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ROLANDO T. CATUNGAL, JOSE T. CATUNGAL, G.R. No.

G.R. No. 146839 On April 23, 1990, Agapita, with the consent of her husband Jose, entered into
JR., CAROLYN T. CATUNGAL and ERLINDA a Contract to Sell[6] with respondent Rodriguez. Subsequently, the Contract to
CATUNGAL-WESSEL, Present: Sell was purportedly upgraded into a Conditional Deed of Sale[7] dated July 26,
Petitioners, 1990 between the same parties. Both the Contract to Sell and the Conditional
CORONA, C.J., Deed of Sale were annotated on the title.
Chairperson,
VELASCO, JR., The provisions of the Conditional Deed of Sale pertinent to the present dispute
- versus - LEONARDO-DE CASTRO, are quoted below:
DEL CASTILLO, and
PEREZ, JJ. 1. The VENDOR for and in consideration of the sum of
TWENTY[-]FIVE MILLION PESOS (P25,000,000.00) payable as
ANGEL S. RODRIGUEZ, Promulgated: follows:
Respondent.
March 23, 2011 a. FIVE HUNDRED THOUSAND PESOS (P500,000.00)
downpayment upon the signing of this agreement, receipt of
which sum is hereby acknowledged in full from the VENDEE.

b. The balance of TWENTY[-]FOUR MILLION FIVE HUNDRED


THOUSAND PESOS (P24,500,000.00) shall be payable in five
separate checks, made to the order of JOSE Ch. CATUNGAL,
the first check shall be for FOUR MILLION FIVE HUNDRED
THOUSAND PESOS (P4,500,000.00) and the remaining
x------------------------------------------------x balance to be paid in four checks in the amounts of FIVE
MILLION PESOS (P5,000,000.00) each after the VENDEE have
(sic) successfully negotiated, secured and provided a Road
DECISION Right of Way consisting of 12 meters in width cutting across
Lot 10884 up to the national road, either by widening the
existing Road Right of Way or by securing a new Road Right of
LEONARDO-DE CASTRO, J.: Way of 12 meters in width. If however said Road Right of Way
could not be negotiated, the VENDEE shall give notice to the
Before the Court is a Petition for Review on Certiorari, assailing the following VENDOR for them to reassess and solve the problem by taking
issuances of the Court of Appeals in CA-G.R. CV No. 40627 consolidated with other options and should the situation ultimately prove futile,
CA-G.R. SP No. 27565: (a) the August 8, 2000 Decision,[1] which affirmed the he shall take steps to rescind or cancel the herein Conditional
Decision[2] dated May 30, 1992 of the Regional Trial Court (RTC), Branch 27 of Deed of Sale.
Lapu-lapu City, Cebu in Civil Case No. 2365-L, and (b) the January 30, 2001
Resolution,[3] denying herein petitioners motion for reconsideration of the c. That the access road or Road Right of Way leading to Lot
August 8, 2000 Decision. 10963 shall be the responsibility of the VENDEE to secure and
The relevant factual and procedural antecedents of this case are as follows: any or all cost relative to the acquisition thereof shall be borne
solely by the VENDEE. He shall, however, be accorded with
This controversy arose from a Complaint for Damages and Injunction with enough time necessary for the success of his endeavor,
Preliminary Injunction/Restraining Order[4] filed on December 10, 1990 by granting him a free hand in negotiating for the passage.
herein respondent Angel S. Rodriguez (Rodriguez), with the RTC, Branch 27,
Lapu-lapu City, Cebu, docketed as Civil Case No. 2365-L against the spouses BY THESE PRESENTS, the VENDOR do hereby agree to sell by
Agapita and Jose Catungal (the spouses Catungal), the parents of petitioners. way of herein CONDITIONAL DEED OF SALE to VENDEE, his
heirs, successors and assigns, the real property described in
In the said Complaint, it was alleged that Agapita T. Catungal (Agapita) owned the Original Certificate of Title No. 105 x x x.
a parcel of land (Lot 10963) with an area of 65,246 square meters, covered by
Original Certificate of Title (OCT) No. 105[5] in her name situated in the Barrio xxxx
of Talamban, Cebu City. The said property was allegedly the exclusive
paraphernal property of Agapita. 5. That the VENDEE has the option to rescind the sale. In the
event the VENDEE exercises his option to rescind the herein
Conditional Deed of Sale, the VENDEE shall notify the VENDOR
by way of a written notice relinquishing his rights over the 2. After hearing, a writ of preliminary injunction be issued
property. The VENDEE shall then be reimbursed by the upon such reasonable bond as may be fixed by the court
VENDOR the sum of FIVE HUNDRED THOUSAND PESOS enjoining defendants and other persons acting in their behalf
(P500,000.00) representing the downpayment, interest free, from performing any of the acts mentioned in the next
payable but contingent upon the event that the VENDOR shall preceding paragraph.
have been able to sell the property to another party.[8] 3. After trial, a Decision be rendered:

a) Making the injunction permanent;


In accordance with the Conditional Deed of Sale, Rodriguez purportedly
secured the necessary surveys and plans and through his efforts, the property b) Condemning defendants to pay to plaintiff, jointly
was reclassified from agricultural land into residential land which he claimed and solidarily:
substantially increased the propertys value. He likewise alleged that he actively
negotiated for the road right of way as stipulated in the contract.[9] Actual damages in the amount of P400,000.00 for
their unlawful rescission of the Agreement and
Rodriguez further claimed that on August 31, 1990 the spouses Catungal their performance of acts in violation or disregard of the said
requested an advance of P5,000,000.00 on the purchase price for personal Agreement;
reasons. Rodriquez allegedly refused on the ground that the amount was
substantial and was not due under the terms of their agreement. Shortly after Moral damages in the amount of P200,000.00;
his refusal to pay the advance, he purportedly learned that the Catungals were
offering the property for sale to third parties.[10] Exemplary damages in the amount of P200,000.00;
Expenses of litigation and attorneys fees in the amount
Thereafter, Rodriguez received letters dated October 22, 1990,[11] October 24, of P100,000.00; and
1990[12] and October 29, 1990,[13] all signed by Jose Catungal who was a
lawyer, essentially demanding that the former make up his mind about buying Costs of suit.[16]
the land or exercising his option to buy because the spouses Catungal allegedly
received other offers and they needed money to pay for personal obligations
and for investing in other properties/business ventures. Should Rodriguez fail On December 12, 1990, the trial court issued a temporary restraining order
to exercise his option to buy the land, the Catungals warned that they would and set the application for a writ of preliminary injunction for hearing on
consider the contract cancelled and that they were free to look for other December 21, 1990 with a directive to the spouses Catungal to show cause
buyers. within five days from notice why preliminary injunction should not be
granted. The trial court likewise ordered that summons be served on them.[17]
In a letter dated November 4, 1990,[14] Rodriguez registered his objections to
what he termed the Catungals unwarranted demands in view of the terms of Thereafter, the spouses Catungal filed their opposition[18] to the issuance of a
the Conditional Deed of Sale which allowed him sufficient time to negotiate a writ of preliminary injunction and later filed a motion to dismiss[19] on the
road right of way and granted him, the vendee, the exclusive right to rescind ground of improper venue. According to the Catungals, the subject property
the contract. Still, on November 15, 1990, Rodriguez purportedly received a was located in Cebu City and thus, the complaint should have been filed in
letter dated November 9, 1990[15] from Atty. Catungal, stating that the Cebu City, not Lapu-lapu City. Rodriguez opposed the motion to dismiss on the
contract had been cancelled and terminated. ground that his action was a personal action as its subject was breach of a
contract, the Conditional Deed of Sale, and not title to, or possession of real
Contending that the Catungals unilateral rescission of the Conditional Deed of property.[20]
Sale was unjustified, arbitrary and unwarranted, Rodriquez prayed in his
Complaint, that: In an Order dated January 17, 1991,[21] the trial court denied the motion to
1. Upon the filing of this complaint, a restraining order be dismiss and ruled that the complaint involved a personal action, being merely
issued enjoining defendants [the spouses Catungal], their for damages with a prayer for injunction.
employees, agents, representatives or other persons acting in
their behalf from offering the property subject of this case for Subsequently, on January 30, 1991, the trial court ordered the issuance of a
sale to third persons; from entertaining offers or proposals by writ of preliminary injunction upon posting by Rodriguez of a bond in the
third persons to purchase the said property; and, in general, amount of P100,000.00 to answer for damages that the defendants may
from performing acts in furtherance or implementation of sustain by reason of the injunction.
defendants rescission of their Conditional Deed of Sale with
plaintiff [Rodriguez]. On February 1, 1991, the spouses Catungal filed their Answer with
Counterclaim[22] alleging that they had the right to rescind the contract in view
of (1) Rodriguezs failure to negotiate the road right of way despite the lapse of During the pre-trial held on December 20, 1991, the trial court denied in open
several months since the signing of the contract, and (2) his refusal to pay the court the Catungals Urgent Motion to Dismiss for violation of the rules and for
additional amount of P5,000,000.00 asked by the Catungals, which to them being repetitious and having been previously denied.[31] However, Atty.
indicated his lack of funds to purchase the property. The Catungals likewise Catungal refused to enter into pre-trial which prompted the trial court to
contended that Rodriguez did not have an exclusive right to rescind the declare the defendants in default and to set the presentation of the plaintiffs
contract and that the contract, being reciprocal, meant both parties had the evidence on February 14, 1992.[32]
right to rescind.[23] The spouses Catungal further claimed that it was Rodriguez
who was in breach of their agreement and guilty of bad faith which justified On December 23, 1991, the Catungals filed a motion for reconsideration[33] of
their rescission of the contract.[24] By way of counterclaim, the spouses the December 20, 1991 Order denying their Urgent Motion to Dismiss but the
Catungal prayed for actual and consequential damages in the form of unearned trial court denied reconsideration in an Order dated February 3,
interests from the balance (of the purchase price in the amount) 1992.[34] Undeterred, the Catungals subsequently filed a Motion to Lift and to
of P24,500,000.00, moral and exemplary damages in the amount Set Aside Order of Default[35] but it was likewise denied for being in violation of
of P2,000,000.00, attorneys fees in the amount of P200,000.00 and costs of the rules and for being not meritorious.[36] On February 28, 1992, the
suits and litigation expenses in the amount of P10,000.00.[25] The spouses Catungals filed a Petition for Certiorari and Prohibition[37] with the Court of
Catungal prayed for the dismissal of the complaint and the grant of their Appeals, questioning the denial of their motion to dismiss and the order of
counterclaim. default. This was docketed as CA-G.R. SP No. 27565.

The Catungals amended their Answer twice,[26] retaining their basic allegations Meanwhile, Rodriguez proceeded to present his evidence before the
but amplifying their charges of contractual breach and bad faith on the part of trial court.
Rodriguez and adding the argument that in view of Article 1191 of the Civil
Code, the power to rescind reciprocal obligations is granted by the law itself to In a Decision dated May 30, 1992, the trial court ruled in favor of Rodriguez,
both parties and does not need an express stipulation to grant the same to the finding that: (a) under the contract it was complainant (Rodriguez) that had
injured party. In the Second Amended Answer with Counterclaim, the spouses the option to rescind the sale; (b) Rodriguezs obligation to pay the balance of
Catungal added a prayer for the trial court to order the Register of Deeds to the purchase price arises only upon successful negotiation of the road right of
cancel the annotations of the two contracts at the back of their OCT.[27] way; (c) he proved his diligent efforts to negotiate the road right of way; (d)
On October 24, 1991, Rodriguez filed an Amended Complaint,[28] adding the spouses Catungal were guilty of misrepresentation which defeated
allegations to the effect that the Catungals were guilty of several Rodriguezs efforts to acquire the road right of way; and (e) the Catungals
misrepresentations which purportedly induced Rodriguez to buy the property at rescission of the contract had no basis and was in bad faith. Thus, the trial
the price of P25,000,000.00. Among others, it was alleged that the spouses court made the injunction permanent, ordered the Catungals to reduce the
Catungal misrepresented that their Lot 10963 includes a flat portion of land purchase price by the amount of acquisition of Lot 10963 which they
which later turned out to be a separate lot (Lot 10986) owned by Teodora misrepresented was part of the property sold but was in fact owned by a third
Tudtud who sold the same to one Antonio Pablo. The Catungals also allegedly party and ordered them to pay P100,000.00 as damages, P30,000.00 as
misrepresented that the road right of way will only traverse two lots owned by attorneys fees and costs.
Anatolia Tudtud and her daughter Sally who were their relatives and who had
already agreed to sell a portion of the said lots for the road right of way at a The Catungals appealed the decision to the Court of Appeals, asserting
price of P550.00 per square meter. However, because of the Catungals acts of the commission of the following errors by the trial court in their appellants
offering the property to other buyers who offered to buy the road lots brief[38] dated February 9, 1994:
for P2,500.00 per square meter, the adjacent lot owners were no longer willing I
to sell the road lots to Rodriguez at P550.00 per square meter but were asking
for a price of P3,500.00 per square meter. In other words, instead of assisting THE COURT A QUO ERRED IN NOT DISMISSING OF (SIC) THE
Rodriguez in his efforts to negotiate the road right of way, the spouses CASE ON THE GROUNDS OF IMPROPER VENUE AND LACK OF
Catungal allegedly intentionally and maliciously defeated Rodriguezs JURISDICTION.
negotiations for a road right of way in order to justify rescission of the said
contract and enable them to offer the property to other buyers. II

Despite requesting the trial court for an extension of time to file an amended THE COURT A QUO ERRED IN CONSIDERING THE CASE AS A
Answer,[29] the Catungals did not file an amended Answer and instead filed an PERSONAL AND NOT A REAL ACTION.
Urgent Motion to Dismiss[30] again invoking the ground of improper venue. In
the meantime, for failure to file an amended Answer within the period allowed, III
the trial court set the case for pre-trial on December 20, 1991.
GRANTING WITHOUT ADMITTING THAT VENUE WAS
PROPERLY LAID AND THE CASE IS A PERSONAL ACTION, THE
COURT A QUO ERRED IN DECLARING THE DEFENDANTS IN courts Decision regarding the foregoing issues raised by the
DEFAULT DURING THE PRE-TRIAL WHEN AT THAT TIME THE Catungals. Subsequently, the Catungals filed a Reply Brief[41] dated October
DEFENDANTS HAD ALREADY FILED THEIR ANSWER TO THE 16, 1995.
COMPLAINT.
From the filing of the appellants brief in 1994 up to the filing of the
IV Reply Brief, the spouses Catungal were represented by appellant Jose Catungal
himself. However, a new counsel for the Catungals, Atty. Jesus N. Borromeo
THE COURT A QUO ERRED IN CONSIDERING THE (Atty. Borromeo), entered his appearance before the Court of Appeals on
DEFENDANTS AS HAVING LOST THEIR LEGAL STANDING IN September 2, 1997.[42] On the same date, Atty. Borromeo filed a Motion for
COURT WHEN AT MOST THEY COULD ONLY BE CONSIDERED Leave of Court to File Citation of Authorities[43] and a Citation of
AS IN DEFAULT AND STILL ENTITLED TO NOTICES OF ALL Authorities.[44] This would be followed by Atty. Borromeos filing of an Additional
FURTHER PROCEEDINGS ESPECIALLY AFTER THEY HAD FILED Citation of Authority and Second Additional Citation of Authority both on
THE MOTION TO LIFT THE ORDER OF DEFAULT. November 17, 1997.[45]

V During the pendency of the case with the Court of Appeals, Agapita
Catungal passed away and thus, her husband, Jose, filed on February 17, 1999
THE COURT A QUO ERRED IN ISSUING THE WRIT [OF] a motion for Agapitas substitution by her surviving children.[46]
PRELIMINARY INJUNCTION RESTRAINING THE EXERCISE OF
ACTS OF OWNERSHIP AND OTHER RIGHTS OVER REAL On August 8, 2000, the Court of Appeals rendered a Decision in the
PROPERTY OUTSIDE OF THE COURTS TERRITORIAL consolidated cases CA-G.R. CV No. 40627 and CA-G.R. SP No.
JURISDICTION AND INCLUDING PERSONS WHO WERE NOT 27565,[47] affirming the trial courts Decision.
BROUGHT UNDER ITS JURISDICTION, THUS THE NULLITY OF
THE WRIT. In a Motion for Reconsideration dated August 21, 2000,[48] counsel for
the Catungals, Atty. Borromeo, argued for the first time that paragraphs 1(b)
VI and 5[49] of the Conditional Deed of Sale, whether taken separately or jointly,
violated the principle of mutuality of contracts under Article 1308 of the Civil
THE COURT A QUO ERRED IN NOT RESTRAINING ITSELF Code and thus, said contract was void ab initio. He adverted to the cases
MOTU PROP[R]IO FROM CONTINUING WITH THE mentioned in his various citations of authorities to support his argument of
PROCEEDINGS IN THE CASE AND IN RENDERING DECISION nullity of the contract and his position that this issue may be raised for the first
THEREIN IF ONLY FOR REASON OF COURTESY AND FAIRNESS time on appeal.
BEING MANDATED AS DISPENSER OF FAIR AND EQUAL
JUSTICE TO ALL AND SUNDRY WITHOUT FEAR OR FAVOR IT Meanwhile, a Second Motion for Substitution[50] was filed by Atty.
HAVING BEEN SERVED EARLIER WITH A COPY OF THE Borromeo in view of the death of Jose Catungal.
PETITION FOR CERTIORARI QUESTIONING ITS VENUE AND In a Resolution dated January 30, 2001, the Court of Appeals allowed the
JURISDICTION IN CA-G.R. NO. SP 27565 IN FACT NOTICES substitution of the deceased Agapita and Jose Catungal by their surviving heirs
FOR THE FILING OF COMMENT THERETO HAD ALREADY BEEN and denied the motion for reconsideration for lack of merit
SENT OUT BY THE HONORABLE COURT OF APPEALS, SECOND
DIVISION, AND THE COURT A QUO WAS FURNISHED WITH Hence, the heirs of Agapita and Jose Catungal filed on March 27, 2001
COPY OF SAID NOTICE. the present petition for review,[51] which essentially argued that the Court of
Appeals erred in not finding that paragraphs 1(b) and/or 5 of the Conditional
VII Deed of Sale, violated the principle of mutuality of contracts under Article 1308
of the Civil Code. Thus, said contract was supposedly void ab initio and the
THE COURT A QUO ERRED IN DECIDING THE CASE IN FAVOR Catungals rescission thereof was superfluous.
OF THE PLAINTIFF AND AGAINST THE DEFENDANTS ON THE
BASIS OF EVIDENCE WHICH ARE IMAGINARY, FABRICATED, In his Comment,[52] Rodriguez highlighted that (a) petitioners were
AND DEVOID OF TRUTH, TO BE STATED IN DETAIL IN THE raising new matters that cannot be passed upon on appeal; (b) the validity of
DISCUSSION OF THIS PARTICULAR ERROR, AND, THEREFORE, the Conditional Deed of Sale was already admitted and petitioners cannot be
THE DECISION IS REVERSIBLE.[39] allowed to change theories on appeal; (c) the questioned paragraphs of the
Conditional Deed of Sale were valid; and (d) petitioners were the ones who
committed fraud and breach of contract and were not entitled to relief for not
On August 31, 1995, after being granted several extensions, Rodriguez having come to court with clean hands.
filed his appellees brief,[40] essentially arguing the correctness of the trial
The Court gave due course to the Petition[53] and the parties filed their claims or defenses of both parties.[56] In Philippine National Construction
respective Memoranda. Corporation v. Court of Appeals,[57] we held that [w]hen a party adopts a
certain theory in the trial court, he will not be permitted to change his theory
The issues to be resolved in the case at bar can be summed into two on appeal, for to permit him to do so would not only be unfair to the other
questions: party but it would also be offensive to the basic rules of fair play, justice and
due process.[58]
I. Are petitioners allowed to raise their theory of nullity of
the Conditional Deed of Sale for the first time on appeal? We have also previously ruled that courts of justice have no
jurisdiction or power to decide a question not in issue. Thus, a judgment that
II. Do paragraphs 1(b) and 5 of the Conditional Deed of Sale goes beyond the issues and purports to adjudicate something on which the
violate the principle of mutuality of contracts under Article court did not hear the parties, is not only irregular but also extrajudicial and
1308 of the Civil Code? invalid. The rule rests on the fundamental tenets of fair play.[59]

On petitioners change of theory During the proceedings before the trial court, the spouses Catungal
never claimed that the provisions in the Conditional Deed of Sale, stipulating
Petitioners claimed that the Court of Appeals should have reversed the that the payment of the balance of the purchase price was contingent upon the
trial courts Decision on the ground of the alleged nullity of paragraphs 1(b) and successful negotiation of a road right of way (paragraph 1[b]) and granting
5 of the Conditional Deed of Sale notwithstanding that the same was not raised Rodriguez the option to rescind (paragraph 5), were void for allegedly making
as an error in their appellants brief. Citing Catholic Bishop of Balanga v. Court the fulfillment of the contract dependent solely on the will of Rodriguez.
of Appeals,[54] petitioners argued in the Petition that this case falls under the
following exceptions: On the contrary, with respect to paragraph 1(b), the Catungals did not
aver in the Answer (and its amended versions) that the payment of the
(3) Matters not assigned as errors on appeal but purchase price was subject to the will of Rodriguez but rather they claimed that
consideration of which is necessary in arriving at a just paragraph 1(b) in relation to 1(c) only presupposed a reasonable time be given
decision and complete resolution of the case or to serve the to Rodriguez to negotiate the road right of way.However, it was petitioners
interest of justice or to avoid dispensing piecemeal justice; theory that more than sufficient time had already been given Rodriguez to
negotiate the road right of way. Consequently, Rodriguezs refusal/failure to
(4) Matters not specifically assigned as errors on pay the balance of the purchase price, upon demand, was allegedly indicative
appeal but raised in the trial court and are matters of record of lack of funds and a breach of the contract on the part of Rodriguez.
having some bearing on the issue submitted which the parties
failed to raise or which the lower court ignored; Anent paragraph 5 of the Conditional Deed of Sale, regarding
Rodriguezs option to rescind, it was petitioners theory in the court a quo that
(5) Matters not assigned as errors on appeal but notwithstanding such provision, they retained the right to rescind the contract
closely related to an error assigned; and for Rodriguezs breach of the same under Article 1191 of the Civil Code.

(6) Matters not assigned as errors but upon which the Verily, the first time petitioners raised their theory of the nullity of the
determination of a question properly assigned is dependent.[55] Conditional Deed of Sale in view of the questioned provisions was only in their
Motion for Reconsideration of the Court of Appeals Decision, affirming the trial
courts judgment. The previous filing of various citations of authorities by Atty.
We are not persuaded. Borromeo and the Court of Appeals resolutions noting such citations were of no
moment. The citations of authorities merely listed cases and their main rulings
This is not an instance where a party merely failed to assign an issue without even any mention of their relevance to the present case or any prayer
as an error in the brief nor failed to argue a material point on appeal that was for the Court of Appeals to consider them. In sum, the Court of Appeals did not
raised in the trial court and supported by the record. Neither is this a case err in disregarding the citations of authorities or in denying petitioners motion
where a party raised an error closely related to, nor dependent on the for reconsideration of the assailed August 8, 2000 Decision in view of the
resolution of, an error properly assigned in his brief. This is a situation where a proscription against changing legal theories on appeal.
party completely changes his theory of the case on appeal and abandons his
previous assignment of errors in his brief, which plainly should not be allowed Ruling on the questioned
as anathema to due process. provisions of the Conditional
Deed of Sale
Petitioners should be reminded that the object of pleadings is to draw
the lines of battle between the litigants and to indicate fairly the nature of the
Even assuming for the sake of argument that this Court may overlook the respondent and the third party-landowners would come to an agreement
procedural misstep of petitioners, we still cannot uphold their belatedly regarding the road right of way. This type of mixed condition is expressly
proffered arguments. allowed under Article 1182 of the Civil Code.

At the outset, it should be noted that what the parties entered into is a Analogous to the present case is Romero v. Court of Appeals,[62] wherein the
Conditional Deed of Sale, whereby the spouses Catungal agreed to sell and Court interpreted the legal effect of a condition in a deed of sale that the
Rodriguez agreed to buy Lot 10963 conditioned on the payment of a certain balance of the purchase price would be paid by the vendee when the vendor
price but the payment of the purchase price was additionally made contingent has successfully ejected the informal settlers occupying the property.
on the successful negotiation of a road right of way.It is elementary that [i]n In Romero, we found that such a condition did not affect the perfection of the
conditional obligations, the acquisition of rights, as well as the extinguishment contract but only imposed a condition on the fulfillment of the obligation to pay
or loss of those already acquired, shall depend upon the happening of the the balance of the purchase price, to wit:
event which constitutes the condition.[60]
From the moment the contract is perfected, the
Petitioners rely on Article 1308 of the Civil Code to support their conclusion parties are bound not only to the fulfillment of what has been
regarding the claimed nullity of the aforementioned provisions. Article 1308 expressly stipulated but also to all the consequences which,
states that [t]he contract must bind both contracting parties; its validity or according to their nature, may be in keeping with good faith,
compliance cannot be left to the will of one of them. usage and law. Under the agreement, private respondent is
obligated to evict the squatters on the property. The
Article 1182 of the Civil Code, in turn, provides: ejectment of the squatters is a condition the operative
act of which sets into motion the period of compliance
Art. 1182. When the fulfillment of the condition depends upon by petitioner of his own obligation, i.e., to pay the
the sole will of the debtor, the conditional obligation shall be balance of the purchase price. Private respondent's
void. If it depends upon chance or upon the will of a third failure to remove the squatters from the property"
person, the obligation shall take effect in conformity with the within the stipulated period gives petitioner the right to
provisions of this Code. either refuse to proceed with the agreement or waive
that condition in consonance with Article 1545 of the
Civil Code. This option clearly belongs to petitioner and not to
In the past, this Court has distinguished between a condition imposed on the private respondent.
perfection of a contract and a condition imposed merely on the performance of
an obligation. While failure to comply with the first condition results in the We share the opinion of the appellate court that
failure of a contract, failure to comply with the second merely gives the other the undertaking required of private respondent does not
party the option to either refuse to proceed with the sale or to waive the constitute a "potestative condition dependent solely on
condition.[61] This principle is evident in Article 1545 of the Civil Code on sales, his will" that might, otherwise, be void in accordance
which provides in part: with Article 1182 of the Civil Code but a "mixed"
condition "dependent not on the will of the vendor
Art. 1545. Where the obligation of either party to a contract of alone but also of third persons like the squatters and
sale is subject to any condition which is not performed, such government agencies and personnel concerned." We
party may refuse to proceed with the contract or he may must hasten to add, however, that where the so-called
waive performance of the condition x x x. "potestative condition" is imposed not on the birth of the
obligation but on its fulfillment, only the condition is avoided,
leaving unaffected the obligation itself.[63] (Emphases
Paragraph 1(b) of the Conditional Deed of Sale, stating that supplied.)
respondent shall pay the balance of the purchase price when he has
successfully negotiated and secured a road right of way, is not a condition on
the perfection of the contract nor on the validity of the entire contract or its From the provisions of the Conditional Deed of Sale subject matter of
compliance as contemplated in Article 1308. It is a condition imposed only on this case, it was the vendee (Rodriguez) that had the obligation to successfully
respondents obligation to pay the remainder of the purchase price. In our view negotiate and secure the road right of way. However, in the decision of the trial
and applying Article 1182, such a condition is not purely potestative as court, which was affirmed by the Court of Appeals, it was found that
petitioners contend. It is not dependent on the sole will of the debtor but also respondent Rodriguez diligently exerted efforts to secure the road right of way
on the will of third persons who own the adjacent land and from whom the but the spouses Catungal, in bad faith, contributed to the collapse of the
road right of way shall be negotiated. In a manner of speaking, such a negotiations for said road right of way. To quote from the trial courts decision:
condition is likewise dependent on chance as there is no guarantee that
It is therefore apparent that the vendees obligations secure and any or all cost relative to the acquisition thereof
(sic) to pay the balance of the purchase price arises only when shall be borne solely by the VENDEE. He shall, however, be
the road-right-of-way to the property shall have been accorded with enough time necessary for the success of
successfully negotiated, secured and provided. In other words, his endeavor, granting him a free hand in negotiating for the
the obligation to pay the balance is conditioned upon the passage.[66](Emphasis supplied.)
acquisition of the road-right-of-way, in accordance with
paragraph 2 of Article 1181 of the New Civil Code.
Accordingly, an obligation dependent upon a suspensive The Catungals interpretation of the foregoing stipulation was that
condition cannot be demanded until after the condition takes Rodriguezs obligation to negotiate and secure a road right of way was one with
place because it is only after the fulfillment of the condition a period and that period, i.e., enough time to negotiate, had already lapsed by
that the obligation arises. (Javier v[s] CA 183 SCRA) Exhibits the time they demanded the payment of P5,000,000.00 from respondent. Even
H, D, P, R, T, FF and JJ show that plaintiff [Rodriguez] assuming arguendo that the Catungals were correct that the respondents
indeed was diligent in his efforts to negotiate for a obligation to negotiate a road right of way was one with an uncertain period,
road-right-of-way to the property. The written offers, their rescission of the Conditional Deed of Sale would still be
proposals and follow-up of his proposals show that plaintiff unwarranted. Based on their own theory, the Catungals had a remedy under
[Rodriguez] went all out in his efforts to immediately acquire Article 1197 of the Civil Code, which mandates:
an access road to the property, even going to the extent of
offering P3,000.00 per square meter for the road lots (Exh. Q) Art. 1197. If the obligation does not fix a period, but
from the original P550.00 per sq. meter. This Court also notes from its nature and the circumstances it can be inferred that a
that defendant (sic) [the Catungals] made period was intended, the courts may fix the duration thereof.
misrepresentation in the negotiation they have entered
into with plaintiff [Rodriguez]. (Exhs. F and G) The The courts shall also fix the duration of the period
misrepresentation of defendant (sic) [the Catungals] as to the when it depends upon the will of the debtor.
third lot (Lot 10986) to be part and parcel of the subject
property [(]Lot 10963) contributed in defeating the In every case, the courts shall determine such period
plaintiffs [Rodriguezs] effort in acquiring the road- as may under the circumstances have been probably
right-of-way to the property. Defendants [the contemplated by the parties. Once fixed by the courts, the
Catungals] cannot now invoke the non-fulfillment of the period cannot be changed by them.
condition in the contract as a ground for rescission
when defendants [the Catungals] themselves are guilty
of preventing the fulfillment of such condition. What the Catungals should have done was to first file an action in
court to fix the period within which Rodriguez should accomplish the successful
From the foregoing, this Court is of the considered negotiation of the road right of way pursuant to the above quoted
view that rescission of the conditional deed of sale by the provision. Thus, the Catungals demand for Rodriguez to make an additional
defendants is without any legal or factual basis.[64] x x x. payment of P5,000,000.00 was premature and Rodriguezs failure to accede to
(Emphases supplied.) such demand did not justify the rescission of the contract.

