G.R. No. 157330               November 23, 2011

LINA CALILAP-ASMERON, Petitioner, vs.DEVELOPMENT BANK OF THE PHILIPPINES, PABLO CRUZ,* TRINIDAD CABANTOG,** ENI S.P. ATIENZA and EMERENCIANA CABANTOG, Respondents.

BERSAMIN, J.:

The petitioner challenges the decision promulgated on June 21, 2002,1 whereby the Court of Appeals (CA) affirmed the adverse decision rendered by the Regional Trial Court, Branch 11, in Malolos, Bulacan (RTC) in Civil Case No. 50-M-87 entitled Lina Calilap-Asmeron v. Development Bank of the Philippines, Pablo Cruz, Trinidad Cabantog, Eni S.P. Atienza, and Emerenciana Cabantog,2 an action initiated to set aside the defendant bank’s rescission of a deed of conditional sale involving foreclosed property, and to annul the subsequent sales of the property to other persons.

Antecedents

On March 17, 1975, the petitioner and her brother Celedonio Calilap constituted a real estate mortgage over two parcels of land covered by Transfer Certificate of Title (TCT) No. T-164117 and TCT No.T-160929, both of the Registry of Deeds of Bulacan, to secure the performance of their loan obligation with respondent Development Bank of the Philippines (DBP).3 With the principal obligation being ultimately unpaid, DBP foreclosed the mortgage. The mortgaged parcels of land were then sold to DBP as the highest bidder. The one-year redemption period expired on September 1, 1981.4

As to what thereafter transpired, the petitioner and DBP tendered conflicting versions.

I

Version of Petitioner

The thrust of the petitioner’s suit is that DBP accorded to her a preferential right to repurchase the property covered by TCT No. 164117.5 Her version follows.

In August 1982, the petitioner negotiated with DBP to buy back the property covered by TCT No. 164117 by offering P15,000.00 as downpayment. Her offer was rejected by an executive officer of DBP’s Acquired Assets Department, who required her to pay the full purchase price of P55,500.00 for the property within ten days.6 She returned to DBP with the amount, only to be told that DBP would not sell back only one lot. Being made to believe that the lot covered by TCT No. 164117 would be released after paying two amortizations for the other lot (TCT No. 160929), however, she signed the deed of conditional sale covering both lots for the total consideration ofP157,000.00.7 When she later on requested the release of the property under TCT No. 164117 after paying two quarterly amortizations, DBP did not approve the release. She continued paying the amortizations until she had paid P40,000.00 in all, at which point she sought again the release of the lot under TCT No. 164117. DBP still denied her request, warning that it would rescind the contract should her remaining amortizations be still not paid. On August 7, 1985, DBP rescinded the deed of conditional sale over her objections.8

On November 25, 1987, DBP sold the lot covered by TCT No. 164117 to respondent Pablo Cruz via a deed of absolute sale.9 The petitioner consequently filed a complaint for the rescission of the sale to Cruz on January 30, 1987.10 Notwithstanding their knowledge of her pending suit against Cruz, respondents Emerenciana Cabantog and Eni S.P. Atienza still bought the property from Cruz.11 Hence, Cabantog and Atienza were impleaded as additional defendants by amendment.

II

Version of Respondents

DBP insisted that the petitioner’s real intention had been to repurchase the two lots on installment basis. She manifested her real intention to that effect in writing through her letter dated September 14, 1981, thus:

September 14, 1981

DEVELOPMENT BANK OF THE PHIL.Acquired Assests [sic] DepartmentMakati, Metro Manila

ATTENTION: MR. J.A. SANCHEZ, JR.Assistant Manager

------------------------------------------------------------

Dear Sir:

I wish to inform your good office that I am interested to reacquire the mortgage properties consisting of two (2) parcels of land under TCT Nos. T-160929 and T-164117 located at Sumapa, Malolos, Bulacan.

I would like to reacquire the above stated properties under installment basis but I am requesting your goodselves [sic] to extend an extension of time up to the first week of November, 1981 for my money is coming by that time.

Your kind consideration on the above request is most highly appreciated, I remain.

Very truly yours,

(sgd.)LINA CALILAP-ASMERONCo-maker12

The petitioner also sent a telegram on September 15, 1981,13 whereby she similarly expressed to DBP her interest in reacquiring the properties. On November 16, 1981, DBP received another telegram from her,14requesting DBP to put the bidding of the properties on hold. A year later, she sent a letter dated August 31, 1982 to reiterate her intention to repurchase the two properties and to offer to deposit P55,500.00 as initial payment, to wit:

August 31, 1982

The ManagerAcquired Assets Management DepartmentDevelopment Bank of the PhilippinesMakati, Metro Manila

Dear Sir:

This has reference to our former properties consisting of two parcels of land with an aggregate area of 2,082.5 sq.m. covered by TCT Nos. T-160929 and T-164117 together with all the improvements erected thereon located at Bo. Sumpang Matanda, Malolos, Bulacan.

I wish to inform you that in view of my intense desire to preserve said properties for our family’s use, I am offering to buy back these properties for P157,000.00, payable on terms, balance to be paid in five (5) years on the quarterly amortization plan.

This is my last appeal for your assistance in my wish to preserve these properties and should I fail to consummate the sale, I bind myself to whatever rules and regulations the Bank may impose with regards to my deposit.

If this offer is acceptable to you, I am willing to deposit the amount of P55,500.00 on or before September 10, 1982.

May I be advised accordingly?

Thank you.

Very truly yours,

(Sgd.)LINA CALILAP-ASMERON15

The petitioner subsequently made the downpayment on September 10, 1992,16 and DBP formally accepted the offer through its letter dated September 14, 1982, stating therein the terms and conditions.17 Said terms and conditions, which were later embodied in the deed of conditional sale executed on January 21, 1983, included one that bound her to pay the first amortization of P7,304.15 three months from the execution of the deed, and the remaining amortizations to be due and payable every three months thereafter.18

DBP presented the duplicate copies of the receipts indicating her timely payment for the first quarterly amortization; however, she incurred delays in her subsequent installments.19 She made her last payment amounting to P4,500.00 on March 12, 1985,20 leaving five quarterly amortizations unpaid.21

On January 20, 1986, the petitioner sent a handwritten letter requesting DBP to put on hold any plans of selling the subject property, viz:

January 20, 1986

Mr. V.M. MacapagalExecutive OfficerAcquired Assets Mgmt. DivisionDevelopment Bank of the PhilippinesMakati, Metro Manila

Dear Sir:

This is with reference regarding my Sale Acct. No. 617 under the name of my late brother Celedonio R. Calilap which are located in Sumapa, Malolos, Bulacan.

In connection with these properties, I have already made an arrangement that I’m going to pay my whole obligations through a private financier under your Incentive Plan, which according to my last communication with them it was extended so I have to make an advance notice of four (4) days before paying so I may know the exact amount.

I wanted it to be formal, so I send [sic] a letter to your good office for the reason that last January 17, 1986, your appraiser went to our place and made an assessment of my properties. May I request again to please hold any sale of the said property for I’m doing my best to settle my obligation at the soonest possible time, for sure after a week or two after the snap election.

Thank you very much for your kind consideration and hoping for your help regarding my request.

Respectfully yours,

(sgd.)LINA CALILAP-ASMERON22

DBP replied by its letter dated February 5, 1986,23 demanding payment of the petitioner’s remaining obligation ofP121,013.75 in cash, otherwise, it would be constrained to sell the property. She responded via telegram,24informing DBP that she would be arriving on March 4, 1986. The telegram was followed by a handwritten letter dated March 5, 198625 stating her willingness to pay 10% of her outstanding obligations.

On March 12, 1986, DBP demanded the immediate remittance of the promised amount via telegram.26 When she did not pay the six quarterly amortizations, DBP rescinded the deed of conditional sale and applied for a writ of possession on November 17, 1986 in the RTC (Branch 17) in Malolos, Bulacan. Its application for the writ of possession was granted on November 18, 1986.27

Ruling of the RTC

Finding the petitioner’s complaint lacking in merit, the RTC (Branch 11) rendered its decision on December 28, 1994 dismissing the case.28 It observed that the stipulations in the deed of conditional sale and the tenor of the petitioner’s communications to DBP clearly indicated that she had intended to repurchase both foreclosed properties, not just the property covered by TCT No. T-164117, thusly:

Lettered as she is, the plaintiff cannot now seek refuge on the excuse that what she intends to buy was only the property covered by TCT No. T-164117. The contents of her letter to the Manager of the Acquired Assets Division of DBP dated August 31, 1982 (Exh. 1 and its submarkings) and to Asst. Manager J.A. Sanchez of the DBP dated September 14, 1981 (Exh. 2) clearly demonstrate in unequivocal terms that she intended to reacquire both of her foreclosed properties. Moreso, the telegrams sent by her (Exhs. 3 & 4) to defendant bank clearly indicates the same intention.

The aforequoted terms and conditions in the conditional sale which defendant failed to comply are clear and not susceptible whatsoever to any other interpretation as to the intention of the contracting parties. It is settled and fundamental that if the terms of the contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of the stipulations shall control (Art. 1370, Civil Code; Filoil Marketing Corp. vs. IAC GR 67115; Mercantile Ins. Corp. vs.Ysmael GR 43862; Baliuag Transit Corp. vs. CA GR 80447). In addition, her subsequent acts of writing DBP and complying with the terms of the conditional sale bolster the fact of her acquiescence in the said contract which she voluntarily entered into and she cannot now take a contrary position.29

Ruling of the CA

The petitioner appealed, contending that:

I

THE LOWER COURT GROSSLY ERRED IN NOT ANNULLING THE RESCISSION MADE BY THE DEVELOPMENT BANK OF THE PHILIPPINES (DBP) OF THE CONDITIONAL SALE OF JANUARY 4, 1983,

APPELLANT HAVING ALREADY PAID A SUBSTANTIAL AMOUNT OF P100,000.00 OR ABOUT TWO-THIRDS OF THE PRICE OR CONSIDERATION.

II

THE LOWER COURT ERRED IN NOT ANNULLING THE SALE MADE BY DBP TO PABLO CRUZ AS WELL AS THE SALE MADE BY THE LATTER TO THE OTHER DEFENDANTS.

Yet, on June 21, 2002, the CA affirmed the RTC,30 pointing out that the petitioner had not presented testimonial or documentary evidence to support or corroborate her claim that she had been misled into signing the deed of conditional sale. It ruled that DBP could rescind the contract pursuant to the terms of the deed of conditional sale itself, and that DBP exercised its right to rescind only after she had failed to pay her quarterly amortizations.31

Issues

In her present appeal, the petitioner submits:

I

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT DISREGARDED THE TESTIMONIAL EVIDENCE ADDUCED BY THE PETITIONER, WHICH CLEARLY DETAILED THE TRUTH SURROUNDING THE EXECUTION OF THE DEED OF CONDITIONAL SALE OF THE SUBJECT LOT TO RESPONDENT CRUZ, AND THE LATTER TO CO-RESPONDENTS CABANTOG AND ATIENZA NULL AND VOID

II

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF THE LOWER COURT UPHOLDING THE RESPONDENT BANK’S RESCISSION OF THE DEED OF CONDITIONAL SALE CONSIDERING THAT THE PETITIONER HAD ALREADY PAID A SUBSTANTIAL AMOUNT OF PHP100,000.00 OR ABOUT TWO-THIRD OF THE FULL CONSIDERATION OF PHP157,000.00.

The petitioner avers that her testimonial evidence sufficiently established the facts behind the execution of the deed of conditional sale; that she thereby proved that she had not fully understood the terms contained in the deed; that DBP could not resort to rescission because her nonpayment of the amortizations was only a slight or casual breach; and that the sale made by DBP to Cruz was tainted with bad faith, which was also true with the sale from Cruz to Cabantog and Atienza.

DBP counters that the petitioner is raising questions of fact in her present appeal, which is not allowed under Rule 45 of the Rules of Court; and that it had the right to rescind the deed of conditional sale under Article 1191 of the Civil Code.

On her part, Remedios Lim-Cruz, who had substituted her deceased husband, argues that the petitioner did not prove bad faith on the part of her husband in purchasing the property from DBP; and that her husband had relied in good faith on the title of DBP as the registered owner of the property at the time of the sale.

Ruling

The appeal lacks merit.

I

Appeal under Rule 45 islimited to questions of law only

The petitioner’s submissions, that her testimonial evidence sufficiently established the facts behind the execution of the deed of conditional sale, and that she had not fully understood the terms contained in the deed of conditional sale, involved questions of fact, for the consideration and resolution of them would definitely require the appreciation of evidence. As such, her petition for review is dismissible for raising factual issues. Under Rule 45 of the Rules of Court, only questions of law may be the proper subject of an appeal in this Court. The version of Section 1 of Rule 45 in force at the time the petitioner commenced her present recourse on April 28, 2003 expressly so stated, to wit:

Section 1. Filing of petition with Supreme Court. — A party desiring to appeal by certiorari from a judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law, may file with the Supreme Court a verified petition for review on certiorari. The petition shall raise only questions of law which must be distinctly set forth. (1a, 2a) (emphasis supplied)32

To be sure, we have not lacked in reminding that in exercising its power of review the Court is not a trier of facts and does not normally undertake the re-examination of the evidence presented by the contending parties during the trial of the case. For that reason, the findings of facts of the CA are conclusive and binding on the Court.

It is true that the Court has recognized several exceptions, in which it has undertaken the review and re-appreciation of the evidence. Among the exceptions have been: (a) when the findings of the CA are grounded entirely on speculation, surmises or conjectures; (b) when the inference made by the CA is manifestly mistaken, absurd or impossible; (c) when there is grave abuse of discretion on the part of the CA; (d) when the judgment of the CA is based on a misapprehension of facts; (e) when the findings of facts of the CA are conflicting; (f) when the CA, in making its findings, went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (g) when the findings of the CA are contrary to those of the trial court; (h) when the findings of the CA are conclusions without citation of specific evidence on which they are based; (i) when the facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by the respondent; (j) when the findings of fact of the CA are premised on the supposed absence of evidence and contradicted by the evidence on record; and (k) when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.33

Although the petitioner submits that the CA made findings of fact not supported by the evidence on record, this case does not fall under any of the recognized exceptions. Her claim that she had established the circumstances to prove her having been misled into signing the deed of conditional sale was unfounded, for the findings of fact of the CA rested on the records, as the following excerpt from the assailed decision of the CA indicates:

Appellant would like this Court to believe that she was misled by appellee DBP’s representatives into signing the Deed of Conditional Sale even if her original intention was to buy back only one of the properties, i.e., that which was covered by TCT No. T-164117. However, a closer scrutiny of the evidence on record reveals that aside from her bare allegations as to the circumstances leading to the signing of said Deed of Conditional Sale, the appellant has not presented other evidence, testimonial or documentary, to support or corroborate her claims. On the other hand, appellee DBP has presented the letter dated August 31, 1982 signed by appellant herself and addressed to the Manager of the Acquired Assets Management Department of the appellee DBP, expressing her intentions to buy back her foreclosed properties. In fact, she offered therein to pay a total of P157,000.00 for the two properties with P55,500.00 to be advanced by her as deposit and the balance to be paid in five (5) years under a quarterly amortization plan. Said letter has not been categorically denied by the appellant as during her testimony she merely feigned any recollections of its content. Moreover, it is well-settled that bad faith cannot be presumed and must be established by clear and convincing evidence.34 (emphasis supplied)

The petitioner apparently relied solely on her bare testimony to establish her allegation of having been misled, and did not present other evidence for the purpose. She seemingly forgot that, firstly, her bare allegation of having been misled was not tantamount to proof, and that, secondly, she, as the party alleging a disputed fact, carried the burden of proving her allegation.35 In other words, her main duty was to establish her allegation by preponderance of evidence, because her failure to do so would result in her defeat.36 Alas, she did not discharge her burden.

On the other hand, the records contained clear indicia of her real intention vis-à-vis her reacquisition of the two foreclosed properties. The letters and telegrams she had dispatched to DBP expressed the singular intention to repurchase both lots, not just the one covered by TCT No. 164711. That intention even became more evident and more definite when she set down the payment terms for the repurchase of both lots in her letter of August 31, 1982. Given all these, the CA rightly concluded that her written communications to DBP had revealed her earnest desire to re-acquire both foreclosed properties.

II

Article 1332 of the Civil Codedid not apply to the petitioner

The petitioner would have us consider that she had not given her full consent to the deed of conditional sale on account of her lack of legal and technical knowledge. In effect, she pleads for the application of Article 1332 of the Civil Code, which provides:

Article 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former.

We cannot accede to the petitioner’s plea.

The pertinent terms of the deed of conditional sale read:

NOW THEREFORE for and in consideration of the foregoing premises and for the total sum of ONE HUNDRED FIFTY SEVEN THOUSAND PESOS (P157,000.00), Philippine Currency, to be fully paid as hereinafter set forth, the VENDOR agrees to convey by way of sale and the VENDEE agrees to buy the above stated properties covered by

TCT Nos. T-160929 and T-164117, more particularly described at the back hereof under the following terms and conditions:

That the downpayment shall be P55,500 and the balance of P101,500 to be paid in five (5) years on the quarterly amortization plan at 15% interest per annum the first amortization of P7,304.15 shall be due and payable 3 mos. from the date of execution of the Deed of Conditional Sale and all subsequent amortizations shall be due and payable every three (3) months thereafter;

That if the vendee fails to sign the sale document within 15 days from date of receipt of our notice of approval of the offer, the approval hereof shall be deemed automatically revoked and the deposit forfeited in accordance with the rules and regulations of the Bank.

