ERMINDA F. FLORENTINO,
172384 [premises] should [respondent] choose to appropriate itself or
Petitioner,
- versus -
SUPERVALUE, INC.,
Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the
Revised Rules of Court, filed by petitioner Erminda F. Florentino, seeking to
reverse and set aside the Decision,[1] dated 10 October 2003 and the
Resolution,[2] dated 19 April 2006 of the Court of Appeals in CA-G.R. CV No.
73853. The appellate court, in its assailed Decision and Resolution, modified
the Decision dated 30 April 2001 of the Regional Trial Court (RTC) of Makati,
Branch 57, in Civil Case No. 00-1015, finding the respondent Supervalue, Inc.,
liable for the sum of P192,000.00, representing the security deposits made by
the petitioner upon the commencement of their Contract of
Lease. The dispositive portion of the assailed appellate courts Decision thus
reads:
WHEREFORE, premises considered, the appeal is
PARTLY GRANTED. The April 30, 2001 Decision of the
Regional Trial Court of Makati, Branch 57 is therefore
MODIFIED to wit: (a) the portion ordering the [herein
respondent] to pay the amount of P192,000.00 representing
the security deposits and P50,000.00 as attorneys fees in
favor of the [herein petitioner] as well as giving [respondent]
the option to reimburse [petitioner] of the value of the
improvements introduced by the [petitioner] on the leased
G.R. No.
require the [petitioner] to remove the improvements, is hereby
Present: REVERSED and SET ASIDE; and (b) the portion ordering the
YNARES-SANTIAGO, return to [petitioner] the properties seized by [respondent]
Chairperson, after the former settled her obligation with the latter is however
AUSTRIA-MARTINEZ, MAINTAINED.[3]
CHICO-NAZARIO,
NACHURA, and
REYES, JJ. The factual and procedural antecedents of the instant petition are as
follows:
Petitioner is doing business under the business name
Promulgated: Empanada Royale, a sole proprietorship engaged in the retail
of empanada with outlets in different malls and business establishments within
Metro Manila.[4]
September 12, 2007
Respondent, on the other hand, is a domestic corporation engaged in
the business of leasing stalls and commercial store spaces located inside SM
Malls found all throughout the country.[5]
On 8 March 1999, petitioner and respondent executed three Contracts of
Lease containing similar terms and conditions over the cart-type stalls at SM
North Edsa and SM Southmall and a store space at SM Megamall. The term
of each contract is for a period of four months and may be renewed upon
agreement of the parties.[6]
Upon the expiration of the original Contracts of Lease, the parties agreed to
renew the same by extending their terms until 31 March 2000.[7]
Before the expiration of said Contracts of Lease, or on 4 February 2000,
petitioner received two letters from the respondent, both dated 14 January
2000, transmitted through facsimile transmissions.[8]
In the first letter, petitioner was charged with violating Section 8 of the
Contracts of Lease by not opening on 16 December 1999 and 26 December
1999.[9]
Respondent also charged petitioner with selling a new variety
of empanada called mini-embutido and of increasing the price of her
merchandise from P20.00 to P22.00, without the prior approval of the
respondent.[10]
Respondent observed that petitioner was frequently closing earlier
than the usual mall hours, either because of non-delivery or delay in the
delivery of stocks to her outlets, again in violation of the terms of the contract. A
stern warning was thus given to petitioner to refrain from committing similar
1
infractions in the future in order to avoid the termination of the lease
contract.[11]
In the second letter, respondent informed the petitioner that it will no longer
renew the Contracts of Lease for the three outlets, upon their expiration on 31
March 2000.[12]
In a letter-reply dated 11 February 2000, petitioner explained that the mini-
embutido is not a new variety of empanada but had similar fillings, taste and
ingredients as those of pork empanada; only, its size was reduced in order to
make it more affordable to the buyers.[13]
Such explanation notwithstanding, respondent still refused to renew its
Contracts of Lease with the petitioner. To the contrary, respondent took
possession of the store space in SM Megamall and confiscated the equipment
and personal belongings of the petitioner found therein after the expiration of
the lease contract.[14]
In a letter dated 8 May 2000, petitioner demanded that the respondent release
the equipment and personal belongings it seized from the SM Megamall store
space and return the security deposits, in the sum of P192,000.00, turned over
by the petitioner upon signing of the Contracts of Lease. On 15 June 2000,
petitioner sent respondent another letter reiterating her previous demands, but
the latter failed or refused to comply therewith. [15]
On 17 August 2000, an action for Specific Performance, Sum of Money and
Damages was filed by the petitioner against the respondent before the RTC
of Makati, Branch 57.[16]
In her Complaint docketed as Civil Case No. 00-1015, petitioner
alleged that the respondent made verbal representations that the Contracts of
Lease will be renewed from time to time and, through the said representations,
the petitioner was induced to introduce improvements upon the store space at
SM Megamall in the sum of P200,000.00, only to find out a year later that the
respondent will no longer renew her lease contracts for all three outlets. [17]
In addition, petitioner alleged that the respondent, without justifiable cause and
without previous demand, refused to return the security deposits in the amount
of P192,000.00.[18]
Further, petitioner claimed that the respondent seized her equipment and
personal belongings found inside the store space in SM Megamall after the
lease contract for the said outlet expired and despite repeated written
demands from the petitioner, respondent continuously refused to return the
seized items.[19]
Petitioner thus prayed for the award of actual damages in the sum
of P472,000.00, representing the sum of security deposits, cost of
improvements and the value of the personal properties seized. Petitioner also
asked for the award of P300,000.00 as moral damages; P50,000.00 as
exemplary damages; and P80,000.00 as attorneys fees and expenses of
litigation.[20]
For its part, respondent countered that petitioner committed several violations
of the terms of their Contracts of Lease by not opening from 16 December
1999 to 26 December 1999, and by introducing a new variety
of empanada without the prior consent of the respondent, as mandated by
the provision of Section 2 of the Contract of Lease. Respondent also alleged
that petitioner infringed the lease contract by frequently closing earlier than the
agreed closing hours. Respondent finally averred that petitioner is liable for
the amount P106,474.09, representing the penalty for selling a new variety
of empanada, electricity and water bills, and rental adjustment, among other
charges incidental to the lease agreements. Respondent claimed that the
seizure of petitioners personal belongings and equipment was in the exercise
of its retaining lien, considering that the petitioner failed to settle the said
obligations up to the time the complaint was filed.[21]
Considering that petitioner already committed several breaches of contract,
the respondent thus opted not to renew its Contracts of Lease with her
anymore. The security deposits were made in order to ensure faithful
compliance with the terms of their lease agreements; and since petitioner
committed several infractions thereof, respondent was justified in forfeiting the
security deposits in the latters favor.
On 30 April 2001, the RTC rendered a Judgment[22] in favor of the petitioner
and found that the physical takeover by the respondent of the leased premises
and the seizure of petitioners equipment and personal belongings without prior
notice were illegal. The decretal part of the RTC Judgment reads:
WHEREFORE, premises duly considered, judgment
is hereby rendered ordering the [herein respondent] to pay
[herein petitioner] the amount of P192,000.00 representing
the security deposits made by the [petitioner] and P50,000.00
as and for attorneys fees.
The [respondent] is likewise ordered to return to the
[petitioner] the various properties seized by the former after
settling her account with the [respondent].
Lastly, the [respondent] may choose either to
reimburse the [petitioner] one half (1/2) of the value of the
improvements introduced by the plaintiff at
2
 SM Megamall should [respondent] choose to appropriate the
improvements to itself or require the [petitioner] to remove the
improvements, even though the principal thing may suffer
damage thereby. [Petitioner] shall not, however, cause
anymore impairment upon the said leased premises than is
necessary.
The other damages claimed by the plaintiff are denied
for lack of merit.
Aggrieved, the respondent appealed the adverse RTC Judgment to the Court
of Appeals.
In a Decision[23] dated 10 October 2003, the Court of Appeals modified the
RTC Judgment and found that the respondent was justified in forfeiting the
security deposits and was not liable to reimburse the petitioner for the value of
the improvements introduced in the leased premises and to pay for attorneys
fees. In modifying the findings of the lower court, the appellate court declared
that in view of the breaches of contract committed by the petitioner, the
respondent is justified in forfeiting the security deposits. Moreover, since the
petitioner did not obtain the consent of the respondent before she introduced
improvements on the SM Megamall store space, the respondent has therefore
no obligation to reimburse the petitioner for the amount expended in
connection with the said improvements.[24] The Court of Appeals, however,
maintained the order of the trial court for respondent to return to petitioner her
properties after she has settled her obligations to the respondent. The
appellate court denied petitioners Motion for Reconsideration in a
Resolution[25] dated 19 April 2006.
Hence, this instant Petition for Review on Certiorari[26] filed by the petitioner
assailing the Court of Appeals Decision. For the resolution of this Court are
the following issues:
I. Whether or not the respondent is liable to return the security deposits to the
petitions.
II. Whether or not the respondent is liable to reimburse the petitioner for the
sum of the improvements she introduced in the leased premises.
III. Whether or not the respondent is liable for attorneys fees.[27]
The appellate court, in finding that the respondent is authorized to forfeit the
security deposits, relied on the provisions of Sections 5 and 18 of the Contract
of Lease, to wit:
Section 5. DEPOSIT. The LESSEE shall make a cash
deposit in the sum of SIXTY THOUSAND PESOS
(P60,000.00) equivalent to three (3) months rent as
security for the full and faithful performance to each and
every term, provision, covenant and condition of this
lease and not as a pre-payment of rent. If at any time during
the term of this lease the rent is increased[,] the LESSEE on
demand shall make an additional deposit equal to the
increase in rent. The LESSOR shall not be required to keep
the deposit separate from its general funds and the deposit
shall not be entitled to interest. The deposit shall remain intact
during the entire term and shall not be applied as payment for
any monetary obligations of the LESSEE under this
contract. If the LESSEE shall faithfully perform every
provision of this lease[,] the deposit shall be refunded to the
LESSEE upon the expiration of this Lease and upon
satisfaction of all monetary obligation to the LESSOR.
xxxx
Section 18. TERMINATION. Any breach, non-performance
or non-observance of the terms and conditions herein
provided shall constitute default which shall be sufficient
ground to terminate this lease, its extension or
renewal. In which event, the LESSOR shall demand that
LESSEE immediately vacate the premises, and LESSOR
shall forfeit in its favor the deposit tendered without
prejudice to any such other appropriate action as may be
legally authorized.[28]
Since it was already established by the trial court that the petitioner
was guilty of committing several breaches of contract, the Court of Appeals
decreed that she cannot therefore rightfully demand the return of the security
deposits for the same are deemed forfeited by reason of evident contractual
violations.
It is undisputed that the above-quoted provision found in all Contracts of Lease
is in the nature of a penal clause to ensure petitioners faithful compliance with
the terms and conditions of the said contracts.
A penal clause is an accessory undertaking to assume greater liability in case
of breach. It is attached to an obligation in order to insure performance and
has a double function: (1) to provide for liquidated damages, and (2) to
strengthen the coercive force of the obligation by the threat of greater
responsibility in the event of breach.[29] The obligor would then be bound to
pay the stipulated indemnity without the necessity of proof of the existence and
3
the measure of damages caused by the breach.[30] Article 1226 of the Civil
Code states:
Art. 1226. In obligations with a penal clause, the
penalty shall substitute the indemnity for damages and the
payment of interests in case of noncompliance, if there is no
stipulation to the contrary. Nevertheless, damages shall be
paid if the obligor refuses to pay the penalty or is guilty of fraud
in the fulfillment of the obligation.
The penalty may be enforced only when it is
demandable in accordance with the provisions of this Code.
As a general rule, courts are not at liberty to ignore the freedoms of the parties
to agree on such terms and conditions as they see fit as long as they are not
contrary to law, morals, good customs, public order or public
policy.Nevertheless, courts may equitably reduce a stipulated penalty in the
contracts in two instances: (1) if the principal obligation has been partly or
irregularly complied with; and (2) even if there has been no compliance if the
penalty is iniquitous or unconscionable in accordance with Article 1229 of the
Civil Code which clearly provides:
Art. 1229. The judge shall equitably reduce the
penalty when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has been
no performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable.[31]
In ascertaining whether the penalty is unconscionable or not, this court set out
the following standard in Ligutan v. Court of Appeals,[32] to wit:
The question of whether a penalty is reasonable or
iniquitous can be partly subjective and partly objective. Its
resolution would depend on such factor as, but not
necessarily confined to, the type, extent and purpose of the
penalty, the nature of the obligation, the mode of breach and
its consequences, the supervening realities, the standing and
relationship of the parties, and the like, the application of
which, by and large, is addressed to the sound discretion of
the court. xxx.
In the instant case, the forfeiture of the entire amount of the security
deposits in the sum of P192,000.00 was excessive and unconscionable
considering that the gravity of the breaches committed by the petitioner is not
of such degree that the respondent was unduly prejudiced thereby. It is but
equitable therefore to reduce the penalty of the petitioner to 50% of the total
amount of security deposits.
It is in the exercise of its sound discretion that this court tempered the
penalty for the breaches committed by the petitioner to 50% of the amount of
the security deposits. The forfeiture of the entire sum of P192,000.00is clearly
a usurious and iniquitous penalty for the transgressions committed by the
petitioner. The respondent is therefore under the obligation to return the 50%
of P192,000.00 to the petitioner.
