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

x------------------------------------------------x
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Review on Certiorari, assailing the following
issuances of the Court of Appeals in CA-G.R. CV No. 40627 consolidated with
CA-G.R. SP No. 27565: (a) the August 8, 2000 Decision,[1] which affirmed the
Decision[2] dated May 30, 1992 of the Regional Trial Court (RTC), Branch 27 of
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
August 8, 2000 Decision.
The relevant factual and procedural antecedents of this case are as follows:
This controversy arose from a Complaint for Damages and Injunction with
Preliminary Injunction/Restraining Order[4] filed on December 10, 1990 by
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
Agapita and Jose Catungal (the spouses Catungal), the parents of petitioners.
In the said Complaint, it was alleged that Agapita T. Catungal (Agapita) owned
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
of Talamban, Cebu City. The said property was allegedly the exclusive
paraphernal property of Agapita.
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
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
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
Way of 12 meters in width. If however said Road Right of Way
could not be negotiated, the VENDEE shall give notice to the
VENDOR for them to reassess and solve the problem by taking
other options and should the situation ultimately prove futile,
he shall take steps to rescind or cancel the herein Conditional
Deed of Sale.
c. That the access road or Road Right of Way leading to Lot
10963 shall be the responsibility of the VENDEE to secure and
any or all cost relative to the acquisition thereof shall be borne
solely by the VENDEE. He shall, however, be accorded with
enough time necessary for the success of his endeavor,
granting him a free hand in negotiating for the passage.
BY THESE PRESENTS, the VENDOR do hereby agree to sell by
way of herein CONDITIONAL DEED OF SALE to VENDEE, his
heirs, successors and assigns, the real property described in
the Original Certificate of Title No. 105 x x x.
xxxx
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
property. The VENDEE shall then be reimbursed by the
VENDOR the sum of FIVE HUNDRED THOUSAND PESOS
(P500,000.00) representing the downpayment, interest free,
payable but contingent upon the event that the VENDOR shall
have been able to sell the property to another party.[8]
In accordance with the Conditional Deed of Sale, Rodriguez purportedly
secured the necessary surveys and plans and through his efforts, the property
was reclassified from agricultural land into residential land which he claimed
substantially increased the propertys value. He likewise alleged that he actively
negotiated for the road right of way as stipulated in the contract.[9]
Rodriguez further claimed that on August 31, 1990 the spouses Catungal
requested an advance of P5,000,000.00 on the purchase price for personal
reasons. Rodriquez allegedly refused on the ground that the amount was
substantial and was not due under the terms of their agreement. Shortly after
his refusal to pay the advance, he purportedly learned that the Catungals were
offering the property for sale to third parties.[10]
Thereafter, Rodriguez received letters dated October 22, 1990,[11] October 24,
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
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
to exercise his option to buy the land, the Catungals warned that they would
consider the contract cancelled and that they were free to look for other
buyers.
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
the Conditional Deed of Sale which allowed him sufficient time to negotiate a
road right of way and granted him, the vendee, the exclusive right to rescind
the contract. Still, on November 15, 1990, Rodriguez purportedly received a
letter dated November 9, 1990[15] from Atty. Catungal, stating that the
contract had been cancelled and terminated.
Contending that the Catungals unilateral rescission of the Conditional Deed of
Sale was unjustified, arbitrary and unwarranted, Rodriquez prayed in his
Complaint, that:
1. Upon the filing of this complaint, a restraining order be
issued enjoining defendants [the spouses Catungal], their
employees, agents, representatives or other persons acting in
their behalf from offering the property subject of this case for
sale to third persons; from entertaining offers or proposals by
third persons to purchase the said property; and, in general,
from performing acts in furtherance or implementation of
defendants rescission of their Conditional Deed of Sale with
plaintiff [Rodriguez].
2. After hearing, a writ of preliminary injunction be issued
upon such reasonable bond as may be fixed by the court
enjoining defendants and other persons acting in their behalf
from performing any of the acts mentioned in the next
preceding paragraph.
3. After trial, a Decision be rendered:
a) Making the injunction permanent;
b) Condemning defendants to pay to plaintiff, jointly
and solidarily:
Actual damages in the amount of P400,000.00 for
their unlawful rescission of the Agreement and
their performance of acts in violation or disregard of the said
Agreement;
Moral damages in the amount of P200,000.00;
Exemplary damages in the amount of P200,000.00;
Expenses of litigation and attorneys fees in the amount
of P100,000.00; and
Costs of suit.[16]
On December 12, 1990, the trial court issued a temporary restraining order
and set the application for a writ of preliminary injunction for hearing on
December 21, 1990 with a directive to the spouses Catungal to show cause
within five days from notice why preliminary injunction should not be
granted. The trial court likewise ordered that summons be served on them.[17]
Thereafter, the spouses Catungal filed their opposition[18] to the issuance of a
writ of preliminary injunction and later filed a motion to dismiss[19] on the
ground of improper venue. According to the Catungals, the subject property
was located in Cebu City and thus, the complaint should have been filed in
Cebu City, not Lapu-lapu City. Rodriguez opposed the motion to dismiss on the
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
property.[20]
In an Order dated January 17, 1991,[21] the trial court denied the motion to
dismiss and ruled that the complaint involved a personal action, being merely
for damages with a prayer for injunction.
Subsequently, on January 30, 1991, the trial court ordered the issuance of a
writ of preliminary injunction upon posting by Rodriguez of a bond in the
amount of P100,000.00 to answer for damages that the defendants may
sustain by reason of the injunction.
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
several months since the signing of the contract, and (2) his refusal to pay the
additional amount of P5,000,000.00 asked by the Catungals, which to them
indicated his lack of funds to purchase the property. The Catungals likewise
contended that Rodriguez did not have an exclusive right to rescind the
contract and that the contract, being reciprocal, meant both parties had the
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
their rescission of the contract.[24] By way of counterclaim, the spouses
Catungal prayed for actual and consequential damages in the form of unearned
interests from the balance (of the purchase price in the amount)
of P24,500,000.00, moral and exemplary damages in the amount
of P2,000,000.00, attorneys fees in the amount of P200,000.00 and costs of
suits and litigation expenses in the amount of P10,000.00.[25] The spouses
Catungal prayed for the dismissal of the complaint and the grant of their
counterclaim.
The Catungals amended their Answer twice,[26] retaining their basic allegations
but amplifying their charges of contractual breach and bad faith on the part of
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
both parties and does not need an express stipulation to grant the same to the
injured party. In the Second Amended Answer with Counterclaim, the spouses
Catungal added a prayer for the trial court to order the Register of Deeds to
cancel the annotations of the two contracts at the back of their OCT.[27]
On October 24, 1991, Rodriguez filed an Amended Complaint,[28] adding
allegations to the effect that the Catungals were guilty of several
misrepresentations which purportedly induced Rodriguez to buy the property at
the price of P25,000,000.00. Among others, it was alleged that the spouses
Catungal misrepresented that their Lot 10963 includes a flat portion of land
which later turned out to be a separate lot (Lot 10986) owned by Teodora
Tudtud who sold the same to one Antonio Pablo. The Catungals also allegedly
misrepresented that the road right of way will only traverse two lots owned by
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
price of P550.00 per square meter. However, because of the Catungals acts of
offering the property to other buyers who offered to buy the road lots
for P2,500.00 per square meter, the adjacent lot owners were no longer willing
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
Rodriguez in his efforts to negotiate the road right of way, the spouses
Catungal allegedly intentionally and maliciously defeated Rodriguezs
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.
Despite requesting the trial court for an extension of time to file an amended
Answer,[29] the Catungals did not file an amended Answer and instead filed an
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,
the trial court set the case for pre-trial on December 20, 1991.
During the pre-trial held on December 20, 1991, the trial court denied in open
court the Catungals Urgent Motion to Dismiss for violation of the rules and for
being repetitious and having been previously denied.[31] However, Atty.
Catungal refused to enter into pre-trial which prompted the trial court to
declare the defendants in default and to set the presentation of the plaintiffs
evidence on February 14, 1992.[32]
On December 23, 1991, the Catungals filed a motion for reconsideration[33] of
the December 20, 1991 Order denying their Urgent Motion to Dismiss but the
trial court denied reconsideration in an Order dated February 3,
1992.[34] Undeterred, the Catungals subsequently filed a Motion to Lift and to
Set Aside Order of Default[35] but it was likewise denied for being in violation of
the rules and for being not meritorious.[36] On February 28, 1992, the
Catungals filed a Petition for Certiorari and Prohibition[37] with the Court of
Appeals, questioning the denial of their motion to dismiss and the order of
default. This was docketed as CA-G.R. SP No. 27565.
Meanwhile, Rodriguez proceeded to present his evidence before the
trial court.
In a Decision dated May 30, 1992, the trial court ruled in favor of Rodriguez,
finding that: (a) under the contract it was complainant (Rodriguez) that had
the option to rescind the sale; (b) Rodriguezs obligation to pay the balance of
the purchase price arises only upon successful negotiation of the road right of
way; (c) he proved his diligent efforts to negotiate the road right of way; (d)
the spouses Catungal were guilty of misrepresentation which defeated
Rodriguezs efforts to acquire the road right of way; and (e) the Catungals
rescission of the contract had no basis and was in bad faith. Thus, the trial
court made the injunction permanent, ordered the Catungals to reduce the
purchase price by the amount of acquisition of Lot 10963 which they
misrepresented was part of the property sold but was in fact owned by a third
party and ordered them to pay P100,000.00 as damages, P30,000.00 as
attorneys fees and costs.
The Catungals appealed the decision to the Court of Appeals, asserting
the commission of the following errors by the trial court in their appellants
brief[38] dated February 9, 1994:
I
THE COURT A QUO ERRED IN NOT DISMISSING OF (SIC) THE
CASE ON THE GROUNDS OF IMPROPER VENUE AND LACK OF
JURISDICTION.
II
THE COURT A QUO ERRED IN CONSIDERING THE CASE AS A
PERSONAL AND NOT A REAL ACTION.
III
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
DEFAULT DURING THE PRE-TRIAL WHEN AT THAT TIME THE
DEFENDANTS HAD ALREADY FILED THEIR ANSWER TO THE
COMPLAINT.
IV
THE COURT A QUO ERRED IN CONSIDERING THE
DEFENDANTS AS HAVING LOST THEIR LEGAL STANDING IN
COURT WHEN AT MOST THEY COULD ONLY BE CONSIDERED
AS IN DEFAULT AND STILL ENTITLED TO NOTICES OF ALL
FURTHER PROCEEDINGS ESPECIALLY AFTER THEY HAD FILED
THE MOTION TO LIFT THE ORDER OF DEFAULT.
V During the pendency of the case with the Court of Appeals, Agapita
THE COURT A QUO ERRED IN ISSUING THE WRIT [OF]
PRELIMINARY INJUNCTION RESTRAINING THE EXERCISE OF
ACTS OF OWNERSHIP AND OTHER RIGHTS OVER REAL
PROPERTY OUTSIDE OF THE COURTS TERRITORIAL
JURISDICTION AND INCLUDING PERSONS WHO WERE NOT
BROUGHT UNDER ITS JURISDICTION, THUS THE NULLITY OF
THE WRIT.
VI
THE COURT A QUO ERRED IN NOT RESTRAINING ITSELF
MOTU PROP[R]IO FROM CONTINUING WITH THE
PROCEEDINGS IN THE CASE AND IN RENDERING DECISION
THEREIN IF ONLY FOR REASON OF COURTESY AND FAIRNESS
BEING MANDATED AS DISPENSER OF FAIR AND EQUAL
JUSTICE TO ALL AND SUNDRY WITHOUT FEAR OR FAVOR IT
HAVING BEEN SERVED EARLIER WITH A COPY OF THE
PETITION FOR CERTIORARI QUESTIONING ITS VENUE AND
JURISDICTION IN CA-G.R. NO. SP 27565 IN FACT NOTICES
FOR THE FILING OF COMMENT THERETO HAD ALREADY BEEN
SENT OUT BY THE HONORABLE COURT OF APPEALS, SECOND
DIVISION, AND THE COURT A QUO WAS FURNISHED WITH
COPY OF SAID NOTICE.
VII
THE COURT A QUO ERRED IN DECIDING THE CASE IN FAVOR
OF THE PLAINTIFF AND AGAINST THE DEFENDANTS ON THE
BASIS OF EVIDENCE WHICH ARE IMAGINARY, FABRICATED,
AND DEVOID OF TRUTH, TO BE STATED IN DETAIL IN THE
DISCUSSION OF THIS PARTICULAR ERROR, AND, THEREFORE,
THE DECISION IS REVERSIBLE.[39]
On August 31, 1995, after being granted several extensions, Rodriguez
filed his appellees brief,[40] essentially arguing the correctness of the trial
courts Decision regarding the foregoing issues raised by the
Catungals. Subsequently, the Catungals filed a Reply Brief[41] dated October
16, 1995.
From the filing of the appellants brief in 1994 up to the filing of the
Reply Brief, the spouses Catungal were represented by appellant Jose Catungal
himself. However, a new counsel for the Catungals, Atty. Jesus N. Borromeo
(Atty. Borromeo), entered his appearance before the Court of Appeals on
September 2, 1997.[42] On the same date, Atty. Borromeo filed a Motion for
Leave of Court to File Citation of Authorities[43] and a Citation of
Authorities.[44] This would be followed by Atty. Borromeos filing of an Additional
Citation of Authority and Second Additional Citation of Authority both on
November 17, 1997.[45]
Catungal passed away and thus, her husband, Jose, filed on February 17, 1999
a motion for Agapitas substitution by her surviving children.[46]
On August 8, 2000, the Court of Appeals rendered a Decision in the
consolidated cases CA-G.R. CV No. 40627 and CA-G.R. SP No.
27565,[47] affirming the trial courts Decision.
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)
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
Code and thus, said contract was void ab initio. He adverted to the cases
mentioned in his various citations of authorities to support his argument of
nullity of the contract and his position that this issue may be raised for the first
time on appeal.
Meanwhile, a Second Motion for Substitution[50] was filed by Atty.
Borromeo in view of the death of Jose Catungal.
In a Resolution dated January 30, 2001, the Court of Appeals allowed the
substitution of the deceased Agapita and Jose Catungal by their surviving heirs
and denied the motion for reconsideration for lack of merit
Hence, the heirs of Agapita and Jose Catungal filed on March 27, 2001
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
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
Catungals rescission thereof was superfluous.
In his Comment,[52] Rodriguez highlighted that (a) petitioners were
raising new matters that cannot be passed upon on appeal; (b) the validity of
the Conditional Deed of Sale was already admitted and petitioners cannot be
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
having come to court with clean hands.
 The Court gave due course to the Petition[53] and the parties filed their
respective Memoranda.
The issues to be resolved in the case at bar can be summed into two
questions:
I. Are petitioners allowed to raise their theory of nullity of
the Conditional Deed of Sale for the first time on appeal?
II. Do paragraphs 1(b) and 5 of the Conditional Deed of Sale
violate the principle of mutuality of contracts under Article
1308 of the Civil Code?
On petitioners change of theory
Petitioners claimed that the Court of Appeals should have reversed the
trial courts Decision on the ground of the alleged nullity of paragraphs 1(b) and
5 of the Conditional Deed of Sale notwithstanding that the same was not raised
as an error in their appellants brief. Citing Catholic Bishop of Balanga v. Court
of Appeals,[54] petitioners argued in the Petition that this case falls under the
following exceptions:
(3) Matters not assigned as errors on appeal but
consideration of which is necessary in arriving at a just
decision and complete resolution of the case or to serve the
interest of justice or to avoid dispensing piecemeal justice;
(4) Matters not specifically assigned as errors on
appeal but raised in the trial court and are matters of record
having some bearing on the issue submitted which the parties
failed to raise or which the lower court ignored;
(5) Matters not assigned as errors on appeal but
closely related to an error assigned; and
(6) Matters not assigned as errors but upon which the
determination of a question properly assigned is dependent.[55]
We are not persuaded.
This is not an instance where a party merely failed to assign an issue
as an error in the brief nor failed to argue a material point on appeal that was
raised in the trial court and supported by the record. Neither is this a case
where a party raised an error closely related to, nor dependent on the
resolution of, an error properly assigned in his brief. This is a situation where a
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
as anathema to due process.
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
claims or defenses of both parties.[56] In Philippine National Construction
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
on appeal, for to permit him to do so would not only be unfair to the other
party but it would also be offensive to the basic rules of fair play, justice and
due process.[58]
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
goes beyond the issues and purports to adjudicate something on which the
court did not hear the parties, is not only irregular but also extrajudicial and
invalid. The rule rests on the fundamental tenets of fair play.[59]
During the proceedings before the trial court, the spouses Catungal
never claimed that the provisions in the Conditional Deed of Sale, stipulating
that the payment of the balance of the purchase price was contingent upon the
successful negotiation of a road right of way (paragraph 1[b]) and granting
Rodriguez the option to rescind (paragraph 5), were void for allegedly making
the fulfillment of the contract dependent solely on the will of Rodriguez.
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
purchase price was subject to the will of Rodriguez but rather they claimed that
paragraph 1(b) in relation to 1(c) only presupposed a reasonable time be given
to Rodriguez to negotiate the road right of way.However, it was petitioners
theory that more than sufficient time had already been given Rodriguez to
negotiate the road right of way. Consequently, Rodriguezs refusal/failure to
pay the balance of the purchase price, upon demand, was allegedly indicative
of lack of funds and a breach of the contract on the part of Rodriguez.
Anent paragraph 5 of the Conditional Deed of Sale, regarding
Rodriguezs option to rescind, it was petitioners theory in the court a quo that
notwithstanding such provision, they retained the right to rescind the contract
for Rodriguezs breach of the same under Article 1191 of the Civil Code.
Verily, the first time petitioners raised their theory of the nullity of the
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.
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
without even any mention of their relevance to the present case or any prayer
for the Court of Appeals to consider them. In sum, the Court of Appeals did not
err in disregarding the citations of authorities or in denying petitioners motion
for reconsideration of the assailed August 8, 2000 Decision in view of the
proscription against changing legal theories on appeal.
Ruling on the questioned
provisions of the Conditional
Deed of Sale
Even assuming for the sake of argument that this Court may overlook the
procedural misstep of petitioners, we still cannot uphold their belatedly
proffered arguments.
At the outset, it should be noted that what the parties entered into is a
Conditional Deed of Sale, whereby the spouses Catungal agreed to sell and
Rodriguez agreed to buy Lot 10963 conditioned on the payment of a certain
price but the payment of the purchase price was additionally made contingent
on the successful negotiation of a road right of way.It is elementary that [i]n
conditional obligations, the acquisition of rights, as well as the extinguishment
or loss of those already acquired, shall depend upon the happening of the
event which constitutes the condition.[60]
Petitioners rely on Article 1308 of the Civil Code to support their conclusion
regarding the claimed nullity of the aforementioned provisions. Article 1308
states that [t]he contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
Article 1182 of the Civil Code, in turn, provides:
Art. 1182. When the fulfillment of the condition depends upon
the sole will of the debtor, the conditional obligation shall be
void. If it depends upon chance or upon the will of a third
person, the obligation shall take effect in conformity with the
provisions of this Code.
In the past, this Court has distinguished between a condition imposed on the
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
failure of a contract, failure to comply with the second merely gives the other
party the option to either refuse to proceed with the sale or to waive the
condition.[61] This principle is evident in Article 1545 of the Civil Code on sales,
which provides in part:
Art. 1545. Where the obligation of either party to a contract of
sale is subject to any condition which is not performed, such
party may refuse to proceed with the contract or he may
waive performance of the condition x x x.
Paragraph 1(b) of the Conditional Deed of Sale, stating that
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
compliance as contemplated in Article 1308. It is a condition imposed only on
respondents obligation to pay the remainder of the purchase price. In our view
and applying Article 1182, such a condition is not purely potestative as
petitioners contend. It is not dependent on the sole will of the debtor but also
on the will of third persons who own the adjacent land and from whom the
road right of way shall be negotiated. In a manner of speaking, such a
condition is likewise dependent on chance as there is no guarantee that
respondent and the third party-landowners would come to an agreement
regarding the road right of way. This type of mixed condition is expressly
allowed under Article 1182 of the Civil Code.
Analogous to the present case is Romero v. Court of Appeals,[62] wherein the
Court interpreted the legal effect of a condition in a deed of sale that the
balance of the purchase price would be paid by the vendee when the vendor
has successfully ejected the informal settlers occupying the property.
In Romero, we found that such a condition did not affect the perfection of the
contract but only imposed a condition on the fulfillment of the obligation to pay
the balance of the purchase price, to wit:
From the moment the contract is perfected, the
parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith,
usage and law. Under the agreement, private respondent is
obligated to evict the squatters on the property. The
ejectment of the squatters is a condition the operative
act of which sets into motion the period of compliance
by petitioner of his own obligation, i.e., to pay the
balance of the purchase price. Private respondent's
failure to remove the squatters from the property"
within the stipulated period gives petitioner the right to
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
private respondent.
We share the opinion of the appellate court that
the undertaking required of private respondent does not
constitute a "potestative condition dependent solely on
his will" that might, otherwise, be void in accordance
with Article 1182 of the Civil Code but a "mixed"
condition "dependent not on the will of the vendor
alone but also of third persons like the squatters and
government agencies and personnel concerned." We
must hasten to add, however, that where the so-called
"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
supplied.)
From the provisions of the Conditional Deed of Sale subject matter of
this case, it was the vendee (Rodriguez) that had the obligation to successfully
negotiate and secure the road right of way. However, in the decision of the trial
court, which was affirmed by the Court of Appeals, it was found that
respondent Rodriguez diligently exerted efforts to secure the road right of way
but the spouses Catungal, in bad faith, contributed to the collapse of the
negotiations for said road right of way. To quote from the trial courts decision:
 It is therefore apparent that the vendees obligations
(sic) to pay the balance of the purchase price arises only when
the road-right-of-way to the property shall have been
successfully negotiated, secured and provided. In other words,
the obligation to pay the balance is conditioned upon the
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
condition cannot be demanded until after the condition takes
place because it is only after the fulfillment of the condition
that the obligation arises. (Javier v[s] CA 183 SCRA) Exhibits
H, D, P, R, T, FF and JJ show that plaintiff [Rodriguez]
indeed was diligent in his efforts to negotiate for a
road-right-of-way to the property. The written offers,
proposals and follow-up of his proposals show that plaintiff
[Rodriguez] went all out in his efforts to immediately acquire
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)
from the original P550.00 per sq. meter. This Court also notes
that defendant (sic) [the Catungals] made
misrepresentation in the negotiation they have entered
into with plaintiff [Rodriguez]. (Exhs. F and G) The
misrepresentation of defendant (sic) [the Catungals] as to the
third lot (Lot 10986) to be part and parcel of the subject
property [(]Lot 10963) contributed in defeating the
plaintiffs [Rodriguezs] effort in acquiring the road-
right-of-way to the property. Defendants [the
Catungals] cannot now invoke the non-fulfillment of the
condition in the contract as a ground for rescission
when defendants [the Catungals] themselves are guilty
of preventing the fulfillment of such condition.
From the foregoing, this Court is of the considered
view that rescission of the conditional deed of sale by the
defendants is without any legal or factual basis.[64] x x x.
(Emphases supplied.)
In all, we see no cogent reason to disturb the foregoing factual
findings of the trial court.
Furthermore, it is evident from the language of paragraph 1(b) that
the condition precedent (for respondents obligation to pay the balance of the
purchase price to arise) in itself partly involves an obligation to do, i.e., the
undertaking of respondent to negotiate and secure a road right of way at his
own expense.[65] It does not escape our notice as well, that far from
disclaiming paragraph 1(b) as void, it was the Catungals contention before the
trial court that said provision should be read in relation to paragraph 1(c)
which stated:
c. That the access road or Road Right of Way leading
to Lot 10963 shall be the responsibility of the VENDEE to
secure and any or all cost relative to the acquisition thereof
shall be borne solely by the VENDEE. He shall, however, be
accorded with enough time necessary for the success of
his endeavor, granting him a free hand in negotiating for the
passage.[66](Emphasis supplied.)
The Catungals interpretation of the foregoing stipulation was that
Rodriguezs obligation to negotiate and secure a road right of way was one with
a period and that period, i.e., enough time to negotiate, had already lapsed by
the time they demanded the payment of P5,000,000.00 from respondent. Even
assuming arguendo that the Catungals were correct that the respondents
obligation to negotiate a road right of way was one with an uncertain period,
their rescission of the Conditional Deed of Sale would still be
unwarranted. Based on their own theory, the Catungals had a remedy under
Article 1197 of the Civil Code, which mandates:
Art. 1197. If the obligation does not fix a period, but
from its nature and the circumstances it can be inferred that a
period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period
when it depends upon the will of the debtor.
In every case, the courts shall determine such period
as may under the circumstances have been probably
contemplated by the parties. Once fixed by the courts, the
period cannot be changed by them.
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
negotiation of the road right of way pursuant to the above quoted
provision. Thus, the Catungals demand for Rodriguez to make an additional
payment of P5,000,000.00 was premature and Rodriguezs failure to accede to
such demand did not justify the rescission of the contract.
