loan thereof;
2. ORDERING, the [petitioners] to jointly and severally pay the [respondent] the
interest due as of October 17, 1995, in the sum of P105,951.91;

3. ORDERING, the [petitioners] to jointly and severally pay the [respondent] the
penalty due as of October 17, 1995, in the sum of P25,670.21;
IEHTaA

4. ORDERING, the [petitioners] to jointly and severally pay the [respondent] the
litigation expenses, in the sum of P4,500.00;
5. ORDERING, the [petitioners] to jointly and severally pay attorney's fees in the
sum of P7,722.27;
6. ORDERING, the [petitioners] to jointly and severally pay the [respondent
bank] the collection fees in the sum of P50.00; and
7. To pay the cost of suit.
SO ORDERED. 7

On appeal by petitioners, the Regional Trial Court (RTC) remanded the case to
the MTC for further proceedings, viz.:
This Court finds Exhibit A, which is Annex A to the complaint, as not material
to the allegations in paragraph 2 of the complaint since the Promissory Note was
allegedly granted on October 20, 1983 and the due date October 14, 1984. By the
allegations of paragraph 2 of the complaint stating that the [petitioners] obtained
a loan from the [respondent] on October 20, 1993 for P81,000.00 which was to
be paid on October 20, 1984, hence, it is indeed a very great error to state in the
complaint the date of October 20, 1993 as the date of the loan was obtained when
the evidence shows that it was granted on October 20, 1983.
EAIaHD

WHEREFORE, in view of the foregoing, this case is ordered remanded back to

the lower court for further proceedings in order to determine what was the exact
date when the loan was taken from the [respondent] by the [petitioners] and the
due date of such Promissory Note and for other matters. The declaration of the
petitioners as in default is hereby set aside for purposes of continuation of
reception of parties.
IT IS SO ORDERED. 8

After the case was remanded, respondent moved for leave to amend its complaint
to conform to the promissory note. 9 The motion was granted by the MTC 10 and the
amended complaint 11 was admitted. The case was then set for hearing on November
16, 2000, 12 but petitioners failed to appear, thus, respondent introduced and offered
the pieces of evidence which it had earlier presented ex parte. Subsequently, on
November 28, 2000, the MTC promulgated a Decision 13 reiterating in full its
November 2, 1995 judgment.

Petitioners again elevated this adverse decision to the RTC. On June 14, 2001,
the RTC set aside the MTC decision and remanded the case for further proceedings. In
so ruling, it held that the MTC did not adhere to the RTC order to conduct further
proceedings. Despite its earlier ruling setting aside the declaration of default against the
petitioners, the MTC did not require petitioners to file their answer. Likewise, it did not
set the case anew for pre-trial and presentation of evidence of both parties. Petitioners'
failure to attend the scheduled hearing can only be construed as waiver of their right to
cross-examine the witnesses, but not a waiver of their right to present evidence. The
RTC declared that petitioners' right to due process had been violated when they were
not given an opportunity to present countervailing evidence. 14 The dispositive portion
of the decision reads:
cHAaEC

In view of the foregoing consideration, the Court renders judgment declaring the
proceedings of the MTC of Bolinao in this case from after its admission of
[respondent's] amended [complaint] as null and void; and setting aside the
decision dated November 28, 2000, and ordering the remand of this case to the
said Court for further proceedings by allowing the [petitioners] to file their answer
to the amended complaint conducting the mandatory pre-trial conference of the
parties and hearing their respective evidences before rendering decision thereon.
SO ORDERED. 15

Upon remand, respondent caused the re-service of summons upon petitioners,

16 who filed their Answer 17 on July 7, 2003. Petitioners admitted obtaining a loan
from respondent bank, but alleged that they substantially paid their obligation.
On July 28, 2003, the MTC issued a notice setting the case for pre-trial on
August 29, 2003. 18 However, a day before the scheduled pre-trial, petitioners moved
for postponement; 19 thus, the pre-trial was reset to September 26, 2003. 20 On
September 16, 2003, petitioners again moved for postponement of pre-trial, 21 which
was also granted by the MTC. The pre-trial was again reset to November 14, 2003. 22
On November 14, 2003, respondent appeared, but no pre-trial was held because
petitioners, for the third time, moved for its postponement in a motion filed on
November 11, 2003. 23 The MTC again granted the motion and rescheduled the pretrial to December 12, 2003, 24 but again no pre-trial was held as it was further moved
to January 30, 2004. On December 17, 2003, petitioners filed another motion for
postponement reiterating their request to conduct pre-trial on January 30, 2004. 25
EAcCHI

On January 30, 2004, respondent appeared, while petitioners did not.

Consequently, the MTC, upon motion of respondent, allowed the presentation of its
evidence ex parte. Thereafter, on February 9, 2004, respondent filed a Motion to Render
Judgment. 26
Petitioners then filed a Motion for Reconsideration (with Motion to Set Aside
Order of Default). 27 They averred that they were not able to attend the pre-trial

conference on January 30, 2004 because petitioner Villareal suddenly felt weak, and
petitioner Dela Pea took care of him. They were not able to inform the court that they
could not make it to the pre-trial because there was no way they could immediately
communicate with the court. Finally, they averred that they have a meritorious defense.
Accordingly, they prayed that they be allowed to regain their standing in court.
Respondent opposed the motion. Citing Section 5, Rule 18 of the 1997 Revised
Rules of Civil Procedure, respondent averred that the MTC was correct in allowing the
presentation of evidence ex parte in view of petitioners' failure to appear at the pre-trial
conference. It also claimed that the motion for reconsideration is already moot and
academic, considering that the case had already been submitted for resolution. 28
TAHIED

On March 12, 2004, the MTC issued an Order 29 denying petitioners' motion
for reconsideration for lack of merit. It agreed with respondent that the motion is already
moot and academic, and further declared that granting the motion would give rise to
endless litigation.
On August 16, 2004, the MTC rendered a Decision 30 ordering petitioners to
pay respondent bank their unpaid obligation of P77,722.67 with interest at 3% per
annum, from October 17, 1995 until its full payment. Petitioners were likewise held
liable for the payment of the interests and penalties due as of October 17, 1995
amounting to P105,951.91 and P25,670.21, respectively, litigation expenses of
P4,500.00, attorney's fees of P7,722.27, collection fees of P50.00 and the cost of suit.
Petitioners appealed to the RTC. They objected to the form and substance of the
MTC decision on the ground that it did not state the law on which its findings were
based, in utter disregard of Section 1, Rule 36 of the 1997 Rules of Civil Procedure.
Petitioners further claimed denial of due process, for they were not given an opportunity
to present countervailing evidence. 31
On May 25, 2005, the RTC set aside the MTC decision and remanded the case
for further proceedings. 32 It declared that the assailed MTC decision was a nullity for
lack of legal basis. According to the RTC, the MTC failed to clearly and distinctly state
the law which was made the basis of its decision. The RTC also found that petitioners
were not duly notified of the scheduled pre-trial conference as the record is bereft of
proof that an order setting the case for pre-trial conference on January 30, 2004 was
issued. Neither was there any order allowing the respondent to adduce evidence ex parte
in view of petitioners' failure to appear on the said date. The RTC concluded that the
MTC decision was issued without due process. Accordingly, the case was remanded
for pre-trial conference and for presentation of evidence.
Dissatisfied with the RTC decision, respondent appealed to the CA. On October
31, 2006, the CA rendered the assailed Decision. Reversing the RTC, the CA found that
petitioners had sufficient notice that the pre-trial conference will be held on January 30,
2004 for this setting had been chosen and confirmed twice by the petitioners. According
to the CA, petitioners should have appointed a representative, armed with a special

power of attorney, to appear on their behalf if they could not make it to the scheduled
pre-trial, especially in this case where several postponements had already been granted.
It added that petitioners cannot repeatedly ask for the postponement of a pre-trial on
account of their insistence to personally attend and participate in the same; otherwise,
the entire proceedings would be left at the mercy and whims of a cunning litigant.
Accordingly, the CA upheld the MTC in allowing the ex parte presentation of evidence,
and in rendering judgment on the basis of the evidence presented.
ITSaHC

Petitioners filed a motion for reconsideration, but the CA denied the same on
May 8, 2007.
Hence, this recourse by petitioners arguing that:
1. THE COURT OF APPEALS ERRED IN REIN[S]TATING THE DECISION
OF THE MUNICIPAL TRIAL COURT OF BOLINAO WHICH IS NULL AND
VOID FOR FAILURE TO STATE THE LAW ON WHICH ITS FINDINGS OF
FACTS ARE BASED CONTRARY TO THE REQUIREMENT UNDER
SECTION 1, RULE 36 OF THE 1997 RULES OF CIVIL PROCEDURE.
2. THE COURT OF APPEALS ERRED WHEN IT REINSTATED THE
DECISION OF THE MUNICIPAL TRIAL COURT OF BOLINAO EVEN
WHEN THE LOWER COURT OMITTED AND FAILED TO ISSUE AN
ORDER AFTER THE PRE-TRIAL CONFERENCE PROCEEDINGS.
3. THE COURT OF APPEALS' AFFIRMATION OF THE DECISION OF THE
MUNICIPAL TRIAL COURT OF BOLINAO AMOUNTS TO DENIAL OF
THE PETITIONERS' CONSTITUTIONAL RIGHT TO DUE PROCESS OF
LAW ON MERE TECHNICALITY. 33

Petitioners fault the CA for reversing the RTC, and for reinstating and upholding
the MTC decision. Reiterating their arguments before the RTC, they assert that the
MTC decision is null and void for it does not conform to the requirement of Section 14,
Article VIII of the Constitution and of the Rules of Court.
cSIACD

Section 14, Article VIII of the 1987 Constitution directs that:

SEC. 14. No decision shall be rendered by any court without expressing therein
clearly and distinctly the facts and the law on which it is based.

Section 1, Rule 36 of the Rules of Court reflects the foregoing mandate, thus:
SEC. 1. Rendition of judgments and final orders. A judgment or final order
determining the merits of the case shall be in writing personally and directly
prepared by the judge, stating clearly and distinctly the facts and the law on which
it is based, signed by him, and filed with the clerk of court.

The August 16, 2004 MTC decision reads in full:

This is an inherited case by the undersigned Judge-Designate, filed way back in

September 14, 1994.
Likewise, the instant case is an off-shoot of the appealed decision of this court to
the Regional Trial Court, Alaminos, Pangasinan, which remanded back in its
order dated August 29, 1996 ....
ASHICc

Proceedings were held whereby [respondent] moved with leave of court to amend
paragraph 2 of the complaint to conform to evidence.
Accordingly, the amended complaint was granted by the court during the hearing
on September 18, 2000. With the admission of the amended complaint of the
respondent, the case was set for hearing with due notices to [petitioners] and
counsel for further reception of evidence the [respondent] may desire to adduce.
On the said scheduled date of hearing, the [petitioners] and counsel did not show
up in court. [Respondent],thru counsel, re-introduced in toto the documentary
evidences which they have previously presented which they then re-offered in
evidence and prayed for their re-admission and thereafter rested their case. There
being no more supervening facts or new documentary evidences introduced by
the plaintiff in the instant case, the court deemed no necessity in having a different
decision from the appealed decision of this court, except, of course maybe its
change of date, so it was already wise and unmistakable to just re-write and adapt
the decision of this Court dated November 2, 1995 by the then Honorable Antonio
V. Tiong, Municipal Trial Judge.
From the evidence adduced by the [respondent],it has clearly been established
that the [petitioners] obtained a loan from [respondent] Rural Bank of Bolinao,
Inc.,with office address at Poblacion, Bolinao, Pangasinan, in the sum of
EIGHTY-ONE THOUSAND PESOS (P81,000.00),on October 20, 1983, as
evidenced by a promissory note duly signed and executed by the herein
[petitioners] spouses Annabelle dela Pea and Adrian Villareal at the place of
business of the [respondent] as a banking institution in the presence of the
witnesses of the [respondent],namely Cederico C. Catabay and Maximo
Tiangsing who are both employees of the [respondent],that the [petitioners] have
paid a part of the principal loan with a remaining outstanding balance of
P77,772.67, but has from then defaulted in the last payment of the loan which has
and have matured on October 14, 1984 (Exh. "A").Accordingly, letters of demand
by Mateo G. Caasi, then General Manager of the respondent Rural Bank of
Bolinao, Inc.,were sent by registered mail to [petitioners] at their given address
but turned deaf eared (Exh. "C" & "D");that, as a result of the utter disregard and
failures of the [petitioners] in payment of their long overdue loan, the
[respondent] was constrained to engage the legal services of a lawyer in the filing
of the instant case for collection and has incurred litigation expenses and
attorney's fees; that, together with collection fees which [respondent] is legally
entitled to and the remaining unpaid balance up to the present; that the grand total
amount of money the [petitioners] are obliged to pay [respondent] as of October

17, 1995, as reflected in the Statement of Account prepared and submitted by Lito
C. Altezo, Bookkeeper of the [respondent] Rural Bank is Two Hundred TwentyOne Thousand Six Hundred and Sixty-Seven Pesos and Six Centavos
(P221,667.06)- Exh. "B" 34
WHEREFORE, clearly viewed in the light of all the foregoing considerations, the
court hereby renders judgment in favor of the [respondent] and against the
petitioners, to wit:
HDTcEI

1. Ordering the [petitioners] to pay jointly and severally the [respondent] the
remaining principal (obligation) loan in the sum of P77.722.67 * outstanding as

of October 17, 1995, plus interest of 3% per annum, until full payment of
the principal loan is made thereof;
2. Ordering [petitioners] to pay jointly and severally the [respondent] the interest
due as of October 17, 1995, in the sum of P105,951.91;
3. Ordering the [petitioners] to pay jointly and severally the [respondent] the
penalty due as of October 17, 1995, in the sum of P25,670.21;
4. Ordering the [petitioners] to pay jointly and severally the [respondent] the
litigation expenses in the sum of P4,500.00;
5. Ordering the [petitioners] to pay jointly and severally attorney's fees in the sum
of P7,722.27;
6. Ordering the [petitioners] to pay jointly and severally the [respondent] the
collection fees in the sum of P50.00; and
7. To pay the cost of the suit;
SO ORDERED. 35

We agree with the petitioners that the above decision did not conform to the
requirements of the Constitution and of the Rules of Court. The decision contained no
reference to any legal basis in reaching its conclusions. It did not cite any legal authority
or principle to support its conclusion that petitioners are liable to pay respondent the
amount claimed including interests, penalties, attorney's fees and the costs of suit.
IHcSCA

In Yao v. Court of Appeals, 36 we held:

Faithful adherence to the requirements of Section 14, Article VIII of the
Constitution is indisputably a paramount component of due process and fair play.
It is likewise demanded by the due process clause of the Constitution. The parties
to a litigation should be informed of how it was decided, with an explanation of
the factual and legal reasons that led to the conclusions of the court. The court

cannot simply say that judgment is rendered in favor of X and against Y and just
leave it at that without any justification whatsoever for its action. The losing party
is entitled to know why he lost, so he may appeal to the higher court, if permitted,
should he believe that the decision should be reversed. A decision that does not
clearly and distinctly state the facts and the law on which it is based leaves the
parties in the dark as to how it was reached and is precisely prejudicial to the
losing party, who is unable to pinpoint the possible errors of the court for review
by a higher tribunal. More than that, the requirement is an assurance to the parties
that, in reaching judgment, the judge did so through the processes of legal
reasoning. It is, thus, a safeguard against the impetuosity of the judge, preventing
him from deciding ipse dixit. Vouchsafed neither the sword nor the purse by the
Constitution but nonetheless vested with the sovereign prerogative of passing
judgment on the life, liberty or property of his fellowmen, the judge must
ultimately depend on the power of reason for sustained public confidence in the
justness of his decision.
Thus, the Court has struck down as void, decisions of lower courts and even of
the Court of Appeals whose careless disregard of the constitutional behest
exposed their sometimes cavalier attitude not only to their magisterial
responsibilities but likewise to their avowed fealty to the Constitution.
ATcaHS

Thus, we nullified or deemed to have failed to comply with Section 14, Article
VIII of the Constitution, a decision, resolution or order which: contained no
analysis of the evidence of the parties nor reference to any legal basis in reaching
its conclusions; contained nothing more than a summary of the testimonies of the
witnesses of both parties; convicted the accused of libel but failed to cite any legal
authority or principle to support conclusions that the letter in question was
libelous; consisted merely of one (1) paragraph with mostly sweeping
generalizations and failed to support its conclusion of parricide; consisted of five
(5) pages, three (3) pages of which were quotations from the labor arbiter's
decision including the dispositive portion and barely a page (two [2] short
paragraphs of two [2] sentences each) of its own discussion or reasonings; was
merely based on the findings of another court sans transcript of stenographic
notes; or failed to explain the factual and legal bases for the award of moral
damages. 37

The CA, therefore, erred in upholding the validity of and in reinstating the MTC
decision.
However, we cannot grant petitioners' plea to reinstate the RTC decision
remanding the case to the MTC for further proceedings. Jurisprudence dictates that
remand of a case to a lower court does not follow if, in the interest of justice, the
Supreme Court itself can resolve the dispute based on the records before it.
DcTSHa

As a rule, remand is avoided in the following instances: (a) where the ends of
justice would not be subserved by a remand; or (b) where public interest demands an
early disposition of the case; or (c) where the trial court had already received all the

evidence presented by both parties, and the Supreme Court is in a position, based upon
said evidence, to decide the case on its merits. 38
Petitioners plead for a remand of their case to the MTC on ground that they were
denied due process. They claim that they were not given an opportunity to present
countervailing evidence.
The argument does not persuade.
We perused the record of the case and we failed to see the lack of due process
claimed by the petitioners. On the contrary, petitioners had been afforded more than
what is due them. This case was remanded to the MTC twice to give petitioners an
opportunity to be heard. Lest it be forgotten, petitioners were first declared as in default
on October 17, 1995 for their failure to appear at the pre-trial conference. The MTC
thereafter rendered judgment in favor of the respondent. However, on appeal, the RTC
set aside the judgment and remanded the case for further proceedings. Upon remand,
the MTC set the case for hearing, but again petitioners failed to appear at the scheduled
hearing. Accordingly, respondent was allowed to present its evidence ex parte,and a
judgment in favor of the respondent was issued. But again on appeal, the RTC set aside
the MTC decision and remanded the case, for the second time, to the MTC, to give
petitioners ample opportunity to present countervailing evidence. Upon remand,
respondent caused the re-service of summons to petitioners, who filed their answer to
the complaint. When the case was set for pre-trial conference, petitioners repeatedly
moved for its postponement; and despite several postponements, petitioners still failed
to appear at the pre-trial conference set on January 30, 2004.
Clearly, petitioners abused the legal processes, effectively defeating the justice
which had long been denied the respondent. We note that this case was filed on
September 13, 1994, and petitioners, through legal maneuverings, managed to delay its
resolution. To date, this simple collection suit has been pending for more than fourteen
(14) years. We will not countenance this patent flouting of the law and the rules by
petitioners and counsel. Accordingly, we will now resolve the case based on the
evidence before us.
Petitioners did not deny or question the authenticity and due execution of the
promissory note. They, however, offered the defense that the loan obligation covered
by the promissory note had already been paid.
Jurisprudence is replete with rulings that in civil cases, the party who alleges a
fact has the burden of proving it. Burden of proof is the duty of a party to present
evidence of the facts in issue necessary to prove the truth of his claim or defense by the
amount of evidence required by law. 39 Thus, a party who pleads payment as a defense
has the burden of proving that such payment has, in fact, been made. When the plaintiff
alleges nonpayment, still, the general rule is that the burden rests on the defendant to
prove payment, rather than on the plaintiff to prove nonpayment. 40
ScEaAD

In Alonzo v. San Juan, 41 we held that the receipts of payment, although not
exclusive, are deemed the best evidence of the fact of payment. In this case, no receipt
was presented to substantiate the claim of payment as petitioners did not take advantage
of all the opportunities to present their evidence in the proceedings a quo.Not even a
photocopy of the alleged proof of payment was appended to their answer. Verily,
petitioners failed to discharge the burden. Accordingly, we reject their defense of
payment.
By signing the promissory note, petitioners acknowledged receipt of the loan
amounting to P81,000.00, and undertook to pay the same, plus interest and penalty, on
or before October 14, 1984.
Records show that as of October 17, 1995, petitioners' unpaid obligation under
the note is P77,722.67, 42 excluding interest of 12% per annum, penalty charge of 3%
per annum, and attorney's fees, which they bound themselves to pay under the note. 43
As we held in Sierra v. Court of Appeals, 44 and recently inHenry dela Rama
Co v. Admiral United Savings Bank: 45
A promissory note is a solemn acknowledgment of a debt and a formal
commitment to repay it on the date and under the conditions agreed upon by the
borrower and the lender. A person who signs such an instrument is bound to honor
it as a legitimate obligation duly assumed by him through the signature he affixes
thereto as a token of his good faith. If he reneges on his promise without cause,
he forfeits the sympathy and assistance of this Court and deserves instead its sharp
repudiation.
cSIHCA

Thus, petitioners cannot renege on their commitment to pay their obligation, including
interest and penalty, to the respondent.
WHEREFORE, the petition is DENIED. Petitioners Annabelle dela Pea and
Adrian Villareal are ordered, jointly and severally, to pay respondent Rural Bank of
Bolinao, Inc. P77,722.67, with interest at 12% per annum and penalty charge of 3% per
annum from October 14, 1984 until the loan is fully paid. In addition, petitioners are
adjudged liable to pay respondent P40,000.00, as attorney's fees.
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Chico-Nazario and Leonardo-de Castro, *
JJ., concur.
(Dela Pea v. Court of Appeals, G.R. No. 177828, [February 13, 2009], 598 PHIL 862879)
|||

THIRD DIVISION
[G.R. No. 167232. July 31, 2009.]
D.B.T. MAR-BAY CONSTRUCTION, INCORPORATED, petitioner,
vs. RICAREDO PANES, ANGELITO PANES, SALVADOR CEA,
ABOGADO MAUTIN, DONARDO PACLIBAR, ZOSIMO
PERALTA and HILARION MANONGDO, respondents.

DECISION

NACHURA, J :
p

Before this Court is a Petition 1 for Review on Certiorari under Rule 45 of the
Rules of Civil Procedure, assailing the Court of Appeals (CA) Decision 2 dated October
25, 2004 which reversed and set aside the Order 3 of the Regional Trial Court (RTC)
of Quezon City, Branch 216, dated November 8, 2001.
The Facts
Subject of this controversy is a parcel of land identified as Lot Plan Psu-123169,
4 containing an area of Two Hundred Forty Thousand One Hundred Forty-Six
(240,146) square meters, and situated at Barangay (Brgy.) Pasong Putik, Novaliches,
Quezon City (subject property). The property is included in Transfer Certificate of Title
(TCT) No. 200519, 5 entered on July 19, 1974 and issued in favor of B.C. Regalado &
Co. (B.C. Regalado). It was conveyed by B.C. Regalado to petitioner D.B.T. Mar-Bay
Construction, Inc. (DBT) through a dacion en pago 6 for services rendered by the latter
to the former.
On June 24, 1992, respondents Ricaredo P. Panes (Ricaredo), his son Angelito
P. Panes (Angelito), Salvador Cea, Abogado Mautin, Donardo Paclibar, Zosimo P.
Peralta, and Hilarion Manongdo (herein collectively referred to as respondents) filed a
Complaint 7 for "Quieting of Title with Cancellation of TCT No. 200519 and all Titles
derived thereat (sic), Damages, with Petition for the Issuance of Injunction with Prayer
for the Issuance of Restraining Order Ex-Parte, Etc." against B.C. Regalado, Mar-Bay
Realty, Inc., Spouses Gereno Brioso and Criselda M. Brioso, Spouses Ciriaco and
Nellie Mariano, Avelino C. Perdido and Florentina Allado, Eufrocina A. Maborang and
Fe Maborang, Spouses Jaime and Rosario Tabangcura, Spouses Oscar Ikalina and the
Register of Deeds (RD) of Quezon City. Subsequently, respondents filed an Amended
Complaint 8 and a Second Amended Complaint 9 particularly impleading DBT as one
of the defendants.
TCHEDA

In the Complaints, Ricaredo alleged that he is the lawful owner and claimant of
the subject property which he had declared for taxation purposes in his name, and
assessed in the amount of P2,602,190.00 by the City Assessor of Quezon City as of the
year 1985. Respondents alleged that per Certification 10 of the Department of
Environment and Natural Resources (DENR) National Capital Region (NCR) dated
May 7, 1992, Lot Plan Psu-123169 was verified to be correct and on file in said office,
and approved on July 23, 1948.
Respondents also claimed that Ricaredo, his immediate family members, and the
other respondents had been, and still are, in actual possession of the portions of the
subject property, and their possession preceded the Second World War. To perfect his
title in accordance with Act No. 496 (The Land Registration Act) as amended by
Presidential Decree (P.D.) No. 1529 (The Property Registration Decree), Ricaredo filed
with the RTC of Quezon City, Branch 82 a case docketed as LRC Case No. Q-91-011,
with LRC Rec. No. N-62563. 11
Respondents averred that in the process of complying with the publication
requirements for the Notice of Initial Hearing with the Land Registration Authority
(LRA), it was discovered by the Mapping Services of the LRA that there existed an
overlapping of portions of the land subject of Ricaredo's application, with the
subdivision plan of B.C. Regalado. The said portion had, by then, already been
conveyed by B.C. Regalado to DBT.
Ricaredo asseverated that upon verification with the LRA, he found that the
subdivision plan of B.C. Regalado was deliberately drawn to cover portions of the
subject property. Respondents claimed that the title used by B.C. Regalado in the
preparation of the subdivision plan did not actually cover the subject property. They
asserted that from the records of B.C. Regalado, they gathered that TCT Nos. 211081,
12 211095 13 and 211132, 14 which allegedly included portions of the subject property,
were derived from TCT No. 200519. However, TCT No. 200519 only covered Lot 503
of the Tala Estate with an area of Twenty-Two Thousand Six Hundred Fifteen (22,615)
square meters, and was different from those mentioned in TCT Nos. 211081, 211095
and 211132. According to respondents, an examination of TCT No. 200519 would
show that it was derived from TCT Nos. 14814, 15 14827, 16 14815 17 and T-28.
In essence, respondents alleged that B.C. Regalado and DBT used the derivative
titles which covered properties located far from Pasong Putik, Novaliches, Quezon City
where the subject property is located, and B.C. Regalado and DBT then offered the
same for sale to the public. Respondents thus submitted that B.C Regalado and DBT
through their deliberate scheme, in collusion with others, used (LRC) Pcs-18345 as
shown in the consolidation-subdivision plan to include the subject property covered by
Lot Plan Psu-123169.
cITaCS

In his Answer 18 dated July 24, 1992, the RD of Quezon City interposed the
defense that at the time of registration, he found all documents to be in order.
Subsequently, on December 5, 1994, in his Motion 19 for Leave to Admit Amended

Answer, with the Amended Answer attached, he admitted that he committed a grave
mistake when he earlier said that TCT No. 200519 covered only one lot, i.e. Lot 503.
He averred that upon careful examination, he discovered that TCT No. 200519 is
composed of 17 pages, and actually covered 54 lots, namely: Lots 503, 506, 507, 508,
509, 582, 586, 655, 659, 686, 434, 495, 497, 299, 498, 499, 500, 501, 502, 493, 692,
776, 496, 785, 777, 786, 780, 783, 505, 654, 660, 661, 663, 664, 665, 668, 693, 694,
713, 716, 781, 779, 784, 782, 787, 893, 1115, 1114, 778, 669 and 788, all of the Tala
Estate. Other lots included therein are Lot 890-B of Psd 36854, Lot 2 of (LRC) Pcs
12892 and Lot 3 of (LRC) Pcs 12892. Thus, respondents' allegation that Lots 661, 664,
665, 693 and 694 of the Tala Estate were not included in TCT No. 200519 was not true.
On December 28, 1993, then defendants Spouses Jaime and Rosario Tabangcura
(Spouses Tabangcura) filed their Answer 20 with Counterclaim, claiming that they
were buyers in good faith and for value when they bought a house and lot covered by
TCT No. 211095 from B.C. Regalado, the latter being a subdivision developer and
registered owner thereof, on June 30, 1986. When respondent Abogado Mautin entered
and occupied the property, Spouses Tabangcura filed a case for Recovery of Property
before the RTC, Quezon City, Branch 97 which rendered a decision 21 in their favor.
On its part, DBT, traversing the complaint, alleged that it is the legitimate owner
and occupant of the subject property pursuant to a dacion en pago executed by B.C.
Regalado in the former's favor; that respondents were not real parties-in-interests
because Ricaredo was a mere claimant whose rights over the property had yet to be
determined by the RTC where he filed his application for registration; that the other
respondents did not allege matters or invoke rights which would entitle them to the
relief prayed for in their complaint; that the complaint was premature; and that the
action inflicted a chilling effect on the lot buyers of DBT. 22
The RTC's Rulings
On June 15, 2000, the RTC through Judge Marciano I. Bacalla (Judge Bacalla),
rendered a Decision 23 in favor of the respondents. The RTC held that the testimony of
Ricaredo that he occupied the subject property since 1936 when he was only 16 years
old had not been rebutted; that Ricaredo's occupation and cultivation of the subject
property for more than thirty (30) years in the concept of an owner vested in him
equitable ownership over the same by virtue of an approved plan, Psu 123169; that the
subject property was declared under the name of Ricaredo for taxation purposes; 24 and
that the subject property per survey should not have been included in TCT No. 200519,
registered in the name of B.C. Regalado and ceded to DBT. The RTC further held that
Spouses Tabangcura failed to present satisfactory evidence to prove their claim. Thus,
the RTC disposed of the case in this wise:
WHEREFORE, in view of the foregoing considerations, judgment is hereby
rendered declaring Certificate of Title No. 200519 and all titles derived thereat as
null and void insofar as the same embrace the land covered by Plan PSU-123169
with an area of 240,146 square meters in the name of Ricaredo Panes; ordering

defendant DBT Marbay Realty, Inc. to pay plaintiff Ricaredo Panes the sum of
TWENTY THOUSAND (P20,000) pesos as attorney's fees plus costs of suit.
SO ORDERED.

On September 12, 2000, DBT filed a Motion 25 for Reconsideration, based on

the grounds of prescription and laches. DBT also disputed Ricaredo's claim of open,
adverse, and continuous possession of the subject property for more than thirty (30)
years, and asserted that the subject property could not be acquired by prescription or
adverse possession because it is covered by TCT No. 200519.
While the said Motion for Reconsideration was pending, Judge Bacalla passed
away.
Meanwhile, on January 2, 2001, a Motion 26 for Intervention and a Complaint
in Intervention were filed by Atty. Andres B. Pulumbarit (Atty. Pulumbarit),
representing the Don Pedro/Don Jose de Ocampo Estate. The intervenor alleged that
the subject property formed part of the vast tract of land with an area of 117,000
hectares, covered by Original Certificate of Title (OCT) No. 779 issued by the
Honorable Norberto Romualdez on March 14, 1913 under Decree No. 10139, which
belongs to the Estate of Don Pedro/Don Jose de Ocampo. Thus, the Complaint 27 in
Intervention prayed that the RTC's Decision be reconsidered; that the legitimacy and
superiority of OCT 779 be upheld; and that the subject property be declared as
belonging to the Estate of Don Pedro/Don Jose de Ocampo.
In its Order 28 dated March 13, 2001, the RTC, through Acting Judge Modesto
C. Juanson (Judge Juanson), denied Atty. Pulumbarit's Motion for Intervention because
a judgment had already been rendered pursuant to Section 2, 29 Rule 19 of the 1997
Rules of Civil Procedure.
On April 10, 2001, the RTC issued an Order 30 stating that there appeared to be
a need for a clarificatory hearing before it could act on DBT's Motion for
Reconsideration. Thus, a hearing was held on May 17, 2001. Thereafter, supplemental
memoranda were required of the parties. 31 Both parties complied. 32 However, having
found that the original copy of TCT No. 200519 was not submitted to it for comparison
with the photocopy thereof on file, the RTC directed DBT to present the original or
certified true copy of the TCT on August 21, 2001. 33 Respondents moved to reconsider
the said directive 34 but the same was denied. 35 DBT, on the other hand, manifested
that a copy of TCT No. 200519, consisting of 17 pages, had already been admitted in
evidence; and that because of the fire in the Office of the RD in Quezon City sometime
in 1988, DBT, despite diligent effort, could not secure an original or certified true copy
of said TCT. Instead, DBT submitted a certified true copy of Consolidated Subdivision
Plan Pcs 18345. 36

On November 8, 2001, the RTC, through Judge Juanson, issued an Order 37

reversing the earlier RTC Decision and dismissing the Complaint for lack of merit. The
RTC held that prescription does not run against registered land; hence, a title once
registered cannot be defeated even by adverse, open or notorious possession. Moreover,
the RTC opined that even if the subject property could be acquired by prescription,
respondents' action was already barred by prescription and/or laches because they never
asserted their rights when B.C. Regalado registered the subject property in 1974; and
later developed, subdivided and sold the same to individual lot buyers.
On December 18, 2001, respondents filed a Motion for Reconsideration 38
which the RTC denied in its Order 39 dated June 17, 2002. Aggrieved, respondents
appealed to the CA. 40
CAIHaE

The CA's Ruling

On October 25, 2004, the CA reversed and set aside the RTC Orders dated
November 8, 2001 and June 17, 2002 and reinstated the RTC Decision dated June 15,
2000. The CA held that the properties described and included in TCT No. 200519 are
located in San Francisco del Monte, San Juan del Monte, Rizal and Cubao, Quezon City
while the subject property is located in Brgy. Pasong Putik, Novaliches, Quezon City.
Furthermore, the CA held that Engr. Vertudazo's testimony that there is a gap of around
1,250 meters between Lot 503 and Psu 123169 was not disproved or refuted. The CA
found that Judge Juanson committed a procedural infraction when he entertained issues
and admitted evidence presented by DBT in its Motion for Reconsideration which were
never raised in the pleadings and proceedings prior to the rendition of the RTC
Decision. The CA opined that DBT's claims of laches and prescription clearly appeared
to be an afterthought. Lastly, the CA held that DBT's Motion for Reconsideration was
not based on grounds enumerated in the Rules of Procedure. 41
Petitioner filed a Motion for Reconsideration, 42 which was, however, denied by the CA
in its Resolution 43 dated February 22, 2005.
Hence, this Petition.
The Issues
Petitioner raises the following as grounds for this Petition:
I.
PETITIONER'S FAILURE TO ALLEGE PRESCRIPTION IN ITS ANSWER
IS NOT A WAIVER OF SUCH DEFENSE.
II.

IT IS NOT ERRONEOUS TO REQUIRE THE PRODUCTION OF A

CERTIFIED TRUE COPY OF TCT NO. 200519 AFTER THE DECISION ON
THE MERITS HAS BEEN RENDERED BUT BEFORE IT BECAME FINAL.
III.
A REGISTERED LAND CAN NOT BE ACQUIRED BY ACQUISITIVE
PRESCRIPTION.
IV.
THE TESTIMONY OF ENGR. VERTUDAZO ON THE BASIS OF THE
TECHNICAL DESCRIPTION OF LOT 503 IN AN INCOMPLETE
DOCUMENT IS UNRELIABLE.
V.
MR. PANES HAS NEVER BEEN IN OPEN, ADVERSE AND
CONTINUOUS POSSESSION OF THE SUBJECT PROPERTY FOR MORE
THAN THIRTY (30) YEARS. 44

Distilled from the petition and the responsive pleadings, and culled from the arguments of
the parties, the issues may be reduced to two questions, namely:
1) Did the RTC err in upholding DBT's defenses of prescription and
laches as raised in the latter's Motion for Reconsideration?
2) Which between DBT and the respondents have a better right over the
subject property?
Our Ruling
We answer the first question in the affirmative.
It is true that in Dino v. Court of Appeals 45 we ruled:
(T)rial courts have authority and discretion to dismiss an action on the ground of
prescription when the parties' pleadings or other facts on record show it to be
indeed time-barred; (Francisco v. Robles, Feb. 15, 1954; Sison v. McQuaid, 50
O.G. 97; Bambao v. Lednicky, Jan. 28, 1961; Cordova v. Cordova, Jan. 14,
1958; Convets, Inc. v. NDC, Feb. 28, 1958; 32 SCRA 529; Sinaon v. Sorongan,
136 SCRA 408); and it may do so on the basis of a motion to dismiss (Sec. 1, [f]
Rule 16, Rules of Court), or an answer which sets up such ground as an
affirmative defense (Sec. 5, Rule 16), or even if the ground is alleged after
judgment on the merits, as in a motion for reconsideration (Ferrer v. Ericta,

84 SCRA 705); or even if the defense has not been asserted at all, as where
no statement thereof is found in the pleadings (Garcia v. Mathis, 100 SCRA
250; PNB v. Pacific Commission House, 27 SCRA 766; Chua Lamco v. Dioso,
et al., 97 Phil. 821); or where a defendant has been declared in default (PNB v.
Perez; 16 SCRA 270). What is essential only, to repeat, is that the facts
demonstrating the lapse of the prescriptive period be otherwise sufficiently
and satisfactorily apparent on the record; either in the averments of the
plaintiff's complaint, or otherwise established by the evidence. (Emphasis
supplied)

Indeed, one of the inherent powers of courts is to amend and control its processes so as to
make them conformable to law and justice. This includes the right to reverse itself,
especially when in its opinion it has committed an error or mistake in judgment, and
adherence to its decision would cause injustice. 46 Thus, the RTC in its Order dated
November 8, 2001 could validly entertain the defenses of prescription and laches in
DBT's motion for reconsideration.
However, the conclusion reached by the RTC in its assailed Order was erroneous. The
RTC failed to consider that the action filed before it was not simply for reconveyance but
an action for quieting of title which is imprescriptible.
Verily, an action for reconveyance can be barred by prescription. When an action for
reconveyance is based on fraud, it must be filed within four (4) years from discovery of
the fraud, and such discovery is deemed to have taken place from the issuance of the
original certificate of title. On the other hand, an action for reconveyance based on an
implied or constructive trust prescribes in ten (10) years from the date of the issuance of
the original certificate of title or transfer certificate of title. The rule is that the
registration of an instrument in the Office of the RD constitutes constructive notice to the
whole world and therefore the discovery of the fraud is deemed to have taken place at the
time of registration. 47
However, the prescriptive period applies only if there is an actual need to reconvey the
property as when the plaintiff is not in possession of the property. If the plaintiff, as the
real owner of the property also remains in possession of the property, the prescriptive
period to recover title and possession of the property does not run against him. In such a
case, an action for reconveyance, if nonetheless filed, would be in the nature of a suit for
quieting of title, an action that is imprescriptible. 48 Thus, in Vda. de Gualberto v. Go, 49
this Court held:
[A]n action for reconveyance of a parcel of land based on implied or
constructive trust prescribes in ten years, the point of reference being the date of
registration of the deed or the date of the issuance of the certificate of title over
the property, but this rule applies only when the plaintiff or the person
enforcing the trust is not in possession of the property, since if a person

claiming to be the owner thereof is in actual possession of the property, as the

defendants are in the instant case, the right to seek reconveyance, which in
effect seeks to quiet title to the property, does not prescribe. The reason for
this is that one who is in actual possession of a piece of land claiming to be the
owner thereof may wait until his possession is disturbed or his title is attacked
before taking steps to vindicate his right, the reason for the rule being, that his
undisturbed possession gives him a continuing right to seek the aid of a court of
equity to ascertain and determine the nature of the adverse claim of a third party
and its effect on his own title, which right can be claimed only by one who is in
possession.
CAHTIS

Insofar as Ricaredo and his son, Angelito, are concerned, they established in their
testimonies that, for some time, they possessed the subject property and that Angelito
bought a house within the subject property in 1987. 50 Thus, the respondents are proper
parties to bring an action for quieting of title because persons having legal, as well as
equitable, title to or interest in a real property may bring such action, and "title" here does
not necessarily denote a certificate of title issued in favor of the person filing the suit. 51
Although prescription and laches are distinct concepts, we have held, nonetheless, that in
some instances, the doctrine of laches is inapplicable where the action was filed within
the prescriptive period provided by law. Therefore, laches will not apply to this case,
because respondents' possession of the subject property has rendered their right to bring
an action for quieting of title imprescriptible and, hence, not barred by laches. Moreover,
since laches is a creation of equity, acts or conduct alleged to constitute the same must be
intentional and unequivocal so as to avoid injustice. Laches will operate not really to
penalize neglect or sleeping on one's rights, but rather to avoid recognizing a right when
to do so would result in a clearly inequitable situation. 52

Albeit the conclusion of the RTC in its Order dated November 8, 2001, which dismissed
respondents' complaint on grounds of prescription and laches, may have been erroneous,
we, nevertheless, resolve the second question in favor of DBT.
It is a well-entrenched rule in this jurisdiction that no title to registered land in derogation
of the rights of the registered owner shall be acquired by prescription or adverse
possession. 53
Article 1126 54 of the Civil Code in connection with Section 46 55 of Act No. 496 (The
Land Registration Act), as amended by Section 47 56 of P.D. No. 1529 (The Property
Registration Decree), clearly supports this rule. Prescription is unavailing not only
against the registered owner but also against his hereditary successors. Possession is a
mere consequence of ownership where land has been registered under the Torrens
system, the efficacy and integrity of which must be protected. Prescription is rightly

regarded as a statute of repose whose objective is to suppress fraudulent and stale claims
from springing up at great distances of time and surprising the parties or their
representatives when the facts have become obscure from the lapse of time or the
defective memory or death or removal of witnesses. 57
Thus, respondents' claim of acquisitive prescription over the subject property is baseless.
Under Article 1126 of the Civil Code, acquisitive prescription of ownership of lands
registered under the Land Registration Act shall be governed by special laws.
Correlatively, Act No. 496, as amended by PD No. 1529, provides that no title to
registered land in derogation of that of the registered owner shall be acquired by adverse
possession. Consequently, in the instant case, proof of possession by the respondents is
immaterial and inconsequential. 58
Moreover, it may be stressed that there was no ample proof that DBT participated in the
alleged fraud. While factual issues are admittedly not within the province of this Court, as
it is not a trier of facts and is not required to re-examine or contrast the oral and
documentary evidence anew, we have the authority to review and, in proper cases,
reverse the factual findings of lower courts when the findings of fact of the trial court are
in conflict with those of the appellate court. 59 In this regard, we reviewed the records of
this case and found no clear evidence that DBT participated in the fraudulent scheme. In
Republic v. Court of Appeals, 60 this Court gave due importance to the fact that the
private respondent therein did not participate in the fraud averred. We accord the same
benefit to DBT in this case. To add, DBT is an innocent purchaser for value and good
faith which, through a dacion en pago duly entered into with B.C. Regalado, acquired
ownership over the subject property, and whose rights must be protected under Section
32 61 of P.D. No. 1529.
Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to
the creditor as an accepted equivalent of the performance of the obligation. It is a special
mode of payment where the debtor offers another thing to the creditor, who accepts it as
an equivalent of the payment of an outstanding debt. In its modern concept, what actually
takes place in dacion en pago is an objective novation of the obligation where the thing
offered as an accepted equivalent of the performance of an obligation is considered as the
object of the contract of sale, while the debt is considered as the purchase price. 62
It must also be noted that portions of the subject property had already been sold to third
persons who, like DBT, are innocent purchasers in good faith and for value, relying on
the certificates of title shown to them, and who had no knowledge of any defect in the
title of the vendor, or of facts sufficient to induce a reasonably prudent man to inquire
into the status of the subject property. 63 To disregard these circumstances simply on the
basis of alleged continuous and adverse possession of respondents would not only be
inimical to the rights of the aforementioned titleholders, but would ultimately wreak
havoc on the stability of the Torrens system of registration.