The Vendee/s may pay the whole or part of the account under this contract at anytime during the term hereof; provided, however, that if the vendee/s is in default in the payment of at least six monthly amortizations, if payable monthly; two quarterly amortizations, if payable quarterly; one semi-annual and annual amortization if payable semi-annually and annually, the Vendor may, in its option, declare the whole account due and payable.

xxx

The title to the real estate property and all improvements thereon shall remain in the name of the vendor until after the purchase price, advances and interest shall have been fully paid. The Vendee/s agrees that in the event of his failure to pay the amortizations or installments as herein provided for, the contract shall, at the option of the Vendor, be deemed and considered annulled, and he shall forfeit, and by these presents, hereby waives whatever right he might have acquired to the said property. The Vendor shall then be at liberty to dispose of same as if this contract has never been made; and in the event of such annulment, all sums of money paid under the contract shall be considered and treated as rentals for the use of the property, and the Vendee/s waives all rights to ask or demand the return thereof and he further agrees to vacate peacefully and quietly said property, hereby waiving in favor of the Vendor whatever expenses he may have incurred in the property in the form of improvement or under any concept, without any right to reimbursement whatsoever.

xxx

It is hereby agreed, covenanted and stipulated by and between the parties hereto that should the Vendor decide to rescind this contract in view of the failure of the Vendee/s to pay the amortization/installments, when due, or otherwise fail/s to comply with any of the terms and conditions herein stipulated, and the Vendee/s refuse/s to peacefully deliver the possession of the property hereinbove mentioned to the Vendor, thereby obliging the Vendor to file suit in court with the view to taking possession thereof, the Vendee/s hereby agree/s to pay all the expenses of the suit incident thereto, all the damages that may be incurred thereby, as well as attorney’s fees which it is hereby agreed, shall be 10% of the total amount due and outstanding, but in no case shall it be less than P100.00.37

It is quite notable that the petitioner did not specify which of the stipulations of the deed of conditional sale she had difficulty or deficiency in understanding. Her generalized averment of having been misled should, therefore, be brushed aside as nothing but a last attempt to salvage a hopeless position. Our impression is that the stipulations of the deed of conditional sale were simply worded and plain enough for even one with a slight knowledge of English to easily understand.

The petitioner was not illiterate. She had appeared to the trial court to be educated, its cogent observation of her as "lettered" (supra, at p. 7 hereof) being based on how she had composed her correspondences to DBP. Her testimony also revealed that she had no difficulty understanding English, as the following excerpt shows:

ATTY. CUISON

Q : Mrs. Witness, last time you identified the document, captioned as Deed of Conditional Sale which was executed last January 21, 1983, it was read in English language, correct?

A : Yes, sir.

Q : And, could you testify in this Court without in need of interpreter?

A : Yes, sir.

Q : So, you are aware or comfortable with the English language?

A : Yes, sir.38

Nor was the petitioner’s ignorance of the true nature of the deed of conditional sale probably true. By her own admission, she had asked the bank officer why she had been made to sign a deed of conditional sale instead of an absolute sale, which in itself reflected her full discernment of the matters subject of her dealings with DBP, to wit:

COURT:

Q : Now, before you signed this Deed of Conditional Sale sometime on January 21, 1983, did you read this document?

A : Yes, your Honor, and I even told the officer of the Bank, that why it should be a Deed of Probitional Sale when in fact it should be a Deed of Absolute Sale because I paid already the full amount of P55,500.00 for the property covered by TCT No. 164117 and they told me that after a few amortizations on the other property, they are going to release the property which was paid in full but did not push through, Your Honor.39

Thereby revealed was her distinctive ability to understand written and spoken English, the language in which the terms of the contract she signed had been written.

Clearly, Article 1332 of the Civil Code does not apply to the petitioner. According to Lim v. Court of Appeals,40 the provision came into being because a sizeable percentage of the country’s populace had comprised of illiterates, and the documents at the time had been written either in English or Spanish, viz:

In calibrating the credibility of the witnesses on this issue, we take our mandate from Article 1332 of the Civil Code which provides: "When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former." This substantive law came into being due to the finding of the Code Commission that there is still a fairly large number of illiterates in this country, and documents are usually drawn up in English or Spanish. It is also in accord with our state policy of promoting social justice. It also supplements Article 24 of the Civil Code which calls on court to be vigilant in the protection of the rights of those who are disadvantaged in life.41 (Emphasis supplied)

III

DBP validly exercised its right to rescind thedeed of conditional sale upon the petitioner’s default

The petitioner argues that despite the right to rescind due to nonpayment being stipulated in the deed of conditional sale, DBP could not exercise its right because her nonpayment of an obligation constituted only a slight or casual breach that did not warrant rescission. Moreover, she posits that Article 119142 of the Civil Code empowers the court to fix the period within which the obligor may comply with the obligation.

The petitioner’s argument lacks persuasion.

Firstly, a contract is the law between the parties. Absent any allegation and proof that the contract is contrary to law, morals, good customs, public order or public policy, it should be complied with in good faith.43 As such, the petitioner, being one of the parties in the deed of conditional sale, could not be allowed to conveniently renounce the stipulations that she had knowingly and freely agreed to.

Secondly, the issue of whether or not DBP validly exercised the right to rescind is a factual one that the RTC and the CA already passed upon and determined. The Court, which is not a trier of facts, adopts their findings, and sustains the exercise by DBP of its right to rescind following the petitioner’s failure to pay her six monthly amortizations, and after her being given due notice of the notarial rescission.44 As a consequence of the valid rescission, DBP had the legal right to thereafter sell the property to a person other than the petitioner, like Cruz. In turn, Cruz could validly sell the property to Cabantog and Trinidad, which he did. 1âwphi1

And, thirdly, Article 1191 of the Civil Code did not prohibit the parties from entering into an agreement whereby a violation of the terms of the contract would result to its cancellation. In Pangilinan v. Court of Appeals,45 the Court upheld the vendor’s right in a contract to sell to extrajudicially cancel the contract upon failure of the vendee to pay the installments and even to retain the sums already paid, holding:

[Article 1191 of the Civil Code] makes it available to the injured party alternative remedies such as the power to rescind or enforce fulfillment of the contract, with damages in either case if the obligor does not comply with what is incumbent upon him. There is nothing in this law which prohibits the parties from entering into an agreement that a violation of the terms of the contract would cause its cancellation even without court intervention. The rationale for the foregoing is that in contracts providing for automatic revocation, judicial intervention is necessary not for purposes of obtaining a judicial declaration rescinding a contract already deemed rescinded by virtue of an agreement providing for rescission even without judicial intervention, but in order to determine whether or not the rescission was proper. Where such propriety is sustained, the decision of the court will be merely declaratory of the revocation, but it is not itself the revocatory act. Moreover, the vendor’s right in contracts to sell with reserved title to extrajudicially cancel the sale upon failure of the vendee to pay the stipulated installments and retain the sums and installments already received has long been recognized by the well-established doctrine of 39 years standing. The validity of the stipulation in the contract providing for automatic rescission upon non-payment cannot be doubted. It is in the nature of an agreement granting a party the right to rescind a contract unilaterally in case of breach without

need of going to court. Thus, rescission under Article 1191 was inevitable due to petitioner’s failure to pay the stipulated price within the original period fixed in the agreement.

ACCORDINGLY, the petition for review is DENIED for lack of merit, and the decision of the Court of Appeals promulgated on June 21, 2002 is AFFIRMED.

Costs of suit shall be paid by the petitioner.

SO ORDERED.

G.R. No. 146839               March 23, 2011

ROLANDO T. CATUNGAL, JOSE T. CATUNGAL, JR., CAROLYN T. CATUNGAL and ERLINDA CATUNGAL-WESSEL, Petitioners, vs.ANGEL S. RODRIGUEZ, Respondent.

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 Decision2 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 Order4 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. 1055 in her name situated in the Barrio of Talamban, Cebu City. The said property was allegedly the exclusive paraphernal property of Agapita.

On April 23, 1990, Agapita, with the consent of her husband Jose, entered into a Contract to Sell6 with respondent Rodriguez. Subsequently, the Contract to Sell was purportedly "upgraded" into a Conditional Deed of Sale7 dated July 26, 1990 between the same parties. Both the Contract to Sell and the Conditional Deed of Sale were annotated on the title.

The provisions of the Conditional Deed of Sale pertinent to the present dispute are quoted below:

1. The VENDOR for and in consideration of the sum of TWENTY[-]FIVE MILLION PESOS (P25,000,000.00) payable as follows:

a. FIVE HUNDRED THOUSAND PESOS (P500,000.00) downpayment upon the signing of this agreement, receipt of which sum is hereby acknowledged in full from the VENDEE.

b. The balance of TWENTY[-]FOUR MILLION FIVE HUNDRED THOUSAND PESOS (P24,500,000.00) shall be payable in five separate checks, made to the order of JOSE Ch. CATUNGAL, the first check shall be for FOUR MILLION FIVE HUNDRED THOUSAND PESOS (P4,500,000.00) and the remaining 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.

x x x x

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 property’s 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 ofP5,000,000.00 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, 199012 and October 29, 1990,13all 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, 199015 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 attorney’s fees in the amount ofP100,000.00; 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 opposition18 to the issuance of a writ of preliminary injunction and later filed a motion to dismiss19 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 Counterclaim22 alleging that they had the right to rescind the contract in view of (1) Rodriguez’s 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 ofP5,000,000.00 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, attorney’s 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 Rodriguez’s 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 Dismiss30 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 plaintiff’s evidence on February 14, 1992.32

On December 23, 1991, the Catungals filed a motion for reconsideration33 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 Default35 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 Prohibition37 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) Rodriguez’s 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 Rodriguez’s 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 attorney’s 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’ brief38 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

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 COURT’S 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 appellee’s brief,40 essentially arguing the correctness of the trial court’s Decision regarding the foregoing issues raised by the Catungals. Subsequently, the Catungals filed a Reply Brief41 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 Authorities43 and a Citation of Authorities.44 This would be followed by Atty. Borromeo’s filing of an Additional Citation of Authority and Second Additional Citation of Authority both on November 17, 1997.45

During the pendency of the case with the Court of Appeals, Agapita Catungal passed away and thus, her husband, Jose, filed on February 17, 1999 a motion for Agapita’s 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 court’s 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 549 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 Substitution50 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 Petition53 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, Rodriguez’s 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 Rodriguez’s 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 Rodriguez’s 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 court’s 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.1âwphi1 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 respondent’s 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 court’s decision:

It is therefore apparent that the vendee’s 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 plaintiff’s [Rodriguez’s] 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 respondent’s 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 Rodriguez’s 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 respondent’s 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 Rodriguez’s 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 Rodriguez’s 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 Rodriguez’s 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 vendee’s 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, Rodriguez’s 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 court’s 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 Rodriguez’s 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.

G.R. No. 171660               October 17, 2011

CONTINENTAL CEMENT CORPORATION Petitioner, vs.ASEA BROWN BOVERI, INC., BBC BROWN BOVERI, CORP., AND TORD B. ERIKSON,** Respondents.

DEL CASTILLO, J.:

"Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages."1

This Petition for Review on Certiorari2 under Rule 45 of the Rules of Court assails the Decision3 dated August 25, 2005 and the Resolution4 dated February 16, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 58551.

Factual Antecedents

Sometime in July 1990, petitioner Continental Cement Corporation (CCC),

a corporation engaged in the business of producing cement,5 obtained the services of respondents6 Asea Brown Boveri, Inc. (ABB) and BBC Brown Boveri, Corp. to repair its 160 KW Kiln DC Drive Motor (Kiln Drive Motor).7

On October 23, 1991, due to the repeated failure of respondents to repair the Kiln Drive Motor, petitioner filed with Branch 101 of the Regional Trial Court (RTC) of Quezon City a Complaint8 for sum of money and damages, docketed as Civil Case No. Q-91-10419, against respondent corporations and respondent Tord B. Eriksson (Eriksson), Vice-President of the Service Division of the respondent ABB.9 Petitioner alleged that:

4. On July 11, 1990, the plaintiff delivered the 160 KW Kiln DC Drive Motor to the defendants to be repaired under PO No. 17136-17137, x x x

The defendant, Tord B. Eriksson, was personally directing the repair of the said Kiln Drive Motor. He has direction and control of the business of the defendant corporations. Apparently, the defendant Asea Brown Boveri, Inc. has no separate personality because of the 4,000 shares of stock, 3996 shares were subscribed by Honorio Poblador, Jr. The four other stockholders subscribed for one share of stock each only.

5. After the first repair by the defendants, the 160 KW Kiln Drive Motor was installed for testing on October 3, 1990. On October 4, 1990 the test failed. The plaintiff removed the DC Drive Motor and replaced it with its old motor. It was only on October 9, 1990 that the plaintiff resumed operation. The plaintiff lost 1,040 MTD per day from October 5 to October 9, 1990.

6. On November 14, 1990, after the defendants had undertaken the second repair of the motor in question, it was installed in the kiln. The test failed again. The plaintiff resumed operation with its old motor on November 19, 1990. The plaintiff suffered production losses for five days at the rate of 1,040 MTD daily.

7. The defendants were given a third chance to repair the 160 KW Kiln DC Drive Motor. 1avvphi1 On March 13, 1991, the motor was installed and tested. Again, the test failed. The plaintiff resumed operation on March 15, 1991. The plaintiff sustained production losses at the rate of 1,040 MTD for two days.

8. As a consequence of the failure of the defendants to comply with their contractual obligation to repair the 160 KW Kiln DC Drive Motor, the plaintiff sustained the following losses:

(a) Production and opportunity losses - P10,600,000.00

This amount represents only about 25% of the production losses at the rate of P72.00 per bag of cement.

(b) Labor Cost and Rental of Crane - 26,965.78

(c) Penalties (at P987.25 a day) forfailure to deliver the motor fromAug. 29, 1990 to July 31, 1991. - 331,716.00

(d) Cost of money interest of theP987.25 a day from July 18, 1990to April 5, 1991 at 34% for 261 days - 24,335.59

Total Damages 10,983,017.42

9. The plaintiff has made several demands on the defendants for the payment of the above-enumerated damages, but the latter refused to do so without valid justification.

10. The plaintiff was constrained to file this action and has undertaken to pay its counsel Twenty Percentum (20%) of the amount sought to be recovered as attorney’s fees.10

Respondents, however, claimed that under Clause 7 of the General Conditions,11 attached to the letter of offer12dated July 4, 1990 issued by respondent ABB to petitioner, the liability of respondent ABB "does not extend to

consequential damages either direct or indirect."13 Moreover, as to respondent Eriksson, there is no lawful and tenable reason for petitioner to sue him in his personal capacity because he did not personally direct the repair of the Kiln Drive Motor.14

Ruling of the Regional Trial Court

On August 30, 1995, the RTC rendered a Decision15 in favor of petitioner. The RTC rejected the defense of limited liability interposed by respondents since they failed to prove that petitioner received a copy of the General Conditions.16 Consequently, the RTC granted petitioner’s claims for production loss, labor cost and rental of crane, and attorney’s fees.17 Thus:

WHEREFORE, premises above considered, finding the complaint substantiated by plaintiff, judgment is hereby rendered in favor of plaintiff and against defendants, hereby ordering the latter to pay jointly and severally the former, the following sums:

P10,600,00.00 for loss of production;

P 26,965.78 labor cost and rental of crane;

P 100,000.00 attorney’s fees and cost.

SO ORDERED.18

Ruling of the Court of Appeals

On appeal, the CA reversed the ruling of the RTC. The CA applied the exculpatory clause in the General Conditions and ruled that there is no implied warranty on repair work; thus, the repairman cannot be made to pay for loss of production as a result of the unsuccessful repair.19 The fallo of the CA Decision20 reads:

WHEREFORE, premises considered, the assailed August 30, 1995 Decision of the Regional Trial Court of Quezon City, Branch 101 is hereby REVERSED and SET ASIDE. The October 23, 1991 Complaint is herebyDISMISSED.

SO ORDERED.21

Petitioner moved for reconsideration22 but the CA denied the same in its Resolution23 dated February 16, 2006.

Issues

Hence, the present recourse where petitioner interposes the following issues:

1. Whether x x x the [CA] gravely erred in applying the terms of the "General Conditions" of Purchase Orders Nos. 17136 and 17137 to exculpate the respondents x x x from liability in this case.

2. Whether x x x the [CA] seriously erred in applying the concepts of ‘implied warranty’ and ‘warranty against hidden defects’ of the New Civil Code in order to exculpate the respondents x x x from its contractual obligation.24

Petitioner’s Arguments

Petitioner reiterates that the General Conditions cannot exculpate respondents because petitioner never agreed to be bound by it nor did petitioner receive a copy of it.25 Petitioner also imputes error on the part of the CA in applying the concepts of warranty against hidden defects and implied warranty.26 Petitioner contends that these concepts are not applicable because the instant case does not involve a contract of sale.27 What applies are Articles 1170 and 2201 of

the Civil Code.28

Respondents’ Arguments

Conversely, respondents insist that petitioner is bound by the General Conditions.29 By issuing Purchase Order Nos. 17136-37, petitioner in effect accepted the General Conditions appended to respondent ABB’s letter of offer.30 Respondents likewise defend the ruling of the CA that there could be no implied warranty on the repair made by respondent ABB as the warranty of the fitness of the equipment should be enforced directly against the manufacturer of the Kiln Drive Motor.31 Respondents also deny liability for damages claiming that they performed their obligation in good faith.32

Our Ruling

The petition has merit.

Petitioner and respondent ABB entered into a contract for the repair of petitioner’s Kiln Drive Motor, evidenced by Purchase Order Nos. 17136-37,33 with the following terms and conditions:

a) Total Price: P197,450.00

b) Delivery Date: August 29, 1990 or six (6) weeks from receipt of order and down payment34

c) Penalty: One half of one percent of the total cost or Nine Hundred Eighty Seven Pesos and Twenty five centavos (P987.25) per day of delay.

Respondent ABB, however, not only incurred delay in performing its obligation but likewise failed to repair the Kiln Drive Motor; thus, prompting petitioner to sue for damages.

Clause 7 of the General Conditions is not binding on petitioner

Respondents contend that under Clause 7 of the General Conditions their liability "does not extend to consequential damages either direct or indirect."35 This contention, however, is unavailing because respondents failed to show that petitioner was duly furnished with a copy of said General Conditions. Hence, it is not binding on petitioner.

Having breached the contract it entered with petitioner, respondent ABB is liable for damages pursuant to Articles 1167, 1170, and 2201 of the Civil Code, which state:

Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone.

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.

Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation.

Based on the foregoing, a repairman who fails to perform his obligation is liable to pay for the cost of the execution of the obligation plus damages. Though entitled, petitioner in this case is not claiming reimbursement for the repair allegedly done by Newton Contractor,36 but is instead asking for damages for the delay caused by respondent ABB.

Petitioner is entitled to penalties under Purchase Order Nos. 17136-37

As per Purchase Order Nos. 17136-37, petitioner is entitled to penalties in the amount of P987.25 per day from the time of delay, August 30, 1990, up to the time the Kiln Drive Motor was finally returned to petitioner. Records show that although the testing of Kiln Drive Motor was done on March 13, 1991, the said motor was actually delivered to petitioner as early as January 7, 1991.37 The installation and testing was done only on March 13, 1991 upon the request of petitioner because the Kiln was under repair at the time the motor was delivered; hence, the load testing had to be postponed.38

Under Article 122639 of the Civil Code, the penalty clause takes the place of indemnity for damages and the payment of interests in case of non-compliance with the obligation, unless there is a stipulation to the contrary. In this case, since there is no stipulation to the contrary, the penalty in the amount of P987.25 per day of delay covers all other damages (i.e. production loss, labor cost, and rental of the crane) claimed by petitioner.