With respect to petitioners argument that paragraph 5 of the
Conditional Deed of Sale likewise rendered the said contract void, we find no
merit to this theory. Paragraph 5 provides:
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 property. The VENDEE shall then be reimbursed by
the VENDOR the sum of FIVE HUNDRED THOUSAND PESOS
(P500,000.00) representing the downpayment, interest free,
payable but contingent upon the event that the VENDOR shall
have been able to sell the property to another party.[67]
Petitioners posited that the above stipulation was the deadliest provision in the
Conditional Deed of Sale for violating the principle of mutuality of contracts
since it purportedly rendered the contract subject to the will of respondent.
We do not agree.
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
other provisions of the contract. Petitioners view, however, ignores a basic rule
in the interpretation of contracts that the contract should be taken as a whole.
Article 1374 of the Civil Code provides that [t]he various stipulations of
a contract shall be interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly. The same Code further
sets down the rule that [i]f some stipulation of any contract should admit of
several meanings, it shall be understood as bearing that import which is most
adequate to render it effectual.[68]
Similarly, under the Rules of Court it is prescribed that [i]n the
construction of an instrument where there are several provisions or particulars,
such a construction is, if possible, to be adopted as will give effect to all[69] and
for the proper construction of an instrument, the circumstances under which it
was made, including the situation of the subject thereof and of the parties to it,
may be shown, so that the judge may be placed in the position of those whose
language he is to interpret.[70]
Bearing in mind the aforementioned interpretative rules, we find that
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.
Reading paragraph 5 in its entirety will show that Rodriguezs option to
rescind the contract is not absolute as it is subject to the requirement that
there should be written notice to the vendor and the vendor shall only return
Rodriguezs downpayment of P500,000.00, without interest, when the vendor
shall have been able to sell the property to another party. That what is
stipulated to be returned is only the downpayment of P500,000.00 in the event
that Rodriguez exercises his option to rescind is significant. To recall,
paragraph 1(b) of the contract clearly states that the installments on the
balance of the purchase price shall only be paid upon successful negotiation
and procurement of a road right of way. It is clear from such provision that the
existence of a road right of way is a material consideration for Rodriguez to
purchase the property. Thus, prior to him being able to procure the road right
of way, by express stipulation in the contract, he is not bound to make
additional payments to the Catungals. It was further stipulated in paragraph
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
problem by taking other options and should the situation ultimately prove
futile, he [Rodriguez] shall take steps to rescind or [cancel] the herein
Conditional Deed of Sale. The intention of the parties for providing
subsequently in paragraph 5 that Rodriguez has the option to rescind the sale
is undeniably only limited to the contingency that Rodriguez shall not be able
to secure the road right of way. Indeed, if the parties intended to give
Rodriguez the absolute option to rescind the sale at any time, the contract
would have provided for the return of all payments made by Rodriguez and not
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
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.
In sum, Rodriguezs option to rescind the contract is not purely
potestative but rather also subject to the same mixed condition as his
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
successful), Rodriguez must pay the balance of the purchase price. In the
event the condition is not fulfilled (or the negotiation fails), Rodriguez has the
choice either (a) to not proceed with the sale and demand return of his
downpayment or (b) considering that the condition was imposed for his benefit,
to waive the condition and still pay the purchase price despite the lack of road
access. This is the most just interpretation of the parties contract that gives
effect to all its provisions.
In any event, even if we assume for the sake of argument that the
grant to Rodriguez of an option to rescind, in the manner provided for in the
contract, is tantamount to a potestative condition, not being a condition
affecting the perfection of the contract, only the said condition would be
considered void and the rest of the contract will remain valid.In Romero, the
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
avoided, leaving unaffected the obligation itself.[71]
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
previously ruled that [b]eing the primary law between the parties, the contract
governs the adjudication of their rights and obligations. A court has no
alternative but to enforce the contractual stipulations in the manner they have
been agreed upon and written.[73] We find no merit in petitioners contention
that their parents were merely duped into accepting the questioned provisions
in the Conditional Deed of Sale. We note that although the contract was
between Agapita Catungal and Rodriguez, Jose Catungal nonetheless signed
thereon to signify his marital consent to the same. We concur with the trial
courts finding that the spouses Catungals claim of being misled into signing the
contract was contrary to human experience and conventional wisdom since it
was Jose Catungal who was a practicing lawyer while Rodriquez was a non-
lawyer.[74] It can be reasonably presumed that Atty. Catungal and his wife
reviewed the provisions of the contract, understood and accepted its provisions
before they affixed their signatures thereon.
After thorough review of the records of this case, we have come to the
conclusion that petitioners failed to demonstrate that the Court of Appeals
committed any reversible error in deciding the present controversy. However,
having made the observation that it was desirable for the Catungals to file a
separate action to fix the period for respondent Rodriguezs obligation to
negotiate a road right of way, the Court finds it necessary to fix said period in
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
avoiding multiplicity of suits.
If still warranted, Rodriguez is given a period of thirty (30) days from
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
shall reassess and discuss other options as stipulated in paragraph 1(b) of the
Conditional Deed of Sale and, for this purpose, they are given a period of thirty
(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
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
deducted purchase price as determined in the RTC Decision dated May 30,
1992.
WHEREFORE, the Decision dated August 8, 2000 and
the Resolution dated January 30, 2001 of the Court of Appeals in CA-G.R. CV
No. 40627 consolidated with CA-G.R. SP No. 27565 are AFFIRMED with the
following MODIFICATION:
If still warranted, respondent Angel S. Rodriguez is given a period of
thirty (30) days from the finality of this Decision to negotiate a road right of
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
paragraph 1(b) of the Conditional Deed of Sale and, for this purpose, they are
given a period of thirty (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 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 deducted purchase price as determined in the RTC Decision
dated May 30, 1992.
No pronouncement as to costs.
SO ORDERED.
FONTANA RESORT AND COUNTRY CLUB, G.R. No. 154670
INC. AND RN DEVELOPMENT CORP.,
Petitioners, Present:
CORONA, C.J.,
Chairperson,
- versus - LEONARDO-DE CASTRO,
BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR., JJ.
SPOUSES ROY S. TAN AND SUSAN C. TAN,
Respondents. Promulgated:
January 30, 2012
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- -x
DECISION
LEONARDO-DE CASTRO, J.:
For review under Rule 45 of the Rules of Court is the Decision[1] dated
May 30, 2002 and Resolution[2] dated August 12, 2002 of the Court Appeals in
CA-G.R. SP No. 67816. The appellate court affirmed with modification the
Decision[3] dated July 6, 2001 of the Securities and Exchange Commission
(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.
(Bacalla) of the SEC Securities Investigation and Clearing Department (SICD)
in SEC Case No. 04-99-6264.
Sometime in March 1997, respondent spouses Roy S. Tan and Susana
C. Tan bought from petitioner RN Development Corporation (RNDC) two class
D shares of stock in petitioner Fontana Resort and Country Club, Inc. (FRCCI),
worth P387,300.00, enticed by the promises of petitioners sales agents that
petitioner FRCCI would construct a park with first-class leisure facilities in Clark
Field, Pampanga, to be called Fontana Leisure Park (FLP); that FLP would be
fully developed and operational by the first quarter of 1998; and that FRCCI
class D shareholders would be admitted to one membership in the country
club, which entitled them to use park facilities and stay at a two-bedroom villa
for five (5) ordinary weekdays and two (2) weekends every year for free.[5]
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
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
themselves of free accommodations at an FLP villa on September 5, 1998, a
Saturday. They requested that an FLP villa again be reserved for their free use
on October 17, 1998, another Saturday, for the celebration of their daughters
18th birthday, but were refused by petitioners.Petitioners clarified that
respondents were only entitled to free accommodations at FLP for one week
annually consisting of five (5) ordinary days, one (1) Saturday and one (1)
Sunday[,] and that respondents had already exhausted their free Saturday
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,
they would not have availed themselves of the free accommodations on
September 5, 1998. In January 1999, respondents attempted once more to
book and reserve an FLP villa for their free use on April 1, 1999, a
Thursday. Their reservation was confirmed by a certain Murphy
Magtoto. However, on March 3, 1999, another country club employee named
Shaye called respondents to say that their reservation for April 1, 1999 was
cancelled because the FLP was already fully booked.
Petitioners filed their Answer[7] in which they asserted that
respondents had been duly informed of the privileges given to them as
shareholders of FRCCI class D shares of stock since these were all explicitly
provided in the promotional materials for the country club, the Articles of
Incorporation, and the By-Laws of FRCCI. Petitioners called attention to the
following paragraph in their ads:
GUEST ROOMS
As a member of the Fontana Resort and Country Club,
you are entitled to 7 days stay consisting of 5 weekdays, one
Saturday and one Sunday. A total of 544 elegantly furnished
villas available in two and three bedroom units.[8]
Petitioners also cited provisions of the FRCCI Articles of Incorporation
and the By-Laws on class D shares of stock, to wit:
Class D shares may be sold to any person,
irrespective of nationality or Citizenship. Every registered
owner of a class D share may be admitted to one (1)
Membership in the Club and subject to the Clubs rules and
regulations, shall be entitled to use a Two (2) Bedroom
Multiplex Model Unit in the residential villas provided by the
Club for one week annually consisting of five (5) ordinary
days, one (1) Saturday and one (1) Sunday. (Article Seventh,
Articles of Incorporation)
Class D shares which may be sold to any person,
irrespective of nationality or Citizenship. Every registered
owner of a class D share may be admitted to one (1)
Membership in the Club and subject to the Clubs rules and
regulations, shall be entitled to use a Two (2) Bedroom
Multiplex Model Unit in the residential villas provided by the
Club for one week annually consisting of five (5) ordinary
days, one (1) Saturday and one (1) Sunday. [Section 2(a),
Article II of the By-Laws.][9]
Petitioners further denied that they unjustly cancelled respondents
reservation for an FLP villa on April 1, 1999, explaining that:
6. There is also no truth to the claim of [herein
respondents] that they were given and had confirmed
reservations for April 1, 1998. There was no reservation to
cancel since there was no confirmed reservations to speak of
for the reason that April 1, 1999, being Holy Thursday, all
reservations for the Holy Week were fully booked as early as
the start of the current year. The Holy Week being a peak
season for accommodations, all reservations had to be made
on a priority basis; and as admitted by [respondents], they
tried to make their reservation only on January 4, 1999, a
time when all reservations have been fully booked. The fact of
[respondents] non-reservation can be attested by the fact that
no confirmation number was issued in their favor.
If at all, [respondents] were wait-listed as of January
4, 1999, meaning, they would be given preference in the
reservation in the event that any of the confirmed
members/guests were to cancel. The diligence on the part of
the [herein petitioners] to inform [respondents] of the status
of their reservation can be manifested by the act of the Clubs
personnel when it advised [respondents] on March 3, 1999
that there were still no available villas for their use because of
full bookings.[10]
Lastly, petitioners averred that when respondents were first
accommodated at FLP, only minor or finishing construction works were left to
be done and that facilities of the country club were already operational.
SEC-SICD Hearing Officer Bacalla conducted preliminary hearings and
trial proper in the case. Respondents filed separate sworn Question and Answer
depositions.[11]Esther U. Lacuna, a witness for respondents, also filed a sworn
Question and Answer deposition.[12] When petitioners twice defaulted, without
any valid excuse, to present evidence on the scheduled hearing dates, Hearing
Officer Bacalla deemed petitioners to have waived their right to present
evidence and considered the case submitted for resolution.[13]
Based on the evidence presented by respondents, Hearing Officer
Bacalla made the following findings in his Decision dated April 28, 2000:
To prove the merits of their case, both [herein
respondents] testified. Ms. Esther U. Lacuna likewise testified
in favor of [respondents].
As established by the testimonies of [respondents]
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
Fontana Resort and Country Club, Inc. with promises that the
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
in Fontana Resort and Country Club, Inc. paying P387,000.00
to [petitioners] as evidenced by provisional and official
receipts (Exhibits A to S), and signing two (2) documents
designated as Agreement to Sell and Purchase Shares of Stock
(Exhibits T to U-2).
It is undisputed that many of the facilities promised
were not completed within the specified date. Ms. Lacuna even
testified that less than 50% of what was promised were
actually delivered.
What was really frustrating on the part of
[respondents] was when they made reservations for the use of
the Clubs facilities on the occasion of their daughters
18th birthday on October 17, 1998 where they were deprived
of the clubs premises alleging that the two (2) weekend stay
which class D shareholders are entitled should be on a
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
Saturday.
Another occasion was when [respondents] were again
denied the use of the clubs facilities because they did not have
a confirmation number although their reservation was
confirmed.
All these rules were never communicated to
[respondents] when they bought their membership shares.
It would seem that [petitioners], through their
officers, would make up rules as they go along. A clever ploy
for [petitioners] to hide the lack of club facilities to
accommodate the needs of their members.
[Petitioners] failure to finish the development works
at the Fontana Leisure Park within the period they promised
and their failure or refusal to accommodate [respondents] for
a reservation on October 17, 1998 and April 1, 1999,
constitute gross misrepresentation detrimental not only to the
[respondents] but to the general public as well.
All these empty promises of [petitioners] may well be
part of a scheme to attract, and induce [respondents] to buy
shares because surely if [petitioners] had told the truth about
these matters, [respondents] would never have bought shares
in their project in the first place.[14]
Consequently, Hearing Officer Bacalla adjudged:
WHEREFORE, premises considered, judgment is
hereby rendered directing [herein petitioners] to jointly and
severally pay [herein respondents]:
1) The amount
of P387,000.00 plus interest at the rate of
21% per annum computed from August 28,
1998 when demand was first made, until such
time as payment is actually made.[15]
Petitioners appealed the above-quoted ruling of Hearing Officer Bacalla
before the SEC en banc. In its Decision dated July 6, 2001, the SEC en
banc held:
WHEREFORE, the instant appeal is hereby DENIED
and the Decision of Hearing Officer Marciano S. Bacalla, Jr.
dated April 28, 2000 is hereby AFFIRMED.[16]
In an Order[17] dated September 19, 2001, the SEC en banc denied
petitioners Motion for Reconsideration for being a prohibited pleading under the
SEC Rules of Procedure.
Petitioners filed before the Court of Appeals a Petition for Review under
Rule 43 of the Rules of Court. Petitioners contend that even on the sole basis of
respondents evidence, the appealed decisions of Hearing Officer Bacalla and
the SEC en banc are contrary to law and jurisprudence.
The Court of Appeals rendered a Decision on March 30, 2002, finding
petitioners appeal to be partly meritorious.
The Court of Appeals brushed aside the finding of the SEC that
petitioners were guilty of fraudulent misrepresentation in inducing respondents
to buy FRCCI shares of stock. Instead, the appellate court declared that:
What seems clear rather is that in inducing the respondents to
buy the Fontana shares, RN Development Corporation merely
repeated to the spouses the benefits promised to all holders of
Fontana Class D shares. These inducements were in fact
contained in Fontanas promotion brochures to prospective
subscribers which the spouses must obviously have read.[18]
Nonetheless, the Court of Appeals agreed with the SEC that the sale of
the two FRCCI class D shares of stock by petitioners to respondents should be
rescinded. Petitioners defaulted on their promises to respondents that FLP
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
villa for five (5) ordinary weekdays and two (2) weekends every year.

The Court of Appeals modified the appealed SEC judgment by ordering
respondents to return their certificates of shares of stock to petitioners upon
the latters refund of the price of said shares since [t]he essence of the
questioned [SEC] judgment was really to declare as rescinded or annulled the
sale or transfer of the shares to the respondents.[19]The appellate court
additionally clarified that the sale of the FRCCI shares of stock by petitioners to
respondents partakes the nature of a forbearance of money, since the amount
paid by respondents for the shares was used by petitioners to defray the
construction of FLP; hence, the interest rate of 12% per annum should be
imposed on said amount from the date of extrajudicial demand until its return
to respondents. The dispositive portion of the Court of Appeals judgment
reads:
WHEREFORE, premises considered, the appealed
judgment is MODIFIED: a) petitioner Fontana Resort and
Country Club is hereby ordered to refund and pay to the
respondents Spouses Roy S. Tan and Susana C. Tan the
amount of P387,000.00, Philippine Currency, representing the
price of two of its Class D shares of stock, plus simple interest
at the rate of 12% per annum computed from August 28,
1998 when demand was first made, until payment is
completed; b) the respondent spouses are ordered to
surrender to petitioner Fontana Resort and Country Club their
two (2) Class D shares issued by said petitioner upon receipt
of the full refund with interest as herein ordered.[20]
Petitioners filed a Motion for Reconsideration, but it was denied by the
Court of Appeals in its Resolution dated August 12, 2002.
Hence, the instant Petition for Review.
Petitioners, in their Memorandum,[21] submit for our consideration the
following issues:
a. Was the essence of the judgment of
the SEC which ordered the return of the purchase price but
not of the thing sold a declaration of rescission or annulment
of the contract of sale between RNDC and respondents?
b. Was the order of the Court of Appeals
to FRCCI which was not the seller of the thing sold (the seller
was RNDC) to return the purchase price to the buyers (the
respondents) in accordance with law?
c. Was the imposition of 12% interest per
annum from the date of extra-judicial demand on an
obligation which is not a loan or forbearance of money in
accordance with law?[22]
Petitioners averred that the ruling of the Court of Appeals that the
essence of the SEC judgment is the rescission or annulment of the contract of
sale of the FRCCI shares of stock between petitioners and respondents is
inconsistent with Articles 1385 and 1398 of the Civil Code. The said SEC
judgment did not contain an express declaration that it involved the rescission
or annulment of contract or an explicit order for respondents to return the
thing sold. Petitioners also assert that respondents claim for refund based on
fraud or misrepresentation should have been directed only against petitioner
RNDC, the registered owner and seller of the FRCCI class D shares of
stock. Petitioner FRCCI was merely the issuer of the shares sold to
respondents. Petitioners lastly question the order of the Court of Appeals for
petitioners to pay 12% interest per annum, the same being devoid of legal
basis since their obligation does not constitute a loan or forbearance of money.
In their Memorandum,[23] respondents chiefly argue that petitioners
have posited mere questions of fact and none of law, precluding this Court to
take cognizance of the instant Petition under Rule 45 of the Rules of
Court. Even so, respondents maintain that the Court of Appeals did not err in
ordering them to return the certificates of shares of stock to petitioners upon
the latters refund of the price thereof as the essence of respondents claim for
refund is to rescind the sale of said shares. Furthermore, both petitioners
should be held liable since they are the owners and developers of
FLP. Petitioner FRCCI is primarily liable for respondents claim for refund, and
petitioner RNDC, at most, is only subsidiarily liable considering that petitioner
RNDC is a mere agent of petitioner FRCCI. Respondents finally insist that the
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.
We find merit in the Petition.
We address the preliminary matter of the nature of respondents
Complaint against petitioners. Well-settled is the rule that the allegations in the
complaint determine the nature of the action instituted.[24]
Respondents alleged in their Complaint that:
16. [Herein petitioners] failure to finish the
development works at the Fontana Leisure Park within the
time frame that they promised, and [petitioners]
failure/refusal to accom[m]odate [herein respondents] request
for reservations on 17 October 1998 and 1 April 1999,
constitute gross misrepresentation and a form of deception,
not only to the [respondents], but the general public as well.
17. [Petitioners] deliberately and maliciously
misrepresented that development works will be completed
when they knew fully well that it was impossible to complete
the development works by the deadline. [Petitioners] also
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
attract, induce and convince [respondents] to buy shares,
knowing that had they told the truth about these matters,
[respondents] would never have bought shares in their
project.
18. On 28 August 1998, [respondents] requested
their lawyer to write [petitioner] Fontana Resort and Country
Club, Inc. a letter demanding for the return of their
payment. x x x.
19. [Petitioner] Fontana Resort and Country Club, Inc.
responded to this letter, with a letter of its own dated 10
September 1998, denying [respondents] request for a
refund. x x x.
20. [Respondents] replied to [petitioner] Fontana
Resort and Country Clubs letter with a letter dated 13 October
1998, x x x. But despite receipt of this letter, [petitioners]
failed/refused and continue to fail /refuse to refund/return
[respondents] payments.
xxxx
22. [Petitioners] acted in bad faith when it sold
membership shares to [respondents], promising development
work will be completed by the first quarter of 1998 when
[petitioners] knew fully well that they were in no position and
had no intention to complete development work within the
time they promised. [Petitioners] also were maliciously
motivated when they promised [respondents] use of Club
facilities only to deny [respondents] such use later on.
23. It is detrimental to the interest of [respondents]
and quite unfair that they will be made to suffer from the
delay in the completion of the development work, while
[petitioners] are already enjoying the purchase price paid by
[respondents].
xxxx
26. Apart from the refund of the amount
of P387,300.00, [respondents] are also entitled to be paid
reasonable interest from their money. Afterall, [petitioners]
have already benefitted from this money, having been able to
use it, if not for the Fontana Leisure Park project, for their
other projects as well. And had [respondents] been able to
deposit the money in the bank, or invested it in some
worthwhile undertaking, they would have earned interest on
the money at the rate of at least 21% per annum.[25]
The aforequoted allegations in respondents Complaint sufficiently state
a cause of action for the annulment of a voidable contract of sale based on
fraud under Article 1390, in relation to Article 1398, of the Civil Code, and/or
rescission of a reciprocal obligation under Article 1191, in relation to Article
1385, of the same Code. Said provisions of the Civil Code are reproduced
below:
Article 1390. The following contracts are voidable or
annullable, even though there may have been no damage to
the contracting parties:
1. Those where one of the parties is
incapable of giving consent to a contract;
2. Those where the consent is vitiated by
mistake, violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled
by a proper action in court. They are susceptible of
ratification.
Article 1398. An obligation having been annulled,
the contracting parties shall restore to each other the things
which have been the subject matter of the contract, with their
fruits, and the price with its interest, except in cases provided
by law.
In obligations to render service, the value thereof
shall be the basis for damages.
Article 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the
rights of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the Mortgage
Law.
Article 1385. Rescission creates the obligation to
return the things which were the object of the contract,
together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who
demands rescission can return whatever he may be obliged to
return.

Neither shall rescission take place when the things
which are the object of the contract are legally in the
possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be
demanded from the person causing the loss.
It does not matter that respondents, in their Complaint, simply prayed
for refund of the purchase price they had paid for their FRCCI
shares,[26] without specifically mentioning the annulment or rescission of the
sale of said shares. The Court of Appeals treated respondents Complaint as one
for annulment/rescission of contract and, accordingly, it did not simply order
petitioners to refund to respondents the purchase price of the FRCCI shares,
but also directed respondents to comply with their correlative obligation of
surrendering their certificates of shares of stock to petitioners.
Now the only issue left for us to determine whether or not petitioners
committed fraud or defaulted on their promises as would justify the annulment
or rescission of their contract of sale with respondents requires us to
reexamine evidence submitted by the parties and review the factual findings by
the SEC and the Court of Appeals.
As a general rule, the remedy of appeal by certiorari under Rule 45 of
the Rules of Court contemplates only questions of law and not issues of
fact. This rule, however, is inapplicable in cases x x x where the factual
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
factual findings of the administrative agency and the Court of Appeals are
contradictory.[28] The said exceptions are applicable to the case at bar.
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
the part of petitioners in selling the FRCCI shares to respondents, the Court of
Appeals found none.
There is fraud when one party is induced by the other to enter into a
contract, through and solely because of the latters insidious words or
machinations. But not all forms of fraud can vitiate consent. Under Article
1330, fraud refers to dolo causante or causal fraud, in which, prior to or
simultaneous with the execution of a contract, one party secures the consent of
the other by using deception, without which such consent would not have been
given.[29] Simply stated, the fraud must be the determining cause of the
contract, or must have caused the consent to be given.[30]
[T]he general rule is that he who alleges fraud or mistake in a
transaction must substantiate his allegation as the presumption is that a
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
valid consent to a contract by reason of fraud or undue influence must
establish by full, clear and convincing evidence such specific acts that vitiated a
partys consent, otherwise, the latters presumed consent to the contract
prevails.[32]
In this case, respondents have miserably failed to prove how
petitioners employed fraud to induce respondents to buy FRCCI shares. It can
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
or machinations, without which, respondents would not have bought the FRCCI
shares. Respondents appear to be literate and of above-average means, who
may not be so easily deceived into parting with a substantial amount of
money. What is apparent to us is that respondents knowingly and willingly
consented to buying FRCCI shares, but were later on disappointed with the
actual FLP facilities and club membership benefits.
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
the FRCCI shares to respondents.
The right to rescind a contract arises once the other party defaults in
the performance of his obligation.[33] Rescission of a contract will not be
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
the agreement.[34] In the same case as fraud, the burden of establishing the
default of petitioners lies upon respondents, but respondents once more failed
to discharge the same.
Respondents decry the alleged arbitrary and unreasonable denial of
their request for reservation at FLP and the obscure and ever-changing rules of
the country club as regards free accommodations for FRCCI class D
shareholders.