A final note.
While the Torrens system is not a mode of acquiring title, but merely a system of
registration of titles to lands, justice and equity demand that the titleholder should not be
made to bear the unfavorable effect of the mistake or negligence of the State's agents, in
the absence of proof of his complicity in a fraud or of manifest damage to third persons.
The real purpose of the Torrens system is to quiet title to land and put a stop forever to
any question as to the legality of the title, except claims that were noted in the certificate
at the time of the registration or that may arise subsequent thereto. Otherwise, the
integrity of the Torrens system would forever be sullied by the ineptitude and
inefficiency of land registration officials, who are ordinarily presumed to have regularly
performed their duties. 64 Thus, where innocent third persons, relying on the correctness
of the certificate of title thus issued, acquire rights over the property, the court cannot
disregard those rights and order the cancellation of the certificate. The effect of such
outright cancellation will be to impair public confidence in the certificate of title. The
sanctity of the Torrens system must be preserved; otherwise, everyone dealing with the
property registered under the system will have to inquire in every instance on whether the
title had been regularly or irregularly issued, contrary to the evident purpose of the law.
Every person dealing with the registered land may safely rely on the correctness of the
certificate of title issued therefor, and the law will in no way oblige him to go behind the
certificate to determine the condition of the property. 65
WHEREFORE, the instant Petition is GRANTED and the assailed Court of Appeals
Decision dated October 25, 2004 is hereby REVERSED and SET ASIDE. A new
judgment is hereby entered DISMISSING the Complaint filed by the respondents for
lack of merit.
SO ORDERED.

CaHcET

Ynares-Santiago, Chico-Nazario, Velasco, Jr. and Peralta, JJ., concur.

(D.B.T. Mar-Bay Construction, Inc. v. Panes, G.R. No. 167232, [July 31, 2009], 612
PHIL 93-115)
|||

SECOND DIVISION
[G.R. No. 155716. October 2, 2009.]
ROCKVILLE EXCEL INTERNATIONAL EXIM CORPORATION,
petitioner, vs. SPOUSES OLIGARIO CULLA and BERNARDITA
MIRANDA, respondents.

DECISION

BRION, J :
p

Whether a Deed of Absolute Sale is really an absolute sale of real property or an

equitable mortgage is the main issue now before us. Petitioner Rockville Excel
International Exim Corporation (Rockville) prays in this petition 1 that we reverse the
October 9, 2002 decision 2 of the Court of Appeals (CA) in CA G.R. SP No. 66070,
denying its appeal and affirming the decision of the Regional Trial Court (RTC),
Batangas City, Branch 2 in Civil Case No. 4789, which dismissed their complaint for
specific performance against the respondents Spouses Oligario (Oligario) and
Bernardita Culla.
BACKGROUND FACTS
The spouses Oligario and Bernardita (Sps. Culla) are the registered owners of a
parcel of land covered by Transfer Certificate of Title (TCT) No. 5416. They mortgaged
this property to PS Bank to secure a loan of P1,400,000.00.
Sometime in 1993, the Office of the Clerk of Court and the Ex-Officio Sheriff
issued a Sheriff's Notice of Sale for the extrajudicial foreclosure of the property. To
prevent the foreclosure, Oligario approached Rockville represented by its president
and chairman, Diana Young for financial assistance. Rockville accommodated
Oligario's request and extended him a loan of P1,400,000.00. This amount was
increased by P600,000.00 for the cash advances Oligario requested, for a total loan
amount of P2,000,000.00.
EScaIT

According to Rockville, when Oligario failed to pay the P2,000,000.00 loan after
repeated demands and promises to pay, the Sps. Culla agreed to pay their indebtedness
by selling to Rockville another property the spouses owned in Brgy. Calicanto,
Batangas City (property). The property has an area of approximately 7,074 square
meters and is covered by TCT No. T-19538. Since a survey of the surrounding
properties revealed that the property is worth more than the Sps. Culla's P2,000,000.00
loan, the parties agreed to fix the purchase price at P3,500,000.00.

As narrated by Rockville, it accepted the offer for a dacion en pago; on June 25,
1994, Rockville and Oligario executed a Deed of Absolute Sale over the property.
While the property was a conjugal property of the Sps. Culla, only Oligario signed the
Deed of Absolute Sale. Rockville asserted that, by agreement with the Sps. Culla,
Rockville would pay the additional P1,500,000.00 after Bernardita affixes her signature
to the Deed of Absolute Sale.
Rockville claimed that it had always been ready and willing to comply with its
obligation to deliver the P1,500,000.00. In fact, Rockville initially deposited this whole
amount with May Bank of Malaysia, with notice to Oligario, which amount was
subsequently transferred to Rockville's law firm. However, when Bernardita continued
to refuse to sign the Deed of Absolute Sale, Rockville caused the annotation of an
adverse claim on TCT No. T-19538 in order to protect its interest in the property.
Furthermore, Rockville tried to transfer the title of the property in its name but the
Registry of Deeds refused to carry out the transfer, given the absence of Bernardita's
signature in the Deed of Absolute Sale.
On February 4, 1997, Rockville filed a complaint for Specific Performance and
Damages before the Regional Trial Court (RTC) of Batangas City, Branch 2 against the
Sps. Culla, praying that the lower court order Bernardita to sign the Deed of Absolute
Sale or, in the alternative, to authorize the sale even without Bernardita's signature.
In their Answer, the Sps. Culla alleged that the purported Deed of Absolute Sale
failed to reflect their true intentions, as the deed was meant only to guarantee the debt
to Diana Young, not to Rockville. Contrary to Rockville's contention, the agreement
was that the P1,500,000.00 had to be paid before Bernardita would sign the Deed of
Absolute Sale. When neither Rockville nor Diana Young paid the P1,500,000.00, the
Sps. Culla volunteered to repay the P2,000,000.00 and opted to rescind the sale.
On October 26, 1999, the RTC decided the case in the respondents' favor, 3
dismissing Rockville's complaint after finding that the transaction between the parties
was in reality an equitable mortgage, not an absolute sale. The dispositive portion of
the RTC decision states:
WHEREFORE, in view of all the foregoing, the complaint filed by the plaintiff,
Rockville Excel International Exim Corporation against defendants Oligario
Culla and Bernardita Miranda is hereby DISMISSED. The Absolute Deed of Sale
executed between the said plaintiff and defendants on June 25, 1994 is hereby
declared as an equitable mortgage and, defendants are hereby entitled to redeem
the mortgaged property upon full payment of their mortgaged debt to the plaintiff
in the total amount of two million pesos (P2,000,000.00) with legal rate of interest
from June 25, 1994, the time the loan matured, until it is fully satisfied. With costs
against the plaintiff.
SO ORDERED.

THE CA DECISION
Rockville appealed to the CA. In the assailed October 9, 2002 decision, the CA
concluded that the purported contract of sale between Rockville and the Sps. Culla was
in reality an equitable mortgage based on the following factual circumstances: (a) the
glaring inadequacy in the consideration for the sale and the actual market value of the
property; (b) the fact that the Sps. Culla remained in possession of the property even
after the execution of the Deed of Absolute Sale; (c) the fact that Rockville never paid
the Sps. Culla the agreed P1,500,000.00 balance in the purchase price; and (d)
Rockville's continuous grant of extensions to the Sps. Culla to pay their loan despite
the execution of the deed of sale.
EHaCID

THE PETITION
The present petition filed after the CA denied Rockville's motion for
reconsideration asks us to resolve whether the parties' agreement is an absolute sale
or an equitable mortgage of real property.
Rockville submits that the CA erred in finding that the contract of sale with the
Sps. Culla was an equitable mortgage, insisting that the transaction was a dacion en
pago. Rockville points out that the Sps. Culla themselves admitted that they agreed to
sell the property as payment for the P2,000,000.00 loan and for the additional payment
of P1,500,000.00 Rockville was to pay. Rockville further argues that even without
Bernardita's signature on the Deed of Absolute Sale, the document is still binding as
Oligario represented the spouses in the transaction. Since Bernardita benefited from the
transaction, with the P1,400,000.00 of the purchase price having been used to redeem
the mortgaged conjugal property, Rockville posits that Bernardita impliedly and
effectively ratified the sale.
The Sps. Culla, on the other hand, maintain the contrary view and insist that the
RTC and the CA were correct in holding that the sale was in fact an equitable mortgage.
THE COURT'S RULING
We find the petitioner's arguments to be legally flawed, and therefore deny the
petition for lack of merit.
No dacion en pago
Dacion en pago is the delivery and transmission of ownership of a thing by the
debtor to the creditor as an accepted equivalent of the performance of an existing
obligation. It is a special mode of payment where the debtor offers another thing
to the creditor who accepts it as equivalent to the payment of an outstanding debt.
4 For dacion en pago to exist, the following elements must concur: (a) existence of a
money obligation; (b) the alienation to the creditor of a property by the debtor with the
consent of the former; and (c) satisfaction of the money obligation of the debtor. 5

Rockville mainly contends that the Sps. Culla sold their property to pay their due
and demandable P2,000,000.00 debt; the transaction is therefore a dacion en pago. It
also repeatedly emphasized that Bernardita admitted in her testimony that she would
have signed the Deed of Absolute Sale if Rockville had paid the P1,500,000.00.
Rockville's arguments would have been telling and convincing were it not for
the undisputed fact that even after the execution of the Deed of Absolute Sale, Rockville
still granted Oligario time to repay his P2,000,000.00 indebtedness. In fact, as Diana
Young admitted in her testimony, Rockville gave Oligario the chance to pay off the
loan on the same day that the deed was executed. As Diana Young stated:
Q. Why, he was asking for the extension of P2 million pesos that he barrowed
(sic) from you to be paid by him?
A. He asked me for the extension of time to pay.
Q. After the execution of the deed of sale (Exhibit "C")?
A. On the very day. Yes, after the lapse of the six (6) months to pay back the
property.
Q. So what appears was a document of sale Exhibit "C" was executed signed by
the defendant, Oligario Culla, signed by you and then notarized by a
Notary Public.
A. Yes, sir.

cIECTH

Q. On same occasion he asked from you that he be given an extension of six

(6) months within which to pay the loan of P2 million pesos?
A. Yes, sir. 6

If the parties had truly intended a dacion en pago transaction to extinguish the
Sps. Culla's P2,000,000.00 loan and Oligario had sold the property in payment for this
debt, it made no sense for him to continue to ask for extensions of the time to pay the
loan. More importantly, Rockville would not have granted the requested extensions to
Oligario if payment through a dacion en pago had taken place. That Rockville granted
the extensions simply belied its contention that they had intended a dacion en pago.
On several occasions, we have decreed that in determining the nature of a
contract, courts are not bound by the title or name given by the parties. The decisive
factor in evaluating an agreement is the intention of the parties, as shown, not
necessarily by the terminology used in the contract but, by their conduct, words, actions
and deeds prior to, during and immediately after executing the agreement. 7 Thus, to
ascertain the intention of the parties, their contemporaneous and subsequent acts should

be considered. Once the intention of the parties is duly ascertained, that intent is deemed
as integral to the contract as its originally expressed unequivocal terms. 8
Thus, we agree with the factual findings of the RTC and the CA that no
agreement of sale was perfected between Rockville and the Sps. Culla. On the contrary,
what they denominated as a Deed of Absolute Sale was in fact an equitable mortgage.
Definition of equitable mortgage
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". 9
A contract of sale is presumed to be an equitable mortgage when any of the
following circumstances, enumerated in Article 1602 of the Civil Code, is present:
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. [Emphasis supplied.]

The provisions of Article 1602 shall also apply to a contract purporting to be an

absolute sale. 10
For the presumption of an equitable mortgage to arise under Article 1602, two
(2) requisites must concur: (a) that the parties entered into a contract denominated as a
contract of sale; and, (b) that their intention was to secure an existing debt by way of a
mortgage. Any of the circumstances laid out in Article 1602, not the concurrence nor
an overwhelming number of the enumerated circumstances, is sufficient to support the

conclusion that a contract of sale is in fact an equitable mortgage. 11 In several cases,

we have not hesitated to declare a purported contract of sale to be an equitable mortgage
based solely on one of the enumerated circumstances under Article 1602. 12 This
approach follows the rule that when doubt exists on the nature of the parties' transaction,
the law favors the least transmission of property rights. 13
Indicators of equitable mortgage
In the present case, three attendant circumstances indicate that the purported sale
was in fact an equitable mortgage. First, the Sps. Culla retained possession of the
property. Second, Rockville kept a part of the purchase price. Third, as previously
discussed, Rockville continued to give the Sps. Culla extensions on the period to repay
their loan even after the parties allegedly agreed to a dacion en pago. These
circumstances, coupled with the clear and unequivocal testimonies of Oligario and
Bernardita that the purpose of the Deed of Absolute Sale was merely to guarantee their
loan, clearly reveal the parties' true intention to execute an equitable mortgage and not
a contract of sale.
That a contract where the vendor remains in physical possession of the land, as
lessee or otherwise, is an equitable mortgage is well-settled. 14 The reason for this rule
lies in the legal reality that in a contract of sale, the legal title to the property is
immediately transferred to the vendee; retention by the vendor of the possession of the
property is inconsistent with the vendee's acquisition of ownership under a true sale. 15
It discloses, in the alleged vendee, a lack of interest in the property that belies the
truthfulness of the sale. 16
According to Rockville, it took possession of the property, albeit constructively
and not through actual occupation. Rockville contends, too, that its possession of the
title to the property and its subsequent attempt to register the property in its name are
clear indicators of its intent to enforce the contract of sale.
aTEScI

We cannot agree with these positions. In the first place, the Sps. Culla retained
actual possession of the property and this was never disputed. Rockville itself admits
this in its petition, but claims in justification that since the property is contiguous to the
site of the Sps. Culla's family home, it would have been impossible for Rockville to
obtain actual possession of the property. Regardless of where the property is located,
however, if the transaction had really been a sale as Rockville claimed, it should have
asserted its rights for the immediate delivery and possession of the lot instead of
allowing the Sps. Culla to freely stay in the premises. Its failure to do so suggests that
Rockville did not truly intend to enforce the contract of sale.
Moreover, we observe that while Rockville did take steps to register the property
in its name, it did so more than two years after the Deed of Absolute Sale was executed,
and only after Oligario's continued failure to pay the P2,000,000.00 loan.
In addition, Rockville admitted that it never paid the P1,500,000.00 balance to
the Sps. Culla. As found by the RTC, while Rockville claims that it deposited this

amount with May Bank of Malaysia and notified Oligario of the deposit, no evidence
was presented to support this claim. Besides, even if this contention had been true, the
deposit in a foreign bank was neither a valid tender of payment nor an effective
consignation.
Lastly, the numerous extensions granted by Rockville to Oligario to pay his debt
after the execution of the Deed of Sale convince us that the parties never intended to
enter into a contract of sale; instead, the intent was merely to secure the payment of
Oligario's loan.
All told, we see no reason to depart from the findings and conclusions of both
the trial court and the Court of Appeals.
WHEREFORE, premises considered, we DENY the petition for lack of merit;
the assailed Decision dated October 9, 2002 in CA G.R. SP No. 66070 is thus
AFFIRMED. Costs against the petitioner.
SO ORDERED.
Carpio-Morales, ** Ynares-Santiago, * Del Castillo and Abad, JJ., concur.
(Rockville Excel International Exim Corp. v. Spouses Culla, G.R. No. 155716, [October
2, 2009], 617 PHIL 328-339)
|||

THIRD DIVISION
[G.R. No. 176246. February 13, 2009.]
PREMIERE DEVELOPMENT BANK, petitioner, vs. CENTRAL
SURETY & INSURANCE COMPANY, INC., respondent.

DECISION

NACHURA, J :
p

Before us is a petition for review on certiorari assailing the Court of Appeals

(CA) Decision 1 in CA-G.R. CV No. 85930, which reversed and set aside the decision
of the Regional Trial Court (RTC), Branch 132, Makati City in Civil Case No. 0051306.
2
On August 20, 1999, respondent Central Surety & Insurance Company (Central
Surety) obtained an industrial loan of P6,000,000.00 from petitioner Premiere
Development Bank (Premiere Bank) with a maturity date of August 14, 2000. This
P6,000,000.00 loan, evidenced by Promissory Note (PN) No. 714-Y, 3 stipulates
payment of 17% interest per annum payable monthly in arrears and the principal
payable on due date. In addition, PN No. 714-Y provides for a penalty charge of 24%
interest per annum based on the unpaid amortization/installment or the entire unpaid
balance of the loan. In all, should Central Surety fail to pay, it would be liable to
Premiere Bank for: (1) unpaid interest up to maturity date; (2) unpaid penalties up to
maturity date; and (3) unpaid balance of the principal.
To secure payment of the P6,000,000.00 loan, Central Surety executed in favor
of Premiere Bank a Deed of Assignment with Pledge 4 covering Central Surety's
Membership Fee Certificate No. 217 representing its proprietary share in Wack Wack
Golf and Country Club Incorporated (Wack Wack Membership). In both PN No. 714Y and Deed of Assignment, Constancio T. Castaeda, Jr. and Engracio T. Castaeda,
president and vice-president of Central Surety, respectively, represented Central Surety
and solidarily bound themselves to the payment of the obligation.
AaEDcS

Parenthetically, Central Surety had another commercial loan with Premiere

Bank in the amount of P40,898,000.00 maturing on October 10, 2001. This loan was,
likewise, evidenced by a PN numbered 376-X 5 and secured by a real estate mortgage
over Condominium Certificate of Title No. 8804, Makati City. PN No. 376-X was
availed of through a renewal of Central Surety's prior loan, then covered by PN No.
367-Z. 6 As with the P6,000,000.00 loan and the constituted pledge over the Wack

Wack Membership, the P40,898,000.00 loan with real estate mortgage was transacted
by Constancio and Engracio Castaeda on behalf of Central Surety.
It appears that on August 22, 2000, Premiere Bank sent a letter to Central Surety
demanding payment of the P6,000,000.00 loan, to wit:
August 22, 2000
CENTRAL SURETY AND INSURANCE CO.
2nd Floor Universalre Bldg.
No. 106 Paseo de Roxas, Legaspi Village
Makati City
Attention:

Mr. Constancio T. Castaneda, Jr.

President
Mr. Engracio T. Castaneda
Vice President

Gentlemen :
This has reference to your overdue loan of P6.0 Million.
We regret to inform you that despite efforts to restructure the same, you have
failed up to this time, to submit the required documents and come up with
equity necessary to implement the restructuring scheme.
In view thereof, we regret that unless the above loan is settled on or before five
(5) days from the date hereof, we shall exercise our option to have the Stock
Certificate No. 217 with Serial No. 1793 duly issued by Wack Wack Golf and
Country Club, Inc. transferred in the name of Premiere Development Bank in
accordance with the terms and conditions of the Deed of Assignment with
Pledge executed in favor of Premiere Development Bank.
aSTHDc

We shall appreciate your prompt compliance.

Very truly yours,
(SGD.) IGNACIO R. NEBRIDA, JR.
Senior Asst. Vice President/
Business Development Group Head 7

Posthaste, Central Surety responded and sent the following letter dated August 24, 2000:
24 August 2000

Mr. Ignacio R. Nebrida, Jr.

Senior Asst. Vice President/
Business Development Group Head
Premiere Bank
EDSA cor. Magallanes Avenue
Makati City
Sir :
With reference to this 6.0 Million loan account, we have informed Ms.
Evangeline Veloira that we are intending to settle the account by the end of
September. As of 14 August 2000 we made payment to your bank as per receipt
attached.
As you may know, present conditions have been difficult for the insurance
industry whose performance is so closely linked to the nation's economic
prosperity; and we are now asking for some consideration and leeway on your
very stiff and immediate demands.
Kindly extend to us your favorable approval.
Very truly yours,
(SGD.) ENGRACIO T. CASTANEDA
Vice-President 8

Accordingly, by September 20, 2000, Central Surety issued Bank of Commerce (BC)
Check No. 08114 9 dated September 22, 2000 in the amount of P6,000,000.00 and
payable to Premiere Bank. The check was received by Premiere Bank's Senior
Account Manager, Evangeline Veloira, with the notation "full payment of loan-Wack
Wack", as reflected in Central Surety's Disbursement Voucher. 10 However, for
undisclosed reasons, Premiere Bank returned BC Check No. 08114 to Central Surety,
and in its letter dated September 28, 2000, demanded from the latter, not just payment
of the P6,000,000.00 loan, but also the P40,898,000.00 loan which was originally
covered by PN No. 367-Z. 11 In the same letter, Premiere Bank threatened
foreclosure of the loans' respective securities, the pledge and real estate mortgage,
should Central Surety fail to pay these within ten days from date, thus:
cSTCDA

28 September 2000
CENTRAL SURETY & INSURANCE CO.
By: Constancio T. Castaeda Jr. President
Engracio T. Castaeda Vice President
2nd Floor Universalre Bldg. No. 106
Paseo de Roxas, Legaspi Village, Makati City

RE: YOUR COMMERCIAL LOAN OF P40,898,000.00 & P6,000,000.00

WITH PREMIERE DEVELOPMENT BANK UNDER ACCOUNT
NOS. COM-367-Z AND COM 714-Y
xxx xxx xxx
Dear Sirs :
We write on behalf of our client, Premiere Development Bank, in connection with
your above-captioned loan account.
While our client has given you all the concessions, facilities and opportunities to
service your loans, we regret to inform you that you have failed to settle the same
despite their past due status.
In view of the foregoing and to protect the interest of our client, please be advised
that unless the outstanding balances of your loan accounts as of date plus interest,
penalties and other fees and charges are paid in full or necessary arrangements
acceptable to our client is made by you within ten (10) days from date hereof, we
shall be constrained much to our regret, to file foreclosure proceedings against
the collateral of the loan mortgaged to the Bank or pursue such action necessary
in the premises.
DAHSaT

We trust, therefore, that you will give this matter your preferential attention.
Very truly yours,
(SGD.) PACITA M. ARAOS 12
(italics supplied)

The very next day, on September 29, 2000, Central Surety, through its counsel, wrote
Premiere Bank and re-tendered payment of the check:
29 September 2000
PREMIERE BANK
EDSA cor. Magallanes Avenue
Makati City
Attention:

Re:
Sir :

Mr. Ignacio R. Nebrida, Jr.

Senior Asst. Vice President/
Business Development Group Head
Promissory Note No. 714-Y

This is further to our client's letter to you dated 24 August 2000, informing you
that it would settle its account by the end of September 2000.
Please be advised that on 20 September 2000 our client delivered to your bank
BC cheque no. 08114 payable to Premiere Bank in the amount of SIX MILLION
PESOS (P6,000,000.00), which was received by your Senior Account Manager,
Ms. Evangeline Veloira. However, for unexplained reasons the cheque was
returned to us.
We are again tendering to you the said cheque of SIX MILLION PESOS
(P6,000,000.00), in payment of PN#714-Y. Please accept the cheque and issue
the corresponding receipt thereof. Should you again refuse to accept this cheque,
then I shall advise my client to deposit it in court for proper disposition.
EACIcH

Thank you.
Very truly yours,
(SGD.) EPIFANIO E. CUA
Counsel for Central Surety & Insurance
Company 13
(italics supplied)

On even date, a separate letter with another BC Check No. 08115 in the amount of
P2,600,000.00 was also tendered to Premiere Bank as payment for the Spouses
Engracio and Lourdes Castaeda's (Spouses Castaeda's) personal loan covered by
PN No. 717-X and secured by Manila Polo Club, Inc. membership shares.
On October 13, 2000, Premiere Bank responded and signified acceptance of Central
Surety's checks under the following application of payments:
13 October 2000
ATTY. EPIFANIO E. CUA
2/F Universalre Condominium
106 Paseo de Roxas
Legaspi Village, Makati City
Dear Atty. Cua :
Thank you for your two (2) letters both dated 29 September 2000 on behalf of
your clients with the enclosed check nos. 0008114 and 0008115 for the total of
P8,600,000.00.

As previously relayed to your client, Premiere Bank cannot accept the two (2)
checks as full settlement of the obligation under Account Nos. PN #714-Y and
PN # 717-X, as the amount is insufficient.
AcICTS

In accordance with the terms and conditions of the Promissory Notes executed by
your clients in favor of Premiere Development Bank, we have applied the two (2)
checks to the due obligations of your clients as follows:
1)
2)
3)
4)

Account No.: COM 235-Z 14

Account No.: IND 717-X
Account No.: COM 367-Z 15
Account No.: COM 714-Y
TOTAL

P1,044,939.45
P1,459,693.15
P4,476,200.18
P1,619,187.22

P8,600,000.00
===========

We are enclosing Xerox copy each of four (4) official receipts covering the above
payments. The originals are with us which your clients or their duly authorized
representative may pick-up anytime during office hours.
We shall appreciate the settlement in full of the accounts of your client or
necessary arrangements for settlement thereof be made as soon as possible to put
the accounts on up to-date status.
AHSEaD

Thank you.
Very truly yours,

(SGD.) MS. ELSA M. SAPAPO

Manager
Loans Accounting and
Control Department 16

Significantly, the P8,600,000.00 check payments were not applied in full to Central
Surety's P6,000,000.00 loan under PN No. 714-Y and the Spouses Castaeda's personal
loan of P2,600,000.00 under PN No. 717-X. Premiere Bank also applied proceeds
thereof to a commercial loan under PN No. 235-Z taken out by Casent Realty and
Development Corporation (Casent Realty), 17 and to Central Surety's loan originally
covered by PN No. 367-Z, renewed under PN No. 376-X, maturing on October 20,
2001.
Strongly objecting to Premiere Bank's application of payments, Central Surety's
counsel wrote Premiere Bank and reiterated Central Surety's demand for the application

of the check payments to the loans covered by PN Nos. 714-X and 714-Y. Additionally,
Central Surety asked that the Wack Wack Membership pledge, the security for the
P6,000,000.00 loan, should be released.
In the final exchange of correspondence, Premiere Bank, through its
SAVP/Acting Head-LGC, Atty. Pacita Araos, responded and refused to accede to
Central Surety's demand. Premiere Bank insisted that the PN covering the
P6,000,000.00 loan granted Premiere Bank sole discretion respecting: (1) debts to
which payments should be applied in cases of several obligations by an obligor and/or
debtor; and (2) the initial application of payments to other costs, advances, expenses,
and past due interest stipulated thereunder.
As a result, Central Surety filed a complaint for damages and release of security
collateral, specifically praying that the court render judgment: (1) declaring Central
Surety's P6,000,000.00 loan covered by PN No. 714-Y as fully paid; (2) ordering
Premiere Bank to release to Central Surety its membership certificate of shares in Wack
Wack; (3) ordering Premiere Bank to pay Central Surety compensatory and actual
damages, exemplary damages, attorney's fees, and expenses of litigation; and (4)
directing Premiere Bank to pay the cost of suit.
DTcHaA

On July 12, 2005, the RTC rendered a decision dismissing Central Surety's
complaint and ordering it to pay Premiere Bank P100,000.00 as attorney's fees. The
RTC ruled that the stipulation in the PN granting Premiere Bank sole discretion in the
application of payments, although it partook of a contract of adhesion, was valid. It
disposed of the case, to wit:
Now that the issue as to the validity of the stipulation is settled, [Premiere Bank]
was right in contending that it had the right to apply [Central Surety's] payment
to the most onerous obligation or to the one it sees fit to be paid first from among
the several obligations. The application of the payment to the other two loans of
Central Surety namely, account nos. COM 367-Z and IND 714-Y was within
[Premiere Bank's] valid exercise of its right according the stipulation. However,
[Premiere Bank] erred in applying the payment to the loan of Casent Realty and
to the personal obligation of Mr. Engracio Castaeda despite their connection
with one another. Therefore, [Premiere Bank] cannot apply the payment tendered
by Central Surety to the other two entities capriciously and expressly violating
the law and pertinent Central Bank rules and regulations. Hence, the application
of the payment to the loan of Casent Realty (Account No. COM 236-Z) and
to the loan of Mr. Engracio Castaeda (Account No. IND 717-X) is void and
must be annulled.
As to the issue of whether or not [Central Surety] is entitled to the release of
Membership Fee Certificate in the Wack Wack Golf and Country Club,
considering now that [Central Surety] cannot compel [Premiere Bank] to release
the subject collateral.

With regard to the issue of damages and attorney's fees, the court finds no basis
to grant [Premiere Bank's] prayer for moral and exemplary damages but deems it
just and equitable to award in its favor attorney's fees in the sum of
Php100,000.00.
WHEREFORE, judgment is hereby rendered dismissing the complaint and
ordering [Central Surety] to pay [Premiere Bank] Php100,000.00 as attorney's
fees. 18 (emphasis supplied)
2005jurcd

On appeal by Central Surety, the CA reversed and set aside the trial court's
ruling. The appellate court held that with Premiere Bank's letter dated August 22, 2000
specifically demanding payment of Central Surety's P6,000,000.00 loan, it was deemed
to have waived the stipulation in PN No. 714-Y granting it the right to solely determine
application of payments, and was, consequently, estopped from enforcing the same. In
this regard, with the holding of full settlement of Central Surety's P6,000,000.00 loan
under PN No. 714-Y, the CA ordered the release of the Wack Wack Membership
pledged to Premiere Bank.
Hence, this recourse by Premiere Bank positing the following issues:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
COMMITTED REVERSIBLE AND PALPABLE ERROR WHEN IT APPLIED
THE PRINCIPLE OF WAIVER AND ESTOPPEL IN THE PRESENT CASE
INSOFAR AS THE DEMAND LETTER SENT TO [CENTRAL SURETY] IS
CONCERNED NULLIFYING THE APPLICATION OF PAYMENTS
EXERCISED BY [PREMIERE BANK]
WHETHER OR NOT THE FINDING OF WAIVER AND ESTOPPEL BY THE
HONORABLE COURT OF APPEALS COULD PREVAIL OVER THE
CLEAR AND UNMISTAKABLE STATUTORY AND CONTRACTUAL
RIGHT OF [PREMIERE BANK] TO EXERCISE APPLICATION OF
PAYMENT AS WARRANTED BY THE PROMISSORY NOTE.
TAcSaC

EVEN ASSUMING EX GRATIA THAT THE 6 MILLION SHOULD BE

APPLIED TO THE SUBJECT LOAN OF RESPONDENT, WHETHER OR
NOT THE SUBJECT WACK-WACK SHARES COULD BE RELEASE[D]
DESPITE THE CROSS DEFAULT AND CROSS GUARANTEE
PROVISIONS OF THE DEED OF ASSIGNMENT WITH PLEDGE AND
RELEVANT REAL ESTATE MORTGAGE CONTRACTS EXECUTED BY
[CENTRAL SURETY], CASENT REALTY AND SPS. CASTAEDA.
WHETHER OR NOT THERE IS A VALID TENDER OF PAYMENT AND
CONSIGNATION OF THE SUBJECT TWO CHECK PAYMENTS BY
[CENTRAL SURETY].

WHETHER OR NOT, AS CORRECTLY FOUND BY THE COURT A QUO

[CENTRAL SURETY] IS ESTOPPED FROM CONTESTING THE
STIPULATIONS OR PROVISIONS OF THE PROMISSORY NOTES
AUTHORIZING [PREMIERE BANK] TO MAKE SUCH APPLICATION OF
PAYMENTS.
WHETHER OR NOT AS CORRECTLY FOUND BY THE LOWER COURT
[PREMIERE BANK] IS ENTITLED TO AN AWARD OF DAMAGES AS
OCCASIONED BY THE MALICIOUS FILING OF THIS SUIT. 19
ECTAHc

At the outset, we qualify that this case deals only with the extinguishment of
Central Surety's P6,000,000.00 loan secured by the Wack Wack Membership pledge.
We do not dispose herein the matter of the P2,600,000.00 loan covered by PN No. 717X subject of BC Check No. 08115.
We note that both lower courts were one in annulling Premiere Bank's
application of payments to the loans of Casent Realty and the Spouses Castaeda under
PN Nos. 235-Z and 717-X, respectively, thus:
It bears stressing that the parties to PN No. 714-Y secured by Wack Wack
membership certificate are only Central Surety, as debtor and [Premiere Bank],
as creditor. Thus, when the questioned stipulation speaks of "several obligations",
it only refers to the obligations of [Central Surety] and nobody else.
[I]t is plain that [Central Surety] has only two loan obligations, namely: 1.)
Account No. 714-Y secured by Wack Wack membership certificate; and
2.) Account No. 367-Z secured by Condominium Certificate of Title. The
two loans are secured by separate and different collaterals. The collateral for
Account No. 714-Y, which is the Wack Wack membership certificate answers
only for that account and nothing else. The collateral for Account No. 367-Z,
which is the Condominium Certificate of Title, is answerable only for the said
account.
The fact that the loan obligations of [Central Surety] are secured by separate and
distinct collateral simply shows that each collateral secures only a particular loan
obligation and does not cover loans including future loans or advancements.
As regards the loan covered by Account No. 235-Z, this was obtained by Casent
Realty, not by [Central Surety]. Although Mr. Engracio Castaeda is the vicepresident of [Central Surety], and president of Casent Realty, it does not follow
that the two corporations are one and the same. Both are invested by law with a
personality separate and distinct from each other.
cHaICD

Thus, [Central Surety] cannot be held liable for the obligation of Casent Realty,
absent evidence showing that the latter is being used to defeat public convenience,
justify wrong, protect fraud or defend crime; or used as a shield to confuse the

legitimate issues, or when it is merely an adjunct, a business conduit or an alter

ego of [Central Surety] or of another corporation; or used as a cloak to cover for
fraud or illegality, or to work injustice, or where necessary to achieve equity or
for the protection of creditors.
Likewise, [Central Surety] cannot be held accountable for the loan obligation of
spouses Castaeda under Account No. IND 717-X. Settled is the rule that a
corporation is invested by law with a personality separate and distinct from those
of the persons composing it. The corporate debt or credit is not the debt or credit
of the stockholder nor is the stockholder's debt or credit that of the corporation.
The mere fact that a person is a president of the corporation does not render the
property he owns or possesses the property of the corporation, since that
president, as an individual, and the corporation are separate entities. 20
DEIHAa

In fact, Premiere Bank did not appeal or question the RTC's ruling specifically
annulling the application of the P6,000,000.00 check payment to the respective loans
of Casent Realty and the Spouses Castaeda. Undoubtedly, Premiere Bank cannot be
allowed, through this petition, to surreptitiously include the validity of its application
of payments concerning the loans to Casent Realty and the Spouses Castaeda.
Thus, we sift through the issues posited by Premiere Bank and restate the same,
to wit:
1. Whether Premiere Bank waived its right of application of payments on the
loans of Central Surety.
2. In the alternative, whether the P6,000,000.00 loan of Central Surety was
extinguished by the encashment of BC Check No. 08114.
3. Corollarily, whether the release of the Wack Wack Membership pledge is in
order.
HcaDTE

The Petition is meritorious.

We shall take the first and the second issues in tandem.
Creditor given right
to apply payments
At the hub of the controversy is the statutory provision on application of
payments, specifically Article 1252 of the Civil Code, viz.:
Article 1252. He who has various debts of the same kind in favor of one and the
same creditor, may declare at the time of making the payment, to which of them
the same must be applied. Unless the parties so stipulate, or when the application

of payment is made by the party for whose benefit the term has been constituted,
application shall not be made as to debts which are not yet due.
If the debtor accepts from the creditor a receipt in which an application of the
payment is made, the former cannot complain of the same, unless there is a cause
for invalidating the contract.

The debtor's right to apply payment is not mandatory. This is clear from the use of the
word "may" rather than the word "shall" in the provision which reads: "He who has
various debts of the same kind in favor of one and the same creditor, may declare at the
time of making the payment, to which of the same must be applied."
aIAEcD

Indeed, the debtor's right to apply payment has been considered merely
directory, and not mandatory, 21 following this Court's earlier pronouncement that "the
ordinary acceptation of the terms 'may' and 'shall' may be resorted to as guides in
ascertaining the mandatory or directory character of statutory provisions." 22
Article 1252 gives the right to the debtor to choose to which of several
obligations to apply a particular payment that he tenders to the creditor. But likewise
granted in the same provision is the right of the creditor to apply such payment in case
the debtor fails to direct its application. This is obvious in Art. 1252, par. 2, viz.: "If the
debtor accepts from the creditor a receipt in which an application of payment is made,
the former cannot complain of the same." It is the directory nature of this right and the
subsidiary right of the creditor to apply payments when the debtor does not elect to do
so that make this right, like any other right, waivable.
Rights may be waived, unless the waiver is contrary to law, public order, public
policy, morals or good customs, or prejudicial to a third person with a right recognized
by law. 23
A debtor, in making a voluntary payment, may at the time of payment direct an
application of it to whatever account he chooses, unless he has assigned or waived that
right. If the debtor does not do so, the right passes to the creditor, who may make such
application as he chooses. But if neither party has exercised its option, the court will
apply the payment according to the justice and equity of the case, taking into
consideration all its circumstances. 24
HAISEa

Verily, the debtor's right to apply payment can be waived and even granted to
the creditor if the debtor so agrees. 25 This was explained by former Senator Arturo M.
Tolentino, an acknowledged expert on the Civil Code, thus:
The following are some limitations on the right of the debtor to apply his
payment:
xxx xxx xxx

5) when there is an agreement as to the debts which are to be paid first, the debtor
cannot vary this agreement. 26

Relevantly, in a Decision of the Supreme Court of Kansas in a case with parallel facts,
it was held that:
The debtor requested Planters apply the payments to the 1981 loan rather than to
the 1978 loan. Planters refused. Planters notes it was expressly provided in the
security agreement on the 1981 loan that Planters had a legal right to direct
application of payments in its sole discretion. Appellees do not refute this. Hence,
the debtors had no right by agreement to direct the payments. This also precludes
the application of the U.S. Rule, which applies only in absence of a statute or
specific agreement. Thus the trial court erred. Planters was entitled to apply the
Hi-Plains payments as it saw fit. 27

In the case at bench, the records show that Premiere Bank and Central Surety
entered into several contracts of loan, securities by way of pledges, and suretyship
agreements. In at least two (2) promissory notes between the parties, Promissory Note
No. 714-Y and Promissory Note No. 376-X, Central Surety expressly agreed to grant
Premiere Bank the authority to apply any and all of Central Surety's payments, thus:
In case I/We have several obligations with [Premiere Bank], I/We hereby
empower [Premiere Bank] to apply without notice and in any manner it sees fit,
any or all of my/our deposits and payments to any of my/our obligations whether
due or not. Any such application of deposits or payments shall be conclusive and
binding upon us.
DICcTa

This proviso is representative of all the other Promissory Notes involved in this case. It
is in the exercise of this express authority under the Promissory Notes, and following
Bangko Sentral ng Pilipinas Regulations, that Premiere Bank applied payments made
by Central Surety, as it deemed fit, to the several debts of the latter.
All debts were due; There was no
waiver on the part of petitioner
Undoubtedly, at the time of conflict between the parties material to this case,
Promissory Note No. 714-Y dated August 20, 1999, in the amount of P6,000,000.00
and secured by the pledge of the Wack Wack Membership, was past the due and
demand stage. By its terms, Premiere Bank was entitled to declare said Note and all
sums payable thereunder immediately due and payable, without need of "presentment,
demand, protest or notice of any kind". The subsequent demand made by Premiere
Bank was, therefore, merely a superfluity, which cannot be equated with a waiver of
the right to demand payment of all the matured obligations of Central Surety to
Premiere Bank.