With respect to petitioners argument that paragraph 5 of the


In all, we see no cogent reason to disturb the foregoing factual Conditional Deed of Sale likewise rendered the said contract void, we find no
findings of the trial court. merit to this theory. Paragraph 5 provides:

Furthermore, it is evident from the language of paragraph 1(b) that 5. That the VENDEE has the option to rescind the
the condition precedent (for respondents obligation to pay the balance of the sale. In the event the VENDEE exercises his option to rescind
purchase price to arise) in itself partly involves an obligation to do, i.e., the the herein Conditional Deed of Sale, the VENDEE shall notify
undertaking of respondent to negotiate and secure a road right of way at his the VENDOR by way of a written notice relinquishing his rights
own expense.[65] It does not escape our notice as well, that far from over the property. The VENDEE shall then be reimbursed by
disclaiming paragraph 1(b) as void, it was the Catungals contention before the the VENDOR the sum of FIVE HUNDRED THOUSAND PESOS
trial court that said provision should be read in relation to paragraph 1(c) (P500,000.00) representing the downpayment, interest free,
which stated: payable but contingent upon the event that the VENDOR shall
have been able to sell the property to another party.[67]
c. That the access road or Road Right of Way leading
to Lot 10963 shall be the responsibility of the VENDEE to
Petitioners posited that the above stipulation was the deadliest provision in the Rodriguez the absolute option to rescind the sale at any time, the contract
Conditional Deed of Sale for violating the principle of mutuality of contracts would have provided for the return of all payments made by Rodriguez and not
since it purportedly rendered the contract subject to the will of respondent. only the downpayment. To our mind, the reason only the downpayment was
stipulated to be returned is that the vendees option to rescind can only be
We do not agree. exercised in the event that no road right of way is secured and, thus, the
vendee has not made any additional payments, other than his downpayment.
It is petitioners strategy to insist that the Court examine the first
sentence of paragraph 5 alone and resist a correlation of such sentence with In sum, Rodriguezs option to rescind the contract is not purely
other provisions of the contract. Petitioners view, however, ignores a basic rule potestative but rather also subject to the same mixed condition as his
in the interpretation of contracts that the contract should be taken as a whole. obligation to pay the balance of the purchase price i.e., the negotiation of a
road right of way. In the event the condition is fulfilled (or the negotiation is
Article 1374 of the Civil Code provides that [t]he various stipulations of successful), Rodriguez must pay the balance of the purchase price. In the
a contract shall be interpreted together, attributing to the doubtful ones that event the condition is not fulfilled (or the negotiation fails), Rodriguez has the
sense which may result from all of them taken jointly. The same Code further choice either (a) to not proceed with the sale and demand return of his
sets down the rule that [i]f some stipulation of any contract should admit of downpayment or (b) considering that the condition was imposed for his benefit,
several meanings, it shall be understood as bearing that import which is most to waive the condition and still pay the purchase price despite the lack of road
adequate to render it effectual.[68] access. This is the most just interpretation of the parties contract that gives
effect to all its provisions.
Similarly, under the Rules of Court it is prescribed that [i]n the
construction of an instrument where there are several provisions or particulars, In any event, even if we assume for the sake of argument that the
such a construction is, if possible, to be adopted as will give effect to all[69] and grant to Rodriguez of an option to rescind, in the manner provided for in the
for the proper construction of an instrument, the circumstances under which it contract, is tantamount to a potestative condition, not being a condition
was made, including the situation of the subject thereof and of the parties to it, affecting the perfection of the contract, only the said condition would be
may be shown, so that the judge may be placed in the position of those whose considered void and the rest of the contract will remain valid.In Romero, the
language he is to interpret.[70] Court observed that where the so-called potestative condition is imposed not
on the birth of the obligation but on its fulfillment, only the condition is
Bearing in mind the aforementioned interpretative rules, we find that avoided, leaving unaffected the obligation itself.[71]
the first sentence of paragraph 5 must be taken in relation with the rest of
paragraph 5 and with the other provisions of the Conditional Deed of Sale. It cannot be gainsaid that contracts have the force of law between the
contracting parties and should be complied with in good faith.[72] We have also
Reading paragraph 5 in its entirety will show that Rodriguezs option to previously ruled that [b]eing the primary law between the parties, the contract
rescind the contract is not absolute as it is subject to the requirement that governs the adjudication of their rights and obligations. A court has no
there should be written notice to the vendor and the vendor shall only return alternative but to enforce the contractual stipulations in the manner they have
Rodriguezs downpayment of P500,000.00, without interest, when the vendor been agreed upon and written.[73] We find no merit in petitioners contention
shall have been able to sell the property to another party. That what is that their parents were merely duped into accepting the questioned provisions
stipulated to be returned is only the downpayment of P500,000.00 in the event in the Conditional Deed of Sale. We note that although the contract was
that Rodriguez exercises his option to rescind is significant. To recall, between Agapita Catungal and Rodriguez, Jose Catungal nonetheless signed
paragraph 1(b) of the contract clearly states that the installments on the thereon to signify his marital consent to the same. We concur with the trial
balance of the purchase price shall only be paid upon successful negotiation courts finding that the spouses Catungals claim of being misled into signing the
and procurement of a road right of way. It is clear from such provision that the contract was contrary to human experience and conventional wisdom since it
existence of a road right of way is a material consideration for Rodriguez to was Jose Catungal who was a practicing lawyer while Rodriquez was a non-
purchase the property. Thus, prior to him being able to procure the road right lawyer.[74] It can be reasonably presumed that Atty. Catungal and his wife
of way, by express stipulation in the contract, he is not bound to make reviewed the provisions of the contract, understood and accepted its provisions
additional payments to the Catungals. It was further stipulated in paragraph before they affixed their signatures thereon.
1(b) that: [i]f however said road right of way cannot be negotiated, the
VENDEE shall give notice to the VENDOR for them to reassess and solve the After thorough review of the records of this case, we have come to the
problem by taking other options and should the situation ultimately prove conclusion that petitioners failed to demonstrate that the Court of Appeals
futile, he [Rodriguez] shall take steps to rescind or [cancel] the herein committed any reversible error in deciding the present controversy. However,
Conditional Deed of Sale. The intention of the parties for providing having made the observation that it was desirable for the Catungals to file a
subsequently in paragraph 5 that Rodriguez has the option to rescind the sale separate action to fix the period for respondent Rodriguezs obligation to
is undeniably only limited to the contingency that Rodriguez shall not be able negotiate a road right of way, the Court finds it necessary to fix said period in
to secure the road right of way. Indeed, if the parties intended to give these proceedings. It is but equitable for us to make a determination of the
issue here to obviate further delay and in line with the judicial policy of DEL CASTILLO, and
avoiding multiplicity of suits. VILLARAMA, JR., JJ.
SPOUSES ROY S. TAN AND SUSAN C. TAN,
If still warranted, Rodriguez is given a period of thirty (30) days from Respondents. Promulgated:
the finality of this decision to negotiate a road right of way. In the event no
road right of way is secured by Rodriquez at the end of said period, the parties January 30, 2012
shall reassess and discuss other options as stipulated in paragraph 1(b) of the x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Conditional Deed of Sale and, for this purpose, they are given a period of thirty - -x
(30) days to agree on a course of action. Should the discussions of the parties
prove futile after the said thirty (30)-day period, immediately upon the
expiration of said period for discussion, Rodriguez may (a) exercise his option DECISION
to rescind the contract, subject to the return of his downpayment, in
accordance with the provisions of paragraphs 1(b) and 5 of the Conditional
Deed of Sale or (b) waive the road right of way and pay the balance of the LEONARDO-DE CASTRO, J.:
deducted purchase price as determined in the RTC Decision dated May 30,
1992.
For review under Rule 45 of the Rules of Court is the Decision[1] dated
WHEREFORE, the Decision dated August 8, 2000 and May 30, 2002 and Resolution[2] dated August 12, 2002 of the Court Appeals in
the Resolution dated January 30, 2001 of the Court of Appeals in CA-G.R. CV CA-G.R. SP No. 67816. The appellate court affirmed with modification the
No. 40627 consolidated with CA-G.R. SP No. 27565 are AFFIRMED with the Decision[3] dated July 6, 2001 of the Securities and Exchange Commission
following MODIFICATION: (SEC) En Banc in SEC AC Case No. 788 which, in turn, affirmed the
Decision[4] dated April 28, 2000 of Hearing Officer Marciano S. Bacalla, Jr.
If still warranted, respondent Angel S. Rodriguez is given a period of (Bacalla) of the SEC Securities Investigation and Clearing Department (SICD)
thirty (30) days from the finality of this Decision to negotiate a road right of in SEC Case No. 04-99-6264.
way. In the event no road right of way is secured by respondent at the end of
said period, the parties shall reassess and discuss other options as stipulated in Sometime in March 1997, respondent spouses Roy S. Tan and Susana
paragraph 1(b) of the Conditional Deed of Sale and, for this purpose, they are C. Tan bought from petitioner RN Development Corporation (RNDC) two class
given a period of thirty (30) days to agree on a course of action. Should the D shares of stock in petitioner Fontana Resort and Country Club, Inc. (FRCCI),
discussions of the parties prove futile after the said thirty (30)-day period, worth P387,300.00, enticed by the promises of petitioners sales agents that
immediately upon the expiration of said period for discussion, Rodriguez may petitioner FRCCI would construct a park with first-class leisure facilities in Clark
(a) exercise his option to rescind the contract, subject to the return of his Field, Pampanga, to be called Fontana Leisure Park (FLP); that FLP would be
downpayment, in accordance with the provisions of paragraphs 1(b) and 5 of fully developed and operational by the first quarter of 1998; and that FRCCI
the Conditional Deed of Sale or (b) waive the road right of way and pay the class D shareholders would be admitted to one membership in the country
balance of the deducted purchase price as determined in the RTC Decision club, which entitled them to use park facilities and stay at a two-bedroom villa
dated May 30, 1992. for five (5) ordinary weekdays and two (2) weekends every year for free.[5]

No pronouncement as to costs. Two years later, in March 1999, respondents filed before the SEC a
Complaint[6] for refund of the P387,300.00 they spent to purchase FRCCI
shares of stock from petitioners. Respondents alleged that they had been
SO ORDERED. deceived into buying FRCCI shares because of petitioners fraudulent
misrepresentations. Construction of FLP turned out to be still unfinished and
the policies, rules, and regulations of the country club were obscure.

Respondents narrated that they were able to book and avail


FONTANA RESORT AND COUNTRY CLUB, G.R. No. 154670 themselves of free accommodations at an FLP villa on September 5, 1998, a
INC. AND RN DEVELOPMENT CORP., Saturday. They requested that an FLP villa again be reserved for their free use
Petitioners, Present: on October 17, 1998, another Saturday, for the celebration of their daughters
18th birthday, but were refused by petitioners.Petitioners clarified that
CORONA, C.J., respondents were only entitled to free accommodations at FLP for one week
Chairperson, annually consisting of five (5) ordinary days, one (1) Saturday and one (1)
- versus - LEONARDO-DE CASTRO, Sunday[,] and that respondents had already exhausted their free Saturday
BERSAMIN, pass for the year. According to respondents, they were not informed of said
rule regarding their free accommodations at FLP, and had they known about it, 6. There is also no truth to the claim of [herein
they would not have availed themselves of the free accommodations on respondents] that they were given and had confirmed
September 5, 1998. In January 1999, respondents attempted once more to reservations for April 1, 1998. There was no reservation to
book and reserve an FLP villa for their free use on April 1, 1999, a cancel since there was no confirmed reservations to speak of
Thursday. Their reservation was confirmed by a certain Murphy for the reason that April 1, 1999, being Holy Thursday, all
Magtoto. However, on March 3, 1999, another country club employee named reservations for the Holy Week were fully booked as early as
Shaye called respondents to say that their reservation for April 1, 1999 was the start of the current year. The Holy Week being a peak
cancelled because the FLP was already fully booked. season for accommodations, all reservations had to be made
on a priority basis; and as admitted by [respondents], they
Petitioners filed their Answer[7] in which they asserted that tried to make their reservation only on January 4, 1999, a
respondents had been duly informed of the privileges given to them as time when all reservations have been fully booked. The fact of
shareholders of FRCCI class D shares of stock since these were all explicitly [respondents] non-reservation can be attested by the fact that
provided in the promotional materials for the country club, the Articles of no confirmation number was issued in their favor.
Incorporation, and the By-Laws of FRCCI. Petitioners called attention to the
following paragraph in their ads: If at all, [respondents] were wait-listed as of January
4, 1999, meaning, they would be given preference in the
GUEST ROOMS reservation in the event that any of the confirmed
members/guests were to cancel. The diligence on the part of
As a member of the Fontana Resort and Country Club, the [herein petitioners] to inform [respondents] of the status
you are entitled to 7 days stay consisting of 5 weekdays, one of their reservation can be manifested by the act of the Clubs
Saturday and one Sunday. A total of 544 elegantly furnished personnel when it advised [respondents] on March 3, 1999
villas available in two and three bedroom units.[8] that there were still no available villas for their use because of
full bookings.[10]

Petitioners also cited provisions of the FRCCI Articles of Incorporation


and the By-Laws on class D shares of stock, to wit: Lastly, petitioners averred that when respondents were first
accommodated at FLP, only minor or finishing construction works were left to
Class D shares may be sold to any person, be done and that facilities of the country club were already operational.
irrespective of nationality or Citizenship. Every registered
owner of a class D share may be admitted to one (1) SEC-SICD Hearing Officer Bacalla conducted preliminary hearings and
Membership in the Club and subject to the Clubs rules and trial proper in the case. Respondents filed separate sworn Question and Answer
regulations, shall be entitled to use a Two (2) Bedroom depositions.[11]Esther U. Lacuna, a witness for respondents, also filed a sworn
Multiplex Model Unit in the residential villas provided by the Question and Answer deposition.[12] When petitioners twice defaulted, without
Club for one week annually consisting of five (5) ordinary any valid excuse, to present evidence on the scheduled hearing dates, Hearing
days, one (1) Saturday and one (1) Sunday. (Article Seventh, Officer Bacalla deemed petitioners to have waived their right to present
Articles of Incorporation) evidence and considered the case submitted for resolution.[13]

Class D shares which may be sold to any person, Based on the evidence presented by respondents, Hearing Officer
irrespective of nationality or Citizenship. Every registered Bacalla made the following findings in his Decision dated April 28, 2000:
owner of a class D share may be admitted to one (1)
Membership in the Club and subject to the Clubs rules and To prove the merits of their case, both [herein
regulations, shall be entitled to use a Two (2) Bedroom respondents] testified. Ms. Esther U. Lacuna likewise testified
Multiplex Model Unit in the residential villas provided by the in favor of [respondents].
Club for one week annually consisting of five (5) ordinary
days, one (1) Saturday and one (1) Sunday. [Section 2(a), As established by the testimonies of [respondents]
Article II of the By-Laws.][9] witnesses, Ms. Esther U. Lacuna, a duly accredited sales agent
of [herein petitioners] who went to see [respondents] for the
purpose of inducing them to buy membership shares of
Petitioners further denied that they unjustly cancelled respondents Fontana Resort and Country Club, Inc. with promises that the
reservation for an FLP villa on April 1, 1999, explaining that: park will provide its shareholders with first class leisure
facilities, showing them brochures (Exhibits V, V-1 and V-2) of
the future development of the park.
Indeed [respondents] bought two (2) class D shares WHEREFORE, premises considered, judgment is
in Fontana Resort and Country Club, Inc. paying P387,000.00 hereby rendered directing [herein petitioners] to jointly and
to [petitioners] as evidenced by provisional and official severally pay [herein respondents]:
receipts (Exhibits A to S), and signing two (2) documents
designated as Agreement to Sell and Purchase Shares of Stock 1) The amount
(Exhibits T to U-2). of P387,000.00 plus interest at the rate of
21% per annum computed from August 28,
It is undisputed that many of the facilities promised 1998 when demand was first made, until such
were not completed within the specified date. Ms. Lacuna even time as payment is actually made.[15]
testified that less than 50% of what was promised were
actually delivered.
Petitioners appealed the above-quoted ruling of Hearing Officer Bacalla
What was really frustrating on the part of before the SEC en banc. In its Decision dated July 6, 2001, the SEC en
[respondents] was when they made reservations for the use of banc held:
the Clubs facilities on the occasion of their daughters
18th birthday on October 17, 1998 where they were deprived WHEREFORE, the instant appeal is hereby DENIED
of the clubs premises alleging that the two (2) weekend stay and the Decision of Hearing Officer Marciano S. Bacalla, Jr.
which class D shareholders are entitled should be on a dated April 28, 2000 is hereby AFFIRMED.[16]
Saturday and on a Sunday. Since [respondents] have already
availed of one (1) weekend stay which was a Saturday, they
could no longer have the second weekend stay also on a In an Order[17] dated September 19, 2001, the SEC en banc denied
Saturday. petitioners Motion for Reconsideration for being a prohibited pleading under the
SEC Rules of Procedure.
Another occasion was when [respondents] were again
denied the use of the clubs facilities because they did not have Petitioners filed before the Court of Appeals a Petition for Review under
a confirmation number although their reservation was Rule 43 of the Rules of Court. Petitioners contend that even on the sole basis of
confirmed. respondents evidence, the appealed decisions of Hearing Officer Bacalla and
the SEC en banc are contrary to law and jurisprudence.
All these rules were never communicated to
[respondents] when they bought their membership shares. The Court of Appeals rendered a Decision on March 30, 2002, finding
petitioners appeal to be partly meritorious.
It would seem that [petitioners], through their
officers, would make up rules as they go along. A clever ploy The Court of Appeals brushed aside the finding of the SEC that
for [petitioners] to hide the lack of club facilities to petitioners were guilty of fraudulent misrepresentation in inducing respondents
accommodate the needs of their members. to buy FRCCI shares of stock. Instead, the appellate court declared that:

[Petitioners] failure to finish the development works What seems clear rather is that in inducing the respondents to
at the Fontana Leisure Park within the period they promised buy the Fontana shares, RN Development Corporation merely
and their failure or refusal to accommodate [respondents] for repeated to the spouses the benefits promised to all holders of
a reservation on October 17, 1998 and April 1, 1999, Fontana Class D shares. These inducements were in fact
constitute gross misrepresentation detrimental not only to the contained in Fontanas promotion brochures to prospective
[respondents] but to the general public as well. subscribers which the spouses must obviously have read.[18]

All these empty promises of [petitioners] may well be


part of a scheme to attract, and induce [respondents] to buy Nonetheless, the Court of Appeals agreed with the SEC that the sale of
shares because surely if [petitioners] had told the truth about the two FRCCI class D shares of stock by petitioners to respondents should be
these matters, [respondents] would never have bought shares rescinded. Petitioners defaulted on their promises to respondents that FLP
in their project in the first place.[14] would be fully developed and operational by the first quarter of 1998 and that
as shareholders of said shares, respondents were entitled to the free use of
first-class leisure facilities at FLP and free accommodations at a two-bedroom
Consequently, Hearing Officer Bacalla adjudged: villa for five (5) ordinary weekdays and two (2) weekends every year.
Petitioners averred that the ruling of the Court of Appeals that the
The Court of Appeals modified the appealed SEC judgment by ordering essence of the SEC judgment is the rescission or annulment of the contract of
respondents to return their certificates of shares of stock to petitioners upon sale of the FRCCI shares of stock between petitioners and respondents is
the latters refund of the price of said shares since [t]he essence of the inconsistent with Articles 1385 and 1398 of the Civil Code. The said SEC
questioned [SEC] judgment was really to declare as rescinded or annulled the judgment did not contain an express declaration that it involved the rescission
sale or transfer of the shares to the respondents.[19]The appellate court or annulment of contract or an explicit order for respondents to return the
additionally clarified that the sale of the FRCCI shares of stock by petitioners to thing sold. Petitioners also assert that respondents claim for refund based on
respondents partakes the nature of a forbearance of money, since the amount fraud or misrepresentation should have been directed only against petitioner
paid by respondents for the shares was used by petitioners to defray the RNDC, the registered owner and seller of the FRCCI class D shares of
construction of FLP; hence, the interest rate of 12% per annum should be stock. Petitioner FRCCI was merely the issuer of the shares sold to
imposed on said amount from the date of extrajudicial demand until its return respondents. Petitioners lastly question the order of the Court of Appeals for
to respondents. The dispositive portion of the Court of Appeals judgment petitioners to pay 12% interest per annum, the same being devoid of legal
reads: basis since their obligation does not constitute a loan or forbearance of money.

WHEREFORE, premises considered, the appealed In their Memorandum,[23] respondents chiefly argue that petitioners
judgment is MODIFIED: a) petitioner Fontana Resort and have posited mere questions of fact and none of law, precluding this Court to
Country Club is hereby ordered to refund and pay to the take cognizance of the instant Petition under Rule 45 of the Rules of
respondents Spouses Roy S. Tan and Susana C. Tan the Court. Even so, respondents maintain that the Court of Appeals did not err in
amount of P387,000.00, Philippine Currency, representing the ordering them to return the certificates of shares of stock to petitioners upon
price of two of its Class D shares of stock, plus simple interest the latters refund of the price thereof as the essence of respondents claim for
at the rate of 12% per annum computed from August 28, refund is to rescind the sale of said shares. Furthermore, both petitioners
1998 when demand was first made, until payment is should be held liable since they are the owners and developers of
completed; b) the respondent spouses are ordered to FLP. Petitioner FRCCI is primarily liable for respondents claim for refund, and
surrender to petitioner Fontana Resort and Country Club their petitioner RNDC, at most, is only subsidiarily liable considering that petitioner
two (2) Class D shares issued by said petitioner upon receipt RNDC is a mere agent of petitioner FRCCI. Respondents finally insist that the
of the full refund with interest as herein ordered.[20] imposition of the interest rate at 12% per annum, computed from the date of
the extrajudicial demand, is correct since the obligation of petitioners is in the
nature of a forbearance of money.
Petitioners filed a Motion for Reconsideration, but it was denied by the
Court of Appeals in its Resolution dated August 12, 2002. We find merit in the Petition.

Hence, the instant Petition for Review. We address the preliminary matter of the nature of respondents
Complaint against petitioners. Well-settled is the rule that the allegations in the
Petitioners, in their Memorandum,[21] submit for our consideration the complaint determine the nature of the action instituted.[24]
following issues:
Respondents alleged in their Complaint that:
a. Was the essence of the judgment of
the SEC which ordered the return of the purchase price but 16. [Herein petitioners] failure to finish the
not of the thing sold a declaration of rescission or annulment development works at the Fontana Leisure Park within the
of the contract of sale between RNDC and respondents? time frame that they promised, and [petitioners]
failure/refusal to accom[m]odate [herein respondents] request
b. Was the order of the Court of Appeals for reservations on 17 October 1998 and 1 April 1999,
to FRCCI which was not the seller of the thing sold (the seller constitute gross misrepresentation and a form of deception,
was RNDC) to return the purchase price to the buyers (the not only to the [respondents], but the general public as well.
respondents) in accordance with law?
17. [Petitioners] deliberately and maliciously
c. Was the imposition of 12% interest per misrepresented that development works will be completed
annum from the date of extra-judicial demand on an when they knew fully well that it was impossible to complete
obligation which is not a loan or forbearance of money in the development works by the deadline. [Petitioners] also
accordance with law?[22] deliberately and maliciously deceived [respondents] into
believing that they have the privilege to utilize Club facilities,
only for [respondents] to be later on denied such use of Club
facilities. All these acts are part of [petitioners] scheme to The aforequoted allegations in respondents Complaint sufficiently state
attract, induce and convince [respondents] to buy shares, a cause of action for the annulment of a voidable contract of sale based on
knowing that had they told the truth about these matters, fraud under Article 1390, in relation to Article 1398, of the Civil Code, and/or
[respondents] would never have bought shares in their rescission of a reciprocal obligation under Article 1191, in relation to Article
project. 1385, of the same Code. Said provisions of the Civil Code are reproduced
below:
18. On 28 August 1998, [respondents] requested
their lawyer to write [petitioner] Fontana Resort and Country Article 1390. The following contracts are voidable or
Club, Inc. a letter demanding for the return of their annullable, even though there may have been no damage to
payment. x x x. the contracting parties:

19. [Petitioner] Fontana Resort and Country Club, Inc. 1. Those where one of the parties is
responded to this letter, with a letter of its own dated 10 incapable of giving consent to a contract;
September 1998, denying [respondents] request for a 2. Those where the consent is vitiated by
refund. x x x. mistake, violence, intimidation, undue influence or fraud.

20. [Respondents] replied to [petitioner] Fontana These contracts are binding, unless they are annulled
Resort and Country Clubs letter with a letter dated 13 October by a proper action in court. They are susceptible of
1998, x x x. But despite receipt of this letter, [petitioners] ratification.
failed/refused and continue to fail /refuse to refund/return Article 1398. An obligation having been annulled,
[respondents] payments. the contracting parties shall restore to each other the things
which have been the subject matter of the contract, with their
xxxx fruits, and the price with its interest, except in cases provided
by law.
22. [Petitioners] acted in bad faith when it sold
membership shares to [respondents], promising development In obligations to render service, the value thereof
work will be completed by the first quarter of 1998 when shall be the basis for damages.
[petitioners] knew fully well that they were in no position and
had no intention to complete development work within the Article 1191. The power to rescind obligations is
time they promised. [Petitioners] also were maliciously implied in reciprocal ones, in case one of the obligors should
motivated when they promised [respondents] use of Club not comply with what is incumbent upon him.
facilities only to deny [respondents] such use later on.
The injured party may choose between the fulfillment
23. It is detrimental to the interest of [respondents] and the rescission of the obligation, with the payment of
and quite unfair that they will be made to suffer from the damages in either case. He may also seek rescission, even
delay in the completion of the development work, while after he has chosen fulfillment, if the latter should become
[petitioners] are already enjoying the purchase price paid by impossible.
[respondents].
The court shall decree the rescission claimed, unless
xxxx there be just cause authorizing the fixing of a period.

26. Apart from the refund of the amount This is understood to be without prejudice to the
of P387,300.00, [respondents] are also entitled to be paid rights of third persons who have acquired the thing, in
reasonable interest from their money. Afterall, [petitioners] accordance with Articles 1385 and 1388 and the Mortgage
have already benefitted from this money, having been able to Law.
use it, if not for the Fontana Leisure Park project, for their
other projects as well. And had [respondents] been able to Article 1385. Rescission creates the obligation to
deposit the money in the bank, or invested it in some return the things which were the object of the contract,
worthwhile undertaking, they would have earned interest on together with their fruits, and the price with its interest;
the money at the rate of at least 21% per annum.[25] consequently, it can be carried out only when he who
demands rescission can return whatever he may be obliged to
return.
valid consent to a contract by reason of fraud or undue influence must
Neither shall rescission take place when the things establish by full, clear and convincing evidence such specific acts that vitiated a
which are the object of the contract are legally in the partys consent, otherwise, the latters presumed consent to the contract
possession of third persons who did not act in bad faith. prevails.[32]

In this case, respondents have miserably failed to prove how


In this case, indemnity for damages may be petitioners employed fraud to induce respondents to buy FRCCI shares. It can
demanded from the person causing the loss. only be expected that petitioners presented the FLP and the country club in the
most positive light in order to attract investor-members. There is no showing
that in their sales talk to respondents, petitioners actually used insidious words
It does not matter that respondents, in their Complaint, simply prayed or machinations, without which, respondents would not have bought the FRCCI
for refund of the purchase price they had paid for their FRCCI shares. Respondents appear to be literate and of above-average means, who
shares,[26] without specifically mentioning the annulment or rescission of the may not be so easily deceived into parting with a substantial amount of
sale of said shares. The Court of Appeals treated respondents Complaint as one money. What is apparent to us is that respondents knowingly and willingly
for annulment/rescission of contract and, accordingly, it did not simply order consented to buying FRCCI shares, but were later on disappointed with the
petitioners to refund to respondents the purchase price of the FRCCI shares, actual FLP facilities and club membership benefits.
but also directed respondents to comply with their correlative obligation of
surrendering their certificates of shares of stock to petitioners. Similarly, we find no evidence on record that petitioners defaulted on
any of their obligations that would have called for the rescission of the sale of
Now the only issue left for us to determine whether or not petitioners the FRCCI shares to respondents.
committed fraud or defaulted on their promises as would justify the annulment
or rescission of their contract of sale with respondents requires us to The right to rescind a contract arises once the other party defaults in
reexamine evidence submitted by the parties and review the factual findings by the performance of his obligation.[33] Rescission of a contract will not be
the SEC and the Court of Appeals. permitted for a slight or casual breach, but only such substantial and
fundamental breach as would defeat the very object of the parties in making
As a general rule, the remedy of appeal by certiorari under Rule 45 of the agreement.[34] In the same case as fraud, the burden of establishing the
the Rules of Court contemplates only questions of law and not issues of default of petitioners lies upon respondents, but respondents once more failed
fact. This rule, however, is inapplicable in cases x x x where the factual to discharge the same.
findings complained of are absolutely devoid of support in the records or the
assailed judgment of the appellate court is based on a misapprehension of
facts.[27] Another well-recognized exception to the general rule is when the Respondents decry the alleged arbitrary and unreasonable denial of
factual findings of the administrative agency and the Court of Appeals are their request for reservation at FLP and the obscure and ever-changing rules of
contradictory.[28] The said exceptions are applicable to the case at bar. the country club as regards free accommodations for FRCCI class D
shareholders.
There are contradictory findings below as to the existence of fraud:
while Hearing Officer Bacalla and the SEC en banc found that there is fraud on Yet, petitioners were able to satisfactorily explain, based on clear
the part of petitioners in selling the FRCCI shares to respondents, the Court of policies, rules, and regulations governing FLP club memberships, why they
Appeals found none. rejected respondents request for reservation on October 17, 1998.
Respondents do not dispute that the Articles of Incorporation and the By-Laws
There is fraud when one party is induced by the other to enter into a of FRCCI, as well as the promotional materials distributed by petitioners to the
contract, through and solely because of the latters insidious words or public (copies of which respondents admitted receiving), expressly stated that
machinations. But not all forms of fraud can vitiate consent. Under Article the subscribers of FRCCI class D shares of stock are entitled free
1330, fraud refers to dolo causante or causal fraud, in which, prior to or accommodation at an FLP two-bedroom villa only for one week annually
simultaneous with the execution of a contract, one party secures the consent of consisting of five (5) ordinary days, one (1) Saturday and one (1)
the other by using deception, without which such consent would not have been Sunday. Thus, respondents cannot claim that they were totally ignorant of
given.[29] Simply stated, the fraud must be the determining cause of the such rule or that petitioners have been changing the rules as they go
contract, or must have caused the consent to be given.[30] along. Respondents had already availed themselves of free accommodations at
an FLP villa on September 5, 1998, a Saturday, so that there was basis for
[T]he general rule is that he who alleges fraud or mistake in a petitioners to deny respondents subsequent request for reservation of an FLP
transaction must substantiate his allegation as the presumption is that a villa for their free use on October 17, 1998, another Saturday.
person takes ordinary care for his concerns and that private dealings have
been entered into fairly and regularly.[31] One who alleges defect or lack of
Neither can we rescind the contract because construction of FLP In this case, we deem that the respondents are entitled to an award
facilities were still unfinished by 1998. Indeed, respondents allegation of of P5,000.00 as nominal damages in recognition of their confirmed reservation
unfinished FLP facilities was not disputed by petitioners, but respondents for the free use of an FLP villa on April 1, 1999 which was inexcusably
themselves were not able to present competent proof of the extent of such cancelled by petitioner on March 3, 1999.
incompleteness. Without any idea of how much of FLP and which particular FLP
facilities remain unfinished, there is no way for us to determine whether In sum, the respondents Complaint sufficiently alleged a cause of
petitioners were actually unable to deliver on their promise of a first class action for the annulment or rescission of the contract of sale of FRCCI class D
leisure park and whether there is sufficient reason for us to grant rescission or shares by petitioners to respondents; however, respondents were unable to
annulment of the sale of FRCCI shares. Apparently, respondents were still able establish by preponderance of evidence that they are entitled to said
to enjoy their stay at FLP despite the still ongoing construction works, enough annulment or rescission.
for them to wish to return and again reserve accommodations at the park.
WHEREFORE, in view of the foregoing, the Petition is
Respondents additionally alleged the unreasonable cancellation of their hereby GRANTED. The Decision dated May 30, 2002 and Resolution dated
confirmed reservation for the free use of an FLP villa on April 1, August 12, 2002 of the Court Appeals in CA-G.R. SP No. 67816
1999. According to respondents, their reservation was confirmed by a Mr. are REVERSED and SET ASIDE. Petitioners are ORDERED to pay respondents
Murphy Magtoto, only to be cancelled later on by a certain Shaye. Petitioners the amount of P5,000.00 as nominal damages for their negligence as regards
countered that April 1, 1999 was a Holy Thursday and FLP was already fully- respondents cancelled reservation for April 1, 1999, but respondents
booked. Petitioners, however, do not deny that Murphy Magtoto and Shaye are Complaint, in so far as the annulment or rescission of the contract of sale of
FLP employees who dealt with respondents. The absence of any confirmation the FRCCI class "D shares of stock is concerned, is DISMISSED for lack of
number issued to respondents does not also discount the possibility that the merit.
latters reservation was mistakenly confirmed by Murphy Magtoto despite FLP
being fully-booked. At most, we perceive a mix-up in the reservation process of SO ORDERED.
petitioners. This demonstrates a mere negligence on the part of petitioners,
but not willful intention to deprive respondents of their membership benefits. It
does not constitute default that would call for rescission of the sale of FRCCI G.R. No. 193426 September 29, 2014
shares by petitioners to respondents. For the negligence of petitioners as
regards respondents reservation for April 1, 1999, respondents are at least
entitled to nominal damages in accordance with Articles 2221 and 2222 of the SUBIC BAY LEGEND RESORTS AND CASINOS, INC., Petitioner,
Civil Code.[35] vs.
BERNARD C. FERNANDEZ, Respondent.
In Almeda v. Cario,[36] we have expounded on the propriety of granting
nominal damages as follows: DECISION

[N]ominal damages may be awarded to a plaintiff whose right DEL CASTILLO, J.:
has been violated or invaded by the defendant, for the
purpose of vindicating or recognizing that right, and not for
indemnifying the plaintiff for any loss suffered by him. Its This Petition for Review on Certiorari1 assails the April 27, 2010 Decision2 and
award is thus not for the purpose of indemnification for a loss August 24, 2010 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No.
but for the recognition and vindication of a right. Indeed, 91758, entitled "Bernard C. Fernandez, Plaintiff-Appellee, versus Subic Bay
nominal damages are damages in name only and not in fact. Legend Resorts and Casinos, Inc., Defendant-Appellant," which affirmed in toto
When granted by the courts, they are not treated as an the May 17, 2006 Decision4 of the Regional Trial Court (RTC) of Olongapo City,
equivalent of a wrong inflicted but simply a recognition of the Branch 74, in Civil Case No. 237-0-97.
existence of a technical injury. A violation of the plaintiff's
right, even if only technical, is sufficient to support an award Factual Antecedents
of nominal damages. Conversely, so long as there is a
showing of a violation of the right of the plaintiff, an award of
Petitioner Subic Bay Legend Resorts ¥d Casinos, Inc., a duly organized and
nominal damages is proper.[37]
e)(isting corporation operating under Philippine laws, operates the Legenda
Hotel and Casino (Legenda) located in the Subic Bay Freeport Zone in
Zambales. On the other hand, respondent Bernard C. Fernandez is the plaintiff
It is also settled that the amount of such damages is addressed to the sound
in Civil Case No. 237-0-97 prosecuted against petitioner in Olongapo RTC.
discretion of the court, taking into account the relevant circumstances.[38]
As determined by the CA, the facts of the case are as follows: 1997, he went to Legenda with his brothers Ludwin and Deoven; that he
handed over Legenda casino chips worth US$6,000.00, which belonged to him,
At around eleven o'clock in the evening of 6 June 1997, the to his brothers for the latter to use at the casino; that petitioner accosted his
appellee's5 brother[,] Ludwin Fernandez[,] visited the Legenda Hotel and brothers and unduly and illegally confiscated his casino chips equivalent to
Casino x x x owned and operated by the appellant6 and located along the US$5,900.00; and that petitioner refused and continues to refuse to return the
Waterfront Road, Subic Bay Freep011 Zone. Legenda had strategically installed same to him despite demand. His Complaint8 prayed for the return of the
several closedcircuit television (CCTV) cameras as part of security measures casino chips and an award of ₱50,000.00 moral damages, ₱50,000.00
required by its business. The monitors revealed that Ludwin changed x x x exemplary damages, ₱30,000.00 attorney's fees, ₱20,000.00 litigation
$5,000.00 w011h of chips into smaller denominations. Legenda admitted in its expenses, and costs.
brief that its surveillance staff paid close attention to Ludwin simply because it
was "wmsual" for a Filipino to play using dollar-denominated chips. After Petitioner's Answer with Compulsory Counterclaim9 essentially alleged that
Ludwin won $200.00 in a game of baccarat, he redeemed the value of chips right after Ludwin and Deoven's transactions with the Legenda cashier were
worth $7,200.00. A review of the CCTV recordings showed that the incident frozen on June 13, 1997, they voluntarily agreed to proceed to the Legenda
was not the first time Ludwin visited the Casino, as he had also been there on security office upon invitation, where Ludwin voluntarily informed security
5 June 1997. officers that it was a certain Michael Cabrera (Cabrera) - a Legenda table
inspector at the time - who gave him the casino chips for encashment, taught
An operation was launched by Legenda to zero-in on Ludwin whose picture was him how to play baccarat and thereafter encash the chips, and rewarded him
furnished its security section. Thus, unbeknownst to him, he was already with Pl,000.00 for every $1,000.00 he encashed; that Ludwin pointed to a
closely watched on 13 June 1997 when he went with another brother, picture of Cabrera in a photo album of casino employees shown to him; that
Deoven[,] to the casino at around the same time or at 11: 17 p.m. After Ludwin and Deoven were then brought to the IIO SBMA, where they reiterated
playing (and losing $100.00) only one round of baccarat, the siblings had their their statements made at the Legenda security office; that they volunteered to
chips encashed at two separate windows. Since the cashiers were apprised of a testify against Cabrera; that respondent himself admitted that it was Cabrera
supposed irregularity, they "froze" the transaction. who gave him the casino chips; that Ludwin and Deoven voluntarily executed a
joint affidavit before the Olongapo City Prosecutor's Office, which they
subsequently recanted; that respondent had no cause of action since the
Shortly thereafter, Legenda's internal security officers accosted Ludwin and confiscated casino chips worth US$5,900.00 were stolen from it, and thus it
Deoven and ordered them to return the cash and they complied without ado has the right to retain them. By way of counterclaim, petitioner sought an
because they were being pulled away. The two were eventually escorted to award of P 1 million moral damages, ₱1 million exemplary damages, and P.5
private rooms where they were separately interrogated about the source of the million attorney's fees and litigation expenses.
chips they brought. They were held for about seven hours w1til the wee hours
of the morning, without food or sleep. The ultimaturn was simple: they confess
that the chips were given by a certain employee, Michael Cabrera, or they Respondent filed his Answer10 to petitioner's counterclaim.
would not be released from questioning. The same line of questioning
confronted them when they were later twned-over for blotter preparation to Ruling of the Regional Trial Court
the Intelligence and Investigation Office of the Subic Bay Metropolitan
Authority (IIO SBMA). Finally, the brothers succwnbed to Legenda's instruction After pre-trial and trial, the trial court rendered its May 17, 2006 Decision,
to execute a joint statement implicating Cabrera as the illegal source of the which decreed as follows:
chips. Due to hunger pangs and fatigue, they did not disown the statement
even when they subscribed the same before the prosecutor in whose office
they were [later] brought. On the other hand, they signed for basically the WHEREFORE, finding that the evidence preponderates in favor of the plaintiff,
san1e reason a document purporting to show that they were "released to judgment is rendered against the defendant ordering it to:
[their] brother's custody in good condition." At the time, Deoven was about 21
years old, in his second year of engineering studies and was not familiar with 1) Return to plaintiff casino chips worth USD $5,900.00 or its
the so-called "estafa" with which the security personnel threatened to sue him equivalent in Philippine Peso at the rate of ₱38.00 to USD $1 in 1997.
for; although he was quite aware of the consequences of a crime such as direct
assault because he had previously been convicted thereof. About two weeks
2) Pay plaintiff attorney's fees in the amount of ₱30,000.00 3) [Pay]
later, Deoven exec ted a retraction in Baguio City where he took up his [c]ost of this suit.
engineering course.7