Yet, petitioners were able to satisfactorily explain, based on clear
policies, rules, and regulations governing FLP club memberships, why they
rejected respondents request for reservation on October 17, 1998.
Respondents do not dispute that the Articles of Incorporation and the By-Laws
of FRCCI, as well as the promotional materials distributed by petitioners to the
public (copies of which respondents admitted receiving), expressly stated that
the subscribers of FRCCI class D shares of stock are entitled free
accommodation at an FLP two-bedroom villa only for one week annually
consisting of five (5) ordinary days, one (1) Saturday and one (1)
Sunday. Thus, respondents cannot claim that they were totally ignorant of
such rule or that petitioners have been changing the rules as they go
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
petitioners to deny respondents subsequent request for reservation of an FLP
villa for their free use on October 17, 1998, another Saturday.
 Neither can we rescind the contract because construction of FLP
facilities were still unfinished by 1998. Indeed, respondents allegation of
unfinished FLP facilities was not disputed by petitioners, but respondents
themselves were not able to present competent proof of the extent of such
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
petitioners were actually unable to deliver on their promise of a first class
leisure park and whether there is sufficient reason for us to grant rescission or
annulment of the sale of FRCCI shares. Apparently, respondents were still able
to enjoy their stay at FLP despite the still ongoing construction works, enough
for them to wish to return and again reserve accommodations at the park.
Respondents additionally alleged the unreasonable cancellation of their
confirmed reservation for the free use of an FLP villa on April 1,
1999. According to respondents, their reservation was confirmed by a Mr.
Murphy Magtoto, only to be cancelled later on by a certain Shaye. Petitioners
countered that April 1, 1999 was a Holy Thursday and FLP was already fully-
booked. Petitioners, however, do not deny that Murphy Magtoto and Shaye are
FLP employees who dealt with respondents. The absence of any confirmation
number issued to respondents does not also discount the possibility that the
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
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
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
Civil Code.[35]
In Almeda v. Cario,[36] we have expounded on the propriety of granting
nominal damages as follows:
[N]ominal damages may be awarded to a plaintiff whose right
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
award is thus not for the purpose of indemnification for a loss
but for the recognition and vindication of a right. Indeed,
nominal damages are damages in name only and not in fact.
When granted by the courts, they are not treated as an
equivalent of a wrong inflicted but simply a recognition of the
existence of a technical injury. A violation of the plaintiff's
right, even if only technical, is sufficient to support an award
of nominal damages. Conversely, so long as there is a
showing of a violation of the right of the plaintiff, an award of
nominal damages is proper.[37]
It is also settled that the amount of such damages is addressed to the sound
discretion of the court, taking into account the relevant circumstances.[38]
In this case, we deem that the respondents are entitled to an award
of P5,000.00 as nominal damages in recognition of their confirmed reservation
for the free use of an FLP villa on April 1, 1999 which was inexcusably
cancelled by petitioner on March 3, 1999.
In sum, the respondents Complaint sufficiently alleged a cause of
action for the annulment or rescission of the contract of sale of FRCCI class D
shares by petitioners to respondents; however, respondents were unable to
establish by preponderance of evidence that they are entitled to said
annulment or rescission.
WHEREFORE, in view of the foregoing, the Petition is
hereby GRANTED. The Decision dated May 30, 2002 and Resolution dated
August 12, 2002 of the Court Appeals in CA-G.R. SP No. 67816
are REVERSED and SET ASIDE. Petitioners are ORDERED to pay respondents
the amount of P5,000.00 as nominal damages for their negligence as regards
respondents cancelled reservation for April 1, 1999, but respondents
Complaint, in so far as the annulment or rescission of the contract of sale of
the FRCCI class "D shares of stock is concerned, is DISMISSED for lack of
merit.
SO ORDERED.
G.R. No. 193426 September 29, 2014
SUBIC BAY LEGEND RESORTS AND CASINOS, INC., Petitioner,
vs.
BERNARD C. FERNANDEZ, Respondent.
DECISION
DEL CASTILLO, J.:
This Petition for Review on Certiorari1 assails the April 27, 2010 Decision2 and
August 24, 2010 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No.
91758, entitled "Bernard C. Fernandez, Plaintiff-Appellee, versus Subic Bay
Legend Resorts and Casinos, Inc., Defendant-Appellant," which affirmed in toto
the May 17, 2006 Decision4 of the Regional Trial Court (RTC) of Olongapo City,
Branch 74, in Civil Case No. 237-0-97.
Factual Antecedents
Petitioner Subic Bay Legend Resorts ¥d Casinos, Inc., a duly organized and
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
in Civil Case No. 237-0-97 prosecuted against petitioner in Olongapo RTC.
As determined by the CA, the facts of the case are as follows:
At around eleven o'clock in the evening of 6 June 1997, the
appellee's5 brother[,] Ludwin Fernandez[,] visited the Legenda Hotel and
Casino x x x owned and operated by the appellant6 and located along the
Waterfront Road, Subic Bay Freep011 Zone. Legenda had strategically installed
several closedcircuit television (CCTV) cameras as part of security measures
required by its business. The monitors revealed that Ludwin changed x x x
$5,000.00 w011h of chips into smaller denominations. Legenda admitted in its
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
Ludwin won $200.00 in a game of baccarat, he redeemed the value of chips
worth $7,200.00. A review of the CCTV recordings showed that the incident
was not the first time Ludwin visited the Casino, as he had also been there on
5 June 1997.
An operation was launched by Legenda to zero-in on Ludwin whose picture was
furnished its security section. Thus, unbeknownst to him, he was already
closely watched on 13 June 1997 when he went with another brother,
Deoven[,] to the casino at around the same time or at 11: 17 p.m. After
playing (and losing $100.00) only one round of baccarat, the siblings had their
chips encashed at two separate windows. Since the cashiers were apprised of a
supposed irregularity, they "froze" the transaction.
Shortly thereafter, Legenda's internal security officers accosted Ludwin and
Deoven and ordered them to return the cash and they complied without ado
because they were being pulled away. The two were eventually escorted to
private rooms where they were separately interrogated about the source of the
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
would not be released from questioning. The same line of questioning
confronted them when they were later twned-over for blotter preparation to
the Intelligence and Investigation Office of the Subic Bay Metropolitan
Authority (IIO SBMA). Finally, the brothers succwnbed to Legenda's instruction
to execute a joint statement implicating Cabrera as the illegal source of the
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
san1e reason a document purporting to show that they were "released 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
the so-called "estafa" with which the security personnel threatened to sue him
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
later, Deoven exec ted a retraction in Baguio City where he took up his
engineering course.7
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,
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,
to his brothers for the latter to use at the casino; that petitioner accosted his
brothers and unduly and illegally confiscated his casino chips equivalent to
US$5,900.00; and that petitioner refused and continues to refuse to return the
same to him despite demand. His Complaint8 prayed for the return of the
casino chips and an award of ₱50,000.00 moral damages, ₱50,000.00
exemplary damages, ₱30,000.00 attorney's fees, ₱20,000.00 litigation
expenses, and costs.
Petitioner's Answer with Compulsory Counterclaim9 essentially alleged that
right after Ludwin and Deoven's transactions with the Legenda cashier were
frozen on June 13, 1997, they voluntarily agreed to proceed to the Legenda
security office upon invitation, where Ludwin voluntarily informed security
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
him how to play baccarat and thereafter encash the chips, and rewarded him
with Pl,000.00 for every $1,000.00 he encashed; that Ludwin pointed to a
picture of Cabrera in a photo album of casino employees shown to him; that
Ludwin and Deoven were then brought to the IIO SBMA, where they reiterated
their statements made at the Legenda security office; that they volunteered to
testify against Cabrera; that respondent himself admitted that it was Cabrera
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
confiscated casino chips worth US$5,900.00 were stolen from it, and thus it
has the right to retain them. By way of counterclaim, petitioner sought an
award of P 1 million moral damages, ₱1 million exemplary damages, and P.5
million attorney's fees and litigation expenses.
Respondent filed his Answer10 to petitioner's counterclaim.
Ruling of the Regional Trial Court
After pre-trial and trial, the trial court rendered its May 17, 2006 Decision,
which decreed as follows:
WHEREFORE, finding that the evidence preponderates in favor of the plaintiff,
judgment is rendered against the defendant ordering it to:
1) Return to plaintiff casino chips worth USD $5,900.00 or its
equivalent in Philippine Peso at the rate of ₱38.00 to USD $1 in 1997.
2) Pay plaintiff attorney's fees in the amount of ₱30,000.00 3) [Pay]
[c]ost of this suit.
SO DECIDED.11
In arriving at the above conclusion, the trial court held:
The primordial issue is whether or not plaintiff can be considered the lawful
owner of the USD $5,900 worth of casino chips that were confiscated.
There is no dispute that the subject chips were in the possession of the
plaintiff. He claims he got hold of them as payment for car services he
rendered to a Chinese individual. Defendant however, contends that said chips
were stolen from the casino and it is the lawful owner of the same.
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
little probative value. The testimony of defendant's witnesses narrated
defendant's action responding to the suspicious movements of the Fernandez
brothers based on surveillance tapes. The tapes, however, do not show how
these persons got hold of the chips. The alleged source in the person of Mike
Cabrera, a table inspector of the casino[,] was based on the recanted
declarations of the brothers. No criminal charge was shown to have been filed
against him nor the plaintiff and his brothers. Neither was there an explanation
given as to how those chips came into the possession of Mike Cabrera much
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
evidence to prove the theory of the defendant and the circumstantial evidence
present is, to the mind of the court, not sufficient to rebut the legal
presw11ption that a person in possession of personal property is the lawful
owner of the same (Art. 559, Civil Code of the Philippines).12
Ruling of the Court of Appeals
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
Prosecutor's Office that it was Cabrera who gave them the casino chips
strongly indicates that the chips were stolen from Legenda; that the
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
monetary consideration or through intimidation; that respondent's explanation
that he gave the chips to his brothers Ludwin and Deoven for them to play in
the casino is highly doubtful; that the true purpose of Ludwin and Deoven was
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
their possession of the chips; and that the trial court erred in awarding
attorney's fees and costs for the filing of a baseless suit solely aimed at
unjustly enriching respondent at petitioner's expense.
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
rebuffed as well.
In deciding against petitioner, the CA held that, applying Article 559 of the Civil
Code,13 respondent had the legal presumption of title to or ownership of the
casino chips. This conclusion springs from respondent's admission during trial
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
became the owner of the chips, he could very well have given them to Ludwin
and Deoven, who likewise held them as "possessors in good faith and for
value" and with "presumptive title" derived from the respondent. On the other
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 CA likewise held that Ludwin' s and Deoven' s statements and admissions
at the Legenda security office are inadmissible because they were obtained in
violation of their constitutional rights: they were held in duress, denied the
right to counsel and the opportunity to contact respondent, and deprived of
sleep, which is one of the "more subtler [sic] techniques of physical and
psychological torture to coerce a confession."14 It found that the actions and
methods of the Legenda security personnel in detaining and extracting
confessions from Ludwin and Deoven were illegal and in gross violation of
Ludwin's and Deoven's constitutional rights.15
Finally, the CA held that petitioner was guilty of bad faith in advancing its
theory and claim against respondent by unduly accusing him of dealing in
stolen casino chips, which thus entitles respondent to the reduced award of
attorney's fees in the amount of ₱30,000.00
Issues
Petitioner raises the following issues:
a) The Honorable Court seriously erred in ruling that the recanted
statements of Deoven Fernandez and Ludwin C. Fernandez have [no]
probative value;
b) The Honorable Court seriously erred in ruling that the circumstantial
evidence present is not sufficient to rebut the legal presumption that a
person in possession of personal property is the lawful owner of the
same;
c) The Honorable Court seriously erred in finding that the evidence
preponderates in favor of the herein respondent; [and]
d) The Honorable Court seriously erred in awarding attorney's fees and
costs of suit I favor of the respondent.16
Petitioner's Arguments
In its Petition and Reply,17 petitioner mainly argues that the assailed
dispositions are grounded entirely on speculation, and the inferences made are
manifestly mistaken and based on a misappreciation of the facts and law; that
the CA failed to consider the testimonial and documentary evidence it
presented to prove the fact that the casino chips were missing and were stolen
by Cabrera, who thereafter gave them to respondent's brothers, Ludwin and
Deoven. Petitioner maintains that the presumption of title under Article 559
cannot extend to respondent's brothers, who admitted during the investigation
at the Legenda security office and in their Joint Affidavit18 that the chips came
from Cabrera, and not responcient; that the subsequent Sworn
Statement19 recanting the Joint Affidavit should not be given credence, as
affidavits of recantation can easily be secured - which thus makes them
unreliable; and that no duress attended the taking of the brothers' Joint
Affidavit, which was prepared by Henry Marzo of the Intelligence and
Investigation Office (IIO) of the Subic Bay Metropolitan Authority (SBMA).
Petitioner asserts that it is unbelievable that respondent would give
US$6,000.00 worth of casino chips to his brothers with which to play at the
casino; that with the attending circumstances, the true intention of
respondent's brothers was to encash the stolen chips which Cabrera handed to
them, and not to play at the casino. Petitioner thus concludes that no coercion
could have attended the investigation of Ludwin and Deoven; that their
subsequent recantation should not be given weight; and that for suing on a
baseless claim, respondent is not entitled to attorney's fees and costs of
litigation.
Petitioner thus prays for the reversal of the assailed dispositions and the
corresponding dismissal of Civil Case No. 237-0-97.
Respondent's Arguments
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
Petition is being prosecuted to delay the proceedings; that the trial and
appellate courts are correct in finding that petitioner failed to prove its case
and show that the casino chips were stolen; that petitioner failed to rebut the
presumption that a person in possession of personal property is the lawful
owner of the same, pursuant to Article 559 of the Civil Code; and that the
₱30,000.00 award of attorney's fees should be increased to ₱100,000.00.
Our Ruling
The Petition is denied.
Petitioner's underlying theory is that the subject casino chips were in fact
stolen by its employee Cabrera, then handed over to respondent's brothers,
Ludwin and Deoven, for encashment at the casino; that Ludwin and Deoven
played at the casino only for show and to conceal their true intention, which is
to encash the chips; that respondent's claim that he owned the chips, as they
were given to him in payment of services he rendered to a Chinese client, is
false. These arguments require the Court to examine in greater detail the facts
involved. However, this may not be done because the Court is not a trier of
facts and does not normally undertake the re-examination of the evidence
presented during trial; the resolution of factual issues is the function of lower
courts, whose findings thereon are received with respect and are binding on
the Court subject only to specific exceptions.21 In tum, the factual findings of
the Court of Appeals carry even more weight when they are identical to those
of the trial court's.22
Besides, a question of fact cannot properly be raised in a petition for review on
certiorari.23 Moreover, if petitioner should stick to its theory that Cabrera stole
the subject casino chips, then its failure to file a criminal case against the latter
-including Ludwin and Deoven for that matter - up to this point certainly does
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
purposes of this proceeding, there appears to be no evidence on record - other
than mere allegations and suppositions - that Cabrera stole the casino chips in
question; such conclusion came unilaterally from petitioner, and for it to use
the same as foundation to the claim that Ludwin, Deoven and respondent are
dealing in stolen chips is clearly irregular and unfair.
Thus, there should be no basis to suppose that the casino chips found in
Ludwin's and Deoven's possession were stolen; petitioner acted arbitrarily in
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
from Cabrera. If it cannot be proved, in the first place, that Cabrera stole these
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
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.
It is not even necessary to resolve whether Ludwin's and Deoven's Joint
Affidavit was obtained by duress or otherwise; the document is irrelevant to
petitioner's cause, as it does not suggest at all that Cabrera stole the subject
casino chips. At most, it only shows that Cabrera gave Ludwin and Deoven
casino chips, if this fact is true at all - since such statement has since been
recanted.
The fact that Ludwin and Deoven appear to be indecisive as to who gave them
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
Deoven's claims, no matter how incredible they may seem.
Though casino chips do not constitute legal tender,24 there is no law which
prohibits their use or trade outside of the casino which issues them. In any
case, it is not unusual – nor is it unlikely – that respondent could be paid by his
Chinese client at the former' s car shop with the casino chips in question; said
transaction, if not common, is nonetheless not unlawful. These chips are paid
for anyway; petitioner would not have parted with the same if their
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
government Except with the prior approval of
the President (Prime Minister), the
government shall not be obliged to make an
advance payment for services not yet
rendered or for supplies and materials not yet
delivered under any contract therefor. No
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
duly inspected and accepted.
Moreover, the Manual on FOG Lending Operations (page 35)
provides the systems and procedures for releasing loans, to
quote:
Loan Proceeds Released Directly to the
Supplier/Dealer Proceeds of loans granted for
the acquisition of farm machinery equipment;
and sub-loan components for the purchase of
construction materials, farm inputs, etc. shall
be released directly to the accredited
dealers/suppliers. Payment to 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.
In cases where supplier requires Cash on Delivery
(COD), the checks may be issued and the cooperative and a
LBP representative shall release the check to the supplier and
then take delivery of the object of financing.[10]
The persons found liable by the Auditor for the amount
of P3,115,000.00 which was advanced to REMAD were the following employees
of the Ipil Branch:
1. Emmanuel B. Bartocillo Department Manager II
2. George G. Hebrona Chief, Loans and Discounts Division
3. Petitioner Ruben A. Reyna Senior Field Operations
Specialist
4. Petitioner Lloyd V. Soria Loans and Credit Analyst II
5. Mary Jane T. Cunting[11] Cash Clerk IV
6. Leona O. Cabanatan Bookkeeper III/Acting Accountant.[12]
The same employees, including petitioners, were also made
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
undue injury in violation of Section 3(e) of Republic Act (R.A.) No. 3019,
otherwise known as the Anti-Graft and Corrupt Practices Act.[13]
On January 28, 1997, petitioners filed a Joint Motion for
Reconsideration claiming that the issuance of the Notice of Disallowance was
premature in view of the pending case in the Office of the Ombudsman. The
Motion was denied by the Auditor. Unfazed, petitioners filed an appeal with the
Director of COA Regional Office No. IX, Zamboanga City. On August 29,
1997, the COA Regional Office issued Decision No. 97-001 affirming the
findings of the Auditor. On February 4, 1998, petitioners filed a Motion for
Reconsideration, which was denied by the Regional Office in Decision No. 98-
005[14] issued on February 18, 1998.
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
51[16] of the Government Auditing Code of the Philippines. Consequently, on
April 12, 1999, the Director of the COA Regional Office No. IX issued a
Memorandum to the Auditor directing him to require the accountant of the Ipil
Branch to record in their books of account the said disallowance.[17]
On July 12, 1999, the Auditor sent a letter to the Land Bank Branch
Manager requiring him to record the disallowance in their books of account. On
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
writing off of the subject loans.
 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]

I.
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
declaring the prepayment stipulation as invalid;[29] second, the prepayment
clause in the Land Bank-REMAD contract is valid;[30] and third, it is a matter of
judicial knowledge that is not unusual for winning bidders involving public
works to enter into contracts with the government providing for partial
prepayment of the contract price in the form of mobilization funds.[31]
As to their contention that the COA is estopped from declaring the
prepayment stipulation as invalid, petitioners argue in the wise:
xxxx
The CATTLE BREEDING AND BUY BACK MARKETING
AGREEMENT sample of which is attached as Annex I was a
Contract prepared by the bank and REMAD, it was agreed to
by the cooperatives. It was a standard Contract used in
twenty two (22) Land Bank branches throughout the country.
It provided in part:
6.1 That the release of the
loan shall be made directly to the supplier 60
days prior to the delivery of stocks per
prepayment term of REMAD LIVESTOCK
COPORATION (supplier). Inspection shall be
done before the 60th day/delivery of the
stocks.
Again, these Contracts were standard bank forms
from Land Bank head office. None of the Petitioners
participated in the drafting of the same.[32]
In the absence of grave abuse of discretion, questions of fact cannot be raised
in a petition for certiorari, under Rule 64 of the Rules of Court. The office of the
petition for certiorari is not to correct simple errors of judgment; any resort to
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,
since the validity of the prepayment scheme is inherently a question of fact,
the same should no longer be looked into by this Court.
In any case, even assuming that factual questions may be entertained,
the facts do not help petitioners' cause for the following reasons: first, the
supposed Annex I does not contain a stipulation authorizing a pre-payment
scheme; and second, petitioners clearly violated the procedure of releasing
loans contained in the Bank's Manual on Field Office Guidelines on Lending
Operations (Manual on Lending Operations).
A perusal of the aforementioned Annex I,[34] the Cattle-Breeding and
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
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.
Moreover, it is surprising that one of petitioners defense is that
they processed the cooperatives' applications in accordance with their
individual job descriptions as provided in the Banks Manual on Field Office
Guidelines on Lending Operations[35] when, on the contrary, petitioners seem to
be oblivious of the fact that they clearly violated the procedure in releasing
loans which is embodied in the very same Manual on Lending Operations, to
wit:
Loan Proceeds Released Directly to the
Supplier/Dealer Proceeds of loans granted for the acquisition of
farm machinery equipment; and sub-loan components for the
purchase of construction materials, farm inputs, etc. shall be
released directly to the accredited dealers/suppliers. Payment to
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]
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
constrained by the fact that petitioners did not offer in evidence the alleged
August 22, 1996 Land Bank Memorandum. Therefore, the supposed tenor of
the said document deserves scant consideration. In any case, even
assuming arguendo that petitioners are correct in their claim, they still cannot
hide from the fact that they violated the procedure in releasing loans embodied
in the Manual on Lending Operations as previously discussed.
To emphasize, the Auditor noted that nowhere in the documents reviewed
disclosed about prepayment scheme with REMAD. It is well settled that
findings of fact of quasi-judicial agencies, such as the COA, are generally
accorded respect and even finality by this Court, if supported by substantial
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
to whether the prepayment scheme was authorized as a review of Annex I, the
document to which petitioners base their authority to make advance payments,
does not contain such a stipulation or provision. Highlighted also is the fact
that petitioners clearly violated the procedure in releasing loans found in the
Manual on Lending Operations which provides that payments to the dealer
shall only be made after presentation of reimbursement documents
acknowledged by the authorized LBP representative that the same has been
delivered.
In addition, this Court notes that much reliance is made by petitioners
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
merely a facility proposal and not the contract of loan between Land
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
such stipulation as petitioners had failed to attach the CFPs or the loan
contracts relating to the present petition.
Based on the foregoing, the COA should, therefore, not be faulted for finding
that petitioners facilitated the commission of the irregular transaction. The
evidence they presented before the COA was insufficient to prove their
case. So also, even this Court is at a loss as to the truthfulness and veracity of
petitioners' allegations as they did not even present before this Court the
documents that would serve as the basis for their claims.
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
petitioners administratively liable for having processed the loans of the
borrowing cooperatives. This Court stresses, however, that petitioners cannot
rely on their supposed observance of the procedure outlined in the Manual on
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
the COA's finding that they violated the foregoing provision. Any presumption,
therefore, that public officials are in the regular performance of their public
functions must necessarily fail in the presence of an explicit rule that was
violated.
There is no grave abuse of discretion on the part of the COA as petitioners
were given all the opportunity to argue their case and present any supporting
evidence with the COA Regional Director. Moreover, it bears to point out that
even if petitioners' period to appeal had already lapsed, the COA Commission
Proper even resolved their August 10, 1999 letter where they raised in issue
the favorable ruling of the Ombudsman.
III.
Anent, the last issue raised by petitioners, the same is without merit.
Petitioners contend that respondents Order, requiring them to refund the
disallowed transaction, is functus officio, the amount having been legally
written-off.[39]
A perusal of the records would show that Land Bank Vice-President Conrado B.
Roxas sent a Memorandum[40] dated August 5, 1998 to the Head of the Ipil
Branch, advising them that the accounts subject of the present petition have
been written-off, to wit:
We are pleased to inform you that Bangko Sentral ng
Pilipinas (BSP) in its letter dated July 20, 1998 has approved
the write-off of your recommended Agrarian Reform Loan
Accounts and Commercial Loan Accounts as covered by LBP
Board Resolution Nos. 98-291 and 98-292, respectively, both
dated June 18, 1998 x x x.[41]
The Schedule of Accounts for Write-Off[42] attached to the August 5,
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.

A write-off is a financial accounting concept that allows for the
reduction in value of an asset or earnings by the amount of an expense or loss.
It is a means of removing bad debts from the financial records of the business.
In Land Bank of the Philippines v. Commission on Audit,[49] this Court
ruled that Land Bank has the power and authority to write-off loans, to wit:
LBP was created as a body corporate and government
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).
Section 75 of its Charter vests in LBP specific powers normally
exercised by banking institutions, such as the authority to
grant short, medium and long-term loans and advances
against security of real estate and/or other acceptable assets;
to guarantee acceptance(s), credits, loans, transactions or
obligations; and to borrow from, or rediscount notes, bills of
exchange and other commercial papers with the Central Bank.
In addition to the enumeration of specific powers granted to
LBP, Section 75 of its Charter also authorizes it:
12. To exercise the general powers mentioned in the
Corporation Law and the General Banking Act, as amended,
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.