Moreover, this Court may take judicial notice that the standard practice in
commercial transactions to send demand letters has become part and parcel of every
collection effort, especially in light of the legal requirement that demand is a
prerequisite before default may set in, subject to certain well-known exceptions,
including the situation where the law or the obligations expressly declare it
unnecessary. 28
Neither can it be said that Premiere Bank waived its right to apply payments
when it specifically demanded payment of the P6,000,000.00 loan under Promissory
Note No. 714-Y. It is an elementary rule that the existence of a waiver must be
positively demonstrated since a waiver by implication is not normally countenanced.
The norm is that a waiver must not only be voluntary, but must have been made
knowingly, intelligently, and with sufficient awareness of the relevant circumstances
and likely consequences. There must be persuasive evidence to show an actual intention
to relinquish the right. Mere silence on the part of the holder of the right should not be
construed as a surrender thereof; the courts must indulge every reasonable presumption
against the existence and validity of such waiver. 29
Besides, in this case, any inference of a waiver of Premiere Bank's, as creditor,
right to apply payments is eschewed by the express provision of the Promissory Note
that: "no failure on the part of [Premiere Bank] to exercise, and no delay in exercising
any right hereunder, shall operate as a waiver thereof".
IaEASH

Thus, we find it unnecessary to rule on the applicability of the equitable principle

of waiver that the Court of Appeals ascribed to the demand made by Premiere Bank
upon Central Surety to pay the amount of P6,000,000.00, in the face of both the express
provisions of the law and the agreements entered into by the parties. After all, a diligent
creditor should not needlessly be interfered with in the prosecution of his legal
remedies. 30
When Central Surety directed the application of its payment to a specific debt,
it knew it had another debt with Premiere Bank, that covered by Promissory Note 367Z, which had been renewed under Promissory Note 376-X, in the amount of P40.898
Million. Central Surety is aware that Promissory Note 367-Z (or 376-X) contains the
same provision as in Promissory Note No 714-Y which grants the Premiere Bank
authority to apply payments made by Central Surety, viz.:
In case I/We have several obligations with [Premiere Bank], I/We hereby
empower [Premiere Bank] to apply without notice and in any manner it sees fit,
any or all of my/our deposits and payments to any of my/our obligations
whether due or not. Any such application of deposits or payments shall be
conclusive and binding upon us. 31

Obviously, Central Surety is also cognizant that Promissory Note 367-Z contains the
proviso that:

the bank shall be entitled to declare this Note and all sums payable hereunder to
be immediately due and payable, without need of presentment, demand, protest
or notice of nay kind, all of which I/We hereby expressly waive, upon occurrence
of any of the following events: . . . (ii) My/Our failure to pay any amortization
or installment due hereunder; (iii) My/Our failure to pay money due under any
other document or agreement evidencing obligations for borrowed money .
. . . 32
TAcCDI

by virtue of which, it follows that the obligation under Promissory Note 367-Z had
become past due and demandable, with further notice expressly waived, when Central
Surety defaulted on its obligations under Promissory Note No. 714-Y.
Mendoza v. Court of Appeals 33 forecloses any doubt that an acceleration clause
is valid and produces legal effects. In fact, in Selegna Management and Development
Corporation v. United Coconut Planters Bank, 34 we held that:
Considering that the contract is the law between the parties, respondent is justified
in invoking the acceleration clause declaring the entire obligation immediately
due and payable. That clause obliged petitioners to pay the entire loan on January
29, 1999, the date fixed by respondent.
STcAIa

It is worth noting that after the delayed payment of P6,000,000.00 was tendered
by Central Surety, Premiere Bank returned the amount as insufficient, ostensibly
because there was, at least, another account that was likewise due. Obviously, in its
demand of 28 September 2000, petitioner sought payment, not just of the
P6,000,000.00, but of all these past due accounts. There is extant testimony to support
this claim, as the transcript of stenographic notes on the testimony of Atty. Araos
reveals:
Atty. Opinion:
Q. But you accepted this payment of Six Million (P6,000,000.00) later on when
together with this was paid another check for 1.8 Million?
Witness:
A. We accepted.
Atty. Opinion:
Q. And you applied this to four (4) other accounts three (3) other accounts or to
four (4) accounts mentioned in Exhibit "J". Is that correct?
TEcAHI

Atty. Tagalog:

We can stipulate on that. Your Honor.

Court:
This was stipulated?
Atty. Tagalog:
Yes, Your Honor. In fact, there is already stipulation that we confirm that those
are the applications of payments made by the defendant Bank on those
loan accounts.
Atty. Opinion:
Q. Were these accounts due already when you made this application,
distribution of payments?
Witness:
A. Yes sir. 35

Conversely, in its evidence-in-chief, Central Surety did not present any witness
to testify on the payment of its obligations. In fact, the record shows that after marking
its evidence, Central Surety proceeded to offer its evidence immediately. Only on the
rebuttal stage did Central Surety present a witness; but even then, no evidence was
adduced of payment of any other obligation. In this light, the Court is constrained to
rule that all obligations of Central Surety to Premiere Bank were due; and thus, the
application of payments was warranted.
ISCcAT

Being in receipt of amounts tendered by Central Surety, which were insufficient

to cover its more onerous obligations, Premiere Bank cannot be faulted for exercising
the authority granted to it under the Promissory Notes, and applying payment to the
obligations as it deemed fit. Subject to the caveat that our ruling herein shall be limited
only to the transactions entered into by the parties to this case, the Court will not disturb
the finding of the lower court that Premiere Bank rightly applied the payments that
Central Surety had tendered. Corollary thereto, and upon the second issue, the tender
of the amount of P6,000,000.00 by Central Surety, and the encashment of BC Check
No. 08114 did not totally extinguish the debt covered by PN No. 714-Y.
Release of the pledged
Wack Wack Membership
Contract of Adhesion
To the extent that the subject promissory notes were prepared by the Premiere
Bank and presented to Central Surety for signature, these agreements were, indeed,
contracts of adhesion. But contracts of adhesion are not invalid per se. Contracts of

adhesion, where one party imposes a ready-made form of contract on the other, are 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.
In interpreting such contracts, however, courts are expected to observe greater
vigilance in order to shield the unwary or weaker party from deceptive schemes
contained in ready-made covenants. 36 Thus, Article 24 of the Civil Code pertinently
states:
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.
TICDSc

But in this case, Central Surety does not appear so weak as to be placed at a distinct
disadvantage vis--vis the bank. As found by the lower court:
Considering that [Central Surety] is a known business entity, the [Premiere Bank]
was right in assuming that the [Central Surety] could not have been cheated or
misled in agreeing thereto, it could have negotiated with the bank on a more
favorable term considering that it has already established a certain reputation with
the [Premiere Bank] as evidenced by its numerous transactions. It is therefore
absurd that an established company such as the [Central Surety] has no
knowledge of the law regarding bank practice in loan transactions.

The Dragnet Clause.

The factual circumstances of this case showing the chain of transactions and
long-standing relationship between Premiere Bank and Central Surety militate against
the latter's prayer in its complaint for the release of the Wack Wack Membership, the
security attached to Promissory Note 714-Y.
A tally of the facts shows the following transactions between Premiere Bank and
Central Surety:
Date

August 20, 1999

August 29, 1999

Instrument

PN 714-Y
Deed of
Assignment
with Pledge

Amount
covered
P6 M
P15 M

Stipulation

As security for PN 714-Y

and/or such Promissory
Note/s which the
ASSIGNOR/PLEDGOR
shall hereafter execute in
favor of the
ASSIGNEE/PLEDGEE

From these transactions and the proviso in the Deed of Assignment with Pledge,
it is clear that the security, which peculiarly specified an amount at P15,000,000.00
(notably greater than the amount of the promissory note it secured), was intended to
guarantee not just the obligation under PN 714-Y, but also future advances. Thus, the
said deed is explicit:
acHDTA

As security for the payment of loan obtained by the ASSIGNOR/PLEDGOR from

the ASSIGNEE/PLEDGEE in the amount of FIFTEEN MILLION PESOS
(15,000,000.00) Philippine Currency in accordance with the Promissory Note
attached hereto and made an integral part hereof as Annex "A" and/or such
Promissory Note/s which the ASSIGNOR/PLEDGOR shall hereafter execute in
favor of the ASSIGNEE/PLEDGEE, the ASSIGNOR/PLEDGOR hereby
transfers, assigns, conveys, endorses, encumbers and delivers by way of first
pledge unto the ASSIGNEE/PLEDGEE, its successors and assigns, that certain
Membership fee Certificate Share in Wack Wack Golf and Country Club
Incorporated covered by Stock Certificate No. 217 with Serial No. 1793 duly
issue by Wack Wack Golf and Country Club Incorporated on August 27, 1996 in
the name of the ASSIGNOR." (Emphasis made in the Petition.)

Then, a Continuing Guaranty/Comprehensive Surety Agreement was later

executed by Central Surety as follows:
Date
Notarized,
Sept. 22, 1999

Instrument
Continuing
Guaranty/
Comprehensive
Surety Agreement

Amount
P40,898,000.00

Stipulation
In consideration of
the loan and/or
any credit
accommodation
which you (petitioner)
have extended and/or will
extend to Central Surety
and Insurance Co.

And on October 10, 2000, Promissory Note 376-X was entered into, a renewal of the
prior Promissory Note 367-Z, in the amount of P40,898,000.00. In all, the transactions
that transpired between Premiere Bank and Central Surety manifest themselves, thusly:
IcDESA

Date
August 20, 1999
August 29, 1999

Instrument
PN 714-Y
Deed of Assignment
with Pledge

Amount
P6 M
P15 M

Stipulation
covered
As security for PN
714-Y and/or such
Promissory Note/s
which the

Notarized,
Sept. 22, 1999

Continuing
Guaranty/
Comprehensive
Surety
Agreement

P40,898,000.00

October 10, 2000

Promissory Note
376-X (PN 367-Z)

P40,898,000.00

ASSIGNOR/
PLEDGOR shall
hereafter execute in
favor of the
ASSIGNEE/
PLEDGEE
In consideration of
the loan and/or any
credit
accommodation
which you
(petitioner) have
extended and/or
will extend to
Central Surety and
Insurance Co.

From the foregoing, it is more than apparent that when, on August 29, 1999, the
parties executed the Deed of Assignment with Pledge (of the Wack Wack Membership),
to serve as security for an obligation in the amount of P15,000,000.00 (when the actual
loan covered by PN No. 714-Y was only P6,000,000.00), the intent of the parties was
for the Wack Wack Membership to serve as security also for future advancements. The
subsequent loan was nothing more than a fulfillment of the intention of the parties. Of
course, because the subsequent loan was for a much greater amount (P40,898,000.00),
it became necessary to put up another security, in addition to the Wack Wack
Membership. Thus, the subsequent surety agreement and the specific security for PN
No. 367-X were, like the Wack Wack Membership, meant to secure the ballooning debt
of the Central Surety.
The above-quoted provision in the Deed of Assignment, also known as the
"dragnet clause" in American jurisprudence, would subsume all debts of respondent of
past and future origins. It is a valid and legal undertaking, and the amounts specified as
consideration in the contracts do not limit the amount for which the pledge or mortgage
stands as security, if from the four corners of the instrument, the intent to secure future
and other indebtedness can be gathered. A pledge or mortgage given to secure future
advancements is a continuing security and is not discharged by the repayment of the
amount named in the mortgage until the full amount of all advancements shall have
been paid. 37
Our ruling in Prudential Bank v. Alviar 38 is instructive:
A "blanket mortgage clause", also known as a "dragnet clause" in American
jurisprudence, is one which is specifically phrased to subsume all debts of past or

future origins. Such clauses are "carefully scrutinized and strictly construed".
Mortgages of this character enable the parties to provide continuous dealings, the
nature or extent of which may not be known or anticipated at the time, and they
avoid the expense and inconvenience of executing a new security on each new
transaction. A "dragnet clause" operates as a convenience and accommodation to
the borrowers as it makes available additional funds without their having to
execute additional security documents, thereby saving time, travel, loan closing
costs, costs of extra legal services, recording fees, et cetera. Indeed, it has been
settled in a long line of decisions that mortgages given to secure future
advancements are valid and legal contracts, and the amounts named as
consideration in said contracts do not limit the amount for which the mortgage
may stand as security if from the four corners of the instrument the intent to secure
future and other indebtedness can be gathered.
DIcSHE

The "blanket mortgage clause" in the instant case states:

That for and in consideration of certain loans, overdraft and other credit
accommodations obtained from the Mortgagee by the Mortgagor and/or
________________ hereinafter referred to, irrespective of number, as
DEBTOR, and to secure the payment of the same and those that may
hereafter be obtained, the principal or all of which is hereby fixed at Two
Hundred Fifty Thousand (P250,000.00) Pesos, Philippine Currency, as
well as those that the Mortgagee may extend to the Mortgagor and/or
DEBTOR, including interest and expenses or any other obligation owing
to the Mortgagee, whether direct or indirect, principal or secondary as
appears in the accounts, books and records of the Mortgagee, the
Mortgagor does hereby transfer and convey by way of mortgage unto the
Mortgagee, its successors or assigns, the parcels of land which are
described in the list inserted on the back of this document, and/or
appended hereto, together with all the buildings and improvements now
existing or which may hereafter be erected or constructed thereon, of
which the Mortgagor declares that he/it is the absolute owner free from
all liens and incumbrances. . . .
xxx xxx xxx
In the case at bar, the subsequent loans obtained by respondents were secured by
other securities, thus: PN BD#76/C-345, executed by Don Alviar was secured by
a "hold-out" on his foreign currency savings account, while PN BD#76/C-430,
executed by respondents for Donalco Trading, Inc., was secured by "Clean-Phase
out TOD CA 3923" and eventually by a deed of assignment on two promissory
notes executed by Bancom Realty Corporation with Deed of Guarantee in favor
of A.U. Valencia and Co., and by a chattel mortgage on various heavy and
transportation equipment. The matter of PN BD#76/C-430 has already been
discussed. Thus, the critical issue is whether the "blanket mortgage" clause

applies even to subsequent advancements for which other securities were

intended, or particularly, to PN BD#76/C-345.
Under American jurisprudence, two schools of thought have emerged on this
question. One school advocates that a "dragnet clause" so worded as to be broad
enough to cover all other debts in addition to the one specifically secured will be
construed to cover a different debt, although such other debt is secured by another
mortgage. The contrary thinking maintains that a mortgage with such a clause
will not secure a note that expresses on its face that it is otherwise secured as to
its entirety, at least to anything other than a deficiency after exhausting the
security specified therein, such deficiency being an indebtedness within the
meaning of the mortgage, in the absence of a special contract excluding it from
the arrangement.
DHITCc

The latter school represents the better position. The parties having conformed to
the "blanket mortgage clause" or "dragnet clause", it is reasonable to conclude
that they also agreed to an implied understanding that subsequent loans need not
be secured by other securities, as the subsequent loans will be secured by the first
mortgage. In other words, the sufficiency of the first security is a corollary
component of the "dragnet clause". But of course, there is no prohibition, as in
the mortgage contract in issue, against contractually requiring other securities for
the subsequent loans. Thus, when the mortgagor takes another loan for which
another security was given it could not be inferred that such loan was made in
reliance solely on the original security with the "dragnet clause", but rather, on
the new security given. This is the "reliance on the security test".
Hence, based on the "reliance on the security test", the California court in the
cited case made an inquiry whether the second loan was made in reliance on the
original security containing a "dragnet clause". Accordingly, finding a different
security was taken for the second loan no intent that the parties relied on the
security of the first loan could be inferred, so it was held. The rationale involved,
the court said, was that the "dragnet clause" in the first security instrument
constituted a continuing offer by the borrower to secure further loans under the
security of the first security instrument, and that when the lender accepted a
different security he did not accept the offer.
In another case, it was held that a mortgage with a "dragnet clause" is an "offer"
by the mortgagor to the bank to provide the security of the mortgage for advances
of and when they were made. Thus, it was concluded that the "offer" was not
accepted by the bank when a subsequent advance was made because (1) the
second note was secured by a chattel mortgage on certain vehicles, and the clause
therein stated that the note was secured by such chattel mortgage; (2) there was
no reference in the second note or chattel mortgage indicating a connection
between the real estate mortgage and the advance; (3) the mortgagor signed the
real estate mortgage by her name alone, whereas the second note and chattel
mortgage were signed by the mortgagor doing business under an assumed name;

and (4) there was no allegation by the bank, and apparently no proof, that it relied
on the security of the real estate mortgage in making the advance.
Indeed, in some instances, it has been held that in the absence of clear, supportive
evidence of a contrary intention, a mortgage containing a "dragnet clause" will
not be extended to cover future advances unless the document evidencing the
subsequent advance refers to the mortgage as providing security therefor.
aCcEHS

It was therefore improper for petitioner in this case to seek foreclosure of the
mortgaged property because of non-payment of all the three promissory notes.
While the existence and validity of the "dragnet clause" cannot be denied, there
is a need to respect the existence of the other security given for PN BD#76/C345. The foreclosure of the mortgaged property should only be for the
P250,000.00 loan covered by PN BD#75/C-252, and for any amount not covered
by the security for the second promissory note. As held in one case, where deeds
absolute in form were executed to secure any and all kinds of indebtedness that
might subsequently become due, a balance due on a note, after exhausting the
special security given for the payment of such note, was in the absence of a special
agreement to the contrary, within the protection of the mortgage, notwithstanding
the giving of the special security. This is recognition that while the "dragnet
clause" subsists, the security specifically executed for subsequent loans must first
be exhausted before the mortgaged property can be resorted to.

The security clause involved in the case at bar shows that, by its terms:
As security for the payment of loan obtained by the ASSIGNOR/PLEDGOR from
the ASSIGNEE/PLEDGEE in the amount of FIFTEEN MILLION PESOS
(15,000,000.00) Philippine Currency in accordance with the Promissory Note
attached hereto and made an integral part hereof as Annex "A" and/or such
Promissory Note/s which the ASSIGNOR/PLEDGOR shall hereafter execute in
favor of the ASSIGNEE/PLEDGEE, the ASSIGNOR/PLEDGOR hereby
transfers, assigns, conveys, endorses, encumbers and delivers by way of first
pledge unto the ASSIGNEE/PLEDGEE, its successors and assigns, that certain
Membership fee Certificate Share in Wack Wack Golf and Country Club
Incorporated covered by Stock Certificate No. 217 with Serial No. 1793 duly
issue by Wack Wack Golf and Country Club Incorporated on August 27, 1996 in
the name of the ASSIGNOR."
IASCTD

it is comparable with the security clause in the case of Prudential, viz.:

That for and in consideration of certain loans, overdraft and other credit
accommodations obtained from the Mortgagee by the Mortgagor and/or
________________ hereinafter referred to, irrespective of number, as DEBTOR,
and to secure the payment of the same and those that may hereafter be obtained,
the principal or all of which is hereby fixed at Two Hundred Fifty Thousand
(P250,000.00) Pesos, Philippine Currency, as well as those that the Mortgagee

may extend to the Mortgagor and/or DEBTOR, including interest and expenses
or any other obligation owing to the Mortgagee, whether direct or indirect,
principal or secondary as appears in the accounts, books and records of the
Mortgagee, the Mortgagor does hereby transfer and convey by way of mortgage
unto the Mortgagee, its successors or assigns, the parcels of land which are
described in the list inserted on the back of this document, and/or appended
hereto, together with all the buildings and improvements now existing or which
may hereafter be erected or constructed thereon, of which the Mortgagor declares
that he/it is the absolute owner free from all liens and incumbrances. . . .

and there is no substantive difference between the terms utilized in both clauses
securing future advances.
To recall, the critical issue resolved in Prudential was whether the "blanket
mortgage" clause applies even to subsequent advancements for which other securities
were intended. We then declared that the special security for subsequent loans must
first be exhausted in a situation where the creditor desires to foreclose on the
"subsequent" loans that are due. However, the "dragnet clause" allows the creditor to
hold on to the first security in case of deficiency after foreclosure on the special security
for the subsequent loans.
In Prudential, we disallowed the petitioner's attempt at multiple foreclosures, as
it foreclosed on all of the mortgaged properties serving as individual securities for each
of the three loans. This Court then laid down the rule, thus:
TacSAE

where deeds absolute in form were executed to secure any and all kinds of
indebtedness that might subsequently become due, a balance due on a note, after
exhausting the special security given for the payment of such note, was, in the
absence of a special agreement to the contrary, within the protection of the
mortgage, notwithstanding the giving of the special security. This is recognition
that while the "dragnet clause" subsists, the security specifically executed for
subsequent loans must first be exhausted before the mortgaged property can be
resorted to.

However, this does not prevent the creditor from foreclosing on the security for
the first loan if that loan is past due, because there is nothing in law that prohibits the
exercise of that right. Hence, in the case at bench, Premiere Bank has the right to
foreclose on the Wack Wack Membership, the security corresponding to the first
promissory note, with the deed of assignment that originated the "dragnet clause". This
conforms to the doctrine in Prudential, as, in fact, acknowledged in the decision's
penultimate paragraph, viz.:
Petitioner, however, is not without recourse. Both the Court of Appeals and the
trial court found that respondents have not yet paid the P250,000.00 and gave no
credence to their claim that they paid the said amount when they paid petitioner
P2,000,000.00. Thus, the mortgaged property could still be properly subjected to

foreclosure proceedings for the unpaid P250,000.00 loan, and as mentioned

earlier, for any deficiency after D/A SFDX#129, security for PN BD#76/c-345,
has been exhausted, subject of course to defenses which are available to
respondents.

In any event, even without this Court's prescription in Prudential, the release of
the Wack Wack Membership as the pledged security for Promissory Note 714-Y cannot
yet be done as sought by Central Surety. The chain of contracts concluded between
Premiere Bank and Central Surety reveals that the Wack Wack Membership, which
stood as security for Promissory Note 714-Y, and which also stands as security for
subsequent debts of Central Surety, is a security in the form of a pledge. Its return to
Central Surety upon the pretext that Central Surety is entitled to pay only the obligation
in Promissory Note No. 714-Y, will result in the extinguishment of the pledge, even
with respect to the subsequent obligations, because Article 2110 of the Civil Code
provides:
(I)f the thing pledged is returned by the pledgor or owner, the pledge is
extinguished. Any stipulation to the contrary is void.
acCTIS

This is contrary to the express agreement of the parties, something which Central Surety
wants this Court to undo. We reiterate that, as a rule, courts cannot intervene to save
parties from disadvantageous provisions of their contracts if they consented to the same
freely and voluntarily. 39
Attorney's Fees
The final issue is the propriety of attorney's fees. The trial court based its award
on the supposed malice of Central Surety in instituting this case against Premiere Bank.
We find no malice on the part of Central Surety; indeed, we are convinced that Central
Surety filed the case in the lower court in good faith, upon the honest belief that it had
the prerogative to choose to which loan its payments should be applied.
Malicious prosecution, both in criminal and civil cases, requires the presence of
two elements, to wit: (a) malice and (b) absence of probable cause. Moreover, there
must be proof that the prosecution was prompted by a sinister design to vex and
humiliate a person; and that it was initiated deliberately, knowing that the charge was
false and baseless. Hence, the mere filing of what turns out to be an unsuccessful suit
does not render a person liable for malicious prosecution, for the law could not have
meant to impose a penalty on the right to litigate. 40 Malice must be proved with clear
and convincing evidence, which we find wanting in this case.
WHEREFORE, the instant petition is PARTIALLY GRANTED. The assailed
Decision of the Court of Appeals in CA-G.R. CV No. 85930 dated July 31, 2006, as
well as its Resolution dated January 4, 2007, are REVERSED and SET ASIDE. The
Decision of the Regional Trial Court of Makati City, Branch 132, in Civil Case No. 00-

1536, dated July 12, 2005, is REINSTATED with the MODIFICATION that the award
of attorney's fees to petitioner is DELETED. No pronouncement as to costs.
EDHCSI

SO ORDERED.
Ynares-Santiago, Austria-Martinez, Chico-Nazario and Leonardo-de Castro, *
JJ., concur.
(Premiere Development Bank v. Central Surety & Insurance Company, Inc., G.R. No.
176246, [February 13, 2009], 598 PHIL 827-862)
|||

FIRST DIVISION
[G.R. No. 162074. July 13, 2009.]
CECILLEVILLE REALTY AND SERVICE CORPORATION,
petitioner, vs. SPOUSES TITO ACUA and OFELIA B. ACUA,
respondents.

DECISION

CARPIO, J :
p

The Case
This is a petition for review 1 assailing the Amended Decision 2 promulgated
on 30 January 2004 of the Court of Appeals (appellate court) in CA-G.R. CV No.
56623. The appellate court affirmed the Resolution 3 dated 14 February 1997 of Branch
225, Regional Trial Court of Quezon City (trial court) in Civil Case No. Q-96-27837
which dismissed the complaint of petitioner Cecilleville Realty and Service
Corporation (Cecilleville) against respondent spouses Tito and Ofelia Acua (Acua
spouses) on the ground of prescription.
The Facts
The trial court summarized the facts of the case as follows:
Sometime in September 1981, the defendants [Acua spouses] requested the
plaintiff [Cecilleville] thru its President, Jose A. Resurreccion, to lend to them for
one (1) year, two (2) parcels of land owned by the plaintiff as collaterals to secure
a credit line from the Prudential Bank and Trust Company ["Prudential"]. On
September 21, 1981, thru a secretary's certificate and by virtue of a board
resolution, the plaintiff lent to defendants the said owner's copies of certificate of
title. However, on September 28, 1991, defendant Ofelia B. Acua forged the
signature of Lucia R. Reyes as corporate secretary. By virtue of the fake
secretary's certificate, the defendants were able to obtain a personal loan from
"Prudential" in the sum of P610,000.00 with said certificates as collaterals and
upon signing a Real Estate Mortgage dated September 30, 1981 and two
Promissory Notes dated October 7, 1981 and October 15, 1981. Due to the
defendants' default in the payment of their indebtedness, "Prudential" threatened
to extrajudicially foreclose the real estate mortgage on plaintiff's properties thru
a notice of auction sale. To avoid foreclosure proceedings on its properties, the
plaintiff was forced to settle defendants' obligations to "Prudential" in the amount
of P3,367,474.42. Subsequently, several written demands for reimbursement

were sent by the plaintiff to the defendants. Nevertheless, the defendants failed to
pay their obligation. Hence, the filing of the instant case.
TEIHDa

In their motion, defendants contend that the instant complaint should be

dismissed on the grounds of prescription, laches and res judicata. The defendants
insist that the action of the plaintiff is based on fraud or forgery of a secretary's
certificate. The forgery allegedly happened on September 28, 1981 or fifteen (15)
years ago. Therefore, the plaintiff should have brought the instant action within
the period provided for in Article 1146 of the Civil Code. Moreover, the
defendants argue that the plaintiff's inordinate delay in the filing of the instant
suit clearly shows that it has abandoned its claim against the defendants and
therefore guilty of laches. Consequently, the defendants aver that the forgery
issue has been passed upon in CA-G.R. CV No. 35452. The same was litigated in
Civil Case No. Q-59789, Branch 78, Regional Trial Court, Quezon City "where
the plaintiff tried unsuccessfully to have the contract of real estate mortgage
involving the same properties, between defendant Ofelia Acua and the
Prudential Bank and Trust Company, annulled on the same ground raised here."
Hence, the principle of res judicata applies. 4

This Court, in its resolution in G.R. No. 109488, affirmed the appellate court's
decision in CA-G.R. CV No. 35452 that Cecilleville ratified the mortgage contract
between the Acua spouses and Prudential. The dispositive portion of the decision in
CA-G.R. CV No. 35452 reads:
WHEREFORE, the appeal of appellant Cecilleville Realty and Service
Corporation should be, as it is hereby, DISMISSED. Finding merit to the appeal
of Prudential Bank & Trust Company, the writ of preliminary injunction
heretofore issued by the trial court is hereby LIFTED, and appellant Bank can
now proceed with the foreclosure proceedings of the mortgaged properties.
As a corollary thereto, appellant Cecilleville is hereby ordered to pay appellant
Prudential Bank the interests, penalty and service charges stipulated in the
promissory notes secured by the mortgage, accruing from the time the writ of
preliminary injunction was issued until the said promissory notes are fully paid.
No costs.
SO ORDERED. 5

After Cecilleville paid Prudential, Cecilleville filed the present action to claim
reimbursement from the Acua spouses.
The Ruling of the Trial Court
In its Resolution dated 14 February 1997, the trial court dismissed Cecilleville's
complaint on the ground of prescription. The trial court found that the complaint
expressly alleged that Cecilleville discovered the fraud on 28 September 1981.

Therefore, Cecilleville had only four years from discovery of the fraud within which to
file the appropriate action. The present action was filed on 20 June 1996, clearly beyond
the prescriptive period.
The Ruling of the Appellate Court
Cecilleville lodged an appeal before the appellate court. In its Decision
promulgated on 14 January 2003, the appellate court reversed and set aside the trial
court's ruling and decided in favor of Cecilleville. The appellate court stated that
Cecilleville has two causes of action against the Acua spouses: reimbursement of a
sum of money and damages arising from fraud. Cecilleville's action for reimbursement
was filed on 20 June 1996, barely two months after 23 April 1996, when Cecilleville
made an extrajudicial demand to pay. Two months is well within the five-year
prescriptive period prescribed in Article 1149 of the Civil Code. On the other hand, the
appellate court declared that the complaint did not mention the date of Cecilleville's
discovery of Ofelia Acua's forgery of Lucia Reyes' signature. The appellate court
concluded that the trial court erred in declaring Cecilleville's claim for damages barred
by prescription and laches. The appellate court also declared that there is no identity of
parties, subject matter and causes of action between the present case and that of G.R.
No. 109488 between Cecilleville and Prudential. Hence, the principle of res judicata
does not apply.
caIEAD

The dispositive portion of the appellate court's 14 January 2003 Decision reads:
WHEREFORE, the instant appeal is GRANTED and the assailed resolution of
the Regional Trial Court of Quezon City, Branch 225, in Civil Case No. Q-9627837 is hereby REVERSED and SET ASIDE. Let this case be remanded to the
trial court for further proceedings.
SO ORDERED. 6

On motion for reconsideration filed by the Acua spouses, the appellate court
promulgated an amended decision on 30 January 2004 which affirmed the trial court's
decision. The appellate court ruled that Cecilleville's claim for reimbursement of its
payment to Prudential is predicated on the fraud allegedly committed by the Acua
spouses. Without the alleged personal loan of the Acua spouses, there would be no
foreclosure to forestall and no basis for Cecilleville's claim for reimbursement. Actions
for relief on the ground of fraud may be brought within four years from discovery of
the fraud. In its brief filed before the appellate court, Cecilleville stated that it learned
of the existence of the falsified Secretary's Certificate on 20 January 1987. Cecilleville
filed the present case on 20 June 1996, or more than nine years after the discovery of
the fraud. Thus, Cecilleville's action is barred by prescription. The dispositive portion
of the appellate court's amended decision reads:

WHEREFORE, the instant motion for reconsideration is GRANTED. The

decision, dated 14 January 2003, of this Court is accordingly, RECONSIDERED
and SET ASIDE. The assailed resolution, dated 14 February 1997, of the
Regional Trial Court of Quezon City, Branch 225, in Civil Case No. Q-96-27837,
is hereby AFFIRMED.
SO ORDERED. 7

The Issues
Cecilleville mentions two grounds in its appeal before this Court. First, the
appellate court gravely erred because its amended decision is premised on a
misapprehension of facts. Cecilleville alleges that its claim for reimbursement is not
based on fraud but on a ratified third-party real estate mortgage contract to
accommodate the Acua spouses. Second, the appellate court's amended decision is not
in accord with law or with this Court's decisions. Cecilleville theorizes that its
ratification extinguished the action to annul the real estate mortgage and made the real
estate mortgage valid and enforceable. Thus, Cecilleville demands reimbursement on
the basis of a ratified real estate mortgage.
The Ruling of the Court
We see merit in the petition.

TADIHE

The facts of the case are simple: The Acua spouses obtained a loan from
Prudential secured by a real estate mortgage on Cecilleville's property. The Acua
spouses defaulted on their loan, and Prudential initiated foreclosure proceedings.
Cecilleville tried to annul the real estate mortgage but failed when the Court ruled that
Cecilleville had ratified the real estate mortgage. In effect, Cecilleville became a thirdparty accommodation mortgagor. Cecilleville paid Prudential to avoid foreclosure of
its mortgaged properties. Cecilleville repeatedly asked the Acua spouses to reimburse
what it paid Prudential, but the Acua spouses refused to do so.
From the facts above, we see that Cecilleville paid the debt of the Acua spouses
to Prudential as an interested third party. The second paragraph of Article 1236 of the
Civil Code reads:
Whoever pays for another may demand from the debtor what he has paid, except
that if he paid without the knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial to the debtor.

Even if the Acua spouses insist that Cecilleville's payment to Prudential was without
their knowledge or against their will, Article 1302 (3) of the Civil Code states that
Cecilleville still has a right to reimbursement, thus:

When, even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of confusion as
to the latter's share.

Cecilleville clearly has an interest in the fulfillment of the obligation because it owns
the properties mortgaged to secure the Acua spouses' loan. When an interested party
pays the obligation, he is subrogated in the rights of the creditor. 8 Because of its
payment of the Acua spouses' loan, Cecilleville actually steps into the shoes of
Prudential and becomes entitled, not only to recover what it has paid, but also to
exercise all the rights which Prudential could have exercised. There is, in such cases,
not a real extinguishment of the obligation, but a change in the active subject. 9
Cecilleville's cause of action against the Acua spouses is one created by law;
hence, the action prescribes in ten years. 10 Prescription accrues from the date of
payment by Cecilleville to Prudential of the Acua spouses' debt on 5 April 1994.
Cecilleville's present complaint against the Acua spouses was filed on 20 June 1996,
which was almost two months from the extrajudicial demands to pay on 9 and 23 April
1996. Whether we use the date of payment, the date of the last written demand for
payment, or the date of judicial demand, it is clear that Cecilleville's cause of action has
not yet prescribed.
Finally, considering the length of time of litigation and the fact that the records
of the case are before this Court, we deem it prudent to declare the Acua spouses'
liability to Cecilleville in the following amounts:
a. P3,367,474.42, representing the amount paid by Cecilleville to
Prudential; and
ISTECA

b. interest on the P3,367,474.42 at 16% per annum, this being the interest
rate upon default on the promissory note to Prudential to which
Cecilleville is subrogated. Interest shall be calculated from 9 April
1996, the date of Cecilleville's first written demand to the Acua
spouses after its payment to Prudential.
The Acua spouses shall also pay attorney's fees to Cecilleville equivalent to 5% of
the total award. 11
WHEREFORE, we GRANT the petition. We SET ASIDE the Amended
Decision promulgated on 30 January 2004 of the Court of Appeals in CA-G.R. CV No.
56623. Respondent spouses Tito Acua and Ofelia B. Acua shall pay petitioner
Cecilleville Realty and Service Corporation the following: P3,367,474.42, representing
the amount paid by Cecilleville Realty and Service Corporation to Prudential Bank and
Trust Company; and interest on the P3,367,474.42 at 16% per annum. Interest shall be
calculated from 9 April 1996 until full payment. Spouses Tito Acua and Ofelia B.

Acua shall also pay attorney's fees to Cecilleville Realty and Service Corporation
equivalent to 5% of the total award.
SO ORDERED.
Puno, C.J., Corona, Leonardo-de Castro and Bersamin, JJ., concur.
(Cecilleville Realty and Service Corp. v. Spouses Acua, G.R. No. 162074, [July 13,
2009], 610 PHIL 92-100)
|||

THIRD DIVISION
[G.R. No. 167232. July 31, 2009.]
D.B.T. MAR-BAY CONSTRUCTION, INCORPORATED, petitioner,
vs. RICAREDO PANES, ANGELITO PANES, SALVADOR CEA,
ABOGADO MAUTIN, DONARDO PACLIBAR, ZOSIMO
PERALTA and HILARION MANONGDO, respondents.

DECISION

NACHURA, J :
p

Before this Court is a Petition 1 for Review on Certiorari under Rule 45 of the
Rules of Civil Procedure, assailing the Court of Appeals (CA) Decision 2 dated October
25, 2004 which reversed and set aside the Order 3 of the Regional Trial Court (RTC)
of Quezon City, Branch 216, dated November 8, 2001.
The Facts
Subject of this controversy is a parcel of land identified as Lot Plan Psu-123169,
4 containing an area of Two Hundred Forty Thousand One Hundred Forty-Six
(240,146) square meters, and situated at Barangay (Brgy.) Pasong Putik, Novaliches,
Quezon City (subject property). The property is included in Transfer Certificate of Title
(TCT) No. 200519, 5 entered on July 19, 1974 and issued in favor of B.C. Regalado &
Co. (B.C. Regalado). It was conveyed by B.C. Regalado to petitioner D.B.T. Mar-Bay
Construction, Inc. (DBT) through a dacion en pago 6 for services rendered by the latter
to the former.
On June 24, 1992, respondents Ricaredo P. Panes (Ricaredo), his son Angelito
P. Panes (Angelito), Salvador Cea, Abogado Mautin, Donardo Paclibar, Zosimo P.
Peralta, and Hilarion Manongdo (herein collectively referred to as respondents) filed a
Complaint 7 for "Quieting of Title with Cancellation of TCT No. 200519 and all Titles
derived thereat (sic), Damages, with Petition for the Issuance of Injunction with Prayer
for the Issuance of Restraining Order Ex-Parte, Etc." against B.C. Regalado, Mar-Bay
Realty, Inc., Spouses Gereno Brioso and Criselda M. Brioso, Spouses Ciriaco and
Nellie Mariano, Avelino C. Perdido and Florentina Allado, Eufrocina A. Maborang and
Fe Maborang, Spouses Jaime and Rosario Tabangcura, Spouses Oscar Ikalina and the
Register of Deeds (RD) of Quezon City. Subsequently, respondents filed an Amended
Complaint 8 and a Second Amended Complaint 9 particularly impleading DBT as one
of the defendants.
TCHEDA

In the Complaints, Ricaredo alleged that he is the lawful owner and claimant of
the subject property which he had declared for taxation purposes in his name, and
assessed in the amount of P2,602,190.00 by the City Assessor of Quezon City as of the
year 1985. Respondents alleged that per Certification 10 of the Department of
Environment and Natural Resources (DENR) National Capital Region (NCR) dated
May 7, 1992, Lot Plan Psu-123169 was verified to be correct and on file in said office,
and approved on July 23, 1948.
Respondents also claimed that Ricaredo, his immediate family members, and the
other respondents had been, and still are, in actual possession of the portions of the
subject property, and their possession preceded the Second World War. To perfect his
title in accordance with Act No. 496 (The Land Registration Act) as amended by
Presidential Decree (P.D.) No. 1529 (The Property Registration Decree), Ricaredo filed
with the RTC of Quezon City, Branch 82 a case docketed as LRC Case No. Q-91-011,
with LRC Rec. No. N-62563. 11
Respondents averred that in the process of complying with the publication
requirements for the Notice of Initial Hearing with the Land Registration Authority
(LRA), it was discovered by the Mapping Services of the LRA that there existed an
overlapping of portions of the land subject of Ricaredo's application, with the
subdivision plan of B.C. Regalado. The said portion had, by then, already been
conveyed by B.C. Regalado to DBT.
Ricaredo asseverated that upon verification with the LRA, he found that the
subdivision plan of B.C. Regalado was deliberately drawn to cover portions of the
subject property. Respondents claimed that the title used by B.C. Regalado in the
preparation of the subdivision plan did not actually cover the subject property. They
asserted that from the records of B.C. Regalado, they gathered that TCT Nos. 211081,
12 211095 13 and 211132, 14 which allegedly included portions of the subject property,
were derived from TCT No. 200519. However, TCT No. 200519 only covered Lot 503
of the Tala Estate with an area of Twenty-Two Thousand Six Hundred Fifteen (22,615)
square meters, and was different from those mentioned in TCT Nos. 211081, 211095
and 211132. According to respondents, an examination of TCT No. 200519 would
show that it was derived from TCT Nos. 14814, 15 14827, 16 14815 17 and T-28.
In essence, respondents alleged that B.C. Regalado and DBT used the derivative
titles which covered properties located far from Pasong Putik, Novaliches, Quezon City
where the subject property is located, and B.C. Regalado and DBT then offered the
same for sale to the public. Respondents thus submitted that B.C Regalado and DBT
through their deliberate scheme, in collusion with others, used (LRC) Pcs-18345 as
shown in the consolidation-subdivision plan to include the subject property covered by
Lot Plan Psu-123169.
cITaCS

In his Answer 18 dated July 24, 1992, the RD of Quezon City interposed the
defense that at the time of registration, he found all documents to be in order.
Subsequently, on December 5, 1994, in his Motion 19 for Leave to Admit Amended

Answer, with the Amended Answer attached, he admitted that he committed a grave
mistake when he earlier said that TCT No. 200519 covered only one lot, i.e. Lot 503.
He averred that upon careful examination, he discovered that TCT No. 200519 is
composed of 17 pages, and actually covered 54 lots, namely: Lots 503, 506, 507, 508,
509, 582, 586, 655, 659, 686, 434, 495, 497, 299, 498, 499, 500, 501, 502, 493, 692,
776, 496, 785, 777, 786, 780, 783, 505, 654, 660, 661, 663, 664, 665, 668, 693, 694,
713, 716, 781, 779, 784, 782, 787, 893, 1115, 1114, 778, 669 and 788, all of the Tala
Estate. Other lots included therein are Lot 890-B of Psd 36854, Lot 2 of (LRC) Pcs
12892 and Lot 3 of (LRC) Pcs 12892. Thus, respondents' allegation that Lots 661, 664,
665, 693 and 694 of the Tala Estate were not included in TCT No. 200519 was not true.
On December 28, 1993, then defendants Spouses Jaime and Rosario Tabangcura
(Spouses Tabangcura) filed their Answer 20 with Counterclaim, claiming that they
were buyers in good faith and for value when they bought a house and lot covered by
TCT No. 211095 from B.C. Regalado, the latter being a subdivision developer and
registered owner thereof, on June 30, 1986. When respondent Abogado Mautin entered
and occupied the property, Spouses Tabangcura filed a case for Recovery of Property
before the RTC, Quezon City, Branch 97 which rendered a decision 21 in their favor.
On its part, DBT, traversing the complaint, alleged that it is the legitimate owner
and occupant of the subject property pursuant to a dacion en pago executed by B.C.
Regalado in the former's favor; that respondents were not real parties-in-interests
because Ricaredo was a mere claimant whose rights over the property had yet to be
determined by the RTC where he filed his application for registration; that the other
respondents did not allege matters or invoke rights which would entitle them to the
relief prayed for in their complaint; that the complaint was premature; and that the
action inflicted a chilling effect on the lot buyers of DBT. 22
The RTC's Rulings
On June 15, 2000, the RTC through Judge Marciano I. Bacalla (Judge Bacalla),
rendered a Decision 23 in favor of the respondents. The RTC held that the testimony of
Ricaredo that he occupied the subject property since 1936 when he was only 16 years
old had not been rebutted; that Ricaredo's occupation and cultivation of the subject
property for more than thirty (30) years in the concept of an owner vested in him
equitable ownership over the same by virtue of an approved plan, Psu 123169; that the
subject property was declared under the name of Ricaredo for taxation purposes; 24 and
that the subject property per survey should not have been included in TCT No. 200519,
registered in the name of B.C. Regalado and ceded to DBT. The RTC further held that
Spouses Tabangcura failed to present satisfactory evidence to prove their claim. Thus,
the RTC disposed of the case in this wise:
WHEREFORE, in view of the foregoing considerations, judgment is hereby
rendered declaring Certificate of Title No. 200519 and all titles derived thereat as
null and void insofar as the same embrace the land covered by Plan PSU-123169
with an area of 240,146 square meters in the name of Ricaredo Panes; ordering

defendant DBT Marbay Realty, Inc. to pay plaintiff Ricaredo Panes the sum of
TWENTY THOUSAND (P20,000) pesos as attorney's fees plus costs of suit.
SO ORDERED.