SO DECIDED.11
On July 1, 1997, respondent filed Civil Case No. 237-0-97 for recovery of sum
of money with damages against petitioner, on the premise that on June 13,
In arriving at the above conclusion, the trial court held:
The primordial issue is whether or not plaintiff can be considered the lawful casino chips. This conclusion springs from respondent's admission during trial
owner of the USD $5,900 worth of casino chips that were confiscated. that the chips represented payment by a Chinese customer for services he
rendered to the latter in his car shop. The CA added that since respondent
There is no dispute that the subject chips were in the possession of the became the owner of the chips, he could very well have given them to Ludwin
plaintiff. He claims he got hold of them as payment for car services he and Deoven, who likewise held them as "possessors in good faith and for
rendered to a Chinese individual. Defendant however, contends that said chips value" and with "presumptive title" derived from the respondent. On the other
were stolen from the casino and it is the lawful owner of the same. hand, petitioner failed to convincingly show that the chips were stolen; for one,
it did not even file a criminal case against the supposed mastermind, Cabrera -
nor did it charge Ludwin or Deoven - for the alleged theft or taking of its chips.
The onus fell on defendant to prove that the casino chips were stolen. The
proof adduced however, is wanting. The statements of Deoven and Ludwin C.
Fernandez, confessing to the source of the chips were recanted hence, have The CA likewise held that Ludwin' s and Deoven' s statements and admissions
little probative value. The testimony of defendant's witnesses narrated at the Legenda security office are inadmissible because they were obtained in
defendant's action responding to the suspicious movements of the Fernandez violation of their constitutional rights: they were held in duress, denied the
brothers based on surveillance tapes. The tapes, however, do not show how right to counsel and the opportunity to contact respondent, and deprived of
these persons got hold of the chips. The alleged source in the person of Mike sleep, which is one of the "more subtler [sic] techniques of physical and
Cabrera, a table inspector of the casino[,] was based on the recanted psychological torture to coerce a confession."14 It found that the actions and
declarations of the brothers. No criminal charge was shown to have been filed methods of the Legenda security personnel in detaining and extracting
against him nor the plaintiff and his brothers. Neither was there an explanation confessions from Ludwin and Deoven were illegal and in gross violation of
given as to how those chips came into the possession of Mike Cabrera much Ludwin's and Deoven's constitutional rights.15
less that he passed them on to the brothers for the purpose of encashing and
dividing the proceeds amongst themselves. All told therefore, there is no direct Finally, the CA held that petitioner was guilty of bad faith in advancing its
evidence to prove the theory of the defendant and the circumstantial evidence theory and claim against respondent by unduly accusing him of dealing in
present is, to the mind of the court, not sufficient to rebut the legal stolen casino chips, which thus entitles respondent to the reduced award of
presw11ption that a person in possession of personal property is the lawful attorney's fees in the amount of ₱30,000.00
owner of the same (Art. 559, Civil Code of the Philippines).12
Issues
Ruling of the Court of Appeals
Petitioner raises the following issues:
Petitioner appealed the May 1 7, 2006 Decision of the trial court, arguing that
Ludwin and Deoven's admission in their joint affidavit before the Olongapo City a) The Honorable Court seriously erred in ruling that the recanted
Prosecutor's Office that it was Cabrera who gave them the casino chips statements of Deoven Fernandez and Ludwin C. Fernandez have [no]
strongly indicates that the chips were stolen from Legenda; that the probative value;
subsequent recantation by Ludwin and Deoven of their joint affidavit should be
looked upon with disfavor, given that recanted testimony is unreliable and
recantations can be easily secured from poor and ignorant witnesses and for b) The Honorable Court seriously erred in ruling that the circumstantial
monetary consideration or through intimidation; that respondent's explanation evidence present is not sufficient to rebut the legal presumption that a
that he gave the chips to his brothers Ludwin and Deoven for them to play in person in possession of personal property is the lawful owner of the
the casino is highly doubtful; that the true purpose of Ludwin and Deoven was same;
to encash the stolen chips; that no force or intimidation attended the treatment
accorded Ludwin and Deoven when they were accosted and asked to explain c) The Honorable Court seriously erred in finding that the evidence
their possession of the chips; and that the trial court erred in awarding preponderates in favor of the herein respondent; [and]
attorney's fees and costs for the filing of a baseless suit solely aimed at
unjustly enriching respondent at petitioner's expense.
d) The Honorable Court seriously erred in awarding attorney's fees and
costs of suit I favor of the respondent.16
On April 27, 2010, the CA issued the assailed Decision which affirmed the trial
court's May 17, 2006 Decision. Petitioner's Motion for Reconsideration was Petitioner's Arguments
rebuffed as well.

In its Petition and Reply,17 petitioner mainly argues that the assailed
In deciding against petitioner, the CA held that, applying Article 559 of the Civil
dispositions are grounded entirely on speculation, and the inferences made are
Code,13 respondent had the legal presumption of title to or ownership of the
manifestly mistaken and based on a misappreciation of the facts and law; that involved. However, this may not be done because the Court is not a trier of
the CA failed to consider the testimonial and documentary evidence it facts and does not normally undertake the re-examination of the evidence
presented to prove the fact that the casino chips were missing and were stolen presented during trial; the resolution of factual issues is the function of lower
by Cabrera, who thereafter gave them to respondent's brothers, Ludwin and courts, whose findings thereon are received with respect and are binding on
Deoven. Petitioner maintains that the presumption of title under Article 559 the Court subject only to specific exceptions.21 In tum, the factual findings of
cannot extend to respondent's brothers, who admitted during the investigation the Court of Appeals carry even more weight when they are identical to those
at the Legenda security office and in their Joint Affidavit18 that the chips came of the trial court's.22
from Cabrera, and not responcient; that the subsequent Sworn
Statement19 recanting the Joint Affidavit should not be given credence, as Besides, a question of fact cannot properly be raised in a petition for review on
affidavits of recantation can easily be secured - which thus makes them certiorari.23 Moreover, if petitioner should stick to its theory that Cabrera stole
unreliable; and that no duress attended the taking of the brothers' Joint the subject casino chips, then its failure to file a criminal case against the latter
Affidavit, which was prepared by Henry Marzo of the Intelligence and -including Ludwin and Deoven for that matter - up to this point certainly does
Investigation Office (IIO) of the Subic Bay Metropolitan Authority (SBMA). not help to convince the Court of its position, especially considering that the
supposed stolen chips represent a fairly large amount of money. Indeed, for
Petitioner asserts that it is unbelievable that respondent would give purposes of this proceeding, there appears to be no evidence on record - other
US$6,000.00 worth of casino chips to his brothers with which to play at the than mere allegations and suppositions - that Cabrera stole the casino chips in
casino; that with the attending circumstances, the true intention of question; such conclusion came unilaterally from petitioner, and for it to use
respondent's brothers was to encash the stolen chips which Cabrera handed to the same as foundation to the claim that Ludwin, Deoven and respondent are
them, and not to play at the casino. Petitioner thus concludes that no coercion dealing in stolen chips is clearly irregular and unfair.
could have attended the investigation of Ludwin and Deoven; that their
subsequent recantation should not be given weight; and that for suing on a Thus, there should be no basis to suppose that the casino chips found in
baseless claim, respondent is not entitled to attorney's fees and costs of Ludwin's and Deoven's possession were stolen; petitioner acted arbitrarily in
litigation. confiscating the same without basis. Their Joint Affidavit - which was later
recanted - does not even bear such fact; it merely states that the chips came
Petitioner thus prays for the reversal of the assailed dispositions and the from Cabrera. If it cannot be proved, in the first place, that Cabrera stole these
corresponding dismissal of Civil Case No. 237-0-97. chips, then there is no more reason to suppose that Ludwin and Deoven were
dealing in or possessed stolen goods; unless the independent fact that Cabrera
Respondent's Arguments stole the chips can be proved, it cannot be said that they must be confiscated
when found to be in Ludwin's and Deoven's possession.

In his Comment,20 respondent generally echoes the pronouncement of the CA.


He likewise notes that petitioner has raised only questions of fact; that the It is not even necessary to resolve whether Ludwin's and Deoven's Joint
Petition is being prosecuted to delay the proceedings; that the trial and Affidavit was obtained by duress or otherwise; the document is irrelevant to
appellate courts are correct in finding that petitioner failed to prove its case petitioner's cause, as it does not suggest at all that Cabrera stole the subject
and show that the casino chips were stolen; that petitioner failed to rebut the casino chips. At most, it only shows that Cabrera gave Ludwin and Deoven
presumption that a person in possession of personal property is the lawful casino chips, if this fact is true at all - since such statement has since been
owner of the same, pursuant to Article 559 of the Civil Code; and that the recanted.
₱30,000.00 award of attorney's fees should be increased to ₱100,000.00.
The fact that Ludwin and Deoven appear to be indecisive as to who gave them
Our Ruling the casino chips does not help petitioner at all.1âwphi1 It cannot lead to the
conclusion that Cabrera stole the chips and then gave them to the two; as
earlier stated, petitioner had to prove this fact apart from Ludwin's and
The Petition is denied. Deoven's claims, no matter how incredible they may seem.

Petitioner's underlying theory is that the subject casino chips were in fact Though casino chips do not constitute legal tender,24 there is no law which
stolen by its employee Cabrera, then handed over to respondent's brothers, prohibits their use or trade outside of the casino which issues them. In any
Ludwin and Deoven, for encashment at the casino; that Ludwin and Deoven case, it is not unusual – nor is it unlikely – that respondent could be paid by his
played at the casino only for show and to conceal their true intention, which is Chinese client at the former' s car shop with the casino chips in question; said
to encash the chips; that respondent's claim that he owned the chips, as they transaction, if not common, is nonetheless not unlawful. These chips are paid
were given to him in payment of services he rendered to a Chinese client, is for anyway; petitioner would not have parted with the same if their
false. These arguments require the Court to examine in greater detail the facts corresponding representative equivalent - in legal tender, goodwill, or
otherwise – was not received by it in return or exchange. Given this premise - BERSAMIN,
that casino chips are considered to have been exchanged with their
corresponding representative value - it is with more reason that this Court DEL CASTILLO,
should require petitioner to prove convincingly and persuasively that the chips
ABAD,
it confiscated from Ludwin and Deoven were indeed stolen from it; if so, any
Tom, Dick or Harry in possession of genuine casino chips is presumed to have VILLARAMA, JR.,
paid for their representative value in exchange therefor. If petitioner cannot
prove its loss, then Article 559 cannot apply; the presumption that the chips PEREZ,
were exchanged for value remains.
MENDOZA, and
Finally, the Court sustains the award of attorney's fees. Under Article 2208 of SERENO, JJ.
the Civil Code,25 attorney's fees may be recovered when the defendant acted in
gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just
and demandable claim, or in any other case where the court deems it just and
equitable that attorney's fees and expenses of litigation should be recovered. Promulgated:
Petitioner's act of arbitrarily confiscating the casino chips and treating Ludwin
and Deoven the way it did, and in refusing to satisfy respondent's claim despite COMMISSION ON AUDIT,
the fact that it had no basis to withhold the chips, confirm its bad faith, and Respondent. February 8, 2011
should entitle respondent to an award.
x---------------------------------------------------------------------------------------
With the foregoing view of the case, a discussion of the other issues raised is --x
deemed irrelevant and unnecessary.

WHEREFORE, the Petition is DENIED. The assailed April 27, 2010 Decision and
August 24, 2010 Resolution of the Court of Appeals in CA-G.R. CV No. 91758
are AFFIRMED. DECISION

SO ORDERED. PERALTA, J.:

RUBEN REYNA and LLOYD SORIA, G.R. No. 167219 Before this Court is a Petition for certiorari,[1] under Rule 64 of the
Rules of Court, seeking to set aside Resolution No. 2004-046,[2] dated
Petitioners, December 7, 2004, of the Commission on Audit (COA).

Present:

CORONA, C.J., The facts of the case are as follows:


CARPIO,

CARPIO MORALES,
The Land Bank of the Philippines (Land Bank) was engaged in a cattle-
VELASCO, JR., financing program wherein loans were granted to various
cooperatives. Pursuant thereto, Land Banks Ipil, Zamboanga del Sur Branch
NACHURA,* (Ipil Branch) went into a massive information campaign offering the program
to cooperatives.
LEONARDO-DE CASTRO,

BRION,
Cooperatives who wish to avail of a loan under the program must fill
PERALTA, up a Credit Facility Proposal (CFP) which will be reviewed by the Ipil Branch. As
- versus -
alleged by Emmanuel B. Bartocillo, Department Manager of the Ipil Branch, the
CFP is a standard and prepared form provided by the Land Bank main office to were not attached to the records of the case at bar. More importantly, the very
be used in the loan application as mandated by the Field Operations contract entered into by the cooperatives and REMAD, or the Cattle-Breeding
Manual.[3] One of the conditions stipulated in the CFP is that prior to the and Buy-Back Marketing Agreement[8] did not contain a provision authorizing
release of the loan, a Memorandum of Agreement (MOA) between the supplier prepayment.
of the cattle, Remad Livestock Corporation (REMAD), and the cooperative, shall
have been signed providing the level of inventory of stocks to be delivered,
specifications as to breed, condition of health, age, color, and weight. The MOA
Three checks were issued by the Ipil Branch to REMAD to serve as
shall further provide for a buy-back agreement, technology, transfer,
advanced payment for the cattle. REMAD, however, failed to supply the cattle
provisions for biologics requirement and technical visits and replacement of
on the dates agreed upon.
sterile, unproductive stocks.[4] Allegedly contained in the contracts was a
stipulation that the release of the loan shall be made sixty (60) days prior to
the delivery of the stocks.[5]
In post audit, the Land Bank Auditor disallowed the amount
of P3,115,000.00 under CSB No. 95-005 dated December 27, 1996 and Notices
of Disallowance Nos. 96-014 to 96-019 in view of the non-delivery of the
The Ipil Branch approved the applications of four cooperatives. R.T.
cattle.[9] Also made as the basis of the disallowance was the fact that advanced
Lim Rubber Marketing Cooperative (RT Lim RMC) and Buluan Agrarian Reform
payment was made in violation of bank policies and COA rules and
Beneficiaries MPC (BARBEMCO) were each granted two loans. Tungawan
regulations. Specifically, the auditor found deficiencies in the CFPs, to wit:
Paglaum Multi-Purpose Cooperative (Tungawan PFMPC) and Siay Farmers
Multi-Purpose Cooperative (SIFAMCO) were each granted one loan. Pursuant to
the terms of the CFP, the cooperatives individually entered into a contract with
REMAD, denominated as a Cattle-Breeding and Buy-Back Marketing The Auditor commented that the failure of such loan
Agreement.[6] projects deprived the farmer-beneficiaries the opportunity to
improve their economic condition.
In December 1993, the Ipil Branch granted six loans to the four
cooperative borrowers in the following amounts:

From the Credit Facilities Proposals (CFP), the Auditor noted the
following deficiencies.
Date Name Amount Amount of Amount Paid

of of of Livestock to Cattle
xxxx
Release Borrower Loan Insurance Supplier (REMAD)

12-10-93 RTLim RMC P 795,305 P 62,305 P 733,000


4. No. 1 of the loan terms and conditions allowed
12-10-93 BARBEMCO 482,825 37,825 445,000 prepayments without taking into consideration the interest of
the Bank. Nowhere in the documents reviewed disclosed about
12-16-93 Tungawan PFMPC 482,825 37,825 445,000
prepayment scheme with REMAD, the supplier/dealer.
12-22-93 SIFAMCO 983,010 77,010 906,000
There was no justification for the prepayment scheme. Such is
12-22-93 RTLim RMC 187,705 14,705 173,000 a clear deviation from existing procedures on asset financing
under which the Bank will first issue a letter guarantee for the
12-22- account of the borrower. Payment thereof will only be effected
93 BARBEMCO 448,105 35,105 413,000 TOTAL P3,375,775 264,775 upon delivery of asset, inspection and acceptance of the same
3,115,000[7] by the borrower.

The prepayment arrangement also violates Section 88 of


As alleged by petitioners, the terms of the CFP allowed for pre- Presidential Decree (PD) No. 1445, to quote:
payments or advancement of the payments prior to the delivery of the cattle
by the supplier REMAD. This Court notes, however, that copies of the CFPs
Prohibition against advance payment on 3. Petitioner Ruben A. Reyna Senior Field Operations
government Except with the prior approval of Specialist
the President (Prime Minister), the
government shall not be obliged to make an 4. Petitioner Lloyd V. Soria Loans and Credit Analyst II
advance payment for services not yet
5. Mary Jane T. Cunting[11] Cash Clerk IV
rendered or for supplies and materials not yet
delivered under any contract therefor. No 6. Leona O. Cabanatan Bookkeeper III/Acting Accountant.[12]
payment, partial or final shall be made on any
such contract except upon a certification by
the head of the agency concerned to have
effect that the services or supplies and
materials have been delivered in accordance
with the terms of the contract and have been The same employees, including petitioners, were also made
duly inspected and accepted. respondents in a Complaint filed by the COA Regional Office No. IX,
Zamboanga City, before the Office of the Ombudsman for Gross Negligence,
Violation of Reasonable Office Rules and Regulations, Conduct Prejudicial to the
Interest of the Bank and Giving Unwarranted Benefits to persons, causing
Moreover, the Manual on FOG Lending Operations (page 35) undue injury in violation of Section 3(e) of Republic Act (R.A.) No. 3019,
provides the systems and procedures for releasing loans, to otherwise known as the Anti-Graft and Corrupt Practices Act.[13]
quote:

On January 28, 1997, petitioners filed a Joint Motion for


Loan Proceeds Released Directly to the Reconsideration claiming that the issuance of the Notice of Disallowance was
Supplier/Dealer Proceeds of loans granted for premature in view of the pending case in the Office of the Ombudsman. The
the acquisition of farm machinery equipment; Motion was denied by the Auditor. Unfazed, petitioners filed an appeal with the
and sub-loan components for the purchase of Director of COA Regional Office No. IX, Zamboanga City. On August 29,
construction materials, farm inputs, etc. shall 1997, the COA Regional Office issued Decision No. 97-001 affirming the
be released directly to the accredited findings of the Auditor. On February 4, 1998, petitioners filed a Motion for
dealers/suppliers. Payment to the dealer shall Reconsideration, which was denied by the Regional Office in Decision No. 98-
be made after presentation of reimbursement 005[14] issued on February 18, 1998.
documents (delivery/ official receipts/
purchase orders) acknowledged by the
authorized LBP representative that same has
been delivered. Petitioners did not file a Petition for Review or a Notice of Appeal from
the COA Regional Office Decision as required under Section 3, Rule VI[15] of the
1997 Revised Rules of Procedure of the COA. Thus, the Decision of the Director
of COA Regional Office No. IX became final and executory pursuant to Section
In cases where supplier requires Cash on Delivery 51[16] of the Government Auditing Code of the Philippines. Consequently, on
(COD), the checks may be issued and the cooperative and a April 12, 1999, the Director of the COA Regional Office No. IX issued a
LBP representative shall release the check to the supplier and Memorandum to the Auditor directing him to require the accountant of the Ipil
then take delivery of the object of financing.[10] Branch to record in their books of account the said disallowance.[17]

The persons found liable by the Auditor for the amount On July 12, 1999, the Auditor sent a letter to the Land Bank Branch
of P3,115,000.00 which was advanced to REMAD were the following employees Manager requiring him to record the disallowance in their books of account. On
of the Ipil Branch: August 10, 1999, petitioners sent a letter[18] to COA Regional Office No. IX,
seeking to have the booking of the disallowance set aside, on the grounds that
they were absolved by the Ombudsman in a February 23, 1999
Resolution,[19] and that the Bangko Sentral ng Pilipinas had approved the
1. Emmanuel B. Bartocillo Department Manager II
writing off of the subject loans.
2. George G. Hebrona Chief, Loans and Discounts Division
The February 23, 1999 Resolution of the Ombudsman was approved
by Margarito P. Gervacio, Jr. the Deputy Ombudsman for Mindanao, the
dispositive portion of which reads: In denying petitioners request for the lifting of the booking of the
disallowance, the COA ruled that after a circumspect evaluation of the facts
and circumstances, the dismissal by the Office of the Ombudsman of the
complaint did not affect the validity and propriety of the disallowance which
had become final and executory.[26]
WHERFORE, premises considered, the instant
complaint is hereby dismissed for lack of sufficient
evidence. On August 22, 2003, petitioners filed a Motion for Reconsideration,
which was, however, denied by the COA in a Resolution[27] dated December 7,
2004.
SO ORDERED.[20]

Hence, herein petition, with petitioners raising the following grounds in


support of the petition, to wit:
COA Regional Office No. IX endorsed to the Commission proper the
matter raised by the petitioners in their August 10, 1999 letter. This is
contained in its February 28, 2000 letter/endorsement,[21] wherein the Director
of COA Regional Office No. IX maintained his stand that the time for filing of a
petition for review had already lapsed. The Regional Director affirmed the
disallowance of the transactions since the same were irregular and RESPONDENT COA COMMITTED GRAVE ABUSE OF
disadvantageous to the government, notwithstanding the Ombudsman DISCRETION AMOUNTING TO LACK OF JURISDICTION IN
resolution absolving petitioners from fault. DECLARING THE PREPAYMENT STIPULATION IN THE
CONTRACT BETWEEN THE BANK AND REMAD PROSCRIBED BY
SECTION 103 OF P.D. NO. 1445, OTHERWISE KNOWN AS THE
STATE AUDIT CODE OF THE PHILIPPINES.
In a Notice[22] dated June 29, 2000, the COA requested petitioners to
submit a reply in response to the letter/endorsement of the Regional Office
Director. On August 10, 2000, petitioners submitted their Compliance/
Reply[23], wherein they argued that the Ombudsman Resolution is a
supervening event and is a sufficient ground for exemption from the
RESPONDENT COA COMMITTED GRAVE ABUSE OF
requirement to submit a Petition for Review or a Notice of Appeal to the
DISCRETION AMOUNTING TO LACK OF JURISDICTION FOR
Commission proper. Petitioners also argued that by invoking the jurisdiction of
HOLDING THE PETITIONERS ADMINISTRATIVELY LIABLE FOR
the Commission proper, the Regional Director had waived the fact that the case
HAVING PROCESSED THE LOANS OF THE BORROWING
had already been resolved for failure to submit the required Petition for
COOPERATIVES IN ACCORDANCE WITH THE BANKS MANUAL
Review.
(FOG) LENDING OPERATIONS.
On July 17, 2003, the COA rendered Decision No. 2003-
RESPONDENT COA COMMITTED GRAVE ABUSE OF
107[24] affirming the rulings of the Auditor and the Regional Office, to wit:
DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN
IT HELD THE PETITIONERS LIABLE AND, THEREFORE, IN
EFFECT LIKEWISE OBLIGATED TO REFUND THE DISALLOWED
WHEREFORE, foregoing premises considered, this AMOUNT EVEN AS AMONG OTHER THINGS THEY ACTED IN
Commission hereby affirms both the subject disallowance EVIDENT GOOD FAITH. MORE SO, AS THE COLLECTIBLES
amounting to P3,115,000 and the Order of the Director, COA HAVE BEEN ALREADY EFFECTIVELY WRITTEN-OFF.[28]
Regional Office No. IX, Zamboanga City, directing the
recording of subject disallowance in the LBP books of
accounts. This is, however, without prejudice to the right of
The petition is not meritorious.
herein appellants to run after the supplier for reimbursement
of the advance payment for the cattle.[25]
the said petition under Rule 64, in relation to Rule 65, of the 1997 Rules of Civil
Procedure is limited to the resolution of jurisdictional issues.[33] Accordingly,
I. since the validity of the prepayment scheme is inherently a question of fact,
the same should no longer be looked into by this Court.

Anent the first issue raised by petitioners, the same is without merit.
Petitioners argue said issue on three points: first, the COA is estopped from In any case, even assuming that factual questions may be entertained,
declaring the prepayment stipulation as invalid;[29] second, the prepayment the facts do not help petitioners' cause for the following reasons: first, the
clause in the Land Bank-REMAD contract is valid;[30] and third, it is a matter of supposed Annex I does not contain a stipulation authorizing a pre-payment
judicial knowledge that is not unusual for winning bidders involving public scheme; and second, petitioners clearly violated the procedure of releasing
works to enter into contracts with the government providing for partial loans contained in the Bank's Manual on Field Office Guidelines on Lending
prepayment of the contract price in the form of mobilization funds.[31] Operations (Manual on Lending Operations).

As to their contention that the COA is estopped from declaring the A perusal of the aforementioned Annex I,[34] the Cattle-Breeding and
prepayment stipulation as invalid, petitioners argue in the wise: Buy-Back Marketing Agreement, would show that stipulation 6.1 which
allegedly authorizes prepayment does not exist. To make matters problematic
is that nowhere in the records of the petition can one find a document which
xxxx embodies such a stipulation. It bears stressing that the Auditor noted in his
report that, nowhere in the documents reviewed disclosed about prepayment
scheme with REMAD, the supplier/dealer.

The CATTLE BREEDING AND BUY BACK MARKETING Moreover, it is surprising that one of petitioners defense is that
AGREEMENT sample of which is attached as Annex I was a they processed the cooperatives' applications in accordance with their
Contract prepared by the bank and REMAD, it was agreed to individual job descriptions as provided in the Banks Manual on Field Office
by the cooperatives. It was a standard Contract used in Guidelines on Lending Operations[35] when, on the contrary, petitioners seem to
twenty two (22) Land Bank branches throughout the country. be oblivious of the fact that they clearly violated the procedure in releasing
It provided in part: loans which is embodied in the very same Manual on Lending Operations, to
wit:

6.1 That the release of the


loan shall be made directly to the supplier 60 Loan Proceeds Released Directly to the
days prior to the delivery of stocks per Supplier/Dealer Proceeds of loans granted for the acquisition of
prepayment term of REMAD LIVESTOCK farm machinery equipment; and sub-loan components for the
COPORATION (supplier). Inspection shall be purchase of construction materials, farm inputs, etc. shall be
done before the 60th day/delivery of the released directly to the accredited dealers/suppliers. Payment to
stocks. the dealer shall be made after presentation of reimbursement
documents (delivery/ official receipts/ purchase orders)
acknowledged by the authorized LBP representative that same
has been delivered.[36]
Again, these Contracts were standard bank forms
from Land Bank head office. None of the Petitioners
participated in the drafting of the same.[32]
However, this Court is not unmindful of the fact that petitioners contend that
the Legal Department of Land Bank supposedly passed upon the issue of
application of Section 88 of PD 1445. Petitioners argue that in an alleged
August 22, 1996 Memorandum issued by the Land Bank, it opined that Section
88 of PD 1445 is not applicable.[37] Be that as it may, this Court is again
In the absence of grave abuse of discretion, questions of fact cannot be raised
constrained by the fact that petitioners did not offer in evidence the alleged
in a petition for certiorari, under Rule 64 of the Rules of Court. The office of the
August 22, 1996 Land Bank Memorandum. Therefore, the supposed tenor of
petition for certiorari is not to correct simple errors of judgment; any resort to
the said document deserves scant consideration. In any case, even
assuming arguendo that petitioners are correct in their claim, they still cannot borrowing cooperatives. This Court stresses, however, that petitioners cannot
hide from the fact that they violated the procedure in releasing loans embodied rely on their supposed observance of the procedure outlined in the Manual on
in the Manual on Lending Operations as previously discussed. Lending Operations when clearly the same provides that payment to the dealer
shall be made after presentation of reimbursement documents (delivery/official
receipts/purchase orders) acknowledged by the authorized LBP representative
that the same has been delivered. Petitioners have not made a case to dispute
To emphasize, the Auditor noted that nowhere in the documents reviewed
the COA's finding that they violated the foregoing provision. Any presumption,
disclosed about prepayment scheme with REMAD. It is well settled that
therefore, that public officials are in the regular performance of their public
findings of fact of quasi-judicial agencies, such as the COA, are generally
functions must necessarily fail in the presence of an explicit rule that was
accorded respect and even finality by this Court, if supported by substantial
violated.
evidence, in recognition of their expertise on the specific matters under their
jurisdiction.[38] If the prepayment scheme was in fact authorized, petitioners
should have produced the document to prove such fact as alleged by them in
the present petition. However, as stated before, even this Court is at a loss as There is no grave abuse of discretion on the part of the COA as petitioners
to whether the prepayment scheme was authorized as a review of Annex I, the were given all the opportunity to argue their case and present any supporting
document to which petitioners base their authority to make advance payments, evidence with the COA Regional Director. Moreover, it bears to point out that
does not contain such a stipulation or provision. Highlighted also is the fact even if petitioners' period to appeal had already lapsed, the COA Commission
that petitioners clearly violated the procedure in releasing loans found in the Proper even resolved their August 10, 1999 letter where they raised in issue
Manual on Lending Operations which provides that payments to the dealer the favorable ruling of the Ombudsman.
shall only be made after presentation of reimbursement documents
acknowledged by the authorized LBP representative that the same has been
delivered.
III.

Anent, the last issue raised by petitioners, the same is without merit.
In addition, this Court notes that much reliance is made by petitioners Petitioners contend that respondents Order, requiring them to refund the
on their allegation that the terms of the CFP allowed for prepayments or
advancement of the payments prior to the delivery of the cattle by the supplier
REMAD. It appears, however, that a CFP, even if admittedly a pro
forma contract and emanating from the Land Bank main office, is disallowed transaction, is functus officio, the amount having been legally
merely a facility proposal and not the contract of loan between Land written-off.[39]
Bank and the cooperatives. It is in the loan contract that the parties embody
the terms and conditions of a transaction. If there is any agreement to release
the loan in advance to REMAD as a form of prepayment scheme, such a
stipulation should exist in the loan contract. There is, nevertheless, no proof of A perusal of the records would show that Land Bank Vice-President Conrado B.
such stipulation as petitioners had failed to attach the CFPs or the loan Roxas sent a Memorandum[40] dated August 5, 1998 to the Head of the Ipil
contracts relating to the present petition. Branch, advising them that the accounts subject of the present petition have
been written-off, to wit:

Based on the foregoing, the COA should, therefore, not be faulted for finding
that petitioners facilitated the commission of the irregular transaction. The We are pleased to inform you that Bangko Sentral ng
evidence they presented before the COA was insufficient to prove their Pilipinas (BSP) in its letter dated July 20, 1998 has approved
case. So also, even this Court is at a loss as to the truthfulness and veracity of the write-off of your recommended Agrarian Reform Loan
petitioners' allegations as they did not even present before this Court the Accounts and Commercial Loan Accounts as covered by LBP
documents that would serve as the basis for their claims. Board Resolution Nos. 98-291 and 98-292, respectively, both
dated June 18, 1998 x x x.[41]

II.

Anent the second ground raised by petitioners, the same is again without
merit. Petitioners impute on the COA grave abuse of discretion when it held The Schedule of Accounts for Write-Off[42] attached to the August 5,
petitioners administratively liable for having processed the loans of the 1998 Memorandum shows that the same covered the two loans given to
BARBEMCO, the two loans given to RTLim RMC, and the only loan given to insofar as they are not inconsistent or incompatible with this
Tungawan PFPMC. The total amount approved for write-off Decree.
was P2,209,000.00.[43] Moreover, petitioners contend that the last loan given
to SIFAMCO was also the subject of a write-off in a similar advice given to the
Buug Branch. The total approved write-off in the second Memorandum[44] was
One of the general powers mentioned in the General
for P906,000.00.
Banking Act is that provided for in Section 84 thereof,
reading:

In its Comment,[45] the COA argues that the fact that the audit
disallowance was allegedly written-off is of no moment. Respondent
xxxx

Writing-off loans and advances with


maintains that Section 66 of PD 1445[46] expressly granted unto it the right to
an outstanding amount of one hundred
compromise monetary liabilities of the government.[47] The COA, thus,
thousand pesos or more shall require the
theorizes that without its approval, the alleged write-off is ineffectual. The
prior approval of the Monetary Board (As
same argument was reiterated by the COA in its Memorandum.[48]
amended by PD 71).