1445. As a bank, it is specifically placed under the
supervision and regulation of the Central Bank of the
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
No. 958, Series of 1983, which vests the determination
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
portion of that Circular reads:
b. Frequency/ceiling of write-off.
The frequency for writing-off loans and
advances shall be left to the discretion of
the Board of Directors of the bank
concerned. Provided, that the aggregate
amount of loans and advances which may be
written-off during the year, shall in no case
exceed 3% of total loans and investments;
Provided, further, that charge-offs are made
against allowance for possible losses,
earnings during the year and/or retained
earnings.[50]
 While the power to write-off is not expressly granted in the charter of
the Land Bank, it can be logically implied, however, from the Land Bank's
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
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
involved was a valid act of the Land Bank. In writing-off the loans, the only
requirement for the Land Bank was that the same be in accordance with the
applicable Bangko Sentral circulars, it being under the supervision and
regulation thereof. The Land Bank recommended for write-off all six loans
granted to the cooperatives, and it is worthy to note that the Bangko
Sentral granted the same. The write-offs being clearly in accordance with law,
the COA should, therefore, adhere to the same, unless under its general audit
jurisdiction under PD 1445, it finds that under Section 25(1) the fiscal
responsibility that rests directly with the head of the government agency has
not been properly and effectively discharged.
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
refer to was Section 36 which provides:
Section 36. Power to compromise claims. -
1. When the interest of the government so requires,
the Commission may compromise or release in whole or in
part, any claim or settled liability to any government agency
not exceeding ten thousand pesos and with the written
approval of the Prime Minister, it may likewise compromise or
release any similar claim or liability not exceeding one
hundred thousand pesos, the application for relief therefrom
shall be submitted, through the Commission and the Prime
Minister, with their recommendations, to the National
Assembly.
2. The respective governing bodies of
government-owned or controlled corporations, and self-
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
their judgment, the interest of their respective corporations or
agencies so requires. When the charters do not so provide, the
power to compromise shall be exercised by the Commission in
accordance with the preceding paragraph.
x x x x[52]
Under Section 36, the use of the word may shows that the power of
the COA to compromise claims is only permissive, and not mandatory. Further,
the second paragraph of Section 36 clearly states that respective governing
bodies of government-owned or controlled corporations, and self-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. Nowhere in Section 36 does it state that the COA
must approve a compromise made by a government agency; the only
requirement is that it be authorized by its charter. It, therefore, bears to stress
that the COA does not have the exclusive prerogative to settle and compromise
liabilities to the Government.
The foregoing pronouncements notwithstanding, this Court rules that writing-
off a loan does not equate to a condonation or release of a debt by the creditor.
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.
In general banking practice, the write-off method is used when an account is
determined to be uncollectible and an uncollectible expense is recorded in the
books of account. If in the future, the debt appears to be collectible, as when
the debtor becomes solvent, then the books will be adjusted to reflect the
amount to be collected as an asset. In turn, income will be credited by the
same amount of increase in the accounts receivable.
Write-off is not one of the legal grounds for extinguishing an obligation
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
creditor takes action by removing the uncollectible account from its books even
without the approval or participation of the debtor.
Furthermore, write-off cannot be likened to a novation, since the
obligations of both parties have not been modified.[55] When a write-off occurs,
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
extent of the unpaid debt.
Based on the foregoing, as creditor, Land Bank may write-off in its
books of account the advance payment released to REMAD in the interest of
accounting accuracy given that the loans were already uncollectible. Such
write-off, however, as previously discussed, does not equate to a release from
liability of petitioners.
Accordingly, the Land Bank Ipil Branch must be required to record in
its books of account the Php3,115,000.00 disallowance, and petitioners,
together with their four co-employees,[56] should be personally liable for the
said amount. Such liability, is, however, without prejudice to petitioners right
to run after REMAD, to whom they illegally disbursed the loan, for the full
reimbursement of the advance payment for the cattle as correctly ruled by the
COA in its July 17, 2003 Decision.[57]
On a final note, it bears to point out that a cursory reading of the
Ombudsman's resolution will show that the complaint against petitioners was
dismissed not because of a finding of good faith but because of a finding of lack
of sufficient evidence. While the evidence presented before the Ombudsman
may not have been sufficient to overcome the burden in criminal cases of proof
beyond reasonable doubt,[58] it does not, however, necessarily follow, that the
administrative proceedings will suffer the same fate as only substantial
evidence is required, or that amount of relevant evidence which a reasonable
mind might accept as adequate to justify a conclusion.[59]
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
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
findings of the COA.
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
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
Memorandum of VP FSD which tackled the prohibition on advance payment to
suppliers. All these documents, however, were again not attached to the
records of the case at bar. Particularly, the supposed April 6, 1992
Memorandum of the Field Loans Review Department was not even mentioned
nor raised by petitioners as a defense in herein petition.
The decisions and resolutions emanating from the COA did not tackle
the supposed April 6, 1992 Memorandum of the Field Loans Review
Department which allegedly authorized the Field Offices to undertake a pre-
payment scheme. While it is possible that such document would have shown
that petitioners were in good faith, the same should have been presented by
them in the proceedings before the Commission proper - an act which they
were not able to do because of their own negligence in allowing the period to
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
the COA and it is already too late in the day for them to present such
document before this Court.
Petitioners' allegation of grave abuse of discretion by the COA implies
such capricious and whimsical exercise of judgment as is equivalent to lack of
jurisdiction or, in other words, the exercise of the power in an arbitrary manner
by reason of passion, prejudice, or personal hostility; and it must be so patent
or gross as to amount to an evasion of a positive duty or to a virtual refusal to
perform the duty enjoined or to act at all in contemplation of law.[61] It is
imperative for petitioners to show caprice and arbitrariness on the part of the
COA whose exercise of discretion is being assailed. Proof of such grave abuse
of discretion, however, is wanting in this case.
WHEREFORE, premises considered, the petition is DENIED. Decision
No. 2003-107 dated July 17, 2003 and Resolution No. 2004-046 dated
December 7, 2004, of the Commission on Audit, are hereby AFFIRMED.
SO ORDERED.
G.R. No. 205428
REPUBLIC OF THE PHILIPPINES, represented by the DEPARTMENT OF
PUBLIC WORKS AND HIGHWAYS (DPWH), Petitioners
vs
SPOUSES SENANDO F. SALVADOR and JOSEFINA R.
SALVADOR, Respondents
DECISION
DEL CASTILLO, J.:
We resolve the Petition for Review on Certiorari under Rule 45 of the Rules of
Court, assailing the August 23, 2012 Decision 1 and the January 10, 2013
Order 2 of the Regional Trial Court (RTC), Branch 270, Valenzuela City, in Civil
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
the Republic's name.
The Antecedent Facts
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,
Valenzuela City, and covered by Transfer Certificate of Title No.V-77660. 3
On November 9, 2011, the Republic, represented by the Department of - Public
Works and Highways (DPWH), filed a verified Complaint 4 before the RTC
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
Northern Link Road Project Phase 2 (Segment 9) from the North Luzon
Expressway (NLEX) to McArthur Highway. 5
On February 10, 2012, respondents received two checks from the DPWH
representing 100% of the zonal value of the subject property and the cost of
the one-storey semi-concrete residential house erected on the property
amounting to ₱l61,850.00 6 and ₱523,449.22,7 respectively. 8 The RTC
thereafter issued the corresponding Writ of Possession in favor of the
Republic. 9
On the same day, respondents signified in open court that they recognized the
purpose for which their property is being expropriated and interposed no
objection thereto. 10 They also manifested that they have already received the
total sum of ₱685,349.22 from the DPWH and are therefore no longer
intending to claim any just compensation. 11
Ruling of the Regional Trial Court
In its Decision12 dated August 23, 2012, the RTC rendered judgment in favor
of the Republic condemning t1Je subject property for the purpose of
implementing the construction of the C-5 Northern Link Road Project Phase 2
(Segment 9) from NLEX to McArthur Highway, Valenzuela City. 13
The RTC likewise directed the 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 property in the Republic's name. 14
The Republic moved for partial reconsideration, 15 specifically on the issue
relating to the payment of the capital gains tax, but the RTC denied the motion
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
damages in favor of respondents, as the payment of capital gains tax and other
transfer taxes is but a consequence of the expropriation proceedings.17
As a result, the Republic filed the present Petition for Review
on Certiorari assailing the RTC's August 23, 2012 Decision and January 10,
2013 Order.
Issues
In the present Petition, the Republic raises the following issues for the Court's
resolution: first, whether the RTC correctly denied the Republic's Motion for
Partial Reconsideration for having been filed out of
time; 18 and second, whether the capital gains tax on the transfer of the
expropriated property can be considered as consequential damages that may
be awarded to respondents. 19
The Court's Ruling
The Petition is impressed with merit.
"Section 3, Rule 13 of the Rules of Court provides that if a pleading is filed by
registered mail, x x x the date of mailing shall be considered as the date of
filing. It does not matter when the court actually receives the mailed
pleading."20
In this case, the records show that the Republic filed its Motion for Partial
Reconsideration before the RTC via registered mail on September 28,
2012.21 Although the trial cou1treceived the Republic's motion only on October
5, 2012,22 it should have considered the pleading to have been filed on
September 28, 2012, the date of its mailing, which is clearly within the
reglementary period of 15 days to file said motion, 23 counted from September
13, 2012, or the date of the Republic's receipt of the assailed Decision.24
Given these circumstances, we hold that the RTC erred in denying the
Republic's Motion for Partial Reconsideration for having been filed out of
time.1âwphi1
We likewise rule that the RTC committed a serious error when it directed the
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
property.
"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
owner's loss. [The compensation, to be just,] must be fair not only to the
owner but also to the taker."25
In order to determine just compensation, the trial court should first ascertain
the market value of the property by considering the cost of acquisition, the
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
impairment or decrease in value, consequential damages may be awarded by
the trial court, provided that the consequential benefits which may arise from
the expropriation do not exceed said damages suffered by the owner of the
property. 27
While it is true that "the determination of the amount of just compensation is
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
principles and competent evidence." 28 The court cannot base its judgment on
mere speculations and surmises. 29
In the present case, the RTC deemed it "fair and just that x x x whatever is the
value of the capital gains tax and all other taxes necessary for the transfer of
the subject property to the [Republic] are but consequential damages that
should be paid by the latter."30 The RTC further explained in its assailed Order
that said award in favor of respondents is but equitable, just, and fair, viz.:
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
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
by the Supreme Court in the case of Capitol Subdivision, Inc. vs. Province of
Negros Occidental, G.R. No. L-16257, January 31, 1963 that the assailed
consequential damages was awarded by the court. 31
This is clearly an error. It is settled that the transfer of property through
expropriation proceedings is a sale or· exchange within the meaning of
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
on passive income, it is the seller, or respondents in this case, who are liable to
shoulder the tax. 33
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
tasked to withhold the 6% final withholding tax in the expropriation of real
property for infrastructure projects. 11ms, as far as the government is
concerned, the capital gains tax in expropriation proceedings remains a liability
of the seller, as it is a tax on the seller's gain from the sale of real property. 34
Besides, as previously explained, consequential damages are only awarded
if as a result of the expropriation, the remaining property of the owner
suffersfrom an impairment or decrease in value. 35 In this case, no evidence
was submitted to prove any impairment or decrease in value of the subject
property as a result of the expropriation. More significantly, given that the
payment of capital gains tax on the transfer· of the subject property has no
effect on the increase or decrease in value of the remaining property, it can
hardly be considered as consequential damages that may be awarded to
respondents.
WHEREFORE, we GRANT the Petition for Review on Certiorari. The Decision
dated August 23, 2012 and the Order dated January 10, 2013 of the Regional
Trial Court, Branch 270, Valenzuela City, in Civil Case No. 175-V-11, are
hereby MODIFIED, in that the award of consequential damages is DELETED. In
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
expropriated property.
SO ORDERED.
G.R. No. 212690*
SPOUSES ROMEO PAJARES and IDA T. PAJARES, Petitioners
vs.
REMARKABLE LAUNDRY AND DRY CLEANING, represented by
ARCHEMEDES G. SOLIS, Respondent
DECISION
DEL CASTILLO, J.:
Breach of contract may give rise to an action for specific performance or
rescission of contract.1 It may also be the cause of action in a complaint for
damages filed pursuant to Art. 1170 of the Civil Code.2 In the specific
performance and rescission of contract cases, the subject matter is incapable
of pecuniary estimation, hence jurisdiction belongs to the Regional Trial Court
(RTC). In the case for damages, however, the court that has jurisdiction
depends upon the total amount of the damages claimed.
Assailed in this Petition for Review on Certiorari3 is the December 11, 2013
Decision4 of the Court of Appeals (CA) in CA-G.R. CEB SP No. 07711 that set
aside the February 19, 2013 Order5 of the RTC, Branch 17, Cebu City
dismissing Civil Case No. CEB-39025 for lack of jurisdiction.
Factual Antecedents
On September 3, 2012, Remarkable Laundry and Dry Cleaning (respondent)
filed a Complaint denominated as "Breach of Contract and Damages"6 against
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
said court. Respondent alleged that it entered into a Remarkable Dealer Outlet
Contract7 with petitioners whereby the latter, acting as a dealer outlet, shall
accept and receive items or materials for laundry which are then picked up and
processed by the former in its main plant or laundry outlet; that petitioners
violated Article IV (Standard Required Quota & Penalties) of said contract,
which required them to produce at least 200 kilos of laundry items each week,
when, on April 30, 2012, they ceased dealer outlet operations on account of
lack of personnel; that respondent made written demands upon petitioners for
the payment of penalties imposed and provided for in the contract, but the
latter failed to pay; and, that petitioners' violation constitutes breach of
contract. Respondent thus prayed, as fol1ows:
WHEREFORE, premises considered, by reason of the above-mentioned breach
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
the following incidental and consequential damages to the plaintiff, to wit:
a) TWO HUNDRED THOUSAND PESOS (PHP200,000.00) plus legal interest
as incidental and consequential [sic] for violating Articles IV and XVI of the
Remarkable Laundry Dealer Contract dated 08 September 2011.
b) Thirty Thousand Pesos (₱30,000.00) as legal expenses.
c) Thirty Thousand Pesos (₱30,000.00) as exemplary damages.
d) Twenty Thousand Pesos (₱20,000.00) as cost of suit.
e) Such other reliefs that the Honorable Court deems as just and
equitable.8 (Italics in the original)
Petitioners submitted their Answer,9 to which respondent filed its Reply.10
During pre-trial, the issue of jurisdiction was raised, and the parties were
required to submit their respective position papers.
Ruling of the Regional Trial Court
On February 19, 2013, the RTC issued an Order dismissing Civil Case No. CEB-
39025 for lack of jurisdiction, stating:
In the instant case, the plaintiffs complaint is for the recovery of damages for
the alleged breach of contract. The complaint sought the award of ₱200,000.00
as incidental and consequential damages; the amount of ₱30,000.00 as legal
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.
Under the provisions of Batas Pambansa Blg. 129 as amended by Republic Act
No. 7691, the amount of demand or claim in the complaint for the Regional
Trial Courts (RTCs) to exercise exclusive original jurisdiction shall exceed
₱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
complaint is only ₱280,000.00, which is less than the jurisdictional amount of
the RTCs. Hence, this Court (RTC) has no jurisdiction over the instant
case.1âwphi1
WHEREFORE, premises considered, the instant case is hereby DISMISSED for
lack of jurisdiction.
Notify the counsels.
SO ORDERED.11 (Emphasis in the original)
Respondent filed its Motion for Reconsideration,12 arguing that as Civil Case No.
CEB-39025 is for breach of contract, or one whose subject is incapable of
pecuniary estimation, jurisdiction thus falls with the RTC. However, in an April
29, 2013 Order,13 the RTC held its ground.
Ruling of the Court of Appeals
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
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
incapable of pecuniary estimation and that the damages prayed for therein are
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).
On December 11, 2013, the CA rendered the assailed Decision setting aside
the February 19, 2013 Order of the RTC and remanding the case to the court a
quo for further proceedings. It held as follows:
In determining the jurisdiction of an action whose subject is incapable of
pecuniary estimation, the nature of the principal action or remedy sought must
first be ascertained. If it is primarily for the recovery of a sum of money, the
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
claim is purely incidental to, or a consequence of the principal relief sought,
such are actions whose subjects are incapable of pecuniary estimation, hence
cognizable by the RTCs.15
x x xx
Verily, what determines the nature of the action and which court has
jurisdiction over it are the allegations of the complaint and the character of the
relief sought.16
In our considered view, the complaint, is one incapable of pecuniary
estimation; thus, one within the RTC's jurisdiction. x x x
x x xx
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
estimation, and therefore falls under the jurisdiction of the RTC.17
Thus, the totality of damages principle finds no application in the instant case
since the same applies only when damages is principally and primarily
demanded in accordance with the specification in Administrative Circular No.
09-94 which reads: 'in cases where the claim for damages is the main cause of
action ... the amount of such claim shall be considered in determining the
jurisdiction of the court.'
Thus, the court a quo should not have dismissed the instant case.
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
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
PROCEED with the trial on the merits with dispatch.
SO ORDERED.18
Petitioners sought to reconsider, but were denied. Hence, the present Petition.
Issue
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
jurisdiction over respondent's Complaint which, although denominated as one
for breach of contract, is essentially one for simple payment of damages.
Petitioners' Arguments
In praying that the assailed CA dispositions be set aside and that the RTC's
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
form of damages. They asserted that in determining jurisdiction over the
subject matter, the allegations in the Complaint and the principal relief in the
prayer thereof must be considered; that since respondent merely prayed for
the payment of damages in its Complaint and not a judgment on the claim of
breach of contract, then jurisdiction should be determined based solely on the
total amount of the claim or demand as alleged in the prayer; that while
breach of contract may involve a claim for specific performance or rescission,
neither relief was sought in respondent's Complaint; and, that respondent
"chose to focus his [sic] primary relief on the payment of damages,"21 which is
"the true, actual, and principal relief sought, and is not merely incidental to or
a consequence of the alleged breach of contract."22Petitioners conclude that,
applying the totality of claims rule, respondent's Complaint should be
dismissed as the claim stated therein is below the jurisdictional amount of the
RTC.
Respondent's Arguments
Respondent, on the other hand, counters in its Comment23 that the CA is
correct in declaring that Civil Case No. CEB-39025 is primarily based on breach
of contract, and the damages prayed for are merely incidental to the principal
action; that the Complaint itself made reference to the Remarkable Dealer
Outlet Contract and the breach committed by petitioners, which gave rise to a
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
outlet contract, and if so, the amount of damages that may be adjudged in
respondent's favor.
Our Ruling
The Court grants the Petition. The RTC was correct in categorizing Civil Case
No. CEB-39025 as an action for damages seeking to recover an amount below
its jurisdictional limit.
Respondent's complaint denominated
as one for "'Breach of Contract &
Damages" is neither an action for
specific performance nor a complaint
for rescission of contract.
In ruling that respondent's Complaint is incapable of pecuniary estimation and
that the RTC has jurisdiction, the CA comported itself with the following
ratiocination:
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
estimation, and therefore falls under the jurisdiction of the RTC.24
without, however, determining whether, from the four corners of the
Complaint, respondent actually intended to initiate an action for specific
performance or an action for rescission of contract. Specific performance is
''[t]he remedy of requiring exact performance of a contract in the specific form
in which it was made, or according to the precise terms agreed upon. [It is t]he
actual accomplishment of a contract by a party bound to fulfill it."25 Rescission
of contract under Article 1191 of the Civil Code, on the other hand, is a remedy
available to the obligee when the obligor cannot comply with what is incumbent
upon him.26 It is predicated on a breach of faith by the other party who violates
the reciprocity between them. Rescission may also refer to a remedy granted
by law to the contracting parties and sometimes even to third persons in order
to secure reparation of damages caused them by a valid contract; by means of
restoration of things to their condition in which they were prior to the
celebration of the contract.27
In a line of cases, this Court held that –
In determining whether an action is one the subject matter of which is not
capable of pecuniary estimation this Court has adopted the criterion of first
ascertaining the nature of the principal action or remedy sought. If it is
primarily for the recovery of a sum of money, the claim is considered capable
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.
However, where the basic issue is something other than the right to recover a
sum of money, where the money claim is purely incidental to, or a
consequence of, the principal relief sought, this Court has considered such
actions as cases where the subject of the litigation may not be estimated in
terms of money, and are cognizable exclusively by courts 1of first instance
(now Regional Trial Courts).28
To write finis to this controversy, therefore, it is imperative that we first
determine the real nature of respondent's principal action, as well as the relief
sought in its Complaint, which we 1quote in haec verba:
REPUBLIC OF THE PHILIPPNES
REGIONAL TRIAL COURT
BRANCH ______
CEBU CITY
Remarkable Laundry and Dry Cleaning herein Civil Case No. ______
represented by Archemedes G. Solis, Plaintiff, For: Breach of Contract
& Damages
vs.
Spouses Romeo Pajares and Ida T. Pajares,
Defendants.
----------------------------------------------------------------------------------------
------------------
COMPLAINT
Plaintiff, by counsels, to the Honorable Court most respectfully states THAT:
1. Plaintiff Remarkable Laundry and Dry Cleaning Services, is a sole
proprietorship business owned by Archemedes Solis with principal office
address at PREDECO CMPD AS-Ostechi Bldg. Banilad, Heman Cortes St.,
Mandaue City.
2. Defendant Ida Pajares is of legal age, Filipino, married with address at
Hermag Village, Basak Mandaue City where she can be served with summons
and other processes of the Honorable Court.
3. On 08 SEP 2011, parties entered and signed a Remarkable Laundry Dealer
Outlet Contract for the processing of laundry materials, plaintiff being the
owner of Remarkable Laundry and the defendant being the authorized dealer of
the said business. (Attached and marked as Annex "A" is a copy of the
Remarkable Laundry Dealer Outlet Contract.)
CAUSES OF ACTION:
4. Sometime on [sic] the second (2nd) quarter of 2012, defendant failed to
follow the required standard purchase quota mentioned in article IV of the
subject dealership agreement.
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
the office when they are [sic] ready for the business again making the whole
business endeavor totally dependent upon their [sic] whims and caprices.
(Attached and marked as Annex "B'' is a copy of letter of the defendant dated
April 24, 2012.)
6. The aforementioned act of unilateral cessation of operation by the defendant
constitutes a serious breach to [sic] the contract because it totally, whimsically
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
operations.
7. Under the aforementioned Dealer Contract, specifically in Article XV of the
same are classified as BREACH BY THE OUTLETS:
'The parties agree that the happening of any of the stipulation and events by
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.
THE DEALER OUTLET SHALL ALSO BE LIABLE TO PAY A FINE OF TWENTY FIVE
THOUSAND PESOS, (₱25,000), FOR EVERY VIOLATION AND PHP 50,000 IF
PRE-TERMINATION BY THE RL MAIN OPERATOR DUE TO BREACH OF THIS
AGREEMENT.'
8. Likewise it is provided in the said contract that:
' ... The DEALER OUTLET must have a minimum 200 kilos on a six-day or per
week pick-up for the entire duration of the contract to free the dealer outlet
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
billing on the services of the dealer outlet on cases where the minimum
requirements on required kilos are not met.[']
9. The cessation of operation by the defendant, which is tantamount to gross
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
contract other than its [sic] unilateral and whimsical cessation of operations.
10. The plaintiff formally reminded the defendant of her obligations under the
subject contract through demand letters, but to no avail. The defendant
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
and June 19, 2012 respectively.)
11. To reiterate, the defendant temporarily stopped its business operation prior
to the two-year contract duration had elapsed to the prejudice of the plaintiff,
which is a clear disregard of its two-year obligation to operate the business
unless a pre-termination is called.
12. Under Article 1159 of the Civil Code of the Philippines provides [sic]:
'Obligations arising .from contracts have the force of law between the
contracting parties and should be complied with in good faith. '
13. Likewise, Article 1170 of the Civil Code of the Philippines [provides] that:
'Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor
thereof are liable for damages. '
14. That the above-mentioned violations by the defendant to the Remarkable
Laundry Dealer Contract, specifically Articles IV and XVI thereof constitute
gross breach of contract which are unlawful and malicious under the Civil Code
of the Philippines, which caused the plaintiff to incur incidental and
consequential damages as found in the subject dealer contract in the total
amount of Two Hundred Thousand Pesos (PHP200,000.00) and incidental legal
expenses to protect its rights in the amount of ₱30,000.00.
PRAYER:
WHEREFORE, premises considered, by reason of the above-mentioned breach
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
the following incidental and consequential damages to the plaintiff, to wit:
a) TWO HUNDRED THOUSAND PESOS (PHP200,000.00) plus legal interest
as incidental and consequential [damages] for violating Articles IV and XVI of
the Remarkable Laundry Dealer Contract dated 08 SEP 2011;
b) Thirty Thousand Pesos (₱30,000.00) as legal expenses;
c) Thirty Thousand Pesos (₱30,000.00) as exemplary damages;
d) Twenty Thousand Pesos (₱20,000.00) as cost of suit;
e) Such other reliefs that the Honorable Court deems as just and equitable.