Turning now to the liability of the respondent to reimburse the petitioner for
one-half of the expenses incurred for the improvements on the leased store
space at SM Megamall, the following provision in the Contracts of Lease will
enlighten us in resolving this issue:
Section 11. ALTERATIONS, ADDITIONS, IMPROVEMENTS,
ETC. The LESSEE shall not make any alterations, additions,
or improvements without the prior written consent of
LESSOR; and all alterations, additions or improvements
made on the leased premises, except movable or fixtures put
in at LESSEEs expense and which are removable, without
defacing the buildings or damaging its floorings, shall
become LESSORs property without
compensation/reimbursement but the LESSOR reserves the
right to require the removal of the said alterations, additions
or improvements upon expiration of the lease.
The foregoing provision in the Contract of Lease mandates that before the
petitioner can introduce any improvement on the leased premises, she should
first obtain respondents consent. In the case at bar, it was not shown that
petitioner previously secured the consent of the respondent before she made
the improvements on the leased space in SM Megamall. It was not even
alleged by the petitioner that she obtained such consent or she at least
attempted to secure the same. On the other hand, the petitioner asserted that
respondent allegedly misrepresented to her that it would renew the terms of
the contracts from time to time after their expirations, and that the petitioner
was so induced thereby that she expended the sum of P200,000.00 for the
improvement of the store space leased.
This argument was squarely addressed by this court in Fernandez v. Court of
Appeals,[33] thus:
The Court ruled that the stipulation of the parties in their lease
contract to be renewable at the option of both parties stresses
that the faculty to renew was given not to the lessee alone nor
4
 to the lessor by himself but to the two simultaneously; hence,
both must agree to renew if a new contract is to come about.
Petitioners contention that respondents had verbally
agreed to extend the lease indefinitely is inadmissible to
qualify the terms of the written contract under the parole
evidence rule, and unenforceable under the statute of
frauds.[34]
Moreover, it is consonant with human experience that lessees, before
occupying the leased premises, especially store spaces located inside malls
and big commercial establishments, would renovate the place and introduce
improvements thereon according to the needs and nature of their business
and in harmony with their trademark designs as part of their marketing ploy to
attract customers. Certainly, no inducement or misrepresentation from
the lessor is necessary for this purpose, for it is not only a matter of necessity
that a lessee should re-design its place of business but a business strategy as
well.
In ruling that the respondent is liable to reimburse petitioner one half of the
amount of improvements made on the leased store space should it choose to
appropriate the same, the RTC relied on the provision of Article 1678 of the
Civil Code which provides:
Art. 1678. If the lessee makes, in good faith, useful
improvements which are suitable to the use for which the
lease is intended, without altering the form or substance of the
property leased, the lessor upon the termination of the lease
shall pay the lessee one-half of the value of the improvements
at that time. Should the lessor refuse to reimburse said
amount, the lessee may remove the improvements, even
though the principal thing may suffer damage thereby. He
shall not, however, cause any more impairment upon the
property leased than is necessary.
While it is true that under the above-quoted provision of the Civil Code,
the lessor is under the obligation to pay the lessee one-half of the value of the
improvements made should the lessor choose to appropriate the
improvements, Article 1678 however should be read together with Article 448
and Article 546 of the same statute, which provide:
Art. 448. The owner of the land on which anything has
been built, sown or planted in good faith, shall have the right
to appropriate as his own the works, sowing or planting, after
payment of the indemnity provided for in articles 546 and 548,
or to oblige the one who built or planted to pay the price of the
land, and the one who sowed, the proper rent. However, the
builder or planter cannot be obliged to buy the land if its value
is considerably more than that of the building or trees.In such
case, he shall pay reasonable rent, if the owner of the land
does not choose to appropriate the building or trees after
proper indemnity. The parties shall agree upon the terms of
the lease and in case of disagreement, the court shall fix the
terms thereof.
xxxx
Art. 546. Necessary expenses shall be refunded to every
possessor; but only possessor in good faith may retain the
thing until he has been reimbursed therefor.
Useful expenses shall be refunded only to the possessor in
good faith with the same right of retention, the person who has
defeated him in the possession having the option of refunding
the amount of the expenses or of paying the increase in value
which the thing may have acquired by reason thereof.
Thus, to be entitled to reimbursement for improvements introduced on
the property, the petitioner must be considered a builder in good faith. Further,
Articles 448 and 546 of the Civil Code, which allow full reimbursement of useful
improvements and retention of the premises until reimbursement is made,
apply only to a possessor in good faith, i.e., one who builds on land with the
belief that he is the owner thereof. A builder in good faith is one who is unaware
of any flaw in his title to the land at the time he builds on it.[35] In this case, the
petitioner cannot claim that she was not aware of any flaw in her title or was
under the belief that she is the owner of the subject premises for it is a settled
fact that she is merely a lessee thereof.
In Geminiano v. Court of Appeals,[36] this Court was emphatic in
declaring that lessees are not possessors or builders in good faith, thus:
Being mere lessees, the private respondents
knew that their occupation of the premises would
continue only for the life of the lease. Plainly, they cannot
be considered as possessors nor builders in good faith.
In a plethora of cases, this Court has held that Article
448 of the Civil Code, in relation to Article 546 of the same
Code, which allows full reimbursement of useful
improvements and retention of the premises until
reimbursement is made, applies only to a possessor in good
faith, i.e., one who builds on land with the belief that he is the
owner thereof. It does not apply where one's only interest
is that of a lessee under a rental contract; otherwise, it
5
 would always be in the power of the tenant to "improve" BENJAMIN AQUINO and
his landlord out of his property. VIRGINIA AQUINO,
Respondents-Intervenors. July 31, 2006
Since petitioners interest in the store space is merely that of the lessee under x-----------------------------------------------------------------------------------------x
the lease contract, she cannot therefore be considered a builder in good
faith. Consequently, respondent may appropriate the improvements
introduced on the leased premises without any obligation to reimburse the DECISION
petitioner for the sum expended.

Anent the claim for attorneys fees, we resolve to likewise deny the award of PUNO, J.:
the same. Attorneys fees may be awarded when a party is compelled to litigate At bar is a Petition for Review on Certiorari of the Decision and Resolution of
or to incur expenses to protect its interest by reason of unjustified act of the the Court of Appeals in CA-G.R. CV No. 28654 dated April 16,
other.[37] 1997 and March 25, 1998, respectively, affirming the decision of the Regional
Trial Court of Santiago, Isabela, Branch 21, in Civil Case No. 0302.
In the instant petition, it was not shown that the respondent The instant case originated from a suit filed by petitioners Laurencio C. Ramel,
unjustifiably refused to grant the demands of the petitioner so as to compel the Socorro B. Ramel and Rene Lemar B. Ramel against respondent
latter to initiate legal action to enforce her right. As we have found herein, there Daniel Aquino, married to respondent Guadalupe Abalahin, for Specific
is basis for respondents refusal to return to petitioner the security deposits and Performance with Preliminary Injunction and Damages.
to reimburse the costs of the improvements in the leased premises. The award Daniel Aquino is the registered owner of Lot No. 2080, a 14.1825-hectare land
of attorneys fees is therefore not proper in the instant case. situated in Tanggal, Cordon, Isabela under Transfer Certificate of Title (TCT)
No. T-36937. On October 21, 1975, Aquino mortgaged the property to the
WHEREFORE, premises considered, the instant Petition is PARTLY Development Bank of the Philippines
GRANTED. The Court of Appeals Decision dated 10 October 2003 in CA-G.R. (DBP), Ilagan Branch, Ilagan, Isabela for P50,000.00. In 1983, the property
CV No. 73853 is hereby AFFIRMED with the MODIFICATIONthat the was in danger of being foreclosed as respondents had no means to pay for
respondent may forfeit only 50% of the total amount of the security deposits in the loan. Thus, on August 7, 1983, they offered to sell to petitioners 8.2030
the sum of P192,000.00, and must return the remaining 50% to the hectares of the mortgaged property.
petitioner. No costs. Petitioners agreed to purchase the property but the agreement was not
reduced into writing. Petitioners were to buy the 8.2030 hectares
SO ORDERED. at P13,500.00 per hectare or at a total sum of around P110,700.00. Petitioners
would assume the remaining mortgage obligation of respondents with DBP as
LAURENCIO C. RAMEL, G.R. No. 133208 of July 31, 1983 in the amount of P85,543.00 and the balance of
SOCORRO B. RAMEL and about P25,000.00 shall be paid to respondents on installment.[1]
RENE LEMAR B. RAMEL, On the same day that the offer was made and accepted, petitioners gave
Petitioners, respondents an earnest money of P5,000.00.[2] Further additional partial
Present: payments were made on September 7, 1983 in the sum
of P15,000.00[3] and P4,800.00[4] on February 12, 1984. All three payments
- versus - PUNO, J., Chairperson, were duly receipted by respondents.
SANDOVAL- Petitioners also made the following payments to
GUTIERREZ, DBP:[5] P10,000.00 on September 7, 1983; P3,097.00 on November 18, 1983;
CORONA, and, P10,000.00 on April 2, 1984, for a total of P23,097.00.
AZCUNA, and Respondents also sold to petitioners 2,484 square meters of the southern
DANIEL AQUINO and GARCIA, JJ. portion of the mortgaged property for P2,700.00. Petitioners paid the full
GUADALUPE ABALAHIN, amount on September 7, 1983.[6] On even date, petitioners were allowed by
Respondents. respondents to take possession of the parcels of land sold. Since then, they
allegedly introduced improvements[7] to the property, such as rice paddies,
Promulgated: drainage canal, fence and a house.

6
On November 18, 1983, petitioners applied for a re-structuring of the mortgage 2. That the 8.2030 hectares of riceland located at
loan with the DBP for a period of ten years, allegedly with the conformity of Cordon, Isabela is covered by Transfer Certificate of
respondents. The bank approved the loan re-structuring.[8] Under the new Title No. 36937, Isabela Registry, in the name of
scheme, the loan was to be paid with a semi-annual amortization of P8,634.15 Daniel Aquino;
beginning May 21, 1984 for five years. Thereafter, the loan shall be paid with
a semi-annual amortization of P4,904.60 starting on the 6th to the 10th year.[9] xxx
On October 1, 1984, petitioners went to DBP to pay for the amortization but
they found out that respondents had paid the bank P72,703.06. Petitioners 5. That the payments made by Rene Lemar R. Ramel and
offered to return to respondents the said sum but the latter refused to accept duly receipted are:
the offer. Instead, respondents told petitioners that they would return whatever
they have paid for the land, and threatened to withdraw the certificate of title (1) On Feb. 12, 1983,[11] the amount of P4,800.00
of the land from the bank. The manager of the bank accepted the money xxx;
tendered by respondents as deposit and gave the parties time to settle the (2) On August 7, 1983, the amount of P5,000.00 xxx;
matter on their own, but to no avail. On October 9, 1984, petitioners filed with (3) On Sept. 7, 1983, the amount
the trial court for Specific Performance with Preliminary Injunction and of P15,000.00 xxx;
Damages. On October 12, 1984, the trial court restrained the respondents (4) On Sept. 7, 1983, the amount of P2,700.00 xxx;
from withdrawing the certificate of title and the Release of Mortgage. The bank and admitted by all the parties.[12]
was also enjoined from releasing the title to respondents. On even date,
respondents withdrew the amount of P72,703.06 which they had paid to the
bank. On June 28, 1990, the trial court decided as follows, viz.:
Meanwhile, during the pendency of the case, petitioners made the following
payments to DBP in full settlement of the loan: P30,000.00 on November 29,
1984; P50,000.00 on April 30, 1986; and P5,118.42 on May 2, 1986, or a total WHEREFORE, in light of the foregoing considerations[,] judgment is
of around P108,216.00. The DBP then deposited the Release of Mortgage to hereby rendered:
the Clerk of Court.
Respondent spouses alleged that petitioners agreed to pay them P35,000.00, 1. ORDERING the spouses Daniel Aquino and
not P25,000.00. They further alleged that petitioners agreed to assume in full Guadalupe Aquino to execute a deed of sale over a portion of
the then remaining mortgage loan with DBP and to withdraw the certificate of lot 2080 located and bounded by Ilut Creek on the south, Juan
title of the land not later than December 31, 1983. Respondents allegedly set Marianos lot on the east, portion of lot 2080 on the north and
this period because they needed the title to claim the area taken by the NIA Castillos lot on the west, containing an area of [2,484] square
for an irrigation canal. However, petitioners defaulted to pay the bank within meters more or less, in favor of Rene Lemar Ramel.
the period agreed upon and re-structured the loan without their consent. Upon
learning of petitioners re-structuring the loan, respondents decided to revoke 2. DECLARING that the oral contract of sale between the
the sale, sold a portion of Lot No. 2080 and tendered P72,703.06 from its plaintiff Rene Lemar Ramel and the defendants spouses
proceeds to DBP on October 1, 1984 in full settlement of the loan. Daniel and Guadalupe Aquino as rescinded.
Respondents-Intervenors Benjamin Aquino and Virginia Aquino are the
siblings of respondent Aquino and intervened as co-owners of Lot No. 2080. 3. ORDERING the defendants spouses Daniel and
An amicable settlement[10] was entered into between respondent Aquinoand Guadalupe Aquino to pay to the plaintiff
the intervenors on March 2, 1985. Rene Lemar Ramel the sums of P29,800.00 representing the
The trial court issued an Order dated March 11, 1986 stating the following amount received by said defendants for the land,
material parts of the stipulations of the parties during the pre-trial conference: plus P108,216.00 representing the amount paid by the
plaintiffs to the bank.