The COAs argument deserves scant consideration.


It will, thus, be seen that LBP is a unique and
specialized banking institution, not an ordinary "government
agency" within the scope of Section 36 of Pres. Decree No.
A write-off is a financial accounting concept that allows for the 1445. As a bank, it is specifically placed under the
reduction in value of an asset or earnings by the amount of an expense or loss. supervision and regulation of the Central Bank of the
It is a means of removing bad debts from the financial records of the business. Philippines pursuant to its Charter (Sec. 97, Rep. Act No.
3844, as amended by Pres. Decree No. 251). In so far as
loans and advances are concerned, therefore, it should
be deemed primarily governed by Central Bank Circular
In Land Bank of the Philippines v. Commission on Audit,[49] this Court
No. 958, Series of 1983, which vests the determination
ruled that Land Bank has the power and authority to write-off loans, to wit:
of the frequency of writing-off loans in the Board of
Directors of a bank provided that the loans written-off
do not exceed a certain aggregate amount. The pertinent
LBP was created as a body corporate and government portion of that Circular reads:
instrumentality to provide timely and adequate financial
support in all phases involved in the execution of needed
agrarian reform (Rep. Act No. 3844, as amended, Sec. 74).
b. Frequency/ceiling of write-off.
Section 75 of its Charter vests in LBP specific powers normally
The frequency for writing-off loans and
exercised by banking institutions, such as the authority to
advances shall be left to the discretion of
grant short, medium and long-term loans and advances
the Board of Directors of the bank
against security of real estate and/or other acceptable assets;
concerned. Provided, that the aggregate
to guarantee acceptance(s), credits, loans, transactions or
amount of loans and advances which may be
obligations; and to borrow from, or rediscount notes, bills of
written-off during the year, shall in no case
exchange and other commercial papers with the Central Bank.
exceed 3% of total loans and investments;
In addition to the enumeration of specific powers granted to
Provided, further, that charge-offs are made
LBP, Section 75 of its Charter also authorizes it:
against allowance for possible losses,
earnings during the year and/or retained
earnings.[50]
12. To exercise the general powers mentioned in the
Corporation Law and the General Banking Act, as amended,
While the power to write-off is not expressly granted in the charter of power to compromise shall be exercised by the Commission in
the Land Bank, it can be logically implied, however, from the Land Bank's accordance with the preceding paragraph.
authority to exercise the general powers vested in banking institutions as
provided in the General Banking Act (Republic Act 337). The clear intendment
of its charter is for the Land Bank to be clothed not only with the express
x x x x[52]
powers granted to it, but also with those implied, incidental and necessary for
the exercise of those express powers.[51]

In the case at bar, it is thus clear that the writing-off of the loans Under Section 36, the use of the word may shows that the power of
involved was a valid act of the Land Bank. In writing-off the loans, the only the COA to compromise claims is only permissive, and not mandatory. Further,
requirement for the Land Bank was that the same be in accordance with the the second paragraph of Section 36 clearly states that respective governing
applicable Bangko Sentral circulars, it being under the supervision and bodies of government-owned or controlled corporations, and self-governing
regulation thereof. The Land Bank recommended for write-off all six loans boards, commissions or agencies of the government shall have the exclusive
granted to the cooperatives, and it is worthy to note that the Bangko power to compromise or release any similar claim or liability when expressly
Sentral granted the same. The write-offs being clearly in accordance with law, authorized by their charters. Nowhere in Section 36 does it state that the COA
the COA should, therefore, adhere to the same, unless under its general audit must approve a compromise made by a government agency; the only
jurisdiction under PD 1445, it finds that under Section 25(1) the fiscal requirement is that it be authorized by its charter. It, therefore, bears to stress
responsibility that rests directly with the head of the government agency has that the COA does not have the exclusive prerogative to settle and compromise
not been properly and effectively discharged. liabilities to the Government.
On this note, the reliance of respondent on Section 66 of PD 1445 is
baseless as a reading thereof would show that the same does not pertain to
the COAs power to compromise claims. Probably, what respondent wanted to The foregoing pronouncements notwithstanding, this Court rules that writing-
refer to was Section 36 which provides: off a loan does not equate to a condonation or release of a debt by the creditor.

Section 36. Power to compromise claims. - As an accounting strategy, the use of write-off is a task that can help a
company maintain a more accurate inventory of the worth of its current assets.
1. When the interest of the government so requires, In general banking practice, the write-off method is used when an account is
the Commission may compromise or release in whole or in determined to be uncollectible and an uncollectible expense is recorded in the
part, any claim or settled liability to any government agency books of account. If in the future, the debt appears to be collectible, as when
not exceeding ten thousand pesos and with the written the debtor becomes solvent, then the books will be adjusted to reflect the
approval of the Prime Minister, it may likewise compromise or amount to be collected as an asset. In turn, income will be credited by the
release any similar claim or liability not exceeding one same amount of increase in the accounts receivable.
hundred thousand pesos, the application for relief therefrom
shall be submitted, through the Commission and the Prime
Minister, with their recommendations, to the National
Write-off is not one of the legal grounds for extinguishing an obligation
Assembly.
under the Civil Code.[53] It is not a compromise of liability. Neither is it a
condonation, since in condonation gratuity on the part of the obligee and
acceptance by the obligor are required.[54] In making the write-off, only the
2. The respective governing bodies of creditor takes action by removing the uncollectible account from its books even
government-owned or controlled corporations, and self- without the approval or participation of the debtor.
governing boards, commissions or agencies of the
government shall have the exclusive power to
compromise or release any similar claim or liability
when expressly authorized by their charters and if in
Furthermore, write-off cannot be likened to a novation, since the
their judgment, the interest of their respective corporations or
obligations of both parties have not been modified.[55] When a write-off occurs,
agencies so requires. When the charters do not so provide, the
the actual worth of the asset is reflected in the books of accounts of the
creditor, but the legal relationship between the creditor and the debtor still
remains the same the debtor continues to be liable to the creditor for the full The decisions and resolutions emanating from the COA did not tackle
extent of the unpaid debt. the supposed April 6, 1992 Memorandum of the Field Loans Review
Department which allegedly authorized the Field Offices to undertake a pre-
Based on the foregoing, as creditor, Land Bank may write-off in its payment scheme. While it is possible that such document would have shown
books of account the advance payment released to REMAD in the interest of that petitioners were in good faith, the same should have been presented by
accounting accuracy given that the loans were already uncollectible. Such them in the proceedings before the Commission proper - an act which they
write-off, however, as previously discussed, does not equate to a release from were not able to do because of their own negligence in allowing the period to
liability of petitioners. file an appeal to lapse. The April 6, 1992 Memorandum of the Field Loans
Review Department would have been the best evidence to free petitioners from
their liability. It appears, however, that they did not present the same before
Accordingly, the Land Bank Ipil Branch must be required to record in the COA and it is already too late in the day for them to present such
its books of account the Php3,115,000.00 disallowance, and petitioners, document before this Court.
together with their four co-employees,[56] should be personally liable for the
Petitioners' allegation of grave abuse of discretion by the COA implies
said amount. Such liability, is, however, without prejudice to petitioners right
such capricious and whimsical exercise of judgment as is equivalent to lack of
to run after REMAD, to whom they illegally disbursed the loan, for the full
jurisdiction or, in other words, the exercise of the power in an arbitrary manner
reimbursement of the advance payment for the cattle as correctly ruled by the
by reason of passion, prejudice, or personal hostility; and it must be so patent
COA in its July 17, 2003 Decision.[57]
or gross as to amount to an evasion of a positive duty or to a virtual refusal to
On a final note, it bears to point out that a cursory reading of the perform the duty enjoined or to act at all in contemplation of law.[61] It is
Ombudsman's resolution will show that the complaint against petitioners was imperative for petitioners to show caprice and arbitrariness on the part of the
dismissed not because of a finding of good faith but because of a finding of lack COA whose exercise of discretion is being assailed. Proof of such grave abuse
of sufficient evidence. While the evidence presented before the Ombudsman of discretion, however, is wanting in this case.
may not have been sufficient to overcome the burden in criminal cases of proof
WHEREFORE, premises considered, the petition is DENIED. Decision
beyond reasonable doubt,[58] it does not, however, necessarily follow, that the
No. 2003-107 dated July 17, 2003 and Resolution No. 2004-046 dated
administrative proceedings will suffer the same fate as only substantial
December 7, 2004, of the Commission on Audit, are hereby AFFIRMED.
evidence is required, or that amount of relevant evidence which a reasonable
mind might accept as adequate to justify a conclusion.[59]

SO ORDERED.
An absolution from a criminal charge is not a bar to an administrative
prosecution or vice versa.[60] The criminal case filed before the Office of the
Ombudsman is distinct and separate from the proceedings on the disallowance
G.R. No. 205428
before the COA. So also, the dismissal by Margarito P. Gervacio, Jr., Deputy
Ombudsman for Mindanao, of the criminal charges against petitioners does not
necessarily foreclose the matter of their possible liability as warranted by the REPUBLIC OF THE PHILIPPINES, represented by the DEPARTMENT OF
findings of the COA. PUBLIC WORKS AND HIGHWAYS (DPWH), Petitioners
vs
SPOUSES SENANDO F. SALVADOR and JOSEFINA R.
SALVADOR, Respondents
In addition, this Court notes that the Ombudsman's Resolution relied on an
alleged April 6, 1992 Memorandum of the Field Loans Review Department
which supposedly authorized the Field Offices to undertake a prepayment DECISION
scheme. On the other hand, the same Ombudsman's Resolution also made
reference to a January 19, 1994 Memorandum of EVP Diaz and a May 31, 1994 DEL CASTILLO, J.:
Memorandum of VP FSD which tackled the prohibition on advance payment to
suppliers. All these documents, however, were again not attached to the
We resolve the Petition for Review on Certiorari under Rule 45 of the Rules of
records of the case at bar. Particularly, the supposed April 6, 1992
Court, assailing the August 23, 2012 Decision 1 and the January 10, 2013
Memorandum of the Field Loans Review Department was not even mentioned
Order 2 of the Regional Trial Court (RTC), Branch 270, Valenzuela City, in Civil
nor raised by petitioners as a defense in herein petition.
Case No. 17 5-V-11 which directed petitioner Republic of the Philippines
(Republic) to pay respondents spouses Senando F. Salvador and Josefina R.
Salvador consequential damages equivalent to the value of the capital gains
tax and other taxes necessary for the transfer of the expropriated property in As a result, the Republic filed the present Petition for Review
the Republic's name. on Certiorari assailing the RTC's August 23, 2012 Decision and January 10,
2013 Order.
The Antecedent Facts
Issues
Respondents are the registered owners of a parcel of land with a total land
area of 229 square meters, located in Kaingin Street, Barangay Parada, In the present Petition, the Republic raises the following issues for the Court's
Valenzuela City, and covered by Transfer Certificate of Title No.V-77660. 3 resolution: first, whether the RTC correctly denied the Republic's Motion for
Partial Reconsideration for having been filed out of
On November 9, 2011, the Republic, represented by the Department of - Public time; 18 and second, whether the capital gains tax on the transfer of the
Works and Highways (DPWH), filed a verified Complaint 4 before the RTC expropriated property can be considered as consequential damages that may
be awarded to respondents. 19

for the expropriation of 83 square meters of said parcel of land (subject


property), as well as the improvements thereon, for the construction of the C-5 The Court's Ruling
Northern Link Road Project Phase 2 (Segment 9) from the North Luzon
Expressway (NLEX) to McArthur Highway. 5 The Petition is impressed with merit.

On February 10, 2012, respondents received two checks from the DPWH "Section 3, Rule 13 of the Rules of Court provides that if a pleading is filed by
representing 100% of the zonal value of the subject property and the cost of registered mail, x x x the date of mailing shall be considered as the date of
the one-storey semi-concrete residential house erected on the property filing. It does not matter when the court actually receives the mailed
amounting to ₱l61,850.00 6 and ₱523,449.22,7 respectively. 8 The RTC pleading."20
thereafter issued the corresponding Writ of Possession in favor of the
Republic. 9 In this case, the records show that the Republic filed its Motion for Partial
Reconsideration before the RTC via registered mail on September 28,
On the same day, respondents signified in open court that they recognized the 2012.21 Although the trial cou1treceived the Republic's motion only on October
purpose for which their property is being expropriated and interposed no 5, 2012,22 it should have considered the pleading to have been filed on
objection thereto. 10 They also manifested that they have already received the September 28, 2012, the date of its mailing, which is clearly within the
total sum of ₱685,349.22 from the DPWH and are therefore no longer reglementary period of 15 days to file said motion, 23 counted from September
intending to claim any just compensation. 11 13, 2012, or the date of the Republic's receipt of the assailed Decision.24

Ruling of the Regional Trial Court Given these circumstances, we hold that the RTC erred in denying the
Republic's Motion for Partial Reconsideration for having been filed out of
In its Decision12 dated August 23, 2012, the RTC rendered judgment in favor time.1âwphi1
of the Republic condemning t1Je subject property for the purpose of
implementing the construction of the C-5 Northern Link Road Project Phase 2 We likewise rule that the RTC committed a serious error when it directed the
(Segment 9) from NLEX to McArthur Highway, Valenzuela City. 13 Republic to pay respondents consequential damages equivalent to the value of
the capital gains tax and other taxes necessary for the transfer of the subject
The RTC likewise directed the Republic to pay respondents consequential property.
damages equivalent to the value of the capital gains tax and other taxes
necessary for the transfer of the subject property in the Republic's name. 14
"Just compensation [is defined as] the full and fair equivalent of the property
sought to be expropriated.x x x The measure is not the taker's gain but the
The Republic moved for partial reconsideration, 15 specifically on the issue owner's loss. [The compensation, to be just,] must be fair not only to the
relating to the payment of the capital gains tax, but the RTC denied the motion owner but also to the taker."25
in its Order16 dated January 10, 2013 for having been belatedly filed. The RTC
also found no justifiable basis to reconsider its award of Consequential In order to determine just compensation, the trial court should first ascertain
damages in favor of respondents, as the payment of capital gains tax and other the market value of the property by considering the cost of acquisition, the
transfer taxes is but a consequence of the expropriation proceedings.17 current value of like properties, its actual or potential uses, and in the
particular case of lands, their size, shape, location, and the tax declarations
thereon. 26 if as a result of the expropriation, the remaining lot suffers from an WHEREFORE, we GRANT the Petition for Review on Certiorari. The Decision
impairment or decrease in value, consequential damages may be awarded by dated August 23, 2012 and the Order dated January 10, 2013 of the Regional
the trial court, provided that the consequential benefits which may arise from Trial Court, Branch 270, Valenzuela City, in Civil Case No. 175-V-11, are
the expropriation do not exceed said damages suffered by the owner of the hereby MODIFIED, in that the award of consequential damages is DELETED. In
property. 27 addition, spouses Senando F. Salvador and Josefina R. Salvador are hereby
ORDERED to pay for the capital gains tax due on the transfer of the
While it is true that "the determination of the amount of just compensation is expropriated property.
within the court's discretion, it should not be done arbitrarily or capriciously.
[Rather,] it must [always] be based on all established rules, upon correct legal SO ORDERED.
principles and competent evidence." 28 The court cannot base its judgment on
mere speculations and surmises. 29 G.R. No. 212690*

In the present case, the RTC deemed it "fair and just that x x x whatever is the SPOUSES ROMEO PAJARES and IDA T. PAJARES, Petitioners
value of the capital gains tax and all other taxes necessary for the transfer of vs.
the subject property to the [Republic] are but consequential damages that REMARKABLE LAUNDRY AND DRY CLEANING, represented by
should be paid by the latter."30 The RTC further explained in its assailed Order ARCHEMEDES G. SOLIS, Respondent
that said award in favor of respondents is but equitable, just, and fair, viz.:

DECISION
As aptly pointed out by [respondents], they were merely forced by
circumstances to be dispossessed of [the] subject property owing to the
exercise of the State of its sovereign power to expropriate. The payment of DEL CASTILLO, J.:
capital gains tax and other transfer taxes is a consequence of the expropriation
proceedings. It is in the sense of equity, justness and fairness, and as upheld Breach of contract may give rise to an action for specific performance or
by the Supreme Court in the case of Capitol Subdivision, Inc. vs. Province of rescission of contract.1 It may also be the cause of action in a complaint for
Negros Occidental, G.R. No. L-16257, January 31, 1963 that the assailed damages filed pursuant to Art. 1170 of the Civil Code.2 In the specific
consequential damages was awarded by the court. 31 performance and rescission of contract cases, the subject matter is incapable
of pecuniary estimation, hence jurisdiction belongs to the Regional Trial Court
This is clearly an error. It is settled that the transfer of property through (RTC). In the case for damages, however, the court that has jurisdiction
expropriation proceedings is a sale or· exchange within the meaning of depends upon the total amount of the damages claimed.
Sections 24(D) and 56(A) (3) of the National Internal Revenue Code, and profit
from the transaction constitutes capital gain. 32 Since capital gains tax is a tax Assailed in this Petition for Review on Certiorari3 is the December 11, 2013
on passive income, it is the seller, or respondents in this case, who are liable to Decision4 of the Court of Appeals (CA) in CA-G.R. CEB SP No. 07711 that set
shoulder the tax. 33 aside the February 19, 2013 Order5 of the RTC, Branch 17, Cebu City
dismissing Civil Case No. CEB-39025 for lack of jurisdiction.
In fact, the Bureau of Internal Revenue (BIR), in BIR Ruling No. 476-2013
dated December 18, 2013, has constituted the DPWH as a withholding agent Factual Antecedents
tasked to withhold the 6% final withholding tax in the expropriation of real
property for infrastructure projects. 11ms, as far as the government is
On September 3, 2012, Remarkable Laundry and Dry Cleaning (respondent)
concerned, the capital gains tax in expropriation proceedings remains a liability
filed a Complaint denominated as "Breach of Contract and Damages"6 against
of the seller, as it is a tax on the seller's gain from the sale of real property. 34
spouses Romeo and Ida Pajares (petitioners) before the RTC of Cebu City,
which was docketed as Civil Case No. CEB-39025 and assigned to Branch 17 of
Besides, as previously explained, consequential damages are only awarded said court. Respondent alleged that it entered into a Remarkable Dealer Outlet
if as a result of the expropriation, the remaining property of the owner Contract7 with petitioners whereby the latter, acting as a dealer outlet, shall
suffersfrom an impairment or decrease in value. 35 In this case, no evidence accept and receive items or materials for laundry which are then picked up and
was submitted to prove any impairment or decrease in value of the subject processed by the former in its main plant or laundry outlet; that petitioners
property as a result of the expropriation. More significantly, given that the violated Article IV (Standard Required Quota & Penalties) of said contract,
payment of capital gains tax on the transfer· of the subject property has no which required them to produce at least 200 kilos of laundry items each week,
effect on the increase or decrease in value of the remaining property, it can when, on April 30, 2012, they ceased dealer outlet operations on account of
hardly be considered as consequential damages that may be awarded to lack of personnel; that respondent made written demands upon petitioners for
respondents. the payment of penalties imposed and provided for in the contract, but the
latter failed to pay; and, that petitioners' violation constitutes breach of WHEREFORE, premises considered, the instant case is hereby DISMISSED for
contract. Respondent thus prayed, as fol1ows: lack of jurisdiction.

WHEREFORE, premises considered, by reason of the above-mentioned breach Notify the counsels.
of the subject dealer contract agreement made by the defendant, it is most
respectfully prayed of the Honorable Court to order the said defendant to pay SO ORDERED.11 (Emphasis in the original)
the following incidental and consequential damages to the plaintiff, to wit:

Respondent filed its Motion for Reconsideration,12 arguing that as Civil Case No.
a) TWO HUNDRED THOUSAND PESOS (PHP200,000.00) plus legal interest CEB-39025 is for breach of contract, or one whose subject is incapable of
as incidental and consequential [sic] for violating Articles IV and XVI of the pecuniary estimation, jurisdiction thus falls with the RTC. However, in an April
Remarkable Laundry Dealer Contract dated 08 September 2011. 29, 2013 Order,13 the RTC held its ground.

b) Thirty Thousand Pesos (₱30,000.00) as legal expenses. Ruling of the Court of Appeals

c) Thirty Thousand Pesos (₱30,000.00) as exemplary damages. Respondent filed CA-G.R. CEB SP No. 07711, a Petition for Certiorari14 seeking
to nullify the RTC's February 19, 2013 and April 29, 2013 Orders. It argued
d) Twenty Thousand Pesos (₱20,000.00) as cost of suit. that the RTC acted with grave abuse of discretion in dismissing Civil Case No.
CEB-39025. According to respondent, said case is one whose subject matter is
e) Such other reliefs that the Honorable Court deems as just and incapable of pecuniary estimation and that the damages prayed for therein are
equitable.8 (Italics in the original) merely incidental thereto. Hence, Civil Case No. CEB-39025 falls within the
jurisdiction of the RTC pursuant to Section 19 of Batas Pambansa Blg. 129, as
amended (BP 129).
Petitioners submitted their Answer,9 to which respondent filed its Reply.10
On December 11, 2013, the CA rendered the assailed Decision setting aside
During pre-trial, the issue of jurisdiction was raised, and the parties were the February 19, 2013 Order of the RTC and remanding the case to the court a
required to submit their respective position papers. quo for further proceedings. It held as follows:

Ruling of the Regional Trial Court In determining the jurisdiction of an action whose subject is incapable of
pecuniary estimation, the nature of the principal action or remedy sought must
On February 19, 2013, the RTC issued an Order dismissing Civil Case No. CEB- first be ascertained. If it is primarily for the recovery of a sum of money, the
39025 for lack of jurisdiction, stating: claim is considered capable of pecuniary estimation and the jurisdiction of the
court depends on the amount of the claim. But, where the primary issue is
something other than the right to recover a sum of money, where the money
In the instant case, the plaintiffs complaint is for the recovery of damages for
claim is purely incidental to, or a consequence of the principal relief sought,
the alleged breach of contract. The complaint sought the award of ₱200,000.00
such are actions whose subjects are incapable of pecuniary estimation, hence
as incidental and consequential damages; the amount of ₱30,000.00 as legal
cognizable by the RTCs.15
expenses; the amount of ₱30,000.00 as exemplary damages; and the amount
of ₱20,000.00 as cost of the suit, or for the total amount of ₱280,000.00
as damages. x x xx

Under the provisions of Batas Pambansa Blg. 129 as amended by Republic Act Verily, what determines the nature of the action and which court has
No. 7691, the amount of demand or claim in the complaint for the Regional jurisdiction over it are the allegations of the complaint and the character of the
Trial Courts (RTCs) to exercise exclusive original jurisdiction shall exceed relief sought.16
₱300,000.00; otherwise, the action shall fall under the jurisdiction of the
Municipal Trial Courts. In this case, the total amount of demand in the In our considered view, the complaint, is one incapable of pecuniary
complaint is only ₱280,000.00, which is less than the jurisdictional amount of estimation; thus, one within the RTC's jurisdiction. x x x
the RTCs. Hence, this Court (RTC) has no jurisdiction over the instant
case.1âwphi1
x x xx
A case for breach of contract [sic] is a cause of action either for specific dismissed as the claim stated therein is below the jurisdictional amount of the
performance or rescission of contracts. An action for rescission of contract, as a RTC.
counterpart of an action for specific performance, is incapable of pecuniary
estimation, and therefore falls under the jurisdiction of the RTC.17 Respondent's Arguments

Thus, the totality of damages principle finds no application in the instant case Respondent, on the other hand, counters in its Comment23 that the CA is
since the same applies only when damages is principally and primarily correct in declaring that Civil Case No. CEB-39025 is primarily based on breach
demanded in accordance with the specification in Administrative Circular No. of contract, and the damages prayed for are merely incidental to the principal
09-94 which reads: 'in cases where the claim for damages is the main cause of action; that the Complaint itself made reference to the Remarkable Dealer
action ... the amount of such claim shall be considered in determining the Outlet Contract and the breach committed by petitioners, which gave rise to a
jurisdiction of the court.' cause of action against the latter; and, that with the filing of the case, the trial
court was thus called upon to determine whether petitioners violated the dealer
Thus, the court a quo should not have dismissed the instant case. outlet contract, and if so, the amount of damages that may be adjudged in
respondent's favor.
WHEREFORE, in view of the foregoing, the Order dated February 19, 2013 of
the Regional Trial Court, 7th Judicial Region, Branch 17, Cebu City in Civil Case Our Ruling
No. CEB-39025 for Breach of Contract and Damages is hereby REVERSED and
SET ASCDE. This case is hereby REMANDED to the RTC which is ORDERED to The Court grants the Petition. The RTC was correct in categorizing Civil Case
PROCEED with the trial on the merits with dispatch. No. CEB-39025 as an action for damages seeking to recover an amount below
its jurisdictional limit.
SO ORDERED.18
Respondent's complaint denominated
Petitioners sought to reconsider, but were denied. Hence, the present Petition. as one for "'Breach of Contract &
Damages" is neither an action for
Issue specific performance nor a complaint
for rescission of contract.

In a June 29, 2015 Resolution,19 this Court resolved to give due course to the
Petition, which claims that the CA erred in declaring that the RTC had In ruling that respondent's Complaint is incapable of pecuniary estimation and
jurisdiction over respondent's Complaint which, although denominated as one that the RTC has jurisdiction, the CA comported itself with the following
for breach of contract, is essentially one for simple payment of damages. ratiocination:

Petitioners' Arguments A case for breach of contract [sic] is a cause of action either for specific
performance or rescission of contracts. An action for rescission of contract, as a
counterpart of an action for specific performance, is incapable of pecuniary
In praying that the assailed CA dispositions be set aside and that the RTC's estimation, and therefore falls under the jurisdiction of the RTC.24
February 19, 2013 Order dismissing Civil Case No. CEB-39025 be reinstated,
petitioners in their Petition and Reply20 espouse the original findings of the RTC
that Civil Case No. CEB-39025 is for the recovery of a sum of money in the without, however, determining whether, from the four corners of the
form of damages. They asserted that in determining jurisdiction over the Complaint, respondent actually intended to initiate an action for specific
subject matter, the allegations in the Complaint and the principal relief in the performance or an action for rescission of contract. Specific performance is
prayer thereof must be considered; that since respondent merely prayed for ''[t]he remedy of requiring exact performance of a contract in the specific form
the payment of damages in its Complaint and not a judgment on the claim of in which it was made, or according to the precise terms agreed upon. [It is t]he
breach of contract, then jurisdiction should be determined based solely on the actual accomplishment of a contract by a party bound to fulfill it."25 Rescission
total amount of the claim or demand as alleged in the prayer; that while of contract under Article 1191 of the Civil Code, on the other hand, is a remedy
breach of contract may involve a claim for specific performance or rescission, available to the obligee when the obligor cannot comply with what is incumbent
neither relief was sought in respondent's Complaint; and, that respondent upon him.26 It is predicated on a breach of faith by the other party who violates
"chose to focus his [sic] primary relief on the payment of damages,"21 which is the reciprocity between them. Rescission may also refer to a remedy granted
"the true, actual, and principal relief sought, and is not merely incidental to or by law to the contracting parties and sometimes even to third persons in order
a consequence of the alleged breach of contract."22Petitioners conclude that, to secure reparation of damages caused them by a valid contract; by means of
applying the totality of claims rule, respondent's Complaint should be
restoration of things to their condition in which they were prior to the 2. Defendant Ida Pajares is of legal age, Filipino, married with address at
celebration of the contract.27 Hermag Village, Basak Mandaue City where she can be served with summons
and other processes of the Honorable Court.
In a line of cases, this Court held that –
3. On 08 SEP 2011, parties entered and signed a Remarkable Laundry Dealer
In determining whether an action is one the subject matter of which is not Outlet Contract for the processing of laundry materials, plaintiff being the
capable of pecuniary estimation this Court has adopted the criterion of first owner of Remarkable Laundry and the defendant being the authorized dealer of
ascertaining the nature of the principal action or remedy sought. If it is the said business. (Attached and marked as Annex "A" is a copy of the
primarily for the recovery of a sum of money, the claim is considered capable Remarkable Laundry Dealer Outlet Contract.)
of pecuniary estimation, and whether jurisdiction is in the municipal trial courts
or in the courts of first instance would depend on the amount of the claim. CAUSES OF ACTION:
However, where the basic issue is something other than the right to recover a
sum of money, where the money claim is purely incidental to, or a 4. Sometime on [sic] the second (2nd) quarter of 2012, defendant failed to
consequence of, the principal relief sought, this Court has considered such follow the required standard purchase quota mentioned in article IV of the
actions as cases where the subject of the litigation may not be estimated in subject dealership agreement.
terms of money, and are cognizable exclusively by courts 1of first instance
(now Regional Trial Courts).28
5. Defendant through a letter dated April 24, 2012 said it [sic] would CEASE
OPERATION. It [sic] further stated that they [sic] would just notify or advise
To write finis to this controversy, therefore, it is imperative that we first the office when they are [sic] ready for the business again making the whole
determine the real nature of respondent's principal action, as well as the relief business endeavor totally dependent upon their [sic] whims and caprices.
sought in its Complaint, which we 1quote in haec verba: (Attached and marked as Annex "B'' is a copy of letter of the defendant dated
April 24, 2012.)
REPUBLIC OF THE PHILIPPNES
REGIONAL TRIAL COURT 6. The aforementioned act of unilateral cessation of operation by the defendant
BRANCH ______ constitutes a serious breach to [sic] the contract because it totally, whimsically
CEBU CITY and grossly disregarded the Remarkable Laundry Dealer Outlet Contract, which
resulted to [sic] failure on its part in obtaining the minimum purchase or
delivery of 200 kilos per week for the entire duration of its cessation of
Remarkable Laundry and Dry Cleaning herein Civil Case No. ______
operations.
represented by Archemedes G. Solis, Plaintiff, For: Breach of Contract
& Damages
7. Under the aforementioned Dealer Contract, specifically in Article XV of the
vs. same are classified as BREACH BY THE OUTLETS:

Spouses Romeo Pajares and Ida T. Pajares, 'The parties agree that the happening of any of the stipulation and events by
Defendants. the dealer outlet is otherwise [sic] in default of any of its obligations or violate
any of the terms and condition under this agreement.

---------------------------------------------------------------------------------------- Any violation of the above-mentioned provisions shall result in the immediate
------------------ termination of this agreement, without prejudice to any of the RL Main
Operators rights or remedies granted to it by law.
COMPLAINT
THE DEALER OUTLET SHALL ALSO BE LIABLE TO PAY A FINE OF TWENTY FIVE
Plaintiff, by counsels, to the Honorable Court most respectfully states THAT: THOUSAND PESOS, (₱25,000), FOR EVERY VIOLATION AND PHP 50,000 IF
PRE-TERMINATION BY THE RL MAIN OPERATOR DUE TO BREACH OF THIS
1. Plaintiff Remarkable Laundry and Dry Cleaning Services, is a sole AGREEMENT.'
proprietorship business owned by Archemedes Solis with principal office
address at PREDECO CMPD AS-Ostechi Bldg. Banilad, Heman Cortes St., 8. Likewise it is provided in the said contract that:
Mandaue City.
' ... The DEALER OUTLET must have a minimum 200 kilos on a six-day or per respectfully prayed of the Honorable Court to order the said defendant to pay
week pick-up for the entire duration of the contract to free the dealer outlet the following incidental and consequential damages to the plaintiff, to wit:
from being charge[d] Php 200/week on falling below required minimum kilos
per week of laundry materials. Automatic charging shall become part of the a) TWO HUNDRED THOUSAND PESOS (PHP200,000.00) plus legal interest
billing on the services of the dealer outlet on cases where the minimum as incidental and consequential [damages] for violating Articles IV and XVI of
requirements on required kilos are not met.['] the Remarkable Laundry Dealer Contract dated 08 SEP 2011;

9. The cessation of operation by the defendant, which is tantamount to gross b) Thirty Thousand Pesos (₱30,000.00) as legal expenses;
infraction to [sic] the subject contract, resulted to [sic] incidental damages
amounting to Two Hundred Thousand Pesos (PHP200,000.00). Defendant
should have opted to comply with the Pre-termination clause in the subject c) Thirty Thousand Pesos (₱30,000.00) as exemplary damages;
contract other than its [sic] unilateral and whimsical cessation of operations.
d) Twenty Thousand Pesos (₱20,000.00) as cost of suit;
10. The plaintiff formally reminded the defendant of her obligations under the
subject contract through demand letters, but to no avail. The defendant e) Such other reliefs that the Honorable Court deems as just and equitable.
purposely ignored the letters by [sic] the plaintiff. (Attached and marked as
Annex "C" to "C-2" are the Demand Letters dated May 2, 2012, June 2, 2012 August 31, 2012, Cebu City, Philippines.29
and June 19, 2012 respectively.)

An analysis of the factual and material allegations in the Complaint shows that
11. To reiterate, the defendant temporarily stopped its business operation prior
there is nothing therein which would support a conclusion that respondent's
to the two-year contract duration had elapsed to the prejudice of the plaintiff,
Complaint is one for specific performance or rescission of contract. It should be
which is a clear disregard of its two-year obligation to operate the business
recalled that the principal obligation of petitioners under the Remarkable
unless a pre-termination is called.
Laundry Dealership Contract is to act as respondent's dealer outlet.
Respondent, however, neither asked the RTC to compel petitioners to perfom1
12. Under Article 1159 of the Civil Code of the Philippines provides [sic]: such obligation as contemplated in said contract nor sought the rescission
thereof. The Complaint's body, heading, and relief are bereft of such allegation.
'Obligations arising .from contracts have the force of law between the In fact, neither phrase appeared on or was used in the Complaint when, for
contracting parties and should be complied with in good faith. ' purposes of clarity, respondent's counsels, who are presumed to be learned in
law, could and should have used any of those phrases to indicate the proper
designation of the Complaint. To the contrary, respondent's counsels
13. Likewise, Article 1170 of the Civil Code of the Philippines [provides] that: designated the Complaint as one for "Breach of Contract & Damages," which is
a misnomer and inaccurate. This erroneous notion was reiterated in
'Those who in the performance of their obligations are guilty of fraud, respondent's Memorandum30 wherein it was stated that "the main action of
negligence, or delay, and those who in any manner contravene the tenor CEB 39025 is one for a breach of contract."31 There is no such thing as an
thereof are liable for damages. ' "action for breach of contract." Rather, "[b]reach of contract is a cause of
action,32 but not the action or relief itself"33 Breach of contract may be the
14. That the above-mentioned violations by the defendant to the Remarkable cause of action in a complaint for specific performance or rescission of contract,
Laundry Dealer Contract, specifically Articles IV and XVI thereof constitute both of which are incapable of pecuniary estimation and, therefore, cognizable
gross breach of contract which are unlawful and malicious under the Civil Code by the RTC. However, as will be discussed below, breach of contract may also
of the Philippines, which caused the plaintiff to incur incidental and be the cause of action in a complaint for damages.
consequential damages as found in the subject dealer contract in the total
amount of Two Hundred Thousand Pesos (PHP200,000.00) and incidental legal A complaint primarily seeking to
expenses to protect its rights in the amount of ₱30,000.00. enforce the accessory obligation
contained in the penal clause is actually
PRAYER: an action for damages capable of
pecuniary estimation.