August 31, 2012, Cebu City, Philippines.29
An analysis of the factual and material allegations in the Complaint shows that
there is nothing therein which would support a conclusion that respondent's
Complaint is one for specific performance or rescission of contract. It should be
recalled that the principal obligation of petitioners under the Remarkable
Laundry Dealership Contract is to act as respondent's dealer outlet.
Respondent, however, neither asked the RTC to compel petitioners to perfom1
such obligation as contemplated in said contract nor sought the rescission
thereof. The Complaint's body, heading, and relief are bereft of such allegation.
In fact, neither phrase appeared on or was used in the Complaint when, for
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
designated the Complaint as one for "Breach of Contract & Damages," which is
a misnomer and inaccurate. This erroneous notion was reiterated in
respondent's Memorandum30 wherein it was stated that "the main action of
CEB 39025 is one for a breach of contract."31 There is no such thing as an
"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
cause of action in a complaint for specific performance or rescission of contract,
both of which are incapable of pecuniary estimation and, therefore, cognizable
by the RTC. However, as will be discussed below, breach of contract may also
be the cause of action in a complaint for damages.
A complaint primarily seeking to
enforce the accessory obligation
contained in the penal clause is actually
an action for damages capable of
pecuniary estimation.
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 consideration [sic] for such renewal of franchise-dealership rights, the dealer
outlet must have a minimum 200 kilos on a six-day or per week pick-up for the
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
materials. Automatic charging shall become part of the billing on the services
of the dealer outlet on cases where the minimum requirements on required
kilos are not met.
The RL Main Operator has the option to cancel, terminate this dealership outlet
contract, at its option should [sic] in the event that there are unpaid services
equivalent to a two-week minimum required number of kilos of laundry
materials but not ₱8,000 worth of collectibles, for services performed by the RL
Main Operator or its assigned Franchise Outlet, unpaid bills on ordered and
delivered support products, falling below required monthly minimum number of
kilos.
Ten [percent] (10%) interest charge per month will be collected on all unpaid
obligations but should not be more than 45 days or an additional 10% on top
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
default is due to issuance of a bouncing check the amount of such check shall
earn same penalty charge with additional 5% for the first two weeks and 10%
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
before the courts of justice. Violation of this provision if remained unsettled for
two months shall be considered as violation [wherein] Article XV of this
agreement shall be applied.34
To Our mind, petitioners' responsibility under the above penal clause involves
the payment of liquidated damages because under Article 222635 of the Civil
Code the amount the parties stipulated to pay in case of breach are liquidated
damages. "It is attached to an obligation in order to ensure performance and
has a double function: (1) to provide for liquidated damages, and (2) to
strengthen the coercive force of the obligation by the threat of greater
responsibility in the event of breach."36
Concomitantly, what respondent primarily seeks in its Complaint is to recover
aforesaid liquidated damages (which it termed as "incidental and consequential
damages") premised on the alleged breach of contract committed by the
petitioners when they unilaterally ceased business operations. Breach of
contract may also be the cause of action in a complaint for damages filed
pursuant to Article 1170 of the Civil Code. It provides:
Art. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the tenor
thereof; are liable for damages. (Emphasis supplied)
In Pacmac, Inc. v. Intermediate Appellate Court,37 this Court held that the
party who unilaterally terminated the exclusive distributorship contract without
any legal justification can be held liable for damages by reason of the breach
committed pursuant to Article 1170.
In sum, after juxtaposing Article IV of the Remarkable Dealer Outlet
Contract vis-a-vis the prayer sought in respondent's Complaint, this Court is
convinced that said Complaint is one for damages. True, breach of contract
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,
therefore, jurisdiction is lodged with the RTC. However, breach of contract may
also be the cause of action in a complaint for damages. Thus, it is not correct
to immediately conclude, as the CA erroneously did, that since the cause of
action is breach of contract, the case would only either be specific pe1formance
or rescission of contract because it may happen, as in this case, that the
complaint is one for damages.
In an action for damages, the court
which has jurisdiction is determined by
the total amount of damages claimed.
Having thus determined the nature of respondent's principal action, the next
question brought to fore is whether it is the RTC which has jurisdiction over the
subject matter of Civil Case No. CEB-39025.
Paragraph 8, Section 1938 of BP 129, as amended by Republic Act No.
7691,39 provides that where the amount of the demand exceeds ₱100,000.00,
exclusive of interest, damages of whatever kind, attorney's fees, litigation
expenses, and costs, exclusive jurisdiction is lodged with the RTC. Otherwise,
jurisdiction belongs to the Municipal Trial Court.40
The above jurisdictional amount had been increased to ₱200,000.00 on March
20, 1999 and further raised to ₱300,000.00 on February 22, 2004 pursuant to
Section 5 of RA 7691.41
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
the court." In other words, where the complaint primarily seeks to recover
damages, all claims for damages should be considered in determining which
court has jurisdiction over the subject matter of the case regardless of whether
they arose from a single cause of action or several causes of action.1âwphi1
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
₱280,000.00, said court was correct in refusing to take cognizance of the case.
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
Regional Trial Court, Branch 17, Cebu City dismissing Civil Case No. CEB-39025
for lack of jurisdiction is REINSTATED.
SO ORDERED.
G.R. No. 207277
MALAYAN INSURANCE CO., INC., YVONNE S. YUCHENGCO, ATTY.
EMMANUEL G. VILLANUEVA, SONNY RUBIN,1 ENGR. FRANCISCO
MONDELO, and MICHAEL REQUIJO,2 Petitioners.
vs.
EMMA CONCEPCION L. LIN,3 Respondent.
DECISION
DEL CASTILLO, J.:
Assailed in this Petition for Review on Certiorari4 are the December 21, 2012
Decision5 of the Court of Appeals (CA) and its May 22, 2013 Resolution6 in CA-
GR. SP No. 118894, both of which found no grave abuse of discretion in the
twin Orders issued by the Regional Trial Court (RTC) of Manila, Branch 52, on
September 29, 20107 and on January 25, 20118 in Civil Case No. 10-122738.
Factual Antecedents
On January 4, 2010, Emma Concepcion L. Lin (Lin) filed a Complaint9 for
Collection of Sum of Money with Damages against Malayan Insurance Co., Inc.
(Malayan), Yvonne Yuchengco (Yvonne), Atty. Emmanuel Villanueva, Sonny
Rubin, Engr. Francisco Mondelo, Michael Angelo Requijo (collectively, the
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.
Lin alleged that she obtained various loans from RCBC secured by six clustered
warehouses located at Plaridel, Bulacan; that the five warehouses were insured
with Malayan against fire for ₱56 million while the remaining warehouse was
insured for ₱2 million; that on February 24, 2008, the five warehouses were
gutted by fire; that on April 8, 2008 the Bureau of Fire Protection (BFP) issued
a Fire Clearance Certification to her (April 8, 2008 FCC) after having
determined that the cause of fire was accidental; that despite the foregoing,
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
not accidental; that she sought assistance from the Insurance Commission (IC)
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,
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.
As against RCBC, Lin averred that notwithstanding the loss of the mortgaged
properties, the bank refused to go after Malayan and instead insisted that she
herself must pay the loans to RCBC, otherwise, foreclosure proceedings would
ensue; and that to add insult to injury, RCBC has been compounding the
interest on her loans, despite RCBC's failure or refusal to go after Malayan.
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
extinguished as of February 2008; that RCBC be enjoined from foreclosing the
mortgage on the properties put up as collaterals; and that petitioners he
ordered to pay her ₱l,217,928.88 in the concept of filing foes, costs of suit,₱l
million as exemplary damages, and ₱500,000.00 as attorney’s fees.
Some five months later, or on June 17, 2010, Lin filed before the IC an
administrative case 10 against Malayan, represented this time by Yvonne. This
was docketed as Administrative Case No. 431.
In this administrative case, Lin claimed that since it had been conclusively
found that the cause of the fire was "accidental," the only issue left to be
resolved is whether Malayan should be held liable for unfair claim settlement
practice under Section 241 in relation to Section 247 of the Insurance Code
due to its unjustified refusal to settle her claim; and that in consequence of the
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.
On August 17, 2010, Malayan filed a motion to dismiss Civil Case No. 10-
122738 based on forum shopping. It argued that the administrative case was
instituted to prompt or incite IC into ordering Malayan to pay her insurance
claim; that the elements of forum shopping are present in these two cases
because there exists identity of parties since Malayan's individual officers who
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
sought in the two cases since the administrative case is merely disguised as an
unfair claim settlement charge, although its real purpose is to allow Lin to
recover her insurance claim from Malayan; that Lin sought to obtain the same
reliefs in the administrative case as in the civil case; that Lin did not comply
with her sworn undertaking in the Certification on Non-Forum Shopping which
she attached to the civil case, because she deliberately failed to notify the RTC
about the pending administrative case within five days from the filing thereof.
This motion to dismiss drew a Comment/Opposition, 11
which Lin filed on
August 31, 2010.
Ruling of the Regional Trial Court
In its Order of September 29, 2010,12 the RTC denied the Motion to Dismiss,
thus:
WHEREFORE, the MOTION TO DISMISS filed by [petitioners] is hereby DENIED
for lack of merit.
Furnish the parties through their respective [counsels] with a copy each [of]
the Order.
SO ORDERED.13
The RTC held that in the administrative case, Lin was seeking a relief clearly
distinct from that sought in the civil case; that while in the administrative case
Lin prayed for the suspension or revocation of Malayan's license to operate as a
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,
hence, there is no forum shopping to speak of.
In its Order of January 25, 2011, 14 the RTC likewise denied, for lack of merit,
petitioners' Motion for Reconsideration.
Ruling of the Court of Appeals
Petitioners thereafter sued out a Petition for Certiorari and Prohibition15 before
the CA. However, in a Decision 16dated December 21, 2012, the CA upheld the
RTC, and disposed as follows:
WHEREFORE absent grave abuse of discretion on the part of respondent Judge,
the Petition for Certiorari and Prohibition (with Temporary Restraining Order
and Preliminary Injunction) is DISMISSED.
SO ORDERED.17
The CA, as did the RTC, found that Lin did not commit forum shopping chiefly
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
no duty at all to inform the RTC about the institution or pendency of the
administrative case.
The CA ruled that forum shopping exists where the elements of litis
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
the same interest in both actions, (2) identity of rights asserted and reliefs
prayed for, the relief being founded on the same facts, and (3) identity of the
two proceedings such that any judgment rendered in one action will, regardless
of which party is successful, amount to res judicata in the other action under
consideration, only the first element may be deemed present in the instant
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
administrative cases, and these actions were filed against the same petitioners,
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
rights to recover the full amount of her insurance claim, which is why she
prayed/demanded that petitioners pay her insurance claim plus damages;
whereas in the administrative case, Lin's assertion was that petitioners were
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
successful, would not amount to res judicata in the administrative case in view
of the different issues involved, the dissimilarity in the quantum of evidence
required, and the distinct mode or procedure to be observed in each case.
Petitioners moved for reconsideration 18 of the CA's Decision, but this motion
was denied by the CA in its Resolution of May 22, 2013.19
Issues
Before this Court, petitioners instituted the present Petition,20 which raises the
following issues:
The [CA] not only decided questions of substance contrary to law and the
applicable decisions of this Honorable Court, it also sanctioned a flagrant
departure from the accepted and usual course of judicial proceedings.
A.
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
administrative case both seek the payment of the same fire insurance claim.
B.
The [CA] erred in not dismissing the civil case for failure on the part of [Lin] to
comply with her undertaking in her verification and certification of non-forum
shopping appended to the civil complaint.21
Petitioners' Arguments
In praying for the reversal of the CA Decision, petitioners argue that regardless
of nomenclature, it is Lin and no one else who filed the administrative case,
and that she is not a mere complaining witness therein; that it is settled that
only substantial identity of parties is required for res judicata to apply; that the
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
case involved the same fire insurance claim; that there is here identity of
causes of action, too, because the ultimate objective of both the civil case and
the administrative case is to compel Malayan to pay Lin's fire insurance claim;
that although the reliefs sought in the civil case and those in the administrative
case are worded differently, Lin was actually asking for the payment of her
insurance claim in both cases; that it is well-entrenched that a party cannot
escape the operation of the principle in res judicata that a cause of action
cannot be litigated twice just by varying the form of action or the method of
presenting the case; that Go v. Office of the Ombudsman22is inapplicable
because the issue in that case was whether there was unreasonable delay in
withholding the insured's claims, which would warrant the revocation or
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
parties in said case agreed to submit the case for resolution on the sole issue
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
defend themselves in a case which should have been dismissed on the ground
of forum shopping.
Respondents Arguments
Lin counters that as stressed in Go v. Office of the Ombudsman, 24 an
administrative case for unfair claim settlement practice may proceed
simultaneously with, or independently of, the civil case for collection of the
insurance proceeds filed by the same claimant since a judgment in one will not
amount to res judicata to the other, and vice versa, due to the variance or
differences in the issues, in the quantum of evidence, and in the procedure to
be followed in prosecuting the cases; that in this case the CA cited the teaching
in Go v. Office of the Ombudsman that there was no grave abuse of discretion
in the RTC's dismissal of petitioners' motion to dismiss; that the CA correctly
held that the RTC did not commit grave abuse of discretion in denying
petitioners' motion to dismiss because the elements of forum shopping were
absent; that there is here no identity of parties because while she (respondent)
is the plaintiff in the civil case, she is only a complaining witness in the
administrative case since it is the IC that is the real party in interest in the
administrative case; that the cause of action in the civil case consists of
Malayan's failure or refusal to pay her insurance claim, whereas in the
administrative case, it consists of Malayan's unfair claim settlement practice;
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
license to operate should be revoked or suspended for engaging in unfair claim
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
license to operate as an insurance company. According to Lin, although in the
administrative case she prayed that the IC Resolution ordering Malayan to
accord weight to the BFP's findings be declared final, this did not mean that
she was therein seeking payment of her insurance claim, but rather that the IC
can now impose the appropriate administrative sanctions upon Malayan; that if
Malayan felt compelled to pay Lin's insurance claim for fear that its license to
operate as an insurance firm might be suspended or revoked, then this is just a
logical result of its failure or refusal to pay the insurance claim; that the
judgment in the civil case will not amount to res judicata in the administrative
case, and vice versa, pursuant to the case law ruling in Go v. Office of the
Ombudsman25and in Almendras v. Office of the Insurance Commission, 26 both
of which categorically allowed the insurance clain1ants therein to file both a
civil and an administrative case against insurers; that the rule against forum
shopping was designed to serve a noble purpose, viz., to be an instrument of
justice, hence, it can in no way be interpreted to subvert such a noble purpose.
Our Ruling
We deny this Petition. We hold that the case law rulings in
the Go and Almendras cases27 control and govern the case at bench.
First off, it is elementary that "an order denying a motion to dismiss is merely
interlocutory and, therefore, not appealable, x x x to x x x avoid undue
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
appeal."28
Secondly, petitioners herein utterly failed to prove that the RTC, in issuing the
assailed Orders, acted with grave abuse of discretion amounting to lack or
excess of jurisdiction. "It is well-settled that an act of a court or tribunal may
only be considered to have been done in grave abuse of discretion when the
same was performed in a capricious or whimsical exercise of judgment which is
equivalent to lack or excess of jurisdiction."29 "[F]or grave abuse of discretion
to exist, the abuse of discretion must be patent and gross so as to amount to
an evasion of a positive duty or a virtual refusal to perform a duty enjoined by
law, or to act at all in contemplation of law."30
In the present case, petitioners basically insist that Lin committed willful and
deliberate forum shopping which warrants the dismissal of her civil case
because it is not much different from the administrative case in terms of the
parties involved, the causes of action pleaded, and the reliefs prayed for.
Petitioners also posit that another ground warranting the dismissal of the civil
case was Lin's failure to notify the RTC about the pendency of the
administrative case within five days from the filing thereof.
These arguments will not avail. The proscription against forum shopping is
found in Section 5, Rule 7 of the Rules of Court, which provides:
SEC. 5. Certification against forum shopping. --The plaintiff or principal party
shall certify under oath in the complaint or other initiatory pleading asserting a
claim for relief, or in a sworn certification annexed thereto and simultaneously
filed therewith; (a) that he has not theretofore commenced any action or filed
any claim involving the same issues in any court, tribunal or quasi-judicial
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
statement of the present status thereof; and (c) if he should thereafter learn
that the same or similar action or claim has been filed or is pending, he shall
report that fact within five (5) days therefrom to the court wherein his
aforesaid complaint or initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable by mere
amendment of the complaint or other initiatory pleading but shall be cause for
the dismissal of the case without prejudice, unless otherwise provided, upon
motion and after hearing. The submission of a false certification or non-
compliance with any of the undertakings therein shall constitute indirect
contempt of court, without prejudice to the corresponding administrative and
criminal actions. If the acts of the party or his counsel clearly constitute willful
and deliberate forum shopping, the same shall be ground for summary
dismissal with prejudice and shall constitute direct contempt, as well as a
cause for administrative sanctions. (n)
The above-stated rule covers the very essence of forum shopping itself, and
the constitutive elements thereof viz., the cognate concepts of
litis pendentia and res judicata -
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
successively, for the purpose of obtaining a favorable judgment. It exists
where the elements of litis pendentia are present or where a final judgment in
one case will amount to res judicata in another. On the other hand, for litis
pendentia to be a ground for the dismissal of an action, the following requisites
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
for, the relief being founded on the same facts; and (c) the identity with
respect to the two preceding particulars in the two cases is such that any
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
Res judicata, in turn, has the following requisites: "(1) the former judgment
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
merits; and (4) there must be, between the first and second actions, (a)
identity of parties, (b) identity of subject matter, and (c) identity of cause of
action."32
"The settled rule is that criminal and civil cases are altogether different from
administrative matters, such that the disposition in the first two will not
inevitably govern the third and vice versa."33In the context of the case at bar,
matters handled by the IC are delineated as either regulatory or adjudicatory,
both of which have distinct characteristics, as postulated in Almendras Mining
Corporation v. Office of the Insurance Commission:34
The provisions of the Insurance Code (Presidential Decree [P.D.] No. 1460), as
amended, clearly indicate that the Office of the [IC] is an administrative
agency vested with regulatory power as well as with adjudicatory authority.
Among the several regulatory or non-quasi-judicial duties of the Insurance
Commissioner under the Insurance Code is the authority to issue, or refuse
issuance of, a Certificate of Authority to a person or entity desirous of engaging
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
such revocation or suspension. The grounds for revocation or suspension of an
insurer's Certificate of Authority are set out in Section 241 and in Section 247
of the Insurance Code as amended. The general regulatory authority of the
Insurance Commissioner is described in Section 414 of the Insurance Code, as
amended, in the following terms:
'Section 414. The Insurance Commissioner shall have the duty to see that all
laws relating to insurance, insurance companies and other insurance matters,
mutual benefit associations, and trusts for charitable uses are faithfully
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
authority to regulate the issuance and sale of variable contracts as defined in
section two hundred thirty-two and to provide for the licensing of persons
selling such contracts, and to issue such reasonable rules and regulations
governing the same.
The Commissioner may issue such rulings, instructions, circulars, orders[,] and
decisions as he may deem necessary to secure the enforcement of the
provisions of this Code, subject to the approval of the Secretary of Finance
[DOF Secretary]. Except as otherwise specified, decisions made by the
Commissioner shall be appealable to the [DOF Secretary].' (Italics supplied)
which Section also specifies the authority to which a decision of the Insurance
Commissioner rendered in the exercise of its regulatory function may be
appealed.
The adjudicatory authority of the Insurance Commissioner is generally
described in Section 416 of the Insurance Code, as amended, which reads as
follows:
'Sec. 416. The Commissioner shall have the power to adjudicate claims and
complaints involving any loss, damage or liability for which an insurer may be
answerable under any kind of policy or contract of insurance, or for which such
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
which a mutual benefit association may be held liable under the membership
certificates it has issued to its members, where the amount of any such loss,
damage or liability, excluding interests, cost and attorney’s fees, being claimed
or sued upon any kind of insurance, bond, reinsurance contract, or
membership certificate does not exceed in any single claim one hundred
thousand pesos.
xxxx
The authority to adjudicate granted to the Commissioner under this section
shall be concurrent with that of the civil courts, but the filing of a complaint
with the Commissioner shall preclude the civil courts from taking cognizance of
a suit involving the same subject matter.' (Italics supplied)
Continuing, Section 416 (as amended by Batas Pambansa (B.P.) Blg. 874) also
specifies the authority to which appeal may be taken from a final order or
decision of the Commissioner given in the exercise of his adjudicatory or quasi-
judicial power:
'Any decision, order or ruling rendered by the Commissioner after a hearing
shall have the force and effect of a judgment. Any party may appeal from a
final order, ruling or decision of the Commissioner by filing with the
Commissioner within thirty days from receipt of copy of such order, ruling or
decision a notice of appeal to the Intermediate Appellate Court (now the Court
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
Appeals)
x x x x'
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
adjudicatory authority now fall within the exclusive appellate jurisdiction of
the Court of Appeals.35
Go v. Office of the Ombudsman36reiterated the above-stated distinctions vis-a-
vis the principles enunciating that a civil case before the trial court involving
recovery of payment of the insured's insurance claim plus damages, can
proceed simultaneously with an administrative case before the
IC.37 Expounding on the foregoing points, this Court said -
**The findings of the trial court will not necessarily foreclose the administrative
case before the [IC], or [vice versa]. True, the parties are the same, and both
actions are predicated on the same set of facts, and will require identical
evidence. But the issues to be resolved, the quantum of evidence, the
procedure to be followed[,] and the reliefs to be adjudged by these two bodies
are different.
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
and other supporting documents. Thus, petitioner prays in her complaint that
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
damages in her favor caused by the alleged delay and refusal of the insurers to
pay her claims. The principal issue then that must be resolved by the trial court
is whether or not petitioner is entitled to the payment of her insurance claims
and damages. The matter of whether or not there is unreasonable delay or
denial of the claims is merely an incident to be resolved by the trial court,
necessary to ascertain petitioner's right to claim damages, as prescribed by
Section 244 of the Insurance Code.
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
denial of the claims of petitioner, and if in the affirmative, whether or not that
would justify the suspension or revocation of the insurers' licenses.
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
weight, or more convincing than that which is offered in opposition to it. In
Adm. Case No. RD-156, the degree of proof required of petitioner to establish
her claim is substantial evidence, which has been defined as that amount of
relevant evidence that a reasonable mind might accept as adequate to justify
the conclusion.
In addition, the procedure to be followed by the trial court is governed by the
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
means of ascertaining the ultimate facts of their respective cases that will
serve as basis for their respective decisions.1âwphi1
If, for example, the trial court finds that there was no unreasonable delay or
denial of her claims, it does not automatically mean that there was in fact no
such unreasonable delay or denial that would justify the revocation or
suspension of the licenses of the concerned insurance companies. It only
means that petitioner failed to prove by preponderance of evidence that she is
entitled to damages. Such finding would not restrain the [IC], in the exercise of
its regulatory power, from making its own finding of unreasonable delay or
denial as long as it is supported by substantial evidence.
While the possibility that these two bodies will come up with conflicting
resolutions on the same issue is not far-fetched, the finding or conclusion of
one would not necessarily be binding on the other given the difference in the
issues involved, the quantum of evidence required and the procedure to be
followed.
Moreover, public interest and public policy demand the speedy and inexpensive
disposition of administrative cases.
Hence, Adm. Case No. RD-156 may proceed alongside Civil Case No. Q-95-
23135.38
As the aforecited cases are analogous in many aspects to the present case,
both in respect to their factual backdrop and in their jurisprudential teachings,
the case law ruling in the Almendras and in the Go cases must apply with
implacable force to the present case. Consistency alone demands - because
justice cannot be inconsistent - that the final authoritative mandate in the cited
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
failed to prove that the RTC exhibited grave abuse of discretion, amounting to
lack or excess of jurisdiction, which would justify the issuance of the
extraordinary writ of certiorari.39
WHEREFORE, the Petition is DENIED. The December 21, 2012 Decision and
the May 22, 2013 Resolution of the Court of Appeals in CA-GR. SP No. 118894
are hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.
G.R. No. 203397, December 09, 2015
AUGUSTO ONG TRINIDAD II, AUGUSTO ONG TRINIDAD III FOR
HIMSELF AND REPRESENTING LEVY ONG TRINIDAD AND ROHMEL ONG
TRINIDAD, MARY ANN NEPOMUCENO TRINIDAD FOR HERSELF AND
ASSISTING HER MINOR CHILDREN JOAQUIN GERARD N. TRINIDAD IV,
JACOB GABRIEL N. TRINIDAD, AND JERED GYAN N.
TRINIDAD, Petitioners, v. SPOUSES BONIFACIO PALAD AND FELICIDAD
KAUSAPIN, Respondent.
DECISION
DEL CASTILLO, J.:
This Petition for Review on Certiorari1 seeks to set aside the March 27, 2012
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,
2008 Decision4 of the Regional Trial Court (RTC) of Lucena City, Branch 53
(RTC) in Civil Case No. 92-71.