On September 12, 2000, DBT filed a Motion 25 for Reconsideration, based on

the grounds of prescription and laches. DBT also disputed Ricaredo's claim of open,
adverse, and continuous possession of the subject property for more than thirty (30)
years, and asserted that the subject property could not be acquired by prescription or
adverse possession because it is covered by TCT No. 200519.
While the said Motion for Reconsideration was pending, Judge Bacalla passed
away.
Meanwhile, on January 2, 2001, a Motion 26 for Intervention and a Complaint
in Intervention were filed by Atty. Andres B. Pulumbarit (Atty. Pulumbarit),
representing the Don Pedro/Don Jose de Ocampo Estate. The intervenor alleged that
the subject property formed part of the vast tract of land with an area of 117,000
hectares, covered by Original Certificate of Title (OCT) No. 779 issued by the
Honorable Norberto Romualdez on March 14, 1913 under Decree No. 10139, which
belongs to the Estate of Don Pedro/Don Jose de Ocampo. Thus, the Complaint 27 in
Intervention prayed that the RTC's Decision be reconsidered; that the legitimacy and
superiority of OCT 779 be upheld; and that the subject property be declared as
belonging to the Estate of Don Pedro/Don Jose de Ocampo.
In its Order 28 dated March 13, 2001, the RTC, through Acting Judge Modesto
C. Juanson (Judge Juanson), denied Atty. Pulumbarit's Motion for Intervention because
a judgment had already been rendered pursuant to Section 2, 29 Rule 19 of the 1997
Rules of Civil Procedure.
On April 10, 2001, the RTC issued an Order 30 stating that there appeared to be
a need for a clarificatory hearing before it could act on DBT's Motion for
Reconsideration. Thus, a hearing was held on May 17, 2001. Thereafter, supplemental
memoranda were required of the parties. 31 Both parties complied. 32 However, having
found that the original copy of TCT No. 200519 was not submitted to it for comparison
with the photocopy thereof on file, the RTC directed DBT to present the original or
certified true copy of the TCT on August 21, 2001. 33 Respondents moved to reconsider
the said directive 34 but the same was denied. 35 DBT, on the other hand, manifested
that a copy of TCT No. 200519, consisting of 17 pages, had already been admitted in
evidence; and that because of the fire in the Office of the RD in Quezon City sometime
in 1988, DBT, despite diligent effort, could not secure an original or certified true copy
of said TCT. Instead, DBT submitted a certified true copy of Consolidated Subdivision
Plan Pcs 18345. 36

On November 8, 2001, the RTC, through Judge Juanson, issued an Order 37

reversing the earlier RTC Decision and dismissing the Complaint for lack of merit. The
RTC held that prescription does not run against registered land; hence, a title once
registered cannot be defeated even by adverse, open or notorious possession. Moreover,
the RTC opined that even if the subject property could be acquired by prescription,
respondents' action was already barred by prescription and/or laches because they never
asserted their rights when B.C. Regalado registered the subject property in 1974; and
later developed, subdivided and sold the same to individual lot buyers.
On December 18, 2001, respondents filed a Motion for Reconsideration 38
which the RTC denied in its Order 39 dated June 17, 2002. Aggrieved, respondents
appealed to the CA. 40
CAIHaE

The CA's Ruling

On October 25, 2004, the CA reversed and set aside the RTC Orders dated
November 8, 2001 and June 17, 2002 and reinstated the RTC Decision dated June 15,
2000. The CA held that the properties described and included in TCT No. 200519 are
located in San Francisco del Monte, San Juan del Monte, Rizal and Cubao, Quezon City
while the subject property is located in Brgy. Pasong Putik, Novaliches, Quezon City.
Furthermore, the CA held that Engr. Vertudazo's testimony that there is a gap of around
1,250 meters between Lot 503 and Psu 123169 was not disproved or refuted. The CA
found that Judge Juanson committed a procedural infraction when he entertained issues
and admitted evidence presented by DBT in its Motion for Reconsideration which were
never raised in the pleadings and proceedings prior to the rendition of the RTC
Decision. The CA opined that DBT's claims of laches and prescription clearly appeared
to be an afterthought. Lastly, the CA held that DBT's Motion for Reconsideration was
not based on grounds enumerated in the Rules of Procedure. 41
Petitioner filed a Motion for Reconsideration, 42 which was, however, denied by the CA
in its Resolution 43 dated February 22, 2005.
Hence, this Petition.
The Issues
Petitioner raises the following as grounds for this Petition:
I.
PETITIONER'S FAILURE TO ALLEGE PRESCRIPTION IN ITS ANSWER
IS NOT A WAIVER OF SUCH DEFENSE.
II.

IT IS NOT ERRONEOUS TO REQUIRE THE PRODUCTION OF A

CERTIFIED TRUE COPY OF TCT NO. 200519 AFTER THE DECISION ON
THE MERITS HAS BEEN RENDERED BUT BEFORE IT BECAME FINAL.
III.
A REGISTERED LAND CAN NOT BE ACQUIRED BY ACQUISITIVE
PRESCRIPTION.
IV.
THE TESTIMONY OF ENGR. VERTUDAZO ON THE BASIS OF THE
TECHNICAL DESCRIPTION OF LOT 503 IN AN INCOMPLETE
DOCUMENT IS UNRELIABLE.
V.
MR. PANES HAS NEVER BEEN IN OPEN, ADVERSE AND
CONTINUOUS POSSESSION OF THE SUBJECT PROPERTY FOR MORE
THAN THIRTY (30) YEARS. 44

Distilled from the petition and the responsive pleadings, and culled from the arguments of
the parties, the issues may be reduced to two questions, namely:
1) Did the RTC err in upholding DBT's defenses of prescription and
laches as raised in the latter's Motion for Reconsideration?
2) Which between DBT and the respondents have a better right over the
subject property?
Our Ruling
We answer the first question in the affirmative.
It is true that in Dino v. Court of Appeals 45 we ruled:
(T)rial courts have authority and discretion to dismiss an action on the ground of
prescription when the parties' pleadings or other facts on record show it to be
indeed time-barred; (Francisco v. Robles, Feb. 15, 1954; Sison v. McQuaid, 50
O.G. 97; Bambao v. Lednicky, Jan. 28, 1961; Cordova v. Cordova, Jan. 14,
1958; Convets, Inc. v. NDC, Feb. 28, 1958; 32 SCRA 529; Sinaon v. Sorongan,
136 SCRA 408); and it may do so on the basis of a motion to dismiss (Sec. 1, [f]
Rule 16, Rules of Court), or an answer which sets up such ground as an
affirmative defense (Sec. 5, Rule 16), or even if the ground is alleged after
judgment on the merits, as in a motion for reconsideration (Ferrer v. Ericta,

84 SCRA 705); or even if the defense has not been asserted at all, as where
no statement thereof is found in the pleadings (Garcia v. Mathis, 100 SCRA
250; PNB v. Pacific Commission House, 27 SCRA 766; Chua Lamco v. Dioso,
et al., 97 Phil. 821); or where a defendant has been declared in default (PNB v.
Perez; 16 SCRA 270). What is essential only, to repeat, is that the facts
demonstrating the lapse of the prescriptive period be otherwise sufficiently
and satisfactorily apparent on the record; either in the averments of the
plaintiff's complaint, or otherwise established by the evidence. (Emphasis
supplied)

Indeed, one of the inherent powers of courts is to amend and control its processes so as to
make them conformable to law and justice. This includes the right to reverse itself,
especially when in its opinion it has committed an error or mistake in judgment, and
adherence to its decision would cause injustice. 46 Thus, the RTC in its Order dated
November 8, 2001 could validly entertain the defenses of prescription and laches in
DBT's motion for reconsideration.
However, the conclusion reached by the RTC in its assailed Order was erroneous. The
RTC failed to consider that the action filed before it was not simply for reconveyance but
an action for quieting of title which is imprescriptible.
Verily, an action for reconveyance can be barred by prescription. When an action for
reconveyance is based on fraud, it must be filed within four (4) years from discovery of
the fraud, and such discovery is deemed to have taken place from the issuance of the
original certificate of title. On the other hand, an action for reconveyance based on an
implied or constructive trust prescribes in ten (10) years from the date of the issuance of
the original certificate of title or transfer certificate of title. The rule is that the
registration of an instrument in the Office of the RD constitutes constructive notice to the
whole world and therefore the discovery of the fraud is deemed to have taken place at the
time of registration. 47
However, the prescriptive period applies only if there is an actual need to reconvey the
property as when the plaintiff is not in possession of the property. If the plaintiff, as the
real owner of the property also remains in possession of the property, the prescriptive
period to recover title and possession of the property does not run against him. In such a
case, an action for reconveyance, if nonetheless filed, would be in the nature of a suit for
quieting of title, an action that is imprescriptible. 48 Thus, in Vda. de Gualberto v. Go, 49
this Court held:
[A]n action for reconveyance of a parcel of land based on implied or
constructive trust prescribes in ten years, the point of reference being the date of
registration of the deed or the date of the issuance of the certificate of title over
the property, but this rule applies only when the plaintiff or the person
enforcing the trust is not in possession of the property, since if a person

claiming to be the owner thereof is in actual possession of the property, as the

defendants are in the instant case, the right to seek reconveyance, which in
effect seeks to quiet title to the property, does not prescribe. The reason for
this is that one who is in actual possession of a piece of land claiming to be the
owner thereof may wait until his possession is disturbed or his title is attacked
before taking steps to vindicate his right, the reason for the rule being, that his
undisturbed possession gives him a continuing right to seek the aid of a court of
equity to ascertain and determine the nature of the adverse claim of a third party
and its effect on his own title, which right can be claimed only by one who is in
possession.
CAHTIS

Insofar as Ricaredo and his son, Angelito, are concerned, they established in their
testimonies that, for some time, they possessed the subject property and that Angelito
bought a house within the subject property in 1987. 50 Thus, the respondents are proper
parties to bring an action for quieting of title because persons having legal, as well as
equitable, title to or interest in a real property may bring such action, and "title" here does
not necessarily denote a certificate of title issued in favor of the person filing the suit. 51
Although prescription and laches are distinct concepts, we have held, nonetheless, that in
some instances, the doctrine of laches is inapplicable where the action was filed within
the prescriptive period provided by law. Therefore, laches will not apply to this case,
because respondents' possession of the subject property has rendered their right to bring
an action for quieting of title imprescriptible and, hence, not barred by laches. Moreover,
since laches is a creation of equity, acts or conduct alleged to constitute the same must be
intentional and unequivocal so as to avoid injustice. Laches will operate not really to
penalize neglect or sleeping on one's rights, but rather to avoid recognizing a right when
to do so would result in a clearly inequitable situation. 52

Albeit the conclusion of the RTC in its Order dated November 8, 2001, which dismissed
respondents' complaint on grounds of prescription and laches, may have been erroneous,
we, nevertheless, resolve the second question in favor of DBT.
It is a well-entrenched rule in this jurisdiction that no title to registered land in derogation
of the rights of the registered owner shall be acquired by prescription or adverse
possession. 53
Article 1126 54 of the Civil Code in connection with Section 46 55 of Act No. 496 (The
Land Registration Act), as amended by Section 47 56 of P.D. No. 1529 (The Property
Registration Decree), clearly supports this rule. Prescription is unavailing not only
against the registered owner but also against his hereditary successors. Possession is a
mere consequence of ownership where land has been registered under the Torrens
system, the efficacy and integrity of which must be protected. Prescription is rightly

regarded as a statute of repose whose objective is to suppress fraudulent and stale claims
from springing up at great distances of time and surprising the parties or their
representatives when the facts have become obscure from the lapse of time or the
defective memory or death or removal of witnesses. 57
Thus, respondents' claim of acquisitive prescription over the subject property is baseless.
Under Article 1126 of the Civil Code, acquisitive prescription of ownership of lands
registered under the Land Registration Act shall be governed by special laws.
Correlatively, Act No. 496, as amended by PD No. 1529, provides that no title to
registered land in derogation of that of the registered owner shall be acquired by adverse
possession. Consequently, in the instant case, proof of possession by the respondents is
immaterial and inconsequential. 58
Moreover, it may be stressed that there was no ample proof that DBT participated in the
alleged fraud. While factual issues are admittedly not within the province of this Court, as
it is not a trier of facts and is not required to re-examine or contrast the oral and
documentary evidence anew, we have the authority to review and, in proper cases,
reverse the factual findings of lower courts when the findings of fact of the trial court are
in conflict with those of the appellate court. 59 In this regard, we reviewed the records of
this case and found no clear evidence that DBT participated in the fraudulent scheme. In
Republic v. Court of Appeals, 60 this Court gave due importance to the fact that the
private respondent therein did not participate in the fraud averred. We accord the same
benefit to DBT in this case. To add, DBT is an innocent purchaser for value and good
faith which, through a dacion en pago duly entered into with B.C. Regalado, acquired
ownership over the subject property, and whose rights must be protected under Section
32 61 of P.D. No. 1529.
Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to
the creditor as an accepted equivalent of the performance of the obligation. It is a special
mode of payment where the debtor offers another thing to the creditor, who accepts it as
an equivalent of the payment of an outstanding debt. In its modern concept, what actually
takes place in dacion en pago is an objective novation of the obligation where the thing
offered as an accepted equivalent of the performance of an obligation is considered as the
object of the contract of sale, while the debt is considered as the purchase price. 62
It must also be noted that portions of the subject property had already been sold to third
persons who, like DBT, are innocent purchasers in good faith and for value, relying on
the certificates of title shown to them, and who had no knowledge of any defect in the
title of the vendor, or of facts sufficient to induce a reasonably prudent man to inquire
into the status of the subject property. 63 To disregard these circumstances simply on the
basis of alleged continuous and adverse possession of respondents would not only be
inimical to the rights of the aforementioned titleholders, but would ultimately wreak
havoc on the stability of the Torrens system of registration.

A final note.
While the Torrens system is not a mode of acquiring title, but merely a system of
registration of titles to lands, justice and equity demand that the titleholder should not be
made to bear the unfavorable effect of the mistake or negligence of the State's agents, in
the absence of proof of his complicity in a fraud or of manifest damage to third persons.
The real purpose of the Torrens system is to quiet title to land and put a stop forever to
any question as to the legality of the title, except claims that were noted in the certificate
at the time of the registration or that may arise subsequent thereto. Otherwise, the
integrity of the Torrens system would forever be sullied by the ineptitude and
inefficiency of land registration officials, who are ordinarily presumed to have regularly
performed their duties. 64 Thus, where innocent third persons, relying on the correctness
of the certificate of title thus issued, acquire rights over the property, the court cannot
disregard those rights and order the cancellation of the certificate. The effect of such
outright cancellation will be to impair public confidence in the certificate of title. The
sanctity of the Torrens system must be preserved; otherwise, everyone dealing with the
property registered under the system will have to inquire in every instance on whether the
title had been regularly or irregularly issued, contrary to the evident purpose of the law.
Every person dealing with the registered land may safely rely on the correctness of the
certificate of title issued therefor, and the law will in no way oblige him to go behind the
certificate to determine the condition of the property. 65
WHEREFORE, the instant Petition is GRANTED and the assailed Court of Appeals
Decision dated October 25, 2004 is hereby REVERSED and SET ASIDE. A new
judgment is hereby entered DISMISSING the Complaint filed by the respondents for
lack of merit.
SO ORDERED.

CaHcET

Ynares-Santiago, Chico-Nazario, Velasco, Jr. and Peralta, JJ., concur.

(D.B.T. Mar-Bay Construction, Inc. v. Panes, G.R. No. 167232, [July 31, 2009], 612
PHIL 93-115)
|||

SECOND DIVISION
[G.R. No. 151903. October 9, 2009.]
MANUEL GO CINCO and ARACELI S. GO CINCO, petitioners, vs.
COURT OF APPEALS, ESTER SERVACIO and MAASIN
TRADERS LENDING CORPORATION, respondents.

DECISION

BRION, J :
p

Before the Court is a petition for review on certiorari 1 filed by petitioners,

spouses Manuel and Araceli Go Cinco (collectively, the spouses Go Cinco), assailing
the decision 2 dated June 22, 2001 of the Court of Appeals (CA) in CA-G.R. CV No.
47578, as well as the resolution 3 dated January 25, 2002 denying the spouses Go
Cinco's motion for reconsideration.
THE FACTUAL ANTECEDENTS
In December 1987, petitioner Manuel Cinco (Manuel) obtained a commercial
loan in the amount of P700,000.00 from respondent Maasin Traders Lending
Corporation (MTLC). The loan was evidenced by a promissory note dated December
11, 1987, 4 and secured by a real estate mortgage executed on December 15, 1987 over
the spouses Go Cinco's land and 4-storey building located in Maasin, Southern Leyte.
Under the terms of the promissory note, the P700,000.00 loan was subject to a
monthly interest rate of 3% or 36% per annum and was payable within a term of 180
days or 6 months, renewable for another 180 days. As of July 16, 1989, Manuel's
outstanding obligation with MTLC amounted to P1,071,256.66, which amount
included the principal, interest, and penalties. 5
To be able to pay the loan in favor of MTLC, the spouses Go Cinco applied for
a loan with the Philippine National Bank, Maasin Branch (PNB or the bank) and offered
as collateral the same properties they previously mortgaged to MTLC. The PNB
approved the loan application for P1.3 Million 6 through a letter dated July 8, 1989; the
release of the amount, however, was conditioned on the cancellation of the mortgage in
favor of MTLC.
On July 16, 1989, Manuel went to the house of respondent Ester Servacio
(Ester), MTLC's President, to inform her that there was money with the PNB for the
payment of his loan with MTLC. Ester then proceeded to the PNB to verify the
information, but she claimed that the bank's officers informed her that Manuel had no

pending loan application with them. When she told Manuel of the bank's response,
Manuel assured her there was money with the PNB and promised to execute a document
that would allow her to collect the proceeds of the PNB loan.
On July 20, 1989, Manuel executed a Special Power of Attorney 7 (SPA)
authorizing Ester to collect the proceeds of his PNB loan. Ester again went to the bank
to inquire about the proceeds of the loan. This time, the bank's officers confirmed the
existence of the P1.3 Million loan, but they required Ester to first sign a deed of
release/cancellation of mortgage before they could release the proceeds of the loan to
her. Outraged that the spouses Go Cinco used the same properties mortgaged to MTLC
as collateral for the PNB loan, Ester refused to sign the deed and did not collect the
P1.3 Million loan proceeds.
As the MTLC loan was already due, Ester instituted foreclosure proceedings
against the spouses Go Cinco on July 24, 1989.
To prevent the foreclosure of their properties, the spouses Go Cinco filed an
action for specific performance, damages, and preliminary injunction 8 before the
Regional Trial Court (RTC), Branch 25, Maasin, Southern Leyte. The spouses Go Cinco
alleged that foreclosure of the mortgage was no longer proper as there had already been
settlement of Manuel's obligation in favor of MTLC. They claimed that the assignment
of the proceeds of the PNB loan amounted to the payment of the MTLC loan. Ester's
refusal to sign the deed of release/cancellation of mortgage and to collect the proceeds
of the PNB loan were, to the spouses Go Cinco, completely unjustified and entitled
them to the payment of damages.
Ester countered these allegations by claiming that she had not been previously
informed of the spouses Go Cinco's plan to obtain a loan from the PNB and to use the
loan proceeds to settle Manuel's loan with MTLC. She claimed that she had no explicit
agreement with Manuel authorizing her to apply the proceeds of the PNB loan to
Manuel's loan with MTLC; the SPA merely authorized her to collect the proceeds of
the loan. She thus averred that it was unfair for the spouses Go Cinco to require the
release of the mortgage to MTLC when no actual payment of the loan had been made.
In a decision dated August 16, 1994, 9 the RTC ruled in favor of the spouses Go
Cinco. The trial court found that the evidence sufficiently established the existence of
the PNB loan whose proceeds were available to satisfy Manuel's obligation with
MTLC, and that Ester unjustifiably refused to collect the amount. Creditors, it ruled,
cannot unreasonably prevent payment or performance of obligation to the damage and
prejudice of debtors who may stand liable for payment of higher interest rates. 10 After
finding MTLC and Ester liable for abuse of rights, the RTC ordered the award of the
following amounts to the spouses Go Cinco:
(a) P1,044,475.15 plus 535.63 per day hereafter, representing loss of
savings on interest, by way of actual or compensatory damages, if

defendant corporation insists on the original 3% monthly interest

rate;
(b) P100,000.00 as unrealized profit;
(c) P1,000,000.00 as moral damages;
(d) P20,000.00 as exemplary damages;
(e) P22,000.00 as litigation expenses; and
(f) 10% of the total amount as attorney's fees plus costs. 11

Through an appeal with the CA, MTLC and Ester successfully secured a reversal
of the RTC's decision. Unlike the trial court, the appellate court found it significant that
there was no explicit agreement between Ester and the spouses Go Cinco for the
cancellation of the MTLC mortgage in favor of PNB to facilitate the release and
collection by Ester of the proceeds of the PNB loan. The CA read the SPA as merely
authorizing Ester to withdraw the proceeds of the loan. As Manuel's loan obligation
with MTLC remained unpaid, the CA ruled that no valid objection could be made to
the institution of the foreclosure proceedings. Accordingly, it dismissed the spouses Go
Cinco' complaint. From this dismissal, the spouses Go Cinco filed the present appeal
by certiorari.
THE PETITION
The spouses Go Cinco impute error on the part of the CA for its failure to
consider their acts as equivalent to payment that extinguished the MTLC loan; their act
of applying for a loan with the PNB was indicative of their good faith and honest
intention to settle the loan with MTLC. They contend that the creditors have the
correlative duty to accept the payment.
The spouses Go Cinco charge MTLC and Ester with bad faith and ill-motive for
unjustly refusing to collect the proceeds of the loan and to execute the deed of release
of mortgage. They assert that Ester's justifications for refusing the payment were flimsy
excuses so she could proceed with the foreclosure of the mortgaged properties that were
worth more than the amount due to MTLC. Thus, they conclude that the acts of MTLC
and of Ester amount to abuse of rights that warrants the award of damages in their
(spouses Go Cinco's) favor.
In refuting the claims of the spouses Go Cinco, MTLC and Ester raise the same
arguments they raised before the RTC and the CA. They claim that they were not aware
of the loan and the mortgage to PNB, and that there was no agreement that the proceeds
of the PNB loan were to be used to settle Manuel's obligation with MTLC. Since the
MTLC loan remained unpaid, they insist that the institution of the foreclosure

proceedings was proper. Additionally, MTLC and Ester contend that the present
petition raised questions of fact that cannot be addressed in a Rule 45 petition.
THE COURT'S RULING
The Court finds the petition meritorious.
Preliminary Considerations
Our review of the records shows that there are no factual questions involved in
this case; the ultimate facts necessary for the resolution of the case already appear in
the records. The RTC and the CA decisions differed not so much on the findings of
fact, but on the conclusions derived from these factual findings. The correctness of the
conclusions derived from factual findings raises legal questions when the conclusions
are so linked to, or are inextricably intertwined with, the appreciation of the applicable
law that the case requires, as in the present case. 12 The petition raises the issue of
whether the loan due the MTLC had been extinguished; this is a question of law that
this Court can fully address and settle in an appeal by certiorari.
Payment
Extinguishing Obligations

as

Mode

of

Obligations are extinguished, among others, by payment or performance, 13 the

mode most relevant to the factual situation in the present case. Under Article 1232 of
the Civil Code, payment means not only the delivery of money but also the
performance, in any other manner, of an obligation. Article 1233 of the Civil Code
states that "a debt shall not be understood to have been paid unless the thing or service
in which the obligation consists has been completely delivered or rendered, as the case
may be". In contracts of loan, the debtor is expected to deliver the sum of money due
the creditor. These provisions must be read in relation with the other rules on payment
under the Civil Code, 14 which rules impliedly require acceptance by the creditor of
the payment in order to extinguish an obligation.
In the present case, Manuel sought to pay Ester by authorizing her, through an
SPA, to collect the proceeds of the PNB loan an act that would have led to payment
if Ester had collected the loan proceeds as authorized. Admittedly, the delivery of the
SPA was not, strictly speaking, a delivery of the sum of money due to MTLC, and Ester
could not be compelled to accept it as payment based on Article 1233. Nonetheless, the
SPA stood as an authority to collect the proceeds of the already-approved PNB loan
that, upon receipt by Ester, would have constituted as payment of the MTLC loan. 15
Had Ester presented the SPA to the bank and signed the deed of release/cancellation of
mortgage, the delivery of the sum of money would have been effected and the
obligation extinguished. 16 As the records show, Ester refused to collect and allow the
cancellation of the mortgage.

Under these facts, Manuel posits two things: first, that Ester's refusal was based
on completely unjustifiable grounds; and second, that the refusal was equivalent to
payment that led to the extinguishment of the obligation.
a. Unjust Refusal to Accept Payment
After considering Ester's arguments, we agree with Manuel that Ester's refusal
of the payment was without basis.
Ester refused to accept the payment because the bank required her to first sign a
deed of release/cancellation of the mortgage before the proceeds of the PNB loan could
be released. As a prior mortgagee, she claimed that the spouses Go Cinco should have
obtained her consent before offering the properties already mortgaged to her as security
for the PNB loan. Moreover, Ester alleged that the SPA merely authorized her to collect
the proceeds of the loan; there was no explicit agreement that the MTLC loan would be
paid out of the proceeds of the PNB loan.
There is nothing legally objectionable in a mortgagor's act of taking a second or
subsequent mortgage on a property already mortgaged; a subsequent mortgage is
recognized as valid by law and by commercial practice, subject to the prior rights of
previous mortgages. Section 4, Rule 68 of the 1997 Rules of Civil Procedure on the
disposition of the proceeds of sale after foreclosure actually requires the payment of the
proceeds to, among others, the junior encumbrancers in the order of their priority. 17
Under Article 2130 of the Civil Code, a stipulation forbidding the owner from
alienating the immovable mortgaged is considered void. If the mortgagor-owner is
allowed to convey the entirety of his interests in the mortgaged property, reason dictates
that the lesser right to encumber his property with other liens must also be recognized.
Ester, therefore, could not validly require the spouses Go Cinco to first obtain her
consent to the PNB loan and mortgage. Besides, with the payment of the MTLC loan
using the proceeds of the PNB loan, the mortgage in favor of the MTLC would have
naturally been cancelled.
We find it improbable for Ester to claim that there was no agreement to apply
the proceeds of the PNB loan to the MTLC loan. Beginning July 16, 1989, Manuel had
already expressed intent to pay his loan with MTLC and thus requested for an updated
statement of account. Given Manuel's express intent of fully settling the MTLC loan
and of paying through the PNB loan he would secure (and in fact secured), we also
cannot give credit to the claim that the SPA only allowed Ester to collect the proceeds
of the PNB loan, without giving her the accompanying authority, although verbal, to
apply these proceeds to the MTLC loan. Even Ester's actions belie her claim as she in
fact even went to the PNB to collect the proceeds. In sum, the surrounding
circumstances of the case simply do not support Ester's position.
b. Unjust Refusal Cannot be Equated to Payment
While Ester's refusal was unjustified and unreasonable, we cannot agree with
Manuel's position that this refusal had the effect of payment that extinguished his

obligation to MTLC. Article 1256 is clear and unequivocal on this point when it
provides that
ARTICLE 1256. If the creditor to whom tender of payment has been made
refuses without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due. [Emphasis supplied.]

In short, a refusal without just cause is not equivalent to payment; to have the effect of
payment and the consequent extinguishment of the obligation to pay, the law requires
the companion acts of tender of payment and consignation.
Tender of payment, as defined in Far East Bank and Trust Company v. Diaz
Realty, Inc., 18 is the definitive act of offering the creditor what is due him or her,
together with the demand that the creditor accept the same. When a creditor refuses the
debtor's tender of payment, the law allows the consignation of the thing or the sum due.
Tender and consignation have the effect of payment, as by consignation, the thing due
is deposited and placed at the disposal of the judicial authorities for the creditor to
collect. 19
A sad twist in this case for Manuel was that he could not avail of consignation
to extinguish his obligation to MTLC, as PNB would not release the proceeds of the
loan unless and until Ester had signed the deed of release/cancellation of mortgage,
which she unjustly refused to do. Hence, to compel Ester to accept the loan proceeds
and to prevent their mortgaged properties from being foreclosed, the spouses Go Cinco
found it necessary to institute the present case for specific performance and damages.
c. Effects of Unjust Refusal
Under these circumstances, we hold that while no completed tender of payment
and consignation took place sufficient to constitute payment, the spouses Go Cinco duly
established that they have legitimately secured a means of paying off their loan with
MTLC; they were only prevented from doing so by the unjust refusal of Ester to accept
the proceeds of the PNB loan through her refusal to execute the release of the mortgage
on the properties mortgaged to MTLC. In other words, MTLC and Ester in fact
prevented the spouses Go Cinco from the exercise of their right to secure payment of
their loan. No reason exists under this legal situation why we cannot compel MTLC
and Ester: (1) to release the mortgage to MTLC as a condition to the release of the
proceeds of the PNB loan, upon PNB's acknowledgment that the proceeds of the loan
are ready and shall forthwith be released; and (2) to accept the proceeds, sufficient to
cover the total amount of the loan to MTLC, as payment for Manuel's loan with MTLC.
We also find that under the circumstances, the spouses Go Cinco have
undertaken, at the very least, the equivalent of a tender of payment that cannot but have
legal effect. Since payment was available and was unjustifiably refused, justice and
equity demand that the spouses Go Cinco be freed from the obligation to pay interest
on the outstanding amount from the time the unjust refusal took place; 20 they

would not have been liable for any interest from the time tender of payment was made
if the payment had only been accepted. Under Article 19 of the Civil Code, they should
likewise be entitled to damages, as the unjust refusal was effectively an abusive act
contrary to the duty to act with honesty and good faith in the exercise of rights and the
fulfillment of duty.
For these reasons, we delete the amounts awarded by the RTC to the spouses Go
Cinco (P1,044,475.15, plus P563.63 per month) representing loss of savings on
interests for lack of legal basis. These amounts were computed based on the difference
in the interest rates charged by the MTLC (36% per annum) and the PNB (17% to 18%
per annum), from the date of tender of payment up to the time of the promulgation of
the RTC decision. The trial court failed to consider the effects of a tender of payment
and erroneously declared that MTLC can charge interest at the rate of only 18% per
annum the same rate that PNB charged, not the 36% interest rate that MTLC
charged; the RTC awarded the difference in the interest rates as actual damages.
As part of the actual and compensatory damages, the RTC also awarded
P100,000.00 to the spouses Go Cinco representing unrealized profits. Apparently, if the
proceeds of the PNB loan (P1,203,685.17) had been applied to the MTLC loan
(P1,071,256.55), there would have been a balance of P132,428.62 left, which amount
the spouses Go Cinco could have invested in their businesses that would have earned
them a profit of at least P100,000.00.
We find no factual basis for this award. The spouses Go Cinco were unable to
substantiate the amount they claimed as unrealized profits; there was only their bare
claim that the excess could have been invested in their other businesses. Without more,
this claim of expected profits is at best speculative and cannot be the basis for a claim
for damages. In Lucas v. Spouses Royo, 21 we declared that:
In determining actual damages, the Court cannot rely on speculation, conjecture
or guesswork as to the amount. Actual and compensatory damages are those
recoverable because of pecuniary loss in business, trade, property, profession,
job or occupation and the same must be sufficiently proved, otherwise, if the
proof is flimsy and unsubstantiated, no damages will be given. [Emphasis
supplied.]

We agree, however, that there was basis for the award of moral and exemplary
damages and attorney's fees.
Ester's act of refusing payment was motivated by bad faith as evidenced by the
utter lack of substantial reasons to support it. Her unjust refusal, in her behalf and for
the MTLC which she represents, amounted to an abuse of rights; they acted in an
oppressive manner and, thus, are liable for moral and exemplary damages. 22 We
nevertheless reduce the P1,000,000.00 to P100,000.00 as the originally awarded
amount for moral damages is plainly excessive.

We affirm the grant of exemplary damages by way of example or correction for

the public good in light of the same reasons that justified the grant of moral damages.
As the spouses Go Cinco were compelled to litigate to protect their interests,
they are entitled to payment of 10% of the total amount of awarded damages as
attorney's fees and expenses of litigation.
WHEREFORE, we GRANT the petitioners' petition for review on certiorari,
and REVERSE the decision of June 22, 2001 of the Court of Appeals in CA-G.R. CV
No. 47578, as well as the resolution of January 25, 2002 that followed. We
REINSTATE the decision dated August 16, 1994 of the Regional Trial Court, Branch
25, Maasin, Southern Leyte, with the following MODIFICATIONS:
(1) The respondents are hereby directed to accept the proceeds of the
spouses Go Cinco's PNB loan, if still available, and to consent to the
release of the mortgage on the property given as security for the loan
upon PNB's acknowledgment that the proceeds of the loan,
sufficient to cover the total indebtedness to respondent Maasin
Traders Lending Corporation computed as of June 20, 1989, shall
forthwith be released;
(2) The award for loss of savings and unrealized profit is deleted;
(3) The award for moral damages is reduced to P100,000.00; and
(4) The awards for exemplary damages, attorney's fees, and expenses of
litigation are retained.
The awards under (3) and (4) above shall be deducted from the amount of the
outstanding loan due the respondents as of June 20, 1989. Costs against the respondents.
SO ORDERED.
Corona, * Carpio Morales, ** Nachura *** and Abad, JJ., concur.
(Spouses Cinco v. Court of Appeals, G.R. No. 151903, [October 9, 2009], 618 PHIL
104-120)
|||

FIRST DIVISION
[G.R. No. 190755. November 24, 2010.]
LAND BANK OF THE PHILIPPINES, petitioner, vs. ALFREDO
ONG, respondent.

DECISION

VELASCO, JR., J :
p

This is an appeal from the October 20, 2009 Decision of the Court of Appeals
(CA) in CA-G.R. CR-CV No. 84445 entitled Alfredo Ong v. Land Bank of the
Philippines, which affirmed the Decision of the Regional Trial Court (RTC), Branch
17 in Tabaco City.
The Facts
On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from
Land Bank Legazpi City in the amount of PhP16 million. The loan was secured by three
(3) residential lots, five (5) cargo trucks, and a warehouse. Under the loan agreement,
PhP6 million of the loan would be short-term and would mature on February 28, 1997,
while the balance of PhP10 million would be payable in seven (7) years. The Notice of
Loan Approval dated February 22, 1996 contained an acceleration clause wherein any
default in payment of amortizations or other charges would accelerate the maturity of
the loan. 1
Subsequently, however, the Spouses Sy found they could no longer pay their
loan. On December 9, 1996, they sold three (3) of their mortgaged parcels of land for
PhP150,000 to Angelina Gloria Ong, Evangeline's mother, under a Deed of Sale with
Assumption of Mortgage. The relevant portion of the document 2 is quoted as follows:
WHEREAS, we are no longer in a position to settle our obligation with the bank;
NOW THEREFORE, for and in consideration of the sum of ONE HUNDRED
FIFTY THOUSAND PESOS (P150,000.00) Philippine Currency, we hereby
these presents SELL, CEDE, TRANSFER and CONVEY, by way of sale unto
ANGELINA GLORIA ONG, also of legal age, Filipino citizen, married to
Alfredo Ong, and also a resident of Tabaco, Albay, Philippines, their heirs and
assigns, the above-mentioned debt with the said LAND BANK OF THE
PHILIPPINES, and by reason hereof they can make the necessary representation
with the bank for the proper restructuring of the loan with the said bank in their
favor;
cHECAS

That as soon as our obligation has been duly settled, the bank is authorized to
release the mortgage in favor of the vendees and for this purpose VENDEES can
register this instrument with the Register of Deeds for the issuance of the titles
already in their names.
IN WITNESS WHEREOF, we have hereunto affixed our signatures this 9th day
of December 1996 at Tabaco, Albay, Philippines.
(signed)
EVANGELINE O. SY
Vendor

(signed)
JOHNSON B. SY
Vendor

Evangeline's father, petitioner Alfredo Ong, later went to Land Bank to inform
it about the sale and assumption of mortgage. 3 Atty. Edna Hingco, the Legazpi City
Land Bank Branch Head, told Alfredo and his counsel Atty. Ireneo de Lumen that there
was nothing wrong with the agreement with the Spouses Sy but provided them with
requirements for the assumption of mortgage. They were also told that Alfredo should
pay part of the principal which was computed at PhP750,000 and to update due or
accrued interests on the promissory notes so that Atty. Hingco could easily approve the
assumption of mortgage. Two weeks later, Alfredo issued a check for PhP750,000 and
personally gave it to Atty. Hingco. A receipt was issued for his payment. He also
submitted the other documents required by Land Bank, such as financial statements for
1994 and 1995. Atty. Hingco then informed Alfredo that the certificate of title of the
Spouses Sy would be transferred in his name but this never materialized. No notice of
transfer was sent to him. 4
Alfredo later found out that his application for assumption of mortgage was not
approved by Land Bank. The bank learned from its credit investigation report that the
Ongs had a real estate mortgage in the amount of PhP18,300,000 with another bank that
was past due. Alfredo claimed that this was fully paid later on. Nonetheless, Land Bank
foreclosed the mortgage of the Spouses Sy after several months. Alfredo only learned
of the foreclosure when he saw the subject mortgage properties included in a Notice of
Foreclosure of Mortgage and Auction Sale at the RTC in Tabaco, Albay. Alfredo's other
counsel, Atty. Madrilejos, subsequently talked to Land Bank's lawyer and was told that
the PhP750,000 he paid would be returned to him. 5
On December 12, 1997, Alfredo initiated an action for recovery of sum of money
with damages against Land Bank in Civil Case No. T-1941, as Alfredo's payment was
not returned by Land Bank. Alfredo maintained that Land Bank's foreclosure without
informing him of the denial of his assumption of the mortgage was done in bad faith.
He argued that he was lured into believing that his payment of PhP750,000 would cause
Land Bank to approve his assumption of the loan of the Spouses Sy and the transfer of
the mortgaged properties in his and his wife's name. 6 He also claimed incurring
expenses for attorney's fees of PhP150,000, filing fee of PhP15,000, and PhP250,000
in moral damages. 7

Testifying for Land Bank, Atty. Hingco claimed during trial that as branch
manager she had no authority to approve loans and could not assure anybody that their
assumption of mortgage would be approved. She testified that the breakdown of
Alfredo's payment was as follows:
AcHSEa

Total:

PhP101,409.59
216,246.56
396,571.77
18,766.10
16,805.98

750,000.00
=========

applied to principal
accrued interests receivable
interests
penalties
accounts receivable

According to Atty. Hingco, the bank processes an assumption of mortgage as a

new loan, since the new borrower is considered a new client. They used character,
capacity, capital, collateral, and conditions in determining who can qualify to assume a
loan. Alfredo's proposal to assume the loan, she explained, was referred to a separate
office, the Lending Center. 8
During cross-examination, Atty. Hingco testified that several months after
Alfredo made the tender of payment, she received word that the Lending Center
rejected Alfredo's loan application. She stated that it was the Lending Center and not
her that should have informed Alfredo about the denial of his and his wife's assumption
of mortgage. She added that although she told Alfredo that the agreement between the
spouses Sy and Alfredo was valid between them and that the bank would accept
payments from him, Alfredo did not pay any further amount so the foreclosure of the
loan collaterals ensued. She admitted that Alfredo demanded the return of the
PhP750,000 but said that there was no written demand before the case against the bank
was filed in court. She said that Alfredo had made the payment of PhP750,000 even
before he applied for the assumption of mortgage and that the bank received the said
amount because the subject account was past due and demandable; and the Deed of
Assumption of Mortgage was not used as the basis for the payment. 9
The Ruling of the Trial Court
The RTC held that the contract approving the assumption of mortgage was not
perfected as a result of the credit investigation conducted on Alfredo. It noted that
Alfredo was not even informed of the disapproval of the assumption of mortgage but
was just told that the accounts of the spouses Sy had matured and gone unpaid. It ruled
that under the principle of equity and justice, the bank should return the amount Alfredo
had paid with interest at 12% per annum computed from the filing of the complaint.
The RTC further held that Alfredo was entitled to attorney's fees and litigation expenses
for being compelled to litigate. 10
The dispositive portion of the RTC Decision reads:

WHEREFORE, premises considered, a decision is rendered, ordering defendant

bank to pay plaintiff, Alfredo Ong the amount of P750,000.00 with interest at
12% per annum computed from Dec. 12, 1997 and attorney's fees and litigation
expenses of P50,000.00.
Costs against defendant bank.
SO ORDERED. 11

The Ruling of the Appellate Court

On appeal, Land Bank faulted the trial court for (1) holding that the payment of
PhP750,000 made by Ong was one of the requirements for the approval of his proposal
to assume the mortgage of the Sy spouses; (2) erroneously ordering Land Bank to return
the amount of PhP750,000 to Ong on the ground of its failure to effect novation; and
(3) erroneously affirming the award of PhP50,000 to Ong as attorney's fees and
litigation expenses.
The CA affirmed the RTC Decision. 12 It held that Alfredo's recourse is not
against the Sy spouses. According to the appellate court, the payment of PhP750,000
was for the approval of his assumption of mortgage and not for payment of arrears
incurred by the Sy spouses. As such, it ruled that it would be incorrect to consider
Alfredo a third person with no interest in the fulfillment of the obligation under Article
1236 of the Civil Code.Although Land Bank was not bound by the Deed between
Alfredo and the Spouses Sy, the appellate court found that Alfredo and Land Bank's
active preparations for Alfredo's assumption of mortgage essentially novated the
agreement.
On January 5, 2010, the CA denied Land Bank's motion for reconsideration for
lack of merit. Hence, Land Bank appealed to us.
The Issues
I
Whether the Court of Appeals erred in holding that Art. 1236 of the Civil Code
does not apply and in finding that there is no novation.
TEHIaA

II
Whether the Court of Appeals misconstrued the evidence and the law when it
affirmed the trial court decision's ordering Land Bank to pay Ong the amount of
Php750,000.00 with interest at 12% annum.
III

Whether the Court of Appeals committed reversible error when it affirmed the
award of Php50,000.00 to Ong as attorney's fees and expenses of litigation.