WHEREFORE, premises considered, by reason of the above-mentioned breach


of the subject dealer contract agreement made by the defendant, it is most Neither can we sustain respondent's contention that its Complaint is incapable
of pecuniary estimation since it primarily seeks to enforce the penal clause
contained in Article IV of the Remarkable Dealer Outlet Contract, which reads:
Article IV: STANDARD REQUIRED QUOTA & PENALTIES In Pacmac, Inc. v. Intermediate Appellate Court,37 this Court held that the
party who unilaterally terminated the exclusive distributorship contract without
In consideration [sic] for such renewal of franchise-dealership rights, the dealer any legal justification can be held liable for damages by reason of the breach
outlet must have a minimum 200 kilos on a six-day or per week pick-up for the committed pursuant to Article 1170.
entire duration of the contract to FREE the dealer outlet from being charge [sic]
Php200/week on falling below required minimum kilos per week of laundry In sum, after juxtaposing Article IV of the Remarkable Dealer Outlet
materials. Automatic charging shall become part of the billing on the services Contract vis-a-vis the prayer sought in respondent's Complaint, this Court is
of the dealer outlet on cases where the minimum requirements on required convinced that said Complaint is one for damages. True, breach of contract
kilos are not met. may give rise to a complaint for specific performance or rescission of contract.
In which case, the subject matter is incapable of pecuniary estimation and,
The RL Main Operator has the option to cancel, terminate this dealership outlet therefore, jurisdiction is lodged with the RTC. However, breach of contract may
contract, at its option should [sic] in the event that there are unpaid services also be the cause of action in a complaint for damages. Thus, it is not correct
equivalent to a two-week minimum required number of kilos of laundry to immediately conclude, as the CA erroneously did, that since the cause of
materials but not ₱8,000 worth of collectibles, for services performed by the RL action is breach of contract, the case would only either be specific pe1formance
Main Operator or its assigned Franchise Outlet, unpaid bills on ordered and or rescission of contract because it may happen, as in this case, that the
delivered support products, falling below required monthly minimum number of complaint is one for damages.
kilos.
In an action for damages, the court
Ten [percent] (10%) interest charge per month will be collected on all unpaid which has jurisdiction is determined by
obligations but should not be more than 45 days or an additional 10% on top the total amount of damages claimed.
of uncollected amount shall be imposed and shall earn additional 10% on the
next succeeding months if it still remains unpaid. However, if the cause of Having thus determined the nature of respondent's principal action, the next
default is due to issuance of a bouncing check the amount of such check shall question brought to fore is whether it is the RTC which has jurisdiction over the
earn same penalty charge with additional 5% for the first two weeks and 10% subject matter of Civil Case No. CEB-39025.
for the next two weeks and its succeeding two weeks thereafter from the date
of dishonor until fully paid without prejudice to the filling of appropriate cases Paragraph 8, Section 1938 of BP 129, as amended by Republic Act No.
before the courts of justice. Violation of this provision if remained unsettled for 7691,39 provides that where the amount of the demand exceeds ₱100,000.00,
two months shall be considered as violation [wherein] Article XV of this exclusive of interest, damages of whatever kind, attorney's fees, litigation
agreement shall be applied.34 expenses, and costs, exclusive jurisdiction is lodged with the RTC. Otherwise,
jurisdiction belongs to the Municipal Trial Court.40
To Our mind, petitioners' responsibility under the above penal clause involves
the payment of liquidated damages because under Article 222635 of the Civil The above jurisdictional amount had been increased to ₱200,000.00 on March
Code the amount the parties stipulated to pay in case of breach are liquidated 20, 1999 and further raised to ₱300,000.00 on February 22, 2004 pursuant to
damages. "It is attached to an obligation in order to ensure performance and Section 5 of RA 7691.41
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."36 Then in Administrative Circular No. 09-9442 this Court declared that "where the
claim for damages is the main cause of action, or one of the causes of action,
the amount of such claim shall be considered in determining the jurisdiction of
Concomitantly, what respondent primarily seeks in its Complaint is to recover the court." In other words, where the complaint primarily seeks to recover
aforesaid liquidated damages (which it termed as "incidental and consequential damages, all claims for damages should be considered in determining which
damages") premised on the alleged breach of contract committed by the court has jurisdiction over the subject matter of the case regardless of whether
petitioners when they unilaterally ceased business operations. Breach of they arose from a single cause of action or several causes of action.1âwphi1
contract may also be the cause of action in a complaint for damages filed
pursuant to Article 1170 of the Civil Code. It provides:
Since the total amount of the damages claimed by the respondent in its
Complaint filed with the RTC on September 3, 2012 amounted only to
Art. 1170. Those who in the performance of their obligations are guilty of ₱280,000.00, said court was correct in refusing to take cognizance of the case.
fraud, negligence, or delay, and those who in any manner contravene the tenor
thereof; are liable for damages. (Emphasis supplied)
WHEREFORE, the Petition is GRANTED and the December 11, 2013 Decision
and March 19, 2014 Resolution of the Court of Appeals in CA-G.R. CEB SP No.
07711 are REVERSED and SET ASIDE. The February 19, 2013 Order of the As against RCBC, Lin averred that notwithstanding the loss of the mortgaged
Regional Trial Court, Branch 17, Cebu City dismissing Civil Case No. CEB-39025 properties, the bank refused to go after Malayan and instead insisted that she
for lack of jurisdiction is REINSTATED. herself must pay the loans to RCBC, otherwise, foreclosure proceedings would
ensue; and that to add insult to injury, RCBC has been compounding the
SO ORDERED. interest on her loans, despite RCBC's failure or refusal to go after Malayan.

G.R. No. 207277 Lin thus prayed in Civil Case No. 10-122738 that judgment be rendered
ordering petitioners to pay her insurance claim plus interest on the amounts
due or owing her; that her loans and mortgage to RCBC be deemed
MALAYAN INSURANCE CO., INC., YVONNE S. YUCHENGCO, ATTY. extinguished as of February 2008; that RCBC be enjoined from foreclosing the
EMMANUEL G. VILLANUEVA, SONNY RUBIN,1 ENGR. FRANCISCO mortgage on the properties put up as collaterals; and that petitioners he
MONDELO, and MICHAEL REQUIJO,2 Petitioners. ordered to pay her ₱l,217,928.88 in the concept of filing foes, costs of suit,₱l
vs. million as exemplary damages, and ₱500,000.00 as attorney’s fees.
EMMA CONCEPCION L. LIN,3 Respondent.

Some five months later, or on June 17, 2010, Lin filed before the IC an
DECISION administrative case 10 against Malayan, represented this time by Yvonne. This
was docketed as Administrative Case No. 431.
DEL CASTILLO, J.:
In this administrative case, Lin claimed that since it had been conclusively
Assailed in this Petition for Review on Certiorari4 are the December 21, 2012 found that the cause of the fire was "accidental," the only issue left to be
Decision5 of the Court of Appeals (CA) and its May 22, 2013 Resolution6 in CA- resolved is whether Malayan should be held liable for unfair claim settlement
GR. SP No. 118894, both of which found no grave abuse of discretion in the practice under Section 241 in relation to Section 247 of the Insurance Code
twin Orders issued by the Regional Trial Court (RTC) of Manila, Branch 52, on due to its unjustified refusal to settle her claim; and that in consequence of the
September 29, 20107 and on January 25, 20118 in Civil Case No. 10-122738. foregoing failings, Malayan's license to operate as a non-life insurance
company should be revoked or suspended, until such time that it fully complies
with the IC Resolution ordering it to accord more weight to the BFP's findings.
Factual Antecedents

On August 17, 2010, Malayan filed a motion to dismiss Civil Case No. 10-
On January 4, 2010, Emma Concepcion L. Lin (Lin) filed a Complaint9 for
122738 based on forum shopping. It argued that the administrative case was
Collection of Sum of Money with Damages against Malayan Insurance Co., Inc.
instituted to prompt or incite IC into ordering Malayan to pay her insurance
(Malayan), Yvonne Yuchengco (Yvonne), Atty. Emmanuel Villanueva, Sonny
claim; that the elements of forum shopping are present in these two cases
Rubin, Engr. Francisco Mondelo, Michael Angelo Requijo (collectively, the
because there exists identity of parties since Malayan's individual officers who
petitioners), and the Rizal Commercial and Banking Corporation (RCBC). This
was docketed as Civil Case No. 10-122738 of Branch 52 of the Manila RTC. were impleaded in the civil case are also involved in the administrative case;
that the same interests are shared and represented in both the civil and
administrative cases; that there is identity of causes of action and reliefs
Lin alleged that she obtained various loans from RCBC secured by six clustered sought in the two cases since the administrative case is merely disguised as an
warehouses located at Plaridel, Bulacan; that the five warehouses were insured unfair claim settlement charge, although its real purpose is to allow Lin to
with Malayan against fire for ₱56 million while the remaining warehouse was recover her insurance claim from Malayan; that Lin sought to obtain the same
insured for ₱2 million; that on February 24, 2008, the five warehouses were reliefs in the administrative case as in the civil case; that Lin did not comply
gutted by fire; that on April 8, 2008 the Bureau of Fire Protection (BFP) issued with her sworn undertaking in the Certification on Non-Forum Shopping which
a Fire Clearance Certification to her (April 8, 2008 FCC) after having she attached to the civil case, because she deliberately failed to notify the RTC
determined that the cause of fire was accidental; that despite the foregoing, about the pending administrative case within five days from the filing thereof.
her demand for payment of her insurance claim was denied since the forensic
investigators hired by Malayan claimed that the cause of the fire was arson and
This motion to dismiss drew a Comment/Opposition, 11
which Lin filed on
not accidental; that she sought assistance from the Insurance Commission (IC)
August 31, 2010.
which, after a meeting among the parties and a conduct of reinvestigation into
the cause/s of the fire, recommended that Malayan pay Lin's insurance claim
and/or accord great weight to the BFP's findings; that in defiance thereof, Ruling of the Regional Trial Court
Malayan still denied or refused to pay her insurance claim; and that for these
reasons, Malayan's corporate officers should also be held liable for acquiescing
to Malayan's unjustified refusal to pay her insurance claim.
In its Order of September 29, 2010,12 the RTC denied the Motion to Dismiss, consideration, only the first element may be deemed present in the instant
thus: case. The CA held that there is here identity of parties in the civil and
administrative cases because Lin is the complainant in both the civil and
WHEREFORE, the MOTION TO DISMISS filed by [petitioners] is hereby DENIED administrative cases, and these actions were filed against the same petitioners,
for lack of merit. the same RCBC and the same Malayan, represented by Yvonne, respectively. It
held that there is however no identity of rights asserted and reliefs prayed for
because in the civil case, it was Lin's assertion that petitioners had violated her
Furnish the parties through their respective [counsels] with a copy each [of] rights to recover the full amount of her insurance claim, which is why she
the Order. prayed/demanded that petitioners pay her insurance claim plus damages;
whereas in the administrative case, Lin's assertion was that petitioners were
SO ORDERED.13 guilty of unfair claim settlement practice, for which reason she prayed that
Malayan's license to operate as an insurance company be revoked or
suspended; that the judgment in the civil case, regardless of which party is
The RTC held that in the administrative case, Lin was seeking a relief clearly
successful, would not amount to res judicata in the administrative case in view
distinct from that sought in the civil case; that while in the administrative case
of the different issues involved, the dissimilarity in the quantum of evidence
Lin prayed for the suspension or revocation of Malayan's license to operate as a
required, and the distinct mode or procedure to be observed in each case.
non-life insurance company, in the civil case Lin prayed for the collection of a
sum of money with damages; that it is abundantly clear that any judgment
that would be obtained in either case would not be res judicata to the other, Petitioners moved for reconsideration 18 of the CA's Decision, but this motion
hence, there is no forum shopping to speak of. was denied by the CA in its Resolution of May 22, 2013.19

In its Order of January 25, 2011, 14 the RTC likewise denied, for lack of merit, Issues
petitioners' Motion for Reconsideration.
Before this Court, petitioners instituted the present Petition,20 which raises the
Ruling of the Court of Appeals following issues:

Petitioners thereafter sued out a Petition for Certiorari and Prohibition15 before The [CA] not only decided questions of substance contrary to law and the
the CA. However, in a Decision 16dated December 21, 2012, the CA upheld the applicable decisions of this Honorable Court, it also sanctioned a flagrant
RTC, and disposed as follows: departure from the accepted and usual course of judicial proceedings.

WHEREFORE absent grave abuse of discretion on the part of respondent Judge, A.


the Petition for Certiorari and Prohibition (with Temporary Restraining Order
and Preliminary Injunction) is DISMISSED. The [CA] erred in not dismissing the Civil Case on the ground of willful and
deliberate [forum shopping] despite the fact that the civil case and the
SO ORDERED.17 administrative case both seek the payment of the same fire insurance claim.

The CA, as did the RTC, found that Lin did not commit forum shopping chiefly B.
for the reason that the issues raised and the reliefs prayed for in the civil case
were essentially different from those in the administrative case, hence Lin had The [CA] erred in not dismissing the civil case for failure on the part of [Lin] to
no duty at all to inform the RTC about the institution or pendency of the comply with her undertaking in her verification and certification of non-forum
administrative case. shopping appended to the civil complaint.21

The CA ruled that forum shopping exists where the elements of litis Petitioners' Arguments
pendentia concurred, and where a final judgment in one case will amount
to res judicata in the other. The CA held that of the three elements of forum
shopping viz., (l) identity of parties, or at least such parties as would represent In praying for the reversal of the CA Decision, petitioners argue that regardless
the same interest in both actions, (2) identity of rights asserted and reliefs of nomenclature, it is Lin and no one else who filed the administrative case,
prayed for, the relief being founded on the same facts, and (3) identity of the and that she is not a mere complaining witness therein; that it is settled that
two proceedings such that any judgment rendered in one action will, regardless only substantial identity of parties is required for res judicata to apply; that the
of which party is successful, amount to res judicata in the other action under sharing of the same interest is sufficient to constitute identity of parties; that
Lin has not denied that the subject of both the administrative case and the civil Malayan felt compelled to pay Lin's insurance claim for fear that its license to
case involved the same fire insurance claim; that there is here identity of operate as an insurance firm might be suspended or revoked, then this is just a
causes of action, too, because the ultimate objective of both the civil case and logical result of its failure or refusal to pay the insurance claim; that the
the administrative case is to compel Malayan to pay Lin's fire insurance claim; judgment in the civil case will not amount to res judicata in the administrative
that although the reliefs sought in the civil case and those in the administrative case, and vice versa, pursuant to the case law ruling in Go v. Office of the
case are worded differently, Lin was actually asking for the payment of her Ombudsman25and in Almendras v. Office of the Insurance Commission, 26 both
insurance claim in both cases; that it is well-entrenched that a party cannot of which categorically allowed the insurance clain1ants therein to file both a
escape the operation of the principle in res judicata that a cause of action civil and an administrative case against insurers; that the rule against forum
cannot be litigated twice just by varying the form of action or the method of shopping was designed to serve a noble purpose, viz., to be an instrument of
presenting the case; that Go v. Office of the Ombudsman22is inapplicable justice, hence, it can in no way be interpreted to subvert such a noble purpose.
because the issue in that case was whether there was unreasonable delay in
withholding the insured's claims, which would warrant the revocation or Our Ruling
suspension of the insurers' licenses, and not whether the insurers should pay
the insured's insurance claim; that Almendras Mining Corporation v. Office of
the Insurance Commission23does not apply to this case either, because the We deny this Petition. We hold that the case law rulings in
parties in said case agreed to submit the case for resolution on the sole issue the Go and Almendras cases27 control and govern the case at bench.
of whether the revocation or suspension of the insurer's license was justified;
and that petitioners will suffer irreparable injury as a consequence of having to First off, it is elementary that "an order denying a motion to dismiss is merely
defend themselves in a case which should have been dismissed on the ground interlocutory and, therefore, not appealable, x x x to x x x avoid undue
of forum shopping. inconvenience to the appealing party by having to assail orders as they are
promulgated by the court, when all such orders may be contested in a single
Respondents Arguments appeal."28

Lin counters that as stressed in Go v. Office of the Ombudsman, 24 an Secondly, petitioners herein utterly failed to prove that the RTC, in issuing the
administrative case for unfair claim settlement practice may proceed assailed Orders, acted with grave abuse of discretion amounting to lack or
simultaneously with, or independently of, the civil case for collection of the excess of jurisdiction. "It is well-settled that an act of a court or tribunal may
insurance proceeds filed by the same claimant since a judgment in one will not only be considered to have been done in grave abuse of discretion when the
amount to res judicata to the other, and vice versa, due to the variance or same was performed in a capricious or whimsical exercise of judgment which is
differences in the issues, in the quantum of evidence, and in the procedure to equivalent to lack or excess of jurisdiction."29 "[F]or grave abuse of discretion
be followed in prosecuting the cases; that in this case the CA cited the teaching to exist, the abuse of discretion must be patent and gross so as to amount to
in Go v. Office of the Ombudsman that there was no grave abuse of discretion an evasion of a positive duty or a virtual refusal to perform a duty enjoined by
in the RTC's dismissal of petitioners' motion to dismiss; that the CA correctly law, or to act at all in contemplation of law."30
held that the RTC did not commit grave abuse of discretion in denying
petitioners' motion to dismiss because the elements of forum shopping were In the present case, petitioners basically insist that Lin committed willful and
absent; that there is here no identity of parties because while she (respondent) deliberate forum shopping which warrants the dismissal of her civil case
is the plaintiff in the civil case, she is only a complaining witness in the because it is not much different from the administrative case in terms of the
administrative case since it is the IC that is the real party in interest in the parties involved, the causes of action pleaded, and the reliefs prayed for.
administrative case; that the cause of action in the civil case consists of Petitioners also posit that another ground warranting the dismissal of the civil
Malayan's failure or refusal to pay her insurance claim, whereas in the case was Lin's failure to notify the RTC about the pendency of the
administrative case, it consists of Malayan's unfair claim settlement practice; administrative case within five days from the filing thereof.
that the issue in the civil case is whether Malayan is liable to pay Lin's
insurance claim, while the issue in the administrative case is whether Malayan's
These arguments will not avail. The proscription against forum shopping is
license to operate should be revoked or suspended for engaging in unfair claim found in Section 5, Rule 7 of the Rules of Court, which provides:
settlement practice; and that the relief sought in the civil case consists in the
payment of a sum of money plus damages, while the relief in the
administrative case consists of the revocation or suspension of Malayan's SEC. 5. Certification against forum shopping. --The plaintiff or principal party
license to operate as an insurance company. According to Lin, although in the shall certify under oath in the complaint or other initiatory pleading asserting a
administrative case she prayed that the IC Resolution ordering Malayan to claim for relief, or in a sworn certification annexed thereto and simultaneously
accord weight to the BFP's findings be declared final, this did not mean that filed therewith; (a) that he has not theretofore commenced any action or filed
she was therein seeking payment of her insurance claim, but rather that the IC any claim involving the same issues in any court, tribunal or quasi-judicial
can now impose the appropriate administrative sanctions upon Malayan; that if agency and, to the best of his knowledge, no such other action or claim is
pending therein; (b) if there is such other pending action or claim, a complete agency vested with regulatory power as well as with adjudicatory authority.
statement of the present status thereof; and (c) if he should thereafter learn Among the several regulatory or non-quasi-judicial duties of the Insurance
that the same or similar action or claim has been filed or is pending, he shall Commissioner under the Insurance Code is the authority to issue, or refuse
report that fact within five (5) days therefrom to the court wherein his issuance of, a Certificate of Authority to a person or entity desirous of engaging
aforesaid complaint or initiatory pleading has been filed. in insurance business in the Philippines, and to revoke or suspend such
Certificate of Authority upon a finding of the existence of statutory grounds for
Failure to comply with the foregoing requirements shall not be curable by mere such revocation or suspension. The grounds for revocation or suspension of an
amendment of the complaint or other initiatory pleading but shall be cause for insurer's Certificate of Authority are set out in Section 241 and in Section 247
the dismissal of the case without prejudice, unless otherwise provided, upon of the Insurance Code as amended. The general regulatory authority of the
motion and after hearing. The submission of a false certification or non- Insurance Commissioner is described in Section 414 of the Insurance Code, as
compliance with any of the undertakings therein shall constitute indirect amended, in the following terms:
contempt of court, without prejudice to the corresponding administrative and
criminal actions. If the acts of the party or his counsel clearly constitute willful 'Section 414. The Insurance Commissioner shall have the duty to see that all
and deliberate forum shopping, the same shall be ground for summary laws relating to insurance, insurance companies and other insurance matters,
dismissal with prejudice and shall constitute direct contempt, as well as a mutual benefit associations, and trusts for charitable uses are faithfully
cause for administrative sanctions. (n) executed and to perform the duties imposed upon him by this Code, and shall,
notwithstanding any existing laws to the contrary, have sole and exclusive
The above-stated rule covers the very essence of forum shopping itself, and authority to regulate the issuance and sale of variable contracts as defined in
the constitutive elements thereof viz., the cognate concepts of section two hundred thirty-two and to provide for the licensing of persons
litis pendentia and res judicata - selling such contracts, and to issue such reasonable rules and regulations
governing the same.

x x x [T]he essence of forum shopping is the filing of multiple suits involving


the same parties for the same cause of action, either simultaneously or The Commissioner may issue such rulings, instructions, circulars, orders[,] and
successively, for the purpose of obtaining a favorable judgment. It exists decisions as he may deem necessary to secure the enforcement of the
where the elements of litis pendentia are present or where a final judgment in provisions of this Code, subject to the approval of the Secretary of Finance
one case will amount to res judicata in another. On the other hand, for litis [DOF Secretary]. Except as otherwise specified, decisions made by the
pendentia to be a ground for the dismissal of an action, the following requisites Commissioner shall be appealable to the [DOF Secretary].' (Italics supplied)
must concur: (a) identity of parties, or at least such parties who represent the
same interests in both actions; (b) identity of rights asserted and relief prayed which Section also specifies the authority to which a decision of the Insurance
for, the relief being founded on the same facts; and (c) the identity with Commissioner rendered in the exercise of its regulatory function may be
respect to the two preceding particulars in the two cases is such that any appealed.
judgment that may be rendered in the pending case, regardless of which party
is successful, would amount to res judicata in the other case.31 The adjudicatory authority of the Insurance Commissioner is generally
described in Section 416 of the Insurance Code, as amended, which reads as
Res judicata, in turn, has the following requisites: "(1) the former judgment follows:
must be final; (2) it must have been rendered by a court having jurisdiction
over the subject matter and over the parties; (3) it must be a judgment on the 'Sec. 416. The Commissioner shall have the power to adjudicate claims and
merits; and (4) there must be, between the first and second actions, (a) complaints involving any loss, damage or liability for which an insurer may be
identity of parties, (b) identity of subject matter, and (c) identity of cause of answerable under any kind of policy or contract of insurance, or for which such
action."32 insurer may be liable under a contract of suretyship, or for which a reinsurer
may be sued under any contract or reinsurance it may have entered into, or for
"The settled rule is that criminal and civil cases are altogether different from which a mutual benefit association may be held liable under the membership
administrative matters, such that the disposition in the first two will not certificates it has issued to its members, where the amount of any such loss,
inevitably govern the third and vice versa."33In the context of the case at bar, damage or liability, excluding interests, cost and attorney’s fees, being claimed
matters handled by the IC are delineated as either regulatory or adjudicatory, or sued upon any kind of insurance, bond, reinsurance contract, or
both of which have distinct characteristics, as postulated in Almendras Mining membership certificate does not exceed in any single claim one hundred
Corporation v. Office of the Insurance Commission:34 thousand pesos.

The provisions of the Insurance Code (Presidential Decree [P.D.] No. 1460), as xxxx
amended, clearly indicate that the Office of the [IC] is an administrative
The authority to adjudicate granted to the Commissioner under this section necessary to ascertain petitioner's right to claim damages, as prescribed by
shall be concurrent with that of the civil courts, but the filing of a complaint Section 244 of the Insurance Code.
with the Commissioner shall preclude the civil courts from taking cognizance of
a suit involving the same subject matter.' (Italics supplied) On the other hand, the core, if not the sole bone of contention in Adm. Case
No. RD-156, is the issue of whether or not there was unreasonable delay or
Continuing, Section 416 (as amended by Batas Pambansa (B.P.) Blg. 874) also denial of the claims of petitioner, and if in the affirmative, whether or not that
specifies the authority to which appeal may be taken from a final order or would justify the suspension or revocation of the insurers' licenses.
decision of the Commissioner given in the exercise of his adjudicatory or quasi-
judicial power: Moreover, in Civil Case No. Q-95-23135, petitioner must establish her case by
a preponderance of evidence, or simply put, such evidence that is of greater
'Any decision, order or ruling rendered by the Commissioner after a hearing weight, or more convincing than that which is offered in opposition to it. In
shall have the force and effect of a judgment. Any party may appeal from a Adm. Case No. RD-156, the degree of proof required of petitioner to establish
final order, ruling or decision of the Commissioner by filing with the her claim is substantial evidence, which has been defined as that amount of
Commissioner within thirty days from receipt of copy of such order, ruling or relevant evidence that a reasonable mind might accept as adequate to justify
decision a notice of appeal to the Intermediate Appellate Court (now the Court the conclusion.
of Appeals) in the manner provided for in the Rules of Court for appeals from
the Regional Trial Court to the Intermediate Appellate Court (now the Court of In addition, the procedure to be followed by the trial court is governed by the
Appeals) Rules of Court, while the [IC] has its own set of rules and it is not bound by the
rigidities of technical rules of procedure. These two bodies conduct independent
x x x x' means of ascertaining the ultimate facts of their respective cases that will
serve as basis for their respective decisions.1âwphi1
It may be noted that under Section 9 (3) of B.P. Big. 129, appeals from a final
decision of the Insurance Commissioner rendered in the exercise of his If, for example, the trial court finds that there was no unreasonable delay or
adjudicatory authority now fall within the exclusive appellate jurisdiction of denial of her claims, it does not automatically mean that there was in fact no
the Court of Appeals.35 such unreasonable delay or denial that would justify the revocation or
suspension of the licenses of the concerned insurance companies. It only
Go v. Office of the Ombudsman36reiterated the above-stated distinctions vis-a- means that petitioner failed to prove by preponderance of evidence that she is
vis the principles enunciating that a civil case before the trial court involving entitled to damages. Such finding would not restrain the [IC], in the exercise of
recovery of payment of the insured's insurance claim plus damages, can its regulatory power, from making its own finding of unreasonable delay or
proceed simultaneously with an administrative case before the denial as long as it is supported by substantial evidence.
IC.37 Expounding on the foregoing points, this Court said -
While the possibility that these two bodies will come up with conflicting
**The findings of the trial court will not necessarily foreclose the administrative resolutions on the same issue is not far-fetched, the finding or conclusion of
case before the [IC], or [vice versa]. True, the parties are the same, and both one would not necessarily be binding on the other given the difference in the
actions are predicated on the same set of facts, and will require identical issues involved, the quantum of evidence required and the procedure to be
evidence. But the issues to be resolved, the quantum of evidence, the followed.
procedure to be followed[,] and the reliefs to be adjudged by these two bodies
are different. Moreover, public interest and public policy demand the speedy and inexpensive
disposition of administrative cases.
Petitioner's causes of action in Civil Case No. Q-95-23135 are predicated on the
insurers' refusal to pay her fire insurance claims despite notice, proofs of losses Hence, Adm. Case No. RD-156 may proceed alongside Civil Case No. Q-95-
and other supporting documents. Thus, petitioner prays in her complaint that 23135.38
the insurers be ordered to pay the full-insured value of the losses, as embodied
in their respective policies. Petitioner also sought payment of interests and As the aforecited cases are analogous in many aspects to the present case,
damages in her favor caused by the alleged delay and refusal of the insurers to both in respect to their factual backdrop and in their jurisprudential teachings,
pay her claims. The principal issue then that must be resolved by the trial court the case law ruling in the Almendras and in the Go cases must apply with
is whether or not petitioner is entitled to the payment of her insurance claims implacable force to the present case. Consistency alone demands - because
and damages. The matter of whether or not there is unreasonable delay or justice cannot be inconsistent - that the final authoritative mandate in the cited
denial of the claims is merely an incident to be resolved by the trial court, cases must produce an end result not much different from the present case.
All told, we find that the CA did not err in holding that the petitioners utterly In his Answer,7 Augusto claimed that respondents were not the owners of the
failed to prove that the RTC exhibited grave abuse of discretion, amounting to subject property; that Felicidad secured her title through dubious means; that
lack or excess of jurisdiction, which would justify the issuance of the the subject property formed part of a five-hectare piece of property that was
extraordinary writ of certiorari.39 given to him by his father, Atty. Joaquin Trinidad (Atty. Trinidad); that this
five-hectare property was acquired by his father from Genaro Kausapin
WHEREFORE, the Petition is DENIED. The December 21, 2012 Decision and (Genaro), who was his father's client; that said five-hectare property was
the May 22, 2013 Resolution of the Court of Appeals in CA-GR. SP No. 118894 declared for taxation purposes by his father; that since 1980, he (Augusto) has
are hereby AFFIRMED. been in possession of the five-hectare property; that he filed criminal cases for
falsification against Felicidad; and that Felicidad was motivated by greed and
bad faith in filing the case. Augusto thus prayed that the complaint be
Costs against petitioners. dismissed; that Felicidad's TCT T-47318 be nullified; and that damages and
attorney's fees be awarded to him.
SO ORDERED.
During the proceedings, Augusto passed away and was substituted by his
G.R. No. 203397, December 09, 2015 widow - herein petitioner Levy Ong Trinidad - and children - petitioners
Augusto Ong Trinidad II, Augusto Ong Trinidad in, Rohmel Ong Trinidad, and
Joaquin Ong Trinidad III.
AUGUSTO ONG TRINIDAD II, AUGUSTO ONG TRINIDAD III FOR
HIMSELF AND REPRESENTING LEVY ONG TRINIDAD AND ROHMEL ONG Ruling of the Regional Trial Court
TRINIDAD, MARY ANN NEPOMUCENO TRINIDAD FOR HERSELF AND
ASSISTING HER MINOR CHILDREN JOAQUIN GERARD N. TRINIDAD IV, After trial, or on July 4,2008, the RTC rendered its Decision,8 pronouncing as
JACOB GABRIEL N. TRINIDAD, AND JERED GYAN N. follows:
TRINIDAD, Petitioners, v. SPOUSES BONIFACIO PALAD AND FELICIDAD
KAUSAPIN, Respondent.
This is a complaint for recovery of possession with damages filed by the
spouses Bonifacio Palad and Felicidad Kausapin against Augusto Trinidad as the
DECISION original defendant. In the course of the trial Augusto C. Trinidad died and his
widow, Levy Ong Trinidad, and their children Rohmel Ong Trinidad, Augusto
DEL CASTILLO, J.: Ong Trinidad II, Augusto Ong Trinidad III and Joaquin Trinidad III were
substituted as defendants.
This Petition for Review on Certiorari1 seeks to set aside the March 27, 2012
xxxx
Decision2 and August 24,2012 Resolution3 of the Court of Appeals (CA) in CA-
G.R. CV No. 92118 which granted respondents' appeal and reversed the July 4,
The land subject of this case is a 2-hectare portion of the eight (8) hectares
2008 Decision4 of the Regional Trial Court (RTC) of Lucena City, Branch 53
covered by Transfer Certificate of Title No. T-47318 now registered in the
(RTC) in Civil Case No. 92-71.
names of the spouses Bonifacio Palad and Felicidad Kausapin (Exhibit "A").
Factual Antecedents
In their complaint, the plaintiffs merely emphasized the fact that as the
registered owners of the parcel of land with an area of eight (8) hectares
On July 23, 1985, respondents - spouses Bonifacio Palad and Felicidad
including the 2-hectare area in dispute, they are entitled to the possession of
Kausapin (Felicidad) - bought from Renato Ramos (Ramos) an eight-hectare
the disputed area which, despite their demands to the defendants to vacate,
parcel of land located within Lucena City, which was later registered as
the defendants have not vacated the area consisting of a well-developed
Transfer Certificate of Title No. (TCT) T-47318.5
fishpond.
Respondents later caused the subject property to be surveyed, and it was
xxxx
discovered that a two-hectare portion thereof (the subject property) was
occupied by Augusto Trinidad (Augusto), who converted the same into a
For their part, the defendants posit as follows: During the lifetime of Genaro
fishpond.
Kausapin, the father of complainant Felicidad Kausapin, Genaro Kausapin
availed of the legal services of Atty. Joaquin Trinidad in a land dispute involving
On May 29, 1992, respondents filed with the RTC of Lucena City a
a 12-hectare property. For Atty. Trinidad's services, Genaro Kausapin and Atty.
Complaint6 for recovery of possession with damages against Augusto, which
Trinidad executed on October 4, 1977 a document denominated Kasulatan ng
was docketed as Civil Case No. 92-71 and assigned to RTC Branch 53.
Pagbabahagi whereby they partitioned between themselves the 12-hectare
property composed of Lot 13-A, Lot 13-B and Lot 13-C of the Subdivision Plan, From the foregoing, it is clear that when Augusto Trinidad entered the property
(LRC) PSD-254630 confirmed on December 19,1976 by the Land Registration in dispute in 1980 and began to transform it into a fishpond, this was with the
Commission. As his share in the partition Atty. Trinidad was given Lot 13-A knowledge and consent of Genaro Kausapin, the father of the plaintiff. That
(Exhibit "2"). what Augusto Trinidad occupied was Lot 13-C when it should have been Lot
13-A becomes immaterial when it is considered that while the lots were then
In 1980 Atty. Trinidad gave to his son August© Trinidad the five (5) hectares designated as Lot 13-A, Lot 13-B and Lot 13-C, obviously Genaro Kausapin and
given to him by Genaro Kausapin as attorney's fee. Augusto Trinidad developed Atty. Joaquin Trinidad and Augusto Trinidad were not fully aware of the exact
a 2-hectare portion of the five hectares into a fishpond spending huge amount metes and bounds of each lot. This was also the case when, before the area
of money in the process. bought by the plaintiffs was surveyed, the vendor Renato Ramos and the
plaintiffs as vendees did not know that the area developed by Augusto Trinidad
xxxx as a fishpond was within the area sold to the plaintiffs.