Petitioner is not entitled to recover production loss, labor cost and the rental of crane

Article 1226 of the Civil Code further provides that if the obligor refuses to pay the penalty, such as in the instant case, 40 damages and interests may still be recovered on top of the penalty. Damages claimed must be the natural and probable consequences of the breach, which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted.41

Thus, in addition to the penalties, petitioner seeks to recover as damages production loss, labor cost and the rental of the crane.

Petitioner avers that every time the Kiln Drive Motor is tested, petitioner had to rent a crane and pay for labor to install the motor.42 But except for the Summary of Claims for Damages,43 no other evidence was presented by petitioner to show that it had indeed rented a crane or that it incurred labor cost to install the motor.

Petitioner likewise claims that as a result of the delay in the repair of the Kiln Drive Motor, its production from August 29, 1990 to March 15, 1991 decreased since it had to use its old motor which was not able to produce cement as much as the one under repair;44 and that every time the said motor was installed and tested, petitioner had to stop its operations; thereby, incurring more production losses.45 To support its claim, petitioner presented its monthly production reports46 for the months of April to June 1990 showing that on the average it was able to produce 1040 MT of cement per day. However, the production reports for the months of August 1990 to March 1991 were not presented. Without these production reports, it cannot be determined with reasonable certainty whether petitioner indeed incurred production losses during the said period. It may not be amiss to say that competent proof and a reasonable degree of certainty are needed to justify a grant of actual or compensatory damages; speculations, conjectures, assertions or guesswork are not sufficient.47

Besides, consequential damages, such as loss of profits on account of delay or failure of delivery, may be recovered only if such damages were reasonably foreseen or have been brought within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting.48 Considering the nature of the obligation in the instant case, respondent ABB, at the time it agreed to repair petitioner’s Kiln Drive Motor, could not have reasonably foreseen that it would be made liable for production loss, labor cost and rental of the crane in case it fails to repair the motor or incurs delay in delivering the same, especially since the motor under repair was a spare motor.49

For the foregoing reasons, petitioner is not entitled to recover production loss, labor cost and the rental of the crane.

Petitioner is not entitled to attorney’s fees

Neither is petitioner entitled to the award of attorney’s fees. Jurisprudence requires that the factual basis for the award of attorney’s fees must be set forth in the body of the decision and not in the dispositive portion only.50 In this case, no explanation was given by the RTC in awarding attorney’s fees in favor of petitioner. In fact, the award of attorney’s fees was mentioned only in the dispositive portion of the decision.

Respondent Eriksson cannot be made jointly and severally liable for the penalties

Respondent Eriksson, however, cannot be made jointly and severally liable for the penalties. There is no showing that respondent Eriksson directed or participated in the repair of the Kiln Drive Motor or that he is guilty of bad faith or gross negligence in directing the affairs of respondent ABB. It is a basic principle that a corporation has a personality separate and distinct from the persons composing or representing it; hence, personal liability attaches only in exceptional cases, such as when the director, trustee, or officer is guilty of bad faith or gross negligence in directing the affairs of the corporation.51

In sum, we find petitioner entitled to penalties in the amount of P987.25 per day from August 30, 1990 up to January 7, 1991 (131 days) or a total amount of P129,329.75 for the delay caused by respondent ABB. Finally, we impose interest at the rate of six percent (6%) on the total amount due from the date of filing of the complaint until finality of this Decision. However, from the finality of judgment until full payment of the total award, the interest rate of twelve percent (12%) shall apply.52

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated August 25, 2005 and the Resolution dated February 16, 2006 of the Court of Appeals in CA-G.R. CV No. 58551 are hereby REVERSED and SET ASIDE. Respondent ABB is ORDERED to pay petitioner the amount of P129,329.75, with interest at 6% per annum to be computed from the date of the filing of the complaint until finality of this Decision and 12% per annum thereafter until full payment.

SO ORDERED.

G.R. No. 187425               March 28, 2011

COMMISSIONER OF CUSTOMS, Petitioner, vs.AGFHA INCORPORATED, Respondent.

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the February 25, 2009 Decision1 of the Court of Tax Appeals En Banc (CTA-En Banc), in CTA EB Case No. 136, which affirmed the October 18, 2005 Resolution2 of its Second Division (CTA-Second Division), in CTA Case No. 5290, finding petitioner, the Commissioner of Customs (Commissioner), liable to pay respondent AGFHA Incorporated(AGFHA) the amount of US$160,348.08 for the value of the seized shipment which was lost while in petitioner’s custody.

On December 12, 1993, a shipment containing bales of textile grey cloth arrived at the Manila International Container Port (MICP). The Commissioner, however, held the subject shipment because its owner/consignee was allegedly fictitious. AGFHA intervened and alleged that it was the owner and actual consignee of the subject shipment.

On September 5, 1994, after seizure and forfeiture proceedings took place, the District Collector of Customs, MICP, rendered a decision3 ordering the forfeiture of the subject shipment in favor of the government.

AGFHA filed an appeal. On August 25, 1995, the Commissioner rendered a decision4 dismissing it.

On November 4, 1996, the CTA-Second Division reversed the Commissioner’s August 25, 1995 Decision and ordered the immediate release of the subject shipment to AGFHA. The dispositive portion of the CTA-Second Division Decision5 reads:

WHEREFORE, in view of the foregoing premises, the instant Petition for Review is hereby GRANTED. Accordingly, the decision of the respondent in Customs Case No. 94-017, dated August 25, 1995, affirming the decision of the MICP Collector, dated September 5, 1994, which decreed the forfeiture of the subject shipments in favor of the government, is hereby REVERSED and SET ASIDE. Respondent is hereby ORDERED to effect the immediate RELEASE of the subject shipment of goods in favor of the petitioner. No costs.

SO ORDERED.

On November 27, 1996, the CTA-Second Division issued an entry of judgment declaring the above-mentioned decision final and executory.6

Thereafter, on May 20, 1997, AGFHA filed a motion for execution.

In its June 4, 1997 Resolution, the CTA-Second Division held in abeyance its action on AGFHA’s motion for execution in view of the Commissioner’s appeal with the Court of Appeals (CA), docketed as CA-G.R. SP No. 42590 and entitled "Commissioner of Custom v. The Court of Tax Appeals and AGFHA, Incorporated."

On May 31, 1999, the CA denied due course to the Commissioner’s appeal for lack of merit in a decision,7 the dispositive portion of which reads:

WHEREFORE, the instant petition is hereby DENIED DUE COURSE and DISMISSED for lack of merit. Accordingly, the Commissioner of Customs is hereby ordered to effect the immediate release of the shipment of AGFHA, Incorporated described as "2 x 40" Cont. No. NYKU-6772906 and NYKU-6632117 STA 197 Bales of Textile Grey Cloth" placed under Hold Order No. H/CI/01/2293/01 dated 22 January 1993.

No costs.

SO ORDERED.

Thereafter, the Commissioner elevated the aforesaid CA Decision to this Court via a petition for review oncertiorari, docketed as G.R. No. 139050 and entitled "Republic of the Philippines represented by the Commissioner of Customs v. The Court of Tax Appeals and AGFHA, Inc."

On October 2, 2001, the Court dismissed the petition.8

On January 14, 2002, the Court denied with finality the Commissioner’s motion for reconsideration of its October 2, 2001 Decision.

On March 18, 2002, the Entry of Judgment was issued by the Court declaring its aforesaid decision final and executory as of February 5, 2002.

In view thereof, the CTA-Second Division issued the Writ of Execution, dated October 16, 2002, directing the Commissioner and his authorized subordinate or representative to effect the immediate release of the subject shipment. It further ordered the sheriff to see to it that the writ would be carried out by the Commissioner and to make a report thereon within thirty (30) days after receipt of the writ. The writ, however, was returned unsatisfied.

On July 23, 2003, the CTA-Second Division received a copy of AGFHA’s Motion to Show Cause dated July 21, 2003.

Acting on the motion, the CTA-Second Division issued a notice setting it for hearing on August 1, 2003 at 9:00 o’clock in the morning.

In its August 13, 2003 Resolution, the CTA-Second Division granted AGFHA’s motion and ordered the Commissioner to show cause within fifteen (15) days from receipt of said resolution why he should not be disciplinary dealt with for his failure to comply with the writ of execution.

On September 1, 2003, Commissioner’s counsel filed a Manifestation and Motion, dated August 28, 2003, attaching therewith a copy of an Explanation (With Motion for Clarification) dated August 11, 2003 stating, inter alia, that despite diligent efforts to obtain the necessary information and considering the length of time that had elapsed since the subject shipment arrived at the Bureau of Customs, the Chief of the Auction and Cargo Disposal Division of the MICP could not determine the status, whereabouts and disposition of said shipment.

Consequently, AGFHA filed its Motion to Cite Petitioner in Contempt of Court dated September 13, 2003. After a series of pleadings, on November 17, 2003, the CTA-Second Division denied, among others, AGFHA’s motion to cite petitioner in contempt for lack of merit. It, however, stressed that the denial was without prejudice to other legal remedies available to AGFHA.

On August 13, 2004, the Commissioner received AGFHA’s Motion to Set Case for Hearing, dated April 12, 2004, allegedly to determine: (1) whether its shipment was actually lost; (2) the cause and/or circumstances surrounding the loss; and (3) the amount the Commissioner should pay or indemnify AGFHA should the latter’s shipment be found to have been actually lost.

On May 17, 2005, after the parties had submitted their respective memoranda, the CTA-Second Division adjudged the Commissioner liable to AGFHA. Specifically, the dispositive portion of the resolution reads:

WHEREFORE, premises considered, the Bureau of Customs is adjudged liable to petitioner AGFHA, INC. for the value of the subject shipment in the amount of ONE HUNDERED SIXTY THOUSAND THREE HUNDRED FORTY EIGHT AND 08/100 US DOLLARS (US$160,348.08). The Bureau of Custom’s liability may be paid in Philippine Currency, computed at the exchange rate prevailing at the time of actual payment, with legal interests thereon at the rate of 6% per annum computed from February 1993 up to the finality of this Resolution. In lieu of the 6% interest, the rate of legal interest shall be 12% per annum upon finality of this Resolution until the value of the subject shipment is fully paid.

The payment shall be taken from the sale or sales of the goods or properties which were seized or forfeited by the Bureau of Customs in other cases.

SO ORDERED.9

On June 10, 2005, the Commissioner filed his Motion for Partial Reconsideration arguing that (a) the enforcement and satisfaction of respondent’s money claim must be pursued and filed with the Commission on Audit pursuant to Presidential Decree (P.D.) No. 1445; (b) respondent is entitled to recover only the value of the lost shipment based on its acquisition cost at the time of importation; and (c) taxes and duties on the subject shipment must be deducted from the amount recoverable by respondent.

On the same day, the Commissioner received AGFHA’s Motion for Partial Reconsideration claiming that the 12% interest rate should be computed from the time its shipment was lost on June 15, 1999 considering that from such date, petitioner’s obligation to release their shipment was converted into a payment for a sum of money.

On October 18, 2005, after the filing of several pleadings, the CTA-Second Division promulgated a resolution which reads:

WHEREFORE, premises considered, respondent Commissioner of Customs’ "Motion for Partial Reconsideration" is hereby PARTIALLY GRANTED. The Resolution dated May 17, 2005 is hereby MODIFIED but only insofar as the Court did not impose the payment of the proper duties and taxes on the subject shipment. Accordingly, the dispositive portion of Our Resolution, dated May 17, 2005, is hereby MODIFIED to read as follows:

WHEREFORE, premises considered, the Bureau of Customs is adjudged liable to petitioner AGFHA, INC. for the value of the subject shipment in the amount of ONE HUNDRED SIXTY THOUSAND THREE HUNDRED FORTY EIGHT AND 08/100 US DOLLARS (US$160,348.08), subject however, to the payment of the prescribed taxes and duties, at the time of the importation. The Bureau of Custom’s liability may be paid in Philippine Currency, computed at the exchange rate prevailing at the time of actual payment, with legal interests thereon at the rate of 6% per annum computed from February 1993 up to the finality of this Resolution. In lieu of the 6% interest, the rate of legal interest shall be 12% per annum upon finality of this Resolution until the value of the subject shipment is fully paid.

The payment shall be taken from the sale or sales of the goods or properties which were seized or forfeited by the Bureau of Customs in other cases.

SO ORDERED.

Petitioner AGFHA, Inc.’s "Motion for Partial Reconsideration" is hereby DENIED for lack of merit.

SO ORDERED.10

Consequently, the Commissioner elevated the above-quoted resolution to the CTA-En Banc.

On February 25, 2009, the CTA-En Banc promulgated the subject decision dismissing the petition for lack of merit and affirming in toto the decision of the CTA-Second Division.

On March 18, 2009, the Commissioner filed his Motion for Reconsideration, but it was denied by the CTA-En Banc in its April 13, 2009 Resolution.

Hence, this petition.

ISSUE

Whether or not the Court of Tax Appeals was correct in awarding the respondent the amount of US$160,348.08, as payment for the value of the subject lost shipment that was in the custody of the petitioner.

In his petition, the Commissioner basically argues two (2) points: 1] the respondent is entitled to recover the value of the lost shipment based only on its acquisition cost at the time of importation; and 2] the present action has been theoretically transformed into a suit against the State, hence, the enforcement/satisfaction of petitioner’s claim must be pursued in another proceeding consistent with the rule laid down in P.D. No. 1445.

He further argues that the basis for the exchange rate of its liability lacks basis. Based on the Memorandum, dated August 27, 2002, of the Customs Operations Officers, the true value of the subject shipment is US$160,340.00 based on its commercial invoices which have been found to be spurious. The subject shipment arrived at the MICP on December 12, 1992 and the peso-dollar exchange rate was P20.00 per US$1.00. Thus, this conversion rate must be applied in the computation of the total land cost of the subject shipment being claimed by AGFHA or P3,206,961.60 plus interest.

The Commissioner further contends that based on Executive Order No. 688 (The 1999 Tariff and Customs Code of the Philippines), the proceeds from any legitimate transaction, conveyance or sale of seized and/or forfeited items for importations or exportations by the customs bureau cannot be lawfully disposed of by the petitioner to satisfy respondent’s money judgment. EO 688 mandates that the unclaimed proceeds from the sale of forfeited goods by the Bureau of Customs (BOC) will be considered as customs receipts to be deposited with the Bureau of Treasury and shall form part of the general funds of the government. Any disposition of the said unclaimed proceeds from the sale of forfeited goods will be violative of the Constitution, which provides that "No money shall be paid out of the Treasury except in pursuance of an appropriation made by law."11

Thus, the Commissioner posits that this case has been transformed into a suit against the State because the satisfaction of AGFHA’s claim will have to be taken from the national coffers. The State may not be sued without its consent. The BOC enjoys immunity from suit since it is invested with an inherent power of sovereignty which is taxation.

To recover the alleged loss of the subject shipment, AGFHA’s remedy here is to file a money claim with the Commission on Audit (COA) pursuant to Act No. 3083 (An Act Defining the Condition under which the Government of the Philippine Island may be Sued) and Commonwealth Act No. 327 (An Act Fixing the Time within which the Auditor General shall render his Decisions and Prescribing the Manner of Appeal therefrom, as amended by P.D. No. 1445). Upon the determination of State liability, the prosecution, enforcement or satisfaction thereof must still be pursued in accordance with the rules and procedures laid down in P.D. No. 1445, otherwise known as the Government Auditing Code of the Philippines.

On the other hand, AGFHA counters that, in line with prevailing jurisprudence, the applicable peso-dollar exchange rate should be the one prevailing at the time of actual payment in order to preserve the real value of the subject shipment to the date of its payment. The CTA-En Banc Decision does not constitute a money claim against the State. The Commissioner’s obligation to return the subject shipment did not arise from an import-export contract but from a quasi-contract particularly solutio indebiti under Article 2154 of the Civil Code. The payment of the value of the subject lost shipment was in accordance with Article 2159 of the Civil Code. The doctrine of governmental immunity from suit cannot serve as an instrument for perpetrating an injustice on a citizen. When the State violates its own laws, it cannot invoke the doctrine of state immunity to evade liability. The commission of an unlawful or illegal act on the part of the State is equivalent to implied consent.

THE COURT’S RULING

The petition lacks merit.

The Court agrees with the ruling of the CTA that AGFHA is entitled to recover the value of its lost shipment based on the acquisition cost at the time of payment.

In the case of C.F. Sharp and Co., Inc. v. Northwest Airlines, Inc. the Court ruled that the rate of exchange for the conversion in the peso equivalent should be the prevailing rate at the time of payment:

In ruling that the applicable conversion rate of petitioner's liability is the rate at the time of payment, the Court of Appeals cited the case of Zagala v. Jimenez, interpreting the provisions of Republic Act No. 529, as amended by R.A. No. 4100. Under this law, stipulations on the satisfaction of obligations in foreign currency are void. Payments of monetary obligations, subject to certain exceptions, shall be discharged in the currency which is the legal tender in the Philippines. But since R.A. No. 529 does not provide for the rate of exchange for the payment of foreign currency obligations incurred after its enactment, the Court held in a number of cases that the rate of exchange for the conversion in the peso equivalent should be the prevailing rate at the time of payment . 12 [Emphases supplied]

Likewise, in the case of Republic of the Philippines represented by the Commissioner of Customs v. UNIMEX Micro-Electronics GmBH,13 which involved the seizure and detention of a shipment of computer game items which disappeared while in the custody of the Bureau of Customs, the Court upheld the decision of the CA holding that petitioner’s liability may be paid in Philippine currency, computed at the exchange rate prevailing at the time of actual payment.

On the issue regarding the state immunity doctrine, the Commissioner cannot escape liability for the lost shipment of goods. This was clearly discussed in the UNIMEX Micro-Electronics GmBH decision, where the Court wrote:

Finally, petitioner argues that a money judgment or any charge against the government requires a corresponding appropriation and cannot be decreed by mere judicial order.