STIPULATIONS OF FACTS
4. ORDERING the plaintiffs to return the peaceful possession
xxx of the land, lot 2080[,] after they shall have been paid the
aforesaid amount by the defendants.

7

5. ORDERING the intervenors Benjamin Aquino and
Virginia Aquino to reimburse to the defendant
Daniel Aquino their one-third share each of the amount of
P138,016[.00] which the latter paid to the plaintiff.
6. DECLARING that
the intervenors Benjamin Aquino and Virginia Aquino are
the co-owners of the 8.2030 southern portion of lot 2080 in
equal shares.[13]
Petitioners appealed to the Court of Appeals which affirmed the decision of the
trial court and denied their Motion for Reconsideration. Hence, this petition
assailing the decision of the appellate court, viz.:
I.A. BASED NOT ONLY ON MISAPPREHENSION AND
APPRECIATION OF FACTS, BUT ALSO ON THE FINDINGS
WHICH MANIFESTLY OVERLOOKED CERTAIN
RELEVANT FACTS NOT DISPUTED BY THE PARTIES AND
WHICH, IF PROPERLY CONSIDERED, WOULD JUSTIFY A
DIFFERENT CONCLUSION, AS WELL AS ON AN
INFERENCE WHICH IS MANIFESTLY MISTAKEN.
I.B. BASED ON A FALSE, FABRICATED AND SELF-
SERVING TESTIMONY OF THE RESPONDENTS.
I.C. BASED ON THE FINDINGS OF FACTS WHICH ARE
CONTRARY TO THOSE OF THE TRIAL COURT AND
CONTRARY TO THE ADMISSION OF THE RESPONDENTS
HEREIN.
II. THE JUDGMENT OF THE TRIAL COURT WHICH WAS
AFFIRMED BY THE COURT OF APPEALS IS NOT IN
ACCORD WITH THE EXISTING LAWS AND THE
APPLICABLE DECISIONS OF THIS HONORABLE COURT,
BEING AN ERRONEOUS APPLICATION OF ARTICLES
1191 AND 1545 OF THE CIVIL CODE AND THE
APPLICABLE JURISPRUDENCE.[14]
The hinge issues are the following: (1) whether petitioners
substantially breached their obligation warranting the rescission of the contract
and (2) whether there is legal ground to order the offsetting of the claim of
improvements by petitioners to the claim of fruits derived from the land by
respondents.
First to be determined is the total amount paid by petitioners to respondents to
show the formers compliance or non-compliance with their obligation.
There is no question that petitioners were obligated to pay the remaining
mortgage obligation of respondents with the DBP as of July 31, 1983. The
official receipt[15] dated September 7, 1983 issued by DBP shows that the
remaining mortgage obligation of respondents as of September 7,
1983 was P75,544.92, that is after petitioners had paid the bank P10,000.00
on the same date. Hence, the total remaining mortgage obligation as of July
31, 1983 which was supposed to be assumed by petitioners was P85,544.92.
Deducting this from the total value of the land which is about P110,700.00, the
balance of about P25,000.00, and not P35,000.00, was to be paid by
petitioners to respondents.
The courts a quo erred in concluding that petitioners were able to pay
respondents a total sum of P29,800.00. Per stipulation by the parties
themselves, petitioners paid to respondents the total sum
of P27,500.00.[16] This even includes the amount of P2,700.00 which
petitioners paid for the additional 2,484-square meter strip of land which they
purchased from respondents. Deducting this P2,700.00 from the total
payments made for the 8.2030 hectares, petitioners were able to pay a sum
of P24,800.00 of the P25,000.00 balance for the subject parcel. This small
discrepancy is not a ground for respondents to rescind their contract with
petitioners.
We look, however, to the other ground the failure of petitioners to pay the
remaining balance of the mortgage obligation of respondents to the DBP. The
record shows that at the time petitioners filed the case with the trial court on
October 9, 1984, they were able to pay only P23,097.00 of the
then P85,544.92 outstanding mortgage obligation of respondents. Instead of
petitioners paying the remaining balance on or before December 31,
1983,they asked the DBP to re-structure the payment of the loan for ten years
in November 1983. They did so without the consent of respondents. Their
claim to the contrary is not substantiated by evidence.
First, after respondents learned that petitioners had re-structured the
loan, respondents paid the amount of P72,703.06 to DBP. The fact that
respondents later on withdrew the amount cannot operate against them
because the trial court had enjoined them from withdrawing the certificate of
title and the bank from releasing the same.
Second, the subject property was facing foreclosure that December of
1983. It was precisely due to the impending foreclosure that respondents
offered to sell the subject property to petitioners. It was never the intention of
respondents to be left at the mercy of petitioners as to when the latter would
complete payment of the remaining mortgage obligation. It goes against the
common sense of man and the ordinary course of business that an owner of
land sells his property without any definite agreement as to when the obligation
shall be paid, especially if his property is facing foreclosure. Though petitioners
were able to subsequently fully settle the mortgage loan in May 1986 two years
and five months from December 1983, and one and a half years after they filed
this case the fact remains that they reneged on their obligation to pay within
8
the agreed period. They could have asked respondents to give them a grace
period to settle the remaining loan obligation but they did not.
It is true that petitioners sent a Notice of Loan
Approval[17] dated November 24, 1983 addressed to
respondent Aquino informing that the application for loan re-structuring had
been approved by the DBP. But this does not prove their claim that
respondents authorized the loan re-structuring for the following reasons: one,
it was petitioners themselves who applied for the loan re-structuring; two, the
document is a mere notice; three, the notice does not even show that it was
received by respondents; and four, after the manager of the DBP informed
respondents about the loan re-structuring, respondents rushed to sell another
portion of their land so they could pay the remaining obligation. They later
withdrew the amount because of the restraining order issued by the trial court
and not because they waived their right to rescind the contract.
With the breach committed by petitioners, the trial court ruled and the
appellate court rightly affirmed that petitioners substantially violated their
obligation. Hence, respondents are entitled to a rescission of the contract
under Article 1191 of the Civil Code, viz.:
Art. 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.
xxx
Petitioners can not argue that their breach is merely casual and slight,
especially that they were able to subsequently pay the loan and the purpose
of the contract has been fulfilled by petitioners, i.e., that the mortgage
obligation shall be paid and respondents shall be able to retain at least the rest
of the land free from any liens or encumbrances.[18] The ruling of the trial court
on this issue is correct, viz.:
x x x It is admitted that the underlying purpose of
the Aquinos to sell a portion of the land was in order that their
mortgage obligation shall be paid and they shall be able to
retain at least the rest of the land free from any liens and
encumbrances. It was imperative then for Rene Ramel to pay
the mortgage obligation. He did not do so. x x x x More
important[,] he did not even intend to pay the bank because
he had the loan re-structured so as to be payable in ten years.
Of course, he finally paid the mortgage loan but only after one
and one-half years after the filing of this case. To the mind of
the [c]ourt, the non-payment of the mortgage obligation until
after one and one-half years after the filing of this case
constitutes a substantial breach that entitles the Aquinos to
rescind the contract.[19]
Rightly, the appellate court affirmed the ruling, viz.:
Since Ramel failed to settle Aquinos mortgage obligation on
or before December 31, 1983 as in fact he restructured it for
a period of ten years, he committed a substantial breach of
his agreement with Aquino. That the breach is substantial is
all the more appreciated when note is taken of the fact that
the entire 14.1825-hectare property, not just the 8.2030
hectares portion thereof sold to Ramel, remained
encumbered beyond the agreed deadline of December 31,
1983, thus restricting the owners rights thereto.[20]
Petitioners further invoke Article 1592 of the Civil Code and argue that
respondents are not entitled to rescission because no demand has been made
upon them either judicially or by notarial act. They contend that respondents
merely raised rescission as a defense in this case of Specific Performance and
they have never informed the Ramels about their alleged decision to exercise
the said right before this case was filed xxx.[21] They aver that the act of
the Aquinos in tendering payment to DBP does not constitute demand as the
term is defined under Article 1592,[22] viz.:
Art. 1592. In the sale of immovable property, even though it
may have been stipulated that upon failure to pay the price at
the time agreed upon the rescission of the contract shall of
right take place, the vendee may pay, even after the expiration
of the period, as long as no demand for rescission of the
contract has been made upon him either judicially or by
a notarial act. After the demand, the court may not grant him
a new term.
Again, we reject the argument. We held in the case of Luzon Brokerage Co.,
Inc. v. Maritime Building Co., Inc.[23] that even a cross-claim found in the
Answer filed in the trial court constitutes judicial demand for rescission that
satisfies the requirements of Article 1592. Further, in Iringan v. Court of
Appeals,[24] we held that an action for Judicial Confirmation of Rescission and
Damages before the Regional Trial Court complied with the requirement of the
law for judicial demand of rescission even if the intention of the moving party
was to compel the other party to formalize in a public document their
9
extrajudicial mutual agreement to rescind. In this case, the mutual agreement
to rescind was forged when the injured party sent to the defaulting party a letter
stating that he had considered the contract rescinded and that he would not
accept any further payment. The defaulting party replied that he was not
opposing the revocation of the sale, save for some reimbursements. We held
that though the letter declaring the intention to rescind did not satisfy the
demand required by the law, the subsequent case filed for a judicial
confirmation of the rescission did meet the requirement for a valid demand.
We rule that respondents satisfied Article 1592 when they raised rescission as
a defense in their Answer. To be sure, petitioners learned of respondents
intention to rescind even before they filed their Answer. Petitioners knew the
intent to rescind when respondents deposited the amount of P72,703.06 with
DBP to fully settle their remaining obligation. Petitioners were told by
respondents that they were rescinding the contract after the mortgage was re-
structured without their consent. Indeed, it was this declaration by respondents
that prompted petitioners to file the case of Specific Performance with the trial
court.
Finally, petitioners question the ruling of the courts a quo offsetting the claim
of improvements by petitioners and the claim of the fruits derived from the land
by respondents. Petitioners claim that the offsetting of claims is erroneous
citing Articles 546 and 547 of the Civil Code, viz.:
Art. 546. Necessary expenses shall be refunded to
every possessor; but only the possessor in good faith may
retain the thing until he has been reimbursed therefor.
Useful expenses shall be refunded only to the
possessor in good faith with the same right of retention, the
person who has defeated him in the possession having the
option of refunding the amount of the expenses or of paying
the increase in value which the thing may have acquired by
reason thereof.
Art. 547. If the useful improvements can be removed
without damage to the principal thing, the possessor in good
faith may remove them, unless the person who recovers the
possession exercises the option under paragraph 2 of the
preceding article.
Under these provisions, petitioners argue that as possessors in good faith and
in the concept of an owner, they are entitled to the fruits received before
possession was legally interrupted and they must be reimbursed for their
expenses or for the increase in the value the subject property may have
acquired by reason thereof.[25]
The records show that both parties failed to prove their claims through any
receipt or document. Despite the lack of proof, the trial court ordered that
whatever improvements spent on the land shall be offset from the fruits
derived therefrom, viz.:[26]
The plaintiffs claimed that they were able to improve
the land after possession was given to them. No receipts were
shown to guide the [c]ourt as to how much [were] the costs of
the improvements. Likewise the defendants claimed that the
plaintiffs were able to cultivate the land and
harvest palay although their testimonies to this effect [are]
based on their presumptions and calculations not on actual
harvest such that the [c]ourt also cannot make determination
of the real fruits derived from the land. This being so, the
[c]ourt shall just offset the claim of improvements to the claim
of fruits derived from the land and then place the parties in
their previous positions before the agreement. Whatever
improvements spent on the land shall be compensated from
the fruits derived therefrom.[27]
The appellate court found the setting off by the trial court to be in
order, viz.:
[W]e find in order the Solomonic setting off by the
court a quo the appellants claim of improvements on, with
the appellees claims for value of the fruits of, the subject land,
given the paucity of evidence on the matter. Along the same
vein, We find it just and fair to set off the compensation arising
from the possession and enjoyment of the fruits of subject lot
by appellants during the pendency of the case with the
interests due on the amounts paid by them to the Aquinos and
to the DBP.[28]
We can not order an offsetting of the claims as did the trial court and the
appellate court. The evidence show that both parties failed to prove their
respective claims. In the absence of evidence from both parties on their claims,
offsetting is improper. The right to offset may exist but the question of how
much is to be offset is factual in nature and needs to be proved by proper
evidence.
IN VIEW WHEREOF, the Decision and the Resolution of the Court of
Appeals in CA-G.R. CV No. 28654 dated April 16, 1997 and March 25, 1998,
respectively, are AFFIRMED with the MODIFICATION that respondents are
ordered to pay petitioners the sum of P24,800.00, not P29,800.00 as ordered
by the trial court, representing the amounts they received from petitioners, plus
the sum of P108,216.00 representing the amounts petitioners paid to DBP.
10
The order on the offsetting of claims is DELETED for lack of evidence.
Respondents-intervenors, as co-owners,
are likewise ordered to reimburse respondent Aquino their one-third share
each of the total amount to be paid by Aquino to petitioners.
SO ORDERED.