By whichever mode the plaintiffs had come to title the 8-hectare property Given that the possession by the defendants of the area in question antedates
including the 2-hectare portion in dispute, the Court, sifting through the by five years the claim of the plaintiffs to the disputed property, and given that
evidence presented by the parties, finds: the parties who should have questioned the entry of the defendants into the
property, namely, Genaro Kausapin or Renato Ramos, did not do so, and
1. By virtue of the Kasulatan ng Pagbabahagi dated October 4, considering the valuable improvements made by the defendants in the area in
1977 Genaro Kausapin and Atty. Joaquin Trinidad partitioned dispute, the defendants have a better right to possess the disputed area, even
between themselves the 12-hectare property composed of Lot as the area had been included in [the] title issued to the plaintiffs.
13-A, Lot 13-B and Lot 13-C of the Subdivision Plan (LRC)
PSD-254630, Atty. Joaquin Trinidad getting Lot 13-A as his WHEREFORE, the complaint is ordered dismissed.
attorney's fee for legal services he rendered to Genaro
Kausapin. Defendants' counterclaim is likewise ordered dismissed.

SO ORDERED.9ChanRoblesVirtualawlibrary
2. Atty. Joaquin Trinidad gave to his son Augusto Trinidad his 5-
hectare share and Augusto Trinidad, beginning the year 1980, Riding of the Court of Appeals
developed a portion of the area into a fishpond spending a
huge amount of money in the process. Respondents filed an appeal before the CA, docketed as CA-G.R. CV No. 92118,
arguing that as registered owners of the subject two-hectare property, they
3. On July 23, 1985 the plaintiffs bought an 8-hectare property have a better right thereto; that petitioners' claim that the subject property
from Renato Ramos and they had the land titled in their was part of a 12-hectare piece of property owned by respondent Felicidad's
names on September 11,1985. father Genaro, five hectares of which was allegedly awarded by Genaro to
petitioners' father Atty. Trinidad as the latter's attorney's fees in a case, has no
4. It was when the plaintiffs had the land they bought from basis, as there is no evidence on record to show that Genaro even owned a
Renato Ramos surveyed that they found out that the fishpond parcel of land; that in truth, Genaro was a mere tenant of the original owners
developed by Augusto Trinidad was embraced in the area of of the 12-hectare property - Juliana Navarro (Navarro), Pedro Loyola, and
the [land] Renato Ramos sold to them. Ramos; that eventually, Ramos sold an eight-hectare portion of the property to
respondents, which is now the property covered by TCT T-47318 and claimed
by petitioners to the extent of two hectares; that apart from a document
5. Renato Ramos did not know that the area developed by
denominated as "Kasulatan ng Pagbabahagi" supposedly executed by Genaro
Augusto Trinidad into a fishpond was part of the land he
and Atty. Trinidad on October 4,1977, petitioners have not presented any title
(Ramos) sold to the plaintiffs. Otherwise, if Renato Ramos
or any other documentary proof, such as receipts showing payment of real
knew this, he would not have allowed Augusto Trinidad to
property taxes, to prove their alleged ownership of the subject property; that
occupy and transform the area into a fishpond and, much
respondents cannot be bound by the supposed agreement between Genaro and
more, for him (Renato Ramos) to have sold the entire
Atty. Trinidad because it is void since, being a mere tenant of the property,
property to the plaintiffs for the measly sum of P8,000.00,
Genaro cannot award the same to Atty. Trinidad; that Genaro's status as a
given the size of the area and the improvements on the area
mere tenant is known to Atty. Trinidad, since the latter was Genaro's counsel in
in dispute. Likewise, it was only after the plaintiffs had caused
a claim involving the subject property docketed as CAR Case No. 585(62),
the survey of the area they bought that they came to know
which was eventually terminated by Genaro's execution in 1963 of a
that the 2-hectare [property] developed by Augusto Trinidad
"Kasunduan", wherein he acknowledged before Ramos and Atty. Trinidad that
into a fishpond was within the area they bought.
he was a mere tenant of the Ramos family; that Augusto was a policeman
during his lifetime, and he took over the disputed property by force, and The established legal principle in actions for annulment or reconveyance
respondents -fearing violence and bloodshed - opted to resort to court action of title is that a party seeking it should establish not merely by a
instead; and that under the Civil Code,10 they are protected as the registered preponderance of evidence but by clear and convincing evidence that
owners, and petitioners should be considered intruders and builders in bad the land sought to be reconveyed is his. It is rather obvious from the
faith. foregoing disquisition that respondent failed to dispense such burden. Indeed,
the records are replete with proof that respondent declared the lots comprising
During the pendency of the appeal, Joaquin Ong Trinidad HI died and was Lot No. 3050 for taxation purposes only after it had instituted the present case
substituted by his widow and children - herein petitioners Mary Ann in court. This is not to say of course that tax receipts are evidence of
Nepomuceno Trinidad, Joaquin Gerard N. Trinidad IV, Jacob Gabriel N. Trinidad ownership, since they are not, albeit they are good indicia of possession in the
and Jered Gyan N. Trinidad. concept of owner, for no one would ordinarily be paying taxes for a property
not in his actual or at least constructive possession. x x x
On March 27, 2012, the CA rendered the assailed judgment, declaring as
Here, appellees offered no evidence, much less, clear and convincing evidence,
follows:
that Spouses Palad's transfer certificate of title should be annulled. In fact, it is
In this appeal, Spouses Palad assert their Transfer Certificate of Title No. T-
on record that appellees' documents pertain to Lot 13-A, but they occupied Lot
47318 which undoubtedly covers appellees' two-hectare fishpond found within
13-C. As the trial court determined, appellees' only basis for claiming the
the former's eight-hectare lot. They argue that appellees' predecessors-in-
fishpond was their occupation thereof, though mistakenly and the absence of
interest, Genaro Kausapin and Atty. Joaquin Trinidad, were never owners of
the boundaries of Lots 13-A, 13-B and 13-C. But these matters do not and
the eight-hectare lot, including the subject realty, as the property was owned
cannot annul Spouses Palad's transfer certificate of title. They actually imply
by Renato Ramos who sold it to them.
admission of appellees' intrusion into Lot 13-C under Transfer Certificate of
Title No. T-47318 without any right to own or possess it. Truth to tell, the trial
On the other hand, appellees reiterate in their brief that their father possessed
court correctly did not set aside the transfer certificate of title. Hence, it
the fishpond long before Spouses Palad bought the eight-hectare lot. They also
remains valid and binding with all its legal effects.
posit that a certificate of title by itself alone does not vest ownership in any
person.
ACCORDINGLY, the appeal is GRANTED. The Decision dated July 4, 2008 of
the Regional Trial Court, Branch 53, Lucena City, in Civil Case No. 92-71
We grant the appeal.
is REVERSED AND SET ASIDE. Defendants-appellees Levy Ong Trinidad,
Joaquin Trinidad III, Augusto Trinidad II, Augusto Trinidad III and Rohmel
Appellants are owners of the eight-hectare lot, including the two-hectare
Trinidad, their successors-in-interest, privies and heirs are ordered to vacate
fishpond, by virtue of their Transfer Certificate of Title No. T-47318. Spouses
the two-hectare fishpond occupied by them in Lot 13-C under Transfer
Esmaquel v. Coprada, explains why:
Certificate of Title No. T-47318. No costs.
On the other hand, it is undisputed that the subject property is covered by
Transfer Certificate of Title No. T-93542, registered in the name of the
SO ORDERED.11 (Emphasis in the original).
petitioners. As against the respondent's unproven claim that she acquired a
portion of the property from the petitioners by virtue of an oral sale, the Petitioners filed their Motion for Reconsideration,12 which was denied in the
Torrens title of petitioners must prevail. Petitioners' title over the assailed August 24, 2012 Resolution. Hence, the instant Petition.
subject property is evidence of their ownership thereof. It is a
fundamental principle in land registration that the certificate of title In a January 27, 2014 Resolution,13 this Court resolved to give due course to
serves as evidence of an indefeasible and incontrovertible title to the the Petition.
property in favor of the person whose name appears therein.
Moreover, the age-old rule is that the person who has a Torrens title Issues
over a land is entitled to possession thereof.
As a rule, a certificate of title cannot be attacked collaterally. At any rate, Petitioners claim that the CA erred:
in Spouses Sarmiento et al. v. Court of Appeals et al., a counterclaim assailing
a certificate of title is deemed a direct attack. x x x 1. In its ruling that the respondents have a better right of
possession over the disputed 2-hectare portion of the 8-
xxxx hectare property by the mere fact that said disputed portion is
covered by a certificate of title in their names;
The burden of proof is on appellees to establish by clear and convincing
evidence the ground or grounds for annulling a certificate of title, In Lasquite 2. In its ruling that the petitioners offered no evidence that
et al. v. Victory Hills: spouses Palad's transfer certificate of title should be annulled,
and therefore remains valid and binding with all its legal C which is registered in the name of respondents as TCT T-47318.
effects, as it failed to consider evidence showing otherwise;
The evidence on record also suggests that contrary to petitioners' claim, the
3. In its ruling that the petitioners should vacate the 2-hectare subject property constitutes a portion of an eight-hectare parcel of land
fishpond, as it failed to consider that the respondents have no acquired by respondents from Ramos by purchase in 1985, and was not the
right or cause of action against the petitioners to seek the result of a June 5, 1985 deed of extrajudicial settlement and September 9,
latter's ejectment from the property in question.14 1985 segregation agreement between the original owners and respondent
Felicidad. This is a finding of fact arrived at by both the RTC and the CA - and
this is admitted by petitioners in their Petition, which specifically adopted the
Petitioners'Arguments
findings of fact of the RTC on this score.19
In their Petition and Reply15 seeking reversal of the assailed CA dispositions
By adopting the findings of fact of the trial court, petitioners are precluded
and reinstatement of the RTC's July 4, 2008 Decision dismissing Civil Case No.
from further arguing that TCT T-47318 is void on the ground that it was
92-71, petitioners essentially argue that respondents may not claim ownership
obtained through a simulated extrajudicial settlement agreement; and as far as
of the subject property just because it is embraced within their title, TCT T-
this Court is concerned, the fact is settled that respondents acquired the
47318; that TCT T-47318 is null and void since it is the result of a June 5, 1985
property covered by TCT T-47318 by purchase from Ramos. If indeed Felicidad
deed of extrajudicial settlement16 and September 9, 1985 segregation
was an heir of any of the original owners of the property, then there would
agreement17 and not a sale between respondents and Ramos; that since
have been no need for her to purchase the same. Besides, the evidence further
respondent Felicidad was not an heir of one of the original owners of the
points to the fact that Felicidad's father Genaro was a mere tenant of the
property - Navarro - as erroneously stated in the deeds of extrajudicial
Ramos family and could not have owned the property in question; and this is
settlement and segregation agreement, said documents are therefore null and
precisely why, to own it, she had to purchase the same from Ramos.
void, and could not be the bases for the issuance of TCT T-47318; that the
subject property was not included in the July 23, 1985 sale between
The CA is therefore correct in its pronouncement - citing Spouses Esmaquel
respondents and Ramos because its inclusion in TCT T-47318 was discovered
and Sordevilla v. Coprada20 - that TCT T-47318 constitutes evidence of
only after a survey was conducted after the sale; that since respondents are
respondents' ownership over the subject property, which lies within the area
not the owners of the subject property, they have no cause of action against
covered by said title; that TCT T-47318 serves as evidence of indefeasible and
petitioners; and that in their answer with counterclaim, they sought to annul
incontrovertible title to the property in favor of respondents, whose names
TCT T-47318, claiming that respondents secured same through Felicidad's
appear therein; and that as registered owners, they are entitled to possession
claim that she is an heir of Navarro - thus, said allegation made through a valid
of the subject property. As against possession claimed by the petitioners,
counterclaim constitutes a direct attack upon the validity of TCT T-47318 which
respondents' certificate of title prevails. "[M]ere possession cannot defeat the
is allowed by law.
title of a holder of a registered [T]orrens title x x x."21
Respondents' Arguments
On the other hand, petitioners' claim - their main defense in the suit - is that
their predecessor Augusto was the owner of the subject property. But such
In their Comment seeking denial of the Petition, respondents argue that the
18
claim rests on very shaky ground. First, they claim that the subject property
CA correctly held that TCT T-47318 serves as incontrovertible proof of their
was awarded as attorney's fees in 1977 to Augusto by Genaro. However, in
indefeasible title to the subject property, as well as their right to possession
seeking the annulment of respondents' title, they claim at the same time that
thereof; that petitioners' claim that their title is void as it arose out of void
the property was acquired by Felicidad through inheritance from Navarro, who
agreements constitutes a prohibited collateral attack on TCT T-47318; that the
happens to be the grandmother of Ramos.22 And yet, at the appeal stage
issue of validity or nullity of TCT T-47318 cannot be raised, as said issue was
before the CA, they adopt without question the RTC's finding that the subject
not touched upon by the RTC; that TCT T-47318 may not be annulled because
property was purchased by Felicidad from Ramos. Such a conflicting and flip-
petitioners' supposed claim of ownership specifically refers to Lot 13-A, while
flopping stance deserves no serious consideration. Genaro may not dispose of
they wrongly occupied Lot 13-C, which is the subject of TCT T-47318; and that
the property which does not belong to him although he may have executed a
with the finding on record that petitioners wrongly occupied Lot 13-C, they
document awarding the same to Augusto. No one can give that which he does
must be ordered to vacate the same and surrender possession to respondents
not own - nemo dat quod non habet. Finally, petitioners acknowledge that what
who are the registered owners
Genaro supposedly gave Augusto as the latter's attorney's fees was Lot 13-A,
while it turned out that what Augusto occupied was Lot 13-C, which is
Our Ruling registered in respondents' favor as TCT T-47318. Evidently, Augusto had no
right over Lot 13-C which he wrongly occupied; consequently, petitioners, as
The Court denies the Petition. Augusto's successors-in-interest, have no viable defense to respondents' claim
in Civil Case No. 92-71.
The fact is undisputed that the subject two-hectare property lies within Lot 13-
Indeed, the only reason why petitioners won their case in the RTC is that in the Industry Arbitration Commission in CIAC Case No. 09-2008 is
court's July 4, 2008 Decision it assumed and concluded that Genaro was the hereby MODIFIED as follows:
owner of the subject property which he awarded to Augusto via the supposed
October 4, 1977 "Kasulatan ng Pagbabahagi" between Genaro and Augusto - 1) Respondent Werr Corporation International shall pay petitioner Highlands
when the evidence points to the fact that the property was acquired by Prime, Inc. liquidated damages in the amount of ₱8,969,330.70;
respondents through purchase from its original owner, Ramos.

Thus, as the CA correctly held, petitioners are mere intruders with respect to 2) Petitioner Highlands Prime, Inc. shall return to respondent Werr Corporation
the subject property; they have no right to own or possess the same. On the International the balance of its retention money in the amount of
other hand, as registered owners of the subject property, respondents have the ₱10,955,899.80 with the right to offset the award for liquidated damages in the
right to exercise all attributes of ownership including possession which they aforesaid amount of ₱8,969,330.70; and
cannot do while petitioners remain there.
3) The cost of arbitration shall be shared equally by the parties.
WHEREFORE, the Petition is DENIED. The March 27, 2012 Decision and
August 24, 2012 Resolution of the Court of Appeals in CA-G.R. CV No. 92118 The rest of the decision stands.
are AFFIRMED IN TOTO. Petitioners and their heirs, successors-in-interest
and privies are ordered to VACATE the two-hectare fishpond as well as any
other portion of the property covered by Transfer Certificate of Title No. T- SO ORDERED.5
47318.
Facts
SO ORDERED.chanroblesvirtuallawlibrary
Highlands Prime, Inc. (HPI) and Werr Corporation International (Werr) are
domestic corporations engaged in property development and construction,
G.R. No. 187543 respectively. For the construction of 54 residential units contained in three
clusters of five-storey condominium structures, known as "The Horizon-
WERR CORPORATION INTERNATIONAL, Petitioner Westridge Project," in Tagaytay Midlands Complex, Talisay, Batangas, the
vs. project owner, HPI, issued a Notice of Award/Notice to Proceed6 to its chosen
HIGHLANDS PRIME INC., Respondent contractor, Werr, on July 22, 2005. Thereafter, the parties executed a General
Building Agreement7 (Agreement) on November 17, 2005.8
x-----------------------x
Under the Agreement, Werr had the obligation to complete the project within
210 calendar days from receipt of the Notice of Award/Notice to Proceed on
G.R. No. 187580
July 22, 2005, or until February 19, 2006.9 For the completion of the project,
HPI undertook to pay Werr a lump sum contract price of ₱271,797,900.00
HIGHLANDS PRIME, INC., Petitioner, inclusive of applicable taxes, supply and transportation of materials, and
vs. labor.10 It was agreed that this contract price shall be subject to the following
WERR CORPORATION INTERNATIONAL, Respondent. payment scheme: (1) HPI shall pay 20% of the contract price upon the
execution of the agreement and the presentation of the necessary bonds and
DECISION insurance required under the contract, and shall pay the balance on
installments progress billing subject to recoupment of downpayment and
retention money;11 (2) HPI shall retain 10% of the contract price in the form of
JARDELEZA, J.: retention bond provided by Werr;12 (3) HPI may deduct or set off any sum
against monies due Werr, including expenses for the rectification of defects in
These are consolidated petitions1 seeking to nullify the Court of Appeals' (CA) the construction project;13 and (4) HPI has the right to liquidated damages in
February 9, 2009 Decision2 and April 16, 2009 Resolution3 in CA-G.R. SP No. the event of delay in the construction of the project equivalent to 1/10 of 1%
105013. The CA modified the August 11, 2008 Decision4 of the Construction of the contract price for every day of delay.14
Industry Arbitration Commission (CIAC) in CIAC Case No. 09-2008, viz.:
Upon HPI's payment of the stipulated 20% downpayment in the amount of
WHEREFORE, premises considered, the instant petition for review is PARTLY ₱54,359,580.00, Werr commenced with the construction of the project. The
GRANTED. The assailed Decision dated August 11, 2008 of the Construction contract price was paid and the retention money was deducted, both in the
progress billings. The project, however, was not completed on the initial
completion date of February 19, 2006, which led HPI to grant several delay,26 but denied its counterclaim for damages, attorney's fees, and litigation
extensions and a final extension until October 15, 2006. On May 8, 2006, W err expenses.
sought the assistance of HPI to pay its obligations with its suppliers under a
"Direct Payment Scheme" totaling ₱24,503,500.08, which the latter approved From the claims of HPI, the CIAC only deducted the amounts of (1)
only up to the amount of ₱18,762,541.67. The amount is to be charged against ₱10,903,331.30 representing the direct payments made from September 26,
the accumulated retention money. As of the last billing on October 25, 2006, 2006 until December 31, 2006,27 (2) ₱3,336,526.91 representing the
HPI had already paid the amount of ₱232,940,265.85 corresponding to 93.18% unrecouped retention money, and (3) P542,500.00 representing the unpaid
accomplishment rate of the project and retained the amount of ₱25,738,258.01 cash advances from the ₱25,738,258.0l retention money. It disallowed the
as retention bond.15 direct payments charged by HPI in 2007 and 2008 for having been supplied
after the termination of the project, for not corresponding to the list of
The project was not completed on the last extension given. Thus, HPI suppliers submitted, and for HPI failing to show that Werr requested it to
terminated its contract with Werr on November 28, 2006, which the latter continue payments even after termination of the Agreement. It also disallowed
accepted on November 30, 2006.16 No progress billing was adduced for the the amount of ₱629,702.24 for the waterproofing works done by Dubbel
period October 28, 2006 until the termination of the contract.17 Philippines for being works done after the termination of the contract. The
₱3,040,000.00 for the rectification works performed after the termination of
On October 3, 2007, Werr demanded from HPI payment of the balance of the the contract was also disallowed because while HPI presented its contract with
contract price as reflected in its financial status report which showed a A.A. Manahan Construction for rectification and completion works, it failed to
conditional net payable amount of ₱36,078,652.90.18 On January 24, 2007, HPI present proof of how much was specifically paid for rectification works only, as
informed Werr that based on their records, the amount due to the latter as of well as the proof of its payment. Moreover, prior notice of such defective works
December 31, 2006 is ₱14,834,926.71.19 This amount was confirmed by was not shown to have been given to Werr as required under the Agreement,
Werr.20 Not having received any payment, Werr filed a Complaint21 for and even noted that HPI's project manager approved of the quality of the
arbitration against HPI before the CIAC to recover the ₱14,834,926.71 works up to almost 94%.28
representing the balance of its retention money.
The CIAC further ruled that Werr incurred only 9.327 days of delay. Citing
In its Answer,22 HPI countered that it does not owe Werr because the balance Article 137629 of the Civil Code and considering the failure of the Agreement to
of the retention money answered for the payments made to suppliers and for state otherwise, it applied the industry practice in the construction industry
the additional costs and expenses incurred after termination of the contract. that liquidated damages do not accrue after achieving substantial compliance.
From the retention money of ₱25,738,258.0l, it deducted (1) ₱18,762,541.67 It held that delay should be counted from October 27, 2006 until the projected
as payment to the suppliers under the Direct Payment Scheme, and (2) date of substantial completion. Since the last admitted accomplishment is
₱7,548,729.15 as additional costs and expenses further broken down as 93.18% on October 27, 2006, the period it will take Werr to perform the
follows: (a) ₱3,336,526.91 representing the unrecouped portion of the 20% remaining 1.82% is the period of delay. Based on the past billings, since it took
downpayment; (b) ₱542,500.00 representing the remainder of Werr's unpaid Werr 5 .128 days30 to achieve 1% accomplishment, it will therefore take it
advances; (c) ₱629,702.24 for the waterproofing works done by Dubbel 9.327 days to achieve substantial completion. Thus, the CIAC concluded that
Philippines; and (d) ₱3,040,000.00 for the rectification works performed by the period of delay until substantial completion of the project is 9.327 days.
A.A. Manahan Construction after the termination of the contract. Deducting the The liquidated damages under the Agreement being 1/10 of 1% of the
foregoing from the accumulated retention money resulted in a deficiency of ₱271,797,900.00 or ₱271,797.90 per day of delay, Werr is liable for liquidated
₱573,012.81 in its favor.23 By way of counterclaim, HPI prayed for the payment damages in the amount of ₱2,535,048.95.31
of liquidated damages in the amount of ₱11,959,107.60 for the 44-day delay in
the completion of the project reckoned from October 15, 2006 up to the Since the liquidated damages did not exhaust the balance of the retention
termination of the Agreement on November 28, 2006; for actual damages in money, the CIAC likewise denied the claim for actual damages.32
the sum of ₱573,012.81; and for attorney's fees of ₱500,000.00 and litigation
expenses of ₱100,000.00.24 Thereafter, HPI filed its petition for review33 under Rule 43 with the CA on
August 28, 2008.1âwphi1
CIAC's Ruling
CA's Ruling
After due proceedings, the CIAC rendered its Decision25 on August 11, 2008
where it granted Werr's claim for the balance of the retention money in the The CA rendered the assailed decision, affirming the CIAC's findings on the
amount of ₱10,955,899.79 and arbitration costs. It also granted HPI's claim for allowable charges against the retention money, and on the attorney's fees and
liquidated damages in the amount of ₱2,535,059.0l equivalent to 9.327 days of litigation expenses. It, however, disagreed with the CIAC decision as to the
amount of liquidated damages and arbitration costs. According to the CA, delay
should be computed from October 27, 2006 until termination of the contract on IV. Whether HPI is entitled to attorney's fees and litigation expenses.
November 28, 2006, or 33 days, since the contract prevails over the industry
practice. Thus, the total liquidated damages is ₱8,969,330.70. As to the Our Ruling
arbitration costs, it ruled that it is more equitable that it be borne equally by
the parties since the claims of both were considered and partially granted. 34
We deny the consolidated petitions.
Hence, these consolidated petitions.
I. Charges against the Retention Money

Arguments
Anent the first issue, we emphasize that what is before us is a petition for
review under Rule 45 where only questions of law may be raised.39 Factual
Werr argues that the CA erred in modifying the CIAC decision on the amount of issues, which involve a review of the probative value of the evidence
liquidated damages and arbitration costs. It insists that the appellate court presented, such as the credibility of witnesses, or the existence or relevance of
disregarded Articles 1234, 1235, and 1376 of the Civil Code and the industry surrounding circumstances and their relation to each other, may not be raised
practice (as evidenced by Clause 52.1 of the Construction Industry Authority of unless it is shown that the case falls under recognized exceptions.40
the Philippines [CIAP] Document No. 101 or the "General Conditions of
Contract for Government Construction" and Article 20.11 of CIAP Document
No. 102 or the "Uniform General Conditions of Contract for Private In cases of arbitral awards rendered by the CIAC, adherence to this rule is all
Construction") when it did not apply the construction industry practice in the more compelling.41 Executive Order No. 1008,42 which vests upon the CIAC
computing liquidated damages only until substantial completion of the project, original and exclusive jurisdiction over disputes arising from, or connected
and not until the termination of the contract.35 Werr further emphasizes that with, contracts entered into by parties involved in construction in the
the CIAC, being an administrative agency, has expertise on the subject matter, Philippines, clearly provides that the arbitral award shall be binding upon the
and thus, its findings prevail over the appellate court's findings.36 parties and that it shall be final and inappealable except on questions of law
which shall be appealable to the Supreme Court.43 This rule on the finality of an
arbitral award is anchored on the premise that an impartial body, freely chosen
On the other hand, HPI argues that Werr was unjustly enriched when the CA by the parties and to which they have confidence, has settled the dispute after
disallowed HPI' s recovery of the amounts it paid to suppliers. HPI claims that: due proceedings:
(1) payments made to suppliers identified in the Direct Payment Scheme even
after the termination of the contract should be charged against the balance of
the retention money, the same having been made pursuant to Werr's express Voluntary arbitration involves the reference of a dispute to an impartial body,
instructions; (2) the payments to Dubbel Philippines and the cost of the the members of which are chosen by the parties themselves, which parties
contract with A.A. Manahan Construction are chargeable to the retention freely consent in advance to abide by the arbitral award issued after
money, pursuant to the terms of the Agreement; and (3) the expenses proceedings where both parties had the opportunity to be heard. The basic
incurred in excess of the retention money should be paid by Werr as actual objective is to provide a speedy and inexpensive method of settling disputes by
damages. These payments, while made after the termination of the contract, allowing the parties to avoid the formalities, delay, expense and aggravation
were for prior incurred obligations.37 HPI also argues that it is not liable for which commonly accompany ordinary litigation, especially litigation which goes
arbitration costs, and reiterates its claims for actual damages, and payment of through the entire hierarchy of courts. Executive Order No. 1008 created an
attorney's fees and litigation expenses.38 arbitration facility to which the construction industry in the Philippines can have
recourse. The Executive Order was enacted to encourage the early and
expeditious settlement of disputes in the construction industry, a public policy
Issues the implementation of which is necessary and important for the realization of
national development goals.
I. Whether the payments made to suppliers and contractors after the
termination of the contract are chargeable against the retention money. Aware of the objective of voluntary arbitration in the labor field, in the
construction industry, and in any other area for that matter, the Court will not
II. Whether the industry practice of computing liquidated damages only up to assist one or the other or even both parties in any effort to subvert or defeat
substantial completion of the project applies in the computation of liquidated that objective for their private purposes. The Court will not review the factual
damages. Consequently, whether delay should be computed until termination findings of an arbitral tribunal upon the artful allegation that such body had
of the contract or until substantial completion of the project. "misapprehended the facts" and will not pass upon issues which are, at bottom,
issues of fact, no matter how cleverly disguised they might be as "legal
III. Whether the cost of arbitration should be shouldered by both parties. questions." The parties here had recourse to arbitration and chose the
arbitrators themselves; they must have had confidence in such arbitrators. The
Court will not, therefore, permit the parties to relitigate before it the issues of project and did not correspond to the list of suppliers submitted; that the
facts previously presented and argued before the Arbitral Tribunal, save only waterproofing works done by Dubbel Philippines in the amount of ₱629,702.24
where a very clear showing is made that, in reaching its factual conclusions, were for works done after the termination of the contract that were for the
the Arbitral Tribunal committed an error so egregious and hurtful to one party account of the new contractor; and that the rectification works performed after
as to constitute a grave abuse of discretion resulting in lack or loss of the termination of the contract worth ₱3,040,000.00 were not proven to have
jurisdiction. Prototypical examples would be factual conclusions of the Tribunal been paid, that it was for rectification works only, and that prior notice of such
which resulted in deprivation of one or the other party of a fair opportunity to defective works as required under the Agreement was not proven. Accordingly,
present its position before the Arbitral Tribunal, and an award obtained through we affirm that the balance of the retention money is ₱10,955,899.79.
fraud or the corruption of arbitrators. Any other, more relaxed, rule would
result in setting at naught the basic objective of a voluntary arbitration and II. Delay in computing Liquidated Damages
would reduce arbitration to a largely inutile institution.44

On the other hand, the question on how liquidated damages should be


In this case, the issues of whether HPI was able to prove that payments made computed based on the Agreement and prevailing jurisprudence is a question
to suppliers and to third party contractors are prior incurred obligations that of law that we may review.
should be charged against the retention money, and whether HPI incurred
expenses above the retention money that warrants actual damages, are issues
of facts beyond the review of the Court under Rule 45. The pertinent provision on liquidated damages is found in clause 41.5 of the
Agreement, viz.:

Moreover, even if we consider such factual issues, we are bound by the


findings of fact of the CIAC especially when affirmed by the CA.45 Factual 41.5. Considering the importance of the timely completion of the WORKS on
findings by a quasi-judicial body like the CIAC, which has acquired expertise the OWNER'S commitments to its clients, the CONTRACTOR agrees to pay
because its jurisdiction is confined to specific matters, are accorded not only the OWNER liquidated damages in the amount of 1/10th of 1% of the amount
with respect but even finality if they are supported by substantial of the Contract price for every day of delay (inclusive of Sundays and
evidence.46 We recognize that certain cases require the expertise, specialized holidays).51
skills, and knowledge of the proper administrative bodies because technical
matters or intricate questions of facts are involved.47 Werr, as contractor, urges us to apply the construction industry practice that
liquidated damages do not accrue after the date of substantial completion of
We nevertheless note that factual findings of the construction arbitrators are the project, as evidenced in CIAP Document No. 102, which provides that:
not beyond review, such as when the petitioner affirmatively proves the
following: (1) the award was procured by corruption, fraud, or other undue 20.11 SUBSTANTIAL COMPLETION AND ITS EFFECT:
means; (2) there was evident partiality or corruption of the arbitrators or any
of them; (3) the arbitrators were guilty of misconduct in refusing to hear
A. [a] There is substantial completion when the Contractor completes 95% of
evidence pertinent and material to the controversy; (4) one or more of the
the Work, provided that the remaining work and the performance of the work
arbitrators were disqualified to act as such under Section 1048 of Republic Act
necessary to complete the Work shall not prevent the normal use of the
No. 87649 and willfully refrained from disclosing such disqualifications or of any completed portion.
other misbehavior by which the rights of any party have been materially
prejudiced; (5) the arbitrators exceeded their powers, or so imperfectly
executed them, that a mutual, final, and definite award upon the subject xxx
matter submitted to them was not made; (6) when there is a very clear
showing of grave abuse of discretion resulting in lack or loss of jurisdiction as D. [a] No liquidated damages for delay beyond the Completion Time shall
when a party was deprived of a fair opportunity to present its position before accrue after the date of substantial completion of the Work.
the arbitral tribunal or when an award is obtained through fraud or the
corruption of arbitrators; (7) when the findings of the CA are contrary to those
We reject this claim of Werr and find that while this industry practice may
of the CIAC; or (8) when a party is deprived of administrative due
supplement the Agreement, Werr cannot benefit from it.
process.50 However, we do not find that HPI was able to show any of the
exceptions that should warrant a review and reversal of the findings made by
the CIAC and the CA. At the outset, we do not agree with the CA that industry practice be rejected
because liquidated damages is provided in the Agreement, autonomy of
contracts prevails, and industry practice is completely set aside. Contracting
Thus, we affirm the CIAC and CA's findings that direct payments charged by
parties are free to stipulate as to the terms and conditions of the contract for
HPI in 2007 and 2008 were for materials supplied after the termination of the
as long as they are not contrary to law, morals, good customs, public order or
public policy.52 Corollary to this rule is that laws are deemed written in every provide for the pertinent policies and/or executive action and/or legislative
contract.53 agenda necessary to implement plans, programs and measures required to
support the sustainable development of the construction industry, such as but
Deemed incorporated into every contract are the general provisions on not limited to the following:
obligations and interpretation of contracts found in the Civil Code. The Civil
Code provides: xxx