Although it may be gainsaid that the satisfaction of respondent's demand will ultimately fall on the government, and that, under the political doctrine of "state immunity," it cannot be held liable for governmental acts (jus imperii), we still hold that petitioner cannot escape its liability. The circumstances of this case warrant its exclusion from the purview of the state immunity doctrine.

As previously discussed, the Court cannot turn a blind eye to BOC's ineptitude and gross negligence in the safekeeping of respondent's goods. We are not likewise unaware of its lackadaisical attitude in failing to provide a cogent explanation on the goods' disappearance, considering that they were in its custody and that they were in fact the subject of litigation. The situation does not allow us to reject respondent's claim on the mere invocation of the doctrine of state immunity. Succinctly, the doctrine must be fairly observed and the State should not avail itself of this prerogative to take undue advantage of parties that may have legitimate claims against it.

In Department of Health v. C.V. Canchela & Associates, we enunciated that this Court, as the staunch guardian of the people's rights and welfare, cannot sanction an injustice so patent in its face, and allow itself to be an instrument in the perpetration thereof. Over time, courts have recognized with almost pedantic adherence that what is inconvenient and contrary to reason is not allowed in law. Justice and equity now demand that the State's cloak of invincibility against suit and liability be shredded. 1awphi1

Accordingly, we agree with the lower courts' directive that, upon payment of the necessary customs duties by respondent, petitioner's "payment shall be taken from the sale or sales of goods or properties seized or forfeited by the Bureau of Customs."

WHEREFORE, the assailed decisions of the Court of Appeals in CA-G.R. SP Nos. 75359 and 75366 are hereby AFFIRMED with MODIFICATION. Petitioner Republic of the Philippines, represented by the Commissioner of the Bureau of Customs, upon payment of the necessary customs duties by respondent Unimex Micro-Electronics GmBH, is hereby ordered to pay respondent the value of the subject shipment in the amount of Euro 669,982.565. Petitioner's liability may be paid in Philippine currency, computed at the exchange rate prevailing at the time of actual payment .

SO ORDERED.14 [Emphases supplied]

In line with the ruling in UNIMEX Micro-Electronics GmBH, the Commissioner of Customs should pay AGFHA the value of the subject lost shipment in the amount of US$160,348.08 which liability may be paid in Philippine currency computed at the exchange rate prevailing at the time of the actual payment.

WHEREFORE, the February 25, 2009 Decision of the Court of Tax Appeals En Banc, in CTA EB Case No. 136, isAFFIRMED. The Commissioner of Customs is hereby ordered to pay, in accordance with law, the value of the subject lost shipment in the amount of US$160,348.08, computed at the exchange rate prevailing at the time of actual payment after payment of the necessary customs duties.

SO ORDERED.

G.R. No. 169293               October 5, 2011

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, vs.TRAVERSE DEVELOPMENT CORPORATION and CENTRAL SURETY and INSURANCE COMPANY,Respondents.

LEONARDO-DE CASTRO, J.:

This is a petition for review on certiorari1 of the September 30, 2004 Decision2 and August 11, 2005 Resolution3of the Court of Appeals in CA-G.R. CV No. 65311, which affirmed the November 24, 1998 Decision4 of the Regional Trial Court (RTC) of Quezon City, Branch 87, in Civil Case No. Q-37497, as modified by its February 1, 1999 Order.5

The facts are simple and straightforward.

The Development of the Philippines (DBP)-Tarlac Branch granted a "Real Estate Loan" of P 910,000.00 to Traverse Development Corporation (Traverse) for the construction of its three-storey commercial building at Tañedo St., Tarlac City. To secure the payment of this loan, Traverse constituted a mortgage on the land on which the building was to be built on July 21, 1980.6 Among the conditions imposed by DBP in the mortgage contract was Traverse’s acquisition of an insurance coverage for an amount not less than the loan, to be endorsed in DBP’s favor.7

From 1980 to 1981, Traverse submitted to DBP three policies in accordance with the insurance condition in the mortgage contract. The last of these three was FGU Policy No. 6246, in the amount of P 1 Million, for the period of one year, from May 7, 1981 to May 7, 1982.8

On May 6, 1982, FGU Insurance Corporation (FGU) renewed Traverse’s Fire Insurance Policy for another year, from May 7, 1982 to May 7, 1983, for the same amount of P 1 Million, under Policy No. 61146.9 However, as DBP had already transferred the building’s insurance to Central Surety & Insurance Company (Central), for the same terms, under Fire Insurance Policy No. TAR 1056 (Policy No. TAR 1056), issued on May 7, 1982, it returned the FGU Policy to Traverse. 10

On August 9, 1982, during the effectivity of Policy No. TAR 1056, a fire of undetermined origin razed and gutted Traverse’s building. The following day, Traverse informed Central of the mishap and requested it to immediately conduct the necessary inspection, evaluation, and investigation.11

On September 7, 1982, Traverse submitted to Central written proof of the loss sustained by its building, together with its claim in the amount of P 1 Million. On November 6, 1982, Central proposed to settle Traverse’s claim on the basis of cost of repairs of the affected parts of the building for P 230,748.00.12 Believing that this was highly inequitable and unreasonable, Traverse denied such proposal.

Having failed to arrive at a settlement, Traverse, on February 28, 1983, filed a Complaint13 before the RTC, against Central and DBP for payment of its claim and damages.

Traverse averred that it was obvious from the beginning that Central was unable or unwilling to fulfill its liability under Policy No. TAR 1056. Traverse alleged that due to the unjustifiable delay of Central to settle its claims, it was prevented from receiving rentals for its building, its loan with DBP had increased due to interest and penalties, and it had suffered actual damages. Traverse impleaded DBP as a co-defendant because of its alleged failure or refusal to convince Central to pay Traverse’s claims, considering that it transferred Traverse’s insurance to Central without Traverse’s knowledge.14

In its Answer, DBP denied that Traverse had no knowledge of the transfer of its insurance to Central as evidenced by its payment of the premium, documentary stamp tax, and other charges for the new insurance policy. DBP also claimed that it was Traverse that transferred its insurance to Central to avoid delays in renewing its insurance, since FGU had no branch office in Tarlac.15

Central argued in its Answer that Traverse had no valid and sufficient cause of action because aside from violating material conditions in its policy, DBP, as the endorsee of the policy, was the real party-in-interest. Central also averred that Traverse had no one else to blame but itself for the ballooning interest of its loan and lack of rentals since it insisted on an exaggerated, unjustified, and unreasonable claim, considering that the building was not a total loss, as the building was only partially damaged.16

On November 24, 1998, the RTC rendered a Decision, the dispositive portion of which reads:

WHEREFORE, in the light of all the foregoing, judgment is hereby rendered as follows:

(a) ordering defendant CENTRAL SURETY to pay the DBP one million pesos (P 1,000,000.00) representing the amount for which Fire Insurance Policy No. TAR-1056 was issued, plus interest thereon at 24% which is

double the legal interest ceiling computed from thirty (30) days after defendant received proof of loss on September 29, 1982 (Exh. "D-3", pp. 183-184 Rec.);

(b) ordering defendant DBP to extinguish plaintiff’s loan totally, including interest, penalties and charges;

(c) ordering defendant CENTRAL SURETY to pay plaintiff nominal damages in the amount of P 50,000,00;

(d) ordering both defendants to pay jointly and severally the plaintiff, attorney’s fees in the amount of P50,000.00, plus cost of litigation.17

The RTC held that "total loss" did not require that the building be annihilated and turned into rubble, as long as the property was destroyed to such an extent as to deprive it of the character in which it was insured. In holding Central liable for damages, interests, penalties, attorney’s fees, and costs of suit, the RTC noted how Central had tried to evade Traverse’s claims. It said that Traverse made no declarations as to the use of its building as it had been established that not only was its insurance policy transferred to Central without its knowledge, but that Policy No. TAR 1056 was copied verbatim from its FGU policy.18

The RTC adjudged DBP to be solidarily liable with Central for damages, attorney’s fees, and costs of suit in view of its refusal or failure to pursue the claim against Central. The RTC said that as beneficiary-assignee of Policy No. TAR 1056, DBP should not have stopped at following-up its claim through letters and telegrams but should have either filed its own case against Central or joined Traverse as a co-plaintiff. The RTC took DBP’s inaction as suggestive of its deliberate participation in the transfer of Traverse’s existing insurance coverage from FGU to Central.19

On January 13, 1999, DBP filed a Motion for Reconsideration20 based on the following grounds:

1. THE HONORABLE COURT ERRED IN ORDERING DEFENDANT DBP TO EXTINGUISH [TRAVERSE’S] LOAN TOTALLY INCLUDING INTEREST, PENALTIES AND CHARGES.

2. THE HONORABLE COURT ALSO ERRED IN ORDERING DEFENDANT DBP TO PAY [TRAVERSE] JOINTLY AND SEVERALLY THE ATTORNEY’S FEE AND COST OF LITIGATION.21

On February 1, 1999, the RTC partially granted DBP’s motion by completely deleting paragraph (b) and modifying paragraph (c) of the disposition of its November 24, 1998 Decision. The dispositive portion of the RTC’s decision in Civil Case No. Q-37497, as revised, reads:

(a) ordering defendant CENTRAL SURETY to pay the DBP one million pesos (P 1,000,000.00) representing the amount for which Fire Insurance Policy No. TAR-1056 was issued, plus interest thereon at 24% which is double the legal interest ceiling computed from thirty (30) days after defendant received proof of loss on September 29, 1982 (Exh. "D-3", pp. 183-184 Rec.);

(b) ordering defendant CENTRAL SURETY to pay plaintiff nominal damages in the amount of P 50,000,00;

(c) ordering both defendants to pay plaintiff jointly and severally attorney’s fees in the amount of P50,000.00, plus cost of litigation.22

Both Central and DBP appealed the decision of the RTC to the Court of Appeals, which appeal was docketed as CA-G.R. CV No. 65311.

On September 30, 2004, the Court of Appeals dismissed the appeal and affirmed the RTC.

On October 18, 2004, Central moved for the reconsideration of the Court of Appeals’ Decision, alleging that it dealt in good faith with Traverse.23

On October 20, 2004, DBP filed its own Motion for Partial Reconsideration, seeking the rectification of the misquoted dispositive portion, which was from the November 24, 1998 Decision of the RTC, and the setting aside of the order making DBP solidarily liable with Central for the payment of attorney’s fees and costs of suit.24

On August 11, 2005, the Court of Appeals resolved both motions for reconsideration, denying Central’s as its arguments were but a rehash of its petition, and partially granting DBP’s, in view of the RTC’s February 1, 1999 Order.25

Undaunted, DBP, on September 27, 2005, filed a petition for review of its case before this Court. Pending the resolution of its petition, DBP then moved for this Court to Direct the Lower Court to Issue Writ of Partial Execution.

In seeking our review of its case, DBP assigns only one error, to wit:

THE COURT OF APPEALS ERRED IN HOLDING PETITIONER DBP SOLIDARILY LIABLE WITH RESPONDENT CENTRAL FOR ATTORNEY’S FEES IN THE AMOUNT OF P50,000.00 PLUS COST OF LITIGATION. 26

DBP claims that it cannot be held solidarily liable with Central for the payment of attorney’s fees without contravening Article 2208 of the Civil Code, which sanctions an award only when the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest. DBP argues that there is no legal justification to hold it liable for attorney’s fees and cost of litigation as nowhere in the decision was it stated that Traverse was compelled to litigate because of DBP’s act or omission. DBP alleges that Central’s refusal to pay Traverse’s claim could not be attributed to it especially since it exerted all efforts to collect from Central. It avers that filing a cross-claim would have been a mere surplusage and failure to file such cannot be considered as a basis for its liability. DBP further asseverates that the speculation that Traverse would have been able to easily collect from FGU had its insurance not been transferred to Central is not a basis for awarding attorney’s fees since it was Traverse itself that chose to transfer its insurance to Central.27

This Court’s Ruling

The resolution of this case hinges upon the lone issue of whether or not DBP can be held solidarily liable with Central for the payment of attorney’s fees and cost of litigation, in light of the fact that it was the one that facilitated the transfer of Traverse’s insurance coverage from FGU to Central.

Both the RTC and the Court of Appeals held DBP liable for attorney’s fees and costs of suit because said courts believed that DBP should have been more aggressive in pursuing its claim against Central.

In the absence of stipulation, attorney’s fees may be recovered as actual or compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code,28 to wit:

Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

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

(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim;

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;

(8) In actions for indemnity under workmen's compensation and employer's liability laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation should be recovered.

In all cases, the attorney's fees and expenses of litigation must be reasonable.

Even if it were true that DBP had a hand in the transfer of Traverse’s insurance coverage to Central, such act is not sufficient to hold it solidarily liable with Central for the payment of attorney’s fees and cost of litigation under the above provision of the Civil Code.

Records show that during the testimony of the former insurance examiner of DBP-Tarlac, Victoria Punzalan (Punzalan), she claimed that she had repeatedly reminded Mrs. Lourdes Roxas, Traverse’s President, of the impending expiration of Traverse’s insurance coverage with FGU.29 Mrs. Roxas, however replied that her son would not be able to attend to it as he was out of the country at that time. Subsequently, Atty. Ruperto Zamora of Central called up Punzalan, upon the supposed instruction of Mrs. Roxas, to draw up Traverse’s insurance coverage.30 DBP only came to know that Traverse had already renewed its insurance policy with FGU on May 6, 1981, after Central had already drawn up Policy No. TAR 1056.31

We thus find that DBP could not be blamed for facilitating such transfer in light of the previous delays in Traverse’s submission of its insurance policy. It is worthy to note that Policy No. TAR 1056 was drawn on May 7, 1986, the date that Traverse’s previous FGU policy was set to expire. Moreover, Central was not only one of DBP’s accredited insurance companies, but it also had a local branch office, which made transactions with it faster and easier.

This Court also cannot sustain the insinuation that DBP’s lax attitude in pursuing its claim against Central was tantamount to bad faith as to make it liable for attorney’s fees and costs of suit. Even a resort to the principle of equity will not justify making DBP liable. 1awphil1

The award of attorney’s fees is the exception rather than the rule and the court must state explicitly the legal reason for such award.32 As we held in ABS-CBN Broadcasting Corporation v. Court of Appeals33:

The general rule is that attorney’s fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. They are not to be awarded every time a party wins a suit. The power of the court to award attorney’s fees under Article 2208 demands factual, legal, and equitable justification. Even when a claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney’s fees may not be awarded where no sufficient showing of bad faith could be reflected in a party’s persistence in a case other than an erroneous conviction of the righteousness of his cause.34 (Emphasis supplied.)

It should be remembered that Traverse’s insurance policy was assigned to DBP. While it is true that DBP still had the real estate mortgage to ensure the payment of Traverse’s loan, it would be in its favor to facilitate Central’s payment on Policy No. TAR 1056 rather than go through the process of foreclosing Traverse’s lot or having to demand payment again, albeit from Traverse this time. Moreover, Traverse’s own evidence shows that DBP had tried its best to facilitate and coordinate meetings between Traverse and Central. DBP Tarlac even suggested to its main office to have Central blacklisted from its roster of accredited insurance companies as an effect of its handling of the Traverse fire insurance claim.35

It was not DBP’s act of facilitating the transfer of Traverse’s insurance policy from FGU to Central that compelled Traverse to litigate its claims, but rather Central’s persistent refusal to pay such claims. Thus, only Central should be held liable for the payment of attorney’s fees and costs of suit.

In view of the foregoing, the Motion filed by DBP to direct the lower court to issue a writ of partial execution has become moot.

WHEREFORE, this Court GRANTS the petition and MODIFIES the September 30, 2004 Decision as well as the August 11, 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 65311 by holding that petitioner Development Bank of the Philippines is not liable for the payment of attorney’s fees and costs of suit in said case.

SO ORDERED.

G.R. No. 177685               January 26, 2011

HEIRS OF RAMON C. GAITE, CYNTHIA GOROSTIZA GAITE and RHOGEN BUILDERS, Petitioners, vs.THE PLAZA, INC. and FGU INSURANCE CORPORATION, Respondents.

VILLARAMA, JR., J.:

This is a petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended, which seeks to reverse and set aside the Decision1 dated June 27, 2006 and Resolution2 dated April 20, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 58790. The CA affirmed with modification the Decision3 dated July 3, 1997 of the Regional Trial Court (RTC) of Makati City, Branch 63, in Civil Case Nos. 1328 (43083) and 40755.

The facts are as follows:

On July 16, 1980, The Plaza, Inc. (The Plaza), a corporation engaged in the restaurant business, through its President, Jose C. Reyes, entered into a contract4 with Rhogen Builders (Rhogen), represented by Ramon C. Gaite, for the construction of a restaurant building in Greenbelt, Makati, Metro Manila for the price ofP7,600,000.00. On July 18, 1980, to secure Rhogen’s compliance with its obligation under the contract, Gaite and FGU Insurance Corporation (FGU) executed a surety bond in the amount of P1,155,000.00 in favor of The Plaza. On July 28, 1980, The Plaza paid P1,155,000.00 less withholding taxes as down payment to Gaite. Thereafter, Rhogen commenced construction of the restaurant building.

In a letter dated September 10, 1980, Engineer Angelito Z. Gonzales, the Acting Building Official of the Municipality of Makati, ordered Gaite to cease and desist from continuing with the construction of the building for violation of Sections 301 and 302 of the National Building Code (P.D. 1096) and its implementing rules and regulations.5 The letter was referred to The Plaza’s Project Manager, Architect Roberto L. Tayzon.

On September 15, 1980, Engr. Gonzales informed Gaite that the building permit for the construction of the restaurant was revoked for non-compliance with the provisions of the National Building Code and for the additional temporary construction without permit.6 The Memorandum Report of Building Inspector Victor Gregory enumerated the following violations of Rhogen in the construction of the building:

1) No permit for Temporary Structure.

2) No notice of concrete pouring.

3) Some workers have no safety devices.

4) The Secretary and Construction Foreman refused to [receive] the Letter of Stoppage dated September 10, 1980.

5) Mr. Ramon Gaite [is] questioning the authority of the Building Official’s Inspector.