The Ruling of this Court

We affirm with modification the appealed decision.
Recourse is against Land Bank
Land Bank contends that Art. 1236 of the Civil Code backs their claim that
Alfredo should have sought recourse against the Spouses Sy instead of Land Bank. Art.
1236 provides:
The creditor is not bound to accept payment or performance by a third person
who has no interest in the fulfillment of the obligation, unless there is a stipulation
to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except
that if he paid without the knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial to the debtor.

We agree with Land Bank on this point as to the first part of paragraph 1 of Art.
1236. Land Bank was not bound to accept Alfredo's payment, since as far as the former
was concerned, he did not have an interest in the payment of the loan of the Spouses
Sy. However, in the context of the second part of said paragraph, Alfredo was not
making payment to fulfill the obligation of the Spouses Sy. Alfredo made a conditional
payment so that the properties subject of the Deed of Sale with Assumption of Mortgage
would be titled in his name. It is clear from the records that Land Bank required Alfredo
to make payment before his assumption of mortgage would be approved. He was
informed that the certificate of title would be transferred accordingly. He, thus, made
payment not as a debtor but as a prospective mortgagor. But the trial court stated:
[T]he contract was not perfected or consummated because of the adverse finding
in the credit investigation which led to the disapproval of the proposed
assumption. There was no evidence presented that plaintiff was informed of the
disapproval. What he received was a letter dated May 22, 1997 informing him
that the account of spouses Sy had matured but there [were] no payments. This
was sent even before the conduct of the credit investigation on June 20, 1997
which led to the disapproval of the proposed assumption of the loans of spouses
Sy. 13

Alfredo, as a third person, did not, therefore, have an interest in the fulfillment
of the obligation of the Spouses Sy, since his interest hinged on Land Bank's approval
of his application, which was denied. The circumstances of the instant case show that
the second paragraph of Art. 1236 does not apply. As Alfredo made the payment for
his own interest and not on behalf of the Spouses Sy, recourse is not against the latter.

And as Alfredo was not paying for another, he cannot demand from the debtors, the
Spouses Sy, what he has paid.
Novation of the loan agreement
Land Bank also faults the CA for finding that novation applies to the instant
case. It reasons that a substitution of debtors was made without its consent; thus, it was
not bound to recognize the substitution under the rules on novation.
On the matter of novation, Spouses Benjamin and Agrifina Lim v. M.B. Finance
Corporation 14 provides the following discussion:
Novation, in its broad concept, 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 functions one to extinguish an
existing obligation, the other to substitute a new one in its place requiring 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. . . .
IaEScC

In order that an obligation may be extinguished by another which substitutes the

same, it is imperative that it be so declared in unequivocal terms, or that the old
and the new obligations be on every point incompatible with each other. The test
of incompatibility is whether or not the two obligations can stand together, each
one having its independent existence. . . . (Emphasis supplied.)

Furthermore, Art. 1293 of the Civil Code states:

Novation which consists in substituting a new debtor in the place of the original
one, may be made even without the knowledge or against the will of the latter,
but not without the consent of the creditor. Payment by the new debtor gives him
rights mentioned in articles 1236 and 1237.

We do not agree, then, with the CA in holding that there was a novation in the
contract between the parties. Not all the elements of novation were present. Novation
must be expressly consented to. Moreover, the conflicting intention and acts of the
parties underscore the absence of any express disclosure or circumstances with which
to deduce a clear and unequivocal intent by the parties to novate the old agreement. 15
Land Bank is thus correct when it argues that there was no novation in the following:
[W]hether or not Alfredo Ong has an interest in the obligation and payment was
made with the knowledge or consent of Spouses Sy, he may still pay the

obligation for the reason that even before he paid the amount of P750,000.00 on
January 31, 1997, the substitution of debtors was already perfected by and
between Spouses Sy and Spouses Ong as evidenced by a Deed of Sale with
Assumption of Mortgage executed by them on December 9, 1996. And since the
substitution of debtors was made without the consent of Land Bank a
requirement which is indispensable in order to effect a novation of the obligation,
it is therefore not bound to recognize the substitution of debtors. Land Bank did
not intervene in the contract between Spouses Sy and Spouses Ong and did not
expressly give its consent to this substitution. 16
SEIcAD

Unjust enrichment
Land Bank maintains that the trial court erroneously applied the principle of
equity and justice in ordering it to return the PhP750,000 paid by Alfredo. Alfredo was
allegedly in bad faith and in estoppel. Land Bank contends that it enjoyed the
presumption of regularity and was in good faith when it accepted Alfredo's tender of
PhP750,000. It reasons that it did not unduly enrich itself at Alfredo's expense during
the foreclosure of the mortgaged properties, since it tendered its bid by subtracting
PhP750,000 from the Spouses Sy's outstanding loan obligation. Alfredo's recourse then,
according to Land Bank, is to have his payment reimbursed by the Spouses Sy.
We rule that Land Bank is still liable for the return of the PhP750,000 based on
the principle of unjust enrichment. Land Bank is correct in arguing that it has no
obligation as creditor to recognize Alfredo as a person with interest in the fulfillment
of the obligation. But while Land Bank is not bound to accept the substitution of debtors
in the subject real estate mortgage, it is estopped by its action of accepting Alfredo's
payment from arguing that it does not have to recognize Alfredo as the new debtor. The
elements of estoppel are:
First, the actor who usually must have knowledge, notice or suspicion of the true
facts, communicates something to another in a misleading way, either by words,
conduct or silence; second, the other in fact relies, and relies reasonably or
justifiably, upon that communication; third, the other would be harmed materially
if the actor is later permitted to assert any claim inconsistent with his earlier
conduct; and fourth, the actor knows, expects or foresees that the other would act
upon the information given or that a reasonable person in the actor's position
would expect or foresee such action. 17

By accepting Alfredo's payment and keeping silent on the status of Alfredo's

application, Land Bank misled Alfredo to believe that he had for all intents and
purposes stepped into the shoes of the Spouses Sy.
The defense of Land Bank Legazpi City Branch Manager Atty. Hingco that it
was the bank's Lending Center that should have notified Alfredo of his assumption of
mortgage disapproval is unavailing. The Lending Center's lack of notice of disapproval,
the Tabaco Branch's silence on the disapproval, and the bank's subsequent actions show

a failure of the bank as a whole, first, to notify Alfredo that he is not a recognized debtor
in the eyes of the bank; and second, to apprise him of how and when he could collect
on the payment that the bank no longer had a right to keep.
We turn then on the principle upon which Land Bank must return Alfredo's
payment. Unjust enrichment exists "when a person unjustly retains a benefit to the loss
of another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience." 18 There is unjust
enrichment under Art. 22 of the Civil Code when (1) a person is unjustly benefited, and
(2) such benefit is derived at the expense of or with damages to another. 19
Additionally, unjust enrichment has been applied to actions called accion in rem
verso. In order that the accion in rem versomay prosper, the following conditions must
concur: (1) that the defendant has been enriched; (2) that the plaintiff has suffered a
loss; (3) that the enrichment of the defendant is without just or legal ground; and (4)
that the plaintiff has no other action based on contract, quasi-contract, crime, or quasidelict. 20 The principle of unjust enrichment essentially contemplates payment when
there is no duty to pay, and the person who receives the payment has no right to receive
it. 21
The principle applies to the parties in the instant case, as, Alfredo, having been
deemed disqualified from assuming the loan, had no duty to pay petitioner bank and the
latter had no right to receive it.
Moreover, the Civil Code likewise requires under Art. 19 that "[e]very person
must, in the exercise of his rights and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good faith." Land Bank, however, did
not even bother to inform Alfredo that it was no longer approving his assumption of the
Spouses Sy's mortgage. Yet it acknowledged his interest in the loan when the branch
head of the bank wrote to tell him that his daughter's loan had not been paid. 22 Land
Bank made Alfredo believe that with the payment of PhP750,000, he would be able to
assume the mortgage of the Spouses Sy. The act of receiving payment without returning
it when demanded is contrary to the adage of giving someone what is due to him. The
outcome of the application would have been different had Land Bank first conducted
the credit investigation before accepting Alfredo's payment. He would have been
notified that his assumption of mortgage had been disapproved; and he would not have
taken the futile action of paying PhP750,000. The procedure Land Bank took in acting
on Alfredo's application cannot be said to have been fair and proper.
cSTDIC

As to the claim that the trial court erred in applying equity to Alfredo's case, we
hold that Alfredo had no other remedy to recover from Land Bank and the lower court
properly exercised its equity jurisdiction in resolving the collection suit. As we have
held in one case:
Equity, as the complement of legal jurisdiction, seeks to reach and complete
justice where courts of law, through the inflexibility of their rules and want of

power to adapt their judgments to the special circumstances of cases, are

incompetent to do so. Equity regards the spirit and not the letter, the intent and
not the form, the substance rather than the circumstance, as it is variously
expressed by different courts. 23

Another claim made by Land Bank is the presumption of regularity it enjoys and
that it was in good faith when it accepted Alfredo's tender of PhP750,000.
The defense of good faith fails to convince given Land Bank's actions. Alfredo
was not treated as a mere prospective borrower. After he had paid PhP750,000, he was
made to sign bank documents including a promissory note and real estate mortgage. He
was assured by Atty. Hingco that the titles to the properties covered by the Spouses Sy's
real estate mortgage would be transferred in his name, and upon payment of the
PhP750,000, the account would be considered current and renewed in his name. 24
Land Bank posits as a defense that it did not unduly enrich itself at Alfredo's
expense during the foreclosure of the mortgaged properties, since it tendered its bid by
subtracting PhP750,000 from the Spouses Sy's outstanding loan obligation. It is
observed that this is the first time Land Bank is revealing this defense. However, issues,
arguments, theories, and causes not raised below may no longer be posed on appeal. 25
Land Bank's contention, thus, cannot be entertained at this point.
Land Bank further questions the lower court's decision on the basis of the
inconsistencies made by Alfredo on the witness stand. It argues that Alfredo was not a
credible witness and his testimony failed to overcome the presumption of regularity in
the performance of regular duties on the part of Land Bank.
This claim, however, touches on factual findings by the trial court, and we defer
to these findings of the trial court as sustained by the appellate court. These are
generally binding on us. While there are exceptions to this rule, Land Bank has not
satisfactorily shown that any of them is applicable to this issue. 26 Hence, the rule that
the trial court is in a unique position to observe the demeanor of witnesses should be
applied and respected 27 in the instant case.
In sum, we hold that Land Bank may not keep the PhP750,000 paid by Alfredo
as it had already foreclosed on the mortgaged lands.
Interest and attorney's fees
As to the applicable interest rate, we reiterate the guidelines found in Eastern
Shipping Lines, Inc. v. Court of Appeals: 28
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which

may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can
be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when
such certainty cannot be so reasonably established at the time the demand is made,
the interest shall begin to run only from the date the judgment of the court is made
(at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest
shall, in any case, be on the amount finally adjudged.
ECAaTS

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.

No evidence was presented by Alfredo that he had sent a written demand to Land
Bank before he filed the collection suit. Only the verbal agreement between the lawyers
of the parties on the return of the payment was mentioned. 29 Consequently, the
obligation of Land Bank to return the payment made by Alfredo upon the former's
denial of the latter's application for assumption of mortgage must be reckoned from the
date of judicial demand on December 12, 1997, as correctly determined by the trial
court and affirmed by the appellate court.
The next question is the propriety of the imposition of interest and the proper
imposable rate of applicable interest. The RTC granted the rate of 12% per annum
which was affirmed by the CA. From the above-quoted guidelines, however, the proper
imposable interest rate is 6% per annum pursuant to Art. 2209 of the Civil Code. SungaChan v. Court of Appeals is illuminating in this regard:
In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum
under Central Bank (CB) Circular No. 416 shall be adjudged only in cases
involving the loan or forbearance of money. And for transactions involving
payment of indemnities in the concept of damages arising from default in the
performance of obligations in general and/or for money judgment not involving
a loan or forbearance of money, goods, or credit, the governing provision is Art.

2209 of the Civil Code prescribing a yearly 6% interest. Art. 2209 pertinently
provides:
Art. 2209. If the obligation consists in the payment of a sum of money,
and the debtor incurs in delay, the indemnity for damages, there being
no stipulation to the contrary, shall be the payment of the interest agreed
upon, and in the absence of stipulation, the legal interest, which is six
per cent per annum.
The term "forbearance," within the context of usury law, has been described as a
contractual obligation of a lender or creditor to refrain, during a given period of
time, from requiring the borrower or debtor to repay the loan or debt then due and
payable.
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest,
if proper, and the applicable rate, as follows: The 12% per annum rate under CB
Circular No. 416 shall apply only to loans or forbearance of money, goods, or
credits, as well as to judgments involving such loan or forbearance of money,
goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code
applies "when the transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay in the performance of
obligations in general," with the application of both rates reckoned "from the
time the complaint was filed until the [adjudged] amount is fully paid." In either
instance, the reckoning period for the commencement of the running of the legal
interest shall be subject to the condition "that the courts are vested with discretion,
depending on the equities of each case, on the award of interest." 30 (Emphasis
supplied.)

Based on our ruling above, forbearance of money refers to the contractual

obligation of the lender or creditor to desist for a fixed period from requiring the
borrower or debtor to repay the loan or debt then due and for which 12% per annum is
imposed as interest in the absence of a stipulated rate. In the instant case, Alfredo's
conditional payment to Land Bank does not constitute forbearance of money, since
there was no agreement or obligation for Alfredo to pay Land Bank the amount of
PhP750,000, and the obligation of Land Bank to return what Alfredo has conditionally
paid is still in dispute and has not yet been determined. Thus, it cannot be said that Land
Bank's alleged obligation has become a forbearance of money.
ITSCED

On the award of attorney's fees, attorney's fees and expenses of litigation were
awarded because Alfredo was compelled to litigate due to the unjust refusal of Land
Bank to refund the amount he paid. There are instances when it is just and equitable to
award attorney's fees and expenses of litigation. 31 Art. 2208 of the Civil Code
pertinently states:
In the absence of stipulation, attorney's fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:

xxx xxx xxx

(2) When the defendant's act or omission has compelled the plaintiff to litigate
with third persons or to incur expenses to protect his interest.

Given that Alfredo was indeed compelled to litigate against Land Bank and incur
expenses to protect his interest, we find that the award falls under the exception above
and is, thus, proper given the circumstances.
On a final note. The instant case would not have been litigated had Land Bank
been more circumspect in dealing with Alfredo. The bank chose to accept payment from
Alfredo even before a credit investigation was underway, a procedure worsened by the
failure to even inform him of his credit standing's impact on his assumption of
mortgage. It was, therefore, negligent to a certain degree in handling the transaction
with Alfredo. It should be remembered that the business of a bank is affected with
public interest and it should observe a higher standard of diligence when dealing with
the public. 32
WHEREFORE, the appeal is DENIED. The CA Decision in CA-G.R. CR-CV
No. 84445 is AFFIRMED with MODIFICATION in that the amount of PhP750,000
will earn interest at 6% per annum reckoned from December 12, 1997, and the total
aggregate monetary awards will in turn earn 12% per annum from the finality of this
Decision until fully paid.
SO ORDERED.

IHTaCE

Corona, C.J., Leonardo-de Castro, Peralta * and Perez, JJ., concur.

(Land Bank of the Phils. v. Ong, G.R. No. 190755, [November 24, 2010], 650 PHIL
627-650)
|||

FIRST DIVISION
[G.R. No. 175021. June 15, 2011.]
REPUBLIC OF THE PHILIPPINES, represented by the CHIEF OF
THE PHILIPPINE NATIONAL POLICE, petitioner, vs. THI THU
THUY T. DE GUZMAN, respondent.

DECISION

LEONARDO-DE CASTRO, J :
p

This is a Petition for Review on Certiorari 1 filed by Republic of the Philippines, as

represented by the Chief of the Philippine National Police (PNP), of the September 27,
2006 Decision 2 of the Court of Appeals in CA-G.R. CV No. 80623, which affirmed with
modification the September 8, 2003 Decision 3 of the Regional Trial Court (RTC),
Branch 222, of Quezon City in Civil Case No. Q99-37717.
Respondent is the proprietress of Montaguz General Merchandise (MGM), 4 a contractor
accredited by the PNP for the supply of office and construction materials and equipment,
and for the delivery of various services such as printing and rental, repair of various
equipment, and renovation of buildings, facilities, vehicles, tires, and spare parts. 5
On December 8, 1995, the PNP Engineering Services (PNPES), released a Requisition
and Issue Voucher 6 for the acquisition of various building materials amounting to Two
Million Two Hundred Eighty-Eight Thousand Five Hundred Sixty-Two Pesos and Sixty
Centavos (P2,288,562.60) for the construction of a four-storey condominium building
with roof deck at Camp Crame, Quezon City. 7
Respondent averred that on December 11, 1995, MGM and petitioner, represented by the
PNP, through its chief, executed a Contract of Agreement 8 (the Contract) wherein
MGM, for the price of P2,288,562.60, undertook to procure and deliver to the PNP the
construction materials itemized in the purchase order 9 attached to the Contract.
Respondent claimed that after the PNP Chief approved the Contract and purchase order,
10 MGM, on March 1, 1996, proceeded with the delivery of the construction materials, as
evidenced by Delivery Receipt Nos. 151-153, 11 Sales Invoice Nos. 038 and 041, 12 and
the "Report of Public Property Purchase" 13 issued by the PNP's Receiving and
Accounting Officers to their Internal Auditor Chief. Respondent asseverated that
following the PNP's inspection of the delivered materials on March 4, 1996, 14 the PNP
issued two Disbursement Vouchers; one in the amount of P2,226,147.26 in favor of

MGM, 15 and the other, 16 in the amount of P62,415.34, representing the three percent
(3%) withholding tax, in favor of the Bureau of Internal Revenue (BIR). 17
On November 5, 1997, the respondent, through counsel, sent a letter dated October 20,
1997 18 to the PNP, demanding the payment of P2,288,562.60 for the construction
materials MGM procured for the PNP under their December 1995 Contract.
HSTAcI

On November 17, 1997, the PNP, through its Officer-in-Charge, replied 19 to

respondent's counsel, informing her of the payment made to MGM via Land Bank of the
Philippines (LBP) Check No. 0000530631, 20 as evidenced by Receipt No. 001, 21
issued by the respondent to the PNP on April 23, 1996. 22
On November 26, 1997, respondent, through counsel, responded by reiterating her
demand 23 and denying having ever received the LBP check, personally or through an
authorized person. She also claimed that Receipt No. 001, a copy of which was attached
to the PNP's November 17, 1997 letter, could not support the PNP's claim of payment as
the aforesaid receipt belonged to Montaguz Builders, her other company, which was also
doing business with the PNP, and not to MGM, with which the contract was made.
On May 5, 1999, respondent filed a Complaint for Sum of Money against the petitioner,
represented by the Chief of the PNP, before the RTC, Branch 222 of Quezon City. 24
This was docketed as Civil Case No. Q99-37717.
The petitioner filed a Motion to Dismiss 25 on July 5, 1999, on the ground that the claim
or demand set forth in respondent's complaint had already been paid or extinguished, 26
as evidenced by LBP Check No. 0000530631 dated April 18, 1996, issued by the PNP to
MGM, and Receipt No. 001, which the respondent correspondingly issued to the PNP.
The petitioner also argued that aside from the fact that the respondent, in her October 20,
1997 letter, demanded the incorrect amount since it included the withholding tax paid to
the BIR, her delay in making such demand "[did] not speak well of the worthiness of the
cause she espouse[d]." 27
Respondent opposed petitioner's motion to dismiss in her July 12, 1999 Opposition 28
and September 10, 1999 Supplemental Opposition to Motion to Dismiss. 29 Respondent
posited that Receipt No. 001, which the petitioner claimed was issued by MGM upon
respondent's receipt of the LBP check, was, first, under the business name "Montaguz
Builders," an entity separate from MGM. Next, petitioner's allegation that she received
the LBP check on April 19, 1996 was belied by the fact that Receipt No. 001, which was
supposedly issued for the check, was dated four days later, or April 23, 1996. Moreover,
respondent averred, the PNP's own Checking Account Section Logbook or the Warrant
Register, showed that it was one Edgardo Cruz (Cruz) who signed for the check due to
MGM, 30 contrary to her usual practice of personally receiving and signing for checks
payable to her companies.
SAaTHc

After conducting hearings on the Motion to Dismiss, the RTC issued an Order 31 on May
4, 2001, denying the petitioner's motion for lack of merit. The petitioner thereafter filed
its Answer, 32 wherein it restated the same allegations in its Motion to Dismiss.
Trial on the merits followed the pre-trial conference, which was terminated on June 25,
2002 when the parties failed to arrive at an amicable settlement. 33
On September 3, 2002, shortly after respondent was sworn in as a witness, and after her
counsel formally offered her testimony in evidence, Atty. Norman Bueno, petitioner's
counsel at that time, made the following stipulations in open court:
cAaTED

Atty. Bueno
(To Court)
Your Honor, in order to expedite the trial, we will admit that this witness was
contracted to deliver the construction supplies or materials. We will
admit that she complied, that she actually delivered the materials.
We will admit that Land Bank Corporation check was issued although
we will not admit that the check was not released to her, as [a] matter of
fact, we have the copy of the check. We will admit that Warrant Register
indicated that the check was released although we will not admit that the
check was not received by the [respondent].
Court (To Atty. Albano)
So, the issues here are whether or not the [respondent] received the check for
the payment of the construction materials or supplies and who received
the same. That is all.
SHADcT

Atty. Albano
(To Court)
Yes, your Honor.
Court (To Atty. Albano)
I think we have an abbreviated testimony here. Proceed. 34 (Emphasis ours.)

The stipulations made by the petitioner through Atty. Bueno were in consonance with the
admissions it had previously made, also through Atty. Bueno, in its Answer, 35 and pretrial brief: 36
Answer:

IX
It ADMITS the allegation in paragraph 9 of the Complaint that [respondent]
delivered to the PNP Engineering Service the construction materials. It also
ADMITS the existence of Receipt Nos. 151, 152 and 153 alleged in the same
paragraph, copies of which are attached to the Complaint as Annexes "G," "G1" and "G-2." 37 (Emphasis ours.)
AHcaDC

Pre-trial Brief:
III
ADMISSIONS
3.1. Facts and/or documents admitted
For brevity, [petitioner] admit[s] only the allegations in [respondent's]
Complaint and the annexes thereto that were admitted in the Answer. 38
(Emphases ours.)

With the issue then confined to whether respondent was paid or not, the RTC proceeded
with the trial.
Respondent, in her testimony, narrated that on April 18, 1996, she went to the PNP
Finance Center to claim a check due to one of her companies, Montaguz Builders. As the
PNP required the issuance of an official receipt upon claiming its checks, respondent, in
preparation for the PNP check she expected, already signed Montaguz Builders Official
Receipt No. 001, albeit the details were still blank. However, upon arriving at the PNP
Finance Center, respondent was told that the check was still with the LBP, which could
not yet release it. Respondent then left for the Engineering Services Office to see Captain
Rama, along with Receipt No. 001, which she had not yet issued. 39 Respondent claimed
that after some time, she left her belongings, including her receipt booklet, at a bench in
Captain Rama's office when she went around the Engineering Office to talk to some other
people. 40 She reasoned that since she was already familiar and comfortable with the
people in the PNPES Office, she felt no need to ask anyone to look after her belongings,
as it was her "normal practice" 41 to leave her belongings in one of the offices there. The
next day, respondent alleged that when she returned for the check due to Montaguz
Builders that she was not able to claim the day before, she discovered for the first time
that Receipt No. 001, which was meant for that check, was missing. Since she would not
be able to claim her check without issuing a receipt, she just informed the releaser of the
missing receipt and issued Receipt No. 002 in its place. 42 After a few months,
respondent inquired with the PNP Finance Center about the payment due to MGM under
the Contract of December 1995 and was surprised to find out that the check payable to
MGM had already been released. Upon making some inquiries, respondent learned that

the check, payable to MGM, in the amount of P2,226,147.26, was received by Cruz, who
signed the PNP's Warrant Register. Respondent admitted to knowing Cruz, as he was
connected with Highland Enterprises, a fellow PNP-accredited contractor. However, she
denied ever having authorized Cruz or Highland Enterprises to receive or claim any of
the checks due to MGM or Montaguz Builders. 43 When asked why she had not filed a
case against Cruz or Herminio Reyes, the owner of Highland Enterprises, considering the
admitted fact that Cruz claimed the check due to her, respondent declared that there was
no reason for her to confront them as it was the PNP's fault that the check was released to
the wrong person. Thus, it was the PNP's problem to find out where the money had gone,
while her course of action was to go after the PNP, as the party involved in the Contract.
44
On April 29, 2003, petitioner presented Ms. Jesusa Magtira, who was then the "check
releaser" 45 of the PNP, to prove that the respondent received the LBP check due to
MGM, and that respondent herself gave the check to Cruz. 46 Ms. Magtira testified that
on April 23, 1996, she released the LBP check payable to the order of MGM, in the
amount of P2,226,147.26, to the respondent herein, whom she identified in open court.
She claimed that when she released the check to respondent, she also handed her a
voucher, and a logbook also known as the Warrant Register, for signing. 47 When asked
why Cruz was allowed to sign for the check, Ms. Magtira explained that this was allowed
since the respondent already gave her the official receipt for the check, and it was
respondent herself who gave the logbook to Cruz for signing. 48
The petitioner next presented Edgardo Cruz for the purpose of proving that the payment
respondent was claiming rightfully belonged to Highland Enterprises. Cruz testified that
Highland Enterprises had been an accredited contractor of the PNP since 1975. In 1995,
Cruz claimed that the PNPES was tasked to construct "by administration" a condominium
building. This meant that the PNPES had to do all the work, from the canvassing of the
materials to the construction of the building. The PNPES allegedly lacked the funds to do
this and so asked for Highland Enterprises's help. 49 In a meeting with its accredited
contractors, the PNPES asked if the other contractors would agree to the use of their
business name 50 for a two percent (2%) commission of the purchase order price to avoid
the impression that Highland Enterprises was monopolizing the supply of labor and
materials to the PNP. 51 Cruz alleged that on April 23, 1996, he and the respondent went
to the PNP Finance Center to claim the LBP check due to MGM. Cruz said that the
respondent handed him the already signed Receipt No. 001, which he filled up. He
claimed that the respondent knew that the LBP check was really meant for Highland
Enterprises as she had already been paid her 2% commission for the use of her business
name in the concerned transaction. 52
On September 8, 2003, the RTC rendered its Decision, the dispositive of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of

[respondent] and against [petitioner] ordering the latter to pay [respondent] the
following sums:
(1) P2,226,147.26 representing the principal sum plus interest at 14%
per annum from April 18, 1996 until the same shall have been
fully paid;
(2) 20% of the sum to be collected as attorney's fees; and,
(3) Costs of suit. 53

The RTC declared that while Cruz's testimony seemed to offer a plausible explanation on
how and why the LBP check ended up with him, the petitioner, already admitted in its
Answer, and Pre-trial Brief, that MGM, did in fact deliver the construction materials
worth P2,288,562.60 to the PNP. The RTC also pointed out the fact that the petitioner
made the same admissions in open court to expedite the trial, leaving only one issue to be
resolved: whether the respondent had been paid or not. Since this was the only issue, the
RTC said that it had no choice but to go back to the documents and the "documentary
evidence clearly indicates that the check subject of this case was never received by
[respondent]." 54 In addition, the PNP's own Warrant Register showed that it was
Edgardo Cruz who received the LBP check, and Receipt No. 001 submitted by the
petitioner to support its claim was not issued by MGM, but by Montaguz Builders, a
different entity. Finally, the RTC held that Cruz's testimony, which appeared to be an
afterthought to cover up the PNP's blunder, were irreconcilable with the petitioner's
earlier declarations and admissions, hence, not credit-worthy.
The petitioner appealed this decision to the Court of Appeals, which affirmed with
modification the RTC's ruling on September 27, 2006:
WHEREFORE, the decision appealed from is AFFIRMED with the
MODIFICATION that the 14% interest per annum imposed on the principal
amount is ordered reduced to 12%, computed from November 16, 1997 until
fully paid. The order for the payment of attorney's fees and costs of the suit is
DELETED. 55

The Court of Appeals, in deciding against the petitioner, held that the petitioner's
admissions and declarations, made in various stages of the proceedings are express
admissions, which cannot be overcome by allegations of respondent's implied
admissions. Moreover, petitioner cannot controvert its own admissions and it is estopped
from denying that it had a contract with MGM, which MGM duly complied with. The
Court of Appeals agreed with the RTC that the real issue for determination was whether
the petitioner was able to discharge its contractual obligation with the respondent. The
Court of Appeals held that while the PNP's own Warrant Register disclosed that the

payment due to MGM was received by Cruz, on behalf of Highland Enterprises, the
PNP's contract was clearly with MGM, and not with Highland Enterprises. Thus, in order
to extinguish its obligation, the petitioner should have directed its payment to MGM
unless MGM authorized a third person to accept payment on its behalf.
ITDHcA

The petitioner is now before this Court, praying for the reversal of the lower courts'
decisions on the ground that "the Court of Appeals committed a serious error in law by
affirming the decision of the trial court." 56
THE COURT'S RULING:
This case stemmed from a contract executed between the respondent and the petitioner.
While the petitioner, in proclaiming that the respondent's claim had already been
extinguished, initially insisted on having fulfilled its contractual obligation, it now
contends that the contract it executed with the respondent is actually a fictitious contract
to conceal the fact that only one contractor will be supplying all the materials and labor
for the PNP condominium project.
Both the RTC and the Court of Appeals upheld the validity of the contract between the
petitioner and the respondent on the strength of the documentary evidence presented and
offered in Court and on petitioner's own stipulations and admissions during various
stages of the proceedings.
It is worthy to note that while this petition was filed under Rule 45 of the Rules of Court,
the assertions and arguments advanced herein are those that will necessarily require this
Court to re-evaluate the evidence on record.
AcSEHT

It is a well-settled rule that in a petition for review under Rule 45, only questions of law
may be raised by the parties and passed upon by this Court. 57
This Court has, on many occasions, distinguished between a question of law and a
question of fact. We held that when there is doubt as to what the law is on a certain state
of facts, then it is a question of law; but when the doubt arises as to the truth or falsity of
the alleged facts, then it is a question of fact. 58 "Simply put, when there is no dispute as
to fact, the question of whether or not the conclusion drawn therefrom is correct, is a
question of law." 59 To elucidate further, this Court, in Hko Ah Pao v. Ting 60 said:
One test to determine if there exists a question of fact or law in a given case is
whether the Court can resolve the issue that was raised without having to review
or evaluate the evidence, in which case, it is a question of law; otherwise, it will
be a question of fact. Thus, the petition must not involve the calibration of
the probative value of the evidence presented. In addition, the facts of the
case must be undisputed, and the only issue that should be left for the Court to

decide is whether or not the conclusion drawn by the CA from a certain set of
facts was appropriate. 61 (Emphases ours.)

In this case, the circumstances surrounding the controversial LBP check are central to the
issue before us, the resolution of which, will require a perusal of the entire records of the
case including the transcribed testimonies of the witnesses. Since this is an appeal via
certiorari, questions of fact are not reviewable. As a rule, the findings of fact of the Court
of Appeals are final and conclusive 62 and this Court will only review them under the
following recognized exceptions: (1) when the inference made is manifestly mistaken,
absurd or impossible; (2) when there is a grave abuse of discretion; (3) when the finding
is grounded entirely on speculations, surmises or conjectures; (4) when the judgment of
the Court of Appeals is based on misapprehension of facts; (5) when the findings of fact
are conflicting; (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 of the Court of Appeals 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 Court of Appeals manifestly overlooked certain
relevant facts not disputed by the parties and which, if properly considered, would justify
a different conclusion; and (10) when the findings of fact of the Court of Appeals are
premised on the absence of evidence and are contradicted by the evidence on record. 63
Although petitioner's sole ground to support this petition was stated in such a manner as
to impress upon this Court that the Court of Appeals committed an error in law, what the
petitioner actually wants us to do is to review and re-examine the factual findings of both
the RTC and the Court of Appeals.
Since the petitioner has not shown this Court that this case falls under any of the
enumerated exceptions to the rule, we are constrained to uphold the facts as established
by both the RTC and the Court of Appeals, and, consequently, the conclusions reached in
the appealed decision.
Nonetheless, even if we were to exercise utmost liberality and veer away from the rule,
the records will show that the petitioner had failed to establish its case by a
preponderance of evidence. 64 Section 1, Rule 133 of the Revised Rules of Court
provides the guidelines in determining preponderance of evidence:
aIETCA

SECTION 1. Preponderance of evidence, how determined. In civil cases,

the party having the 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.

Expounding on the concept of preponderance of evidence, this Court in Encinas v.

National Bookstore, Inc., 65 held:
"Preponderance of evidence" is the weight, credit, and value of the aggregate
evidence on either side and is usually considered to be synonymous with the
term "greater weight of the evidence" or "greater weight of the credible
evidence." Preponderance of evidence is a phrase which, in the last analysis,
means probability of the truth. It is evidence which is more convincing to the
court as worthy of belief than that which is offered in opposition thereto. 66

The petitioner avers that the Court of Appeals should not have relied "heavily, if not
solely" 67 on the admissions made by petitioner's former counsel, thereby losing sight of
the "secret agreement" between the respondent and Highland Enterprises, which explains
why all the documentary evidence were in respondent's name. 68
The petitioner relies mainly on Cruz's testimony to support its allegations. Not only did it
not present any other witness to corroborate Cruz, but it also failed to present any
documentation to confirm its story. It is doubtful that the petitioner or the contractors
would enter into any "secret agreement" involving millions of pesos based purely on
verbal affirmations. Meanwhile, the respondent not only presented all the documentary
evidence to prove her claims, even the petitioner repeatedly admitted that respondent had
fully complied with her contractual obligations.
CSAaDE

The petitioner argued that the Court of Appeals should have appreciated the clear and
adequate testimony of Cruz, and should have given it utmost weight and credit especially
since his testimony was a "judicial admission against interest a primary evidence
which should have been accorded full evidentiary value." 69
The trial court's appreciation of the witnesses' testimonies is entitled to the highest respect
since it was in a better position to assess their credibility. 70 The RTC held Cruz's
testimony to be "not credit worthy" 71 for being irreconcilable with petitioner's earlier
admissions. Contrary to petitioner's contentions, Cruz's testimony cannot be considered
as a judicial admission against his interest as he is neither a party to the case nor was his
admission against his own interest, but actually against either the petitioner's or the
respondent's interest. Petitioner's statements on the other hand, were deliberate, clear, and
unequivocal and were made in the course of judicial proceedings; thus, they qualify as
judicial admissions. 72 In Alfelor v. Halasan, 73 this Court held that:
A party who judicially admits a fact cannot later challenge that fact as judicial
admissions are a waiver of proof; production of evidence is dispensed with. A

judicial admission also removes an admitted fact from the field of controversy.
Consequently, an admission made in the pleadings cannot be controverted by
the party making such admission and are conclusive as to such party, and all
proofs to the contrary or inconsistent therewith should be ignored, whether
objection is interposed by the party or not. The allegations, statements or
admissions contained in a pleading are conclusive as against the pleader. A
party cannot subsequently take a position contrary of or inconsistent with what
was pleaded. 74

The petitioner admitted to the existence and validity of the Contract of Agreement
executed between the PNP and MGM, as represented by the respondent, on December
11, 1995. It likewise admitted that respondent delivered the construction materials subject
of the Contract, not once, but several times during the course of the proceedings. The
only matter petitioner assailed was respondent's allegation that she had not yet been paid.
If Cruz's testimony were true, the petitioner should have put respondent in her place the
moment she sent a letter to the PNP, demanding payment for the construction materials
she had allegedly delivered. Instead, the petitioner replied that it had already paid
respondent as evidenced by the LBP check and the receipt she supposedly issued. This
line of defense continued on, with the petitioner assailing only the respondent's claim of
nonpayment, and not the rest of respondent's claims, in its motion to dismiss, its answer,
its pre-trial brief, and even in open court during the respondent's testimony. Section 4,
Rule 129 of the Rules of Court states:
SECTION 4. Judicial Admissions. An admission, verbal or written, made by
a 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.
TEDaAc

Petitioner's admissions were proven to have been made in various stages of the
proceedings, and since the petitioner has not shown us that they were made through
palpable mistake, they are conclusive as to the petitioner. Hence, the only question to be
resolved is whether the respondent was paid under the December 1995 Contract of
Agreement.
The RTC and the Court of Appeals correctly ruled that the petitioner's obligation has not
been extinguished. The petitioner's obligation consists of payment of a sum of money. In
order for petitioner's payment to be effective in extinguishing its obligation, it must be
made to the proper person. Article 1240 of the Civil Code states:
Art. 1240. Payment shall be made to the person in whose favor the obligation
has been constituted, or his successor in interest, or any person authorized to
receive it.

In Cembrano v. City of Butuan, 75 this Court elucidated on how payment will effectively
extinguish an obligation, to wit:
Payment made by the debtor to the person of the creditor or to one authorized
by him or by the law to receive it extinguishes the obligation. When payment is
made to the wrong party, however, the obligation is not extinguished as to the
creditor who is without fault or negligence even if the debtor acted in utmost
good faith and by mistake as to the person of the creditor or through error
induced by fraud of a third person.
cTADCH

In general, a payment in order to be effective to discharge an obligation, must

be made to the proper person. Thus, payment must be made to the obligee
himself or to an agent having authority, express or implied, to receive the
particular payment. Payment made to one having apparent authority to receive
the money will, as a rule, be treated as though actual authority had been given
for its receipt. Likewise, if payment is made to one who by law is authorized to
act for the creditor, it will work a discharge. The receipt of money due on a
judgment by an officer authorized by law to accept it will, therefore, satisfy the
debt. 76

The respondent was able to establish that the LBP check was not received by her or by
her authorized personnel. The PNP's own records show that it was claimed and signed for
by Cruz, who is openly known as being connected to Highland Enterprises, another
contractor. Hence, absent any showing that the respondent agreed to the payment of the
contract price to another person, or that she authorized Cruz to claim the check on her
behalf, the payment, to be effective must be made to her. 77
The petitioner also challenged the RTC's findings, on the ground that it "overlooked
material fact and circumstance of significant weight and substance." 78 Invoking the
doctrine of adoptive admission, the petitioner pointed out that the respondent's inaction
towards Cruz, whom she has known to have claimed her check as early as 1996, should
be taken against her. Finally, the petitioner contends that Cruz's testimony should be
taken against respondent as well, under Rule 130, Sec. 32 of the Revised Rules on
Evidence, since she has not presented any "controverting evidence . . . notwithstanding
that she personally heard it." 79
The respondent has explained her inaction towards Cruz and Highland Enterprises. Both
the RTC and the Court of Appeals have found her explanation sufficient and this Court
finds no cogent reason to overturn the assessment by the trial court and the Court of
Appeals of the respondent's testimony. It may be recalled that the respondent argued that
since it was the PNP who owed her money, her actions should be directed towards the
PNP and not Cruz or Highland Enterprises, against whom she has no adequate proof. 80
Respondent has also adequately explained her delay in filing an action against the

petitioner, particularly that she did not want to prejudice her other pending transactions
with the PNP. 81
The petitioner claims that the RTC "overlooked material fact and circumstance of
significant weight and substance," 82 but it ignores all the documentary evidence, and
even its own admissions, which are evidence of the greater weight and substance, that
support the conclusions reached by both the RTC and the Court of Appeals.
We agree with the Court of Appeals that the RTC erred in the interest rate and other
monetary sums awarded to respondent as baseless. However, we must further modify the
interest rate imposed by the Court of Appeals pursuant to the rule laid down in Eastern
Shipping Lines, Inc. v. Court of Appeals 83 :
I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is breached, the contravenor can be held liable
for damages. The provisions under Title XVIII on "Damages" of the Civil Code
govern in determining the measure of recoverable damages.
TAEcCS

II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall
be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may
be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or

paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit. 84

Since the obligation herein is for the payment of a sum of money, the legal interest rate to
be imposed, under Article 2209 of the Civil Code is six percent (6%) per annum:
Art. 2209. If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to
the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six per cent per annum.

Following the guidelines above, the legal interest of 6% per annum is to be imposed from
November 16, 1997, the date of the last demand, and 12% in lieu of 6% from the date this
decision becomes final until fully paid.
Petitioner's allegations of sham dealings involving our own government agencies are
potentially disturbing and alarming. If Cruz's testimony were true, this should be a lesson
to the PNP not to dabble in spurious transactions. Obviously, if it can afford to give a 2%
commission to other contractors for the mere use of their business names, then the
petitioner is disbursing more money than it normally would in a legitimate transaction. It
is recommended that the proper agency investigate this matter and hold the involved
personnel accountable to avoid any similar occurrence in the future.
SEHTAC

WHEREFORE, the Petition is hereby DENIED and the Decision of the Court of
Appeals in C.A. G.R. CV No. 80623 dated September 27, 2006 is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) per annum
on the amount of P2,226,147.26, computed from the date of the last demand or on
November 16, 1997. A TWELVE PERCENT (12%) per annum interest in lieu of SIX
PERCENT (6%) shall be imposed on such amount upon finality of this decision until the
payment thereof.
SO ORDERED.
Velasco, Jr., * Bersamin, ** Del Castillo and Perez, JJ., concur.
|||

(Republic v. De Guzman, G.R. No. 175021, [June 15, 2011], 667 PHIL 229-252)

SECOND DIVISION
[G.R. No. 172577. January 19, 2011.]
SOLEDAD DALTON, petitioner, vs. FGR REALTY AND
DEVELOPMENT CORPORATION, FELIX NG, NENITA NG, and
FLORA R. DAYRIT or FLORA REGNER, respondents.