.R. No. L-18452 May 31, 1965
AUGUSTO COSIO and BEATRIZ COSIO DE RAMA, petitioners,
vs.
CHERIE PALILEO, respondent.
Recto Law Office for petitioners.
Bengzon, Villegas, Bengzon and Zarraga for respondent.
REGALA, J.:
This is an action to recover the possession of a house. It was filed following
our decision in Palileo v. Cosio, 51 O.G. 6181, in which We ruled that the
house in question had not been sold out but had merely been given as
security for a debt, the pacto de retro sale between the parties being in reality
a loan with an equitable mortgage. In a sense, therefore, this case is a
sequel to Palileo v. Cosio. The parties are here this time to litigate on the
issue of possession and its effects.
The house in this case, a two-story building, was formerly owned by
Felicisima Vda. de Barza. It is located at 25 (formerly 6) Antipolo Street,
Pasay City, on a lot belonging to the Hospicio de San Juan de Dios. On
October 4, 1950, this house and the leasehold right to the lot were bought by
respondent Cherie Palileo who paid part of the purchase price and
mortgaged the house to secure the payment of the balance.
It appears that respondent Palileo defaulted in her obligation, because of
which the mortgage was foreclosed and the house was advertised for sale.
Fortunately for her, however, respondent Palileo was able to raise money on
December 18, 1951 before the house could be sold at public auction. On this
date, respondent Palileo received from petitioner Beatriz Cosio de Rama the
sum of P12,000 in consideration of which she signed a document entitled
"Conditional Sale of Residential Building," purporting to convey to petitioner
Cosio de Rama the house in question. Under this document, the right to
repurchase the house within one year was reserved to respondent Palileo.
On the same day, the parties entered into an agreement whereby respondent
Palileo remained in possession of the house as tenant, paying petitioner
Cosio de Rama a monthly rental of P250.
Petitioner Cosio de Rama subsequently insured the house against fire with
the Associated Insurance & Surety Co., Inc. On October 25, 1952, fire broke
out in the house and partly destroyed the same. For the loss, petitioner Cosio
de Rama was paid P13,107 by the insurance company.
At the instance of his sister, petitioner Cosio de Rama, the other petitioner
Augusto Cosio entered the premises and began the repair of the house.
Soon after an action was filed by respondent Palileo against Cosio de Rama
for the reformation of the deed of pacto de retro sale into a loan with an
equitable mortgage. This case was filed in the Court of First Instance of Rizal
on December 4, 1952. One week after (December 11), respondent Palileo
filed another action in the Municipal Court of Pasay City, this time seeking
the ejectment of petitioner Cosio who, it was alleged, had entered and
occupied the house without the knowledge and consent of respondent
Palileo. Just the same, however, repair work went on and although at times
interrupted it was finally completed in 1953 at a cost of P12,000.
Meanwhile the ejectment suit was dismissed by the Municipal Court.
Respondent Palileo appealed to the Court of First Instance of Pasig, but the
case was again dismissed, this time for failure of respondent Palileo to
prosecute. The dismissal of the case was subsequently made "without
prejudice."
In the other case, respondent Palileo was successful. Both the lower court
and this Court declared the transaction of the parties to be a loan with an
equitable mortgage and not a conditional sale. It was found that the amount
of P12,000, which purported to be the price, was in fact a loan; that the
amount of P250 paid every month as rent was in reality interest; and that the
house allegedly sold was intended to be a security for the loan. Accordingly,
this Court directed petitioner Cosio de Rama to return to respondent Palileo
the sum of P810 which she had collected as interest in excess of that
allowed by law. This Court likewise ruled that petitioner Cosio de Rama could
keep the proceeds of the fire insurance but that her claim against respondent
Palileo under the loan was to be deemed assigned to the insurance
company.
As earlier stated, this suit was instituted to recover the possession of the
house as a consequence of our decision that it had not really been sold but
had merely been given as security for a loan. It was originally brought against
petitioner Cosio who asked that the action be dismissed on the ground that it
was barred by the judgment of the Municipal Court which dismissed the
ejectment case against him. The court denied the motion to dismiss. And so
petitioner Cosio filed his answer. He was later joined by petitioner Cosio de
Rama who was allowed to intervene in the action.
11
Thereafter, the lower court rendered judgment finding petitioner Cosio de
Rama to be a possessor in good faith with a right to retain possession until
reimbursed for her expenses in repairing the house. The dispositive portion
of its decision reads:
IN VIEW OF THE FOREGOING, the Court hereby renders judgment
declaring plaintiff Palileo as the lawful owner of the house No. 25
Antipolo Street, Pasay City and entitled to the possession thereof
upon her paying to intervenor defendant Beatriz Cosio de Rama the
sum of TWELVE THOUSAND (P12,000.00) PESOS with interest at
the legal rate from December 22, 1946 which is the date of the filing
of intervenor-defendant's counterclaim until paid. There is no
judgment for costs.
Not satisfied, respondent Palileo appealed to the Court of Appeals and
succeeded in having the lower court decision modified. The appellate court
ruled that
by virtue of the pacto de retro sale intervenor-appellee (Beatriz Cosio
de Rama) became the temporary owner of the house and as such
she was entitled to the possession thereof from the date of such
conditional sale although appellant (Cherie Palileo) was its actually
occupant as intervenor appellee's tenant. ... However, when
appellant instituted the ejectment case against appellee (Augusto
Cosio) and intervenor-appellee (Cosio de Rama) as early as
December 1952, when the latter had just started to reconstruct the
house, and she likewise commenced the action against intervenor-
appellee in the same month of December, 1952, to have the deed
of pacto de retro sale declared as one of loan with equitable
mortgage, said appellee and intervenor-appellee's title to the house
suffered from a flaw. From that time both appellee and intervenor-
appellee ceased to be considered possessors in good faith. (Art.
528, new Civil Code; Tacas v. Tobon 53 Phil. 356; Lopez, Inc. v.
Phil. Eastern Trading Co., Inc., 52 Off. Gaz. 1452) And if they chose
to continue reconstructing the house even after they were appraised
of a flaw on their title they did so as builders in bad faith.
Accordingly, it rendered judgment as follows:
WHEREFORE, with the modification that appellant (Cherie Palileo) is
hereby declared the lawful owner of the house known as No. 25
Antipolo Street, Pasay City, and entitled to the possession thereof,
without reimbursing intervenor-appellee (Beatriz Cosio de Rama) the
sum of P12,000 allegedly spent for the reconstruction of the same,
and appellee (Augusto Cosio) and intervenor-appellee (Cosio de
Rama) are hereby ordered to pay appellant a monthly rental of P300
during the time they actually occupied the house just mentioned as
possessors in bad faith, the decision appealed from is hereby
affirmed in all other respects. Without any pronouncement as to
costs.1wph1.t
Petitioners Cosio and Cosio de Rama have appealed to this Court
by certiorari, citing Article 526 of the Civil Code which states as follows:
He is deemed a possessor in good faith who is not aware that there
exists in his title or mode of acquisition any flaw which invalidates it.
He is deemed a possessor in bad faith who possesses in any case
contrary to the foregoing.
Mistake upon a doubtful or difficult question of law may be the basis
of good faith.
They contend that they were not only possessors in good faith from the
beginning but that they continue to be such even after this Court's
declaration that their transaction was a loan with a mortgage and not a sale
with a right of repurchase, because, as a matter of fact, this Court did not
invalidate, but merely reformed, the supposed deed of sale. Petitioners
likewise aver that neither can the ejectment suit be considered to be notice of
any defect or flaw in their mode of acquisition because that case after all was
dismissed.
We believe that both the petitioners and the Court of Appeals are in error in
saying that the former had a right to the possession of the house under the
deed of pacto de retro sale. Petitioners did not have such a right at any time
and they knew this.
In reforming instruments, courts do not make another contract for the parties
(See Civil Code, Arts. 1359-1369 and the Report of the Code Commission, p.
56). They merely inquire into the intention of the parties and, having found it,
reform the written instrument (not the contract) in order that it may express
the real intention of the parties (See Id., Arts. 1365 and 1602). This is what
was done in the earlier case between the parties. In holding that the
document entitled "Conditional Sale of Residential Building" was in fact a
mortgage, this Court said: "This document did not express the true intention
of the parties which was merely to place said property (the house) as security
for the payment of the loan." (Palileo v. Cosio, 51 O.G. 6181 at 6184)
If that was the intention of the parties (to conform to which their written
instrument was reformed) then petitioner Cosio de Rama knew from the
12
beginning that she was not entitled to the possession of the house because
she was a mere mortgagee. For the same reason, she could not have been
mistaken as to the true nature of their agreement. Hence, in bidding her
brother, petitioner Cosio, to enter the premises and make repairs and in later
occupying the house herself, petitioner Cosio de Rama did so with this
knowledge.
As possessors in bad faith, petitioners are jointly liable for the payment of
rental, the reasonable value of which, as found by the appellate court is P300
a month. (Art. 549. See Lerma v. De la Cruz, 7 Phil. 581) This finding is
supported by the evidence and we find no reason to disturb it.
But even as we hold petitioner Cosio de Rama to be a possessor in bad faith
we nevertheless believe that she is entitled to be reimbursed for her
expenses in restoring the house to its original condition after it had been
partly damaged by fire, because such expenses are necessary (Angeles v.
Lozada, 54 Phil. 184) and, under Article 546, are to be refunded even to
possessors in bad faith. As already stated, petitioner Cosio de Rama spent
P12,000 for the repair work.
The error of the appellate court lies in its failure to appreciate the distinction
that while petitioner Cosio de Rama is a possessor in bad faith, she is not a
builder in bad faith. Thus in describing petitioners as "builders in bad faith"
and, consequently, in holding that they have no right to be reimbursed, the
court obviously applied Article 449 which states that "he who builds, plants or
sows in bad faith on the land of another loses what is built, planted or
sown without right to indemnity." But article 449 is a rule of accession and we
are not here concerned with accession. There is here no reason for the
application of the principle accesio cedit principali, such as is contemplated in
cases of accession continua of which article 449 is a rule. For what
petitioners did in this case was not to build a new house on the land of
another. Rather, what they did was merely to make repairs on a house that
had been partly destroyed by fire and we are asked whether they have a
right to be refunded for what they spent in repairs. The land on which the
house is built is not even owned by respondent Palileo, that land being the
property of the Hospicio de San Juan de Dios. This case comes under article
546 which, as we have already indicated, provides for the refund of
necessary expenses "to every possessor."
And now we come to the last point in petitioners' assignment of errors. It is
contended that the present action is barred by the judgment of the Municipal
Court which dismissed the ejectment case filed by respondent Palileo against
petitioner Cosio. It is said that although that ejectment was vacated when it
was appealed to the Court of First Instance, the subsequent dismissal of the
case was equivalent to the withdrawal of the appeal and therefore to a revival
of the judgment of the Municipal Court. That judgment, to repeat, dismissed
the ejectment case against petitioner Cosio.
We note that this point, though raised in the Court of First Instance, was not
properly assigned as error in the Court of Appeals. It was there taken up only
in the "preliminary remarks" in the brief. Although petitioners were appellees
in the Court of Appeals, they should have assigned this alleged error if only
to maintain the decision of the lower court.
Apart from this consideration, we believe that this action is not barred by the
prior judgment in the ejectment case. The pertinent provisions of the Rules of
Court state:
Effect of appeals. A perfected appeal shall operate to vacate the
judgment of the justice of the peace or the municipal court, and the
action when duly docketed in the Court of First Instance, shall stand
for trial de novo upon its merits in accordance with the regular
procedure in that court, as though the same had never been tried
before and had been originally there commenced. If the appeal is
withdrawn, or dismissed for failure to prosecute, the judgment shall
be deemed revived and shall forthwith be remanded to the justice of
the peace or municipal court for execution. (Rule 40, see. 9, Rules of
Court.)
The following comment answers squarely petitioners' arguments:
The case shall stand in the Court of First Instance as though the
same "had been originally there commenced." Thus, if an action is
filed in an inferior court, and the plaintiff fails to appear and the case
is dismissed, may the plaintiff file another complaint for the same
cause? The Supreme Court held that, since the appeal had the effect
of vacating the judgment of the inferior court and, therefore, the
case, when dismissed, was in the Court of First Instance as if the
same "had been originally there commenced" and since dismissals,
on the ground aforementioned, of cases coming within the original
jurisdiction of the Court of First Instance, are without prejudice, the
conclusion is that plaintiff may file a new complaint for the same
cause. (Marco v. Hashim 40 Phil. 592) This ruling, however, is
affected to a certain extent by Rule 17, section 3, which provides that
the dismissal of a case on the ground of plaintiff's failure to appear at
the trial, is a final adjudication upon the merits unless the court
otherwise provides." (2 Moran, Comments on the Rules of Court,
344-345 [1963 ed.])
13
Here the dismissal of the ejectment case for failure of respondent Palileo to
prosecute was expressly made to be without prejudice. That judgment,
therefore, cannot be a bar to the filing of another action like the present.
WHEREFORE, with the modification that petitioner Cosio de Rama should
be reimbursed her necessary expenses in the amount of P12,000 by
respondent Palileo, the judgment of the Court of Appeals is affirmed in all
other respects, without pronouncements as to, cost.
[ G.R. No. 155640, May 07, 2008 ]
EUGENIA CASTELLANO and ERLAINE CASTELLANO, Petitioners, vs.