6) Construction plans use[d] on the job site is not in accordance to the approved plan.7

On September 19, 1980, the Project Manager (Tayzon) in his Construction Memo #23 reported on his evaluation of Progress Billing #1 submitted by Rhogen. Tayzon stated that actual jobsite assessment showed that the finished works fall short of Rhogen’s claimed percentage of accomplishment and Rhogen was entitled to onlyP32,684.16 and not P260,649.91 being demanded by Rhogen. Further, he recommended that said amount payable to Rhogen be withheld pending compliance with Construction Memo #18, resolution of cases regarding unauthorized withdrawal of materials from jobsite and stoppage of work by the Municipal Engineer’s Office of Makati.8

On October 7, 1980, Gaite wrote Mr. Jose C. Reyes, President of The Plaza regarding his actions/observations on the stoppage order issued. On the permit for temporary structure, Gaite said the plans were being readied for submission to the Engineering Department of the Municipality of Makati and the application was being resent to Reyes for his appropriate action. As to the notice for concrete pouring, Gaite said that their construction set-up provides for a Project Manager to whom the Pouring Request is first submitted and whose job is to clear to whoever parties are involved (this could still be worked out with the Building Inspector). Regarding the safety devices for workers, Gaite averred that he had given strict rules on this but in the course of construction some workers have personal preferences. On the refusal of the secretary and construction foreman to receive the stoppage order dated September 10, 1980, Gaite took responsibility but insisted it was not a violation of theNational Building Code. Likewise, questioning the authority of the Building Inspector is not a violation of the Code although Gaite denied he ever did so. Lastly, on the construction plans used in the jobsite not being in accordance with the approved plan, Gaite said he had sent Engr. Cristino V. Laurel on October 3, 1980 to Reyes’ office and make a copy of the only approved plan which was in the care of Reyes, but the latter did not give it to Engr. Laurel. Gaite thus thought that Reyes would handle the matter by himself.9

On the same day, Gaite notified Reyes that he is suspending all construction works until Reyes and the Project Manager cooperate to resolve the issue he had raised to address the problem.10 This was followed by another letter dated November 18, 1980 in which Gaite expressed his sentiments on their aborted project and reiterated that they can still resolve the matter with cooperation from the side of The Plaza.11 In his reply-letter dated November 24, 1980, Reyes asserted that The Plaza is not the one to initiate a solution to the situation, especially after The Plaza already paid the agreed down payment of P1,155,000.00, which compensation so far exceeds the work completed by Rhogen before the municipal authorities stopped the construction for several violations. Reyes made it clear they have no obligation to help Rhogen get out of the situation arising from non-performance of its own contractual undertakings, and that The Plaza has its rights and remedies to protect its interest.12

Subsequently, the correspondence between Gaite and Reyes involved the custody of remaining bags of cement in the jobsite, in the course of which Gaite was charged with estafa for ordering the removal of said items. Gaite complained that Reyes continued to be uncooperative in refusing to meet with him to resolve the delay. Gaite further answered the estafa charge by saying that he only acted to protect the interest of the owner (prevent spoilage/hardening of cement) and that Reyes did not reply to his request for exchange.13

On January 9, 1981, Gaite informed The Plaza that he is terminating their contract based on the Contractor’s Right to Stop Work or Terminate Contracts as provided for in the General Conditions of the Contract. In his letter, Gaite accused Reyes of not cooperating with Rhogen in solving the problem concerning the revocation of the building permits, which he described as a "minor problem." Additionally, Gaite demanded the payment ofP63,058.50 from The Plaza representing the work that has already been completed by Rhogen.14

On January 13, 1981, The Plaza, through Reyes, countered that it will hold Gaite and Rhogen fully responsible for failure to comply with the terms of the contract and to deliver the finished structure on the stipulated date. Reyes argued that the down payment made by The Plaza was more than enough to cover Rhogen’s expenses.15

In a subsequent letter dated January 20, 1981, Reyes adverted to Rhogen’s undertaking to complete the construction within 180 calendar days from July 16, 1980 or up to January 12, 1981, and to pay the agreed payment of liquidated damages for every month of delay, chargeable against the performance bond posted by FGU. Reyes

invoked Section 121 of the Articles of General Conditions granting the owner the right to terminate the contract if the contractor fails to execute the work properly and to make good such deficiencies and deducting the cost from the payment due to the contractor. Reyes also informed Gaite that The Plaza will continue the completion of the structure utilizing the services of a competent contractor but will charge Rhogen for liquidated damages as stipulated in Article VIII of the Contract. After proper evaluation of the works completed by Rhogen, The Plaza shall then resume the construction and charge Rhogen for all the costs and expenses incurred in excess of the contract price. In the meantime that The Plaza is still evaluating the extent and condition of the works performed by Rhogen to determine whether these are done in accordance with the approved plans, Reyes demanded from Gaite the reimbursement of the balance of their initial payment of P1,155,000.00 from the value of the works correctly completed by Rhogen, or if none, to reimburse the entire down payment plus expenses of removal and replacement. Rhogen was also asked to turn over the jobsite premises as soon as possible.16 The Plaza sent copy of said letter to FGU but the latter replied that it has no liability under the circumstances and hence it could not act favorably on its claim against the bond.17

On March 3, 1981, The Plaza notified Gaite that it could no longer credit any payment to Rhogen for the work it had completed because the evaluation of the extent, condition, and cost of work done revealed that in addition to the violations committed during the construction of the building, the structure was not in accordance with plans approved by the government and accepted by Ayala. Hence, The Plaza demanded the reimbursement of the down payment, the cost of uprooting or removal of the defective structures, the value of owner-furnished materials, and payment of liquidated damages.18

On March 26, 1981, The Plaza filed Civil Case No. 40755 for breach of contract, sum of money and damages against Gaite and FGU in the Court of First Instance (CFI) of Rizal.19 The Plaza later amended its complaint to include Cynthia G. Gaite and Rhogen.20 The Plaza likewise filed Civil Case No. 1328 (43083) against Ramon C. Gaite, Cynthia G. Gaite and/or Rhogen Builders also in the CFI of Rizal for nullification of the project development contract executed prior to the General Construction Contract subject of Civil Case No. 40755, which was allegedly in violation of the provisions of R.A. No. 545 (Architectural Law of the Philippines).21 After the reorganization of the Judiciary in 1983, the cases were transferred to the RTC of Makati and eventually consolidated.

On July 3, 1997, Branch 63 of the RTC Makati rendered its decision granting the claims of The Plaza against Rhogen, the Gaites and FGU, and the cross-claim of FGU against Rhogen and the Gaites. The trial court ruled that the Project Manager was justified in recommending that The Plaza withhold payment on the progress billings submitted by Rhogen based on his evaluation that The Plaza is liable to pay only P32,684.16 and notP260,649.91. The other valid grounds for the withholding of payment were the pending estafa case against Gaite, non-compliance by Rhogen with Construction Memorandum No. 18 and the non-lifting of the stoppage order.22

Regarding the non-lifting of the stoppage order, which the trial court said was based on simple infractions, the same was held to be solely attributable to Rhogen’s willful inaction. Instead of readily rectifying the violations, Rhogen continued with the construction works thereby causing more damage. The trial court pointed out that Rhogen is not only expected to be aware of standard requirements and pertinent regulations on construction work, but also expressly bound itself under the General Construction Contract to comply with all the laws, city and municipal ordinances and all government regulations. Having failed to complete the project within the stipulated period and comply with its obligations, Rhogen was thus declared guilty of breaching the Construction Contract and is liable for damages under Articles 1170 and 1167 of the Civil Code.23

The dispositive portion of the trial court’s decision reads:

WHEREFORE, in Civil Case No. 40755, defendants Ramon Gaite, Cynthia Gaite and Rhogen Builders are jointly and severally ordered to pay plaintiff:

1. the amount of P525,422.73 as actual damages representing owner-furnished materials with legal interest from the time of filing of the complaint until full payment;

2. the amount of P14,504.66 as actual damages representing expenses for uprooting with interest from the time of filing the complaint until full payment;

3. the amount of P1,155,000.00 as actual damages representing the downpayment with legal interest from the time of filing the complaint until full payment;

4. the amount of P150,000.00 for moral damages;

5. the amount of P100,000.00 for exemplary damages;

6. the amount of P500,000.00 as liquidated damages;

7. the amount of P100,000.00 as reasonable attorney’s fees; and,

8. the cost of suit.

Under the surety bond, defendants Rhogen and FGU are jointly and severally ordered to pay plaintiff the amount of P1,155,000.00 with legal interest from the time of filing the complaint until full payment. In the event [that] FGU pays the said amount, third-party defendants are jointly and severally ordered to pay the same amount to FGU plus P50,000.00 as reasonable attorney’s fees, the latter having been forced to litigate, and the cost of suit.

Civil Case No. 1328 is hereby ordered dismissed with no pronouncement as to cost.

SO ORDERED.24

Dissatisfied, Ramon and Cynthia Gaite, Rhogen and FGU appealed to the CA.25 In view of the death of Ramon C. Gaite on April 21, 1999, the CA issued a Resolution dated July 12, 2000 granting the substitution of the former by his heirs Cynthia G. Gaite, Rhoel Santiago G. Gaite, Genevieve G. Gaite and Roman Juan G. Gaite.26

In their appeal, the heirs of Ramon C. Gaite, Cynthia G. Gaite and Rhogen assigned the following errors, to wit:

I. THE TRIAL COURT ERRED IN DECLARING THAT THE GROUNDS RELIED UPON BY DEFENDANT-APPELLANT RHOGEN BUILDERS IN TERMINATING THE CONTRACT ARE UNTENABLE;

II. THE TRIAL COURT ERRED IN DECLARING THAT THE NON-LIFTING OF THE STOPPAGE ORDER OF THE THEN MUNICIPAL GOVERNMENT OF MAKATI WAS SOLELY ATTRIBUTABLE TO DEFENDANT-APPELLANT RHOGEN’S WILLFUL INACTION;

III. THE TRIAL COURT ERRED IN FAILING TO CONSIDER THAT IT WAS THE WILLFUL INACTION OF PLAINTIFF-APPELLEE WHICH MADE IT IMPOSSIBLE FOR DEFENDANT–APPELLANT RHOGEN TO PERFORM ITS OBLIGATIONS UNDER THE CONTRACT;

IV. THE TRIAL COURT ERRED IN AWARDING ACTUAL DAMAGES AS WELL AS MORAL, EXEMPLARY, AND LIQUIDATED DAMAGES AND ATTORNEY’S FEES SINCE THERE WERE NO FACTUAL AND LEGAL BASES THEREFOR; AND

V. THE TRIAL COURT ERRED IN FAILING TO AWARD ACTUAL, MORAL AND EXEMPLARY DAMAGES AND ATTORNEY’S FEES IN FAVOR OF DEFENDANTS-APPELLANTS.27

For its part, FGU interposed the following assignment of errors:

I. THE REGIONAL TRIAL COURT ERRED IN NOT RULING THAT DEFENDANT-APPELLANT RAMON GAITE VALIDLY TERMINATED THE CONTRACT BETWEEN HIM AND PLAINTIFF-APPELLEE.

II. THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANT-APPELLANT RAMON GAITE RESPONSIBLE FOR THE STOPPAGE OF THE CONSTRUCTION.

III. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-APPELLANT RAMON GAITE TO PAY THE AMOUNT OF P525,422.73 FOR THE OWNER FURNISHED MATERIALS.

IV. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-APPELLANT RAMON GAITE TO PAY PLAINTIFF-APPELLEE THE AMOUNT OF P14,504.66 AS ALLEGED EXPENSES FOR UPROOTING THE WORK HE PERFORMED.

V. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-APPELLANT RAMON GAITE TO REFUND THE DOWN PAYMENT OF P1,155,000.00 PLAINTIFF-APPELLEE PAID HIM.

VI. THE REGIONAL TRIAL COURT ERRED IN AWARDING MORAL DAMAGES TO PLAINTIFF-APPELLEE.

VII. THE REGIONAL TRIAL COURT ERRED IN AWARDING EXEMPLARY DAMAGES TO PLAINTIFF-APPELLEE.

VIII. THE REGIONAL TRIAL [COURT] ERRED IN AWARDING LIQUIDATED DAMAGES TO PLAINTIFF-APPELLEE.

IX. THE REGIONAL TRIAL COURT ERRED IN AWARDING ATTORNEY’S FEES TO PLAINTIFF-APPELLEE.

X. THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANT-APPELLANT FGU INSURANCE CORPORATION LIABLE TO PLAINTIFF-APPELLEE.28

On June 27, 2006, the CA affirmed the Decision of the trial court but modified the award of damages as follows:

WHEREFORE, the Decision dated July 3, 1997 rendered by the Regional Trial Court of Makati City, Branch 63 in Civil Case Nos. 40755 and 1328 is AFFIRMED with the modification that: (a) the award for actual damages representing the owner-furnished materials and the expenses for uprooting are deleted, and in lieu thereof, the amount of P300,000.00 as temperate damages is awarded; and (b) the awards for moral, exemplary, liquidated and attorney’s fees are likewise deleted.

SO ORDERED.29

According to the CA, The Plaza cannot now be demanded to comply with its obligation under the contract since Rhogen has already failed to comply with its own contractual obligation. Thus, The Plaza had every reason not to pay the progress billing as a result of Rhogen’s inability to perform its obligations under the contract. Further, the stoppage and revocation orders were issued on account of Rhogen’s own violations involving the construction as found by the local building official. Clearly, Rhogen cannot blame The Plaza for its own failure to comply with its contractual obligations. The CA stressed that Rhogen obliged itself to comply with "all the laws, city and municipal ordinances and all government regulations insofar as they are binding upon or affect the parties [to the contract] , the work or those engaged thereon."30 As such, it was responsible for the lifting of the stoppage and revocation orders. As to Rhogen’s act of challenging the validity of the stoppage and revocation orders, the CA held that it cannot be done in the present case because under Section 307 of the National Building Code, appeal to the Secretary of the Department of Public Works and Highways (DPWH) – whose decision is subject to review by the Office of the President -- is available as remedy for Rhogen.31

However, the CA modified the award of damages holding that the claim for actual damages of P525,422.73 representing the damaged owner-furnished materials was not supported by any evidence. Instead, the CA granted temperate damages in the amount of P300,000.00. As to moral damages, no specific finding for the factual basis of said award was made by the trial court, and hence it should be deleted. Likewise, liquidated damages is not proper considering that this is not a case of delay but non-completion of the project. The Plaza similarly failed to establish that Rhogen and Gaite acted with malice or bad faith; consequently, the award of exemplary damages must be deleted. Finally, there being no bad faith on the part of the defendants, the award of attorneys’ fees cannot be sustained.32

The motion for reconsideration of the aforesaid Decision was denied in the Resolution dated April 20, 2007 for lack of merit. Hence, this appeal.

Before us, petitioners submit the following issues:

I.

Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack of or excess of jurisdiction, when it found that Petitioner Rhogen had no factual or legal basis to terminate the General Construction Contract.

II.

Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack of or excess of jurisdiction, when, as a consequence of its finding that Petitioners did not have valid grounds to terminate the Construction Contract, it directed Petitioners to return the downpayment paid by The Plaza, with legal interest.

III.

Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack of or excess of jurisdiction, when, in addition thereto, it awarded temperate damages to The Plaza.

IV.

Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack of or excess of jurisdiction, when it failed to award damages in favor of Petitioners.33

Petitioners contend that the CA gravely erred in not holding that there were valid and legal grounds for Rhogen to terminate the contract pursuant to Article 1191 of the Civil Code   and Article 123 of the General Conditions of the Construction Contract. Petitioners claim that Rhogen sent Progress Billing No. 1 dated September 10, 1980 and demanded payment from The Plaza in the net amount of P473,554.06 for the work it had accomplished from July 28, 1980 until September 7, 1980. The Plaza, however, failed to pay the said amount. According to petitioners, Article 123 of the General Conditions of the Construction Contract gives The Plaza seven days from notice within which to pay the Progress Billing; otherwise, Rhogen may terminate the contract. Petitioners also invoke Article 1191 of the Civil Code, which states that 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.

We deny the petition.

Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other. Respondent The Plaza predicated its action on Article 119134 of the Civil Code, which provides for the remedy of "rescission" or more properly resolution, a principal action based on breach of faith by the other party who violates the reciprocity between them. The breach contemplated in the provision is the obligor’s failure to comply with an existing obligation. Thus, the power to rescind is given only to the injured party. The injured party is the party who has faithfully fulfilled his obligation or is ready and willing to perform his obligation.35

The construction contract between Rhogen and The Plaza provides for reciprocal obligations whereby the latter’s obligation to pay the contract price or progress billing is conditioned on the former’s performance of its undertaking to complete the works within the stipulated period and in accordance with approved plans and other specifications by the owner. Pursuant to its contractual obligation, The Plaza furnished materials and paid the agreed down payment. It also exercised the option of furnishing and delivering construction materials at the jobsite pursuant to Article III of the Construction Contract. However, just two months after commencement of the project, construction works were ordered stopped by the local building official and the building permit subsequently revoked on account of several violations of the National Building Code and other regulations of the municipal authorities.

Petitioners reiterate their position that the stoppage order was unlawful, citing the fact that when the new contractor (ACK Construction, Inc.) took over the project, the local government of Makati allowed the construction of the building using the old building permit; moreover, the basement depth of only two meters was retained, with no further excavation made. They cite the testimony of the late Ramon Gaite before the trial court that at the time, he had incurred the ire of then Mayor of Makati because his (Gaite) brother was the Mayor’s political opponent; hence, they sought to file whatever charge they could against him in order to call the attention of his brother. This "political harassment" defense was raised by petitioners in their Amended Answer. Gaite’s testimony was intended to explain the circumstances leading to his decision to terminate the construction contract and not to question the revocation of the building permit. As the available remedy was already foreclosed, it was thus error for the CA to suggest that Rhogen should have appealed the stoppage and revocations orders issued by the municipal authorities to the DPWH and then to the OP.36

Article 123 of the Articles of General Conditions states the grounds for the termination of the work or contract by the Contractor:

123. CONTRACTOR’S RIGHT TO STOP WORK OR TERMINATE

CONTRACT

If work should be stopped under order of any court, or other public authority, for period of three (3) months through no act or fault of Contractor or of anyone employed by him, or if Owner’s Representative should fail to issue any certificate of payment within seven (7) days after its maturity and presentation of any sum certified by Owner’s Representative or awarded arbitrator, then contractor, may, stop work or terminate Contract, recover from Owner payment for work executed, loss sustained upon any plant or materials, reasonable profit, damages.37 (Emphasis supplied.)