RESOLUTION

CARPIO, J :
p

The Case
This is a petition 1 for review on certiorari under Rule 45 of the Rules of Court.
The petition challenges the 9 November 2005 Decision 2 and 10 April 2006 Resolution
3 of the Court of Appeals in CA-G.R. CV No. 76536. The Court of Appeals affirmed
the 26 February 2002 Decision 4 of the Regional Trial Court (RTC), Judicial Region 7,
Branch 13, Cebu City, in Civil Case No. CEB 4218.
The Facts
Flora R. Dayrit (Dayrit) owned a 1,811-square meter parcel of land located at
the corner of Rama Avenue and Velez Street in Cebu City. Petitioner Soledad Dalton
(Dalton), Clemente Sasam, Romulo Villalonga, Miguela Villarente, Aniceta Fuentes,
Perla Pormento, Bonifacio Cabajar, Carmencita Yuson, Angel Ponce, Pedro Regudo,
Pedro Quebedo, Mary Cabanlit, Marciana Encabo and Dolores Lim (Sasam, et al.)
leased portions of the property.
In June 1985, Dayrit sold the property to respondent FGR Realty and
Development Corporation (FGR). In August 1985, Dayrit and FGR stopped accepting
rental payments because they wanted to terminate the lease agreements with Dalton and
Sasam, et al.
In a complaint 5 dated 11 September 1985, Dalton and Sasam, et al. consigned
the rental payments with the RTC. They failed to notify Dayrit and FGR about the
consignation. In motions dated 27 March 1987, 6 10 November 1987, 7 8 July 1988, 8
and 28 November 1994, 9 Dayrit and FGR withdrew the rental payments. In their
motions, Dayrit and FGR reserved the right to question the validity of the consignation.
Dayrit, FGR and Sasam, et al. entered into compromise agreements dated 25
March 1997 10 and 20 June 1997. 11 In the compromise agreements, they agreed to
abandon all claims against each other. Dalton did not enter into a compromise
agreement with Dayrit and FGR.

The RTC's Ruling

In its 26 February 2002 Decision, the RTC dismissed the 11 September 1985
complaint and ordered Dalton to vacate the property. The RTC held that:
HIACac

Soledad Dalton built a house which she initially used as a dwelling and store
space. She vacated the premises when her children got married. She transferred
her residence near F. Ramos Public Market, Cebu City.
She constructed the 20 feet by 20 feet floor area house sometime in 1973. The
last monthly rental was P69.00. When defendants refused to accept rental and
demanded vacation of the premises, she consignated [sic] her monthly rentals in
court.
xxx xxx xxx
It is very clear from the facts that there was no valid consignation made.
The requisites of consignation are as follows:
1. The existence of a valid debt.
2. Valid prior tender, unless tender is excuse [sic];
3. Prior notice of consignation (before deposit)
4. Actual consignation (deposit);
5. Subsequent notice of consignation;
Requisite Nos. 3 and 5 are absent or were not complied with. It is very clear that
there were no prior notices of consignation (before deposit) and subsequent
notices of consignation (after deposit).
Besides, the last deposit was made on December 21, 1988. At the time Dalton
testified on December 22, 1999, she did not present evidence of payment in 1999.
She had not, therefore, religiously paid her monthly obligation.
By clear preponderance of evidence, defendants have established that plaintiff
was no longer residing at Eskina Banawa at the time she testified in court. She
vacated her house and converted it into a store or business establishment. This is
buttressed by the testimony of Rogelio Capacio, the court's appointed
commissioner, who submitted a report, the full text of which reads as follows:
REPORT AND/OR OBSERVATION

"The store and/or dwelling subject to ocular inspection is stuated [sic] on the left
portion of the road which is about fifty-five (55) meters from the corner of
Banawa-Guadalupe Streets, when turning right heading towards the direction of
Guadalupe Church, if travelling from the Capitol Building.
I observed that when we arrived at the ocular inspection site, Mrs. Soledad Dalton
with the use of a key opened the lock of a closed door. She claimed that it was a
part of the dwelling which she occupies and was utilized as a store. There were
few saleable items inside said space."
Soledad Dalton did not take exception to the said report.
Two witnesses who were former sub-lessees testified and clearly established that
Mrs. Dalton use the house for business purposes and not for dwelling. 12

Dalton appealed to the Court of Appeals.

The Court of Appeals' Ruling
In its 9 November 2005 Decision, the Court of Appeals affirmed the RTC's 26
February 2002 Decision. The Court of Appeals held that:
HCDaAS

After a careful review of the facts and evidence in this case, we find no basis for
overturning the decision of the lower court dismissing plaintiffs-appellants'
complaint, as we find that no valid consignation was made by the plaintiffappellant.
Consignation is the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to accept payment and
generally requires a prior tender of payment. In order that consignation may be
effective, the debtor must show that: (1) there was a debt due; (2) the consignation
of the obligation had been made because the creditor to whom tender of payment
was made refused to accept it, or because he was absent or incapacitated, or
because several persons claimed to be entitled to receive the amount due or
because the title to the obligation has been lost; (3) previous notice of the
consignation had been given to the person interested in the performance of the
obligation; (4) the amount due was placed at the disposal of the court; and (5)
after the consignation had been made the person interested was notified thereof.
Failure in any of these requirements is enough ground to render a consignation
ineffective.
Consignation is made by depositing the proper amount to the judicial authority,
before whom the tender of payment and the announcement of the consignation
shall be proved. All interested parties are to be notified of the consignation. It had
been consistently held that compliance with these requisites is mandatory.

No error, therefore, can be attributed to the lower court when it held that the
consignation made by the plaintiff-appellant was invalid for failure to meet
requisites 3 and 5 of a valid consignation (i.e., previous notice of the consignation
given to the person interested in the performance of the obligation and, after the
consignation had been made, the person interested was notified thereof).
Plaintiff-appellant failed to notify defendants-appellees of her intention to
consign the amount due to them as rentals. She, however, justifies such failure by
claiming that there had been substantial compliance with the said requirement of
notice upon the service of the complaint on the defendants-appellees together
with the summons.
We do not agree with such contention.
The prevailing rule is that substantial compliance with the requisites of a valid
consignation is not enough. In Licuanan vs. Diaz, reiterating the ruling in Soco
vs. Militante, the Supreme Court had the occasion to rule thus:
"In addition, it must be stated that in the case of Soco v. Militante (123 SCRA
160, 166-167 [1983]), this Court ruled that the codal provisions of the Civil Code
dealing with consignation (Articles 1252-1261) should be accorded mandatory
construction
We do not agree with the questioned decision. We hold that the essential
requisites of a valid consignation must be complied with fully and strictly in
accordance with the law. Articles 1256-1261, New Civil Code. That these
Articles must be accorded a mandatory construction is clearly evident and plain
from the very language of the codal provisions themselves which require absolute
compliance with the essential requisites therein provided. Substantial compliance
is not enough for that would render only directory construction of the law. The
use of the words "shall" and "must [sic] which are imperative, operating to impose
a duty which may be enforced, positively indicated that all the essential requisites
of a valid consignation must be complied with. The Civil Code Articles expressly
and explicitly direct what must be essentially done in order that consignation shall
be valid and effectual . . ."
Clearly then, no valid consignation was made by the plaintiff-appellant for she
did not give notice to the defendants-appellees of her intention to so consign her
rental payments. Without any announcement of the intention to resort to
consignation first having been made to persons interested in the fulfillment of the
obligation, the consignation as a means of payment is void.
As to the other issues raised by the plaintiff-appellant in her second and third
assigned errors, we hold that the ruling of the lower court on such issues is
supported by the evidence adduced in this case.
AcaEDC

That plaintiff-appellant is not residing at the leased premises in Eskina Banawa

and that she is using the same for business purposes, not as dwelling place, is
amply supported by the testimony of two of plaintiff-appellant's sub-lessees. The
Commissioner's Report submitted by Rogelio Capacio, who was commissioned
by the lower court to conduct an ocular inspection of the leased premises, further
lends support to the lower court's findings. On the other hand, plaintiff-appellant
only has her self-serving claims that she is residing at the leased premises in
Eskina Banawa to prove her continued use of the leased premises as dwelling
place.
There is thus no merit to plaintiff-appellant's fourth assigned error. The lower
court acted within its authority in ordering the plaintiff-appellant to vacate the
leased premises. The evidence shows that plaintiff-appellant had failed to
continuously pay the rentals due to the defendants-appellees. It was therefore
within the powers of the lower court to grant such other relief and remedies
equitable under the circumstances.
In sum, there having been no valid consignation and with the plaintiff-appellant
having failed to pay the rentals due to the defendants-appellees, no error can be
attributed to the lower court in rendering its assailed decision. 13

Hence, the present petition. Dalton raises as issues that the Court of Appeals
erred in ruling that (1) the consignation was void, and (2) Dalton failed to pay rent.
The Court's Ruling
The petition is unmeritorious.
Dalton claims that, "the issue as to whether the consignation made by the
petitioner is valid or not for lack of notice has already been rendered moot and academic
with the withdrawal by the private respondents of the amounts consigned and deposited
by the petitioner as rental of the subject premises." 14
The Court is not impressed. First, in withdrawing the amounts consigned, Dayrit
and FGR expressly reserved the right to question the validity of the consignation. In
Riesenbeck v. Court of Appeals, 15 the Court held that:
A sensu contrario, when the creditor's acceptance of the money consigned is
conditional and with reservations, he is not deemed to have waived the claims
he reserved against his debtor. Thus, when the amount consigned does not
cover the entire obligation, the creditor may accept it, reserving his right to the
balance (Tolentino, Civil Code of the Phil., Vol. IV, 1973 Ed., p. 317, citing 3
Llerena 263). The same factual milieu obtains here because the respondent
creditor accepted with reservation the amount consigned in court by the
petitioner-debtor. Therefore, the creditor is not barred from raising his
other claims, as he did in his answer with special defenses and counterclaim
against petitioner-debtor.

As respondent-creditor's acceptance of the amount consigned was with

reservations, it did not completely extinguish the entire indebtedness of the
petitioner-debtor. It is apposite to note here that consignation is completed at
the time the creditor accepts the same without objections, or, if he objects, at
the time the court declares that it has been validly made in accordance with
law. 16 (Emphasis supplied)

Second, compliance with the requisites of a valid consignation is mandatory.

Failure to comply strictly with any of the requisites will render the consignation void.
Substantial compliance is not enough.
In Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc., 17 the Court
enumerated the requisites of a valid consignation: (1) a debt due; (2) the creditor to
whom tender of payment was made refused without just cause to accept the payment,
or the creditor was absent, unknown or incapacitated, or several persons claimed the
same right to collect, or the title of the obligation was lost; (3) the person interested
in the performance of the obligation was given notice before consignation was
made; (4) the amount was placed at the disposal of the court; and (5) the person
interested in the performance of the obligation was given notice after the
consignation was made.
AHECcT

Articles 1257 and 1258 of the Civil Code state, respectively:

Art. 1257. In order that the consignation of the thing due may release the
obligor, it must first be announced to the persons interested in the fulfillment
of the obligation.
The consignation shall be ineffectual if it is not made strictly in consonance
with the provisions which regulate payment.
Art. 1258. Consignation shall be made by depositing the things due at the disposal
of judicial authority, before whom the tender of payment shall be proved, in a
proper case, and the announcement of the consignation in other cases.
The consignation having been made, the interested parties shall also be
notified thereof. (Emphasis supplied)

The giving of notice to the persons interested in the performance of the

obligation is mandatory. Failure to notify the persons interested in the performance of
the obligation will render the consignation void. In Ramos v. Sarao, 18 the Court held
that, "All interested parties are to be notified of the consignation. Compliance with
[this requisite] is mandatory." 19 In Valdellon v. Tengco, 20 the Court held that:
Under Art. 1257 of our Civil Code, in order that consignation of the thing due
may release the obligor, it must first be announced to the persons interested
in the fulfillment of the obligation. The consignation shall be ineffectual if it

is not made strictly in consonance with the provisions which regulate

payment. In said Article 1258, it is further stated that the consignation having
been made, the interested party shall also be notified thereof. 21 (Emphasis
supplied)

In Soco v. Militante, et al., 22 the Court held that:

We hold that the essential requisites of a valid consignation must be complied
with fully and strictly in accordance with the law, Articles 1256 to 1261, New
Civil Code. That these Articles must be accorded a mandatory construction is
clearly evident and plain from the very language of the codal provisions
themselves which require absolute compliance with the essential requisites
therein provided. Substantial compliance is not enough for that would render
only a directory construction to the law. The use of the words "shall" and
"must" which are imperative, operating to impose a duty which may be enforced,
positively indicate that all the essential requisites of a valid consignation must be
complied with. The Civil Code Articles expressly and explicitly direct what
must be essentially done in order that consignation shall be valid and
effectual. 23 (Emphasis supplied)

Dalton claims that the Court of Appeals erred in ruling that she failed to pay rent.
The Court is not impressed. Section 1, Rule 45 of the Rules of Court states that petitions
for review on certiorari "shall raise only questions of law which must be distinctly set
forth." In Pagsibigan v. People, 24 the Court held that:
A petition for review under Rule 45 of the Rules of Court should cover only
questions of law. Questions of fact are not reviewable. A question of law exists
when the doubt centers on what the law is on a certain set of facts. A question of
fact exists when the doubt centers on the truth or falsity of the alleged facts.
There is a question of law if the issue raised is capable of being resolved without
need of reviewing the probative value of the evidence. The issue to be resolved
must be limited to determining what the law is on a certain set of facts. Once the
issue invites a review of the evidence, the question posed is one of fact. 25

Whether Dalton failed to pay rent is a question of fact. It is not reviewable.

The factual findings of the lower courts are binding on the Court. The exceptions
to this rule are (1) when there is grave abuse of discretion; (2) when the findings are
grounded on speculation; (3) when the inference made is manifestly mistaken; (4) when
the judgment of the Court of Appeals is based on a misapprehension of facts; (5) when
the factual findings are conflicting; (6) when the Court of Appeals went beyond the
issues of the case and its findings are contrary to the admissions of the parties; (7) when
the Court of Appeals overlooked undisputed facts which, if properly considered, would
justify a different conclusion; (8) when the facts set forth by the petitioner are not

disputed by the respondent; and (9) when the findings of the Court of Appeals are
premised on the absence of evidence and are contradicted by the evidence on record.
26 Dalton did not show that any of these circumstances is present.
WHEREFORE, the Court DENIES the petition. The Court AFFIRMS the 9
November 2005 Decision and 10 April 2006 Resolution of the Court of Appeals in CAG.R. CV No. 76536.
ADEHTS

SO ORDERED.
Nachura, Peralta, Abad and Mendoza, JJ., concur.
(Dalton v. FGR Realty and Development Corp., G.R. No. 172577 (Resolution), [January
19, 2011], 655 PHIL 93-104)
|||

THIRD DIVISION
[G.R. No. 181723. August 11, 2014.]
ELIZABETH DEL CARMEN, petitioner, vs. SPOUSES RESTITUTO
SABORDO and MIMA MAHILUM-SABORDO, respondents.

DECISION

PERALTA, J :
p

This treats of the petition for review on certiorari assailing the Decision 1 and Resolution
2 of the Court of Appeals (CA), dated May 25, 2007 and January 24, 2008, respectively, in
CA-G.R. CV No. 75013.
The factual and procedural antecedents of the case are as follows:
Sometime in 1961, the spouses Toribio and Eufrocina Suico (Suico spouses), along with
several business partners, entered into a business venture by establishing a rice and corn
mill at Mandaue City, Cebu. As part of their capital, they obtained a loan from the
Development Bank of the Philippines (DBP), and to secure the said loan, four parcels of
land owned by the Suico spouses, denominated as Lots 506, 512, 513 and 514, and another
lot owned by their business partner, Juliana Del Rosario, were mortgaged. Subsequently,
the Suico spouses and their business partners failed to pay their loan obligations forcing
DBP to foreclose the mortgage. After the Suico spouses and their partners failed to redeem
the foreclosed properties, DBP consolidated its ownership over the same. Nonetheless,
DBP later allowed the Suico spouses and Reginald and Beatriz Flores (Flores spouses), as
substitutes for Juliana Del Rosario, to repurchase the subject lots by way of a conditional
sale for the sum of P240,571.00. The Suico and Flores spouses were able to pay the
downpayment and the first monthly amortization, but no monthly installments were made
thereafter. Threatened with the cancellation of the conditional sale, the Suico and Flores
spouses sold their rights over the said properties to herein respondents Restituto and Mima
Sabordo, subject to the condition that the latter shall pay the balance of the sale price. On
September 3, 1974, respondents and the Suico and Flores spouses executed a supplemental
agreement whereby they affirmed that what was actually sold to respondents were Lots
512 and 513, while Lots 506 and 514 were given to them as usufructuaries. DBP approved
the sale of rights of the Suico and Flores spouses in favor of herein respondents.
Subsequently, respondents were able to repurchase the foreclosed properties of the Suico
and Flores spouses.
acHDTA

On September 13, 1976, respondent Restituto Sabordo (Restituto) filed with the then Court
of First Instance of Negros Occidental an original action for declaratory relief with
damages and prayer for a writ of preliminary injunction raising the issue of whether or not
the Suico spouses have the right to recover from respondents Lots 506 and 514.
In its Decision dated December 17, 1986, the Regional Trial Court (RTC) of San Carlos
City, Negros Occidental, ruled in favor of the Suico spouses directing that the latter have
until August 31, 1987 within which to redeem or buy back from respondents Lots 506 and
514.
On appeal, the CA, in its Decision 3 in CA-G.R. CV No. 13785, dated April 24, 1990,
modified the RTC decision by giving the Suico spouses until October 31, 1990 within
which to exercise their option to purchase or redeem the subject lots from respondents by
paying the sum of P127,500.00. The dispositive portion of the CA Decision reads as
follows:
xxx xxx xxx
For reasons given, judgment is hereby rendered modifying the dispositive
portion of [the] decision of the lower court to read:
1) The defendants-appellees are granted up to October 31, 1990 within
which to exercise their option to purchase from the plaintiff-appellant
Restituto Sabordo and Mima Mahilum Lot No. 506, covered by Transfer
Certificate of Title No. T-102598 and Lot No. 514, covered by Transfer
Certificate of Title No. T-102599, both of Escalante Cadastre, Negros
Occidental by reimbursing or paying to the plaintiff the sum of ONE
HUNDRED TWENTY-SEVEN THOUSAND FIVE HUNDRED PESOS
(P127,500.00);
AISHcD

2) Within said period, the defendants-appellees shall continue to have

usufructuary rights on the coconut trees on Lots Nos. 506 and 514,
Escalante Cadastre, Negros Occidental;
3) The Writ of Preliminary Injunction dated August 12, 1977 shall be
effective until defendants-appellees shall have exercised their option to
purchase within said period by paying or reimbursing to the plaintiffappellant the aforesaid amount.
No pronouncement as to costs.
SO ORDERED. 4

In a Resolution 5 dated February 13, 1991, the CA granted the Suico spouses an additional
period of 90 days from notice within which to exercise their option to purchase or redeem
the disputed lots.
In the meantime, Toribio Suico (Toribio) died leaving his widow, Eufrocina, and several
others, including herein petitioner, as legal heirs. Later, they discovered that respondents
mortgaged Lots 506 and 514 with Republic Planters Bank (RPB) as security for a loan
which, subsequently, became delinquent.
AEcIaH

Thereafter, claiming that they are ready with the payment of P127,500.00, but alleging that
they cannot determine as to whom such payment shall be made, petitioner and her co-heirs
filed a Complaint 6 with the RTC of San Carlos City, Negros Occidental seeking to compel
herein respondents and RPB to interplead and litigate between themselves their respective
interests on the abovementioned sum of money. The Complaint also prayed that
respondents be directed to substitute Lots 506 and 514 with other real estate properties as
collateral for their outstanding obligation with RPB and that the latter be ordered to accept
the substitute collateral and release the mortgage on Lots 506 and 514. Upon filing of their
complaint, the heirs of Toribio deposited the amount of P127,500.00 with the RTC of San
Carlos City, Branch 59.
Respondents filed their Answer 7 with Counterclaim praying for the dismissal of the above
Complaint on the grounds that (1) the action for interpleader was improper since RPB is
not laying any claim on the sum of P127,500.00; (2) that the period within which the
complainants are allowed to purchase Lots 506 and 514 had already expired; (3) that there
was no valid consignation, and (4) that the case is barred by litis pendencia or res judicata.
On the other hand, RPB filed a Motion to Dismiss the subject Complaint on the ground
that petitioner and her co-heirs had no valid cause of action and that they have no primary
legal right which is enforceable and binding against RPB.
On December 5, 2001, the RTC rendered judgment, dismissing the Complaint of petitioner
and her co-heirs for lack of merit. 8 Respondents' Counterclaim was likewise dismissed.
Petitioner and her co-heirs filed an appeal with the CA contending that the judicial deposit
or consignation of the amount of P127,500.00 was valid and binding and produced the
effect of payment of the purchase price of the subject lots.
CcSTHI

In its assailed Decision, the CA denied the above appeal for lack of merit and affirmed the
disputed RTC Decision.
Petitioner and her co-heirs filed a Motion for Reconsideration, 9 but it was likewise denied
by the CA.

Hence, the present petition for review on certiorari with a lone Assignment of Error, to
wit:
THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF
THE LOWER COURT WHICH HELD THAT THE JUDICIAL DEPOSIT OF
P127,500.00 MADE BY THE SUICOS WITH THE CLERK OF COURT OF
THE RTC, SAN CARLOS CITY, IN COMPLIANCE WITH THE FINAL
AND EXECUTORY DECISION OF THE COURT OF APPEALS IN CA-G.R.
CV-13785 WAS NOT VALID. 10

Petitioner's main contention is that the consignation which she and her co-heirs made was
a judicial deposit based on a final judgment and, as such, does not require compliance with
the requirements of Articles 1256 11 and 1257 12 of the Civil Code.
The petition lacks merit.
At the outset, the Court quotes with approval the discussion of the CA regarding the
definition and nature of consignation, to wit:
CDAHaE

. . . consignation [is] the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to accept payment, and
it generally requires a prior tender of payment. It should be distinguished
from tender of payment which is the manifestation by the debtor to the
creditor of his desire to comply with his obligation, with the offer of
immediate performance. Tender is the antecedent of consignation, that is, an act
preparatory to the consignation, which is the principal, and from which are
derived the immediate consequences which the debtor desires or seeks to obtain.
Tender of payment may be extrajudicial, while consignation is necessarily
judicial, and the priority of the first is the attempt to make a private settlement
before proceeding to the solemnities of consignation. Tender and consignation,
where validly made, produces the effect of payment and extinguishes the
obligation. 13
ISDCHA

In the case of Arzaga v. Rumbaoa, 14 which was cited by petitioner in support of his
contention, this Court ruled that the deposit made with the court by the plaintiff-appellee
in the said case is considered a valid payment of the amount adjudged, even without a prior
tender of payment thereof to the defendants-appellants, because the plaintiff-appellee, upon
making such deposit, expressly petitioned the court that the defendants-appellees be
notified to receive the tender of payment. This Court held that while "[t]he deposit, by itself
alone, may not have been sufficient, but with the express terms of the petition, there was
full and complete offer of payment made directly to defendants-appellants." 15 In the
instant case, however, petitioner and her co-heirs, upon making the deposit with the RTC,
did not ask the trial court that respondents be notified to receive the amount that they have
deposited. In fact, there was no tender of payment. Instead, what petitioner and her co-heirs
prayed for is that respondents and RPB be directed to interplead with one another to

determine their alleged respective rights over the consigned amount; that respondents be
likewise directed to substitute the subject lots with other real properties as collateral for
their loan with RPB and that RPB be also directed to accept the substitute real properties
as collateral for the said loan. Nonetheless, the trial court correctly ruled that interpleader
is not the proper remedy because RPB did not make any claim whatsoever over the amount
consigned by petitioner and her co-heirs with the court.
In the cases of Del Rosario v. Sandico 16 and Salvante v. Cruz, 17 likewise cited as
authority by petitioner, this Court held that, for a consignation or deposit with the court of
an amount due on a judgment to be considered as payment, there must be prior tender to
the judgment creditor who refuses to accept it. The same principle was reiterated in the
later case of Pabugais v. Sahijwani. 18 As stated above, tender of payment involves a
positive and unconditional act by the obligor of offering legal tender currency as payment
to the obligee for the former's obligation and demanding that the latter accept the same. 19
In the instant case, the Court finds no cogent reason to depart from the findings of the CA
and the RTC that petitioner and her co-heirs failed to make a prior valid tender of payment
to respondents.
aDHCAE

It is settled that compliance with the requisites of a valid consignation is mandatory. 20

Failure to comply strictly with any of the requisites will render the consignation void. One
of these requisites is a valid prior tender of payment. 21
Under Article 1256, the only instances where prior tender of payment is excused are: (1)
when the creditor is absent or unknown, or does not appear at the place of payment; (2)
when the creditor is incapacitated to receive the payment at the time it is due; (3) when,
without just cause, the creditor refuses to give a receipt; (4) when two or more persons
claim the same right to collect; and (5) when the title of the obligation has been lost. None
of these instances are present in the instant case. Hence, the fact that the subject lots are in
danger of being foreclosed does not excuse petitioner and her co-heirs from tendering
payment to respondents, as directed by the court.
WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals,
dated May 25, 2007, and its Resolution dated January 24, 2008, both in CA-G.R. CV No.
75013, are AFFIRMED.
SO ORDERED.
Velasco, Jr., Villarama, Jr., * Mendoza and Leonen, JJ., concur.
|||

(Del Carmen v. Spouses Sabordo, G.R. No. 181723, [August 11, 2014])

FIRST DIVISION
[G.R. No. 151098. March 21, 2006.]
ERLINDA GAJUDO, FERNANDO GAJUDO, JR., ESTELITA
GAJUDO, BALTAZAR GAJUDO and DANILO ARAHAN CHUA,
petitioners, vs. TRADERS ROYAL BANK, 1 respondent.

DECISION

PANGANIBAN, C.J :
p

The mere fact that a defendant is declared in default does not automatically result in the
grant of the prayers of the plaintiff. To win, the latter must still present the same quantum
of evidence that would be required if the defendant were still present. A party that
defaults is not deprived of its rights, except the right to be heard and to present evidence
to the trial court. If the evidence presented does not support a judgment for the plaintiff,
the complaint should be dismissed, even if the defendant may not have been heard or
allowed to present any countervailing evidence.
The Case
Before us is a Petition for Review 2 under Rule 45 of the Rules of Court, assailing the
June 29, 2001 Decision 3 and December 6, 2001 Resolution 4 of the Court of Appeals
(CA) in CA-G.R. CV No. 43889. The CA disposed as follows:
"UPON THE VIEW WE TAKE OF THIS CASE, THUS, the partial judgment
appealed from, must be, as it hereby is, VACATED and SET ASIDE, and
another one entered DISMISSING the complaint at bench. Without costs." 5

The assailed Resolution denied petitioners' Motion for Reconsideration 6 for lack of
merit.
The Facts
The CA narrated the facts as follows:
"[Petitioners] filed a complaint before the Regional Trial Court of Quezon City,
Branch 90, against [respondent] Traders Royal Bank, the City Sheriff of Quezon
City and the Register of Deeds of Quezon City. Docketed thereat as Civil Case
No. Q-41203, the complaint sought the annulment of the extra-judicial

foreclosure and auction sale made by [the] city sheriff of Quezon City of a
parcel of land covered by TCT No. 16711 of the Register of Deeds of Quezon
City, the conventional redemption thereof, and prayed for damages and the
issuance of a writ of preliminary injunction.
"The complaint alleged that in mid 1977[, Petitioner] Danilo Chua obtained a
loan from [respondent] bank in the amount of P75,000.00 secured by a real
estate mortgage over a parcel of land covered by TCT No. 16711, and owned in
common by the [petitioners]; that when the loan was not paid, [respondent]
bank commenced extra-judicial foreclosure proceedings on the property; that
the auction sale of the property was set on 10 June 1981, but was reset to 31
August 1981, on [Petitioner Chua's] request, which, however, was made without
the knowledge and conformity of the other [petitioners]; that on the rescheduled auction sale, [the] Sheriff of Quezon City sold the property to the
[respondent] bank, the highest bidder therein, for the sum of P24,911.30; that
the auction sale was tainted with irregularity because, amongst others, the bid
price was shockingly or unconscionably, low; that the other [petitioners] failed
to redeem the property due to their lack of knowledge of their right of
redemption, and want of sufficient education; that, although the period of
redemption had long expired, [Petitioner] Chua offered to buy back, and
[respondent] bank also agreed to sell back, the foreclosed property, on the
understanding that Chua would pay [respondent] bank the amount of
P40,135.53, representing the sum that the bank paid at the auction sale, plus
interest; that [Petitioner] Chua made an initial payment thereon in the amount of
P4,000.00, covered by Interbank Check No. 09173938, dated 16 February 1984,
duly receipted by [respondent] bank; that, in a sudden change of position,
[respondent] bank wrote Chua, on 20 February 1984, asking that he could
repurchase the property, but based on the current market value thereof; and that
sometime later, or on 22 March 1984, [respondent] bank wrote Chua anew,
requiring him to tender a new offer to counter the offer made thereon by another
buyer.
TSaEcH

"Traversing [petitioners'] complaint, [respondent] bank, upon 05 July 1984,

filed its answer with counterclaim, thereunder asserting that the foreclosure sale
of the mortgaged property was done in accordance with law; and that the bid
price was neither unconscionable, nor shockingly low; that [petitioners] slept on
their rights when they failed to redeem the property within the one year
statutory period; and that [respondent] bank, in offering to sell the property to
[Petitioner] Chua on the basis of its current market price, was acting
conformably with law, and with legitimate banking practice and regulations.
"Pre-trial having been concluded, the parties entered upon trial, which
dragged/lengthened to several months due to postponements. Upon 11 June
1988, however, a big conflagration hit the City Hall of Quezon City, which
destroyed, amongst other things, the records of the case. After the records were
reconstituted, [petitioners] discovered that the foreclosed property was sold by

[respondent] bank to the Ceroferr Realty Corporation, and that the notice of lis
pendens annotated on the certificate of title of the foreclosed property, had
already been cancelled. Accordingly, [petitioners], with leave of court, amended
their complaint, but the Trial Court dismissed the case 'without prejudice' due to
[petitioners'] failure to pay additional filing fees.
"So, upon 11 June 1990, [petitioners] re-filed the complaint with the same
Court, whereat it was docketed as Civil Case No. 90-5749, and assigned to
Branch 98: the amended complaint substantially reproduced the allegations of
the original complaint. But [petitioners] this time impleaded as additional
defendants the Ceroferr Realty Corporation and/or Cesar Roque, and Lorna
Roque, and included an additional cause of action, to wit: that said new
defendants conspired with [respondent] bank in [canceling] the notice of lis
pendens by falsifying a letter sent to and filed with the office of the Register of
Deeds of Quezon City, purportedly for the cancellation of said notice.
"Summons was served on [respondent] bank on 26 September 1990, per
Sheriff's Return dated 08 October 1990. Supposing that all the defendants had
filed their answer, [petitioners] filed, on 23 October 1991, a motion to set case
for pre-trial, which motion was, however, denied by the Trial Court in its Order
of 25 October 1991, on the ground that [respondent] bank has not yet filed its
answer. On 13 November 1991[, petitioners] filed a motion for reconsideration,
thereunder alleging that they received by registered mail, on 19 October 1990, a
copy of [respondent] bank's answer with counterclaim, dated 04 October 1990,
which copy was attached to the motion. In its Order of 14 November 1991, the
trial Court denied for lack of merit, the motion for reconsideration, therein
holding that the answer with counterclaim filed by [respondent] bank referred to
another civil case pending before Branch 90 of the same Court.
"For this reason, [petitioners] filed on 02 December 1991 a motion to declare
[respondent] bank in default, thereunder alleging that no answer has been filed
despite the service of summons on it on 26 September 1990.
"On 13 December 1991, the Trial Court declared the motion submitted for
resolution upon submission by [petitioners] of proof of service of the motion on
[respondent] bank.
"Thus, on 16 January 1992, upon proof that [petitioners] had indeed served
[respondent] bank with a copy of said motion, the Trial Court issued an Order of
default against [respondent] bank.
"Upon 01 December 1992, on [petitioners'] motion, they were by the Court
allowed to present evidence ex parte on 07 January 1993, insofar as
[respondent] bank was concerned.

"Thereafter, or on 08 February 1993, the Trial Court rendered the new

questioned partial decision. 7
"Aggrieved, [respondent] bank filed a motion to set aside [the] partial decision
by default against Traders Royal Bank and admit [respondent] Traders Royal
Bank's . . . Answer with counterclaim: thereunder it averred, amongst others,
that the erroneous filing of said answer was due to an honest mistake of the
typist and inadvertence of its counsel.
DETcAH

"The [trial court] thumbed down the motion in its Order of 26 July 1993." 8

Respondent bank appealed the Partial Decision 9 to the CA. During the pendency of that
appeal, Ceroferr Realty Corporation and/or Cesar and/or Lorna Roque filed a
Manifestation with Motion 10 asking the CA to discharge them as parties, because the
case against them had already been dismissed on the basis of their Compromise
Agreement 11 with petitioners. On May 14, 1996, the CA issued a Resolution 12 granting
Ceroferr et al.'s Manifestation with Motion to discharge movants as parties to the appeal.
The Court, though, deferred resolution of the matters raised in the Comment 13 of
respondent bank. The latter contended that the Partial Decision had been novated by the
Compromise Agreement, whose effect of res judicata had rendered that Decision functus
officio.
Ruling of the Court of Appeals
The CA ruled in favor of respondent bank. Deemed, however, to have rested on shaky
ground was the latter's "Motion to Set Aside Partial Decision by Default Against Traders
Royal Bank and Admit Defendant Traders Royal Bank's Answer." 14 The reasons offered
by the bank for failing to file an answer were considered by the appellate court to be "at
once specious, shallow and sophistical and can hardly be dignified as a 'mistake' or
'excusable negligence,' which ordinary prudence could not have guarded against." 15
In particular, the CA ruled that the erroneous docket number placed on the Answer filed
before the trial court was not an excusable negligence by the bank's counsel. The latter
had a bounden duty to be scrupulously careful in reviewing pleadings. Also, there were
several opportunities to discover and rectify the mistake, but these were not taken.
Moreover, the bank's Motion to Set Aside the Partial Decision and to Admit [the] Answer
was not accompanied by an affidavit of merit. These mistakes and the inexcusable
negligence committed by respondent's lawyer were binding on the bank.

On the issue of whether petitioners had convincingly established their right to relief, the
appellate court held that there was no ground to invalidate the foreclosure sale of the
mortgaged property. First, under Section 3 of Act No. 3135, an extrajudicial foreclosure
sale did not require personal notice to the mortgagor. Second, there was no allegation or

proof of noncompliance with the publication requirement and the public posting of the
notice of sale, provided under Act No. 3135, as amended. Third, there was no showing of
inadequacy of price as no competent evidence was presented to show the real market
value of the land sold or the readiness of another buyer to offer a price higher than that at
which the property had been sold.
Moreover, petitioners failed to prove that the bank had agreed to sell the property back to
them. After pointing out that the redemption period had long expired, respondent's
written communications to Petitioner Chua only showed, at most, that the former had
made a proposal for the latter to buy back the property at the current market price; and
that Petitioner Chua was requested to make an offer to repurchase the property, because
another buyer had already made an offer to buy it. On the other hand, respondent noted
that the Interbank check for P4,000 was for "deposit only." Thus, there was no showing
that the check had been issued to cover part of the repurchase price.
The appellate court also held that the Compromise Agreement had not resulted in the
novation of the Partial Decision, because the two were not incompatible. In fact, the bank
was not even a party to the Agreement. Petitioners' recognition of Ceroferr's title to the
mortgaged property was intended to preclude future litigation against it.
Hence this Petition. 16
Issues
In their Memorandum, petitioners raise the following issues:
"1. Whether or not the Respondent Court of Appeals erred in failing to apply the
provisions of Section 3, Rule 9 of the 1997 Rules of Civil Procedure [and in
applying instead] the rule on preponderance of evidence under Section 1, Rule
133 of the Rules of Court.
EITcaH

"2. Whether or not the respondent appellate court failed to apply the
conventional redemption rule provided for under Article 1601 of the New Civil
Code.
"3. Whether or not this Honorable Court can exercise its judicial prerogative to
evaluate the findings of facts." 17

The first issue is one of law and may be taken up by the Court without hindrance,
pursuant to Section 1 of Rule 45 of the Rules of Court. 18 The second and the third
issues, however, would entail an evaluation of the factual findings of the appellate court,
a function ordinarily not assumed by this Court, unless in some excepted cases. The
Court will thus rule on the first issue before addressing the second and the third issues
jointly.

The Court's Ruling

The Petition has no merit.
First Issue:
Quantum of Proof
Petitioners challenge the CA Decision for applying Section 3 of Rule 9 of the Rules of
Court, rather than Section 1 of Rule 133 of the same Rules. In essence, petitioners argue
that the quantum of evidence for judgments flowing from a default order under Section 3
of Rule 9 is not the same as that provided for in Section 1 of Rule 133.
For ease of discussion, these two rules will be reproduced below, starting with Section 3
of Rule 9 of the Rules of Court:
"Sec. 3. Default; declaration of. If the defending party fails to answer within
the time allowed therefor, the court shall, upon motion of the claiming party
with notice to the defending party, and proof of such failure, declare the
defending party in default. Thereupon, the court shall proceed to render
judgment granting the claimant such relief as his pleading may warrant, unless
the court in its discretion requires the claimant to submit evidence. Such
reception of evidence may be delegated to the clerk of court.
"(a) Effect of order of default. A party in default shall be entitled to notice of
subsequent proceedings but not to take part in the trial.
"(b) Relief from order of default. A party declared in default may at any time
after notice thereof and before judgment file a motion under oath to set aside the
order of default upon proper showing that his failure to answer was due to fraud,
accident, mistake or excusable negligence and that he has a meritorious defense.
In such case, the order of default may be set aside on such terms and conditions
as the judge may impose in the interest of justice.
"(c) Effect of partial default. When a pleading asserting a claim states a
common cause of action against several defending parties, some of whom
answer and the others fail to do so, the court shall try the case against all upon
the answers thus filed and render judgment upon the evidence presented.
"(d) Extent of relief to be awarded. A judgment rendered against a party in
default shall not exceed the amount or be different in kind from that prayed for
nor award unliquidated damages.
"(e) Where no defaults allowed. If the defending party in an action for
annulment or declaration of nullity of marriage or for legal separation fails to
answer, the court shall order the prosecuting attorney to investigate whether or

nor a collusion between the parties exists, and if there is no collusion, to

intervene for the State in order to see to it that the evidence submitted is not
fabricated."

We now quote Section 1 of Rule 133:

"SECTION 1. Preponderance of evidence, how determined. In civil cases,
the party having the 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."