SPS. FLORENTINO FRANCISCO and ESTELITA MATA FRANCISCO,
Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review[1] seeking to reverse the 11 June 2002
Decision[2] of the Court of Appeals in CA-G.R. SP No. 63703 as well as the
15 October 2002 Resolution[3] denying the motion for reconsideration. The
Court of Appeals in its assailed decision set aside the 12 January 2001
Decision[4] of the Department of Agrarian Reform Adjudication Board
(DARAB) which affirmed the 30 August 1999 Decision[5] of the Regional
Adjudicator. The Court of Appeals declared petitioner Erlaine Castellano's
(Erlaine) emancipation patent void and ordered the return of possession of
the subject land to respondent spouses Florentino and Estelita Francisco
(spouses Francisco) upon payment of the loan.
The Facts
Since 1955, spouses Francisco had been in possession of about 23,032
square meters of land at Barangay Malayantoc, Sto. Domingo, Nueva Ecija.
In 1976, pursuant to Presidential Decree No. 27[6] (PD No. 27), respondent
Florentino Francisco (Florentino) was issued Certificate of Land Transfer No.
03019169.
Spouses Francisco alleged that in 1989, due to extreme poverty, they
borrowed P50,000 from petitioner Eugenia Castellano (Eugenia) and, in
return, Eugenia would cultivate and possess the property until full payment of
the loan. Spouses Francisco promised to pay within three years or until 1992.
Their agreement was not reduced into writing.
According to spouses Francisco, in the latter part of 1992, they offered to pay
the loan but Eugenia refused to accept payment. Spouses Francisco later
learned that Eugenia was able to secure Emancipation Patent No. 489877
and Transfer Certificate of Title No. EP-71729 in the name of Erlaine,
Eugenia's son.
On 17 December 1997, spouses Francisco filed a petition for cancellation of
Erlaine's emancipation patent before the DARAB. Spouses Francisco
claimed that ownership of the lot was transferred in Erlaine's name without
their knowledge and consent. Spouses Francisco asserted that all the
documents necessary for the valid transfer of rights were fabricated and
falsified.[7]
In their answer, the Castellanos stated that spouses Francisco later informed
them that they would no longer redeem the land. A transfer action was later
initiated by the Department of Agrarian Reform (DAR) Team Office and, on
15 October 1992, the Regional Director of the DAR, Region III, issued an
order approving the transfer action in favor of Erlaine. The Castellanos
denied that there was fraud and maintained that the standard procedure for a
transfer action was followed.
The Decision of the Regional Adjudicator
On 30 August 1999, Regional Adjudicator Fe Arche Manalang (Regional
Adjudicator) ruled in favor of the Castellanos, the dispositive portion of the
decision reads:
WHEREFORE, premises considered, judgment is hereby rendered:
1. Finding and declaring the Petitioners [spouses Francisco] as having
sold and abandoned their tenancy/possessory rights over the subject
landholding more particularly described in paragraph 4 of the
Petition;
14
 2. Directing the cancellation of CLT No. 0301916 issued in the name of
Petitioner Florentino M. Francisco covering the subject property;
3. Directing the forfeiture in favor of the Government of all amortization
payments so far made by the said Petitioner with the Land Bank of
the Philippines;
4. Permanently disqualifying the same Petitioner as an Agrarian
Reform Beneficiary under the Government's Comprehensive
Agrarian Reform Program; [and]
5. Dismissing all other claims for want of evidence or lack of basis.
NO COSTS.[8]
The Regional Adjudicator declared that while Florentino was the original
tenant-beneficiary and a holder of a certificate of land transfer, spouses
Francisco committed a breach of obligation when they sold their tenancy
rights to the Castellanos. The Regional Adjudicator ruled that spouses
Francisco abandoned the land when they went to work abroad and executed
a "waiver of rights." The Regional Adjudicator stated that neglect or
abandonment of the land by the beneficiary for two years is a ground for the
forfeiture of the awarded land and cancellation of the certificate of land
transfer.
The Regional Adjudicator also ruled that there were no irregularities in the
transfer proceedings leading to the issuance of Erlaine's emancipation
patent. The Regional Adjudicator declared that the waiver of rights executed
by Florentino and his heirs, duly acknowledged before a notary public,
enjoyed the presumption of regularity and validity. No evidence was
presented to contradict the same. The mistake in the status of Florentino
describing him as a widower was a mere oversight which Estelita Francisco
later on ratified.
Spouses Francisco appealed the decision to the DARAB.
The Decision of the DARAB
On 12 January 2001, the DARAB dismissed the appeal for lack of merit and
affirmed the Regional Adjudicator's 30 August 1999 Decision.
The DARAB declared that Florentino's certificate of land title did not vest in
him absolute ownership over the land because transfer of ownership was
subject to certain conditions. The DARAB ruled that spouses Francisco
surrendered their possesssory right over the land in exchange for P50,000
and physically abandoned the land when they worked abroad. The DARAB
held that this was sufficient ground for forfeiture of the awarded land and
cancellation of the certificate of land transfer.
On the other hand, the DARAB stated that it is the issuance of the
emancipation patent in favor of the tenant beneficiary that vests him with
absolute ownership of the land. The DARAB ruled that, with the issuance of
Erlaine's emancipation patent, Erlaine had a superior right over spouses
Francisco, who were mere holders of a certificate of land transfer. The
DARAB also stated that the issuance of Erlaine's emancipation patent
enjoyed the presumption of regularity and validity that is not overcome by the
filing of an information for falsification of public document.
Spouses Francisco appealed to the Court of Appeals.
The Decision of the Court of Appeals
In its 11 June 2002 Decision, the Court of Appeals reversed the 12 January
2001 DARAB Decision. The Court of Appeals ruled that Erlaine's
emancipation patent should be canceled because it was issued in violation of
PD No. 27. Under PD No. 27, spouses Francisco could not make any valid
form of transfer except to the government or, by hereditary succession, to
their heirs. Since the basis for the transfer action and the issuance of
Erlaine's emancipation patent was spouses Francisco's alienation of their
possessory right in favor of Erlaine, the transaction is void.
The Court of Appeals also ruled that spouses Francisco did not abandon the
property. The Court of Appeals said that spouses Francisco only surrendered
possession of the property to the Castellanos during the period of the loan,
on the condition that upon extinguishment of the obligation, possession shall
revert back to spouses Francisco.
The Issues
The Castellanos raise the following issues:
15
 1. Whether spouses Francisco abandoned their rights over the land;
and
2. Whether Erlaine's emancipation patent is valid.
The Ruling of the Court
The petition is partly meritorious.
Spouses Francisco did not abandon the land
We agree with the finding of the Court of Appeals that spouses Francisco did
not abandon the land. The Court of Appeals stated that
abandonment[9] requires (1) a clear and absolute intention to renounce a right
or a claim or to abandon a right or property; and (2) an external act by which
that intention is expressed or carried into effect. The intention to abandon
implies a departure, with the avowed intent of never returning, resuming or
claiming the right and the interest that have been abandoned.[10]
In this case, there was no showing that spouses Francisco had a clear,
absolute or irrevocable intent to abandon the land. Spouses Francisco's
surrender of possession did not amount to abandonment because there was
an obligation on the part of Eugenia to return possession of the land to
spouses Francisco upon full payment of the loan.[11]
Erlaine's emancipation patent is valid
The Court of Appeals ruled that Erlaine's emancipation patent was void and
should be canceled because spouses Francisco could not validly transfer
ownership of the land to Erlaine. The Court of Appeals ruled that spouses
Francisco's transfer of the rights or possession to the Castellanos violated
PD No. 27 and is therefore void.
Indeed, the sale or transfer of rights over a property covered by a certificate
of land transfer is void except when the alienation is made in favor of the
government or through hereditary succession.[12] In this case, however, the
Court of Appeals failed to consider that the basis for the issuance of Erlaine's
emancipation patent was Florentino's voluntary surrender of the land to the
Samahang Nayon, which qualifies as surrender or transfer to the
government.
In Corpuz v. Grospe,[13] the Court said:
To repeat, the land was surrendered to the government, not transferred to
another private person. It was the government, through the DAR, which
awarded the landholding to the private respondents who were declared as
qualified beneficiaries under the agrarian laws. Voluntary surrender, as a
mode of extinguishment of tenancy relations, does not require court approval
as long as it is convincingly and sufficiently proved by competent evidence.
Petitioner's voluntary surrender to the Samahang Nayon qualifies as a
surrender or transfer to the government because such action forms
part of the mechanism for the disposition and the reallocation of
farmholdings to tenant-farmers who refuse to become beneficiaries of
PD 27. Under Memorandum Circular No. 8-80 of the then Ministry of
Agrarian Reform, the Samahan shall, upon notice from the agrarian reform
team leader, recommend other tenant-farmers who shall be substituted to all
rights and obligations of the abandoning or surrendering tenant-
farmer.[14] (Emphasis supplied)
In this case, Florentino's intention to surrender the land to the Samahang
Nayon was clear. On 3 July 1989, Florentino executed a waiver of rights and
voluntarily surrendered ownership over the land to the Samahang
Nayon.[15] On 4 September 1990, the Samahang Nayon issued Resolution
No. 6 acknowledging Florentino's surrender of the land and recommending
three farmers, including Erlaine, to the DAR as agrarian reform
beneficiaries.[16] On 4 October 1990, Florentino executed
another salaysay stating that he had no objection to the transfer of the land in
Erlaine's name because he already returned the land to the
government.[17] The records also show that the proper transfer action was
undertaken.[18] Therefore, Erlaine's emancipation patent is valid since it was
issued pursuant to Florentino's voluntary surrender of the land to the
Samahang Nayon, not pursuant to spouses Francisco's alienation of their
possessory right to Eugenia.
WHEREFORE, we GRANT the petition. We REVERSE and SET ASIDE the
11 June 2002 Decision and the 15 October 2002 Resolution of the Court of
Appeals in CA-G.R. SP No. 63703. We REINSTATE the 30 August 1999
Decision of the Regional Adjudicator and the 12 January 2001 Decision of
the Department of Agrarian Reform Adjudication Board and declare Erlaine
Castellano's Emancipation Patent valid.
16

SO ORDERED.
G.R. No. 80298 April 26, 1990
EDCA PUBLISHING & DISTRIBUTING CORP., petitioner,
vs.
THE SPOUSES LEONOR and GERARDO SANTOS, doing business
under the name and style of "SANTOS BOOKSTORE," and THE COURT
OF APPEALS, respondents.
Emiliano S. Samson, R. Balderrama-Samson, Mary Anne B. Samson for
petitioner.
Cendana Santos, Delmundo & Cendana for private respondents.
CRUZ, J.:
The case before us calls for the interpretation of Article 559 of the Civil Code
and raises the particular question of when a person may be deemed to have
been "unlawfully deprived" of movable property in the hands of another. The
article runs in full as follows:
Art. 559. The possession of movable property acquired in good faith
is equivalent to a title. Nevertheless, one who has lost any movable
or has been unlawfully deprived thereof, may recover it from the
person in possession of the same.
If the possessor of a movable lost or of which the owner has been
unlawfully deprived has acquired it in good faith at a public sale, the
owner cannot obtain its return without reimbursing the price paid
therefor.
The movable property in this case consists of books, which were bought from
the petitioner by an impostor who sold it to the private respondents.
Ownership of the books was recognized in the private respondents by the
Municipal Trial Court, 1 which was sustained by the Regional Trial
Court, 2 which was in turn sustained by the Court of Appeals. 3 The petitioner
asks us to declare that all these courts have erred and should be reversed.
This case arose when on October 5, 1981, a person identifying himself as
Professor Jose Cruz placed an order by telephone with the petitioner
company for 406 books, payable on delivery. 4 EDCA prepared the
corresponding invoice and delivered the books as ordered, for which Cruz
issued a personal check covering the purchase price of P8,995.65. 5 On
October 7, 1981, Cruz sold 120 of the books to private respondent Leonor
Santos who, after verifying the seller's ownership from the invoice he showed
her, paid him P1,700.00. 6
Meanwhile, EDCA having become suspicious over a second order placed by
Cruz even before clearing of his first check, made inquiries with the De la
Salle College where he had claimed to be a dean and was informed that
there was no such person in its employ. Further verification revealed that
Cruz had no more account or deposit with the Philippine Amanah Bank,
against which he had drawn the payment check. 7 EDCA then went to the
police, which set a trap and arrested Cruz on October 7, 1981. Investigation
disclosed his real name as Tomas de la Pea and his sale of 120 of the
books he had ordered from EDCA to the private respondents. 8
On the night of the same date, EDCA sought the assistance of the police in
Precinct 5 at the UN Avenue, which forced their way into the store of the
private respondents and threatened Leonor Santos with prosecution for
buying stolen property. They seized the 120 books without warrant, loading
them in a van belonging to EDCA, and thereafter turned them over to the
petitioner. 9
Protesting this high-handed action, the private respondents sued for recovery
of the books after demand for their return was rejected by EDCA. A writ of
preliminary attachment was issued and the petitioner, after initial refusal,
finally surrendered the books to the private respondents. 10 As previously
stated, the petitioner was successively rebuffed in the three courts below and
now hopes to secure relief from us.