Petitioners may not justify Rhogen’s termination of the contract upon grounds of non-payment of progress billing and uncooperative attitude of respondent The Plaza and its employees in rectifying the violations which were the basis for issuance of the stoppage order. Having breached the contractual obligation it had expressly assumed, i.e., to comply with all laws, rules and regulations of the local authorities, Rhogen was already at fault. Respondent The Plaza, on the other hand, was justified in withholding payment on Rhogen’s first progress billing, on account of the stoppage order and additionally due to disappearance of owner-furnished materials at the jobsite. In failing to have the stoppage and revocation orders lifted or recalled, Rhogen should take full responsibility in accordance with its contractual undertaking, thus:

In the performance of the works, services, and obligations subject of this Contract, the CONTRACTOR binds itself to observe all pertinent and applicable laws, rules and regulations promulgated by duly constituted authorities and to be personally, fully and solely liable for any and all violations of the same.38 (Emphasis supplied.)

Significantly, Rhogen did not mention in its communications to Reyes that Gaite was merely a victim of abuse by a local official and this was the primary reason for the problems besetting the project. On the contrary, the site appraisal inspection conducted on February 12 and 13, 1981 in the presence of representatives from The Plaza, Rhogen, FGU and Municipal Engineer Victor Gregory, disclosed that in addition to the violations committed by Rhogen which resulted in the issuance of the stoppage order, Rhogen built the structure not in accordance with government approved plans and/or without securing the approval of the Municipal Engineer before making the changes thereon.39

Such non-observance of laws and regulations of the local authorities affecting the construction project constitutes a substantial violation of the Construction Contract which entitles The Plaza to terminate the same, without obligation

to make further payment to Rhogen until the work is finished or subject to refund of payment exceeding the expenses of completing the works. This is evident from a reading of Article 122 which states:

122. OWNER’S RIGHT TO TERMINATE CONTRACT

A. If Contractor should be adjudged bankrupt, or if he should make general assignment for benefit of his creditors, or if receiver should be appointed on account of his insolvency, or if he should persistently or repeatedly refuse or should fail, except in cases for which extension of time is provided, to supply enough properly skilled workmen or proper materials, or if he should fail to make prompt payment to Sub-Contractors or for materials of labor, or persistently disregard laws, ordinances, or instructions of Owner’s Representative or otherwise be guilty of substantial violation of any provision of [the] Contract, then Owner, upon certification by Owner’s Representative that sufficient cause exists to justify such action, may, without prejudice to any right or remedy, after giving Contractor seven days written notice, terminate contract with Contractor, take possession of premises, materials, tools, appliances, thereon, finish work by whatever method he may deem expedient. In such cases, Contractor shall not be entitled to receive any further payment until work is finished.

B. If unpaid balance of Contract sum shall exceed expense of finishing work including compensation for additional managerial and administrative services, such excess, paid to Contractor. Refund the difference to Owner if such expense shall exceed unpaid balance.40 (Emphasis supplied.)

Upon the facts duly established, the CA therefore did not err in holding that Rhogen committed a serious breach of its contract with The Plaza, which justified the latter in terminating the contract. Petitioners are thus liable for damages for having breached their contract with respondent The Plaza. Article 1170 of the Civil Code 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.

Petitioners assail the order for the return of down payment, asserting that the principle of quantum meruit demands that Rhogen as contractor be paid for the work already accomplished.

We disagree.

Under the principle of quantum meruit, a contractor is allowed to recover the reasonable value of the thing or services rendered despite the lack of a written contract, in order to avoid unjust enrichment. Quantum meruit means that in an action for work and labor, payment shall be made in such amount as the plaintiff reasonably deserves. To deny payment for a building almost completed and already occupied would be to permit unjust enrichment at the expense of the contractor.41

Rhogen failed to finish even a substantial portion of the works due to the stoppage order issued just two months from the start of construction. Despite the down payment received from The Plaza, Rhogen, upon evaluation of the Project Manager, was able to complete a meager percentage much lower than that claimed by it under the first progress billing between July and September 1980. Moreover, after it relinquished the project in January 1981, the site inspection appraisal jointly conducted by the Project Manager, Building Inspector Engr. Gregory and representatives from FGU and Rhogen, Rhogen was found to have executed the works not in accordance with the approved plans or failed to seek prior approval of the Municipal Engineer. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to do it, the same shall be executed at his cost.

Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone.

In addition, Article 122 of the Articles of General Conditions provides that the contractor shall not be entitled to receive further payment "until the work is finished." As the works completed by Rhogen were not in accordance with approved plans, it should have been executed at its cost had it not relinquished the project in January 1981. The CA thus did not err in sustaining the trial court’s order for the return of the down payment given by The Plaza to Rhogen.

As to temperate damages, Article 2224 of the Civil Code provides that temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty. The rationale behind temperate damages is precisely that from the nature of the case, definite proof of pecuniary loss cannot be offered. When the court is convinced that there has been such loss, the judge is empowered to calculate moderate damages, rather than let the complainant suffer without redress from the defendant’s wrongful act.42 Petitioners’ contention that such award is improper because The Plaza could have presented receipts to support the claim for actual damages, must fail considering that Rhogen never denied the delivery of the owner-furnished materials which were under its custody at the jobsite during the work stoppage and before it terminated the contract. Since Rhogen failed to account either for those items which it had caused to be withdrawn from the premises, or those considered damaged or lost due spoilage, or disappeared for whatever reason – there was no

way of determining the exact quantity and cost of those materials. 1âwphi1 Hence, The Plaza was correctly allowed to recover temperate damages.

Upon the foregoing, we find petitioners’ claim for actual, moral and exemplary damages and attorney’s fees lacking in legal basis and undeserving of further discussion.

WHEREFORE, the petition is DENIED. The Decision dated June 27, 2006 and the Resolution dated April 20, 2007 of the Court of Appeals in CA-G.R. CV No. 58790 are AFFIRMED.

With costs against petitioners.

SO ORDERED.

G.R. No. 193723               July 20, 2011

GENERAL MILLING CORPORATION, Petitioner, vs.SPS. LIBRADO RAMOS and REMEDIOS RAMOS, Respondents.

VELASCO, JR., J.:

The Case

This is a petition for review of the April 15, 2010 Decision of the Court of Appeals (CA) in CA-G.R. CR-H.C. No. 85400 entitled Spouses Librado Ramos & Remedios Ramos v. General Milling Corporation, et al., which affirmed the May 31, 2005 Decision of the Regional Trial Court (RTC), Branch 12 in Lipa City, in Civil Case No. 00-0129 for Annulment and/or Declaration of Nullity of Extrajudicial Foreclosure Sale with Damages.

The Facts

On August 24, 1989, General Milling Corporation (GMC) entered into a Growers Contract with spouses Librado and Remedios Ramos (Spouses Ramos). Under the contract, GMC was to supply broiler chickens for the spouses to raise on their land in Barangay Banaybanay, Lipa City, Batangas.1 To guarantee full compliance, the Growers Contract was accompanied by a Deed of Real Estate Mortgage over a piece of real property upon which their conjugal home was built. The spouses further agreed to put up a surety bond at the rate of PhP 20,000 per 1,000 chicks delivered by GMC. The Deed of Real Estate Mortgage extended to Spouses Ramos a maximum credit line of PhP 215,000 payable within an indefinite period with an interest of twelve percent (12%) per annum.2

The Deed of Real Estate Mortgage contained the following provision:

WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and secure the full and faithful compliance of [MORTGAGORS’] obligation/s with the MORTGAGEE by a First Real Estate Mortgage in favor of the MORTGAGEE, over a 1 parcel of land and the improvements existing thereon, situated in the Barrio/s of -Banaybanay, Municipality of Lipa City, Province of Batangas, Philippines, his/her/their title/s thereto being evidenced by Transfer Certificate/s No./s T-9214 of the Registry of Deeds for the Province of Batangas in the amount of TWO HUNDRED FIFTEEN THOUSAND (P 215,000.00), Philippine Currency, which the maximum credit line payable within a x x x day term and to secure the payment of the same plus interest of twelve percent (12%) per annum.

Spouses Ramos eventually were unable to settle their account with GMC. They alleged that they suffered business losses because of the negligence of GMC and its violation of the Growers Contract.3

On March 31, 1997, the counsel for GMC notified Spouses Ramos that GMC would institute foreclosure proceedings on their mortgaged property.4

On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage. On June 10, 1997, the property subject of the foreclosure was subsequently sold by public auction to GMC after the required posting and publication.5 It was foreclosed for PhP 935,882,075, an amount representing the losses on chicks and feeds exclusive of interest at 12% per annum and attorney’s fees.6 To complicate matters, on October 27, 1997, GMC informed the spouses that its Agribusiness Division had closed its business and poultry operations.7

On March 3, 2000, Spouses Ramos filed a Complaint for Annulment and/or Declaration of Nullity of the Extrajudicial Foreclosure Sale with Damages. They contended that the extrajudicial foreclosure sale on June 10, 1997 was null and void, since there was no compliance with the requirements of posting and publication of notices under Act No. 3135, as amended, or An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages. They likewise claimed that there was no sheriff’s affidavit to prove compliance with the requirements on posting and publication of notices. It was further alleged that the Deed of Real Estate Mortgage had no fixed term. A prayer for moral and exemplary damages and attorney’s fees was also included in the

complaint.8 Librado Ramos alleged that, when the property was foreclosed, GMC did not notify him at all of the foreclosure.9

During the trial, the parties agreed to limit the issues to the following: (1) the validity of the Deed of Real Estate Mortgage; (2) the validity of the extrajudicial foreclosure; and (3) the party liable for damages.10

In its Answer, GMC argued that it repeatedly reminded Spouses Ramos of their liabilities under the Growers Contract. It argued that it was compelled to foreclose the mortgage because of Spouses Ramos’ failure to pay their obligation. GMC insisted that it had observed all the requirements of posting and publication of notices under Act No. 3135.11

The Ruling of the Trial Court

Holding in favor of Spouses Ramos, the trial court ruled that the Deed of Real Estate Mortgage was valid even if its term was not fixed. Since the duration of the term was made to depend exclusively upon the will of the debtors-spouses, the trial court cited jurisprudence and said that "the obligation is not due and payable until an action is commenced by the mortgagee against the mortgagor for the purpose of having the court fix the date on and after which the instrument is payable and the date of maturity is fixed in pursuance thereto."12

The trial court held that the action of GMC in moving for the foreclosure of the spouses’ properties was premature, because the latter’s obligation under their contract was not yet due.

The trial court awarded attorney’s fees because of the premature action taken by GMC in filing extrajudicial foreclosure proceedings before the obligation of the spouses became due.

The RTC ruled, thus:

WHEREFORE, premises considered, judgment is rendered as follows:

1. The Extra-Judicial Foreclosure Proceedings under docket no. 0107-97 is hereby declared null and void;

2. The Deed of Real Estate Mortgage is hereby declared valid and legal for all intents and puposes;

3. Defendant-corporation General Milling Corporation is ordered to pay Spouses Librado and Remedios Ramos attorney’s fees in the total amount of P 57,000.00 representing acceptance fee of P30,000.00 and P3,000.00 appearance fee for nine (9) trial dates or a total appearance fee of P 27,000.00;

4. The claims for moral and exemplary damages are denied for lack of merit.

IT IS SO ORDERED.13

The Ruling of the Appellate Court

On appeal, GMC argued that the trial court erred in: (1) declaring the extrajudicial foreclosure proceedings null and void; (2) ordering GMC to pay Spouses Ramos attorney’s fees; and (3) not awarding damages in favor of GMC.

The CA sustained the decision of the trial court but anchored its ruling on a different ground. Contrary to the findings of the trial court, the CA ruled that the requirements of posting and publication of notices under Act No. 3135 were complied with. The CA, however, still found that GMC’s action against Spouses Ramos was premature, as they were not in default when the action was filed on May 7, 1997.14

The CA ruled:

In this case, a careful scrutiny of the evidence on record shows that defendant-appellant GMC made no demand to spouses Ramos for the full payment of their obligation. While it was alleged in the Answer as well as in the Affidavit constituting the direct testimony of Joseph Dominise, the principal witness of defendant-appellant GMC, that demands were sent to spouses Ramos, the documentary evidence proves otherwise. A perusal of the letters presented and offered as evidence by defendant-appellant GMC did not "demand" but only request spouses Ramos to go to the office of GMC to "discuss" the settlement of their account.15

According to the CA, however, the RTC erroneously awarded attorney’s fees to Spouses Ramos, since the presumption of good faith on the part of GMC was not overturned.

The CA disposed of the case as follows:

WHEREFORE, and in view of the foregoing considerations, the Decision of the Regional Trial Court of Lipa City, Branch 12, dated May 21, 2005 is hereby AFFIRMED with MODIFICATION by deleting the award of attorney’s fees to plaintiffs-appellees spouses Librado Ramos and Remedios Ramos.16

Hence, We have this appeal.

The Issues

A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT ALLEGED AND DISCUSSED IN THE LOWER COURT AND LIKEWISE NOT RAISED BY THE PARTIES ON APPEAL, THEREFORE HAD DECIDED THE CASE NOT IN ACCORD WITH LAW AND APPLICABLE DECISIONS OF THE SUPREME COURT.

B. WHETHER [THE CA] ERRED IN RULING THAT PETITIONER GMC MADE NO DEMAND TO RESPONDENT SPOUSES FOR THE FULL PAYMENT OF THEIR OBLIGATION CONSIDERING THAT THE LETTER DATED MARCH 31, 1997 OF PETITIONER GMC TO RESPONDENT SPOUSES IS TANTAMOUNT TO A FINAL DEMAND TO PAY, THEREFORE IT DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS.17

The Ruling of this Court

Can the CA consider matters not alleged?

GMC asserts that since the issue on the existence of the demand letter was not raised in the trial court, the CA, by considering such issue, violated the basic requirements of fair play, justice, and due process.18

In their Comment,19 respondents-spouses aver that the CA has ample authority to rule on matters not assigned as errors on appeal if these are indispensable or necessary to the just resolution of the pleaded issues.

In Diamonon v. Department of Labor and Employment,20 We explained that an appellate court has a broad discretionary power in waiving the lack of assignment of errors in the following instances:

(a) Grounds not assigned as errors but affecting the jurisdiction of the court over the subject matter;

(b) Matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law;

(c) 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 interests of a justice or to avoid dispensing piecemeal justice;

(d) 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;

(e) Matters not assigned as errors on appeal but closely related to an error assigned;

(f) Matters not assigned as errors on appeal but upon which the determination of a question properly assigned, is dependent.

Paragraph (c) above applies to the instant case, for there would be a just and complete resolution of the appeal if there is a ruling on whether the Spouses Ramos were actually in default of their obligation to GMC.

Was there sufficient demand?

We now go to the second issue raised by GMC. GMC asserts error on the part of the CA in finding that no demand was made on Spouses Ramos to pay their obligation. On the contrary, it claims that its March 31, 1997 letter is akin to a demand.

We disagree.

There are three requisites necessary for a finding of default. First, the obligation is demandable and liquidated; second, the debtor delays performance; and third, the creditor judicially or extrajudicially requires the debtor’s performance.21

According to the CA, GMC did not make a demand on Spouses Ramos but merely requested them to go to GMC’s office to discuss the settlement of their account. In spite of the lack of demand made on the spouses, however, GMC proceeded with the foreclosure proceedings. Neither was there any provision in the Deed of Real Estate Mortgage allowing GMC to extrajudicially foreclose the mortgage without need of demand.

Indeed, Article 1169 of the Civil Code on delay requires the following:

Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfilment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declares; x x x

As the contract in the instant case carries no such provision on demand not being necessary for delay to exist, We agree with the appellate court that GMC should have first made a demand on the spouses before proceeding to foreclose the real estate mortgage.

Development Bank of the Philippines v. Licuanan finds application to the instant case:

The issue of whether demand was made before the foreclosure was effected is essential. 1avvphi1 If demand was made and duly received by the respondents and the latter still did not pay, then they were already in default and foreclosure was proper. However, if demand was not made, then the loans had not yet become due and demandable. This meant that respondents had not defaulted in their payments and the foreclosure by petitioner was premature. Foreclosure is valid only when the debtor is in default in the payment of his obligation.22

In turn, whether or not demand was made is a question of fact.23 This petition filed under Rule 45 of the Rules of Court shall raise only questions of law. For a question to be one of law, it must not involve an examination of the probative value of the evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact.24 It need not be reiterated that this Court is not a trier of facts.25 We will defer to the factual findings of the trial court, because petitioner GMC has not shown any circumstances making this case an exception to the rule.

WHEREFORE, the petition is DENIED. The CA Decision in CA-G.R. CR-H.C. No. 85400 is AFFIRMED.

SO ORDERED.

G.R. No. 190601               February 7, 2011

SPOUSES LUIGI M. GUANIO and ANNA HERNANDEZ-GUANIO, Petitioners, vs.MAKATI SHANGRI-LA HOTEL and RESORT, INC., also doing business under the name of SHANGRI-LA HOTEL MANILA, Respondent.

CARPIO MORALES, J.:

For their wedding reception on July 28, 2001, spouses Luigi M. Guanio and Anna Hernandez-Guanio (petitioners) booked at the Shangri-la Hotel Makati (the hotel).

Prior to the event, Makati Shangri-La Hotel & Resort, Inc. (respondent) scheduled an initial food tasting. Petitioners claim that they requested the hotel to prepare for seven persons ─ the two of them, their respective parents, and the wedding coordinator. At the scheduled food tasting, however, respondent prepared for only six.

Petitioners initially chose a set menu which included black cod, king prawns and angel hair pasta with wild mushroom sauce for the main course which cost P1,000.00 per person. They were, however, given an option in which salmon, instead of king prawns, would be in the menu at P950.00 per person. They in fact partook of the salmon.

Three days before the event, a final food tasting took place. Petitioners aver that the salmon served was half the size of what they were served during the initial food tasting; and when queried about it, the hotel quoted a much higher price (P1,200.00) for the size that was initially served to them. The parties eventually agreed on a final price ─ P1,150 per person.

A day before the event or on July 27, 2001, the parties finalized and forged their contract.1

Petitioners claim that during the reception, respondent’s representatives, Catering Director Bea Marquez and Sales Manager Tessa Alvarez, did not show up despite their assurance that they would; their guests complained of the delay in the service of the dinner; certain items listed in the published menu were unavailable; the hotel’s waiters were rude and unapologetic when confronted about the delay; and despite Alvarez’s promise that there would be no charge for the extension of the reception beyond 12:00 midnight, they were billed and paid P8,000 per hour for the three-hour extension of the event up to 4:00 A.M. the next day.