Factual Antecedents
On July 23, 1985, respondents - spouses Bonifacio Palad and Felicidad
Kausapin (Felicidad) - bought from Renato Ramos (Ramos) an eight-hectare
parcel of land located within Lucena City, which was later registered as
Transfer Certificate of Title No. (TCT) T-47318.5
Respondents later caused the subject property to be surveyed, and it was
discovered that a two-hectare portion thereof (the subject property) was
occupied by Augusto Trinidad (Augusto), who converted the same into a
fishpond.
On May 29, 1992, respondents filed with the RTC of Lucena City a
Complaint6 for recovery of possession with damages against Augusto, which
was docketed as Civil Case No. 92-71 and assigned to RTC Branch 53.
In his Answer,7 Augusto claimed that respondents were not the owners of the
subject property; that Felicidad secured her title through dubious means; that
the subject property formed part of a five-hectare piece of property that was
given to him by his father, Atty. Joaquin Trinidad (Atty. Trinidad); that this
five-hectare property was acquired by his father from Genaro Kausapin
(Genaro), who was his father's client; that said five-hectare property was
declared for taxation purposes by his father; that since 1980, he (Augusto) has
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
dismissed; that Felicidad's TCT T-47318 be nullified; and that damages and
attorney's fees be awarded to him.
During the proceedings, Augusto passed away and was substituted by his
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.
Ruling of the Regional Trial Court
After trial, or on July 4,2008, the RTC rendered its Decision,8 pronouncing as
follows:
This is a complaint for recovery of possession with damages filed by the
spouses Bonifacio Palad and Felicidad Kausapin against Augusto Trinidad as the
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
Ong Trinidad II, Augusto Ong Trinidad III and Joaquin Trinidad III were
substituted as defendants.
xxxx
The land subject of this case is a 2-hectare portion of the eight (8) hectares
covered by Transfer Certificate of Title No. T-47318 now registered in the
names of the spouses Bonifacio Palad and Felicidad Kausapin (Exhibit "A").
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
including the 2-hectare area in dispute, they are entitled to the possession of
the disputed area which, despite their demands to the defendants to vacate,
the defendants have not vacated the area consisting of a well-developed
fishpond.
xxxx
For their part, the defendants posit as follows: During the lifetime of Genaro
Kausapin, the father of complainant Felicidad Kausapin, Genaro Kausapin
availed of the legal services of Atty. Joaquin Trinidad in a land dispute involving
a 12-hectare property. For Atty. Trinidad's services, Genaro Kausapin and Atty.
Trinidad executed on October 4, 1977 a document denominated Kasulatan ng
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,
(LRC) PSD-254630 confirmed on December 19,1976 by the Land Registration
Commission. As his share in the partition Atty. Trinidad was given Lot 13-A
(Exhibit "2").
In 1980 Atty. Trinidad gave to his son August© Trinidad the five (5) hectares
given to him by Genaro Kausapin as attorney's fee. Augusto Trinidad developed
a 2-hectare portion of the five hectares into a fishpond spending huge amount
of money in the process.
xxxx
By whichever mode the plaintiffs had come to title the 8-hectare property
including the 2-hectare portion in dispute, the Court, sifting through the
evidence presented by the parties, finds:
1. By virtue of the Kasulatan ng Pagbabahagi dated October 4,
1977 Genaro Kausapin and Atty. Joaquin Trinidad partitioned
between themselves the 12-hectare property composed of Lot
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
attorney's fee for legal services he rendered to Genaro
Kausapin.
2. Atty. Joaquin Trinidad gave to his son Augusto Trinidad his 5-
hectare share and Augusto Trinidad, beginning the year 1980,
developed a portion of the area into a fishpond spending a
huge amount of money in the process.
3. On July 23, 1985 the plaintiffs bought an 8-hectare property
from Renato Ramos and they had the land titled in their
names on September 11,1985.
4. It was when the plaintiffs had the land they bought from
Renato Ramos surveyed that they found out that the fishpond
developed by Augusto Trinidad was embraced in the area of
the [land] Renato Ramos sold to them.
5. Renato Ramos did not know that the area developed by
Augusto Trinidad into a fishpond was part of the land he
(Ramos) sold to the plaintiffs. Otherwise, if Renato Ramos
knew this, he would not have allowed Augusto Trinidad to
occupy and transform the area into a fishpond and, much
more, for him (Renato Ramos) to have sold the entire
property to the plaintiffs for the measly sum of P8,000.00,
given the size of the area and the improvements on the area
in dispute. Likewise, it was only after the plaintiffs had caused
the survey of the area they bought that they came to know
that the 2-hectare [property] developed by Augusto Trinidad
into a fishpond was within the area they bought.
From the foregoing, it is clear that when Augusto Trinidad entered the property
in dispute in 1980 and began to transform it into a fishpond, this was with the
knowledge and consent of Genaro Kausapin, the father of the plaintiff. That
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
designated as Lot 13-A, Lot 13-B and Lot 13-C, obviously Genaro Kausapin and
Atty. Joaquin Trinidad and Augusto Trinidad were not fully aware of the exact
metes and bounds of each lot. This was also the case when, before the area
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
as a fishpond was within the area sold to the plaintiffs.
Given that the possession by the defendants of the area in question antedates
by five years the claim of the plaintiffs to the disputed property, and given that
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
considering the valuable improvements made by the defendants in the area in
dispute, the defendants have a better right to possess the disputed area, even
as the area had been included in [the] title issued to the plaintiffs.
WHEREFORE, the complaint is ordered dismissed.
Defendants' counterclaim is likewise ordered dismissed.
SO ORDERED.9ChanRoblesVirtualawlibrary
Riding of the Court of Appeals
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
have a better right thereto; that petitioners' claim that the subject property
was part of a 12-hectare piece of property owned by respondent Felicidad's
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
basis, as there is no evidence on record to show that Genaro even owned a
parcel of land; that in truth, Genaro was a mere tenant of the original owners
of the 12-hectare property - Juliana Navarro (Navarro), Pedro Loyola, and
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
denominated as "Kasulatan ng Pagbabahagi" supposedly executed by Genaro
and Atty. Trinidad on October 4,1977, petitioners have not presented any title
or any other documentary proof, such as receipts showing payment of real
property taxes, to prove their alleged ownership of the subject property; that
respondents cannot be bound by the supposed agreement between Genaro and
Atty. Trinidad because it is void since, being a mere tenant of the property,
Genaro cannot award the same to Atty. Trinidad; that Genaro's status as a
mere tenant is known to Atty. Trinidad, since the latter was Genaro's counsel in
a claim involving the subject property docketed as CAR Case No. 585(62),
which was eventually terminated by Genaro's execution in 1963 of a
"Kasunduan", wherein he acknowledged before Ramos and Atty. Trinidad that
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
respondents -fearing violence and bloodshed - opted to resort to court action
instead; and that under the Civil Code,10 they are protected as the registered
owners, and petitioners should be considered intruders and builders in bad
faith.
During the pendency of the appeal, Joaquin Ong Trinidad HI died and was
substituted by his widow and children - herein petitioners Mary Ann
Nepomuceno Trinidad, Joaquin Gerard N. Trinidad IV, Jacob Gabriel N. Trinidad
and Jered Gyan N. Trinidad.
On March 27, 2012, the CA rendered the assailed judgment, declaring as
follows:
In this appeal, Spouses Palad assert their Transfer Certificate of Title No. T-
47318 which undoubtedly covers appellees' two-hectare fishpond found within
the former's eight-hectare lot. They argue that appellees' predecessors-in-
interest, Genaro Kausapin and Atty. Joaquin Trinidad, were never owners of
the eight-hectare lot, including the subject realty, as the property was owned
by Renato Ramos who sold it to them.
On the other hand, appellees reiterate in their brief that their father possessed
the fishpond long before Spouses Palad bought the eight-hectare lot. They also
posit that a certificate of title by itself alone does not vest ownership in any
person.
We grant the appeal.
Appellants are owners of the eight-hectare lot, including the two-hectare
fishpond, by virtue of their Transfer Certificate of Title No. T-47318. Spouses
Esmaquel v. Coprada, explains why:
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
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
Torrens title of petitioners must prevail. Petitioners' title over the
subject property is evidence of their ownership thereof. It is a
fundamental principle in land registration that the certificate of title
serves as evidence of an indefeasible and incontrovertible title to the
property in favor of the person whose name appears therein.
Moreover, the age-old rule is that the person who has a Torrens title
over a land is entitled to possession thereof.
As a rule, a certificate of title cannot be attacked collaterally. At any rate,
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
xxxx
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
et al. v. Victory Hills:
The established legal principle in actions for annulment or reconveyance
of title is that a party seeking it should establish not merely by a
preponderance of evidence but by clear and convincing evidence that
the land sought to be reconveyed is his. It is rather obvious from the
foregoing disquisition that respondent failed to dispense such burden. Indeed,
the records are replete with proof that respondent declared the lots comprising
Lot No. 3050 for taxation purposes only after it had instituted the present case
in court. This is not to say of course that tax receipts are evidence of
ownership, since they are not, albeit they are good indicia of possession in the
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
Here, appellees offered no evidence, much less, clear and convincing evidence,
that Spouses Palad's transfer certificate of title should be annulled. In fact, it is
on record that appellees' documents pertain to Lot 13-A, but they occupied Lot
13-C. As the trial court determined, appellees' only basis for claiming the
fishpond was their occupation thereof, though mistakenly and the absence of
the boundaries of Lots 13-A, 13-B and 13-C. But these matters do not and
cannot annul Spouses Palad's transfer certificate of title. They actually imply
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
court correctly did not set aside the transfer certificate of title. Hence, it
remains valid and binding with all its legal effects.
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
is REVERSED AND SET ASIDE. Defendants-appellees Levy Ong Trinidad,
Joaquin Trinidad III, Augusto Trinidad II, Augusto Trinidad III and Rohmel
Trinidad, their successors-in-interest, privies and heirs are ordered to vacate
the two-hectare fishpond occupied by them in Lot 13-C under Transfer
Certificate of Title No. T-47318. No costs.
SO ORDERED.11 (Emphasis in the original).
Petitioners filed their Motion for Reconsideration,12 which was denied in the
assailed August 24, 2012 Resolution. Hence, the instant Petition.
In a January 27, 2014 Resolution,13 this Court resolved to give due course to
the Petition.
Issues
Petitioners claim that the CA erred:
1. In its ruling that the respondents have a better right of
possession over the disputed 2-hectare portion of the 8-
hectare property by the mere fact that said disputed portion is
covered by a certificate of title in their names;
2. In its ruling that the petitioners offered no evidence that
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
court's July 4, 2008 Decision it assumed and concluded that Genaro was the
owner of the subject property which he awarded to Augusto via the supposed
October 4, 1977 "Kasulatan ng Pagbabahagi" between Genaro and Augusto -
when the evidence points to the fact that the property was acquired by
respondents through purchase from its original owner, Ramos.
Thus, as the CA correctly held, petitioners are mere intruders with respect to
the subject property; they have no right to own or possess the same. On the
other hand, as registered owners of the subject property, respondents have the
right to exercise all attributes of ownership including possession which they
cannot do while petitioners remain there.
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
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-
47318.
SO ORDERED.chanroblesvirtuallawlibrary
G.R. No. 187543
WERR CORPORATION INTERNATIONAL, Petitioner
vs.
HIGHLANDS PRIME INC., Respondent
x-----------------------x
G.R. No. 187580
HIGHLANDS PRIME, INC., Petitioner,
vs.
WERR CORPORATION INTERNATIONAL, Respondent.
DECISION
JARDELEZA, J.:
These are consolidated petitions1 seeking to nullify the Court of Appeals' (CA)
February 9, 2009 Decision2 and April 16, 2009 Resolution3 in CA-G.R. SP No.
105013. The CA modified the August 11, 2008 Decision4 of the Construction
Industry Arbitration Commission (CIAC) in CIAC Case No. 09-2008, viz.:
WHEREFORE, premises considered, the instant petition for review is PARTLY
GRANTED. The assailed Decision dated August 11, 2008 of the Construction
Industry Arbitration Commission in CIAC Case No. 09-2008 is
hereby MODIFIED as follows:
1) Respondent Werr Corporation International shall pay petitioner Highlands
Prime, Inc. liquidated damages in the amount of ₱8,969,330.70;
2) Petitioner Highlands Prime, Inc. shall return to respondent Werr Corporation
International the balance of its retention money in the amount of
₱10,955,899.80 with the right to offset the award for liquidated damages in the
aforesaid amount of ₱8,969,330.70; and
3) The cost of arbitration shall be shared equally by the parties.
The rest of the decision stands.
SO ORDERED.5
Facts
Highlands Prime, Inc. (HPI) and Werr Corporation International (Werr) are
domestic corporations engaged in property development and construction,
respectively. For the construction of 54 residential units contained in three
clusters of five-storey condominium structures, known as "The Horizon-
Westridge Project," in Tagaytay Midlands Complex, Talisay, Batangas, the
project owner, HPI, issued a Notice of Award/Notice to Proceed6 to its chosen
contractor, Werr, on July 22, 2005. Thereafter, the parties executed a General
Building Agreement7 (Agreement) on November 17, 2005.8
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
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
inclusive of applicable taxes, supply and transportation of materials, and
labor.10 It was agreed that this contract price shall be subject to the following
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
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
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
the construction project;13 and (4) HPI has the right to liquidated damages in
the event of delay in the construction of the project equivalent to 1/10 of 1%
of the contract price for every day of delay.14
Upon HPI's payment of the stipulated 20% downpayment in the amount of
₱54,359,580.00, Werr commenced with the construction of the project. The
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
extensions and a final extension until October 15, 2006. On May 8, 2006, W err
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
only up to the amount of ₱18,762,541.67. The amount is to be charged against
the accumulated retention money. As of the last billing on October 25, 2006,
HPI had already paid the amount of ₱232,940,265.85 corresponding to 93.18%
accomplishment rate of the project and retained the amount of ₱25,738,258.01
as retention bond.15
The project was not completed on the last extension given. Thus, HPI
terminated its contract with Werr on November 28, 2006, which the latter
accepted on November 30, 2006.16 No progress billing was adduced for the
period October 28, 2006 until the termination of the contract.17
On October 3, 2007, Werr demanded from HPI payment of the balance of the
contract price as reflected in its financial status report which showed a
conditional net payable amount of ₱36,078,652.90.18 On January 24, 2007, HPI
informed Werr that based on their records, the amount due to the latter as of
December 31, 2006 is ₱14,834,926.71.19 This amount was confirmed by
Werr.20 Not having received any payment, Werr filed a Complaint21 for
arbitration against HPI before the CIAC to recover the ₱14,834,926.71
representing the balance of its retention money.
In its Answer,22 HPI countered that it does not owe Werr because the balance
of the retention money answered for the payments made to suppliers and for
the additional costs and expenses incurred after termination of the contract.
From the retention money of ₱25,738,258.0l, it deducted (1) ₱18,762,541.67
as payment to the suppliers under the Direct Payment Scheme, and (2)
₱7,548,729.15 as additional costs and expenses further broken down as
follows: (a) ₱3,336,526.91 representing the unrecouped portion of the 20%
downpayment; (b) ₱542,500.00 representing the remainder of Werr's unpaid
advances; (c) ₱629,702.24 for the waterproofing works done by Dubbel
Philippines; and (d) ₱3,040,000.00 for the rectification works performed by
A.A. Manahan Construction after the termination of the contract. Deducting the
foregoing from the accumulated retention money resulted in a deficiency of
₱573,012.81 in its favor.23 By way of counterclaim, HPI prayed for the payment
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
termination of the Agreement on November 28, 2006; for actual damages in
the sum of ₱573,012.81; and for attorney's fees of ₱500,000.00 and litigation
expenses of ₱100,000.00.24
CIAC'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
amount of ₱10,955,899.79 and arbitration costs. It also granted HPI's claim for
liquidated damages in the amount of ₱2,535,059.0l equivalent to 9.327 days of
delay,26 but denied its counterclaim for damages, attorney's fees, and litigation
expenses.
From the claims of HPI, the CIAC only deducted the amounts of (1)
₱10,903,331.30 representing the direct payments made from September 26,
2006 until December 31, 2006,27 (2) ₱3,336,526.91 representing the
unrecouped retention money, and (3) P542,500.00 representing the unpaid
cash advances from the ₱25,738,258.0l retention money. It disallowed the
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
suppliers submitted, and for HPI failing to show that Werr requested it to
continue payments even after termination of the Agreement. It also disallowed
the amount of ₱629,702.24 for the waterproofing works done by Dubbel
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
the contract was also disallowed because while HPI presented its contract with
A.A. Manahan Construction for rectification and completion works, it failed to
present proof of how much was specifically paid for rectification works only, as
well as the proof of its payment. Moreover, prior notice of such defective works
was not shown to have been given to Werr as required under the Agreement,
and even noted that HPI's project manager approved of the quality of the
works up to almost 94%.28
The CIAC further ruled that Werr incurred only 9.327 days of delay. Citing
Article 137629 of the Civil Code and considering the failure of the Agreement to
state otherwise, it applied the industry practice in the construction industry
that liquidated damages do not accrue after achieving substantial compliance.
It held that delay should be counted from October 27, 2006 until the projected
date of substantial completion. Since the last admitted accomplishment is
93.18% on October 27, 2006, the period it will take Werr to perform the
remaining 1.82% is the period of delay. Based on the past billings, since it took
Werr 5 .128 days30 to achieve 1% accomplishment, it will therefore take it
9.327 days to achieve substantial completion. Thus, the CIAC concluded that
the period of delay until substantial completion of the project is 9.327 days.
The liquidated damages under the Agreement being 1/10 of 1% of the
₱271,797,900.00 or ₱271,797.90 per day of delay, Werr is liable for liquidated
damages in the amount of ₱2,535,048.95.31
Since the liquidated damages did not exhaust the balance of the retention
money, the CIAC likewise denied the claim for actual damages.32
Thereafter, HPI filed its petition for review33 under Rule 43 with the CA on
August 28, 2008.1âwphi1
CA's Ruling
The CA rendered the assailed decision, affirming the CIAC's findings on the
allowable charges against the retention money, and on the attorney's fees and
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
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
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
Hence, these consolidated petitions.
Arguments
Werr argues that the CA erred in modifying the CIAC decision on the amount of
liquidated damages and arbitration costs. It insists that the appellate court
disregarded Articles 1234, 1235, and 1376 of the Civil Code and the industry
practice (as evidenced by Clause 52.1 of the Construction Industry Authority of
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
Construction") when it did not apply the construction industry practice in
computing liquidated damages only until substantial completion of the project,
and not until the termination of the contract.35 Werr further emphasizes that
the CIAC, being an administrative agency, has expertise on the subject matter,
and thus, its findings prevail over the appellate court's findings.36
On the other hand, HPI argues that Werr was unjustly enriched when the CA
disallowed HPI' s recovery of the amounts it paid to suppliers. HPI claims that:
(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
instructions; (2) the payments to Dubbel Philippines and the cost of the
contract with A.A. Manahan Construction are chargeable to the retention
money, pursuant to the terms of the Agreement; and (3) the expenses
incurred in excess of the retention money should be paid by Werr as actual
damages. These payments, while made after the termination of the contract,
were for prior incurred obligations.37 HPI also argues that it is not liable for
arbitration costs, and reiterates its claims for actual damages, and payment of
attorney's fees and litigation expenses.38
Issues
I. Whether the payments made to suppliers and contractors after the
termination of the contract are chargeable against the retention money.
II. Whether the industry practice of computing liquidated damages only up to
substantial completion of the project applies in the computation of liquidated
damages. Consequently, whether delay should be computed until termination
of the contract or until substantial completion of the project.
III. Whether the cost of arbitration should be shouldered by both parties.
IV. Whether HPI is entitled to attorney's fees and litigation expenses.
Our Ruling
We deny the consolidated petitions.
I. Charges against the Retention Money
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
issues, which involve a review of the probative value of the evidence
presented, such as the credibility of witnesses, or the existence or relevance of
surrounding circumstances and their relation to each other, may not be raised
unless it is shown that the case falls under recognized exceptions.40
In cases of arbitral awards rendered by the CIAC, adherence to this rule is all
the more compelling.41 Executive Order No. 1008,42 which vests upon the CIAC
original and exclusive jurisdiction over disputes arising from, or connected
with, contracts entered into by parties involved in construction in the
Philippines, clearly provides that the arbitral award shall be binding upon the
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
by the parties and to which they have confidence, has settled the dispute after
due proceedings:
Voluntary arbitration involves the reference of a dispute to an impartial body,
the members of which are chosen by the parties themselves, which parties
freely consent in advance to abide by the arbitral award issued after
proceedings where both parties had the opportunity to be heard. The basic
objective is to provide a speedy and inexpensive method of settling disputes by
allowing the parties to avoid the formalities, delay, expense and aggravation
which commonly accompany ordinary litigation, especially litigation which goes
through the entire hierarchy of courts. Executive Order No. 1008 created an
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
the implementation of which is necessary and important for the realization of
national development goals.
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
assist one or the other or even both parties in any effort to subvert or defeat
that objective for their private purposes. The Court will not review the factual
findings of an arbitral tribunal upon the artful allegation that such body had
"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
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
facts previously presented and argued before the Arbitral Tribunal, save only
where a very clear showing is made that, in reaching its factual conclusions,
the Arbitral Tribunal committed an error so egregious and hurtful to one party
as to constitute a grave abuse of discretion resulting in lack or loss of
jurisdiction. Prototypical examples would be factual conclusions of the Tribunal
which resulted in deprivation of one or the other party of a fair opportunity to
present its position before the Arbitral Tribunal, and an award obtained through
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
would reduce arbitration to a largely inutile institution.44
In this case, the issues of whether HPI was able to prove that payments made
to suppliers and to third party contractors are prior incurred obligations that
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.
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
findings by a quasi-judicial body like the CIAC, which has acquired expertise
because its jurisdiction is confined to specific matters, are accorded not only
with respect but even finality if they are supported by substantial
evidence.46 We recognize that certain cases require the expertise, specialized
skills, and knowledge of the proper administrative bodies because technical
matters or intricate questions of facts are involved.47
We nevertheless note that factual findings of the construction arbitrators are
not beyond review, such as when the petitioner affirmatively proves the
following: (1) the award was procured by corruption, fraud, or other undue
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
evidence pertinent and material to the controversy; (4) one or more of the
arbitrators were disqualified to act as such under Section 1048 of Republic Act
No. 87649 and willfully refrained from disclosing such disqualifications or of any
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
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
when a party was deprived of a fair opportunity to present its position before
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
of the CIAC; or (8) when a party is deprived of administrative due
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.
Thus, we affirm the CIAC and CA's findings that direct payments charged by
HPI in 2007 and 2008 were for materials supplied after the termination of the
project and did not correspond to the list of suppliers submitted; that the
waterproofing works done by Dubbel Philippines in the amount of ₱629,702.24
were for works done after the termination of the contract that were for the
account of the new contractor; and that the rectification works performed after
the termination of the contract worth ₱3,040,000.00 were not proven to have
been paid, that it was for rectification works only, and that prior notice of such
defective works as required under the Agreement was not proven. Accordingly,
we affirm that the balance of the retention money is ₱10,955,899.79.
II. Delay in computing Liquidated Damages
On the other hand, the question on how liquidated damages should be
computed based on the Agreement and prevailing jurisprudence is a question
of law that we may review.
The pertinent provision on liquidated damages is found in clause 41.5 of the
Agreement, viz.:
41.5. Considering the importance of the timely completion of the WORKS on
the OWNER'S commitments to its clients, the CONTRACTOR agrees to pay
the OWNER liquidated damages in the amount of 1/10th of 1% of the amount
of the Contract price for every day of delay (inclusive of Sundays and
holidays).51
Werr, as contractor, urges us to apply the construction industry practice that
liquidated damages do not accrue after the date of substantial completion of
the project, as evidenced in CIAP Document No. 102, which provides that:
20.11 SUBSTANTIAL COMPLETION AND ITS EFFECT:
A. [a] There is substantial completion when the Contractor completes 95% of
the Work, provided that the remaining work and the performance of the work
necessary to complete the Work shall not prevent the normal use of the
completed portion.
xxx
D. [a] No liquidated damages for delay beyond the Completion Time shall
accrue after the date of substantial completion of the Work.
We reject this claim of Werr and find that while this industry practice may
supplement the Agreement, Werr cannot benefit from it.
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
parties are free to stipulate as to the terms and conditions of the contract for
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
contract.53
Deemed incorporated into every contract are the general provisions on
obligations and interpretation of contracts found in the Civil Code. The Civil
Code provides:
Art. 1234. If the obligation has been substantially performed in good faith, the
obligor may recover as though there had been a strict and complete fulfillment,
less damages suffered by the obligee.
Art. 1376. The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the omission of
stipulations which are ordinarily established.
In previous cases, we applied these provisions in construction agreements to
determine whether the project owner is entitled to liquidated damages. We
held that substantial completion of the project equates to achievement of 95%
project completion which excuses the contractor from the payment of
liquidated damages.