To begin with, the Court expresses its disapproval of the arbitrary action of
the petitioner in taking the law into its own hands and forcibly recovering the
disputed books from the private respondents. The circumstance that it did so
with the assistance of the police, which should have been the first to uphold
legal and peaceful processes, has compounded the wrong even more
deplorably. Questions like the one at bar are decided not by policemen but
by judges and with the use not of brute force but of lawful writs.
Now to the merits
It is the contention of the petitioner that the private respondents have not
established their ownership of the disputed books because they have not
even produced a receipt to prove they had bought the stock. This is
unacceptable. Precisely, the first sentence of Article 559 provides that "the
17
possession of movable property acquired in good faith is equivalent to a
title," thus dispensing with further proof.
The argument that the private respondents did not acquire the books in good
faith has been dismissed by the lower courts, and we agree. Leonor Santos
first ascertained the ownership of the books from the EDCA invoice showing
that they had been sold to Cruz, who said he was selling them for a discount
because he was in financial need. Private respondents are in the business of
buying and selling books and often deal with hard-up sellers who urgently
have to part with their books at reduced prices. To Leonor Santos, Cruz must
have been only one of the many such sellers she was accustomed to dealing
with. It is hardly bad faith for any one in the business of buying and selling
books to buy them at a discount and resell them for a profit.
But the real issue here is whether the petitioner has been unlawfully deprived
of the books because the check issued by the impostor in payment therefor
was dishonored.
In its extended memorandum, EDCA cites numerous cases holding that the
owner who has been unlawfully deprived of personal property is entitled to its
recovery except only where the property was purchased at a public sale, in
which event its return is subject to reimbursement of the purchase price. The
petitioner is begging the question. It is putting the cart before the horse.
Unlike in the cases invoked, it has yet to be established in the case at bar
that EDCA has been unlawfully deprived of the books.
The petitioner argues that it was, because the impostor acquired no title to
the books that he could have validly transferred to the private respondents.
Its reason is that as the payment check bounced for lack of funds, there was
a failure of consideration that nullified the contract of sale between it and
Cruz.
The contract of sale is consensual and is perfected once agreement is
reached between the parties on the subject matter and the consideration.
According to the Civil Code:
Art. 1475. The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract
and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the form
of contracts.
xxx xxx xxx
Art. 1477. The ownership of the thing sold shall be transferred to the
vendee upon the actual or constructive delivery thereof.
Art. 1478. The parties may stipulate that ownership in the thing shall
not pass to the purchaser until he has fully paid the price.
It is clear from the above provisions, particularly the last one quoted, that
ownership in the thing sold shall not pass to the buyer until full payment of
the purchase only if there is a stipulation to that effect. Otherwise, the rule is
that such ownership shall pass from the vendor to the vendee upon the
actual or constructive delivery of the thing sold even if the purchase price has
not yet been paid.
Non-payment only creates a right to demand payment or to rescind the
contract, or to criminal prosecution in the case of bouncing checks. But
absent the stipulation above noted, delivery of the thing sold will effectively
transfer ownership to the buyer who can in turn transfer it to another.
In Asiatic Commercial Corporation v. Ang,11 the plaintiff sold some cosmetics
to Francisco Ang, who in turn sold them to Tan Sit Bin. Asiatic not having
been paid by Ang, it sued for the recovery of the articles from Tan, who
claimed he had validly bought them from Ang, paying for the same in cash.
Finding that there was no conspiracy between Tan and Ang to deceive
Asiatic the Court of Appeals declared:
Yet the defendant invoked Article 464 12 of the Civil Code providing,
among other things that "one who has been unlawfully deprived of
personal property may recover it from any person possessing it." We
do not believe that the plaintiff has been unlawfully deprived of the
cartons of Gloco Tonic within the scope of this legal provision. It has
voluntarily parted with them pursuant to a contract of purchase and
sale. The circumstance that the price was not subsequently paid did
not render illegal a transaction which was valid and legal at the
beginning.
In Tagatac v. Jimenez,13 the plaintiff sold her car to Feist, who sold it to
Sanchez, who sold it to Jimenez. When the payment check issued to
Tagatac by Feist was dishonored, the plaintiff sued to recover the vehicle
from Jimenez on the ground that she had been unlawfully deprived of it by
reason of Feist's deception. In ruling for Jimenez, the Court of Appeals held:
The point of inquiry is whether plaintiff-appellant Trinidad C. Tagatac
has been unlawfully deprived of her car. At first blush, it would seem
that she was unlawfully deprived thereof, considering that she was
induced to part with it by reason of the chicanery practiced on her by
18
 Warner L. Feist. Certainly, swindling, like robbery, is an illegal
method of deprivation of property. In a manner of speaking, plaintiff-
appellant was "illegally deprived" of her car, for the way by which
Warner L. Feist induced her to part with it is illegal and is punished
by law. But does this "unlawful deprivation" come within the scope of
Article 559 of the New Civil Code?
xxx xxx xxx
. . . The fraud and deceit practiced by Warner L. Feist earmarks this
sale as a voidable contract (Article 1390 N.C.C.). Being a voidable
contract, it is susceptible of either ratification or annulment. If the
contract is ratified, the action to annul it is extinguished (Article 1392,
N.C.C.) and the contract is cleansed from all its defects (Article 1396,
N.C.C.); if the contract is annulled, the contracting parties are
restored to their respective situations before the contract and mutual
restitution follows as a consequence (Article 1398, N.C.C.).
However, as long as no action is taken by the party entitled, either
that of annulment or of ratification, the contract of sale remains valid
and binding. When plaintiff-appellant Trinidad C. Tagatac delivered
the car to Feist by virtue of said voidable contract of sale, the title to
the car passed to Feist. Of course, the title that Feist acquired was
defective and voidable. Nevertheless, at the time he sold the car to
Felix Sanchez, his title thereto had not been avoided and he
therefore conferred a good title on the latter, provided he bought the
car in good faith, for value and without notice of the defect in Feist's
title (Article 1506, N.C.C.). There being no proof on record that Felix
Sanchez acted in bad faith, it is safe to assume that he acted in good
faith.
The above rulings are sound doctrine and reflect our own interpretation of
Article 559 as applied to the case before us.
Actual delivery of the books having been made, Cruz acquired ownership
over the books which he could then validly transfer to the private
respondents. The fact that he had not yet paid for them to EDCA was a
matter between him and EDCA and did not impair the title acquired by the
private respondents to the books.
One may well imagine the adverse consequences if the phrase "unlawfully
deprived" were to be interpreted in the manner suggested by the petitioner. A
person relying on the seller's title who buys a movable property from him
would have to surrender it to another person claiming to be the original
owner who had not yet been paid the purchase price therefor. The buyer in
the second sale would be left holding the bag, so to speak, and would be
compelled to return the thing bought by him in good faith without even the
right to reimbursement of the amount he had paid for it.
It bears repeating that in the case before us, Leonor Santos took care to
ascertain first that the books belonged to Cruz before she agreed to
purchase them. The EDCA invoice Cruz showed her assured her that the
books had been paid for on delivery. By contrast, EDCA was less than
cautious in fact, too trusting in dealing with the impostor. Although it had
never transacted with him before, it readily delivered the books he had
ordered (by telephone) and as readily accepted his personal check in
payment. It did not verify his identity although it was easy enough to do this.
It did not wait to clear the check of this unknown drawer. Worse, it indicated
in the sales invoice issued to him, by the printed terms thereon, that the
books had been paid for on delivery, thereby vesting ownership in the buyer.
Surely, the private respondent did not have to go beyond that invoice to
satisfy herself that the books being offered for sale by Cruz belonged to him;
yet she did. Although the title of Cruz was presumed under Article 559 by his
mere possession of the books, these being movable property, Leonor Santos
nevertheless demanded more proof before deciding to buy them.
It would certainly be unfair now to make the private respondents bear the
prejudice sustained by EDCA as a result of its own negligence.1wphi1 We
cannot see the justice in transferring EDCA's loss to the Santoses who had
acted in good faith, and with proper care, when they bought the books from
Cruz.
While we sympathize with the petitioner for its plight, it is clear that its
remedy is not against the private respondents but against Tomas de la Pea,
who has apparently caused all this trouble. The private respondents have
themselves been unduly inconvenienced, and for merely transacting a
customary deal not really unusual in their kind of business. It is they and not
EDCA who have a right to complain.
WHEREFORE, the challenged decision is AFFIRMED and the petition is
DENIED, with costs against the petitioner.
G.R. No. 111426 July 11, 1994
NORMA DIZON-PAMINTUAN, petitioner,
vs.
PEOPLE OF THE PHILIPPINES, respondent.
Puno and Puno for petitioner.
19
The Solicitor General for respondent.
DAVIDE, JR., J.:
The chief issue presented for our determination in this petition for review
under Rule 45 of the Rules of Court is the correctness of the decision of 29
March 1993 of the Court of Appeals in CA-G.R. CR No. 110241 which
affirmed the decision of Branch 20 of the Regional Trial Court of Manila in
Criminal Case No. 88-649542 finding the petitioner guilty of the violation of
the Anti-Fencing Law (P.D. No. 1612) but set aside the penalty imposed and
ordered the trial court to receive additional evidence on the "correct
valuation" of the pieces of jewelry involved for the sole purpose of
determining the penalty to be imposed.
The information in Criminal Case No. 88-64954 charged the petitioner with
the violation of the Anti-Fencing Law in that
on or about and during the period from February 12, to
February 24, 1988, inclusive, in the City of Manila,
Philippines, the said accused, with intent of gain for herself
or for another, did then and there wilfully, unlawfully and
knowingly buy and keep in her possession and/or sell or
dispose of the following jewelries, to wit: one (1) set of
earrings, a ring studded with diamonds in a triangular style,
one (1) set of earrings (diamond studded) and one (1)
diamond-studded crucifix, or all valued at P105,000.00,
which she knew or should have known to have been derived
from the proceeds of the crime of robbery committed by
Joselito Sacdalan Salinas against the owner Teodoro and
Luzviminda Encarnacion.3
On the basis of the testimonies of prosecution witnesses Teodoro
Encarnacion (one of the offended parties), Cpl. Ignacio Jao, Jr., and Pfc.
Emmanuel Sanchez, both of the Western Police District, the trial court
promulgated on 16 November 1990 its decision, the dispositive portion of
which reads:
WHEREFORE, the prosecution having proved the guilty of
the accused for violation of Presidential Decree No. 1612
beyond reasonable doubt, the accused Norma Dizon-
Pamintuan is hereby sentenced to suffer an indeterminate
penalty of imprisonment from FOURTEEN (14) YEARS
of prision mayor to NINETEEN (19) YEARS of reclusion
temporal.
No civil liability in view of the recovery of the items, subject-
matter of this case.
With costs.4
The evidence of the prosecution is summarized by the trial court as follows:
Teodoro Encarnacion, Undersecretary, Department of Public
Works and Highways testified that he has just arrived at his
residence located at Better Living Subdivision, Paraaque at
around 9:45 p.m. of February 12, 1988 coming from the
Airport and immediately proceeded inside the house, leaving
behind his driver and two housemaids outside to pick-up his
personal belongings from his case. It was at this point that
five unidentified masked armed persons appeared from the
grassy portion of the lot beside the house and poked their
guns to his driver and two helpers and dragged them inside
his house. That the men pointed a gun at him and was made
to lie face down on the floor. The other occupants, namely
his wife, the maids and his driver were likewise made to lie
on the floor. Thereafter, the robbers ransacked the house
and took away jewelries and other personal properties
including cash. After the intruders left the house he reported
the matter immediately to the police. He was then
interviewed by the Paraaque police and was informed that
an operation group would be assigned to the case.
He likewise reported the matter to the Western Police District
on February 15, 1988. Two days later, a group of WPD
operatives came over to his house and he was asked to
prepare a list of items of jewelry and other valuables that
were lost including a sketch of distinctive items. He was later
told that some of the lost items were in Chinatown area as
tipped by the informer the police had dispatched. That an
entrapment would be made with their participation, on
February 14, 1988. As such, they went to Camp Crame at
around 9:00 a.m. and arrived at the vicinity of 733 Florentino
Torres Street, Sta. Cruz, Manila at about 10:00 a.m.; that he
is with his wife posed as a buyer and were able to recognize
items of the jewelry stolen displayed at the stall being tended
by Norma Dizon Pamintuan; the pieces were: 1 earring and
ring studded with diamonds worth P75,000 bought from
20
 estimator Nancy Bacud (Exh. "C-2"), 1 set of earring
diamond worth P15,000 (Exh. "C-3") and 1 gold chain with
crucifix worth P3,000 (Exh. "C-4").
Corporal Ignacio Jao, Jr. of the WPD testified that he was
with the spouses Teodoro Encarnacion, Jr. in the morning of
February 24, 1988 and they proceeded to Florentino Torres
Street, Sta. Cruz, Manila at the stall of Norma Dizon-
Pamintuan together with Sgt. Perez. After the spouses
Encarnacion recognized the items subject matter of the
robbery at the display window of the stall being tended by
the herein accused, they invited the latter to the precinct and
investigated the same. They likewise brought the said
showcase to the WPD station. He further testified that he
has no prior knowledge of the stolen jewelries of the private
complainant from one store to another.
Pfc. Emmanuel Sanchez of the WPD testified that he
reported for duty on February 24, 1988; that he was with the
group who accompanied the spouses Encarnacion in Sta.