Petitioners further claim that they brought wine and liquor in accordance with their open bar arrangement, but these were not served to the guests who were forced to pay for their drinks.

Petitioners thus sent a letter-complaint to the Makati Shangri-la Hotel and Resort, Inc. (respondent) and received an apologetic reply from Krister Svensson, the hotel’s Executive Assistant Manager in charge of Food and Beverage. They nevertheless filed a complaint for breach of contract and damages before the Regional Trial Court (RTC) of Makati City.

In its Answer, respondent claimed that petitioners requested a combination of king prawns and salmon, hence, the price was increased to P1,200.00 per person, but discounted at P1,150.00; that contrary to petitioners’ claim, Marquez and Alvarez were present during the event, albeit they were not permanently stationed thereat as there were three other hotel functions; that while there was a delay in the service of the meals, the same was occasioned by the sudden increase of guests to 470 from the guaranteed expected minimum number of guests of 350 to a maximum of 380, as stated in the Banquet Event Order (BEO);2 and that Isaac Albacea, Banquet Service Director, in fact relayed the delay in the service of the meals to petitioner Luigi’s father, Gil Guanio.

Respecting the belated service of meals to some guests, respondent attributed it to the insistence of petitioners’ wedding coordinator that certain guests be served first.

On Svensson’s letter, respondent, denying it as an admission of liability, claimed that it was meant to maintain goodwill to its customers.

By Decision of August 17, 2006, Branch 148 of the Makati RTC rendered judgment in favor of petitioners, disposing as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendant ordering the defendants to pay the plaintiff the following:

1) The amount of P350,000.00 by way of actual damages;

2) The amount of P250,000.00 for and as moral damages;

3) The amount of P100,000.00 as exemplary damages;

4) The amount of P100,000.00 for and as attorney’s fees.

With costs against the defendant.

SO ORDERED.3

In finding for petitioners, the trial court relied heavily on the letter of Svensson which is partly quoted below:

Upon receiving your comments on our service rendered during your reception here with us, we are in fact, very distressed. Right from minor issues pappadums served in the soup instead of the creutons, lack of valet parkers, hard rolls being too hard till a major one – slow service, rude and arrogant waiters, we have disappointed you in all means.

Indeed, we feel as strongly as you do that the services you received were unacceptable and definitely not up to our standards. We understand that it is our job to provide excellent service and in this instance, we have fallen short of your expectations. We ask you please to accept our profound apologies for causing such discomfort and annoyance. 4 (underscoring supplied)

The trial court observed that from "the tenor of the letter . . . the defendant[-herein respondent] admits that the services the plaintiff[-herein petitioners] received were unacceptable and definitely not up to their standards."5

On appeal, the Court of Appeals, by Decision of July 27, 2009,6 reversed the trial court’s decision, it holding that the proximate cause of petitioners’ injury was an unexpected increase in their guests:

x x x Hence, the alleged damage or injury brought about by the confusion, inconvenience and disarray during the wedding reception may not be attributed to defendant-appellant Shangri-la.

We find that the said proximate cause, which is entirely attributable to plaintiffs-appellants, set the chain of events which resulted in the alleged inconveniences, to the plaintiffs-appellants. Given the circumstances that obtained, only the Sps. Guanio may bear whatever consequential damages that they may have allegedly suffered.7(underscoring supplied)

Petitioners’ motion for reconsideration having been denied by Resolution of November 19, 2009, the present petition for review was filed.

The Court finds that since petitioners’ complaint arose from a contract, the doctrine of proximate cause finds no application to it:

The doctrine of proximate cause is applicable only in actions for quasi-delicts, not in actions involving breach of contract. x x x The doctrine is a device for imputing liability to a person where there is no relation between him and another party. In such a case, the obligation is created by law itself. But, where there is a pre-existing contractual relation between the parties, it is the parties themselves who create the obligation, and the function of the law is merely to regulate the relation thus created.8 (emphasis and underscoring supplied)

What applies in the present case is Article 1170 of the Civil Code which reads:

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.

RCPI v. Verchez, et al. 9 enlightens:

In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify, prima facie , a corresponding right of relief . The law, recognizing the obligatory force of contracts, will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. The remedy serves to preserve the interests of the promissee that may include his   "expectation interest ," which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed, or his   "reliance interest ," which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made; or his "restitution interest," which is his interest in having restored to him any benefit that he has conferred on the other party. Indeed, agreements can accomplish little, either for their makers or for society, unless they are made the basis for action. The effect of every infraction is to create a new duty, that is, to make RECOMPENSE to the one who has been injured by the failure of another to observe his contractual obligation unless he can show extenuating circumstances, like   proof of his exercise of due diligence x x x or of the attendance of fortuitous event, to excuse him from his ensuing liability. (emphasis and underscoring in the original; capitalization supplied)

The pertinent provisions of the Banquet and Meeting Services Contract between the parties read:

4.3 The ENGAGER shall be billed in accordance with the prescribed rate for the minimum guaranteed number of persons contracted for, regardless of under attendance or non-appearance of the expected number of guests, except where the ENGAGER cancels the Function in accordance with its Letter of Confirmation with the HOTEL. Should the attendance exceed the minimum guaranteed attendance, the ENGAGER shall also be billed at the actual rate per cover in excess of the minimum guaranteed attendance.

x x x x

4.5. The ENGAGER must inform the HOTEL at least forty eight (48) hours before the scheduled date and time of the Function of any change in the minimum guaranteed covers. In the absence of such notice, paragraph 4.3 shall apply in the event of under attendance. In case the actual number of attendees exceed the minimum guaranteed number

by ten percent (10%), the HOTEL shall not in any way be held liable for any damage or inconveniencewhich may be caused thereby. The ENGAGER shall also undertake to advise the guests of the situation and take positive steps to remedy the same.10 (emphasis, italics and underscoring supplied)

Breach of contract is defined as the failure without legal reason to comply with the terms of a contract. It is also defined as the [f]ailure, without legal excuse, to perform any promise which forms the whole or part of the contract.11

The appellate court, and even the trial court, observed that petitioners were remiss in their obligation to inform respondent of the change in the expected number of guests. The observation is reflected in the records of the case. Petitioners’ failure to discharge such obligation thus excused, as the above-quoted paragraph 4.5 of the parties’ contract provide, respondent from liability for "any damage or inconvenience" occasioned thereby.

As for petitioners’ claim that respondent departed from its verbal agreement with petitioners, the same fails, given that the written contract which the parties entered into the day before the event, being the law between them.

Respecting the letter of Svensson on which the trial court heavily relied as admission of respondent’s liability but which the appellate court brushed aside, the Court finds the appellate court’s stance in order. It is not uncommon in the hotel industry to receive comments, criticisms or feedback on the service it delivers. It is also customary for hotel management to try to smooth ruffled feathers to preserve goodwill among its clientele.

Kalalo v. Luz holds:12

Statements which are not estoppels nor judicial admissions have no quality of conclusiveness, and an opponent whose admissions have been offered against him may offer any evidence which serves as an explanation for his former assertion of what he now denies as a fact.

Respondent’s Catering Director, Bea Marquez, explained the hotel’s procedure on receiving and processing complaints, viz:

ATTY. CALMA:

Q You mentioned that the letter indicates an acknowledgement of the concern and that there was-the first letter there was an acknowledgment of the concern and an apology, not necessarily indicating that such or admitting fault?

A Yes.

Q Is this the letter that you are referring to?

If I may, Your Honor, that was the letter dated August 4, 2001, previously marked as plaintiff’s exhibits, Your Honor. What is the procedure of the hotel with respect to customer concern?

A Upon receipt of the concern from the guest or client, we acknowledge receipt of such concern, and as part of procedure in service industry particularly Makati Shangri-la we apologize for whatever inconvenience but at the same time saying, that of course, we would go through certain investigation and get back to them for the feedback with whatever concern they may have.

Q Your Honor, I just like at this point mark the exhibits, Your Honor, the letter dated August 4, 2001 identified by the witness, Your Honor, to be marked as Exhibit 14 and the signature of Mr. Krister Svensson be marked as Exhibit 14-A.13

x x x x

Q In your opinion, you just mentioned that there is a procedure that the hotel follows with respect to the complaint, in your opinion was this procedure followed in this particular concern?

A Yes, ma’am.

Q What makes you say that this procedure was followed?

A As I mentioned earlier, we proved that we did acknowledge the concern of the client in this case and we did emphatize from the client and apologized, and at the same time got back to them in whatever investigation we have.

Q You said that you apologized, what did you apologize for?

A Well, first of all it is a standard that we apologize, right? Being in the service industry, it is a practice that we apologize if there is any inconvenience, so the purpose for apologizing is mainly to show empathy and to ensure the client that we are hearing them out and that we will do a better investigation and it is not in any way that we are admitting any fault.14 (underscoring supplied)

To the Court, the foregoing explanation of the hotel’s Banquet Director overcomes any presumption of admission of breach which Svensson’s letter might have conveyed.

The exculpatory clause notwithstanding, the Court notes that respondent could have managed the "situation" better, it being held in high esteem in the hotel and service industry. Given respondent’s vast experience, it is safe to presume that this is not its first encounter with booked events exceeding the guaranteed cover. It is not audacious to expect that certain measures have been placed in case this predicament crops up. That regardless of these measures, respondent still received complaints as in the present case, does not amuse. 1avvphil

Respondent admitted that three hotel functions coincided with petitioners’ reception. To the Court, the delay in service might have been avoided or minimized if respondent exercised prescience in scheduling events. No less than quality service should be delivered especially in events which possibility of repetition is close to nil. Petitioners are not expected to get married twice in their lifetimes.

In the present petition, under considerations of equity, the Court deems it just to award the amount of P50,000.00 by way of nominal damages to petitioners, for the discomfiture that they were subjected to during to the event.15The Court recognizes that every person is entitled to respect of his dignity, personality, privacy and peace of mind.16 Respondent’s lack of prudence is an affront to this right.

WHEREFORE, the Court of Appeals Decision dated July 28, 2009 is PARTIALLY REVERSED. Respondent is, in light of the foregoing discussion, ORDERED to pay the amount of P50,000.00 to petitioners by way of nominal damages.

SO ORDERED.

G.R. No. 190107               June 6, 2011

JAPRL DEVELOPMENT CORP., PETER RAFAEL C. LIMSON and JOSE UY AROLLADO, Petitioners, vs.SECURITY BANK CORPORATION, Respondent.

CARPIO MORALES, J.,

JAPRL Development Corporation (JAPRL), a domestic corporation engaged in fabrication, manufacture and distribution of steel products, applied for a credit facility (Letter of Credit/Trust Receipt) in the amount of Fifty Million (P50,000,000) Pesos with Security Bank Corporation (SBC). The application was approved and the Credit Agreement took effect on July 15, 1996.1

On November 5, 2001, petitioners Peter Rafael C. Limson (Limson) and Jose Uy Arollado (Arollado), JAPRL Chairman and President, respectively, executed a Continuing Suretyship Agreement (CSA)2 in favor of SBC wherein they guaranteed the due and full payment and performance of JAPRL’s guaranteed obligations under the credit facility.3

In 2002, on JAPRL’s proposal, SBC extended the period of settlement of his obligations.

In 2003, JAPRL’s financial adviser, MRM Management Incorporated (MRM), convened JAPRL’s creditors, SBC included, for the purpose of restructuring JAPRL’s existing loan obligations. Copies of JAPRL’s financial statements from 1998 to 2001 were given for the creditors to study.

SBC soon discovered material inconsistencies in the financial statements given by MRM vis-à-vis those submitted by JAPRL when it applied for a credit facility, drawing SBC to conclude that JAPRL committed misrepresentation.

As paragraph 10 (c) of the Credit Agreement4 provided, if "any representation or warranty, covenant or undertaking embodied [therein] and [in] the Credit Instrument or in any certificate, statement or document submitted to SBC turns out to be untrue or ceases to be true in any material respect, or is violated or not complied with," such will constitute an event of default committed by JAPRL and its sureties.

On the basis of Item 2 of the CSA,5 SBC sent a formal letter of demand6 dated August 20, 2003 to petitioners JAPRL, Limson and Arollado for the immediate payment of Forty Three Million Nine Hundred Twenty Six Thousand and Twenty One Pesos and 41/100 (P43,926,021.41) representing JAPRL’s outstanding obligations.

Petitioners failed to comply with SBC’s demand, hence, SBC filed on September 1, 2003 a complaint for sum of money with application for issuance of writ of preliminary attachment7 before the Regional Trial Court (RTC) of Makati City against JAPRL, Limson and Arollado.

During the hearing on the prayer for the issuance of writ of preliminary attachment on September 16, 2003, SBC’s counsel manifested that it received a copy of a Stay Order dated September 8, 2003 issued by the RTC of Quezon City, Branch 90 wherein JAPRL’s petition for rehabilitation was lodged. The Makati RTC at once ordered in open court the archiving of SBC’s complaint for sum of money until disposition by the Quezon City RTC of JAPRL’s petition for rehabilitation.8

When the Makati RTC reduced to writing its open court Order of September 16, 2003, however, it instead declared the dismissal of SBC’s complaint without prejudice:

When this case was called for hearing, plaintiff’s counsel manifested that they received a Stay Order from Regional Trial Court, Br. 190, Quezon City, relative to the approval of the Rehabilitation Plan filed by defendant JAPRL Dev. Corp. and in view thereof he prayed that the present case be archived instead. However, the Court is of the view to have the case dismissed without prejudice so that a disposition be made on the case.

WHEREFORE, let the present case be ordered DISMISSED without prejudice to a refiling or having a claim filed with the appropriate forum.

SO ORDERED.9 (underscoring supplied)

On SBC’s motion for reconsideration, however, the Makati RTC, by Order of January 9, 2004,10 reverted to its oral order of archiving SBC’s complaint.

SBC moved to clarify the Makati RTC January 9, 2004 Order, positing that the suspension of the proceedings should only be with respect to JAPRL but not with respect to Limson and Arollado.11 The Makati RTC, by Order of February 25, 2004, mantained its order archiving the complaint against all petitioners herein, however.

SBC filed a motion for reconsideration12 of the February 25, 2004 Order, to which Limson and Arollado separately filed an "Opposition (Ad Cautelam)"13 wherein they claimed that summons were not served on them, hence, the Makati RTC failed to acquire jurisdiction over their person. At any rate, they raised defenses against SBC’s claim that they acted as sureties of JAPRL.

Meanwhile, the proposed rehabilitation plan before the Quezon City RTC was disapproved by Order of May 9, 2005.14 On SBC’s motion, the Makati RTC thus reinstated SBC’s complaint to its docket, by Order of February 27, 2006.15

Petitioners later filed before the Makati RTC a Manifestation (Ad Cautelam)16 informing that a Stay Order dated March 13, 200617 was issued, this time by the Calamba RTC, Branch 34, in a new petition for rehabilitation filed by JAPRL and its subsidiary, RAPID Forming Corporation, and praying for the archiving of SBC’s complaint.

By Order of June 30, 2006,18 the Makati RTC again archived SBC’s complaint against petitioners. SBC, by Consolidated Motion, moved for the reconsideration of the June 30, 2006 Order, averring that its complaint should not have been archived with respect to sureties Limson and Arollado; and that since the two failed to file their respective Answers within the reglementary period, they should be declared in default.

The Makati RTC denied, by Order of October 2, 2006,19 the Consolidated Motion of SBC, prompting SBC to file a petition for certiorari before the Court of Appeals.

By Decision of September 25, 2008,20 the appellate court held that Limson and Arollado voluntarily submitted themselves to the jurisdiction of the Makati RTC, despite the qualification that the filing of their respective "Opposition[s] Ad Cautelam" and "Manifestation[s] Ad Cautelam," was "by way of special appearance" they having sought affirmative relief by praying for the archiving of SBC’s complaint.

The Manifestations and Oppositions filed by the individual private respondents to the court a quo have the purpose of asking the court to archive the case until the final resolution of either the Petition for Rehabilitation filed by private respondent corporation JAPRL in Quezon City or the subsisting Petition for Rehabilitation filed in Calamba City, Laguna. Clearly, the purpose of those pleadings is to seek for affirmative relief, (i.e. Suspending the proceedings in Civil Case No. 03-1036) from the said court. By those pleadings asking for affirmative relief, the individual private respondents had voluntarily appeared in court. As expressly stated in Rule 14, Section 20, of the Rules of Court, the defendant’s voluntary appearance in the action shall be equivalent to service of summons. It is well settled that any form of appearance in court, by the defendant, by his agent authorized to do so, or by attorney, is equivalent to service except where such appearance is precisely to object to the jurisdiction of the court over the person of the defendant. x x x 21 (italics in the original; underscoring supplied)

To the appellate court, SBC’s claim against Limson and Arollado in their capacity as sureties could proceed independently of JAPRL’s petition for rehabilitation:

x x x [T]he property of the surety cannot be taken into custody by the rehabilitation receiver (SEC) and said surety can be sued separately to enforce his liability as surety   for the debts or obligations of the debtor. The debts or obligations for which a surety may be liable include future debts, an amount which may not be known at the time the surety is given.1âwphi1

Aside from that, it is specifically stated under Rule 4, Section 6 (b) of the Interim Rules of Procedure on Corporate Rehabilitation, that the issuance of a Stay order will have an effect of:

(b) staying enforcement of all claims whether for money or otherwise and whether such enforcement is by court action otherwise, against the debtor, its guarantors and sureties not solidarily liable with the debtor.22 (emphasis and italics in the original; underscoring supplied)

The appellate court denied petitioners’ motion for reconsideration by Resolution of October 29, 2009,23 hence, the present petition for review on certiorari.24

The petition fails.

A reading of the separate Oppositions Ad Cautelam by Limson and Arollado to SBC’s Motion for Reconsideration25 shows that they did not challenge the trial court’s jurisdiction. Albeit both pleadings contained prefatory statements that the two did not receive summons, they pleaded defenses in their favor, viz:

Limson’s Opposition Ad Cautelam

6. First of all, there is no gainsaying that herein defendant LIMSON as well as defendant AROLLADO are being sued in their alleged capacities as SURETIES, with defendant JAPRL being the DEBTOR. As SURETIES, they are covered by the Stay Order issued by the court hearing the petition for corporate rehabilitation filed by Rapid Forming Corp. and defendant JAPRL. The Stay Order directed, among others, the stay of enforcement of " ALL CLAIMS, WHETHER FOR MONEY OR OTHERWISE, AND WHETHER SUCH ENFORCEMENT IS BY COURT ACTION OR

OTHERWISE, against the petitioner/s, and its/their guarantors and SURETIES not solidarily liable with petitioner/s",26 x x x (all caps in the original)

Arollado’s Opposition (Ad Cautelam)

11. Certainly, the plaintiff cannot unjustly enrich itself and be allowed to recover from both the DEBTOR JAPRL in accordance with the rehabilitation plan, and at the same time from the alleged SURETIES   LIMSON and AROLLADO through the present complaint.