In Diesel Construction Co., Inc. v. UPSI Property Holdings, Inc.,54 we applied
Article 1234 of the Civil Code. In determining what is considered substantial
compliance, we used the CIAP Document No. 102 as evidence of the
construction industry practice that substantial compliance is equivalent to 95%
accomplishment rate. In that case, the construction agreement requires the
contractor "to pay the owner liquidated damages in the amount equivalent to
one-fifth (1/5) of one (1) percent of the total Project cost for each calendar day
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
reiterated this in Transcept Construction and Management Professionals, Inc. v.
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
Considering the foregoing, it: was error for the CA to immediately dismiss the
application of industry practice on the sole ground that there is an existing
agreement as to liquidated damages. As expressly stated under Articles 1234
and 1376, and in jurisprudence, the construction industry's prevailing practice
may supplement any ambiguities or omissions in the stipulations of the
contract.
Notably, CIAP Document N0. 102, by itself, was intended to have suppletory
effect on private construction contracts.1âwphi1 This is evident in CIAP Board
Resolution No. 1-98,59 which states:
Sec. 9. Policy-Making Body, - The [CIAP], through the CIAP Executive Office
and its various Implementing Agencies, shall continuously monitor and study
the operations of the construction industry, both domestic and overseas
operations, to identify its needs, problems and opportunities, in order to
provide for the pertinent policies and/or executive action and/or legislative
agenda necessary to implement plans, programs and measures required to
support the sustainable development of the construction industry, such as but
not limited to the following:
xxx
9.05 The promulgation and adoption of Standard Conditions of Contract for the
public construction and private construction sector which shall have suppletory
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
construction agreement[.]
As the standard conditions for contract for private construction adopted and
promulgated by the CIAP, CIAP Document No. 102 applies suppletorily to
private construction contracts to remedy the conflict in the internal documents
of, or to fill in the omissions in, the construction agreement.
In this case, clause 41.5 of the Agreement is undoubtedly a valid stipulation.
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
Agreement does not state that liquidated damages is due until termination of
the project; neither does it completely reject that it is only due until substantial
completion of the project. This omission in the Agreement may be
supplemented by the provisions of the Civil Code, industry practice, and the
CIAP Document No. 102. Hence, the industry practice that substantial
compliance excuses the contractor from payment of liquidated damages applies
to the Agreement.
Nonetheless, we find that Werr cannot benefit from the effects of substantial
compliance.
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
the project. Also, in those cases where we applied the industry practice to
supplement the contracts and excused payment from liquidated damages
under Article 1234, the contractors there actually achieved 95% completion of
the project. Neither the CIAC nor the courts assumed as to when substantial
compliance will be achieved by the contractor, but the contractors offered
substantial evidence that they actually achieved at least 95% completion of the
project. Thus, the effects of substantial completion only operate to relieve the
contractor from the burden of paying liquidated damages when it has, in
reality, achieved substantial completion of the project.
While the case before us presents a different scenario, as the contractor here
does not demand total release from payment of liquidated damages, we find
that in order to benefit from the effects of the substantial completion of a
project, the condition precedent must first be met-the contractor must
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
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
would result in an iniquitous situation where the project owner will bear the
risks and additional costs for the period excused from liquidated damages.
From the foregoing, we affirm the CA' s conclusion that the period of delay in
computing liquidated damages should be reckoned from October 27, 2006 until
the termination of the contract or for 33 days, and not only until the projected
substantial completion date. Consistent with the CA's ruling that liquidated
damages did not exceed the retention money, we therefore affirm that HPI did
not suffer actual damages in the amount of ₱573,012.81.
III. Arbitration Costs, Attorney's Fees, and Litigation Costs
DECISION
VELASCO, JR., J.:
This is an appeal from the October 20, 2009 Decision of the Court of Appeals
(CA) in CA-G.R. CR-CV No. 84445 entitled Alfredo Ong v. Land Bank of the
Philippines, which affirmed the Decision of the Regional Trial Court (RTC),
Branch 17 in Tabaco City.
The Facts
On March 18, 1996, spouses Johnson and Evangeline Sy secured a
loan from Land Bank Legazpi City in the amount of 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
10 million would be payable in seven (7) years. The Notice of Loan Approval
dated February 22, 1996 contained an acceleration clause wherein any
default in payment of amortizations or other charges would accelerate the
maturity of the loan.[1]
Subsequently, however, the Spouses Sy found they could no longer
pay their loan. On December 9, 1996, they sold three (3) of their mortgaged
parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangelines mother,
under a Deed of Sale with Assumption of Mortgage. The relevant portion of
the document[2] is quoted as follows:
WHEREAS, we are no longer in a position to settle our
obligation with the bank;
NOW THEREFORE, for and in consideration of the sum of
ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00)
Philippine Currency, we hereby these presents SELL, CEDE,
TRANSFER and CONVEY, by way of sale unto ANGELINA
GLORIA ONG, also of legal age, Filipino citizen, married to
Alfredo Ong, and also a resident of Tabaco, Albay, Philippines,
their heirs and assigns, the above-mentioned debt with the said
LAND BANK OF THE PHILIPPINES, and by reason hereof they
can make the necessary representation with the bank for the
proper restructuring of the loan with the said bank in their
favor;
That as soon as our obligation has been duly settled, the
bank is authorized to release the mortgage in favor of the
vendees and for this purpose VENDEES can register this
instrument with the Register of Deeds for the issuance of the
titles already in their names.
IN WITNESS WHEREOF, we have hereunto affixed our
signatures this 9th day of December 1996 at Tabaco, Albay,
Philippines.
(signed) (signed)
EVANGELINE O. SY JOHNSON B. SY
Vendor Vendor
Evangelines father, petitioner Alfredo Ong, later went to Land Bank to
inform it about the sale and assumption of mortgage.[3] Atty. Edna Hingco,
the Legazpi City Land Bank Branch Head, told Alfredo and his counsel Atty.
Ireneo de Lumen that there was nothing wrong with the agreement with the
Spouses Sy but provided them with requirements for the assumption of
mortgage. They were also told that Alfredo should pay part of the principal
which was computed at PhP 750,000 and to update due or accrued interests
on the promissory notes so that Atty. Hingco could easily approve the
assumption of mortgage. Two weeks later, Alfredo issued a check for PhP
750,000 and personally gave it to Atty. Hingco. A receipt was issued for his
payment. He also submitted the other documents required by Land Bank,
such as financial statements for 1994 and 1995. Atty. Hingco then informed
Alfredo that the certificate of title of the Spouses Sy would be transferred in
his name but this never materialized. No notice of transfer was sent to
him.[4]
Alfredo later found out that his application for assumption of
mortgage was not approved by Land Bank. The bank learned from its credit
investigation report that the Ongs had a real estate mortgage in the amount
of PhP 18,300,000 with another bank that was past due. Alfredo claimed that
this was fully paid later on. Nonetheless, Land Bank foreclosed the mortgage
of the Spouses Sy after several months. Alfredo only learned of the
foreclosure when he saw the subject mortgage properties included in a
Notice of Foreclosure of Mortgage and Auction Sale at the RTC in Tabaco,
Albay. Alfredos other counsel, Atty. Madrilejos, subsequently talked to Land
Banks lawyer and was told that the PhP 750,000 he paid would be returned
to him.[5]
On December 12, 1997, Alfredo initiated an action for recovery of
sum of money with damages against Land Bank in Civil Case No. T-1941, as
Alfredos payment was not returned by Land Bank. Alfredo maintained that
Land Banks foreclosure without informing him of the denial of his assumption
of the mortgage was done in bad faith. He argued that he was lured into
believing that his payment of PhP 750,000 would cause Land Bank to
approve his assumption of the loan of the Spouses Sy and the transfer of the
mortgaged properties in his and his wifes name.[6] He also claimed incurring
expenses for attorneys fees of PhP 150,000, filing fee of PhP 15,000, and PhP
250,000 in moral damages.[7]
Testifying for Land Bank, Atty. Hingco claimed during trial that as branch
manager she had no authority to approve loans and could not assure anybody
that their assumption of mortgage would be approved. She testified that the
breakdown of Alfredos payment was as follows:
PhP 101,409.59 applied to principal
216,246.56 accrued interests receivable
396,571.77 interests
18,766.10 penalties
16,805.98 accounts receivable
----------------
Total: 750,000.00
According to Atty. Hingco, the bank processes an assumption of mortgage as a
new loan, since the new borrower is considered a new client. They used
character, capacity, capital, collateral, and conditions in determining who can
qualify to assume a loan. Alfredos proposal to assume the loan, she explained,
was referred to a separate office, the Lending Center. [8]
During cross-examination, Atty. Hingco testified that several months after
Alfredo made the tender of payment, she received word that the Lending
Center rejected Alfredos loan application. She stated that it was the Lending
Center and not her that should have informed Alfredo about the denial of his
and his wifes assumption of mortgage. She added that although she told
Alfredo that the agreement between the spouses Sy and Alfredo was valid
between them and that the bank would accept payments from him, Alfredo did
not pay any further amount so the foreclosure of the loan collaterals ensued.
She admitted that Alfredo demanded the return of the PhP 750,000 but said
that there was no written demand before the case against the bank was filed in
court. She said that Alfredo had made the payment of PhP 750,000 even
before he applied for the assumption of mortgage and that the bank received
the said amount because the subject account was past due and demandable;
and the Deed of Assumption of Mortgage was not used as the basis for the
payment. [9]
The Ruling of the Trial Court
The RTC held that the contract approving the assumption of mortgage was not
perfected as a result of the credit investigation conducted on Alfredo. It noted
that Alfredo was not even informed of the disapproval of the assumption of
mortgage but was just told that the accounts of the spouses Sy had matured
and gone unpaid. It ruled that under the principle of equity and justice, the
bank should return the amount Alfredo had paid with interest at 12% per
annum computed from the filing of the complaint. The RTC further held that
Alfredo was entitled to attorneys fees and litigation expenses for being
compelled to litigate.[10]
The dispositive portion of the RTC Decision reads:
WHEREFORE, premises considered, a decision is
rendered, ordering defendant bank to pay plaintiff, Alfredo
Ong the amount of P750,000.00 with interest at 12% per
annum computed from Dec. 12, 1997 and attorneys fees and
litigation expenses of P50,000.00.
Costs against defendant bank.
SO ORDERED.[11]
The Ruling of the Appellate Court
On appeal, Land Bank faulted the trial court for (1) holding that the payment
of PhP 750,000 made by Ong was one of the requirements for the approval of
his proposal to assume the mortgage of the Sy spouses; (2) erroneously
ordering Land Bank to return the amount of PhP 750,000 to Ong on the
ground of its failure to effect novation; and (3) erroneously affirming the
award of PhP 50,000 to Ong as attorneys fees and litigation expenses.
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
payment of arrears incurred by the Sy spouses. As such, it ruled that it would
be incorrect to consider Alfredo a third person with no interest in the fulfillment
of the obligation under Article 1236 of the Civil Code. Although Land Bank was
not bound by the Deed between Alfredo and the Spouses Sy, the appellate
court found that Alfredo and Land Banks active preparations for Alfredos
assumption of mortgage essentially novated the agreement.
On January 5, 2010, the CA denied Land Banks motion for reconsideration for
lack of merit. Hence, Land Bank appealed to us.
The Issues
I
Whether the Court of Appeals erred in holding that Art. 1236
of the Civil Code does not apply and in finding that there is no
novation.
II
Whether the Court of Appeals misconstrued the evidence and
the law when it affirmed the trial court decisions ordering Land
Bank to pay Ong the amount of Php750,000.00 with interest
at 12% annum.
III
Whether the Court of Appeals committed reversible error when
it affirmed the award of Php50,000.00 to Ong as attorneys
fees and expenses of litigation.
The Ruling of this Court
We affirm with modification the appealed decision.
Recourse is against Land Bank
Land Bank contends that Art. 1236 of the Civil Code backs their claim that
Alfredo should have sought recourse against the Spouses Sy instead of Land
Bank. Art. 1236 provides:
The creditor is not bound to accept payment or performance
by a third person who has no interest in the fulfillment of the
obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what
he has paid, except that if he paid without the knowledge or
against the will of the debtor, he can recover only insofar as
the payment has been beneficial to the debtor.
We agree with Land Bank on this point as to the first part of
paragraph 1 of Art. 1236. Land Bank was not bound to accept Alfredos
payment, since as far as the former was concerned, he did not have an
interest in the payment of the loan of the Spouses Sy. However, in the context
of the second part of said paragraph, Alfredo was not making payment to
fulfill the obligation of the Spouses Sy. Alfredo made a conditional payment so
that the properties subject of the Deed of Sale with Assumption of Mortgage
would be titled in his name. It is clear from the records that Land Bank
required Alfredo to make payment before his assumption of mortgage would
be approved. He was informed that the certificate of title would be transferred
accordingly. He, thus, made payment not as a debtor but as a prospective
mortgagor. But the trial court stated:
[T]he contract was not perfected or consummated
because of the adverse finding in the credit investigation
which led to the disapproval of the proposed assumption.
There was no evidence presented that plaintiff was informed
of the disapproval. What he received was a letter dated May
22, 1997 informing him that the account of spouses Sy had
matured but there [were] no payments. This was sent even
before the conduct of the credit investigation on June 20,
1997 which led to the disapproval of the proposed assumption
of the loans of spouses Sy.[13]
Alfredo, as a third person, did not, therefore, have an interest in the fulfillment
of the obligation of the Spouses Sy, since his interest hinged on Land Banks
approval of his application, which was denied. The circumstances of the instant
case show that the second paragraph of Art. 1236 does not apply. As Alfredo
made the payment for his own interest and not on behalf of the Spouses Sy,
recourse is not against the latter. And as Alfredo was not paying for another,
he cannot demand from the debtors, the Spouses Sy, what he has paid.
Novation of the loan agreement
Land Bank also faults the CA for finding that novation applies to the
instant case. It reasons that a substitution of debtors was made without its
consent; thus, it was not bound to recognize the substitution under the rules
on novation.
On the matter of novation, Spouses Benjamin and Agrifina Lim v. M.B.
Finance Corporation[14] provides the following discussion:
Novation, in its broad concept, may either be
extinctive or modificatory. It is extinctive when an old
obligation is terminated by the creation of a new obligation
that takes the place of the former; it is merely modificatory
when the old obligation subsists to the extent it remains
compatible with the amendatory agreement. An extinctive
novation results either by changing the object or principal
conditions (objective or real), or by substituting the person of
the debtor or subrogating a third person in the rights of the
creditor (subjective or personal). Under this mode, novation
would have dual functions ─ one to extinguish an existing
obligation, the other to substitute a new one in its place ─
requiring a conflux of four essential requisites: (1) a previous
valid obligation; (2) an agreement of all parties
concerned to a new contract; (3) the extinguishment of
the old obligation; and (4) the birth of a valid new
obligation. x x x
In order that an obligation may be extinguished by
another which substitutes the same, it is imperative that it be
so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.
The test of incompatibility is whether or not the two
obligations can stand together, each one having its
independent existence. x x x (Emphasis supplied.)
Furthermore, Art. 1293 of the Civil Code states:
Novation which consists in substituting a new debtor in the
place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him
rights mentioned in articles 1236 and 1237.
We do not agree, then, with the CA in holding that there was a novation in the
contract between the parties. Not all the elements of novation were
present. Novation must be expressly consented to. Moreover, the conflicting
intention and acts of the parties underscore the absence of any express
disclosure or circumstances with which to deduce a clear and unequivocal
intent by the parties to novate the old agreement.[15] Land Bank is thus correct
when it argues that there was no novation in the following:
[W]hether or not Alfredo Ong has an interest in the
obligation and payment was made with the knowledge or
consent of Spouses Sy, he may still pay the obligation for the
reason that even before he paid the amount of P750,000.00 on
January 31, 1997, the substitution of debtors was already
perfected by and between Spouses Sy and Spouses Ong as
evidenced by a Deed of Sale with Assumption of Mortgage
executed by them on December 9, 1996. And since the
substitution of debtors was made without the consent of Land
Bank a requirement which is indispensable in order to effect a
novation of the obligation, it is therefore not bound to recognize
the substitution of debtors. Land Bank did not intervene in the
contract between Spouses Sy and Spouses Ong and did not
expressly give its consent to this substitution.[16]
Unjust enrichment
Land Bank maintains that the trial court erroneously applied the
principle of equity and justice in ordering it to return the PhP 750,000 paid by
Alfredo. Alfredo was allegedly in bad faith and in estoppel. Land Bank contends
that it enjoyed the presumption of regularity and was in good faith when it
accepted Alfredos tender of PhP 750,000. It reasons that it did not unduly
enrich itself at Alfredos expense during the foreclosure of the mortgaged
properties, since it tendered its bid by subtracting PhP 750,000 from the
Spouses Sys outstanding loan obligation. Alfredos recourse then, according to
Land Bank, is to have his payment reimbursed by the Spouses Sy.
We rule that Land Bank is still liable for the return of the PhP 750,000
based on the principle of unjust enrichment. Land Bank is correct in arguing
that it has no obligation as creditor to recognize Alfredo as a person with
interest in the fulfillment of the obligation. But while Land Bank is not bound to
accept the substitution of debtors in the subject real estate mortgage, it is
estopped by its action of accepting Alfredos payment from arguing that it does
not have to recognize Alfredo as the new debtor. The elements of estoppel are:
First, the actor who usually must have knowledge,
notice or suspicion of the true facts, communicates something
to another in a misleading way, either by words, conduct or
silence; second, the other in fact relies, and relies reasonably
or justifiably, upon that communication; third, the other would
be harmed materially if the actor is later permitted to assert
any claim inconsistent with his earlier conduct; and fourth, the
actor knows, expects or foresees that the other would act
upon the information given or that a reasonable person in the
actors position would expect or foresee such action.[17]
By accepting Alfredos payment and keeping silent on the status of
Alfredos application, Land Bank misled Alfredo to believe that he had for all
intents and purposes stepped into the shoes of the Spouses Sy.
The defense of Land Bank Legazpi City Branch Manager Atty. Hingco
that it was the banks Lending Center that should have notified Alfredo of his
assumption of mortgage disapproval is unavailing. The Lending Centers lack of
notice of disapproval, the Tabaco Branchs silence on the disapproval, and the
banks subsequent actions show a failure of the bank as a whole, first, to notify
Alfredo that he is not a recognized debtor in the eyes of the bank; and second,
to apprise him of how and when he could collect on the payment that the bank
no longer had a right to keep.
We turn then on the principle upon which Land Bank must return
Alfredos payment. Unjust enrichment exists when a person unjustly retains a
benefit to the loss of another, or when a person retains money or property of
another against the fundamental principles of justice, equity and good
conscience.[18] There is unjust enrichment under Art. 22 of the Civil Code when
(1) a person is unjustly benefited, and (2) such benefit is derived at the
expense of or with damages to another.[19]
Additionally, unjust enrichment has been applied to actions
called accion in rem verso. In order that the accion in rem verso may prosper,
the following conditions must concur: (1) that the defendant has been
enriched; (2) that the plaintiff has suffered a loss; (3) that the enrichment of
the defendant is without just or legal ground; and (4) that the plaintiff has no
other action based on contract, quasi-contract, crime, or quasi-delict.[20] The
principle of unjust enrichment essentially contemplates payment when there is
no duty to pay, and the person who receives the payment has no right to
receive it.[21]
The principle applies to the parties in the instant case, as, Alfredo,
having been deemed disqualified from assuming the loan, had no duty to pay
petitioner bank and the latter had no right to receive it.
Moreover, the Civil Code likewise requires under Art. 19 that [e]very person
must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith. Land Bank,
however, did not even bother to inform Alfredo that it was no longer approving
his assumption of the Spouses Sys mortgage. Yet it acknowledged his interest
in the loan when the branch head of the bank wrote to tell him that his
daughters loan had not been paid.[22] Land Bank made Alfredo believe that with
the payment of PhP 750,000, he would be able to assume the mortgage of the
Spouses Sy. The act of receiving payment without returning it when demanded
is contrary to the adage of giving someone what is due to him. The outcome of
the application would have been different had Land Bank first conducted the
credit investigation before accepting Alfredos payment. He would have been
notified that his assumption of mortgage had been disapproved; and he would
not have taken the futile action of paying PhP 750,000. The procedure Land
Bank took in acting on Alfredos application cannot be said to have been fair
and proper.
As to the claim that the trial court erred in applying equity to Alfredos case, we
hold that Alfredo had no other remedy to recover from Land Bank and the
lower court properly exercised its equity jurisdiction in resolving the collection
suit. As we have held in one case:
Equity, as the complement of legal jurisdiction, seeks to reach
and complete justice where courts of law, through the
inflexibility of their rules and want of power to adapt their
judgments to the special circumstances of cases, are
incompetent to do so. Equity regards the spirit and not the
letter, the intent and not the form, the substance rather than
the circumstance, as it is variously expressed by different
courts.[23]
Another claim made by Land Bank is the presumption of regularity it
enjoys and that it was in good faith when it accepted Alfredos tender of PhP
750,000.
The defense of good faith fails to convince given Land Banks
actions. Alfredo was not treated as a mere prospective borrower. After he had
paid PhP 750,000, he was made to sign bank documents including a
promissory note and real estate mortgage. He was assured by Atty. Hingco
that the titles to the properties covered by the Spouses Sys real estate
mortgage would be transferred in his name, and upon payment of the PhP
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
Alfredos expense during the foreclosure of the mortgaged properties, since it
tendered its bid by subtracting PhP 750,000 from the Spouses Sys outstanding
loan obligation. It is observed that this is the first time Land Bank is revealing
this defense. However, issues, arguments, theories, and causes not raised
below may no longer be posed on appeal.[25] Land Banks contention, thus,
cannot be entertained at this point.
Land Bank further questions the lower courts decision on the basis of
the inconsistencies made by Alfredo on the witness stand. It argues that
Alfredo was not a credible witness and his testimony failed to overcome the
presumption of regularity in the performance of regular duties on the part of
Land Bank.
This claim, however, touches on factual findings by the trial court, and we
defer to these findings of the trial court as sustained by the appellate
court. These are generally binding on us. While there are exceptions to this
rule, Land Bank has not satisfactorily shown that any of them is applicable to
this issue.[26] Hence, the rule that the trial court is in a unique position to
observe the demeanor of witnesses should be applied and respected[27] in the
instant case.
In sum, we hold that Land Bank may not keep the PhP 750,000 paid by Alfredo
as it had already foreclosed on the mortgaged lands.
Interest and attorneys fees
As to the applicable interest rate, we reiterate the guidelines found
in Eastern Shipping Lines, Inc. v. Court of Appeals:[28]
II. With regard particularly to an award of interest in
the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as
follows:
1. When the obligation is breached, and it consists in
the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims
or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially
or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the
date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation
of legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum
of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed
to be by then an equivalent to a forbearance of credit.
No evidence was presented by Alfredo that he had sent a written demand to
Land Bank before he filed the collection suit. Only the verbal agreement
between the lawyers of the parties on the return of the payment was
mentioned.[29] Consequently, the obligation of Land Bank to return the
payment made by Alfredo upon the formers denial of the latters application for
assumption of mortgage must be reckoned from the date of judicial demand on
December 12, 1997, as correctly determined by the trial court and affirmed by
the appellate court.
The next question is the propriety of the imposition of interest and the
proper imposable rate of applicable interest. The RTC granted the rate of 12%
per annum which was affirmed by the CA. From the above-quoted guidelines,
however, the proper imposable interest rate is 6% per annum pursuant to Art.
2209 of the Civil Code. Sunga-Chan v. Court of Appeals is illuminating in this
regard:
In Reformina v. Tomol, Jr., the Court held that the
legal interest at 12% per annum under Central Bank (CB)
Circular No. 416 shall be adjudged only in cases involving the
loan or forbearance of money. And for transactions involving
payment of indemnities in the concept of damages
arising from default in the performance of obligations in
general and/or for money judgment not involving a loan or
forbearance of money, goods, or credit, the governing provision
is Art. 2209 of the Civil Code prescribing a yearly 6%
interest. Art. 2209 pertinently provides:
Art. 2209. If the obligation consists in the
payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there
being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the
 absence of stipulation, the legal interest, which
is six per cent per annum.
The term forbearance, within the context of usury law,
has been described as a contractual obligation of a lender or
creditor to refrain, during a given period of time, from requiring
the borrower or debtor to repay the loan or debt then due and
payable.
Eastern Shipping Lines, Inc. synthesized the rules on
the imposition of interest, if proper, and the applicable rate, as
follows: The 12% per annum rate under CB Circular No. 416
shall apply only to loans or forbearance of money, goods, or
credits, as well as to judgments involving such loan or
forbearance of money, goods, or credit, while the 6% per
annum under Art. 2209 of the Civil Code applies when
the transaction involves the payment of indemnities in
the concept of damage arising from the breach or a delay
in the performance of obligations in general, with the
application of both rates reckoned from the time the complaint
was filed until the [adjudged] amount is fully paid. In either
instance, the reckoning period for the commencement of the
running of the legal interest shall be subject to the condition
that the courts are vested with discretion, depending on the
equities of each case, on the award of interest.[30](Emphasis
supplied.)