Between the two rules, there is no incompatibility that would preclude the application of
either one of them. To begin with, Section 3 of Rule 9 governs the procedure which the
trial court is directed to take when a defendant fails to file an answer. According to this
provision, the court "shall proceed to render judgment granting the claimant such relief as
his pleading may warrant," subject to the court's discretion on whether to require the
presentation of evidence ex parte. The same provision also sets down guidelines on the
nature and extent of the relief that may be granted. In particular, the court's judgment
"shall not exceed the amount or be different in kind from that prayed for nor award
unliquidated damages."
CTaSEI

As in other civil cases, basic is the rule that the party making allegations has the burden
of proving them by a preponderance of evidence. 19 Moreover, parties must rely on the
strength of their own evidence, not upon the weakness of the defense offered by their
opponent. 20 This principle holds true, especially when the latter has had no opportunity
to present evidence because of a default order. Needless to say, the extent of the relief
that may be granted can only be as much as has been alleged and proved 21 with
preponderant evidence required under Section 1 of Rule 133.
Regarding judgments by default, it was explained in Pascua v. Florendo 22 that
complainants are not automatically entitled to the relief prayed for, once the defendants
are declared in default. Favorable relief can be granted only after the court has
ascertained that the relief is warranted by the evidence offered and the facts proven by the
presenting party. In Pascua, this Court ruled that ". . . it would be meaningless to require
presentation of evidence if every time the other party is declared in default, a decision
would automatically be rendered in favor of the non-defaulting party and exactly

according to the tenor of his prayer. This is not contemplated by the Rules nor is it
sanctioned by the due process clause." 23
The import of a judgment by default was further clarified in Lim Tanhu v. Ramolete. 24
The following disquisition is most instructive:
"Unequivocal, in the literal sense, as these provisions [referring to the subject of
default then under Rule 18 of the old Rules of Civil Procedure] are, they do not
readily convey the full import of what they contemplate. To begin with,
contrary to the immediate notion that can be drawn from their language, these
provisions are not to be understood as meaning that default or the failure of the
defendant to answer should 'be interpreted as an admission by the said
defendant that the plaintiff's cause of action find support in the law or that
plaintiff is entitled to the relief prayed for.' . . . .
xxx xxx xxx
"Being declared in default does not constitute a waiver of rights except that of
being heard and of presenting evidence in the trial court. . . . .
"In other words, a defaulted defendant is not actually thrown out of court. While
in a sense it may be said that by defaulting he leaves himself at the mercy of the
court, the rules see to it that any judgment against him must be in accordance
with law. The evidence to support the plaintiff's cause is, of course, presented in
his absence, but the court is not supposed to admit that which is basically
incompetent. Although the defendant would not be in a position to object,
elementary justice requires that only legal evidence should be considered
against him. If the evidence presented should not be sufficient to justify a
judgment for the plaintiff, the complaint must be dismissed. And if an
unfavorable judgment should be justifiable, it cannot exceed in amount or be
different in kind from what is prayed for in the complaint." 25

In sum, while petitioners were allowed to present evidence ex parte under Section 3 of
Rule 9, they were not excused from establishing their claims for damages by the required
quantum of proof under Section 1 of Rule 133. Stated differently, any advantage they
may have gained from the ex parte presentation of evidence does not lower the degree of
proof required. Clearly then, there is no incompatibility between the two rules.
Second and Third Issues:
Review of the Evidence
Petitioners urge this Court to depart from the general rule that the lower courts' findings
of fact are not reviewable in a petition for review. 26 In support of their plea, they cite the

conflicting findings of the trial and the appellate courts, as well as the alleged conjectures
and surmises made by the CA in arriving at its Decision.
cCESaH

Indeed, the differences between the findings of the two courts a quo, leading to entirely
disparate dispositions, is reason enough for this Court to review the evidence in this case.
27 Whether the CA indulged in surmises and conjectures when it issued the assailed
Decision will thus be determined.
At the outset, it behooves this Court to clarify the CA's impression that no evidence was
presented in the case which might have contributed to petitioners' challenge to its
Decision. The appellate court's observation was based on the notation by the lower court's
clerk of court that there were no separate folders for exhibits and transcripts, because
"there was no actual hearing conducted in this case." 28
True, there was no hearing conducted between petitioners and respondent, precisely
because the latter had been declared in default, and petitioners had therefore been ordered
to present their evidence ex parte. But the absence of a hearing did not mean that no
evidence was presented. The Partial Decision dated February 8, 1993, in fact clearly
enumerated the pieces of evidence adduced by petitioners during the ex parte
presentation on January 7, 1993. The documentary evidence they presented consisted of
the following:
1. A copy of respondent bank's Petition for the extrajudicial foreclosure and auction sale
of the mortgaged parcel of land 29
2. The Certificate of Sale that was a consequence of the foreclosure sale 30
3. A Statement of Account dated February 15, 1984, showing Petitioner Chua's
outstanding debt in the amount of P40,135.53 31
4. A copy of the Interbank check dated February 16, 1984, in the amount of P4,000 32
5. The Official Receipt issued by the bank acknowledging the check 33
6. The bank's letter dated February 20, 1984, advising Petitioner Chua of the sale of the
property at an extrajudicial public auction; the lapse of the period of redemption; and an
invitation to purchase the property at its current market price 34
7. Another letter from the bank dated March 22, 1984, inviting Petitioner Chua to submit,
within five days, an offer to buy the same property, which another buyer had offered to
buy 35
8. A copy of the Notice of Lis Pendens, the filing of which was done after that of the
Amended Complaint 36

9. A copy of the title showing the inscription of the Notice of Lis Pendens 37
10. A copy of the Absolute Deed of Sale to Cerrofer 38
11. A copy of a letter dated August 29, 1986, made and signed by petitioners' counsel,
requesting the cancellation of the Notice of Lis Pendens 39
12. A copy of a page of the Memorandum of Encumbrance from TCT No. (314341)
7778/T-39 40
Having clarified this matter, we proceed to review the facts.
Petitioners do not deny that the one-year period for legal redemption had already lapsed
when respondent bank supposedly offered to sell the property in question. The records
clearly show that the Certificate of Sale following the extrajudicial public auction of the
property was registered on June 21, 1982, the date from which the legal redemption
period was to be reckoned. 41 Petitioners insist, though, that they had the right to
repurchase the property through conventional redemption, as provided under Article 1601
of the Civil Code, worded as follows:
"ART. 1601. Conventional redemption shall take place when the vendor
reserves the right to repurchase the thing sold, with the obligation to comply
with the provisions of Article 1616 and other stipulations which may have been
agreed upon."

It is true that the one-year period of redemption provided in Act No. 3135, as amended
the law under which the property here was sold in a foreclosure sale is only directory
and, as such can be extended by agreement of the parties. 42 However, it has also been
held that for legal redemption to be converted into conventional redemption, two
requisites must be established: 1) voluntary agreement of the parties to extend the
redemption period; and 2) the debtor's commitment to pay the redemption price on a
fixed date. 43 Thus, assuming that an offer was made to Petitioner Chua to buy back the
property after the lapse of the period of legal redemption, petitioners needed to show that
the parties had agreed to extend the period, and that Petitioner Chua had committed to
pay the redemption price on a fixed date.
The letters sent by the bank to Petitioner Chua on February 20 and March 22, 1984, do
not convincingly show that the parties arrived at a firm agreement for the repurchase of
the property. What can be gleaned from the February 20 letter is that Petitioner Chua
proposed to pay the redemption price for the property, but that the bank refused to accede
to his request, because the one-year redemption period had already lapsed. 44 The bank,
though, had offered to sell back the property to him at the current market value. Indeed,
an examination of his earlier letter of February 17, 1984, readily reveals that he expressed

willingness to settle his account with the bank, but that his "present financial situation
precludes [him] from effecting an immediate settlement . . . ." 45
On the other hand, the letter dated March 22, 1984, clearly states that ". . . the Bank
rejected [his] request to redeem said property due to [the] lapse of [the] one (1) year legal
redemption period." 46 Nonetheless, he was "[invited] to submit an offer to buy the same
property in five (5) days from receipt [of the letter]." 47 Petitioner Chua was also
informed that the bank had received an offer to purchase the foreclosed property. As to
the P4,000 check enclosed in his proposal dated February 17, 1984, as a token of his
good faith, he was advised that the amount was still outstanding in the books of the bank
and could be claimed by him if he thought the invitation was not feasible.
cAECST

More important, there was no showing that petitioners had committed to pay the
redemption price on a fixed date. True, Petitioner Chua had attempted to establish a
previous agreement to repurchase the property for less than its fair market value. He had
submitted in evidence a Statement of Account 48 dated February 15, 1984, showing a
balance of P40,135.53; the Interbank check dated February 16, 1984, for P4,000, which
was deposited to the account of respondent bank; 49 and the Official Receipt for the
check. 50
Granting that these documents evinced an agreement, petitioners were still unable to
establish a firm commitment on their part to pay the redemption price on a fixed date. On
the contrary, the February 17 letter of Petitioner Chua to the bank clearly manifested that
he was not capable of paying the account immediately. For this reason, he proposed to
pay in "three or four installments" without a specification of dates for the payments, but
with a plea for a reduction of the interest charges. That proposal was rejected.
Indeed, other than the Interbank check marked "for deposit" by respondent bank, no other
evidence was presented to establish that petitioners had offered to pay the alleged
redemption price of P40,135.53 on a fixed date. For that matter, petitioners have not
shown that they tendered payment of the balance and/or consigned the payment to the
court, in order to fulfill their part of the purported agreement. These remedies are
available to an aggrieved debtor under Article 1256 of the Civil Code, 51 when the
creditor unjustly refuses to accept the payment of an obligation.
The next question that presents itself for resolution is the propriety of the CA's ruling
vacating the Partial Decision of the regional trial court (RTC) and dismissing the case. To
recall, the RTC had resolved to withhold a ruling on petitioners' right to redeem
conventionally and/or order the reconveyance of the property in question, pending a
determination of the validity of the sale to Cerrofer Realty Corporation and Spouses
Cesar and Lorna Roque. The trial court, however, granted the prayer for damages against
respondent bank. The RTC ruled as follows:

"The evidence presented by [petitioners] in so far as the cause of action against

[respondent] Traders Royal Bank is concerned are preponderant to support the
claims of the [petitioners]. However, in view of the fact that the property subject
matter of this case has already been conveyed to defendant Cerrofer Realty
Corporation thus the issue as to whether or not the said conveyance or sale is
valid is sill pending between the [petitioners] and [respondents] Cerrofer Realty
Corporation and Cesar Roque and Lorna Roque. Hence, this Court resolves to
grant the prayer for damages against Traders Royal Bank.
"The claims of the [petitioners] as against [respondent] Traders Royal Bank
having been established and proved by evidence, judgment is hereby rendered
ordering [respondent] Traders Royal Bank to pay [petitioners] actual damage or
the market value of the land in question in the sum of P500,000.00; the sum of
P70,000.00 as compensatory damages; the sum of P200,000.00 to the heirs of
[petitioner] Danilo Chua; and attorney's fees in the sum of P30,000.00." 52

In the light of the pending issue as to the validity of the sale of the property to the third
parties (Cerrofer Realty Corporation and Spouses Roque), the trial court properly
withheld judgment on the matter and thus left the prayer for damages as the sole issue for
resolution.
To adjudge damages, paragraph (d) of Section 3 of Rule 9 of the Rules of Court provides
that a judgment against a party in default "shall not exceed the amount or be different in
kind from that prayed for nor award unliquidated damages." The proscription against the
award of unliquidated damages is significant, because it means that the damages to be
awarded must be proved convincingly, in accordance with the quantum of evidence
required in civil cases.
Unfortunately for petitioners, the grant of damages was not sufficiently supported by the
evidence for the following reasons.
First, petitioners were not deprived of their property without cause. As correctly pointed
out by the CA, Act No. 3135, as amended, does not require personal notice to the
mortgagor. 53 In the present case, there has been no allegation much less, proof of
noncompliance with the requirement of publication and public posting of the notice of
sale, as required by Act No. 3135. Neither has there been competent evidence to show
that the price paid at the foreclosure sale was inadequate. 54 To be sure, there was no
ground to invalidate the sale.
ESCTaA

Second, as previously stated, petitioners have not convincingly established their right to
damages on the basis of the purported agreement to repurchase. Without reiterating our
prior discussion on this point, we stress that entitlement to actual and compensatory

damages must be proved even under Section 3 of Rule 9 of the Rules of Court. The same
is true with regard to awards for moral damages and attorney's fees, which were also
granted by the trial court.
In sum, petitioners have failed to convince this Court of the cogency of their position,
notwithstanding the advantage they enjoyed in presenting their evidence ex parte. Not in
every case of default by the defendant is the complainant entitled to win automatically.
WHEREFORE, this Petition is hereby DENIED and the assailed Decision and Resolution
AFFIRMED. Costs against petitioners.
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.
(Gajudo v. Traders Royal Bank, G.R. No. 151098, [March 21, 2006], 519 PHIL 791812)
|||

FIRST DIVISION
[G.R. No. 168646. January 12, 2011.]
LUZON DEVELOPMENT BANK, petitioner, vs. ANGELES
CATHERINE ENRIQUEZ, respondent.
[G.R. No. 168666. January 12, 2011.]
DELTA DEVELOPMENT and MANAGEMENT SERVICES, INC.,
petitioner, vs. ANGELES CATHERINE ENRIQUEZ and LUZON
DEVELOPMENT BANK, respondents.

DECISION

DEL CASTILLO, J :
p

The protection afforded to a subdivision lot buyer under Presidential Decree

(PD) No. 957 or The Subdivision and Condominium Buyer's Protective Decree will not
be defeated by someone who is not an innocent purchaser for value. The lofty
aspirations of PD 957 should be read in every provision of the statute, in every contract
that undermines its objects, in every transaction which threatens its fruition. "For a
statute derives its vitality from the purpose for which it is enacted and to construe it in
a manner that disregards or defeats such purpose is to nullify or destroy the law." 1
These cases involve the separate appeals of Luzon Development Bank 2
(BANK) and Delta Development and Management Services, Inc. 3 (DELTA) from the
November 30, 2004 Decision of the Court of Appeals (CA), as well as its June 22, 2005
Resolution in CA-G.R. SP No. 81280. The dispositive portion of the assailed Decision
reads:
WHEREFORE, premises considered, the Decision dated June 17, 2003 and
Resolution dated November 24, 2003 are AFFIRMED with [m]odification in so
far as Delta Development and Management Services, Inc. is liable and directed
to pay petitioner Luzon Development Bank the value of the subject lot subject
matter of the Contract to Sell between Delta Development and Management
Services, Inc. and the private respondent [Catherine Angeles Enriquez].
SO ORDERED. 4

Factual Antecedents

The BANK is a domestic financial corporation that extends loans to subdivision

developers/owners. 5
Petitioner DELTA is a domestic corporation engaged in the business of
developing and selling real estate properties, particularly Delta Homes I in Cavite.
DELTA is owned by Ricardo De Leon (De Leon), 6 who is the registered owner of a
parcel of land covered by Transfer Certificate of Title (TCT) No. T-637183 7 of the
Registry of Deeds of the Province of Cavite, which corresponds to Lot 4 of Delta Homes
I. Said Lot 4 is the subject matter of these cases.
acITSD

On July 3, 1995, De Leon and his spouse obtained a P4 million loan from the
BANK for the express purpose of developing Delta Homes I. 8 To secure the loan, the
spouses De Leon executed in favor of the BANK a real estate mortgage (REM) on
several of their properties, 9 including Lot 4. Subsequently, this REM was amended 10
by increasing the amount of the secured loan from P4 million to P8 million. Both the
REM and the amendment were annotated on TCT No. T-637183. 11
DELTA then obtained a Certificate of Registration 12 and a License to Sell 13
from the Housing and Land Use Regulatory Board (HLURB).
Sometime in 1997, DELTA executed a Contract to Sell with respondent Angeles
Catherine Enriquez (Enriquez) 14 over the house and lot in Lot 4 for the purchase price
of P614,950.00. Enriquez made a downpayment of P114,950.00. The Contract to Sell
contained the following provisions:
That the vendee/s offered to buy and the Owner agreed to sell the above-described
property subject to the following terms and conditions to wit:
xxx xxx xxx
6. That the (sic) warning shall be served upon the Vendee/s for failure to pay . . .
Provided, however, that for failure to pay three (3) successive monthly
installment payments, the Owner may consider this Contract to Sell null and void
ab initio without further proceedings or court action and all payments shall be
forfeited in favor of the Owner as liquidated damages and expenses for
documentations. . . .
That upon full payment of the total consideration if payable in cash, the Owner
shall execute a final deed of sale in favor of the Vendee/s. However, if the term
of the contract is for a certain period of time, only upon full payment of the total
consideration that a final deed of sale shall be executed by the Owner in favor of
the Vendee/s. 15

When DELTA defaulted on its loan obligation, the BANK, instead of

foreclosing the REM, agreed to a dation in payment or a dacion en pago. The Deed of
Assignment in Payment of Debt was executed on September 30, 1998 and stated that
DELTA "assigns, transfers, and conveys and sets over [to] the assignee that real estate

with the building and improvements existing thereon . . . in payment of the total
obligation owing to [the Bank] . . . ." 16 Unknown to Enriquez, among the properties
assigned to the BANK was the house and lot of Lot 4, 17 which is the subject of her
Contract to Sell with DELTA. The records do not bear out and the parties are silent on
whether the BANK was able to transfer title to its name. It appears, however, that the
dacion en pago was not annotated on the TCT of Lot 4. 18
On November 18, 1999, Enriquez filed a complaint against DELTA and the
BANK before the Region IV Office of the HLURB 19 alleging that DELTA violated
the terms of its License to Sell by: (a) selling the house and lots for a price exceeding
that prescribed in Batas Pambansa (BP) Bilang 220; 20 and (b) failing to get a clearance
for the mortgage from the HLURB. Enriquez sought a full refund of the P301,063.42
that she had already paid to DELTA, award of damages, and the imposition of
administrative fines on DELTA and the BANK.
In his June 1, 2000 Decision, 21 HLURB Arbiter Atty. Raymundo A. Foronda
upheld the validity of the purchase price, but ordered DELTA to accept payment of the
balance of P108,013.36 from Enriquez, and (upon such payment) to deliver to Enriquez
the title to the house and lot free from liens and encumbrances. The dispositive portion
reads:
WHEREFORE, premises considered, a decision is hereby rendered as follows:
1. Ordering [DELTA] to accept complainant[']s payments in the amount of
P108,013.36 representing her balance based on the maximum selling price of
P375,000.00;
DAHEaT

2. Upon full payment, ordering Delta to deliver the title in favor of the
complainant free from any liens and encumbrances;
3. Ordering [DELTA] to pay complainant the amount of P50,000.00 as and by
way of moral damages;
4. Ordering [DELTA] to pay complainant the amount of P50,000.00 as and by
way of exemplary damages;
5. Ordering [DELTA] to pay complainant P10,000.00 as costs of suit; and
6. Respondent DELTA to pay administrative fine of P10,000.00 22 for violation
of Section 18 of P.D. 957 23 and another P10,000.00 for violation of Section 22
of P.D. 957. 24
SO ORDERED. 25

DELTA appealed the arbiter's Decision to the HLURB Board of Commissioners.

26 DELTA questioned the imposition of an administrative fine for its alleged violation
of Section 18 of PD 957. It argued that clearance was not required for mortgages that
were constituted on a subdivision project prior to registration. According to DELTA, it
did not violate the terms of its license because it did not obtain a new mortgage over
the subdivision project. It likewise assailed the award of moral and exemplary damages
to Enriquez on the ground that the latter has no cause of action. 27
Ruling of the Board of Commissioners (Board) 28
The Board held that all developers should obtain a clearance for mortgage from
the HLURB, regardless of the date when the mortgage was secured, because the law
does not distinguish. Having violated this legal requirement, DELTA was held liable to
pay the administrative fine.
The Board upheld the validity of the contract to sell between DELTA and
Enriquez despite the alleged violation of the price ceilings in BP 220. The Board held
that DELTA and Enriquez were presumed to have had a meeting of the minds on the
object of the sale and the purchase price. Absent any circumstance vitiating Enriquez'
consent, she was presumed to have willingly and voluntarily agreed to the higher
purchase price; hence, she was bound by the terms of the contract.
The Board, however, deleted the arbiter's award of damages to Enriquez on the
ground that the latter was not free from liability herself, given that she was remiss in
her monthly amortizations to DELTA.
The dispositive portion of the Board's Decision reads:
Wherefore, in view of the foregoing, the Office below's decision dated June 01,
2000 is hereby modified to read as follows:
1. Ordering [Enriquez] to pay [DELTA] the amount due from the time she
suspended payment up to filing of the complaint with 12% interest thereon per
annum; thereafter the provisions of the Contract to Sell shall apply until full
payment is made;
2. Ordering [DELTA] to pay an [a]dministrative [f]ine of P10,000.00 for violation
of its license to sell and for violation of Section 18 of P.D. 957.
So ordered. Quezon City. 29

Enriquez moved for a reconsideration of the Board's Decision 30 upholding the

contractual purchase price. She maintained that the price for Lot 4 should not exceed
the price ceiling provided in BP 220. 31
TCDcSE

Finding Enriquez's arguments as having already been passed upon in the

decision, the Board denied reconsideration. The board, however, modified its decision,

with respect to the period for the imposition of interest payments. The Board's
resolution 32 reads:
WHEREFORE, premises considered, to [sic] directive No. 1 of the dispositive
portion of the decision of our decision [sic] is MODIFIED as follows:
1. Ordering complainant to pay respondent DELTA the amount due from the time
she suspended (sic) at 12% interest per annum, reckoned from finality of this
decision[,] thereafter the provisions of the Contract to Sell shall apply until full
payment is made.
In all other respects, the decision is AFFIRMED.
SO ORDERED. 33

Both Enriquez and the BANK appealed to the Office of the President (OP). 34
The BANK disagreed with the ruling upholding Enriquez's Contract to Sell; and
insisted on its ownership over Lot 4. It argued that it has become impossible for DELTA
to comply with the terms of the contract to sell and to deliver Lot 4's title to Enriquez
given that DELTA had already relinquished all its rights to Lot 4 in favor of the BANK
35 via the dation in payment.
Meanwhile, Enriquez insisted that the Board erred in not applying the ceiling
price as prescribed in BP 220. 36
Ruling of the Office of the President 37
The OP adopted by reference the findings of fact and conclusions of law of the
HLURB Decisions, which it affirmed in toto.
Enriquez filed a motion for reconsideration, insisting that she was entitled to a
reduction of the purchase price, in order to conform to the provisions of BP 220. 38 The
motion was denied for lack of merit. 39
Only the BANK appealed the OP's Decision to the CA. 40 The BANK reiterated
that DELTA can no longer deliver Lot 4 to Enriquez because DELTA had sold the same
to the BANK by virtue of the dacion en pago. 41 As an alternative argument, in case
the appellate court should find that DELTA retained ownership over Lot 4 and could
convey the same to Enriquez, the BANK prayed that its REM over Lot 4 be respected
such that DELTA would have to redeem it first before it could convey the same to
Enriquez in accordance with Section 25 42 of PD 957. 43
The BANK likewise sought an award of exemplary damages and attorney's fees
in its favor because of the baseless suit filed by Enriquez against it. 44
Ruling of the Court of Appeals 45

The CA ruled against the validity of the dacion en pago executed in favor of the
BANK on the ground that DELTA had earlier relinquished its ownership over Lot 4 in
favor of Enriquez via the Contract to Sell. 46
Since the dacion en pago is invalid with respect to Lot 4, the appellate court held
that DELTA remained indebted to the BANK to the extent of Lot 4's value. Thus, the
CA ordered DELTA to pay the corresponding value of Lot 4 to the BANK. 47
The CA also rejected the BANK's argument that, before DELTA can deliver the
title to Lot 4 to Enriquez, DELTA should first redeem the mortgaged property from the
BANK. The CA held that the BANK does not have a first lien on Lot 4 because its real
estate mortgage over the same had already been extinguished by the dacion en pago.
Without a mortgage, the BANK cannot require DELTA to redeem Lot 4 prior to
delivery of title to Enriquez. 48
The CA denied the BANK's prayer for the award of exemplary damages and
attorney's fees for lack of factual and legal basis. 49
SDcITH

Both DELTA 50 and the BANK 51 moved for a reconsideration of the CA's
Decision, but both were denied. 52
Hence, these separate petitions of the BANK and DELTA.
Petitioner Delta's arguments 53
DELTA assails the CA Decision for holding that DELTA conveyed its
ownership over Lot 4 to Enriquez via the Contract to Sell. DELTA points out that the
Contract to Sell contained a condition that ownership shall only be transferred to
Enriquez upon the latter's full payment of the purchase price to DELTA. Since Enriquez
has yet to comply with this suspensive condition, ownership is retained by DELTA. 54
As the owner of Lot 4, DELTA had every right to enter into a dation in payment to
extinguish its loan obligation to the BANK. The BANK's acceptance of the assignment,
without any reservation or exception, resulted in the extinguishment of the entire loan
obligation; hence, DELTA has no more obligation to pay the value of Enriquez's house
and lot to the BANK. 55
DELTA prays for the reinstatement of the OP Decision.
The BANK's arguments 56
Echoing the argument of DELTA, the BANK argues that the Contract to Sell did
not involve a conveyance of DELTA's ownership over Lot 4 to Enriquez. The Contract
to Sell expressly provides that DELTA retained ownership over Lot 4 until Enriquez
paid the full purchase price. Since Enriquez has not yet made such full payment,
DELTA retained ownership over Lot 4 and could validly convey the same to the BANK
via dacion en pago. 57

Should the dacion en pago over Lot 4 be invalidated and the property ordered to
be delivered to Enriquez, the BANK contends that DELTA should pay the
corresponding value of Lot 4 to the BANK. It maintains that the loan obligation
extinguished by the dacion en pago only extends to the value of the properties
delivered; if Lot 4 cannot be delivered to the BANK, then the loan obligation of DELTA
remains to the extent of Lot 4's value. 58
The BANK prays to be declared the rightful owner of the subject house and lot
and asks for an award of exemplary damages and attorney's fees.
Enriquez's waiver
Enriquez did not file comments 59 or memoranda in both cases; instead, she
manifested that she will just await the outcome of the case. 60
Issues
The following are the issues raised by the two petitions:
1. Whether the Contract to Sell conveys ownership;
2. Whether the dacion en pago extinguished the loan obligation, such that
DELTA has no more obligations to the BANK;
3. Whether the BANK is entitled to damages and attorney's fees for being
compelled to litigate; and
4. What is the effect of Enriquez's failure to appeal the OP's Decision regarding
her obligation to pay the balance on the purchase price.
Our Ruling
Mortgage contract void
As the HLURB Arbiter and Board of Commissioners both found, DELTA
violated Section 18 of PD 957 in mortgaging the properties in Delta Homes I (including
Lot 4) to the BANK without prior clearance from the HLURB. This point need not be
belabored since the parties have chosen not to appeal the administrative fine imposed
on DELTA for violation of Section 18.
This violation of Section 18 renders the mortgage executed by DELTA void. We
have held before that "a mortgage contract executed in breach of Section 18 of [PD
957] is null and void." 61 Considering that "PD 957 aims to protect innocent
subdivision lot and condominium unit buyers against fraudulent real estate practices,"
we have construed Section 18 thereof as "prohibitory and acts committed contrary to it
are void." 62
Because of the nullity of the mortgage, neither DELTA nor the BANK could
assert any right arising therefrom. The BANK's loan of P8 million to DELTA has
effectively become unsecured due to the nullity of the mortgage. The said loan,
however, was eventually settled by the two contracting parties via a dation in payment.

In the appealed Decision, the CA invalidated this dation in payment on the ground that
DELTA, by previously entering into a Contract to Sell, had already conveyed its
ownership over Lot 4 to Enriquez and could no longer convey the same to the BANK.
This is error, prescinding from a wrong understanding of the nature of a contract to sell.
ECTHIA

Contract to sell does not transfer ownership

Both parties are correct in arguing that the Contract to Sell executed by DELTA
in favor of Enriquez did not transfer ownership over Lot 4 to Enriquez. A contract to
sell is one where the prospective seller reserves the transfer of title to the prospective
buyer until the happening of an event, such as full payment of the purchase price. What
the seller obliges himself to do is to sell the subject property only when the entire
amount of the purchase price has already been delivered to him. "In other words, the
full payment of the purchase price partakes of a suspensive condition, the nonfulfillment of which prevents the obligation to sell from arising and thus, ownership is
retained by the prospective seller without further remedies by the prospective buyer."
63 It does not, by itself, transfer ownership to the buyer. 64
In the instant case, there is nothing in the provisions of the contract entered into
by DELTA and Enriquez that would exempt it from the general definition of a contract
to sell. The terms thereof provide for the reservation of DELTA's ownership until full
payment of the purchase price; such that DELTA even reserved the right to unilaterally
void the contract should Enriquez fail to pay three successive monthly amortizations.
Since the Contract to Sell did not transfer ownership of Lot 4 to Enriquez, said
ownership remained with DELTA. DELTA could then validly transfer such ownership
(as it did) to another person (the BANK). However, the transferee BANK is bound by
the Contract to Sell and has to respect Enriquez's rights thereunder. This is because the
Contract to Sell, involving a subdivision lot, is covered and protected by PD 957. One
of the protections afforded by PD 957 to buyers such as Enriquez is the right to have
her contract to sell registered with the Register of Deeds in order to make it binding on
third parties. Thus, Section 17 of PD 957 provides:
Section 17. Registration. All contracts to sell, deeds of sale, and other similar
instruments relative to the sale or conveyance of the subdivision lots and
condominium units, whether or not the purchase price is paid in full, shall be
registered by the seller in the Office of the Register of Deeds of the province or
city where the property is situated.
xxx xxx xxx (Emphasis supplied.)

The purpose of registration is to protect the buyers from any future unscrupulous
transactions involving the object of the sale or contract to sell, whether the purchase
price therefor has been fully paid or not. Registration of the sale or contract to sell
makes it binding on third parties; it serves as a notice to the whole world that the
property is subject to the prior right of the buyer of the property (under a contract to sell

or an absolute sale), and anyone who wishes to deal with the said property will be held
bound by such prior right.
cdphil

While DELTA, in the instant case, failed to register Enriquez's Contract to Sell
with the Register of Deeds, this failure will not prejudice Enriquez or relieve the BANK
from its obligation to respect Enriquez's Contract to Sell. Despite the non-registration,
the BANK cannot be considered, under the circumstances, an innocent purchaser for
value of Lot 4 when it accepted the latter (together with other assigned properties) as
payment for DELTA's obligation. The BANK was well aware that the assigned
properties, including Lot 4, were subdivision lots and therefore within the purview of
PD 957. It knew that the loaned amounts were to be used for the development of
DELTA's subdivision project, for this was indicated in the corresponding promissory
notes. The technical description of Lot 4 indicates its location, which can easily be
determined as included within the subdivision development. Under these
circumstances, the BANK knew or should have known of the possibility and risk that
the assigned properties were already covered by existing contracts to sell in favor of
subdivision lot buyers. As observed by the Court in another case involving a bank
regarding a subdivision lot that was already subject of a contract to sell with a third
party:
[The Bank] should have considered that it was dealing with a property subject of
a real estate development project. A reasonable person, particularly a financial
institution . . ., should have been aware that, to finance the project, funds other
than those obtained from the loan could have been used to serve the purpose,
albeit partially. Hence, there was a need to verify whether any part of the property
was already intended to be the subject of any other contract involving buyers or
potential buyers. In granting the loan, [the Bank] should not have been content
merely with a clean title, considering the presence of circumstances indicating the
need for a thorough investigation of the existence of buyers . . . . Wanting in care
and prudence, the [Bank] cannot be deemed to be an innocent mortgagee. . . . 65

Further, as an entity engaged in the banking business, the BANK is required to

observe more care and prudence when dealing with registered properties. The Court
cannot accept that the BANK was unaware of the Contract to Sell existing in favor of
Enriquez. In Keppel Bank Philippines, Inc. v. Adao, 66 we held that a bank dealing with
a property that is already subject of a contract to sell and is protected by the provisions
of PD 957, is bound by the contract to sell (even if the contract to sell in that case was
not registered). In the Court's words:
It is true that persons dealing with registered property can rely solely on the
certificate of title and need not go beyond it. However, . . ., this rule does not
apply to banks. Banks are required to exercise more care and prudence than
private individuals in dealing even with registered properties for their business is
affected with public interest. As master of its business, petitioner should have sent
its representatives to check the assigned properties before signing the

compromise agreement and it would have discovered that respondent was already
occupying one of the condominium units and that a contract to sell existed
between [the vendee] and [the developer]. In our view, petitioner was not a
purchaser in good faith and we are constrained to rule that petitioner is bound by
the contract to sell. 67

Bound by the terms of the Contract to Sell, the BANK is obliged to respect the same
and honor the payments already made by Enriquez for the purchase price of Lot 4. Thus,
the BANK can only collect the balance of the purchase price from Enriquez and has the
obligation, upon full payment, to deliver to Enriquez a clean title over the subject
property. 68
Dacion en pago extinguished the loan obligation
The BANK then posits that, if title to Lot 4 is ordered delivered to Enriquez,
DELTA has the obligation to pay the BANK the corresponding value of Lot 4.
According to the BANK, the dation in payment extinguished the loan only to the extent
of the value of the thing delivered. Since Lot 4 would have no value to the BANK if it
will be delivered to Enriquez, DELTA would remain indebted to that extent.
We are not persuaded. Like in all contracts, the intention of the parties to the
dation in payment is paramount and controlling. The contractual intention determines
whether the property subject of the dation will be considered as the full equivalent of
the debt and will therefore serve as full satisfaction for the debt. "The dation in payment
extinguishes the obligation to the extent of the value of the thing delivered, either as
agreed upon by the parties or as may be proved, unless the parties by agreement,
express or implied, or by their silence, consider the thing as equivalent to the
obligation, in which case the obligation is totally extinguished." 69
In the case at bar, the Dacion en Pago executed by DELTA and the BANK
indicates a clear intention by the parties that the assigned properties would serve as full
payment for DELTA's entire obligation:
aEAIDH

KNOW ALL MEN BY THESE PRESENTS:

This instrument, made and executed by and between:
xxx xxx xxx
THAT, the ASSIGNOR acknowledges to be justly indebted to the ASSIGNEE in
the sum of ELEVEN MILLION EIGHT HUNDRED SEVENTY-EIGHT
THOUSAND EIGHT HUNDRED PESOS (P11,878,800.00), Philippine
Currency as of August 25, 1998. Therefore, by virtue of this instrument,
ASSIGNOR hereby ASSIGNS, TRANSFERS, and CONVEYS AND SETS
OVER [TO] the ASSIGNEE that real estate with the building and improvements
existing thereon, more particularly described as follows:

xxx xxx xxx

of which the ASSIGNOR is the registered owner being evidenced by TCT No. .
. . issued by the Registry of Deeds of Trece Martires City.
THAT, the ASSIGNEE does hereby accept this ASSIGNMENT IN PAYMENT
OF THE TOTAL OBLIGATION owing to him by the ASSIGNOR as abovestated; 70

Without any reservation or condition, the Dacion stated that the assigned properties
served as full payment of DELTA's "total obligation" to the BANK. The BANK
accepted said properties as equivalent of the loaned amount and as full satisfaction of
DELTA's debt. The BANK cannot complain if, as it turned out, some of those assigned
properties (such as Lot 4) are covered by existing contracts to sell. As noted earlier, the
BANK knew that the assigned properties were subdivision lots and covered by PD 957.
It was aware of the nature of DELTA's business, of the location of the assigned
properties within DELTA's subdivision development, and the possibility that some of
the properties may be subjects of existing contracts to sell which enjoy protection under
PD 957. Banks dealing with subdivision properties are expected to conduct a thorough
due diligence review to discover the status of the properties they deal with. It may thus
be said that the BANK, in accepting the assigned properties as full payment of DELTA's
"total obligation," has assumed the risk that some of the assigned properties (such as
Lot 4) are covered by contracts to sell which it is bound to honor under PD 957.
A dacion en pago is governed by the law of sales. 71 Contracts of sale come
with warranties, either express (if explicitly stipulated by the parties) or implied (under
Article 1547 et seq. of the Civil Code). In this case, however, the BANK does not even
point to any breach of warranty by DELTA in connection with the Dation in Payment.
To be sure, the Dation in Payment has no express warranties relating to existing
contracts to sell over the assigned properties. As to the implied warranty in case of
eviction, it is waivable 72 and cannot be invoked if the buyer knew of the risks or danger
of eviction and assumed its consequences. 73 As we have noted earlier, the BANK, in
accepting the assigned properties as full payment of DELTA's "total obligation," has
assumed the risk that some of the assigned properties are covered by contracts to sell
which must be honored under PD 957.
Award of damages
There is nothing on record that warrants the award of exemplary damages 74 as
well as attorney's fees 75 in favor of the BANK.
Balance to be paid by Enriquez
As already mentioned, the Contract to Sell in favor of Enriquez must be
respected by the BANK. Upon Enriquez's full payment of the balance of the purchase
price, the BANK is bound to deliver the title over Lot 4 to her. As to the amount of the

balance which Enriquez must pay, we adopt the OP's ruling thereon which sustained
the amount stipulated in the Contract to Sell. We will not review Enriquez's initial
claims about the supposed violation of the price ceiling in BP 220, since this issue was
no longer pursued by the parties, not even by Enriquez, who chose not to file the
required pleadings 76 before the Court. The parties were informed in the Court's
September 5, 2007 Resolution that issues that are not included in their memoranda shall
be deemed waived or abandoned. Since Enriquez did not file a memorandum in either
petition, she is deemed to have waived the said issue.
WHEREFORE, premises considered, the appealed November 30, 2004
Decision of the Court of Appeals, as well as its June 22, 2005 Resolution in CA-G.R.
SP No. 81280 are hereby AFFIRMED with the MODIFICATIONS that Delta
Development and Management Services, Inc. is NOT LIABLE TO PAY Luzon
Development Bank the value of the subject lot; and respondent Angeles Catherine
Enriquez is ordered to PAY the balance of the purchase price and the interests accruing
thereon, as decreed by the Court of Appeals, to the Luzon Development Bank, instead
of Delta Development and Management Services, Inc., within thirty (30) days from
finality of this Decision. The Luzon Development Bank is ordered to DELIVER a
CLEAN TITLE to Angeles Catherine Enriquez upon the latter's full payment of the
balance of the purchase price and the accrued interests.
SO ORDERED.

HIETAc

Corona, C.J., Velasco, Jr., Leonardo-de Castro and Perez, JJ., concur.
(Luzon Development Bank v. Enriquez, G.R. No. 168646, 168666, [January 12, 2011],
654 PHIL 315-339)
|||

SECOND DIVISION
[G.R. No. 110581. September 21, 1994.]
TELENGTAN BROTHERS & SONS, INC. (LA SUERTE CIGAR &
CIGARETTE FACTORY), petitioner, vs. THE COURT OF
APPEALS, KAWASAKI KISHEN KAISHA, LTD. and SMITH,
BELL & CO., INC., respondents.
SYLLABUS
1. MERCANTILE LAW; CODE OF COMMERCE; MARITIME TRANSPORTATION;
BILL OF LADING; DEFINED. A bill of lading is both a receipt and a contract. As a
contract, its terms and conditions are conclusive on the parties, including the consignee.
What we said in one case mutatis mutandis applies to this case: A bill of lading operates
both as a receipt and a contract. . . . . As a contract, it names the contracting parties which
include the consignee, fixes the route, destination, freight rate or charges, and stipulates
the rights and obligations assumed by the parties . . . . By receiving the bill of lading,
Davao Parts and Services, Inc. assented to the terms of the consignment contained
therein, and became bound thereby, so far as the conditions named are reasonable in the
eyes of the law. Since neither appellant nor appellee alleges that any provision therein is
contrary to law, morals, good customs, public policy or public order and indeed we
found none the validity of the Bill of Lading must be sustained and the provisions
therein properly applies to resolve the conflict between the parties.
2. CONSTITUTIONAL LAW; DECLARATION OF PRINCIPLES AND STATE
POLICIES; PHILIPPINES RECOGNIZES INTERNATIONAL CHARACTER OF
SHIPPING IN FOREIGN TRADE EXISTING INTERNATIONAL PRACTICES IN
MARITIME TRANSPORTATION. As the Court of Appeals pointed out in its
appealed decision, the enforcement of the rules of the Far East Conference and the
Federal Maritime Commission is in accordance with Republic Act No. 1407, 1 of
which declares that the Philippines, in common with other maritime nations, recognizes
the international character of shipping in foreign trade and existing international practices
in maritime transportation and that it is part of the national policy to cooperate with other
friendly nations in the maintenance and improvement of such practices.
3. MERCANTILE LAW; CODE OF COMMERCE; MARITIME TRANSPORTATION;
BILL OF LADING; NOT ENTIRELY PROHIBITED ALTHOUGH A CONTRACT OF
ADHESION; PARTIES BOUND BY THE TERMS THEREOF. Petitioner's argument
that it is not bound by the bill of lading issued by K-Line because it is a contract of
adhesion, whose terms as set forth at the back are in small prints and are hardly readable,
is without merit. As we held in Servando v. Philippine Steam Navigation: While it may be

true that petitioner had not signed the plane ticket (Exh. 12), he is nevertheless bound by
the provisions thereof. "Such provisions have been held to be a part of the contract of
carriage, and valid and binding upon the passenger regardless of the latter's lack of
knowledge or assent to the regulation". It is what is known as a contract of "adhesion," in
regards to 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 JBL Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49).
4. ID.; ID.; ID.; DEMURRAGE; CONSIGNEE NOT LIABLE FOR DELAY IN
OBTAINING RELEASE OF GOODS WHERE THE BUREAU OF CUSTOMS
REFUSED TO GIVE ENTRY PERMIT DUE TO DISCREPANCY BETWEEN THE
BILL OF LADING AND THE MANIFEST. Petitioner cannot be held liable for
demurrage starting June 27, 1979 on the 10 containers which arrived on the SS Far East
Friendship because the delay in obtaining release of the goods was not due to its fault.
The evidence shows that because the manifest issued by the respondent K-Line, through
the Smith, Bell & Co., stated only 10 containers, whereas the bill of lading also issued by
the K-Line showed there were 12 containers, the Bureau of Customs refused to give an
entry permit to petitioner. For this reason, petitioner's broker, the IBC, had to see the
respondents' agent (Smith, Bell & Co.) on June 22, 1979 but the latter did not
immediately do something to correct the manifest. Smith, Bell & Co. was asked to
"amend" the manifest, but it refused to do so on the ground that this would violate the
law. It was only on June 29, 1979 that it thought of adding instead of footnote to indicate
that two other container vans to account for a total of 12 container vans consigned to
petitioner had been loaded on the other vessel SS Hangang Glory. It is not true that the
necessary correction was made on June 22, 1979, the same day the manifest was
presented to Smith, Bell & Co. There is nothing in the testimonies of witnesses of either
party to support the appellate court's finding that the footnote, explaining the apparent
discrepancy between the bill of lading and the manifest, was added on June 22, 1979 but
that petitioner's representative did not return to pick up the manifest until June 29, 1979.
To the contrary, it is more probable to believe the petitioner's claim that the manifest was
corrected only on June 29, 1979, (by which time the "free time" had already expired),
because Smith, Bell & Co. did not immediately know what to do as it insisted it could not
amend the manifest and only thought of adding a footnote on June 29, 1979 upon the
suggestion of the IBC. Now June 29, 1979 was a Friday. Again it is probable that the
corrected manifest was presented to the Bureau of Customs only on Monday, July 2,
1979 and, therefore, it was only on July 3 that it was approved. It was, therefore, only
from this date (July 3, 1979) that petitioner could have claimed its cargo and charged for
any delay in removing its cargo from the containers. With respect to the other two
containers which arrived on the SS Hangang Glory, demurrage was properly considered
to have accrued on July 10, 1979 since the "free time" expired on July 9.

5. ID.; ID.; ID.; ID.; ID.; CONSIGNEE NOT LIABLE FOR DELAYS DUE TO
BREAKDOWN OF SHIFTERS OR CRANES OF ARRASTRE SERVICE OPERATOR.
The period of delay, however, for all the 12 containers must be deemed to have
stopped on July 13, 1979, because on this date petitioner paid P47,680.00. If it was not
able to get its cargo from the container vans, it was because of the breakdown of the
shifters or cranes. This breakdown cannot be blamed on petitioners since these were
cranes of the arrastre service operator. It would be unjust to charge demurrage after July
13, 1979 since the delay in emptying the containers was not due to the fault of the
petitioner.