Cruz, Manila and was around when the couple saw some of
the lost jewelries in the display stall of the accused. He was
likewise present during the early part of the investigation of
the WPD station.5
The recovery of the pieces of jewelry, on the basis of which the trial court
ruled that no civil liability should be adjudged against the petitioner, took
place when, as testified to by Teodoro Encarnacion, the petitioner "admitted
that she got the items but she did not know they were stolen [and that] she
surrendered the items and gave them to [his] wife."6
On the other hand, the version of the defense, as testified to by Rosito Dizon-
Pamintuan, is summarized by the trial court thus:
The defense presented only the testimony of Rosito Dizon-
Pamintuan who testified that he is the brother of Norma
Dizon-Pamintuan and that sometime around 11:00 a.m. of
February 24, 1985, he, together with the accused went
infront of the Carinderia along Florentino Torres Street, Sta.
Cruz, Manila waiting for a vacancy therein to eat lunch.
Suddenly, three persons arrived and he overheard that Cpl.
Jao told her sister to get the jewelry from inside the display
window but her sister requested to wait for Fredo, the owner
of the stall. But ten minutes later when said Fredo did not
show up, the police officer opened the display window and
got the contents of the same. The display stall was hauled to
a passenger jeepney and the same, together with the
accused were taken to the police headquarters. He likewise
testified that he accompanied his sister to the station and
after investigation was sent home.7
In convicting the petitioner, the trial court made the following findings:
The prosecution was able to prove by
evidence that the recovered items were part
of the loot and such recovered items belong
to the spouses Encarnacion, the herein
private complainants. That such items were
recovered by the Police Officers from the
stall being tended by the accused at that
time. Of importance, is that the law provides
a disputable presumption of fencing under
Section 5 thereof, to wit:
Mere possession of any goods, article, item
object, or anything of value which has been
the subject of robbery or thievery shall
be prima facie evidence of fencing.
There is no doubt that the recovered items were found in the
possession of the accused and she was not able to rebut the
presumption though the evidence for the defense alleged
that the stall is owned by one Fredo. A distinction should
likewise be made between ownership and possession in
relation to the act of fencing. Moreover, as to the value of the
jewelries recovered, the prosecution was able to show that
the same is Ninety Three Thousand Pesos (P93,000.00).8
The petitioner then appealed her conviction to the Court of Appeals (CA-G.R.
CR No. 11024) where she raised two issues: (1) that the judgment was
based on a mere presumption, and (2) that the prosecution failed to show
that the value of the jewelry recovered is P93,000.00.
In its challenged decision of 29 March 1993, the Court of Appeals disposed
of the first issue in this wise:
The guilt of accused-appellant was established beyond
reasonable doubt. All the elements of the crime of fencing in
violation of the Anti-Fencing Law of 1979 (P.D. No. 1612), to
wit:
21
 1. A crime of robbery or theft has been committed;
2. A person, not a participant in said crime, buys, receives,
possesses, keeps, acquires, conceals, sells or disposes, or
buys and sells; or in any manner deals in any article or item,
object or anything of value;
3. With personal knowledge, or should be known to said
person that said item, object or anything of value has been
derived from the proceeds of the crime of robbery or theft;
4. With intent to gain for himself or for another;
have been established by positive and convincing evidence
of the prosecution . . .
...
The fact that a crime of robbery has been committed on
February 12, 1988 is established by the testimony of private
complainant Teodoro T. Encarnacion who immediately
reported the same to Paraaque Police Station of the
Southern Police District (TSN, Hearings of October 3, 1988,
November 9, 1988 and January 11, 1989; Exh. A) and
submitted a list and sketches of the jewelries robbed, among
other things, from their residence located at Better Living
Subdivision, Paraaque, Metro Manila (Exh. C,
C-1 to C-4 and D).
The second element is likewise established by convincing
evidence. On February 24, 1988, accused-appellant was
found selling the jewelries (Exhs. C-2, C-3 and C-4) which
was displayed in a showcase in a stall located at Florentino
Street, Sta. Cruz, Manila. [Testimonies of Teodoro
Encarnacion (id. supra); Cpl. Ignacio Jao (TSN, Hearing of
February 13, 1989) and Pfc. Emmanuel Sanchez (TSN,
Hearing of June 4, 1989)].
On the element of knowledge that the items are derived from
the proceeds of the crime of robbery and of intent to gain for
herself or for another, the Anti-Fencing Law provides:
Sec. 5. Presumption of Fencing. Mere
possession of any good, article, item, object,
or anything of value which has been the
subject of robbery or thievery shall be prima
facie evidence of fencing.
Knowledge and intent to gain are proven by the fact that
these jewelries were found in possession of appellant and
they were displayed for sale in a showcase being tended by
her in a stall along Florentino Street, Sta. Cruz, Manila.9
Nevertheless, the Court of Appeals was of the opinion that there was not
enough evidence to prove the value of the pieces of jewelry recovered, which
is essential to the imposition of the proper penalty under Section 3 of P.D.
No. 1612. It opined that the trial court erred in concluding that "the value of
the recovered jewelries is P93,000.00 based on the bare testimony of the
private complainant and the self-serving list he submitted (Exhs. C, C-2 and
C-4, TSN, Hearing of October 3, 1993)."10
The dispositive portion of the Court of Appeals' decision reads:
WHEREFORE, finding that the trial court did not commit any
reversible error, its decision dated October 26, 1990
convincing accused appellant is hereby AFFIRMED with the
modification that the penalty imposed is SET ASIDE and the
Regional Trial Court (Branch 20) of Manila is ordered
to receive evidence with respect to the correct valuation of
the properties involved in this case, marked as Exhibits "C",
"C-2" and "C-4" for the sole purpose of determining the
proper penalty to be meted out against accused under
Section 3, P.D. No. 1612. Let the original records be
remanded immediately.11
Hence, this petition wherein the petitioner contends that:
I
PUBLIC RESPONDENT COURT OF APPEALS
MANIFESTLY ERRED IN AFFIRMING THE DECISION OF
PUBLIC RESPONDENT JUDGE CAEBA, IN BLATANT
DISREGARD OF APPLICABLE LAW AND WELL-
ESTABLISHED JURISPRUDENCE.
II
PUBLIC RESPONDENT COURT OF APPEALS
MANIFESTLY ERRED IN REMANDING THE CASE TO THE
COURT A QUO FOR RECEPTION OF EVIDENCE FOR
22
 THE PURPOSE OF DETERMINING THE CORRECT
PENALTY TO BE IMPOSED.12
On 23 February 1994, after the public respondents had filed their Comment
and the petitioner her Reply to the Comment, this Court gave due course to
the petition and required the parties to submit their respective memoranda,
which they subsequently complied with.
The first assigned error is without merit.
Fencing, as defined in Section 2 of P.D. No. 1612 (Anti-Fencing Law), is "the
act of any person who, with intent to gain for himself or for another, shall buy,
receive, possess, keep, acquire, conceal, sell or dispose of, or shall buy and
sell, or in any manner deal in any article, item, object or anything of value
which he knows, or should be known to him, to have been derived from the
proceeds of the crime of robbery or theft."
Before P.D. No. 1612, a fence could only be prosecuted for and held liable
as an accessory, as the term is defined in Article 19 of the Revised Penal
Code. The penalty applicable to an accessory is obviously light under the
rules prescribed in Articles 53, 55, and 57 of the Revised Penal Code,
subject to the qualification set forth in Article 60 thereof. Nothing, however,
the reports from law enforcement agencies that "there is rampant robbery
and thievery of government and private properties" and that "such robbery
and thievery have become profitable on the part of the lawless elements
because of the existence of ready buyers, commonly known as fence, of
stolen properties," P.D.
No. 1612 was enacted to "impose heavy penalties on persons who profit by
the effects of the crimes of robbery and theft." Evidently, the accessory in the
crimes of robbery and theft could be prosecuted as such under the Revised
Penal Code or under P.D. No. 1612. However, in the latter case, he ceases
to be a mere accessory but becomes aprincipal in the crime of fencing.
Elsewise stated, the crimes of robbery and theft, on the one hand, and
fencing, on the other, are separate and distinct offenses.13 The state may
thus choose to prosecute him either under the Revised Penal Code or P.D.
No. 1612, although the preference for the latter would seem inevitable
considering that fencing is a malum prohibitum, and P.D. No. 1612 creates a
presumption of fencing14 and prescribes a higher penalty based on the value
of the property.15
The elements of the crime of fencing are:
1. A crime of robbery or theft has been committed;
2. The accused, who is not a principal or accomplice
in the commission of the crime of robbery or theft,
buys, receives, possesses, keeps, acquires,
conceals, sells or disposes, or buys and sells, or in
any manner deals in any article, item, object or
anything of value, which has been derived from the
proceeds of the said crime;
3. The accused knows or should have known that
the said article, item, object or anything of value has
been derived from the proceeds of the crime of
robbery or theft; and
4. There is, on the part of the accused, intent to gain
for himself or for another.
In the instant case, there is no doubt that the first, second, and fourth
elements were duly established. A robbery was committed on 12 February
1988 in the house of the private complainants who afterwards reported the
incident to the Paraaque Police, the Western Police District, the NBI, and
the CIS, and submitted a list of the lost items and sketches of the jewelry
taken from them (Exhibits "C" and "D"). Three of these items stolen, viz., (a)
a pair of earrings and ring studded with diamonds worth P75,000.00 (Exhibit
"C-2"); (b) one set of earrings worth P15,000.00 (Exhibit "C-3"); and (c) a
chain with crucifix worth P3,000.00 (Exhibit "C-4"), were displayed for sale at
a stall tended to by the petitioner in Florentino Torres Street, Sta. Cruz,
Manila. The public display of the articles for sale clearly manifested an intent
to gain on the part of the petitioner.
The more crucial issue to be resolved is whether the prosecution proved the
existence of the third element: that the accused knew or should have known
that the items recovered from her were the proceeds of the crime of robbery
or theft.
One is deemed to know a particular fact if he has the cognizance,
consciousness or awareness thereof, or is aware of the existence of
something, or has the acquaintance with facts, or if he has something within
the mind's grasp with certitude and clarity.16 When knowledge of the
existence of a particular fact is an element of an offense, such knowledge is
established if a person is aware of a high probability of its existence unless
he actually believes that it does not exist. 17 On the other hand, the words
"should know" denote the fact that a person of reasonable prudence and
intelligence would ascertain the fact in performance of his duty to another or
would govern his conduct upon assumption that such fact
exists.18 Knowledge refers to a mental state of awareness about a fact. Since
23
the court cannot penetrate the mind of an accused and state with certainty
what is contained therein, it must determine such knowledge with care from
the overt acts of that person. And given two equally plausible states of
cognition or mental awareness, the court should choose the one which
sustains the constitutional presumption of innocence.19
Since Section 5 of P.D. No. 1612 expressly provides that "[m]ere possession
of any good, article, item, object, or anything of value which has been the
subject of robbery or thievery shall be prima facie evidence of fencing," it
follows that the petitioner is presumed to have knowledge of the fact that the
items found in her possession were the proceeds of robbery or theft. The
presumption is reasonable for no other natural or logical inference can arise
from the established fact of her possession of the proceeds of the crime of
robbery or theft. This presumption does not offend the presumption of
innocence enshrined in the fundamental law.20 In the early case of United
States vs.
Luling, 21 this Court held:
It has been frequently decided, in case of statutory crimes,
that no constitutional provision is violated by a statute
providing that proof by the state of some material fact or
facts shall constitute prima facieevidence of guilt, and that
then the burden is shifted to the defendant for the purpose of
showing that such act or acts are innocent and are
committed without unlawful intention. (Commonwealth vs.
Minor, 88 Ky., 422.)
In some of the States, as well as in England, there exist what
are known as common law offenses. In the Philippine
Islands no act is a crime unless it is made so by statute. The
state having the right to declare what acts are criminal,
within certain well defined limitations, has a right to specify
what act or acts shall constitute a crime, as well as what
proof shall constitute prima facie evidence of guilt, and then
to put upon the defendant the burden of showing that such
act or acts are innocent and are not committed with any
criminal intent or intention.
In his book on constitutional law,22 Mr. Justice Isagani A. Cruz said:
Nevertheless, the constitutional presumption of innocence
may be overcome by contrary presumptions based on the
experience of human conduct [People vs. Labara, April 20,
1954]. Unexplained flight, for example, may lead to an
inference of guilt, as 'the wicked flee when no man pursueth,
but the righteous is as bold as a lion. Failure on the part of
the accused to explain his possession of stolen property may
give rise to the reasonable presumption that it was he
himself who had stolen it [U.S. vs. Espia, 16 Phil. 506].
Under our Revised Penal Code, the inability of an
accountable officer to produce funds or property entrusted to
him will be considered prima facie evidence that he has
appropriated them to his personal use [Art. 217]. According
to Cooley, the constitutional presumption will not apply as
long as there is "some rational connection between the fact
proved and the ultimate fact presumed, and the inference of
one fact from proof of another shall not be so unreasonable
as to be purely arbitrary mandate" [1 Cooley, 639].
The petitioner was unable to rebut the presumption under P.D. No. 1612.