Art. 1234. If the obligation has been substantially performed in good faith, the 9.05 The promulgation and adoption of Standard Conditions of Contract for the
obligor may recover as though there had been a strict and complete fulfillment, public construction and private construction sector which shall have suppletory
less damages suffered by the obligee. effect in cases where there is a conflict in the internal documents of a
construction contract or in the absence of the general conditions of a
Art. 1376. The usage or custom of the place shall be borne in mind in the construction agreement[.]
interpretation of the ambiguities of a contract, and shall fill the omission of
stipulations which are ordinarily established. As the standard conditions for contract for private construction adopted and
promulgated by the CIAP, CIAP Document No. 102 applies suppletorily to
In previous cases, we applied these provisions in construction agreements to private construction contracts to remedy the conflict in the internal documents
determine whether the project owner is entitled to liquidated damages. We of, or to fill in the omissions in, the construction agreement.
held that substantial completion of the project equates to achievement of 95%
project completion which excuses the contractor from the payment of In this case, clause 41.5 of the Agreement is undoubtedly a valid stipulation.
liquidated damages. However, while clause 41.5 requires payment of liquidated damages if there is
delay, it is silent as to the period until when liquidated damages shall run. The
In Diesel Construction Co., Inc. v. UPSI Property Holdings, Inc.,54 we applied Agreement does not state that liquidated damages is due until termination of
Article 1234 of the Civil Code. In determining what is considered substantial the project; neither does it completely reject that it is only due until substantial
compliance, we used the CIAP Document No. 102 as evidence of the completion of the project. This omission in the Agreement may be
construction industry practice that substantial compliance is equivalent to 95% supplemented by the provisions of the Civil Code, industry practice, and the
accomplishment rate. In that case, the construction agreement requires the CIAP Document No. 102. Hence, the industry practice that substantial
contractor "to pay the owner liquidated damages in the amount equivalent to compliance excuses the contractor from payment of liquidated damages applies
one-fifth (1/5) of one (1) percent of the total Project cost for each calendar day to the Agreement.
of delay."55 We declared that the contractor cannot be liable for liquidated
damages because it already accomplished 97.56% of the project.56 We Nonetheless, we find that Werr cannot benefit from the effects of substantial
reiterated this in Transcept Construction and Management Professionals, Inc. v. compliance.
Aguilar57 where we ruled that since the contractor accomplished 98.16% of the
project, the project owner is not entitled to the 10% liquidated damages.58 Paragraph A.[a.], Article 20.11 of CIAP Document No. 102 requires that the
contractor completes 95% of the work for there to be substantial completion of
Considering the foregoing, it: was error for the CA to immediately dismiss the the project. Also, in those cases where we applied the industry practice to
application of industry practice on the sole ground that there is an existing supplement the contracts and excused payment from liquidated damages
agreement as to liquidated damages. As expressly stated under Articles 1234 under Article 1234, the contractors there actually achieved 95% completion of
and 1376, and in jurisprudence, the construction industry's prevailing practice the project. Neither the CIAC nor the courts assumed as to when substantial
may supplement any ambiguities or omissions in the stipulations of the compliance will be achieved by the contractor, but the contractors offered
contract. substantial evidence that they actually achieved at least 95% completion of the
project. Thus, the effects of substantial completion only operate to relieve the
Notably, CIAP Document N0. 102, by itself, was intended to have suppletory contractor from the burden of paying liquidated damages when it has, in
effect on private construction contracts.1âwphi1 This is evident in CIAP Board reality, achieved substantial completion of the project.
Resolution No. 1-98,59 which states:
While the case before us presents a different scenario, as the contractor here
Sec. 9. Policy-Making Body, - The [CIAP], through the CIAP Executive Office does not demand total release from payment of liquidated damages, we find
and its various Implementing Agencies, shall continuously monitor and study that in order to benefit from the effects of the substantial completion of a
the operations of the construction industry, both domestic and overseas project, the condition precedent must first be met-the contractor must
operations, to identify its needs, problems and opportunities, in order to successfully prove by substantial evidence that it actually achieved 95%
completion rate of the project. As such, it is incumbent upon Werr to show that Courts are allowed to adjudge which party may bear the cost of the suit
it had achieved an accomplishment rate of 95% before or at the time of the depending on the circumstances of the case.61 Considering the CA's findings
termination of the contract. that both parties were able to recover their claims, and neither was guilty of
bad faith, we do not find that the CA erred in dividing the arbitration costs
Here, there is no dispute that Werr failed to prove that it completed 95% of the between the parties.
project before or at the time of the termination of the contract. As found by
CIAC, it failed to present evidence as to what accomplishment it achieved from We also do not find the need to disturb the findings as to attorney's fees and
the time of the last billing until the termination of the contract.60 What was expenses of litigation, both the CIAC and the CA having found that there is no
admitted as accomplishment at the last billing is 93.18%. For this reason, even basis for the award of attorney's fees and litigation expenses.62
if we adopt the rule that no liquidated damages shall run after the date of WHEREFORE, the petitions are DENIED. The Court of Appeals' February 9,
substantial completion of the project, Werr cannot claim benefit for it failed to 2009 Decision and April 16, 2009 Resolution are AFFIRMED. The net award in
meet the condition precedent, i.e., the contractor has successfully proven that favor of Werr Corporation International shall earn interest at the rate of
it actually achieved 95% completion rate. 6% per annum from date of demand on October 3, 2007 until finality of this
Decision. Thereafter, the total amount shall earn interest from finality of this
More importantly, Werr failed to show that it is the construction industry's Decision until fully paid.
practice to project the date of substantial completion of a project, and to
compute the period of delay based on the rate in past progress billings just as SO ORDERED.
what the CIAC has done. Consequently, the CIAC erred when it assumed that
Werr continued to perform works, and if it did, that it performed them at the LAND BANK OF THE PHILIPPINES, G.R. No. 190755
rate of accomplishment of the previous works in the absence of evidence. Petitioner,
Present:
That the effects of substantial completion will only apply
when actual substantial completion is reached is apparent when we consider CORONA, C.J., Chairperson,
the reason behind the rules on substantial completion of the project found in - versus - VELASCO, JR.,
Section 20.1l[E] of the CIAP Document No. 102, viz.: LEONARDO-DE CASTRO,
PERALTA,* and
E. The purpose of this Article [ART. 20, WORK; 20.11: SUBSTANTIAL PEREZ, JJ.
COMPLETION AND ITS EFFECT] is to ensure that the Contractor is paid for ALFREDO ONG,
Work completed and for the Owner to retain such portion of the Contract Price Respondent. Promulgated:
which, together with the Performance Bond, is sufficient to complete the Work November 24, 2010
without additional cost to the Owner. x---------------------------------------------------------------------------------------
--x

The rules are intended to balance the allocation and burden of costs between
the contractor and the project owner so that the contractor still achieves a DECISION
return for its completed work, and the project owner will not incur further
costs. To compute the period of delay when substantial compliance is not yet
achieved but merely on the assumption that it will eventually be achieved VELASCO, JR., J.:
would result in an iniquitous situation where the project owner will bear the
risks and additional costs for the period excused from liquidated damages.
This is an appeal from the October 20, 2009 Decision of the Court of Appeals
From the foregoing, we affirm the CA' s conclusion that the period of delay in (CA) in CA-G.R. CR-CV No. 84445 entitled Alfredo Ong v. Land Bank of the
computing liquidated damages should be reckoned from October 27, 2006 until Philippines, which affirmed the Decision of the Regional Trial Court (RTC),
the termination of the contract or for 33 days, and not only until the projected Branch 17 in Tabaco City.
substantial completion date. Consistent with the CA's ruling that liquidated
damages did not exceed the retention money, we therefore affirm that HPI did The Facts
not suffer actual damages in the amount of ₱573,012.81.
On March 18, 1996, spouses Johnson and Evangeline Sy secured a
III. Arbitration Costs, Attorney's Fees, and Litigation Costs loan from Land Bank Legazpi City in the amount of PhP 16 million. The loan
was secured by three (3) residential lots, five (5) cargo trucks, and a
warehouse. Under the loan agreement, PhP 6 million of the loan would be
short-term and would mature on February 28, 1997, while the balance of PhP such as financial statements for 1994 and 1995. Atty. Hingco then informed
10 million would be payable in seven (7) years. The Notice of Loan Approval Alfredo that the certificate of title of the Spouses Sy would be transferred in
dated February 22, 1996 contained an acceleration clause wherein any his name but this never materialized. No notice of transfer was sent to
default in payment of amortizations or other charges would accelerate the him.[4]
maturity of the loan.[1]
Alfredo later found out that his application for assumption of
Subsequently, however, the Spouses Sy found they could no longer mortgage was not approved by Land Bank. The bank learned from its credit
pay their loan. On December 9, 1996, they sold three (3) of their mortgaged investigation report that the Ongs had a real estate mortgage in the amount
parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangelines mother, of PhP 18,300,000 with another bank that was past due. Alfredo claimed that
under a Deed of Sale with Assumption of Mortgage. The relevant portion of this was fully paid later on. Nonetheless, Land Bank foreclosed the mortgage
the document[2] is quoted as follows: of the Spouses Sy after several months. Alfredo only learned of the
foreclosure when he saw the subject mortgage properties included in a
WHEREAS, we are no longer in a position to settle our Notice of Foreclosure of Mortgage and Auction Sale at the RTC in Tabaco,
obligation with the bank; Albay. Alfredos other counsel, Atty. Madrilejos, subsequently talked to Land
NOW THEREFORE, for and in consideration of the sum of Banks lawyer and was told that the PhP 750,000 he paid would be returned
ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00) to him.[5]
Philippine Currency, we hereby these presents SELL, CEDE,
TRANSFER and CONVEY, by way of sale unto ANGELINA On December 12, 1997, Alfredo initiated an action for recovery of
GLORIA ONG, also of legal age, Filipino citizen, married to sum of money with damages against Land Bank in Civil Case No. T-1941, as
Alfredo Ong, and also a resident of Tabaco, Albay, Philippines, Alfredos payment was not returned by Land Bank. Alfredo maintained that
their heirs and assigns, the above-mentioned debt with the said Land Banks foreclosure without informing him of the denial of his assumption
LAND BANK OF THE PHILIPPINES, and by reason hereof they of the mortgage was done in bad faith. He argued that he was lured into
can make the necessary representation with the bank for the believing that his payment of PhP 750,000 would cause Land Bank to
proper restructuring of the loan with the said bank in their approve his assumption of the loan of the Spouses Sy and the transfer of the
favor; mortgaged properties in his and his wifes name.[6] He also claimed incurring
expenses for attorneys fees of PhP 150,000, filing fee of PhP 15,000, and PhP
That as soon as our obligation has been duly settled, the 250,000 in moral damages.[7]
bank is authorized to release the mortgage in favor of the
vendees and for this purpose VENDEES can register this Testifying for Land Bank, Atty. Hingco claimed during trial that as branch
instrument with the Register of Deeds for the issuance of the manager she had no authority to approve loans and could not assure anybody
titles already in their names. that their assumption of mortgage would be approved. She testified that the
breakdown of Alfredos payment was as follows:
IN WITNESS WHEREOF, we have hereunto affixed our
signatures this 9th day of December 1996 at Tabaco, Albay, PhP 101,409.59 applied to principal
Philippines. 216,246.56 accrued interests receivable
396,571.77 interests
(signed) (signed) 18,766.10 penalties
EVANGELINE O. SY JOHNSON B. SY 16,805.98 accounts receivable
Vendor Vendor ----------------
Total: 750,000.00

Evangelines father, petitioner Alfredo Ong, later went to Land Bank to According to Atty. Hingco, the bank processes an assumption of mortgage as a
inform it about the sale and assumption of mortgage.[3] Atty. Edna Hingco, new loan, since the new borrower is considered a new client. They used
the Legazpi City Land Bank Branch Head, told Alfredo and his counsel Atty. character, capacity, capital, collateral, and conditions in determining who can
Ireneo de Lumen that there was nothing wrong with the agreement with the qualify to assume a loan. Alfredos proposal to assume the loan, she explained,
Spouses Sy but provided them with requirements for the assumption of was referred to a separate office, the Lending Center. [8]
mortgage. They were also told that Alfredo should pay part of the principal During cross-examination, Atty. Hingco testified that several months after
which was computed at PhP 750,000 and to update due or accrued interests Alfredo made the tender of payment, she received word that the Lending
on the promissory notes so that Atty. Hingco could easily approve the Center rejected Alfredos loan application. She stated that it was the Lending
assumption of mortgage. Two weeks later, Alfredo issued a check for PhP Center and not her that should have informed Alfredo about the denial of his
750,000 and personally gave it to Atty. Hingco. A receipt was issued for his and his wifes assumption of mortgage. She added that although she told
payment. He also submitted the other documents required by Land Bank, Alfredo that the agreement between the spouses Sy and Alfredo was valid
between them and that the bank would accept payments from him, Alfredo did
not pay any further amount so the foreclosure of the loan collaterals ensued. On January 5, 2010, the CA denied Land Banks motion for reconsideration for
She admitted that Alfredo demanded the return of the PhP 750,000 but said lack of merit. Hence, Land Bank appealed to us.
that there was no written demand before the case against the bank was filed in
court. She said that Alfredo had made the payment of PhP 750,000 even The Issues
before he applied for the assumption of mortgage and that the bank received
the said amount because the subject account was past due and demandable; I
and the Deed of Assumption of Mortgage was not used as the basis for the
payment. [9] Whether the Court of Appeals erred in holding that Art. 1236
of the Civil Code does not apply and in finding that there is no
The Ruling of the Trial Court novation.

The RTC held that the contract approving the assumption of mortgage was not II
perfected as a result of the credit investigation conducted on Alfredo. It noted
that Alfredo was not even informed of the disapproval of the assumption of Whether the Court of Appeals misconstrued the evidence and
mortgage but was just told that the accounts of the spouses Sy had matured the law when it affirmed the trial court decisions ordering Land
and gone unpaid. It ruled that under the principle of equity and justice, the Bank to pay Ong the amount of Php750,000.00 with interest
bank should return the amount Alfredo had paid with interest at 12% per at 12% annum.
annum computed from the filing of the complaint. The RTC further held that
Alfredo was entitled to attorneys fees and litigation expenses for being III
compelled to litigate.[10]
Whether the Court of Appeals committed reversible error when
The dispositive portion of the RTC Decision reads: it affirmed the award of Php50,000.00 to Ong as attorneys
fees and expenses of litigation.
WHEREFORE, premises considered, a decision is
rendered, ordering defendant bank to pay plaintiff, Alfredo The Ruling of this Court
Ong the amount of P750,000.00 with interest at 12% per
annum computed from Dec. 12, 1997 and attorneys fees and We affirm with modification the appealed decision.
litigation expenses of P50,000.00.
Recourse is against Land Bank
Costs against defendant bank.
SO ORDERED.[11] Land Bank contends that Art. 1236 of the Civil Code backs their claim that
Alfredo should have sought recourse against the Spouses Sy instead of Land
Bank. Art. 1236 provides:
The Ruling of the Appellate Court
The creditor is not bound to accept payment or performance
On appeal, Land Bank faulted the trial court for (1) holding that the payment by a third person who has no interest in the fulfillment of the
of PhP 750,000 made by Ong was one of the requirements for the approval of obligation, unless there is a stipulation to the contrary.
his proposal to assume the mortgage of the Sy spouses; (2) erroneously
ordering Land Bank to return the amount of PhP 750,000 to Ong on the Whoever pays for another may demand from the debtor what
ground of its failure to effect novation; and (3) erroneously affirming the he has paid, except that if he paid without the knowledge or
award of PhP 50,000 to Ong as attorneys fees and litigation expenses. against the will of the debtor, he can recover only insofar as
the payment has been beneficial to the debtor.
The CA affirmed the RTC Decision.[12] It held that Alfredos recourse is not
against the Sy spouses. According to the appellate court, the payment of PhP
750,000 was for the approval of his assumption of mortgage and not for We agree with Land Bank on this point as to the first part of
payment of arrears incurred by the Sy spouses. As such, it ruled that it would paragraph 1 of Art. 1236. Land Bank was not bound to accept Alfredos
be incorrect to consider Alfredo a third person with no interest in the fulfillment payment, since as far as the former was concerned, he did not have an
of the obligation under Article 1236 of the Civil Code. Although Land Bank was interest in the payment of the loan of the Spouses Sy. However, in the context
not bound by the Deed between Alfredo and the Spouses Sy, the appellate of the second part of said paragraph, Alfredo was not making payment to
court found that Alfredo and Land Banks active preparations for Alfredos fulfill the obligation of the Spouses Sy. Alfredo made a conditional payment so
assumption of mortgage essentially novated the agreement. that the properties subject of the Deed of Sale with Assumption of Mortgage
would be titled in his name. It is clear from the records that Land Bank the old obligation; and (4) the birth of a valid new
required Alfredo to make payment before his assumption of mortgage would obligation. x x x
be approved. He was informed that the certificate of title would be transferred
accordingly. He, thus, made payment not as a debtor but as a prospective In order that an obligation may be extinguished by
mortgagor. But the trial court stated: another which substitutes the same, it is imperative that it be
so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.
[T]he contract was not perfected or consummated The test of incompatibility is whether or not the two
because of the adverse finding in the credit investigation obligations can stand together, each one having its
which led to the disapproval of the proposed assumption. independent existence. x x x (Emphasis supplied.)
There was no evidence presented that plaintiff was informed
of the disapproval. What he received was a letter dated May
22, 1997 informing him that the account of spouses Sy had Furthermore, Art. 1293 of the Civil Code states:
matured but there [were] no payments. This was sent even
before the conduct of the credit investigation on June 20, Novation which consists in substituting a new debtor in the
1997 which led to the disapproval of the proposed assumption place of the original one, may be made even without the
of the loans of spouses Sy.[13] knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him
rights mentioned in articles 1236 and 1237.
Alfredo, as a third person, did not, therefore, have an interest in the fulfillment
of the obligation of the Spouses Sy, since his interest hinged on Land Banks
approval of his application, which was denied. The circumstances of the instant We do not agree, then, with the CA in holding that there was a novation in the
case show that the second paragraph of Art. 1236 does not apply. As Alfredo contract between the parties. Not all the elements of novation were
made the payment for his own interest and not on behalf of the Spouses Sy, present. Novation must be expressly consented to. Moreover, the conflicting
recourse is not against the latter. And as Alfredo was not paying for another, intention and acts of the parties underscore the absence of any express
he cannot demand from the debtors, the Spouses Sy, what he has paid. disclosure or circumstances with which to deduce a clear and unequivocal
intent by the parties to novate the old agreement.[15] Land Bank is thus correct
Novation of the loan agreement when it argues that there was no novation in the following:

Land Bank also faults the CA for finding that novation applies to the [W]hether or not Alfredo Ong has an interest in the
instant case. It reasons that a substitution of debtors was made without its obligation and payment was made with the knowledge or
consent; thus, it was not bound to recognize the substitution under the rules consent of Spouses Sy, he may still pay the obligation for the
on novation. reason that even before he paid the amount of P750,000.00 on
January 31, 1997, the substitution of debtors was already
On the matter of novation, Spouses Benjamin and Agrifina Lim v. M.B. perfected by and between Spouses Sy and Spouses Ong as
Finance Corporation[14] provides the following discussion: evidenced by a Deed of Sale with Assumption of Mortgage
executed by them on December 9, 1996. And since the
Novation, in its broad concept, may either be substitution of debtors was made without the consent of Land
extinctive or modificatory. It is extinctive when an old Bank a requirement which is indispensable in order to effect a
obligation is terminated by the creation of a new obligation novation of the obligation, it is therefore not bound to recognize
that takes the place of the former; it is merely modificatory the substitution of debtors. Land Bank did not intervene in the
when the old obligation subsists to the extent it remains contract between Spouses Sy and Spouses Ong and did not
compatible with the amendatory agreement. An extinctive expressly give its consent to this substitution.[16]
novation results either by changing the object or principal
conditions (objective or real), or by substituting the person of
the debtor or subrogating a third person in the rights of the Unjust enrichment
creditor (subjective or personal). Under this mode, novation
would have dual functions ─ one to extinguish an existing Land Bank maintains that the trial court erroneously applied the
obligation, the other to substitute a new one in its place ─ principle of equity and justice in ordering it to return the PhP 750,000 paid by
requiring a conflux of four essential requisites: (1) a previous Alfredo. Alfredo was allegedly in bad faith and in estoppel. Land Bank contends
valid obligation; (2) an agreement of all parties that it enjoyed the presumption of regularity and was in good faith when it
concerned to a new contract; (3) the extinguishment of accepted Alfredos tender of PhP 750,000. It reasons that it did not unduly
enrich itself at Alfredos expense during the foreclosure of the mortgaged no duty to pay, and the person who receives the payment has no right to
properties, since it tendered its bid by subtracting PhP 750,000 from the receive it.[21]
Spouses Sys outstanding loan obligation. Alfredos recourse then, according to
Land Bank, is to have his payment reimbursed by the Spouses Sy. The principle applies to the parties in the instant case, as, Alfredo,
having been deemed disqualified from assuming the loan, had no duty to pay
We rule that Land Bank is still liable for the return of the PhP 750,000 petitioner bank and the latter had no right to receive it.
based on the principle of unjust enrichment. Land Bank is correct in arguing
that it has no obligation as creditor to recognize Alfredo as a person with
interest in the fulfillment of the obligation. But while Land Bank is not bound to Moreover, the Civil Code likewise requires under Art. 19 that [e]very person
accept the substitution of debtors in the subject real estate mortgage, it is must, in the exercise of his rights and in the performance of his duties, act with
estopped by its action of accepting Alfredos payment from arguing that it does justice, give everyone his due, and observe honesty and good faith. Land Bank,
not have to recognize Alfredo as the new debtor. The elements of estoppel are: however, did not even bother to inform Alfredo that it was no longer approving
his assumption of the Spouses Sys mortgage. Yet it acknowledged his interest
First, the actor who usually must have knowledge, in the loan when the branch head of the bank wrote to tell him that his
notice or suspicion of the true facts, communicates something daughters loan had not been paid.[22] Land Bank made Alfredo believe that with
to another in a misleading way, either by words, conduct or the payment of PhP 750,000, he would be able to assume the mortgage of the
silence; second, the other in fact relies, and relies reasonably Spouses Sy. The act of receiving payment without returning it when demanded
or justifiably, upon that communication; third, the other would is contrary to the adage of giving someone what is due to him. The outcome of
be harmed materially if the actor is later permitted to assert the application would have been different had Land Bank first conducted the
any claim inconsistent with his earlier conduct; and fourth, the credit investigation before accepting Alfredos payment. He would have been
actor knows, expects or foresees that the other would act notified that his assumption of mortgage had been disapproved; and he would
upon the information given or that a reasonable person in the not have taken the futile action of paying PhP 750,000. The procedure Land
actors position would expect or foresee such action.[17] Bank took in acting on Alfredos application cannot be said to have been fair
and proper.
By accepting Alfredos payment and keeping silent on the status of
Alfredos application, Land Bank misled Alfredo to believe that he had for all As to the claim that the trial court erred in applying equity to Alfredos case, we
intents and purposes stepped into the shoes of the Spouses Sy. hold that Alfredo had no other remedy to recover from Land Bank and the
lower court properly exercised its equity jurisdiction in resolving the collection
The defense of Land Bank Legazpi City Branch Manager Atty. Hingco suit. As we have held in one case:
that it was the banks Lending Center that should have notified Alfredo of his
assumption of mortgage disapproval is unavailing. The Lending Centers lack of Equity, as the complement of legal jurisdiction, seeks to reach
notice of disapproval, the Tabaco Branchs silence on the disapproval, and the and complete justice where courts of law, through the
banks subsequent actions show a failure of the bank as a whole, first, to notify inflexibility of their rules and want of power to adapt their
Alfredo that he is not a recognized debtor in the eyes of the bank; and second, judgments to the special circumstances of cases, are
to apprise him of how and when he could collect on the payment that the bank incompetent to do so. Equity regards the spirit and not the
no longer had a right to keep. letter, the intent and not the form, the substance rather than
We turn then on the principle upon which Land Bank must return the circumstance, as it is variously expressed by different
Alfredos payment. Unjust enrichment exists when a person unjustly retains a courts.[23]
benefit to the loss of another, or when a person retains money or property of
another against the fundamental principles of justice, equity and good
conscience.[18] There is unjust enrichment under Art. 22 of the Civil Code when Another claim made by Land Bank is the presumption of regularity it
(1) a person is unjustly benefited, and (2) such benefit is derived at the enjoys and that it was in good faith when it accepted Alfredos tender of PhP
expense of or with damages to another.[19] 750,000.

Additionally, unjust enrichment has been applied to actions The defense of good faith fails to convince given Land Banks
called accion in rem verso. In order that the accion in rem verso may prosper, actions. Alfredo was not treated as a mere prospective borrower. After he had
the following conditions must concur: (1) that the defendant has been paid PhP 750,000, he was made to sign bank documents including a
enriched; (2) that the plaintiff has suffered a loss; (3) that the enrichment of promissory note and real estate mortgage. He was assured by Atty. Hingco
the defendant is without just or legal ground; and (4) that the plaintiff has no that the titles to the properties covered by the Spouses Sys real estate
other action based on contract, quasi-contract, crime, or quasi-delict.[20] The mortgage would be transferred in his name, and upon payment of the PhP
principle of unjust enrichment essentially contemplates payment when there is 750,000, the account would be considered current and renewed in his name.[24]
Land Bank posits as a defense that it did not unduly enrich itself at established with reasonable certainty. Accordingly, where the
Alfredos expense during the foreclosure of the mortgaged properties, since it demand is established with reasonable certainty, the interest
tendered its bid by subtracting PhP 750,000 from the Spouses Sys outstanding shall begin to run from the time the claim is made judicially
loan obligation. It is observed that this is the first time Land Bank is revealing or extrajudicially (Art. 1169, Civil Code) but when such
this defense. However, issues, arguments, theories, and causes not raised certainty cannot be so reasonably established at the time the
below may no longer be posed on appeal.[25] Land Banks contention, thus, demand is made, the interest shall begin to run only from the
cannot be entertained at this point. date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been
Land Bank further questions the lower courts decision on the basis of reasonably ascertained). The actual base for the computation
the inconsistencies made by Alfredo on the witness stand. It argues that of legal interest shall, in any case, be on the amount finally
Alfredo was not a credible witness and his testimony failed to overcome the adjudged.
presumption of regularity in the performance of regular duties on the part of
Land Bank. 3. When the judgment of the court awarding a sum
of money becomes final and executory, the rate of legal
This claim, however, touches on factual findings by the trial court, and we interest, whether the case falls under paragraph 1 or
defer to these findings of the trial court as sustained by the appellate paragraph 2, above, shall be 12% per annum from such
court. These are generally binding on us. While there are exceptions to this finality until its satisfaction, this interim period being deemed
rule, Land Bank has not satisfactorily shown that any of them is applicable to to be by then an equivalent to a forbearance of credit.
this issue.[26] Hence, the rule that the trial court is in a unique position to
observe the demeanor of witnesses should be applied and respected[27] in the
instant case. No evidence was presented by Alfredo that he had sent a written demand to
Land Bank before he filed the collection suit. Only the verbal agreement
In sum, we hold that Land Bank may not keep the PhP 750,000 paid by Alfredo between the lawyers of the parties on the return of the payment was
as it had already foreclosed on the mortgaged lands. mentioned.[29] Consequently, the obligation of Land Bank to return the
payment made by Alfredo upon the formers denial of the latters application for
Interest and attorneys fees assumption of mortgage must be reckoned from the date of judicial demand on
December 12, 1997, as correctly determined by the trial court and affirmed by
As to the applicable interest rate, we reiterate the guidelines found the appellate court.
in Eastern Shipping Lines, Inc. v. Court of Appeals:[28]
The next question is the propriety of the imposition of interest and the
proper imposable rate of applicable interest. The RTC granted the rate of 12%
II. With regard particularly to an award of interest in per annum which was affirmed by the CA. From the above-quoted guidelines,
the concept of actual and compensatory damages, the rate of however, the proper imposable interest rate is 6% per annum pursuant to Art.
interest, as well as the accrual thereof, is imposed, as 2209 of the Civil Code. Sunga-Chan v. Court of Appeals is illuminating in this
follows: regard:

1. When the obligation is breached, and it consists in In Reformina v. Tomol, Jr., the Court held that the
the payment of a sum of money, i.e., a loan or forbearance of legal interest at 12% per annum under Central Bank (CB)
money, the interest due should be that which may have been Circular No. 416 shall be adjudged only in cases involving the
stipulated in writing. Furthermore, the interest due shall itself loan or forbearance of money. And for transactions involving
earn legal interest from the time it is judicially demanded. In payment of indemnities in the concept of damages
the absence of stipulation, the rate of interest shall be 12% arising from default in the performance of obligations in
per annum to be computed from default, i.e., from judicial or general and/or for money judgment not involving a loan or
extrajudicial demand under and subject to the provisions of forbearance of money, goods, or credit, the governing provision
Article 1169 of the Civil Code. is Art. 2209 of the Civil Code prescribing a yearly 6%
interest. Art. 2209 pertinently provides:
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the Art. 2209. If the obligation consists in the
amount of damages awarded may be imposed at the payment of a sum of money, and the debtor
discretion of the court at the rate of 6% per annum. No incurs in delay, the indemnity for damages, there
interest, however, shall be adjudged on unliquidated claims being no stipulation to the contrary, shall be the
or damages except when or until the demand can be payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which (2) When the defendants act or omission has
is six per cent per annum. compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interest.
The term forbearance, within the context of usury law,
has been described as a contractual obligation of a lender or
creditor to refrain, during a given period of time, from requiring Given that Alfredo was indeed compelled to litigate against Land Bank
the borrower or debtor to repay the loan or debt then due and and incur expenses to protect his interest, we find that the award falls under
payable. the exception above and is, thus, proper given the circumstances.

Eastern Shipping Lines, Inc. synthesized the rules on On a final note. The instant case would not have been litigated had Land Bank
the imposition of interest, if proper, and the applicable rate, as been more circumspect in dealing with Alfredo. The bank chose to accept
follows: The 12% per annum rate under CB Circular No. 416 payment from Alfredo even before a credit investigation was underway, a
shall apply only to loans or forbearance of money, goods, or procedure worsened by the failure to even inform him of his credit standings
credits, as well as to judgments involving such loan or impact on his assumption of mortgage. It was, therefore, negligent to a certain
forbearance of money, goods, or credit, while the 6% per degree in handling the transaction with Alfredo. It should be remembered that
annum under Art. 2209 of the Civil Code applies when the business of a bank is affected with public interest and it should observe a
the transaction involves the payment of indemnities in higher standard of diligence when dealing with the public.[32]
the concept of damage arising from the breach or a delay
in the performance of obligations in general, with the WHEREFORE, the appeal is DENIED. The CA Decision in CA-G.R. CR-CV No.
application of both rates reckoned from the time the complaint 84445 is AFFIRMED with MODIFICATION in that the amount of PhP 750,000
was filed until the [adjudged] amount is fully paid. In either will earn interest at 6% per annum reckoned from December 12, 1997, and the
instance, the reckoning period for the commencement of the total aggregate monetary awards will in turn earn 12% per annum from the
running of the legal interest shall be subject to the condition finality of this Decision until fully paid.
that the courts are vested with discretion, depending on the
equities of each case, on the award of interest.[30](Emphasis SO ORDERED.
supplied.)

G.R. No. 191555 January 20, 2014


Based on our ruling above, forbearance of money refers to the contractual
obligation of the lender or creditor to desist for a fixed period from requiring
the borrower or debtor to repay the loan or debt then due and for which 12% UNION BANK OF THE PHILIPPINES, Petitioner,
per annum is imposed as interest in the absence of a stipulated rate. In the vs.
instant case, Alfredos conditional payment to Land Bank does not constitute DEVELOPMENT BANK OF THE PHILIPPINES, Respondent.
forbearance of money, since there was no agreement or obligation for Alfredo
to pay Land Bank the amount of PhP 750,000, and the obligation of Land Bank DECISION
to return what Alfredo has conditionally paid is still in dispute and has not yet
been determined. Thus, it cannot be said that Land Banks alleged obligation PERLAS-BERNABE, J.:
has become a forbearance of money.

On the award of attorneys fees, attorneys fees and expenses of Assailed in this petition for review on Certiorari1 are the Decision2 dated
litigation were awarded because Alfredo was compelled to litigate due to the November 3, 2009 and Resolution3 dated February 26, 2010 of the Court of
unjust refusal of Land Bank to refund the amount he paid. There are instances Appeals (CA) in CA-G.R. SP No. 93833 which affirmed the Orders4 dated
when it is just and equitable to award attorneys fees and expenses of November 9, 2005 and January 30, 2006 of the Regional Trial Court of Makati,
litigation.[31] Art. 2208 of the Civil Code pertinently states: Branch 585 (RTC) in Civil Case No. 7648 denying the motion to affirm legal
compensation6 filed by petitioner Union Bank of the Philippines (Union Bank)
In the absence of stipulation, attorneys fees and against respondent Development Bank of the Philippines (DBP).
expenses of litigation, other than judicial costs, cannot be
recovered, except: The Facts

xxxx
Foodmasters, Inc. (FI) had outstanding loan obligations to both Union Bank’s Meanwhile, on May 23, 1979, FI assigned its leasehold rights under the Lease
predecessor-in-interest, Bancom Development Corporation (Bancom), and to Agreement to Foodmasters Worldwide, Inc. (FW);11 while on May 9, 1984,
DBP. Bancom conveyed all its receivables, including, among others, DBP’s assumed
obligations, to Union Bank.12
On May 21, 1979, FI and DBP, among others, entered into a Deed of Cession of
Property In Payment of Debt7(dacion en pago) whereby the former ceded in Claiming that the subject rentals have not been duly remitted despite its
favor of the latter certain properties (including a processing plant in Marilao, repeated demands, Union Bank filed, on June 20, 1984, a collection case
Bulacan [processing plant]) in consideration of the following: (a) the full and against DBP before the RTC, docketed as Civil Case No. 7648.13 In opposition,
complete satisfaction of FI’s loan obligations to DBP; and (b) the direct DBP countered, among others, that the obligations it assumed were payable
assumption by DBP of FI’s obligations to Bancom in the amount of only out of the rental payments made by FI. Thus, since FI had yet to pay the
₱17,000,000.00 (assumed obligations).8 same, DBP’s obligation to Union Bank had not arisen.14 In addition, DBP sought
to implead FW as third party-defendant in its capacity as FI’s assignee and,
On the same day, DBP, as the new owner of the processing plant, leased thus, should be held liable to Union Bank.15
back9 for 20 years the said property to FI (Lease Agreement) which was, in
turn, obliged to pay monthly rentals to be shared by DBP and Bancom. In the interim, or on May 6, 1988, DBP filed a motion to dismiss on the ground
that it had ceased to be a real-party-in-interest due to the supervening transfer
DBP also entered into a separate agreement10 with Bancom (Assumption of its rights, title and interests over the subject matter to the Asset
Agreement) whereby the former: (a) confirmed its assumption of FI’s Privatization Trust (APT). Said motion was, however, denied by the RTC in an
obligations to Bancom; and (b) undertook to remit up to 30% of any and all Order dated May 27, 1988.16
rentals due from FI to Bancom (subject rentals) which would serve as payment
of the assumed obligations, to be paid in monthly installments. The pertinent The RTC Ruling in Civil Case No. 7648
portions of the Assumption Agreement reads as follows:
Finding the complaint to be meritorious, the RTC, in a Decision17 dated May 8,
WHEREAS, DBP has agreed and firmly committed in favor of Bancom that the 1990, ordered: (a) DBP to pay Union Bank the sum of ₱4,019,033.59,
above obligations to Bancom which DBP has assumed shall be settled, paid representing the amount of the subject rentals (which, again, constitutes 30%
and/or liquidated by DBP out of a portion of the lease rentals or part of the of FI’s [now FW’s] total rental debt), including interest until fully paid; and (b)
proceeds of sale of those properties of the Assignors conveyed to DBP pursuant FW, as third-party defendant, to indemnify DBP, as third- party plaintiff, for its
to the [Deed of Cession of Property in Payment of Debt dated May 21, 1979] payments of the subject rentals to Union Bank. It ruled that there lies no
and which are the subject of [the Lease Agreement] made and executed by evidence which would show that DBP’s receipt of the rental payments from FW
and between DBP and [FI], the last hereafter referred to as the "Lessee" to be is a condition precedent to the former’s obligation to remit the subject rentals
effective as of July 31, 1978. under the Lease Agreement. Thus, when DBP failed to remit the subject rentals
to Union Bank, it defaulted on its assumed obligations.18 DBP then elevated the
xxxx case on appeal before the CA, docketed as CA-G.R. CV No. 35866.