DECISION

MENDOZA, J :
p

This is a petition for review of the decision of the Court of Appeals, 1 in CA-G.R. CV
No. 09514, affirming with modification the decision of the Regional Trial Court in a case
for specific performance brought by petitioner.
Private respondent Kawasaki Kishen Kaisha, Ltd. (K-Line) is a foreign shipping
company doing business in the Philippines, its shipping agent being respondent the
Smith, Bell & Co., Inc. It is a member of the Far East Conference, the body which fixes
rates by agreement of its member-shipowners. The conference is registered with the U.S.
Federal Maritime Commission. 2
On May 8, 1979, the Van Reekum Paper, Inc. entered into a contract of affreightment
with the K-Line for the shipment of 468 rolls of container board liners from Savannah,
Georgia to Manila. The shipment was consigned to herein petitioner La Suerte Cigar &
Cigarette Factory. The contract of affreightment was embodied in Bill of Lading No. 602
issued by the carrier to the shipper. The expenses of loading and unloading were for the
account of the consignee.
Cdpr

The shipment was packed in 12 container vans and loaded on board the carrier's vessel,
SS Verrazano Bridge. At Tokyo, Japan, the cargo was transhipped on two vessels of the
K-Line. Ten container vans were loaded on the SS Far East Friendship, while two were
loaded on the SS Hangang Glory.
Shortly thereafter, the consignee (herein petitioner) received from the shipper
photocopies of the bill of lading, consular invoice and packing list, as well as notice of
the estimated time of arrival of the cargo.

On June 11, 1979, the SS Far East Friendship arrived at the port of Manila. Aside from
the regular advertisements in the shipping section of the Bulletin Today announcing the
arrival of its vessels, petitioner was notified in writing of the ship's arrival, together with
information that container demurrage at the rate of P4.00 per linear foot per day for the
first 5 days and P8.00 per linear foot per day after the 5th day would be charged unless
the consignee took delivery of the cargo within ten days.
On June 21, 1979, the other vessel SS Hangang Glory, carrying petitioner's two other
vans, arrived and was discharged of its contents the next day. On the same day the
shipping agent Smith, Bell & Co. released the Delivery Permit for twelve (12) containers
to the broker upon payment of freight charges on the bill of lading.
The next day, June 22, 1979, the Island Brokerage Co. presented, in behalf of petitioner,
the shipping documents to the Customs Marine Division of the Bureau of Customs. But
the latter refused to act on them because the manifest of the SS Far East Friendship
covered only 10 containers, whereas the bill of lading covered 12 containers.
LibLex

The broker, therefore, sent back the manifest to the shipping agent with the request that
the manifest be amended. Smith, Bell & Co. refused on the ground that an amendment, as
requested, would violate sec. 1005 of the Tariff and Customs Code relating to
unmanifested cargo. Later, however, it agreed to add a footnote reading "Two container
vans carried by the SS Hangang Glory to complete the shipment of twelve containers
under the bill of lading."
On June 29, 1979 the manifest was picked up from the office of respondent shipping
agent by an employee of the IBC and filed with the Bureau of Customs. The manifest
was approved for release on July 3, 1979. IBC wrote Smith, Bell & Co. to make of record
that entry of the shipment had been delayed by the error in the manifest.

On July 11, 1979, when the IBC tried to secure the release of the cargo, it was informed
by private respondents' collection agent, the CBCS Guaranteed Fast Collection Services,
that the free time for removing the containers from the container yard had expired on
June 26, 1979, in the case of the SS Far East Friendship, and on July 9, in the case of the
SS Hangang Glory, 3 and that demurrage charges had begun to run on June 27, 1979 with
respect to the 10 containers on the SS Far East Friendship and on July 10, 1979 with
respect to the 2 containers shipped on board the SS Hangang Glory.
On July 13, 1979, petitioner paid P47,680.00 representing the total demurrage charges on
all the containers, but it was not able to obtain its goods. On July 16, 1979 it was able to
obtain the release of two containers and on July 17, 1979 of one more container. It was

able to obtain only a partial release of the cargo because of the breakdown of the
arrastre's equipment at the container yard.
LibLex

This matter was reported by IBC in letters of complaint sent to the Philippine Ports
Authority. In addition, on July 16, 1979, petitioner sent a letter dated July 12, 1979 (Exh.
I) to Smith, Bell & Co., requesting reconsideration of the demurrage charges, on the
ground that the delay in claiming the goods was due to the alleged late arrival of the
shipping documents, the delay caused by the amendment of the manifest, and the fact that
two of the containers arrived separately from the other ten containers.
On July 19, 1979 petitioner paid additional charges in the amount of P20,160.00 for the
period July 14-19, 1979 to secure the release of its cargo, but still petitioner was unable to
get any cargo from the remaining nine container vans. It was only the next day, July 20,
1979, that it was able to have two more containers released from the container yard,
bringing to five the total number of containers whose contents had been delivered to it.
Subsequently, petitioner refused to pay any more demurrage charges on the ground that
there was no agreement for their payment in the bill of lading and that the delay in the
release of the cargo was not due to its fault but to the breakdown of the equipment at the
container yard. In all, petitioner had paid demurrage charges from June 27 to July 19,
1979 in the total amount of P67,840.00, computed as follows:
cdrep

A. Container demurrage paid on July 13, 1979

1. Far East Friendship (Exh. H-1) June 27-July 13 (17 days)
1st 5 days @ P4/day/foot
5 days x P4 x 40 ft. x 10 ctnrs P8,000.00
Next 12 days @ P8/day/foot
12 days x P8 x 40 ft. x 10 ctnrs. P38,400.00

P46,400.00
2. Hangang Glory (Exh. H) July 10-July 13 (4 days)
1st 4 days:
4 days x P4 x 40 ft. x 2 ctnrs. P 1,280.00

TOTAL PAID ON JULY 13 P47,680.00

(Exh. H-2)
B. Container demurrage paid on July 19, 1979
1. Far East Friendship
a. on 2 containers released July 16
3 days x P8 x 40 ft. x 2 ctnrs. P 1,920.00
(Exh. L-2)

b. on 1 container released July 17

4 days x P8 x 40 ft. x 1 ctnr. P 1,280.00
(Exh. L-3)
c. remaining 7 containers as of July 19
6 days x P8 x 40 ft. x 7 ctnrs. P13,440.00
(Exh. L-1)
2. Hangang Glory
a. 5th day (July 14)
1 day x P4.00 x 40 ft. x 2 ctnrs. P 320.00
b. July 15-19:
5 days x P8.00 x 40 ft. x
2 ctnrs. P 3,200.00
(Exh. L)

TOTAL P20,160.00

(Exh. L-4)
OVERALL TOTAL P67,840.00
=========

On July 20, 1979 petitioner wrote private respondent for a refund of the demurrage
charges, but private respondent replied on July 25, 1979 that as member of the Far East
Conference, it could not modify the rules or authorize refunds of the stipulated tariffs.
Petitioner, therefore, filed this suit in the RTC for specific performance to compel private
respondent carrier, through its shipping agent, the Smith, Bell & Co., to release 7
container vans consigned to it free of charge and for a refund of P67,840.00 which it had
paid, plus attorney's fees and other expenses of litigation. Petitioner also asked for the
issuance of a writ of preliminary injunction to restrain private respondents from charging
additional demurrage.
prcd

In their amended answer, private respondents claimed that collection of container charges
was authorized by sec. sec. 2, 23 and 29 of the bill of lading and that they were not free to
waive these charges because under the United States Shipping Act of 1916 it was
unlawful for any common carrier engaged in transportation involving the foreign
commerce of the United States to charge or collect a greater or lesser compensation than
the rates and charges specified in its tariffs on file with the Federal Maritime
Commission.
Private respondents alleged that petitioner knew that the contract of carriage was subject
to the Far East Conference rules and that the publication of the notice of reimposition of
container demurrage charges published in the shipping section of the Bulletin Today and
Businessday newspapers from February 19 - February 25, 1979 was binding upon
petitioner. They contended further that the collection of container demurrage was an

international practice which is widely accepted in ports all over the world and that it was
in conformity with Republic Act No. 1407, otherwise known as the Philippine Overseas
Shipping Act of 1955.
Thereafter, a writ was issued after petitioner had posted a bond of P50,000.00 and the
container vans were released to the petitioner. On March 19, 1986, however, the RTC
dismissed petitioner's complaint. It cited the bill of lading which provided:
23. The ocean carrier shall have a lien on the goods, which shall survive
delivery, for all freight, dead freight, demurrage, damages, loss, charges,
expenses and any other sums whatsoever payable or chargeable to or for the
account of the Merchant under this bill of lading. . . .

It likewise invoked clause 29 of the bill of lading which provided:

29. . . . The terms of the ocean carrier's applicable tariff, including tariffs
covering intermodal transportation on file with the Federal Maritime
Commission and the Interstate Commission or any other regulatory body which
governs a portion of the carriage of goods, are incorporated herein.

Rule 21 of the Far East Conference Tariff No. 28-FMC No. 12 Rules and Regulations,
referred to above, provides:
(D) Free Time, Demurrage, and Equipment Detention at Ports in the
Philippines.
Note: Philippine Customs Law prescribes all cargo discharged from vessels to
be given into custody of the Government Arrastre Contractor, appointed by
Philippine Customs who undertakes delivery to the consignee.
xxx xxx xxx
Demurrage charges on Containers with CY Cargo.
1. Free time will commence at 8:00 a.m. on the first working calendar day
following completion of discharge of the vessel. It shall expire at 12:00 p.m.
(midnight) on the tenth working calendar day, excluding Saturdays, Sundays
and holidays.
Work stoppage at a terminal due to labor dispute or other force majeure as
defined by the conference preventing delivery of cargo or containers shall be
excluded from the calculation of the free time for the period of the work
stoppage.
2. Demurrage charges are incurred before the container leaves the carrier's
designated CY, and shall be applicable on the container commencing the next

working calendar day following expiration of the allowable free time until the
consignee has taken delivery of the container or has fully stripped the container
of its contents in the carrier's designated CY.
Demurrage charges shall be assessed hereunder:
Ordinary containers P4.00 per linear foot of the container per
day for the first five days; P8.00 per linear foot of the container per day,
thereafter.

The RTC held that the bill of lading was the contract between the parties and, therefore,
petitioner was liable for demurrage charges. It rejected petitioner's claim of force
majeure. It held:
cdrep

This Court cannot also accord faith and credit on the plaintiff's claim that the
delay in the delivery of the containers was caused by the breaking down of the
equipment of the arrastre operator. Such claim was not supported with
competent evidence. Let us assume the fact that the arrastre operator's
equipment broke down still plaintiff has to pay the corresponding demurrage
charges. The possibility that the equipment would break down was not only
foreseeable, but actually, foreseen, and was not caso fortuito. 4

The RTC, therefore, ordered:

WHEREFORE, finding the preponderance of evidence in favor of the
defendants and against the plaintiff, judgment is hereby rendered dismissing the
complaint with costs against it. Plaintiff is hereby ordered to pay defendants the
sum of P36,480.00 representing demurrage charges for the detention of the
seven (7) forty-footer container vans from July 20 to August 7, 1979, with legal
interest commencing on August 7, 1979 until fully paid. And plaintiff has to pay
the sum of P10,000.00, by way of attorney's fees.
SO ORDERED.

On appeal, the case was affirmed with modification by the Court of Appeals as follows:
WHEREFORE, modified as indicated above deleting the award of attorney's
fees, the decision appealed from is hereby AFFIRMED in all other respects.
Costs against plaintiff-appellant.
SO ORDERED. 5

Hence, this petition for review in which it is contended:

1. that no demurrage lies in the absence of any showing that the vessels
had been improperly detained or that loss or damage had been
incurred as a consequence of improper detention;
2. that respondent Court's finding that private respondent Smith Bell had
promptly and on the same day amended the defective manifest is
contrary to the evidence of record.
3. that respondent Court manifestly overlooked undisputed evidence
presented by petitioner showing that the breakdown in the facilities
and equipment of the arrastre operator further delayed petitioner's
withdrawal of the cargo. 6

Petitioner prays for a reversal of the decision of the Court of Appeals and the refund to it
of the demurrage charges paid by it, with interest, as well as to pay attorney's fees and
expenses of litigation.
Our decision will be presently explained, but in brief it is this: petitioner is liable for
demurrage for delay in removing its cargo from the containers but only for the period
July 3 to 13, 1979 with respect to ten containers and from July 10 to July 13, 1979, in
respect of two other containers.
First. With respect to petitioner's liability for demurrage, petitioner's contention is that
the bill of lading does not provide for the payment of container demurrage, as Clause 23
of the bill of lading only says "demurrage," i.e., damages for the detention of vessels, and
here there is no detention of vessels. Petitioner invokes the ruling in Magellan
Manufacturing Marketing Corp. v. Court of Appeals 7 , where we defined "demurrage"
as follows:
LLphil

Demurrage, in its strict sense, is the compensation provided for in the contract
of affreightment for the detention of the vessel beyond the time agreed on for
loading and unloading. Essentially, demurrage is the claim for damages for
failure to accept delivery. In a broad sense, every improper detention of a vessel
may be considered a demurrage. Liability for demurrage, using the word in its
strictly technical sense, exists only when expressly stipulated in the contract.
Using the term in [its broader sense, damages in the] nature of demurrage are
recoverable for a breach of the implied obligation to load or unload the cargo
with reasonable dispatch, but only by the party to whom the duty is owed and
only against one who is a party to the shipping contract.

Whatever may be the merit of petitioner's contention as to the meaning of the word
"demurrage" in clause 23 of the bill of lading, the fact is that clause 29(a) also of the bill
of lading, in relation to Rule 21 of the Far East Conference Tariff No. 28-FMC No. 12, as
quoted above, specifically provides for the payment by the consignee of demurrage for
the detention of containers and other equipment after the so-called "free time."

Now a bill of lading is both a receipt and a contract. As a contract, its terms and
conditions are conclusive on the parties, including the consignee. What we said in one
case mutatis mutandis applies to this case:
A bill of lading operates both as a receipt and a contract. . . . . As a contract, it
names the contracting parties which include the consignee, fixes the route,
destination, freight rate or charges, and stipulates the rights and obligations
assumed by the parties . . . . By receiving the bill of lading, Davao Parts and
Services, Inc. assented to the terms of the consignment contained therein, and
became bound thereby, so far as the conditions named are reasonable in the eyes
of the law. Since neither appellant nor appellee alleges that any provision
therein is contrary to law, morals, good customs, public policy or public order
and indeed we found none the validity of the Bill of Lading must be
sustained and the provisions therein properly applies to resolve the conflict
between the parties. 8

As the Court of Appeals pointed out in its appealed decision, the enforcement of the rules
of the Far East Conference and the Federal Maritime Commission is in accordance with
Republic Act No. 1407, 1 of which declares that the Philippines, in common with other
maritime nations, recognizes the international character of shipping in foreign trade and
existing international practices in maritime transportation and that it is part of the national
policy to cooperate with other friendly nations in the maintenance and improvement of
such practices.
prcd

Petitioner's argument that it is not bound by the bill of lading issued by K-Line because it
is a contract of adhesion, whose terms as set forth at the back are in small prints and are
hardly readable, is without merit. As we held in Servando v. Philippine Steam
Navigation: 9
While it may be true that petitioner had not signed the plane ticket (Exh. 12), he
is nevertheless bound by the provisions thereof. "Such provisions have been
held to be a part of the contract of carriage, and valid and binding upon the
passenger regardless of the latter's lack of knowledge or assent to the
regulation". It is what is known as a contract of "adhesion," in regards to 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 JBL Reyes, Lawyer's
Journal, Jan. 31, 1951, p. 49).

Second. With respect to the period of petitioner's liability, private respondents' position is
that the "free time" expired on June 26, 1979 and demurrage began to toll on June 27,
1979, with respect to 10 containers which were unloaded from the SS Far East
Friendship, while with respect to the 2 containers which were unloaded from the SS

Hangang Glory, the free time expired on July 9, 1979 and demurrage began to run on
July 10, 1979.
This contention is without merit. Petitioner cannot be held liable for demurrage starting
June 27, 1979 on the 10 containers which arrived on the SS Far East Friendship because
the delay in obtaining release of the goods was not due to its fault. The evidence shows
that because the manifest issued by the respondent K-Line, through the Smith, Bell &
Co., stated only 10 containers, whereas the bill of lading also issued by the K-Line
showed there were 12 containers, the Bureau of Customs refused to give an entry permit
to petitioner. For this reason, petitioner's broker, the IBC, had to see the respondents'
agent (Smith, Bell & Co.) on June 22, 1979 but the latter did not immediately do
something to correct the manifest. Smith, Bell & Co. was asked to "amend" the manifest,
but it refused to do so on the ground that this would violate the law. It was only on June
29, 1979 that it thought of adding instead of footnote to indicate that two other container
vans to account for a total of 12 container vans consigned to petitioner had been
loaded on the other vessel SS Hangang Glory.
cdll

It is not true that the necessary correction was made on June 22, 1979, the same day the
manifest was presented to Smith, Bell & Co. There is nothing in the testimonies of
witnesses of either party to support the appellate court's finding that the footnote,
explaining the apparent discrepancy between the bill of lading and the manifest, was
added on June 22, 1979 but that petitioner's representative did not return to pick up the
manifest until June 29, 1979. To the contrary, it is more probable to believe the
petitioner's claim that the manifest was corrected only on June 29, 1979, (by which time
the "free time" had already expired), because Smith, Bell & Co. did not immediately
know what to do as it insisted it could not amend the manifest and only thought of adding
a footnote on June 29, 1979 upon the suggestion of the IBC.
Now June 29, 1979 was a Friday. Again it is probable that the corrected manifest was
presented to the Bureau of Customs only on Monday, July 2, 1979 and, therefore, it was
only on July 3 that it was approved. It was, therefore, only from this date (July 3, 1979)
that petitioner could have claimed its cargo and charged for any delay in removing its
cargo from the containers. With respect to the other two containers which arrived on the
SS Hangang Glory, demurrage was properly considered to have accrued on July 10, 1979
since the "free time" expired on July 9.
prLL

The period of delay, however, for all the 12 containers must be deemed to have stopped
on July 13, 1979, because on this date petitioner paid P47,680.00. If it was not able to get
its cargo from the container vans, it was because of the breakdown of the shifters or
cranes. This breakdown cannot be blamed on petitioners since these were cranes of the
arrastre service operator. It would be unjust to charge demurrage after July 13, 1979 since
the delay in emptying the containers was not due to the fault of the petitioner.

Indeed, there is no reason why petitioner should not get its cargo after paying all
demurrage charges due on July 13, 1979. If it paid P20,180.00 more in demurrage
charges after July 13, 1979 it was only because respondents would not release the goods.
Even then petitioner was able to obtain the release of cargo from five container vans. Its
trucks were unable to load anymore cargo and returned to petitioner's premises empty.
In sum, we hold that petitioner can be held liable for demurrage only for the period July
3-13, 1979 and that in accordance with the stipulation in its bill of lading, it is liable for
demurrage only in the amount P28,480.00 computed as follows:
prcd

A. 10 containers ex Far East Friendship (July 3-13, 1979)

1 1st 5 days @ P4.00/day/foot
5 days x P4 x 40 ft. x 10 ctnrs. P 8,000
2. Nest 6 days @ P8.00/day/foot
6 days x P8 x 40 ft. x 10 ctnrs. P19,200 P27,200

B. 2 containers ex Hangang Glory (July 10-13, 1979)

1st 4 days @ P4.00/day/foot
4 days x P4 x 40 ft. x 10 ctnrs. P 1,280
______
TOTAL DEMURRAGE DUE P28,480
======
LESS: TOTAL PAID (P67,840)
OVERPAYMENT (P39,360)

As shown above there is an overpayment of P39,360.00 which should be refunded to

petitioner.
WHEREFORE, the decision appealed from is SET ASIDE and another one is
RENDERED, ORDERING the private respondents to pay to petitioner the sum of
P39,360.00 by way of refund, with legal interest.
LLphil

SO ORDERED.
Narvasa, C .J ., Padilla and Regalado, JJ ., concur.
Puno, J ., took no part.
(Telengtan Brothers & Sons, Inc. v. Court of Appeals, G.R. No. 110581, [September 21,
1994])
|||

SECOND DIVISION
[G.R. No. 146365. February 28, 2005.]
SIMPLICIO A. PALANCA, petitioner, vs. ULYSSIS GUIDES joined
by her husband LORENZO GUIDES, respondent.

DECISION

TINGA, J :
p

For review are the Court of Appeals' Decision 1 dated 17 November 1999 and Resolution
2 dated 15 November 2000 in CA-G.R. CV No. 56258, dismissing petitioner's appeal and
affirming the Decision 3 of the Regional Trial Court of Bacolod City, Negros Occidental,
Branch 42, in Civil Case No. 4721.
On 23 August 1983, petitioner Simplicio Palanca executed a Contract to Sell a parcel of
land 4 on installment with a certain Josefa A. Jopson 5 for P11,250.00. In accordance
with the contract, Jopson paid petitioner P1,650.00 as her down payment, leaving a
balance of P9,600.00.
Sometime in December 1983, Jopson assigned and transferred all her rights and interests
over the property in question in favor of the respondent Ulyssis Guides (hereafter simply
respondent). 6 In the deed of transfer, respondent undertook to assume the balance of
Jopson's account and to pay the same in accordance with the terms and conditions of the
Contract to Sell. 7 After reimbursing Jopson P1,650.00, respondent acquired possession
of the lot and paid petitioner the stipulated amortizations which were in turn
acknowledged by petitioner through receipts issued in the name of respondent. 8
Believing that she had fully paid the purchase price of the lot, respondent verified the
status of the lot with the Register of Deeds, only to find out that title thereto was not in
the name of the petitioner as it was covered by Transfer Certificate of Title No. 105742
issued on 26 September 1978 in the name of a certain Carissa T. de Leon. Respondent
went to petitioner's office to secure the title to the lot, but petitioner informed her that she
could not as she still had unpaid accounts. Thereafter, respondent, through a lawyer, sent
a letter to petitioner demanding compliance with his obligation and the release of the title
in her name. As petitioner did not heed her demands, respondent, joined by her husband,
filed a Complaint 9 for specific performance with damages on 16 December 1987.
cda

Petitioner sought the dismissal of the complaint on the ground of respondent's alleged
failure to comply with the mandatory requirement of Presidential Decree (P.D.) No.
1508,10 since the submitted certification referred to a different defendant, Oscar Rivera
who was the manager of petitioner's subdivision, and not petitioner himself. 12 instead.
The trial court denied petitioner's motion to dismiss, noting that the error in the
designation of the parties was already corrected by the Lupon Secretary and that there
was substantial compliance with P.D. No. 1508. 13
Respondent alleged that she paid petitioner P14,880.00, which not only fully settled her
obligation to him, but in fact overpaid it by P3,620.00. In addition, she claimed that
petitioner charged her devaluation charges and illegal interest. 14
On the other hand, petitioner claimed that the assignment of rights was subject to the
condition that respondent shall comply with whatever obligation which Jopson may have
had under the contract to sell. He stated that he refused to execute the document of sale in
favor of respondent since the latter failed to comply with the said obligations and that
respondent had not paid him the complete amount under the contract. 15 He claimed that
respondent in fact still had an outstanding balance of P6,949.81, exclusive of charges for
registration and documentation. 16
At the pre-trial in 1989, both parties admitted that Jopson assigned her rights over the
property in favor of respondent and respondent paid petitioner the subsequent monthly
amortizations on installments. Petitioner likewise acknowledged the payments made by
respondent as stated in the statement of accounts initiated by its manager, Oscar Rivera.
17 From the inception of the case until the end of 1994, Atty. Renecito Novero
exclusively represented petitioner.
After almost six years and several failed attempts to reach an amicable settlement
between the parties, on 16 March 1995, the trial court called the case again for pre-trial.
18 At the said pre-trial, Atty. Teodulo Cario entered his special appearance for petitioner,
informing the trial court that Atty. Novero was unavailable. Finding that the crucial issue
of the case pertained only to the balance of the purchase price of the lot and upon motion
of both counsels, the trial court considered the pre-trial conference closed. 19
Presentation of respondent's evidence commenced and terminated with Atty. Cario
appearing for the petitioner. Several hearings set for the reception of petitioner's evidence
were postponed at petitioner's instance. At the last scheduled hearing on 10 November
1995, none appeared for petitioner whether Atty. Novero, Atty. Cario or even
petitioner himself with nary an explanation for their non-appearance, despite the fact
that it was Atty. Cario who sought the resetting of the hearing. The trial court, upon
motion of respondent, considered petitioner to have waived his right to present evidence
and to have rested his case and accordingly declared the case submitted for decision. 20

Petitioner sought reconsideration of the Order dated 10 November 1995, claiming that
Atty. Novero never knew of the hearing on said date as Atty. Cario did not inform him
about it, and that his secretary was in fact informed by a personnel of the trial court that
the hearing was reset to 05 December 1995. 21 The motion was denied, with the trial
court holding that there was due notice on Atty. Cario who himself had requested the
resetting of the hearing to 10 November 1995. 22 A second Motion for Reconsideration
was likewise denied on 03 July 1996. 23 With the case submitted for decision anew on 04
November 1996, the trial court rendered the challenged decision, the decretal portion of
which reads:
WHEREFORE, premises considered, the court thereby renders judgment in
favor of the plaintiff and against the defendant Simplicio A. Palanca, ordering
him
1. To execute in favor of plaintiff Ulyssis Guides and her husband,
a Deed of Absolute Sale involving Lot 16-B, Block 23, Pcs
15073 of the Bacolod Cadastre consisting of Two Hundred
Twenty Five (225) square meters and directing the same
defendant to cause the issuance of Transfer Certificate of
Title in favor of plaintiff affecting the same lot;
ACTIcS

2. To pay plaintiff the sum of Ten Thousand (P10,000.00) Pesos as

moral damages; the sum of Five Thousand (P5,000.00)
Pesos as attorney's fees and the amount of Two Thousand
(P2,000.00) Pesos as exemplary damages;
3. To reimburse plaintiff the sum of Two Thousand Five Hundred
Eighty (P2,580.00) Pesos corresponding to the amount paid
in excess of the total purchase price of Lot 16-B;
4. To pay the expenses of this litigation.

jur2005cd

SO ORDERED. 24

On 15 November 1996, petitioner filed his Notice of Appeal. 25 In the Court of Appeals,
petitioner claimed that the trial court erred in denying his right to present evidence in
support of his cause; in dismissing the complaint a quo for failure to comply with the
required barangay conciliation; in considering that respondent overpaid or fully paid him;
in ordering him to pay respondent moral and exemplary damages and attorney's fees; and
in failing to consider certain terms and conditions of the contract to sell which respondent
did not comply with.
In its assailed Decision, the Court of Appeals held that petitioner was afforded due
process, having been given the opportunity to present and submit evidence in support of
his defense. It agreed with the trial court that there was substantial compliance with Sec.

6 of P.D. No. 1508 on barangay conciliation, and that the proper certification was
submitted by respondent. The appellate court also shared the findings of the trial court on
the overpayment made by respondent. It added that petitioner's claim for payment of
costs of transfer of title, registration and other expenses is unfounded, noting at the same
time that the overpayment made by respondent is enough to cover said expenses. Thus,
the Court of Appeals concluded that this last argument was a mere afterthought or
subterfuge on the part of petitioner.
His Motion for Reconsideration having been denied by the Court of Appeals, 26
petitioner elevated the case to this Court through a Petition for Review on Certiorari.
Petitioner assigns the following errors:
ASSIGNMENT OF ERRORS
With utmost respect, it is submitted that in promulgating the questioned
Decision, the Court of Appeals:
I. Has decided a question of substance not in accord with law and applicable
decisions of the Supreme Court when it failed to consider that petitioner
was unjustly denied of his right to present evidence in support of his
cause;
II. Has decided a question of substance not in accord with law and applicable
decisions of the Supreme Court when it did not dismiss the case for
failure of the plaintiff/respondent to comply with Section 6, P.D. No.
1508;
III. Has decided a question of substance not in accord with law and applicable
decision of the Supreme Court when it sustained the trial court's decision
finding the therein respondent to have overpaid or fully paid therein
petitioner despite very clear evidence to the contrary and despite very
clear provisions of their contract to sell, the law between themselves
which strongly negate such alleged overpayment;

IV. Has decided a question of substance not in accord with law and applicable
decisions of the Supreme Court when it sustained the decision of the
trial court ordering therein petitioner to pay respondent moral and
exemplary damages as well as attorney's fee notwithstanding the
absence of any justification therefore;
cIECaS

V. Has decided a question of substance not in accord with law and applicable
decisions of the Supreme Court when it did not consider certain terms

and conditions of the Contract to Sell, which is the law between the
parties, which therein respondent failed to comply as well as the terms
and conditions which therein respondent must first perform as
prerequisite before herein petitioner may be required to transfer or
facilitate the transfer of title to the respondent. 27

In the present petition, petitioner insists that he was unjustly deprived of his right to
present evidence in support of his cause when the trial court considered him to have
rested his case when he failed to appear during the 10 November 1995 hearing. Claiming
that he did not receive any order/notice from the trial court informing him of the hearing,
petitioner capitalizes on the affidavit of his secretary who allegedly called the trial court
to verify the schedule of hearing, only to be misinformed by a personnel of the court that
the hearing was reset to 05 December 1995. He faults the trial court's strict application of
the rules against them, considering that it took the said court eight months to resolve
petitioner's right to present evidence and about one year to render judgment on the case.
He claims that had the trial court allowed him another opportunity to present his
evidence, it would have taken only one setting, and it would not do any harm to the
parties, much less to the court. 28 Petitioner claims that the judgment rendered by the
trial court solely on the basis of respondent's evidence is technically a judgment on
default that is discouraged in this jurisdiction. 29
Petitioner further claims that the Court of Appeals and the trial court erred in ruling that
respondent substantially complied with the requirements of P.D. No. on barangay
conciliation. He argues that the error in the original certification could not simply be
corrected by an affidavit whose affiant was not presented in court, a factor which
designates the affidavit as mere hearsay evidence which is bereft of any probative worth.
30

Petitioner also posits that in view of the clear terms of the contract which bound
respondent, the trial court erred in holding that respondent overpaid him. He points to the
provision in the contract which states that failure on the part of the vendee to pay three
consecutive installments serves to forfeit her rights and interest in the property. Petitioner
states that when respondent came into the picture in 1984, ten (10) months had already
passed since Jopson made the down payment in 1983. Thus, petitioner claims that the
money initially paid by Jopson was already considered lost, gone and forfeited and
cannot be credited to respondent. 31
Petitioner adds that under the contract, the vendee had to pay three percent (3%) monthly
as service fee and penalty based on the outstanding account. The ten-month delay in the
payment of installments represent a total thirty percent (30%) of the outstanding account,
which, according to petitioner, respondent also assumed when she acquired the rights and
interests of Jopson in the subject property. 32

Petitioner mentions a devaluation charge of forty percent (40%) by virtue of the clause in
the contract for proportionate adjustment in case of inflation or fluctuation, 33 which was
allegedly never questioned by respondent. Anent the Court of Appeals' observation that
petitioner's claim for payment of advance costs of transfer of title, registration,
documentation and other expenses as mere afterthought, petitioner counters that the
charges were expressly provided for in the contract. 34
Likewise raised as an issue is the aspect that while the Court of Appeals honored the
rights of respondent in the contract to sell, it closed its eyes to her corresponding
obligations under the same contract. Further, petitioner points to the Deed of Transfer of
Rights and Interest With Assumption of Obligations 35 entered into by respondent and
Jopson, as well as the receipts issued by Jopson in favor of respondent, which in effect
bound respondent to the terms and conditions of the Contract to Sell originally entered
into by Jopson and petitioner. According to petitioner, these documents negate the
observation of the Court of Appeals that "there is no room for the defendant Palanca to
impose charges and penalties (as proposed in the answer) in the absence of a formal
agreement between Palanca and Plaintiff to that effect." 36
Finally, petitioner maintains that the real reason which prevented the transfer of the
property to respondent was the latter's failure to pay in full her obligations, not the fact
that the subject lot was still registered in the name of Carissa T. de Leon. In that regard,
petitioner argues that he cannot be guilty of bad faith, as respondent cannot feign
ignorance of the existence of de Leon's title to the property, the same being covered by a
Torrens title which serves as a notice to the whole world. If respondent did not inquire
beforehand of the status of the land she was buying, she had none to blame but herself as
she "assumed with open hand the risks and adventures of the transaction." 37 Thus,
petitioner claims that the trial court's award of moral and exemplary damages had no
basis. As regards the grant of attorney's fees, petitioner claims that since he has not yet
failed his part of the bargain, he is not obliged to pay attorney's fees. 38
Respondent claims that by questioning the finding of the lower courts that there was
overpayment, petitioner is raising a factual issue which is beyond the ambit of a petition
for review, more so that the decisions are based on incontrovertible evidence. In addition,
she submits that petitioner's argument that Jopson forfeited her down payment when she
failed to religiously pay the installment is untenable, as petitioner did not make any
demands for payment of the installment arrears nor declare the payments already made as
forfeited, as he in fact accepted all the subsequent payments made by respondent.
Respondent claims that this amounts to a waiver on petitioner's part, assuming that the
provision regarding automatic forfeiture is valid. Respondent likewise states that
petitioner was not able to substantiate his claim of monetary inflation or fluctuation to
justify an adjustment in the required payments. 39

Respondent maintains that petitioner acted in bad faith when he executed the Contract to
Sell since he did not indicate therein the title number nor include the technical description
of the property, but merely identified it as Lot 16-B. Aside from selling the property
which was still in the name of another person, respondent continues, petitioner also failed
to cause the subdivision of the same property and thereby precluded transfer of title to
respondent. 40
The Court is not convinced by petitioner's arguments.
Petitioner's main contention is that he was denied due process. The Court notes that
petitioner was scheduled to present his evidence on 19 September 1995, but neither he
nor his counsel appeared. The hearing was reset to 06 November 1995 and subsequently
reset five (5) days later to 10 November. Contrary to petitioner's protestations of being
unaware of the hearing, a careful review of the records of the case reveals that Atty.
Cario, on behalf of Atty. Novero, was present during the 06 November 1995 hearing. At
the hearing, both parties agreed to the resetting of the presentation of petitioner's
evidence to 10 November 1995. The same Atty. Cario who appeared at least twice before
the trial court for the petitioner signed the Minutes of the 06 November 1995 hearing. 41
Well-settled is the rule that the negligence of counsel binds the client. The Court agrees
with the trial court that notice to Atty. Cario is in fact notice to both petitioner and Atty.
Novero in the light of the recorded fact that Atty. Cario had actively participated in the
presentation of petitioner's evidence during the previous proceedings. No clearer proof of
notice can be had than the signature of Atty. Cario assenting to the resetting of the case.
Indeed, neither he nor Atty. Novero can feign ignorance of the said arrangement. As a
lawyer, Atty. Cario is bound to exercise a marked degree of diligence in attending to his
client's cause. After having been personally informed of the resetting, the circumstance
whether true or contrived that counsel's secretary was misinformed of the hearing
schedule cannot excuse petitioner's and counsel's non-appearance.
The most basic tenet of due process is the right to be heard. A court denies a party due
process if it renders its orders without giving such party an opportunity to present its
evidence. 42 Thus, in the application of this principle, what is sought to be safeguarded
against is not the lack of previous notice, but the denial of the opportunity to be heard.
The question is not whether petitioner succeeded in defending his interest, but whether he
had the opportunity to present his side. 43 Petitioner was provided opportunities to
present his case but these he utterly squandered.
EaTCSA

The Court is not unaware of the number of times hearings before the court a quo had
been reset or transferred at the instance of petitioner's counsel. The case was filed in
December 1987 and trial commenced only in 1995. With this backdrop, it was taxing for
the trial court to accede to requests for resetting and find that the very persons who
caused the same had the temerity not to appear on the requested date. If petitioner or his

counsel did not appear at the trial and did not inform the court of the reason for such
failure, the trial court could not be expected to take the trouble of setting another hearing
dates for him. Both petitioner and his counsel gave the impression that he waived his
right to present evidence. While petitioner may have lost his right to present evidence, the
Court is convinced that he was not denied his day in court.

The Court likewise affirms the finding that there was substantial compliance with Sec. 6
of P.D. No. 1508, respondent having been able to sufficiently explain the clerical errors
in the certification to file action earlier submitted and to submit the revised certification
which bears the proper caption of the case. Petitioner's attempt to make an issue by
distinguishing himself from his manager Oscar Rivera to show that the barangay
reconciliation proceedings had not been undertaken fails given the fact that Rivera
appeared at the hearings in behalf and at the behest of petitioner who was his subdivision
manager.
Now as to the computation of the amount due petitioner.
Petitioner contends that the Court of Appeals and the trial court decided the case in
disregard of the Contract to Sell. The Court is not convinced. While there is no denying
that respondent assumed the obligations embodied in the contract when she bought the
rights to the lot from Jopson, petitioner no longer had the right to demand enforcement
thereof.
Primarily preventing petitioner from recovering the amounts claimed from respondent is
the effective waiver of these charges. Assuming that said charges are due, petitioner
waived the same when he accepted respondent's payments without qualification, without
any specific demand for the individual charges he now seeks to recover. The same goes
true for the alleged forfeiture of the down payment made by Jopson. From its own
Statement of Accounts & Payments Made, 44 petitioner credited to respondent's account
the P1,650.00 down payment paid by Jopson at the commencement of the contract. There
is no indication that he informed respondent of the alleged forfeiture, much more
demanded the payment again of the amount previously paid by Jopson.
Art. 1235 of the Civil Code which provides that "[W]hen the obligee accepts the
performance, knowing its incompleteness or irregularity, and without expressing any
protest or objection, the obligation is deemed fully complied with," is in point.
Thus, when petitioner accepted respondent's installment payments despite the alleged
charges incurred by the latter, and without any showing that he protested the irregularity
of such payment, nor demanded the payment of the alleged charges, respondent's
liability, if any for said charges, is deemed fully satisfied.

Petitioner anchors his claim of unpaid charges on the Statement of Accounts and
Payments Made attached as Annex "C" of respondent's complaint. His reliance thereon is
unwarranted. Annex "C" was respondent's evidence, offered as it was as Exhibit "K" to
prove the amounts actually paid to petitioner. Considering that petitioner did not present
any evidence and was deemed to have waived his right to present evidence, Annex "C"
can be considered by the Court for the purpose that it was offered by respondent.
cIADTC

Likewise untenable is petitioner's claim of adjustment of the balance in case of monetary

inflation or fluctuation. Petitioner was deemed to have waived his right to present
evidence and thus was unable to adduce evidence of such inflation or fluctuation.
Moreover, even if there was such inflation or fluctuation, petitioner did not make a
demand on respondent for the satisfaction of the claim.
The Court, however, finds that the trial court and the Court of Appeals erred in
computing the overpayment made by respondent. The Contract to Sell stipulates:
1. That upon the signing of this Agreement, the VENDEE shall pay the sum of
ONE THOUSAND SIX HUNDRED FIFTY ONLY . . . (P 1,650.00) PESOS, as
downpayment, and the balance of NINE THOUSAND SIX HUNDRED ONLY
. . . (P9,600.00) PESOS SHALL be payable in -120- equal monthly installments
within the first five (5) days of each and every succeeding calendar months at
the office of the VENDOR in Bacolod City without necessity of demand,
together with the interest of ONE PERCENT (1%) monthly based on the
outstanding balance. The first installment shall be due and payable on Sept. 30,
1983, and on the same dates monthly thereafter for the succeeding installments.
45

The trial court, as affirmed by the Court of Appeals, found respondent to have paid
petitioner P12,180.00, or P2,580.00 more than the balance of P9,600.00 left unpaid by
Jopson. While as discussed above, the penalty charges can no longer be enforced by
petitioner, respondent is still liable for the one percent (1%) monthly interest as stated in
the contract. As can be clearly seen, the said interest payment is imposed as part of the
purchase price and not as a penalty or surcharge. Thus, the said monthly interest should
have been included in respondent's initial amortization and thereafter imposed on the
remaining balance following each payment made, without need of a demand.
Thus, in addition to the remaining P9,600.00, respondent also had to pay P1,052.90,
representing the one percent (1%) interest on the outstanding balance after every payment
made, for a total of P10,652.90. Considering that the trial court found respondent to have
paid petitioner P12,180.00, 46 respondent overpaid petitioner P1,527.10, and not
P2,580.00 as found by the trial court. 47
In view of the strained relations between the parties precisely as a consequence of the
present controversy, there is no need and it is even impractical for the Court to address

the issue of respondent's obligation to pay in advance the costs of transfer of title,
registration, documentation and other expenses, as well as the P150.00 cost of release of
title to petitioner. 48 Verily, most of the disputed items are still undetermined. Apart from
ordering the refund of the overpayment, albeit in the reduced amount, the transfer of title
to respondent may be accomplished by simply compelling petitioner to execute in favor
of respondent a Deed of Absolute Sale and to deliver the Owner's Copy of the Torrens
title covering Lot 16-B, Block 23 Pcs-5078 of the Bacolod Cadastre, consisting of two
hundred twenty-five (225) square meters, together with all the pertinent documents
needed to effect registration of the deed of sale and issuance of a new title in the name of
respondent. Needless to say, at that point respondent herself shall have to attend to the
process and pay the registration expenses.
On the matter of damages, the Court is in accord with the trial court's findings.
Petitioner's assertion that the real reason for the failure to transfer of the title was
respondent's incomplete payment holds no water. The Court finds that the real reason for
such delay was the fact that the land was still in the name of Carissa de Leon. Petitioner
is grasping at straws with his argument that there can be no finding of bad faith as the
land was covered by a Torrens title, which serves as a notice to the whole world. That
petitioner sold the lot which was then still in the name of another person, and in fact
comprised an area bigger than that indicated in the contract to sell speaks of bad faith on
his part. Moreover, even assuming that respondent was aware of such a scenario prior to
her assumption of the contract, petitioner is still duty-bound to convey title to the land to
respondent since the latter has already fully paid the stipulated purchase price.
TSAHIa

WHEREFORE, the petition is DENIED. The questioned decision and resolution of the
Court of Appeals are AFFIRMED with MODIFICATION. Petitioner is ordered to return
the overpayment in the amount of P1,527.10 to respondent.
Costs against petitioner.
SO ORDERED.
Puno, Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.
|||

(Palanca v. Guides, G.R. No. 146365, [February 28, 2005], 492 PHIL 552-569)