She relied solely on the testimony of her brother which was insufficient to
overcome the presumption, and, on the contrary, even disclosed that the
petitioner was engaged in the purchase and sale of jewelry and that she
used to buy from a certain Fredo.23
Fredo was not presented as a witness and it was not established that he was
a licensed dealer or supplier of jewelry. Section 6 of P.D. No. 1612 provides
that "all stores, establishments or entitles dealing in the buy and sell of any
good, article, item, object or anything of value obtained from an unlicensed
dealer or supplier thereof, shall before offering the same for sale to the
public, secure the necessary clearance or permit from the station
commander of the Integrated National Police in the town or city where such
store, establishment or entity is located." Under the Rules and
Regulations24 promulgated to carry out the provisions of Section 6, an
unlicensed dealer/supplier refers to any person, partnership, firm,
corporation, association or any other entity or establishment not licensed by
the government to engage in the business of dealing in or supplying "used
secondhand articles," which refers to any good, article, item, object or
anything of value obtained from an unlicensed dealer or supplier, regardless
of whether the same has actually or in fact been used.
We do not, however, agree with the Court of Appeals that there is insufficient
evidence to prove the actual value of the recovered articles.
As found by the trial court, the recovered articles had a total value of
P93,000.00, broken down as follows:
a) one earring and ring studded with diamonds (Exh. "C-2")
P75,000.00
24
 b) one set of earring (Exh. "C-3") P15,000.00
c) one gold chain with crucifix (Exh. "C-4") P3,000.00
These findings are based on the testimony of Mr. Encarnacion and 25
on Exhibit "C,"26 a list of the items which were taken by the robbers
on 12 February 1988, together with the corresponding valuation
thereof. On cross-examination, Mr. Encarnacion re-affirmed his
testimony on direct examination that the value of the pieces of
jewelry described in Exhibit "C-2" is P75,000.0027 and that the value
of the items described in Exhibit "C-3" is P15,000.00, although he
admitted that only one earring and not the pair was
recovered. 28 The cross-examination withheld any question on the
gold chain with crucifix described in Exhibit "C-4." In view, however,
of the admission that only one earring was recovered of the jewelry
described in Exhibit "C-3," it would be reasonable to reduce the
value from P15,000.00 to P7,500.00. Accordingly, the total value of
the pieces of jewelry displayed for sale by the petitioner and
established to be part of the proceeds of the robbery on 12 February
1988 would be P87,000.00.
Section 3(a) of P.D. No. 1612 provides that the penalty of prision mayor shall
be imposed upon the accused if the value of the property involved is more
than P12,000.00 but does not exceed P22,000.00, and if the value of such
property exceeds the latter sum, the penalty of prision mayor should be
imposed in its maximum period, adding one year for each additional
P10,000.00; the total penalty which may be imposed, however, shall not
exceed twenty years. In such cases, the penalty shall be termed reclusion
temporal and the accessory penalty pertaining thereto provided in the
Revised Penal Code shall also be imposed. The maximum penalty that can
be imposed in this case would then be eighteen (18) years and five (5)
months, which is within the range of reclusion temporal maximum. Applying
the Indeterminate Sentence law which allows the imposition of an
indeterminate penalty which, with respect to offenses penalized by a special
law, shall range from a minimum which shall not be lower than the minimum
prescribed by the special law to a maximum which should not exceed the
maximum provided therein, the petitioner can thus be sentenced to an
indeterminate penalty ranging from ten (10) years and one (1) day of prision
mayor maximum, as minimum to eighteen (18) years and five (5) months
of reclusion temporal maximum as maximum, with the accessory penalties
corresponding to the latter.
In the light of the foregoing, the Court of Appeals erred in setting aside the
penalty imposed by the trial court and in remanding the case to the trial court
for further reception of evidence to determine the actual value of the pieces
of jewelry recovered from the petitioner and for the imposition of the
appropriate penalty.
We do not agree with the petitioner's contention, though, that a remand for
further reception of evidence would place her in double jeopardy. There is
double jeopardy when the following requisites concur: (1) the first jeopardy
must have attached prior to the second, (2) the first jeopardy must have
validly been terminated, and (3) the second jeopardy must be for the same
offense as that in the first.29 Such a concurrence would not occur assuming
that the case was remanded to the trial court.
WHEREFORE, the instant petition is partly GRANTED by setting aside the
challenged decision of the Court of Appeals in CA-G.R. CR No. 11024
insofar as it sets aside the penalty imposed by Branch 20 of the Regional
Trial Court of Manila in Criminal Case No. 88-64954 and orders the remand
of the case for the trial court to receive evidence with respect to the correct
value of the properties involved. The decision of the Regional Trial Court is
AFFIRMED subject to the modification of the penalty which is hereby
reduced to an indeterminate penalty ranging from Ten (10) years and One
(1) day of Prision Mayor maximum as minimum to Eighteen (18) years and
Five (5) months of Reclusion Temporal maximum as maximum, with the
accessory penalties of the latter.
SO ORDERED.
TERLYNGRACE RIVERA, G.R. No. 165895
Petitioner,
Present:
YNARES-SANTIAGO, J
Chairperson,
- versus - CARPIO,*
CORONA,**
NACHURA, and
PERALTA, JJ.
Promulgated:
FLORENCIO L. VARGAS,
Respondent. June 5, 2009
x------------------------------------------------------------------------------------x
DECISION

25
NACHURA, J.:
What is the effect of a writ of replevin that has been improperly
served?
This is the sole issue to be resolved in this petition for review
on certiorari seeking to set aside the Decision[1] of the Court of Appeals (CA)
dated November 18, 2003 in CA-G.R. SP No. 78529, as well as its October
20, 2004 Resolution,[2] denying the petition for certiorari filed by petitioner
Terlyngrace Rivera (Rivera).
The facts follow.
On February 24, 2003, respondent Florencio Vargas (Vargas) filed a
complaint[3] against petitioner and several John Does before Branch 02 of the
Regional Trial Court (RTC) in Tuguegarao City, Cagayan, for the recovery of
a 150 T/H rock crushing plant located in Sariaya, Quezon. In his complaint and
affidavit,[4] Vargas claims ownership of the said equipment, having purchased
and imported the same directly from Hyun Dae Trading Co., in Seoul, South
Korea, in December 1993.[5] The equipment was allegedly entrusted to
petitioners husband, Jan T. Rivera, who died sometime in late 2002, as
caretaker of respondents construction aggregates business in Batangas.
According to Vargas, petitioner failed to return the said equipment after her
husbands death despite his repeated demands, thus forcing him to resort to
court action.[6] The complaint was accompanied by a prayer for the issuance
of a writ of replevin and the necessary bond amounting to P2,400,000.00.
Summons[7] dated February 24, 2003 was served upon petitioner
through her personal secretary on April 28, 2003 at her residence
in Paraaque City. Interestingly, however, the writ of replevin[8] was served
upon and signed by a certain Joseph Rejumo, the security guard on duty in
petitioners crushing plant in Sariaya, Quezon on April 29, 2003, [9] contrary to
the sheriffs return[10] stating that the writ was served upon Rivera.
On May 8, 2003, Rivera filed her answer, manifestation, and motion
for the acceptance of petitioners redelivery bond.[11] In her answer, petitioner
countered that the rock-crushing plant was ceded in favor of her husband as
his share following the dissolution of the partnership formed between Jan
Rivera and respondents wife, Iluminada Vargas (Iluminada), on May 28, 1998,
while the partnerships second rock-crushing plant in Cagayan was ceded in
favor of Iluminada.[12] She further averred that from the time that the
partnership was dissolved sometime in 2000 until Jan Riveras death in late
2002, it was petitioners husband who exercised ownership over the said
equipment without any disturbance from respondent.[13]
On May 12, 2003, the RTC issued an Order[14] disapproving petitioners
redelivery bond application for failure to comply with the requirements under
Sections 5 and 6 of Rule 60 of the Rules of Court. [15] Without directly saying
so, the RTC faulted petitioner for her failure to file the application for redelivery
bond within five (5) days from the date of seizure as provided in the Rules of
Court. Petitioner moved for reconsideration,[16] but the same was also
denied.[17]
Aggrieved, petitioner elevated the matter to the CA through a petition
for certiorari under Rule 65. This, too, was denied for lack of merit.[18] Petitioner
moved for reconsideration,[19] but it was also denied.[20]
Undaunted, petitioner now comes to us via this Rule 45 petition.
Petitioner argues that the RTC committed grave abuse of discretion in
denying her counterbond on the ground that it was filed out of time. She
contends that the mandatory five-day period did not even begin to run in this
case due to the improper service of the writ of replevin, contrary to Section 4
of Rule 60.[21]
We find the petition meritorious.
Replevin is one of the most ancient actions known to law, taking its
name from the object of its process.[22] It originated in common law as a
remedy against the wrongful exercise of the right of distress for rent [23]and,
according to some authorities, could only be maintained in such a case.[24] But
by the weight of authority, the remedy is not and never was restricted to cases
of wrongful distress in the absence of any statutes relating to the subject, but
is a proper remedy for any unlawful taking. [25] Replevied, used in its technical
sense, means delivered to the owner,[26] while the words to replevy means to
recover possession by an action of replevin.[27]
Broadly understood in this jurisdiction, replevin is both a form of
principal remedy and of provisional relief. It may refer either to the action
itself, i.e., to regain the possession of personal chattels being wrongfully
detained from the plaintiff by another, or to the provisional remedy that would
allow the plaintiff to retain the thing during the pendency of the action and to
hold it pendente lite.[28] The action is primarily possessory in nature and
generally determines nothing more than the right of possession.[29]
The law presumes that every possessor is a possessor in good faith. [30] He is
entitled to be respected and protected in his possession[31] as if he were the
true owner thereof until a competent court rules otherwise.[32]Before a final
26
judgment, property cannot be seized unless by virtue of some provision of
law.[33] The Rules of Court, under Rule 60, authorizes such seizure in cases of The trial court is reminded that not only should the writ or order of
replevin. However, a person seeking a remedy in an action for replevin must replevin comply with all the requirements as to matters of form or contents
follow the course laid down in the statute, since the remedy is penal in prescribed by the Rules of Court.[43] The writ must also satisfy proper service
nature.[34] When no attempt is made to comply with the provisions of the law in order to be valid and effective: i.e. it should be directed to the officer who is
relating to seizure in this kind of action, the writ or order allowing the seizure authorized to serve it; and it should be served upon the person who not only
is erroneous and may be set aside on motion[35] by the adverse party. Be it has the possession or custody of the property involved but who is also a party
noted, however, that a motion to quash the writ of replevin goes to the technical or agent of a party to the action. Consequently, a trial court is deemed to have
regularity of procedure, and not to the merits of the case[36] in the principal acted without or in excess of its jurisdiction with respect to the ancillary action
action. of replevin if it seizes and detains a personalty on the basis of a writ that was
improperly served, such as what happened in this case.
The process regarding the execution of the writ of replevin in Section
4 of Rule 60 is unambiguous: the sheriff, upon receipt of the writ of replevin At the outset, petitioners proper remedy should have been to file a
and prior to the taking of the property, must serve a copy thereof to the adverse motion to quash the writ of replevin or a motion to vacate the order of seizure.
party (petitioner, in this case) together with the application, the affidavit of Nevertheless, petitioners filing of an application for a redelivery bond, while
merit, and the replevin bond.[37] The reasons are simple, i.e., to provide proper not necessary, did not thereby waive her right to question the improper service.
notice to the adverse party that his property is being seized in accordance with It now becomes imperative for the trial court to restore the parties to their
the courts order upon application by the other party, and ultimately to allow the former positions by returning the seized property to petitioner and by
adverse party to take the proper remedy consequent thereto. discharging the replevin bond filed by respondent. The trial, with respect to the
main action, shall continue. Respondent may, however, file a new application
Service of the writ upon the adverse party is mandatory in line with the for replevin should he choose to do so.
constitutional guaranty on procedural due process and as safeguard against
unreasonable searches and seizures.[38] If the writ was not served upon the WHEREFORE, the petition is GRANTED. The Decision of the Court of
adverse party but was instead merely handed to a person who is neither an Appeals, as well as its Resolution, in CA-G.R. SP No. 78529 is hereby SET
agent of the adverse party nor a person authorized to receive court processes ASIDE. The Regional Trial Court is hereby ordered to restore the parties to
on his behalf, the service thereof is erroneous and is, therefore, invalid, running their former positions, discharge respondents replevin bond, and proceed with
afoul of the statutory and constitutional requirements. The service is likewise the trial of the main action with dispatch.
invalid if the writ of replevin was served without the required documents. Under
these circumstances, no right to seize and to detain the property shall pass,
the act of the sheriff being both unlawful and unconstitutional.
SO ORDERED.
In the case at bar, petitioner avers that the writ of replevin was served upon
the security guard where the rock-crushing plant to be seized was
located.[39] The signature of the receiving party indicates that the writ was
received on April 29, 2003 by a certain Joseph Rejumo, the guard on duty in
a plant in Sariaya, Quezon, where the property to be seized was located, and
witnessed by Claudio Palatino, respondents caretaker. [40] The sheriffs
return,[41] however, peremptorily states that both the writ of replevin and the
summons were served upon Rivera. On May 8, 2003, or nine (9) days after
the writ was served on the security guard, petitioner filed an answer to the
complaint accompanied by a prayer for the approval of her redelivery bond.
The RTC, however, denied the redelivery bond for having been filed beyond
the five-day mandatory period prescribed in Sections 5 and 6 of Rule 60.[42] But
since the writ was invalidly served, petitioner is correct in contending that there
is no reckoning point from which the mandatory five-day period shall
commence to run.

27