4. DBP hereby covenants and undertakes that the amount up to 30% of any The CA Ruling in CA-G.R. CV No. 35866
and all rentals due from the Lessee pursuant to the Lease Agreement shall be
remitted by DBP to Bancom at the latter’s offices at Pasay Road, Makati, Metro In a Decision19 dated May 27, 1994 (May 27, 1994 Decision), the CA set aside
Manila within five (5) days from due dates thereof, and applied in payment of the RTC’s ruling, and consequently ordered: (a) FW to pay DBP the amount of
the Assumed Obligations. Likewise, the amount up to 30% of the proceeds ₱32,441,401.85 representing the total rental debt incurred under the Lease
from any sale of the Leased Properties shall within the same period above, be Agreement, including ₱10,000.00 as attorney’s fees; and (b) DBP, after having
remitted by DBP to Bancom and applied in payment or prepayment of the been paid by FW its unpaid rentals, to remit 30% thereof (i.e., the subject
Assumed Obligations. x x x. rentals) to Union Bank.20

Any balance of the Assumed Obligations after application of the entire rentals It rejected Union Bank’s claim that DBP has the direct obligation to remit the
and or the entire sales proceeds actually received by Bancom on the Leased subject rentals not only from FW’s rental payments but also out of its own
Properties shall be paid by DBP to Bancom not later than December 29, 1998. resources since said claim contravened the "plain meaning" of the Assumption
(Emphases supplied) Agreement which specifies that the payment of the assumed obligations shall
be made "out of the portion of the lease rentals or part of the proceeds of the
sale of those properties of [FI] conveyed to DBP."21 It also construed the
phrase under the Assumption Agreement that DBP is obligated to "pay any In a Consolidated Order30 dated October 15, 2001 (Order of Execution), the
balance of the Assumed Obligations after application of the entire rentals RTC granted both motions for execution. Anent Union Bank’s motion, the RTC
and/or the entire sales proceeds actually received by [Union Bank] on the opined that the CA’s ruling that DBP’s payment to Union Bank shall be
Leased Properties . . . not later than December 29, 1998" to mean that the demandable only upon payment of FW must be viewed in light of the date
lease rentals must first be applied to the payment of the assumed obligations when the same was rendered. It noted that the CA decision was promulgated
in the amount of ₱17,000,000.00, and that DBP would have to pay out of its only on May 27, 1994, which was before the December 29, 1998 due date
own money only in case the lease rentals were insufficient, having only until within which DBP had to fully pay its obligation to Union Bank under the
December 29, 1998 to do so. Nevertheless, the monthly installments in Assumption Agreement. Since the latter period had already lapsed, "[i]t would,
satisfaction of the assumed obligations would still have to be first sourced from thus, be too strained to argue that payment by DBP of its assumed
said lease rentals as stipulated in the assumption agreement.22 In view of the obligation[s] shall be dependent on [FW’s] ability, if not availability, to
foregoing, the CA ruled that DBP did not default in its obligations to remit the pay."31 In similar regard, the RTC granted DBP’s motion for execution against
subject rentals to Union Bank precisely because it had yet to receive the rental FW since its liability to Union Bank and DBP remained undisputed.
payments of FW.23
As a result, a writ of execution32 dated October 15, 2001 (October 15, 2001
Separately, the CA upheld the RTC’s denial of DBP’s motion to dismiss for the Writ of Execution) and, thereafter, a notice of garnishment33 against DBP were
reason that the transfer of its rights, title and interests over the subject matter issued. Records, however, do not show that the same writ was implemented
to the APT occurred pendente lite, and, as such, the substitution of parties is against FW.
largely discretionary on the part of the court.
DBP filed a motion for reconsideration34 from the Execution Order, averring
At odds with the CA’s ruling, Union Bank and DBP filed separate petitions for that the latter issuance varied the import of the CA’s May 27, 1994 Decision in
review on certiorari before the Court, respectively docketed as G.R. Nos. CA-G.R. CV No. 35866 in that it prematurely ordered DBP to pay the assumed
115963 and 119112, which were thereafter consolidated. obligations to Union Bank before FW’s payment. The motion was, however,
denied on December 5, 2001.35 Thus, DBP’s deposits were eventually
The Court’s Ruling in G.R. Nos. 115963 & 119112 garnished.36 Aggrieved, DBP filed a petition for certiorari37 before the CA,
docketed as CA-G.R. SP No. 68300.

The Court denied both petitions in a Resolution24 dated December 13, 1995.
First, it upheld the CA’s finding that while DBP directly assumed FI’s obligations The CA Ruling in CA-G.R. SP No. 68300
to Union Bank, DBP was only obliged to remit to the latter 30% of the lease
rentals collected from FW, from which any deficiency was to be settled by DBP In a Decision38 dated July 26, 2002, the CA dismissed DBP’s petition, finding
not later than December 29, 1998.25 Similarly, the Court agreed with the CA that the RTC did not abuse its discretion when it issued the October 15, 2001
that the denial of DBP’s motion to dismiss was proper since substitution of Writ of Execution. It upheld the RTC’s observation that there was "nothing
parties, in case of transfers pendente lite, is merely discretionary on the part of wrong in the manner how [said writ] was implemented," as well as "in the
the court, adding further that the proposed substitution of APT will amount to a zealousness and promptitude exhibited by Union Bank" in moving for the same.
novation of debtor which cannot be done without the consent of the creditor.26 DBP appealed the CA’s ruling before the Court, which was docketed as G.R. No.
155838.
On August 2, 2000, the Court’s resolution became final and executory.27
The Court’s Ruling in G.R. No. 155838
The RTC Execution Proceedings
In a Decision39 dated January 13, 2004 (January 13, 2004 Decision), the Court
On May 16, 2001, Union Bank filed a motion for execution before the RTC,
28 granted DBP’s appeal, and thereby reversed and set aside the CA’s ruling in
praying that DBP be directed to pay the amount of ₱9,732,420.555 which CA-G.R. SP No. 68300. It found significant points of variance between the CA’s
represents the amount of the subject rentals (i.e., 30% of the FW’s total rental May 27, 1994 Decision in CA-G.R. CV No. 35866, and the RTC’s Order of
debt in the amount of ₱32,441,401.85). DBP opposed29 Union Bank’s motion, Execution/October 15, 2001 Writ of Execution. It ruled that both the body and
contending that it sought to effectively vary the dispositive portion of the CA’s the dispositive portion of the same decision acknowledged that DBP’s obligation
May 27, 1994 Decision in CA-G.R. CV No. 35866. Also, on September 12, to Union Bank for remittance of the lease payments is contingent on FW’s prior
2001, DBP filed its own motion for execution against FW, citing the same CA payment to DBP, and that any deficiency DBP had to pay by December 29,
decision as its basis. 1998 as per the Assumption Agreement cannot be determined until after the
satisfaction of FW’s own rental obligations to DBP. Accordingly, the Court: (a)
nullified the October 15, 2001 Writ of Execution and all related issuances
thereto; and (b) ordered Union Bank to return to DBP the amounts it received
pursuant to the said writ.40 Dissatisfied, Union Bank moved for reconsideration The sole issue for the Court’s resolution is whether or not the CA correctly
which was, however, denied by the Court in a Resolution dated March 24, 2004 upheld the denial of Union Bank’s motion to affirm legal compensation.
with finality. Thus, the January 13, 2004 Decision attained finality on April 30,
2004.41 Thereafter, DBP moved for the execution of the said decision before The Court’s Ruling
the RTC. After numerous efforts on the part of Union Bank proved futile, the
RTC issued a writ of execution (September 6, 2005 Writ of Execution), ordering
Union Bank to return to DBP all funds it received pursuant to the October 15, The petition is bereft of merit. Compensation is defined as a mode of
2001 Writ of Execution.42 extinguishing obligations whereby two persons in their capacity as principals
are mutual debtors and creditors of each other with respect to equally
liquidated and demandable obligations to which no retention or controversy has
Union Bank’s Motion to Affirm Legal Compensation been timely commenced and communicated by third parties.53 The requisites
therefor are provided under Article 1279 of the Civil Code which reads as
On September 13, 2005, Union Bank filed a Manifestation and Motion to Affirm follows:
Legal Compensation,43 praying that the RTC apply legal compensation between
itself and DBP in order to offset the return of the funds it previously received Art. 1279. In order that compensation may be proper, it is necessary:
from DBP. Union Bank anchored its motion on two grounds which were
allegedly not in existence prior to or during trial, namely: (a) on December 29,
1998, DBP’s assumed obligations became due and demandable;44 and (b) (1) That each one of the obligors be bound principally, and that he be
considering that FWI became non-operational and non-existent, DBP became at the same time a principal creditor of the other;
primarily liable to the balance of its assumed obligation, which as of Union
Bank’s computation after its claimed set-off, amounted to ₱1,849,391.87.45 (2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if
On November 9, 2005, the RTC issued an Order46 denying the above- the latter has been stated;
mentioned motion for lack of merit, holding that Union Bank’s stated grounds
were already addressed by the Court in the January 13, 2004 Decision in G.R. (3) That the two debts be due;
No. 155838. With Union Bank’s motion for reconsideration therefrom having
been denied, it filed a petition for certiorari47 with the CA, docketed as CA-G.R. (4) That they be liquidated and demandable;
SP No. 93833.

(5) That over neither of them there be any retention or controversy,


Pending resolution, Union Bank issued Manager’s Check48 No. 099-0003192363
commenced by third persons and communicated in due time to the
dated April 21, 2006 amounting to ₱52,427,250.00 in favor of DBP, in debtor.1awp++i1 (Emphases and underscoring supplied)
satisfaction of the Writ of Execution dated September 6, 2005 Writ of
Execution. DBP, however, averred that Union Bank still has a balance of
₱756,372.39 representing a portion of the garnished funds of DBP,49 which The rule on legal54 compensation is stated in Article 1290 of the Civil Code
means that said obligation had not been completely extinguished. which provides that "[w]hen all the requisites mentioned in Article 1279 are
present, compensation takes effect by operation of law, and extinguishes both
debts to the concurrent amount, even though the creditors and debtors are not
The CA Ruling in CA-G.R. SP No. 93833
aware of the compensation."

In a Decision50 dated November 3, 2009, the CA dismissed Union Bank’s


In this case, Union Bank filed a motion to seek affirmation that legal
petition, finding no grave abuse of discretion on the RTC’s part. It affirmed the
compensation had taken place in order to effectively offset (a) its own
denial of its motion to affirm legal compensation considering that: (a) the RTC
obligation to return the funds it previously received from DBP as directed under
only implemented the Court’s January 13, 2004 Decision in G.R. No. 155838
the September 6, 2005 Writ of Execution with (b) DBP’s assumed obligations
which by then had already attained finality; (b) DBP is not a debtor of Union
under the Assumption Agreement. However, legal compensation could not have
Bank; and (c) there is neither a demandable nor liquidated debt from DBP to
taken place between these debts for the apparent reason that requisites 3 and
Union Bank.51
4 under Article 1279 of the Civil Code are not present. Since DBP’s assumed
obligations to Union Bank for remittance of the lease payments are – in the
Undaunted, Union Bank moved for reconsideration which was, however, denied Court’s words in its Decision dated January 13, 2004 in G.R. No. 155838 – "
in a Resolution52 dated February 26, 2010; hence, the instant petition. contingent on the prior payment thereof by [FW] to DBP," it cannot be said
that both debts are due (requisite 3 of Article 1279 of the Civil Code). Also, in
The Issue Before the Court the same ruling, the Court observed that any deficiency that DBP had to make
up (by December 29, 1998 as per the Assumption Agreement) for the full (i) Ordering third-party defendant-appellee Foodmasters Worldwide,
satisfaction of the assumed obligations " cannot be determined until after the Inc. to pay defendant and third-party plaintiff-appellant Development
satisfaction of Foodmasters’ obligation to DBP." In this regard, it cannot be Bank of the Philippines the sum of ₱32,441,401.85, representing the
concluded that the same debt had already been liquidated, and thereby unpaid rentals from August 1981 to June 30, 1987, as well as
became demandable (requisite 4 of Article 1279 of the Civil Code). ₱10,000.00 for attorney’s fees; and

The aforementioned Court decision had already attained finality on April 30, (ii) Ordering defendant and third-party plaintiff-appellant Development
200455 and, hence, pursuant to the doctrine of conclusiveness of judgment, the Bank of the Philippines after having been paid by third-party
facts and issues actually and directly resolved therein may not be raised in any defendant-appellee the sum of ₱32,441,401.85, to remit 30% thereof
future case between the same parties, even if the latter suit may involve a to plaintiff-appellee Union Bank of the Philippines.
different cause of action.56 Its pertinent portions are hereunder quoted for
ready reference:57 SO ORDERED.

Both the body and the dispositive portion of the [CA’s May 27, 1994 Decision in In other words, both the body and the dispositive portion of the aforequoted
CA-G.R. CV No. 35866] correctly construed the nature of DBP’s liability for the decision acknowledged that DBP’s obligation to Union Bank for remittance of
lease payments under the various contracts, to wit: the lease payments is contingent on the prior payment thereof by Foodmasters
to DBP.
x x x Construing these three contracts, especially the "Agreement" x x x
between DBP and Bancom as providing for the payment of DBP’s assumed A careful reading of the decision shows that the Court of Appeals, which was
obligation out of the rentals to be paid to it does not mean negating DBP’s affirmed by the Supreme Court, found that only the balance or the deficiency
assumption "for its own account" of the ₱17.0 million debt x x x. It only means of the ₱17 million principal obligation, if any, would be due and demandable as
that they provide a mechanism for discharging [DBP’s] liability. This liability of December 29, 1998. Naturally, this deficiency cannot be determined until
subsists, since under the "Agreement" x x x, DBP is obligated to pay "any after the satisfaction of Foodmasters obligation to DBP, for remittance to Union
balance of the Assumed Obligations after application of the entire rentals and Bank in the proportion set out in the 1994 Decision. (Emphases and
or the entire sales proceeds actually received by [Union Bank] on the Leased underscoring supplied; citations omitted)
Properties … not later than December 29, 1998." x x x It only means that the
lease rentals must first be applied to the payment of the ₱17 million debt and
that [DBP] would have to pay out of its money only in case of insufficiency of xxxx
the lease rentals having until December 29, 1998 to do so. In this sense, it is
correct to say that the means of repayment of the assumed obligation is not In fine, since requisites 3 and 4 of Article 1279 of the Civil Code have not
limited to the lease rentals. The monthly installments, however, would still concurred in this case, no legal compensation could have taken place between
have to come from the lease rentals since this was stipulated in the the above-stated debts pursuant to Article 1290 of the Civil Code. Perforce, the
"Agreement." petition must be denied, and the denial of Union Bank s motion to affirm legal
compensation sustained.
xxxx
WHEREFORE, the petition is DENIED. The Decision dated November 3, 2009
Since, as already stated, the monthly installments for the payment of the ₱17 and Resolution dated February 26, 2010 of the Court of Appeals in CA-G.R. SP
million debt are to be funded from the lease rentals, it follows that if the lease No. 93833 are hereby AFFIRMED.
rentals are not paid, there is nothing for DBP to remit to [Union Bank], and
thus [DBP] should not be considered in default. It is noteworthy that, as stated SO ORDERED.
in the appealed decision, "as regards plaintiff’s claim for damages against
defendant for its alleged negligence in failing and refusing to enforce a lessor’s
remedies against Foodmasters Worldwide, Inc., the Court finds no competent
and reliable evidence of such claim."

xxxx

WHEREFORE, the decision appealed from is SET ASIDE and another one is
RENDERED,
himself as a real estate developer from Ines Anderson Development
Corporation, which was engaged in selling business properties in Makati, and
offered to sell MPI a property therein located. For this purpose, he
showed Lopez a photocopy of Transfer Certificate of Title (TCT) No. 216445
Republic of the Philippines registered in the name of spouses Farley and Jocelyn Handog (Sps. Handog),
Supreme Court as well as a Special Power of Attorney purportedly executed by the spouses in
Manila favor of Milla.[3] Lopez verified with the Registry of Deeds of Makati and
confirmed that the property was indeed registered under the names of Sps.
Handog. Since Lopez was convinced by Millas authority, MPI purchased the
SECOND DIVISION
property for P2 million, issuing Security Bank and Trust Co. (SBTC) Check No.
154670 in the amount of P1.6 million. After receiving the check, Milla gave
Lopez (1) a notarized Deed of Absolute Sale dated 25 March 2003 executed by
CRESENCIO C. MILLA, G.R. No. 188726
Sps. Handog in favor of MPI and (2) an original Owners Duplicate Copy of TCT
Petitioner, No. 216445.[4]

Present: Milla then gave Regino Acosta (Acosta), Lopezs partner, a copy of the
new Certificate of Title to the property, TCT No. 218777, registered in the
name of MPI. Thereafter, it tendered in favor of Milla SBTC Check No.
CARPIO, J., 15467111 in the amount of P400,000 as payment for the balance.[5]

- versus - Chairperson, Milla turned over TCT No. 218777 to Acosta, but did not furnish the
latter with the receipts for the transfer taxes and other costs incurred in the
PEREZ, transfer of the property. This failure to turn over the receipts prompted Lopez
to check with the Register of Deeds, where he discovered that (1) the
SERENO,
Certificate of Title given to them by Milla could not be found therein; (2) there
REYES, and was no transfer of the property from Sps. Handog to MPI; and (3) TCT No.
218777 was registered in the name of a certain Matilde M. Tolentino.[6]
PERLAS-BERNABE,* JJ.
Consequently, Lopez demanded the return of the amount of P2 million
PEOPLE OF THE PHILIPPINES and MARKET Promulgated: from Milla, who then issued Equitable PCI Check Nos. 188954 and 188955
PURSUITS, INC. represented by CARLO V. dated 20 and 23 May 2003, respectively, in the amount of P1 million each.
LOPEZ, However, these checks were dishonored for having been drawn against
January 25, 2012 insufficient funds. When Milla ignored the demand letter sent by Lopez, the
Respondents.
latter, by virtue of the authority vested in him by the MPI Board of Directors,
filed a Complaint against the former on 4 August 2003. On 27 and 29 October
2003, two Informations for Estafa Thru Falsification of Public Documents were
x------------------------------------------------- filed against Milla and were raffled to the Regional Trial Court, National Capital
- -x Judicial Region, Makati City, Branch 146 (RTC Br. 146).[7] Milla was accused of
having committed estafa through the falsification of the notarized Deed of
Absolute Sale and TCT No. 218777 purportedly issued by the Register of Deeds
DECISION of Makati, viz:

SERENO, J.:
CRIMINAL CASE NO. 034167
This is a Petition for Certiorari assailing the 22 April 2009
Decision[1] and 8 July 2009 Resolution[2] of the Court of Appeals, affirming the
Decision of the trial court finding petitioner Cresencio C. Milla (Milla) guilty of
two counts of estafa through falsification of public documents. That on or about the 25th day of March 2003, in the
City of Makati, Philippines and within the jurisdiction of this
Respondent Carlo Lopez (Lopez) was the Financial Officer of private Honorable Court, the above-named accused, a private
respondent, Market Pursuits, Inc. (MPI). In March 2003, Milla represented individual, did then and there, wilfully, unlawfully and
feloniously falsify a document denomindated as Deed of In its Joint Decision dated 28 November 2006,[12] RTC Br. 146 found
Absolute Sale, duly notarized by Atty. Lope M. Velasco, a Milla guilty beyond reasonable doubt of two counts of estafa through
Notary Public for and in the City of Makati, denominated as falsification of public documents, thus:
Doc. No. 297, Page No. 61, Book No. 69, Series of 2003 in his
Notarial Register, hence, a public document, by causing it to
appear that the registered owners of the property covered by
WHEREFORE, judgment is rendered finding the
TCT No. 216445 have sold their land to complainant Market
accused Cresencio Milla guilty beyond reasonable doubt of two
Pursuits, Inc. when in truth and in fact the said Deed of
(2) counts of estafa through falsification of public documents.
Absolute Sale was not executed by the owners thereof and
Applying the indeterminate sentence law and considering that
after the document was falsified, accused, with intent to
the amount involved is more than P22,000,00 this Court
defraud complainant Market Pursuits, Inc. presented the
should apply the provision that an additional one (1) year
falsified Deed of Sale to complainant, herein represented by
should be imposed for every ten thousand (P10,000.00) pesos
Carlo V. Lopez, and complainant believing in the genuineness
in excess of P22,000.00, thus, this Court is constrained to
of the Deed of Absolute Sale paid accused the amount of
impose the Indeterminate (sic) penalty of four (4) years, two
P1,600,000.00 as partial payment for the property, to the
(2) months one (1) day of prision correccional as minimum to
damage and prejudice of complainant in the aforementioned
twenty (20) years of reclusion temporal as maximum for each
amount of P1,600,000.00
count.
CONTRARY TO LAW.

CRIMINAL CASE NO. 034168


Accused is adjudged to be civilly liable to the private
complainant and is ordered pay (sic) complainant the total
amount of TWO MILLION (P2,000,000.00) PESOS with legal
That on or about the 3rd day of April 2003, in the City of rate of interest from the filing of the Information until the
Makati, Philippines and within the jurisdiction of this Honorable same is fully paid and to pay the costs. He is further ordered
Court, the above-named accused, a private individual, did to pay attorneys fees equivalent to ten (10%) of the total
then and there wilfully, unlawfully and feloniously falsify a amount due as and for attorneys fees. A lien on the monetary
document denominated as Transfer Certificate of Title No. award is constituted in favor of the government, the private
218777 purportedly issued by the Register of Deeds of Makati complainant not having paid the required docket fee prior to
City, hence, a public document, by causing it to appear that the filing of the Information.
the lot covered by TCT No. 218777 was already registered in
the name of complainant Market Pursuits, Inc., herein
represented by Carlo V. Lopez, when in truth and in fact, as
SO ORDERED.[13]
said accused well knew that the Register of Deeds of Makati
did not issue TCT No. 218777 in the name of Market Pursuits
Inc., and after the document was falsified, accused with On appeal, the Court of Appeals, in the assailed Decision dated 22 April
intent to defraud complainant and complainant believing in the 2009, affirmed the findings of the trial court.[14] In its assailed Resolution dated
genuineness of Transfer Certificate of Title No. 218777 paid 8 July 2009, it also denied Millas subsequent Motion for Reconsideration.[15]
accused the amount of P400,000.00, to the damage and
prejudice of complainant in the aforementioned amount of In the instant Petition, Milla alleges that the Decision and the
P4000,000.00 (sic). Resolution of the Court of Appeals were not in accordance with law and
jurisprudence. He raises the following issues:
CONTRARY TO LAW.[8]
I. Whether the case should be reopened on the ground of
negligence of counsel;

After the prosecution rested its case, Milla filed, with leave of court, his
II. Whether the principle of novation is applicable;
Demurrer to Evidence.[9] In its Order dated 26 January 2006, RTC Br. 146
denied the demurrer and ordered him to present evidence, but he failed to do
so despite having been granted ample opportunity.[10] Though the court III. Whether the principle of simple loan is applicable;
considered his right to present evidence to have been consequently waived, it
nevertheless allowed him to file a memorandum.[11]
IV. Whether the Secretarys Certificate presented by the for being an inappropriate remedy, thus, demonstrating his counsels
prosecution is admissible in evidence; negligence. These contentions cannot be given any merit.

V. Whether the supposed inconsistent statements of The general rule is that the mistake of a counsel binds the client, and it is only
prosecution witnesses cast a doubt on the guilt of in instances wherein the negligence is so gross or palpable that courts must
petitioner.[16] step in to grant relief to the aggrieved client.[20] In this case, Milla was able to
file a Demurrer to Evidence, and upon the trial courts denial thereof, was
In its Comment, MPI argues that (1) Milla was not deprived of due process on allowed to present evidence.[21] Because of his failure to do so, RTC Br. 146
the ground of gross negligence of counsel; (2) under the Revised Penal Code, was justified in considering that he had waived his right thereto. Nevertheless,
novation is not one of the grounds for the extinction of criminal liability the trial court still allowed him to submit a memorandum in the interest of
for estafa; and (3) factual findings of the trial court, when affirmed by the justice. Further, contrary to his assertion that RTC Br. 146 denied the Motion to
Court of Appeals, are final and conclusive.[17] Recall Warrant of Arrest thereafter filed by his former counsel, a reading of the
2 August 2007 Order of RTC Br. 146 reveals that it partially denied the
On the other hand, in its Comment, the Office of the Solicitor General contends Omnibus Motion for New Trial and Recall of Warrant of Arrest, but granted the
that (1) Milla was accorded due process of law; (2) the elements of the crime Motion for Leave of Court to Avail of Remedies under the Rules of Court,
charged against him were established during trial; (3) novation is not a ground allowing him to file an appeal and lifting his warrant of arrest.[22]
for extinction of criminal liability for estafa; (4) the money received by Milla
from Lopez was not in the nature of a simple loan or cash advance; and (5) It can be gleaned from the foregoing circumstances that Milla was given
Lopez was duly authorized by MPI to institute the action.[18] opportunities to defend his case and was granted concomitant reliefs. Thus, it
cannot be said that the mistake and negligence of his former counsel were so
In his Consolidated Reply, Milla reiterates that the negligence of his former gross and palpable to have deprived him of due process.
counsel warrants a reopening of the case, wherein he can present evidence to
prove that his transaction with MPI was in the nature of a simple loan.[19]
The principle of novation
In the disposition of this case, the following issues must be resolved: cannot be applied to the
case at bar.
I. Whether the negligence of counsel deprived Milla of due
process of law Milla contends that his issuance of Equitable PCI Check Nos. 188954 and
188955 before the institution of the criminal complaint against him novated his
II. Whether the principle of novation can exculpate Milla obligation to MPI, thereby enabling him to avoid any incipient criminal liability
from criminal liability and converting his obligation into a purely civil one. This argument does not
persuade.
III. Whether the factual findings of the trial court, as affirmed
by the appellate court, should be reviewed on appeal The principles of novation cannot apply to the present case as to extinguish his
criminal liability. Milla cites People v. Nery[23] to support his
We resolve to deny the Petition.

Milla was not deprived of contention that his issuance of the Equitable PCI checks prior to the filing of
due process. the criminal complaint averted his incipient criminal liability. However, it must
be clarified that mere payment of an obligation before the institution of a
Milla argues that the negligence of his former counsel, Atty. Manuel V. criminal complaint does not, on its own, constitute novation that may prevent
Mendoza (Atty. Mendoza), deprived him of due process. Specifically, he states criminal liability. This Courts ruling in Nery in fact warned:
that after the prosecution had rested its case, Atty. Mendoza filed a Demurrer
to Evidence, and that the former was never advised by the latter of the
demurrer. Thus, Milla was purportedly surprised to discover that RTC Br. 146 It may be observed in this regard that novation is not
had already rendered judgment finding him guilty, and that it had issued a one of the means recognized by the Penal Code whereby
warrant for his arrest. Atty. Mendoza filed an Omnibus Motion for Leave to File criminal liability can be extinguished; hence, the role of
Motion for New Trial, which Milla claims to have been denied by the trial court novation may only be to either prevent the rise of criminal
liability or to cast doubt on the true nature of the original
petition, whether or not it was such that its breach would not of incompatibility is whether or not the two obligations
give rise to penal responsibility, as when money loaned is can stand together, each one having its independent
made to appear as a deposit, or other similar disguise is existence. If they cannot, they are incompatible and the
resorted to (cf. Abeto vs. People, 90 Phil. 581; Villareal, 27 latter obligation novates the first. Corollarily, changes
Phil. 481). that breed incompatibility must be essential in nature
and not merely accidental. The incompatibility must
Even in Civil Law the acceptance of partial take place in any of the essential elements of the
payments, without further change in the original obligation, such as its object, cause or principal
relation between the complainant and the accused, can conditions thereof; otherwise, the change would be
not produce novation. For the latter to exist, there must merely modificatory in nature and insufficient to
be proof of intent to extinguish the original relationship, extinguish the original obligation.
and such intent can not be inferred from the mere
acceptance of payments on account of what is totally The changes alluded to by petitioner consists
due. Much less can it be said that the acceptance of partial only in the manner of payment. There was really no
satisfaction can effect the nullification of a criminal liability substitution of debtors since private complainant merely
that is fully matured, and already in the process of acquiesced to the payment but did not give her consent to
enforcement. Thus, this Court has ruled that the offended enter into a new contract. The appellate court observed:
partys acceptance of a promissory note for all or part of xxx xxx xxx
the amount misapplied does not obliterate the criminal
offense(Camus vs. Court of Appeals, 48 Off. Gaz. The acceptance by complainant
3898).[24] (Emphasis supplied.) of partial payment tendered by the
buyer, Leonor Camacho, does not evince
the intention of the complainant to have
Further, in Quinto v. People,[25] this Court exhaustively explained the concept their agreement novated. It was simply
of novation in relation to incipient criminal liability, viz: necessitated by the fact that, at that
time, Camacho had substantial accounts
payable to complainant, and because of
Novation is never presumed, and the animus the fact that appellant made herself
novandi, whether totally or partially, must appear by express scarce to complainant. (TSN, April 15,
agreement of the parties, or by their acts that are too clear 1981, 31-32) Thus, to obviate the
and unequivocal to be mistaken. situation where complainant would end
up with nothing, she was forced to
The extinguishment of the old obligation by the new receive the tender of Camacho. Moreover,
one is a necessary element of novation which may be effected it is to be noted that the aforesaid payment
either expressly or impliedly. The term expressly means that was for the purchase, not of the jewelry
the contracting parties incontrovertibly disclose that their subject of this case, but of some other
object in executing the new contract is to extinguish the old jewelry subject of a previous transaction.
one. Upon the other hand, no specific form is required for an (Ibid. June 8, 1981, 10-11)
implied novation, and all that is prescribed by law would be an
incompatibility between the two contracts. While there is xxx xxx xxx
really no hard and fast rule to determine what might
constitute to be a sufficient change that can bring about Art. 315 of the Revised Penal Code defines estafa and
novation, the touchstone for contrariety, however, penalizes any person who shall defraud another by
would be an irreconcilable incompatibility between the misappropriating or converting, to the prejudice of another,
old and the new obligations. money, goods, or any other personal property received by the
offender in trust or on commission, or for administration, or
There are two ways which could indicate, in fine, the under any other obligation involving the duty to make delivery
presence of novation and thereby produce the effect of of or to return the same, even though such obligation be
extinguishing an obligation by another which substitutes the totally or partially guaranteed by a bond; or by denying
same. The first is when novation has been explicitly stated and having received such money, goods, or other property. It is
declared in unequivocal terms. The second is when the old and axiomatic that the gravamen of the offense is the
the new obligations are incompatible on every point. The test appropriation or conversion of money or property received to
the prejudice of the owner. The terms convert and Art. 172. Falsification by private individual and use of
misappropriate have been held to connote an act of using or falsified documents. The penalty of prision correccional in its
disposing of anothers property as if it were ones own or medium and maximum periods and a fine of not more than
devoting it to a purpose or use different from that agreed 5,000 shall be imposed upon:
upon. The phrase, to misappropriate to ones own use has
been said to include not only conversion to ones personal
advantage, but also every attempt to dispose of the property
1. Any private individual who shall commit
of another without right. Verily, the sale of the pieces of
any of the falsification enumerated in the next preceding article
jewelry on installments (sic) in contravention of the explicit
in any public or official document or letter of exchange or any
terms of the authority granted to her in Exhibit A (supra) is
other kind of commercial document
deemed to be one of conversion. Thus, neither the theory of
delay in the fulfillment of commission nor that of novation
posed by petitioner, can avoid the incipient criminal liability.
In People vs. Nery, this Court held: xxx xxx xxx

xxx xxx xxx

The criminal liability for estafa already Art. 315. Swindling (estafa). Any person who shall
committed is then not affected by the subsequent defraud another by any of the means mentioned hereinbelow
novation of contract, for it is a public offense which shall be punished by:
must be prosecuted and punished by the State in its
own conation. (Emphasis supplied.)[26]
xxx xxx xxx
In the case at bar, the acceptance by MPI of the Equitable PCI checks tendered
by Milla could not have novated the original transaction, as the checks were
only intended to secure the return of the P2 million the former had already
2. By means of any of the following false pretenses or
given him. Even then, these checks bounced and were thus unable to satisfy
fraudulent acts executed prior to or simultaneously with the
his liability. Moreover, the estafa involved here was not for simple
commission of the fraud:
misappropriation or conversion, but was committed through Millas falsification
of public documents, the liability for which cannot be extinguished by mere
novation.
(a) By using a fictitious name, or falsely pretending to
possess power, influence, qualifications, property, credit,
agency, business or imaginary transactions; or by means of
The Court of Appeals was
other similar deceits.
correct in affirming the
trial courts finding of
guilt.
xxx xxx xxx
Finally, Milla assails the factual findings of the trial court. Suffice it to say that
factual findings of the trial court, especially when affirmed by the appellate court,
are binding on and accorded great respect by this Court.[27]
It was proven during trial that Milla misrepresented himself to have the authority
There was no reversible error on the part of the Court of Appeals when it to sell the subject property, and it was precisely this misrepresentation that
affirmed the finding of the trial court that Milla was guilty beyond reasonable prompted MPI to purchase it. Because of its reliance on his authority and on the
doubt of the offense of estafathrough falsification of public documents. The falsified Deed of Absolute Sale and TCT No. 218777, MPI parted with its money
prosecution was able to prove the existence of all the elements of the crime in the amount of P2 million, which has not been returned until now despite
charged. The relevant provisions of the Revised Penal Code read: Millas allegation of novation. Clearly, he is guilty beyond reasonable doubt
of estafa through falsification of public documents.

WHEREFORE, we resolve to DENY the Petition. The assailed Decision


and Resolution of the Court of Appeals are hereby AFFIRMED.
SO ORDERED.