Based on our ruling above, forbearance of money refers to the contractual
obligation of the lender or creditor to desist for a fixed period from requiring
the borrower or debtor to repay the loan or debt then due and for which 12%
per annum is imposed as interest in the absence of a stipulated rate. In the
instant case, Alfredos conditional payment to Land Bank does not constitute
forbearance of money, since there was no agreement or obligation for Alfredo
to pay Land Bank the amount of PhP 750,000, and the obligation of Land Bank
to return what Alfredo has conditionally paid is still in dispute and has not yet
been determined. Thus, it cannot be said that Land Banks alleged obligation
has become a forbearance of money.
On the award of attorneys fees, attorneys fees and expenses of
litigation were awarded because Alfredo was compelled to litigate due to the
unjust refusal of Land Bank to refund the amount he paid. There are instances
when it is just and equitable to award attorneys fees and expenses of
litigation.[31] Art. 2208 of the Civil Code pertinently states:
In the absence of stipulation, attorneys fees and
expenses of litigation, other than judicial costs, cannot be
recovered, except:
xxxx
(2) When the defendants act or omission has
compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interest.
Given that Alfredo was indeed compelled to litigate against Land Bank
and incur expenses to protect his interest, we find that the award falls under
the exception above and is, thus, proper given the circumstances.
On a final note. The instant case would not have been litigated had Land Bank
been more circumspect in dealing with Alfredo. The bank chose to accept
payment from Alfredo even before a credit investigation was underway, a
procedure worsened by the failure to even inform him of his credit standings
impact on his assumption of mortgage. It was, therefore, negligent to a certain
degree in handling the transaction with Alfredo. It should be remembered that
the business of a bank is affected with public interest and it should observe a
higher standard of diligence when dealing with the public.[32]
WHEREFORE, the appeal is DENIED. The CA Decision in CA-G.R. CR-CV No.
84445 is AFFIRMED with MODIFICATION in that the amount of PhP 750,000
will earn interest at 6% per annum reckoned from December 12, 1997, and the
total aggregate monetary awards will in turn earn 12% per annum from the
finality of this Decision until fully paid.
SO ORDERED.
G.R. No. 191555 January 20, 2014
UNION BANK OF THE PHILIPPINES, Petitioner,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on Certiorari1 are the Decision2 dated
November 3, 2009 and Resolution3 dated February 26, 2010 of the Court of
Appeals (CA) in CA-G.R. SP No. 93833 which affirmed the Orders4 dated
November 9, 2005 and January 30, 2006 of the Regional Trial Court of Makati,
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)
against respondent Development Bank of the Philippines (DBP).
The Facts
Foodmasters, Inc. (FI) had outstanding loan obligations to both Union Bank’s
predecessor-in-interest, Bancom Development Corporation (Bancom), and to
DBP.
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
favor of the latter certain properties (including a processing plant in Marilao,
Bulacan [processing plant]) in consideration of the following: (a) the full and
complete satisfaction of FI’s loan obligations to DBP; and (b) the direct
assumption by DBP of FI’s obligations to Bancom in the amount of
₱17,000,000.00 (assumed obligations).8
On the same day, DBP, as the new owner of the processing plant, leased
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.
DBP also entered into a separate agreement10 with Bancom (Assumption
Agreement) whereby the former: (a) confirmed its assumption of FI’s
obligations to Bancom; and (b) undertook to remit up to 30% of any and all
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
portions of the Assumption Agreement reads as follows:
WHEREAS, DBP has agreed and firmly committed in favor of Bancom that the
above obligations to Bancom which DBP has assumed shall be settled, paid
and/or liquidated by DBP out of a portion of the lease rentals or part of the
proceeds of sale of those properties of the Assignors conveyed to DBP pursuant
to the [Deed of Cession of Property in Payment of Debt dated May 21, 1979]
and which are the subject of [the Lease Agreement] made and executed by
and between DBP and [FI], the last hereafter referred to as the "Lessee" to be
effective as of July 31, 1978.
xxxx
4. DBP hereby covenants and undertakes that the amount up to 30% of any
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
Manila within five (5) days from due dates thereof, and applied in payment of
the Assumed Obligations. Likewise, the amount up to 30% of the proceeds
from any sale of the Leased Properties shall within the same period above, be
remitted by DBP to Bancom and applied in payment or prepayment of the
Assumed Obligations. x x x.
Any balance of the Assumed Obligations after application of the entire rentals
and or the entire sales proceeds actually received by Bancom on the Leased
Properties shall be paid by DBP to Bancom not later than December 29, 1998.
(Emphases supplied)
Meanwhile, on May 23, 1979, FI assigned its leasehold rights under the Lease
Agreement to Foodmasters Worldwide, Inc. (FW);11 while on May 9, 1984,
Bancom conveyed all its receivables, including, among others, DBP’s assumed
obligations, to Union Bank.12
Claiming that the subject rentals have not been duly remitted despite its
repeated demands, Union Bank filed, on June 20, 1984, a collection case
against DBP before the RTC, docketed as Civil Case No. 7648.13 In opposition,
DBP countered, among others, that the obligations it assumed were payable
only out of the rental payments made by FI. Thus, since FI had yet to pay the
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,
thus, should be held liable to Union Bank.15
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
of its rights, title and interests over the subject matter to the Asset
Privatization Trust (APT). Said motion was, however, denied by the RTC in an
Order dated May 27, 1988.16
The RTC Ruling in Civil Case No. 7648
Finding the complaint to be meritorious, the RTC, in a Decision17 dated May 8,
1990, ordered: (a) DBP to pay Union Bank the sum of ₱4,019,033.59,
representing the amount of the subject rentals (which, again, constitutes 30%
of FI’s [now FW’s] total rental debt), including interest until fully paid; and (b)
FW, as third-party defendant, to indemnify DBP, as third- party plaintiff, for its
payments of the subject rentals to Union Bank. It ruled that there lies no
evidence which would show that DBP’s receipt of the rental payments from FW
is a condition precedent to the former’s obligation to remit the subject rentals
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
case on appeal before the CA, docketed as CA-G.R. CV No. 35866.
The CA Ruling in CA-G.R. CV No. 35866
In a Decision19 dated May 27, 1994 (May 27, 1994 Decision), the CA set aside
the RTC’s ruling, and consequently ordered: (a) FW to pay DBP the amount of
₱32,441,401.85 representing the total rental debt incurred under the Lease
Agreement, including ₱10,000.00 as attorney’s fees; and (b) DBP, after having
been paid by FW its unpaid rentals, to remit 30% thereof (i.e., the subject
rentals) to Union Bank.20
It rejected Union Bank’s claim that DBP has the direct obligation to remit the
subject rentals not only from FW’s rental payments but also out of its own
resources since said claim contravened the "plain meaning" of the Assumption
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
balance of the Assumed Obligations after application of the entire rentals
and/or the entire sales proceeds actually received by [Union Bank] on the
Leased Properties . . . not later than December 29, 1998" to mean that the
lease rentals must first be applied to the payment of the assumed obligations
in the amount of ₱17,000,000.00, and that DBP would have to pay out of its
own money only in case the lease rentals were insufficient, having only until
December 29, 1998 to do so. Nevertheless, the monthly installments in
satisfaction of the assumed obligations would still have to be first sourced from
said lease rentals as stipulated in the assumption agreement.22 In view of the
foregoing, the CA ruled that DBP did not default in its obligations to remit the
subject rentals to Union Bank precisely because it had yet to receive the rental
payments of FW.23
Separately, the CA upheld the RTC’s denial of DBP’s motion to dismiss for the
reason that the transfer of its rights, title and interests over the subject matter
to the APT occurred pendente lite, and, as such, the substitution of parties is
largely discretionary on the part of the court.
At odds with the CA’s ruling, Union Bank and DBP filed separate petitions for
review on certiorari before the Court, respectively docketed as G.R. Nos.
115963 and 119112, which were thereafter consolidated.
The Court’s Ruling in G.R. Nos. 115963 & 119112
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
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
not later than December 29, 1998.25 Similarly, the Court agreed with the CA
that the denial of DBP’s motion to dismiss was proper since substitution of
parties, in case of transfers pendente lite, is merely discretionary on the part of
the court, adding further that the proposed substitution of APT will amount to a
novation of debtor which cannot be done without the consent of the creditor.26
On August 2, 2000, the Court’s resolution became final and executory.27
The RTC Execution Proceedings
On May 16, 2001, Union Bank filed a motion for execution before the RTC,
28
praying that DBP be directed to pay the amount of ₱9,732,420.555 which
represents the amount of the subject rentals (i.e., 30% of the FW’s total rental
debt in the amount of ₱32,441,401.85). DBP opposed29 Union Bank’s motion,
contending that it sought to effectively vary the dispositive portion of the CA’s
May 27, 1994 Decision in CA-G.R. CV No. 35866. Also, on September 12,
2001, DBP filed its own motion for execution against FW, citing the same CA
decision as its basis.
In a Consolidated Order30 dated October 15, 2001 (Order of Execution), the
RTC granted both motions for execution. Anent Union Bank’s motion, the RTC
opined that the CA’s ruling that DBP’s payment to Union Bank shall be
demandable only upon payment of FW must be viewed in light of the date
when the same was rendered. It noted that the CA decision was promulgated
only on May 27, 1994, which was before the December 29, 1998 due date
within which DBP had to fully pay its obligation to Union Bank under the
Assumption Agreement. Since the latter period had already lapsed, "[i]t would,
thus, be too strained to argue that payment by DBP of its assumed
obligation[s] shall be dependent on [FW’s] ability, if not availability, to
pay."31 In similar regard, the RTC granted DBP’s motion for execution against
FW since its liability to Union Bank and DBP remained undisputed.
As a result, a writ of execution32 dated October 15, 2001 (October 15, 2001
Writ of Execution) and, thereafter, a notice of garnishment33 against DBP were
issued. Records, however, do not show that the same writ was implemented
against FW.
DBP filed a motion for reconsideration34 from the Execution Order, averring
that the latter issuance varied the import of the CA’s May 27, 1994 Decision in
CA-G.R. CV No. 35866 in that it prematurely ordered DBP to pay the assumed
obligations to Union Bank before FW’s payment. The motion was, however,
denied on December 5, 2001.35 Thus, DBP’s deposits were eventually
garnished.36 Aggrieved, DBP filed a petition for certiorari37 before the CA,
docketed as CA-G.R. SP No. 68300.
The CA Ruling in CA-G.R. SP No. 68300
In a Decision38 dated July 26, 2002, the CA dismissed DBP’s petition, finding
that the RTC did not abuse its discretion when it issued the October 15, 2001
Writ of Execution. It upheld the RTC’s observation that there was "nothing
wrong in the manner how [said writ] was implemented," as well as "in the
zealousness and promptitude exhibited by Union Bank" in moving for the same.
DBP appealed the CA’s ruling before the Court, which was docketed as G.R. No.
155838.
The Court’s Ruling in G.R. No. 155838
In a Decision39 dated January 13, 2004 (January 13, 2004 Decision), the Court
granted DBP’s appeal, and thereby reversed and set aside the CA’s ruling in
CA-G.R. SP No. 68300. It found significant points of variance between the CA’s
May 27, 1994 Decision in CA-G.R. CV No. 35866, and the RTC’s Order of
Execution/October 15, 2001 Writ of Execution. It ruled that both the body and
the dispositive portion of the same decision acknowledged that DBP’s obligation
to Union Bank for remittance of the lease payments is contingent on FW’s prior
payment to DBP, and that any deficiency DBP had to pay by December 29,
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
which was, however, denied by the Court in a Resolution dated March 24, 2004
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 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,
2001 Writ of Execution.42
Union Bank’s Motion to Affirm Legal Compensation
On September 13, 2005, Union Bank filed a Manifestation and Motion to Affirm
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
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)
considering that FWI became non-operational and non-existent, DBP became
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
On November 9, 2005, the RTC issued an Order46 denying the above-
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.
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.
SP No. 93833.
Pending resolution, Union Bank issued Manager’s Check48 No. 099-0003192363
dated April 21, 2006 amounting to ₱52,427,250.00 in favor of DBP, in
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
means that said obligation had not been completely extinguished.
The CA Ruling in CA-G.R. SP No. 93833
In a Decision50 dated November 3, 2009, the CA dismissed Union Bank’s
petition, finding no grave abuse of discretion on the RTC’s part. It affirmed the
denial of its motion to affirm legal compensation considering that: (a) the RTC
only implemented the Court’s January 13, 2004 Decision in G.R. No. 155838
which by then had already attained finality; (b) DBP is not a debtor of Union
Bank; and (c) there is neither a demandable nor liquidated debt from DBP to
Union Bank.51
Undaunted, Union Bank moved for reconsideration which was, however, denied
in a Resolution52 dated February 26, 2010; hence, the instant petition.
The Issue Before the Court
The sole issue for the Court’s resolution is whether or not the CA correctly
upheld the denial of Union Bank’s motion to affirm legal compensation.
The Court’s Ruling
The petition is bereft of merit. Compensation is defined as a mode of
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
been timely commenced and communicated by third parties.53 The requisites
therefor are provided under Article 1279 of the Civil Code which reads as
follows:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be
at the same time a principal creditor of the other;
(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
the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor.1awp++i1 (Emphases and underscoring supplied)
The rule on legal54 compensation is stated in Article 1290 of the Civil Code
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
aware of the compensation."
In this case, Union Bank filed a motion to seek affirmation that legal
compensation had taken place in order to effectively offset (a) its own
obligation to return the funds it previously received from DBP as directed under
the September 6, 2005 Writ of Execution with (b) DBP’s assumed obligations
under the Assumption Agreement. However, legal compensation could not have
taken place between these debts for the apparent reason that requisites 3 and
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
Court’s words in its Decision dated January 13, 2004 in G.R. No. 155838 – "
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 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
satisfaction of the assumed obligations " cannot be determined until after the
satisfaction of Foodmasters’ obligation to DBP." In this regard, it cannot be
concluded that the same debt had already been liquidated, and thereby
became demandable (requisite 4 of Article 1279 of the Civil Code).
The aforementioned Court decision had already attained finality on April 30,
200455 and, hence, pursuant to the doctrine of conclusiveness of judgment, the
facts and issues actually and directly resolved therein may not be raised in any
future case between the same parties, even if the latter suit may involve a
different cause of action.56 Its pertinent portions are hereunder quoted for
ready reference:57
Both the body and the dispositive portion of the [CA’s May 27, 1994 Decision in
CA-G.R. CV No. 35866] correctly construed the nature of DBP’s liability for the
lease payments under the various contracts, to wit:
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
obligation out of the rentals to be paid to it does not mean negating DBP’s
assumption "for its own account" of the ₱17.0 million debt x x x. It only means
that they provide a mechanism for discharging [DBP’s] liability. This liability
subsists, since under the "Agreement" x x x, DBP is obligated to pay "any
balance of the Assumed Obligations after application of the entire rentals and
or the entire sales proceeds actually received by [Union Bank] on the Leased
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
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
limited to the lease rentals. The monthly installments, however, would still
have to come from the lease rentals since this was stipulated in the
"Agreement."
xxxx
Since, as already stated, the monthly installments for the payment of the ₱17
million debt are to be funded from the lease rentals, it follows that if the lease
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
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,
(i) Ordering third-party defendant-appellee Foodmasters Worldwide,
Inc. to pay defendant and third-party plaintiff-appellant Development
Bank of the Philippines the sum of ₱32,441,401.85, representing the
unpaid rentals from August 1981 to June 30, 1987, as well as
₱10,000.00 for attorney’s fees; and
(ii) Ordering defendant and third-party plaintiff-appellant Development
Bank of the Philippines after having been paid by third-party
defendant-appellee the sum of ₱32,441,401.85, to remit 30% thereof
to plaintiff-appellee Union Bank of the Philippines.
SO ORDERED.
In other words, both the body and the dispositive portion of the aforequoted
decision acknowledged that DBP’s obligation to Union Bank for remittance of
the lease payments is contingent on the prior payment thereof by Foodmasters
to DBP.
A careful reading of the decision shows that the Court of Appeals, which was
affirmed by the Supreme Court, found that only the balance or the deficiency
of the ₱17 million principal obligation, if any, would be due and demandable as
of December 29, 1998. Naturally, this deficiency cannot be determined until
after the satisfaction of Foodmasters obligation to DBP, for remittance to Union
Bank in the proportion set out in the 1994 Decision. (Emphases and
underscoring supplied; citations omitted)
xxxx
In fine, since requisites 3 and 4 of Article 1279 of the Civil Code have not
concurred in this case, no legal compensation could have taken place between
the above-stated debts pursuant to Article 1290 of the Civil Code. Perforce, the
petition must be denied, and the denial of Union Bank s motion to affirm legal
compensation sustained.
WHEREFORE, the petition is DENIED. The Decision dated November 3, 2009
and Resolution dated February 26, 2010 of the Court of Appeals in CA-G.R. SP
No. 93833 are hereby AFFIRMED.
SO ORDERED.
 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

That on or about the 3rd day of April 2003, in the City of
Makati, Philippines and within the jurisdiction of this Honorable
Court, the above-named accused, a private individual, did
then and there wilfully, unlawfully and feloniously falsify a
document denominated as Transfer Certificate of Title No.
218777 purportedly issued by the Register of Deeds of Makati
City, hence, a public document, by causing it to appear that
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
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
intent to defraud complainant and complainant believing in the
genuineness of Transfer Certificate of Title No. 218777 paid
accused the amount of P400,000.00, to the damage and
prejudice of complainant in the aforementioned amount of
P4000,000.00 (sic).
CONTRARY TO LAW.[8]
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
rate of interest from the filing of the Information until the
same is fully paid and to pay the costs. He is further ordered
to pay attorneys fees equivalent to ten (10%) of the total
amount due as and for attorneys fees. A lien on the monetary
award is constituted in favor of the government, the private
complainant not having paid the required docket fee prior to
the filing of the Information.
SO ORDERED.[13]
On appeal, the Court of Appeals, in the assailed Decision dated 22 April
2009, affirmed the findings of the trial court.[14] In its assailed Resolution dated
8 July 2009, it also denied Millas subsequent Motion for Reconsideration.[15]
In the instant Petition, Milla alleges that the Decision and the
Resolution of the Court of Appeals were not in accordance with law and
jurisprudence. He raises the following issues:
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
prosecution is admissible in evidence;
V. Whether the supposed inconsistent statements
prosecution witnesses cast a doubt on the guilt
petitioner.[16]
In its Comment, MPI argues that (1) Milla was not deprived of due process on
the ground of gross negligence of counsel; (2) under the Revised Penal Code,
novation is not one of the grounds for the extinction of criminal liability
for estafa; and (3) factual findings of the trial court, when affirmed by the
Court of Appeals, are final and conclusive.[17]
On the other hand, in its Comment, the Office of the Solicitor General contends
that (1) Milla was accorded due process of law; (2) the elements of the crime
charged against him were established during trial; (3) novation is not a ground
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)
Lopez was duly authorized by MPI to institute the action.[18]
In his Consolidated Reply, Milla reiterates that the negligence of his former
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]
In the disposition of this case, the following issues must be resolved:
I. Whether the negligence of counsel deprived Milla of due
process of law
II. Whether the principle of novation can exculpate Milla
from criminal liability
III. Whether the factual findings of the trial court, as affirmed
by the appellate court, should be reviewed on appeal
We resolve to deny the Petition.
Milla was not deprived of
due process.
Milla argues that the negligence of his former counsel, Atty. Manuel V.
Mendoza (Atty. Mendoza), deprived him of due process. Specifically, he states
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
had already rendered judgment finding him guilty, and that it had issued a
warrant for his arrest. Atty. Mendoza filed an Omnibus Motion for Leave to File
Motion for New Trial, which Milla claims to have been denied by the trial court
the for being an inappropriate remedy, thus, demonstrating his counsels
negligence. These contentions cannot be given any merit.
of The general rule is that the mistake of a counsel binds the client, and it is only
of in instances wherein the negligence is so gross or palpable that courts must
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
allowed to present evidence.[21] Because of his failure to do so, RTC Br. 146
was justified in considering that he had waived his right thereto. Nevertheless,
the trial court still allowed him to submit a memorandum in the interest of
justice. Further, contrary to his assertion that RTC Br. 146 denied the Motion to
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
Omnibus Motion for New Trial and Recall of Warrant of Arrest, but granted the
Motion for Leave of Court to Avail of Remedies under the Rules of Court,
allowing him to file an appeal and lifting his warrant of arrest.[22]
It can be gleaned from the foregoing circumstances that Milla was given
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
gross and palpable to have deprived him of due process.
The principle of novation
cannot be applied to the
case at bar.
Milla contends that his issuance of Equitable PCI Check Nos. 188954 and
188955 before the institution of the criminal complaint against him novated his
obligation to MPI, thereby enabling him to avoid any incipient criminal liability
and converting his obligation into a purely civil one. This argument does not
persuade.
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
contention that his issuance of the Equitable PCI checks prior to the filing of
the criminal complaint averted his incipient criminal liability. However, it must
be clarified that mere payment of an obligation before the institution of a
criminal complaint does not, on its own, constitute novation that may prevent
criminal liability. This Courts ruling in Nery in fact warned:
It may be observed in this regard that novation is not
one of the means recognized by the Penal Code whereby
criminal liability can be extinguished; hence, the role of
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
give rise to penal responsibility, as when money loaned is
made to appear as a deposit, or other similar disguise is
resorted to (cf. Abeto vs. People, 90 Phil. 581; Villareal, 27
Phil. 481).
Even in Civil Law the acceptance of partial
payments, without further change in the original
relation between the complainant and the accused, can
not produce novation. For the latter to exist, there must
be proof of intent to extinguish the original relationship,
and such intent can not be inferred from the mere
acceptance of payments on account of what is totally
due. Much less can it be said that the acceptance of partial
satisfaction can effect the nullification of a criminal liability
that is fully matured, and already in the process of
enforcement. Thus, this Court has ruled that the offended
partys acceptance of a promissory note for all or part of
the amount misapplied does not obliterate the criminal
offense(Camus vs. Court of Appeals, 48 Off. Gaz.
3898).[24] (Emphasis supplied.)
Further, in Quinto v. People,[25] this Court exhaustively explained the concept
of novation in relation to incipient criminal liability, viz:
Novation is never presumed, and the animus
novandi, whether totally or partially, must appear by express
agreement of the parties, or by their acts that are too clear
and unequivocal to be mistaken.
The extinguishment of the old obligation by the new
one is a necessary element of novation which may be effected
either expressly or impliedly. The term expressly means that
the contracting parties incontrovertibly disclose that their
object in executing the new contract is to extinguish the old
one. Upon the other hand, no specific form is required for an
implied novation, and all that is prescribed by law would be an
incompatibility between the two contracts. While there is
really no hard and fast rule to determine what might
constitute to be a sufficient change that can bring about
novation, the touchstone for contrariety, however,
would be an irreconcilable incompatibility between the
old and the new obligations.
There are two ways which could indicate, in fine, the
presence of novation and thereby produce the effect of
extinguishing an obligation by another which substitutes the
same. The first is when novation has been explicitly stated and
declared in unequivocal terms. The second is when the old and
the new obligations are incompatible on every point. The test
of incompatibility is whether or not the two obligations
can stand together, each one having its independent
existence. If they cannot, they are incompatible and the
latter obligation novates the first. Corollarily, changes
that breed incompatibility must be essential in nature
and not merely accidental. The incompatibility must
take place in any of the essential elements of the
obligation, such as its object, cause or principal
conditions thereof; otherwise, the change would be
merely modificatory in nature and insufficient to
extinguish the original obligation.
The changes alluded to by petitioner consists
only in the manner of payment. There was really no
substitution of debtors since private complainant merely
acquiesced to the payment but did not give her consent to
enter into a new contract. The appellate court observed:
xxx xxx xxx
The acceptance by complainant
of partial payment tendered by the
buyer, Leonor Camacho, does not evince
the intention of the complainant to have
their agreement novated. It was simply
necessitated by the fact that, at that
time, Camacho had substantial accounts
payable to complainant, and because of
the fact that appellant made herself
scarce to complainant. (TSN, April 15,
1981, 31-32) Thus, to obviate the
situation where complainant would end
up with nothing, she was forced to
receive the tender of Camacho. Moreover,
it is to be noted that the aforesaid payment
was for the purchase, not of the jewelry
subject of this case, but of some other
jewelry subject of a previous transaction.
(Ibid. June 8, 1981, 10-11)
xxx xxx xxx
Art. 315 of the Revised Penal Code defines estafa and
penalizes any person who shall defraud another by
misappropriating or converting, to the prejudice of another,
money, goods, or any other personal property received by the
offender in trust or on commission, or for administration, or
under any other obligation involving the duty to make delivery
of or to return the same, even though such obligation be
totally or partially guaranteed by a bond; or by denying
having received such money, goods, or other property. It is
axiomatic that the gravamen of the offense is the
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.