12. Moreover, defendant AROLLADO, as surety, can set up against the plaintiff all the defenses which pertain to the principal DEBTOR JAPRL and even those defenses that are inherent in the debt. Likewise, defendantAROLLADO would, in any case, have a right of action for reimbursement against JAPRL, the principal DEBTOR. Additionally, defendant AROLLADO is given the right, under Article 1222 of the New Civil Code, to avail himself of all the defenses which are derived from the nature of the obligation. Since the plaintiff, and even defendants LIMSON and AROLLADO, are temporarily barred from enforcing a claim against JAPRL, there is, therefore, every reason to suspend the proceedings against defendants LIMSON and AROLLADO while the complaint is archived and cannot be prosecuted against the DEBTOR JAPRL.27 (capitalization and emphasis in the original; underscoring supplied)

When a defendant’s appearance is made precisely to object to the jurisdiction of the court over his person, it cannot be considered as appearance in court.28 Limson and Arollado glossed over the alleged lack of service of summons, however, and proceeded to exhaustively discuss why SBC’s complaint could not prosper against them as sureties. They thereby voluntarily submitted themselves to the jurisdiction of the Makati RTC .

On a trial court’s suspension of proceedings against a surety of a corporation in the process of rehabilitation, Banco de Oro-EPCI, Inc. v. JAPRL Development Corporation29 holds that a creditor can demand payment from the surety solidarily liable with the corporation seeking rehabilitation, it being not included in the list of stayed claims:

Indeed, Section 6(b) of the Interim Rules of Procedure of Corporate Rehabilitation which the appellate court cited in the earlier-quoted portion of its decision, provides that a stay order does not apply to sureties who are solidarily liable with the debtor. In Limson and Arollado’s case, their solidary liability with JAPRL is documented.

3. Liability of the Surety – The liability of the Surety is solidary and not contingent upon the pursuit by the Bank of whatever remedies it may have against the Debtor or the collaterals/liens it may possess. If any of the Guaranteed Obligation is not paid or performed on due date (at stated maturity or by acceleration), the Surety shall, without need for any notice, demand or any other act or deed, immediately become liable therefor and the Surety shall pay and perform the same. 30 (emphasis and underscoring supplied)

Limson and Arollado, as sureties, whose liability is solidary cannot, therefore, claim protection from the rehabilitation court, they not being the financially-distressed corporation that may be restored, not to mention that the rehabilitation court has no jurisdiction over them. Article 1216 of the Civil Code clearly is not on their side:

ART. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against any one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. (underscoring supplied) 1âwphi1

IN FINE, SBC can pursue its claim against Limson and Arollado despite the pendency of JAPRL’s petition for rehabilitation. For, by the CSA in favor of SBC, it is the obligation of the sureties, who are therein stated to be solidary with JAPRL, to see to it that JAPRL’s debt is fully paid.31

Finally, contrary to petitioners’ position, the appellate court’s decision only nullified the suspension of proceedings against Limson and Arollado.32 The suspension with respect to JAPRL remains, in line with Philippine Blooming Mills v. Court of Appeals.33

WHEREFORE, the petition is DENIED.

SO ORDERED.

G.R. No. 185440               July 13, 2011

VICELET LALICON and VICELEN LALICON, Petitioners, vs.NATIONAL HOUSING AUTHORITY, Respondent.

ABAD, J.:

This case is about (a) the right of the National Housing Authority to seek annulment of sales made by housing beneficiaries of lands they bought from it within the prohibited period and (b) the distinction between actions for rescission instituted under Article 1191 of the Civil Code and those instituted under Article 1381 of the same code.

The Facts and the Case

On November 25, 1980 the National Housing Authority (NHA) executed a Deed of Sale with Mortgage over a Quezon City lot1 in favor of the spouses Isidro and Flaviana Alfaro (the Alfaros). In due time, the Quezon City Registry of Deeds issued Transfer Certificate of Title (TCT) 277321 in the name of the Alfaros. The deed of sale provided, among others, that the Alfaros could sell the land within five years from the date of its release from mortgage without NHA’s prior written consent. Thus:

x x x. 5. Except by hereditary succession, the lot herein sold and conveyed, or any part thereof, cannot be alienated, transferred or encumbered within five (5) years from the date of release of herein mortgage without the prior written consent and authority from the VENDOR-MORTGAGEE (NHA). x x x.2 (Emphasis supplied)

The mortgage and the restriction on sale were annotated on the Alfaros’ title on April 14, 1981.

About nine years later or on November 30, 1990, while the mortgage on the land subsisted, the Alfaros sold the same to their son, Victor Alfaro, who had taken in a common-law wife, Cecilia, with whom he had two daughters, petitioners Vicelet and Vicelen Lalicon (the Lalicons). Cecilia, who had the means, had a house built on the property and paid for the amortizations. After full payment of the loan or on March 21, 1991 the NHA released the mortgage. Six days later or on March 27 Victor transferred ownership of the land to his illegitimate daughters.

About four and a half years after the release of the mortgage or on October 4, 1995, Victor registered the November 30, 1990 sale of the land in his favor, resulting in the cancellation of his parents’ title. The register of deeds issued TCT 140646 in Victor’s name. On December 14, 1995 Victor mortgaged the land to Marcela Lao Chua, Rosa Sy, Amparo Ong, and Ida See. Subsequently, on February 14, 1997 Victor sold the property to Chua, one of the mortgagees, resulting in the cancellation of his TCT 140646 and the issuance of TCT N-172342 in Chua’s name.

A year later or on April 10, 1998 the NHA instituted a case before the Quezon City Regional Trial Court (RTC) for the annulment of the NHA’s 1980 sale of the land to the Alfaros, the latter’s 1990 sale of the land to their son Victor, and the subsequent sale of the same to Chua, made in violation of NHA rules and regulations.

On February 12, 2004 the RTC rendered a decision in the case. It ruled that, although the Alfaros clearly violated the five-year prohibition, the NHA could no longer rescind its sale to them since its right to do so had already prescribed, applying Article 1389 of the New Civil Code. The NHA and the Lalicons, who intervened, filed their respective appeals to the Court of Appeals (CA).

On August 1, 2008 the CA reversed the RTC decision and found the NHA entitled to rescission. The CA declared TCT 277321 in the name of the Alfaros and all subsequent titles and deeds of sale null and void. It ordered Chua to reconvey the subject land to the NHA but the latter must pay the Lalicons the full amount of their amortization, plus interest, and the value of the improvements they constructed on the property.

The Issues Presented

The issues in this case are:

1. Whether or not the CA erred in holding that the Alfaros violated their contract with the NHA;

2. Whether or not the NHA’s right to rescind has prescribed; and

3. Whether or not the subsequent buyers of the land acted in good faith and their rights, therefore, cannot be affected by the rescission.

The Rulings of the Court

First. The contract between the NHA and the Alfaros forbade the latter from selling the land within five years from the date of the release of the mortgage in their favor.3 But the Alfaros sold the property to Victor on November 30, 1990 even before the NHA could release the mortgage in their favor on March 21, 1991. Clearly, the Alfaros violated the five-year restriction, thus entitling the NHA to rescind the contract.

The Lalicons contend, however, that the Alfaros did not violate the five-year restriction against resale since what the contract between the parties barred was a transfer of the property within five years from the release of the mortgage, not a transfer of the same prior to such release.

But the Lalicons are trying to be clever. The restriction clause is more of a condition on the sale of the property to the Alfaros rather than a condition on the mortgage constituted on it. Indeed, the prohibition against resale remained even after the land had been released from the mortgage. The five-year restriction against resale, counted from the release of the property from the NHA mortgage, measures out the desired hold that the government felt it needed to ensure that its objective of providing cheap housing for the homeless is not defeated by wily entrepreneurs.

The Lalicons claim that the NHA unreasonably ignored their letters that asked for consent to the resale of the subject property. They also claim that their failure to get NHA’s prior written consent was not such a substantial breach that warranted rescission.

But the NHA had no obligation to grant the Lalicons’ request for exemption from the five-year restriction as to warrant their proceeding with the sale when such consent was not immediately forthcoming. And the resale without the NHA’s consent is a substantial breach. The essence of the government’s socialized housing program is to preserve the beneficiary’s ownerships for a reasonable length of time, here at least within five years from the time he acquired it free from any encumbrance.

Second. Invoking the RTC ruling, the Lalicons claim that under Article 1389 of the Civil Code the "action to claim rescission must be commenced within four years" from the time of the commission of the cause for it.

But an action for rescission can proceed from either Article 1191 or Article 1381. It has been held that Article 1191 speaks of rescission in reciprocal obligations within the context of Article 1124 of the Old Civil Code which uses the term "resolution." Resolution applies only to reciprocal obligations such that a breach on the part of one party constitutes an implied resolutory condition which entitles the other party to rescission. Resolution grants the injured party the option to pursue, as principal actions, either a rescission or specific performance of the obligation, with payment of damages in either case.

Rescission under Article 1381, on the other hand, was taken from Article 1291 of the Old Civil Code, which is a subsidiary action, not based on a party’s breach of obligation.4 The four-year prescriptive period provided in Article 1389 applies to rescissions under Article 1381.

Here, the NHA sought annulment of the Alfaros’ sale to Victor because they violated the five-year restriction against such sale provided in their contract. Thus, the CA correctly ruled that such violation comes under Article 1191 where the applicable prescriptive period is that provided in Article 1144 which is 10 years from the time the right of action accrues.1avvphi1 The NHA’s right of action accrued on February 18, 1992 when it learned of the Alfaros’ forbidden sale of the property to Victor. Since the NHA filed its action for annulment of sale on April 10, 1998, it did so well within the 10-year prescriptive period.

Third. The Court also agrees with the CA that the Lalicons and Chua were not buyers in good faith. Since the five-year prohibition against alienation without the NHA’s written consent was annotated on the property’s title, the Lalicons very well knew that the Alfaros’ sale of the property to their father, Victor, even before the release of the mortgage violated that prohibition.

As regards Chua, she and a few others with her took the property by way of mortgage from Victor in 1995, well within the prohibited period. Chua knew, therefore, based on the annotated restriction on the property, that Victor had no right to mortgage the property to her group considering that the Alfaros could not yet sell the same to him without the NHA’s consent. Consequently, although Victor later sold the property to Chua after the five-year restriction had lapsed, Chua cannot claim lack of awareness of the illegality of Victor’s acquisition of the property from the Alfaros.

Lastly, since mutual restitution is required in cases involving rescission under Article 1191,5 the NHA must return the full amount of the amortizations it received for the property, plus the value of the improvements introduced on the same, with 6% interest per annum from the time of the finality of this judgment. The Court will no longer dwell on the matter as to who has a better right to receive the amount from the NHA: the Lalicons, who paid the amortizations and occupied the property, or Chua, who bought the subject lot from Victor and obtained for herself a title to the same, as this matter was not raised as one of the issues in this case. Chua’s appeal to the Court in a separate case6 having been denied due course and NHA failing to file its own petition for review, the CA decision ordering the restitution in favor of the Lalicons has now become final and binding against them.

WHEREFORE, the Court AFFIRMS the Decision of the Court of Appeals in CA-G.R. CV 82298 dated August 1, 2008.

SO ORDERED.

G.R. No. 168646               January 12, 2011

LUZON DEVELOPMENT BANK, Petitioner, vs.ANGELES CATHERINE ENRIQUEZ, Respondent.

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

G.R. No. 168666

DELTA DEVELOPMENT and MANAGEMENT SERVICES, INC., Petitioner, vs.ANGELES CATHERINE ENRIQUEZ and LUZON DEVELOPMENT BANK, Respondents.

DEL CASTILLO, J.:

The protection afforded to a subdivision lot buyer under Presidential Decree (PD) No. 957 or The Subdivision and Condominium Buyer’s Protective Decree will not be defeated by someone who is not an innocent purchaser for value. The lofty aspirations of PD 957 should be read in every provision of the statute, in every contract that undermines its objects, in every transaction which threatens its fruition. "For a statute derives its vitality from the purpose for which it is enacted and to construe it in a manner that disregards or defeats such purpose is to nullify or destroy the law."1

These cases involve the separate appeals of Luzon Development Bank2 (BANK) and Delta Development and Management Services, Inc.3 (DELTA) from the November 30, 2004 Decision of the Court of Appeals (CA), as well as its June 22, 2005 Resolution in CA-G.R. SP No. 81280. The dispositive portion of the assailed Decision reads:

WHEREFORE, premises considered, the Decision dated June 17, 2003 and Resolution dated November 24, 2003 are AFFIRMED with [m]odification in so far as Delta Development and Management Services, Inc. is liable and directed to pay petitioner Luzon Development Bank the value of the subject lot subject matter of the Contract to Sell between Delta Development and Management Services, Inc. and the private respondent [Catherine Angeles Enriquez].

SO ORDERED.4

Factual Antecedents

The BANK is a domestic financial corporation that extends loans to subdivision developers/owners.5

Petitioner DELTA is a domestic corporation engaged in the business of developing and selling real estate properties, particularly Delta Homes I in Cavite. DELTA is owned by Ricardo De Leon (De Leon),6 who is the registered owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. T-6371837 of the Registry of Deeds of the Province of Cavite, which corresponds to Lot 4 of Delta Homes I. Said Lot 4 is the subject matter of these cases.

On July 3, 1995, De Leon and his spouse obtained a P4 million loan from the BANK for the express purpose of developing Delta Homes I.8 To secure the loan, the spouses De Leon executed in favor of the BANK a real estate mortgage (REM) on several of their properties,9 including Lot 4. Subsequently, this REM was amended10 by increasing the amount of the secured loan from P4 million to P8 million. Both the REM and the amendment were annotated on TCT No. T-637183.11

DELTA then obtained a Certificate of Registration12 and a License to Sell13 from the Housing and Land Use Regulatory Board (HLURB).

Sometime in 1997, DELTA executed a Contract to Sell with respondent Angeles Catherine Enriquez (Enriquez)14over the house and lot in Lot 4 for the purchase price of P614,950.00. Enriquez made a downpayment ofP114,950.00. The Contract to Sell contained the following provisions:

That the vendee/s offered to buy and the Owner agreed to sell the above-described property subject to the following terms and conditions to wit:

x x x x

6. That the (sic) warning shall be served upon the Vendee/s for failure to pay x x x Provided, however, that for failure to pay three (3) successive monthly installment payments, the Owner may consider this Contract to Sell null and void ab initio without further proceedings or court action and all payments shall be forfeited in favor of the Owner as liquidated damages and expenses for documentations. x x x

That upon full payment of the total consideration if payable in cash, the Owner shall execute a final deed of sale in favor of the Vendee/s. However, if the term of the contract is for a certain period of time, only upon full payment of the total consideration that a final deed of sale shall be executed by the Owner in favor of the Vendee/s.15

When DELTA defaulted on its loan obligation, the BANK, instead of foreclosing the REM, agreed to a dation in payment or a dacion en pago. The Deed of Assignment in Payment of Debt was executed on September 30, 1998 and stated that DELTA "assigns, transfers, and conveys and sets over [to] the assignee that real estate with the building and improvements existing thereon x x x in payment of the total obligation owing to [the Bank] x x x."16 Unknown to Enriquez, among the properties assigned to the BANK was the house and lot of Lot 4,17 which is the subject of her Contract to Sell with DELTA. The records do not bear out and the parties are silent on whether the

BANK was able to transfer title to its name. It appears, however, that the dacion en pago was not annotated on the TCT of Lot 4.18

On November 18, 1999, Enriquez filed a complaint against DELTA and the BANK before the Region IV Office of the HLURB19 alleging that DELTA violated the terms of its License to Sell by: (a) selling the house and lots for a price exceeding that prescribed in Batas Pambansa (BP) Bilang 220;20 and (b) failing to get a clearance for the mortgage from the HLURB. Enriquez sought a full refund of the P301,063.42 that she had already paid to DELTA, award of damages, and the imposition of administrative fines on DELTA and the BANK.

In his June 1, 2000 Decision,21 HLURB Arbiter Atty. Raymundo A. Foronda upheld the validity of the purchase price, but ordered DELTA to accept payment of the balance of P108,013.36 from Enriquez, and (upon such payment) to deliver to Enriquez the title to the house and lot free from liens and encumbrances. The dispositive portion reads:

WHEREFORE, premises considered, a decision is hereby rendered as follows:

1. Ordering [DELTA] to accept complainant[’]s payments in the amount of P108,013.36 representing her balance based on the maximum selling price of P375,000.00;

2. Upon full payment, ordering Delta to deliver the title in favor of the complainant free from any liens and encumbrances;

3. Ordering [DELTA] to pay complainant the amount of P50,000.00 as and by way of moral damages;

4. Ordering [DELTA] to pay complainant the amount of P50,000.00 as and by way of exemplary damages;

5. Ordering [DELTA] to pay complainant P10,000.00 as costs of suit; and

6. Respondent DELTA to pay administrative fine of P10,000.00[22] for violation of Section 18 of P.D. 957[23]and another P10,000.00 for violation of Section 22 of P.D. 957.[24

SO ORDERED.25

DELTA appealed the arbiter’s Decision to the HLURB Board of Commissioners.26 DELTA questioned the imposition of an administrative fine for its alleged violation of Section 18 of PD 957. It argued that clearance was not required for mortgages that were constituted on a subdivision project prior to registration. According to DELTA, it did not violate the terms of its license because it did not obtain a new mortgage over the subdivision project. It likewise assailed the award of moral and exemplary damages to Enriquez on the ground that the latter has no cause of action.27

Ruling of the Board of Commissioners (Board)28

The Board held that all developers should obtain a clearance for mortgage from the HLURB, regardless of the date when the mortgage was secured, because the law does not distinguish. Having violated this legal requirement, DELTA was held liable to pay the administrative fine.

The Board upheld the validity of the contract to sell between DELTA and Enriquez despite the alleged violation of the price ceilings in BP 220. The Board held that DELTA and Enriquez were presumed to have had a meeting of the minds on the object of the sale and the purchase price. Absent any circumstance vitiating Enriquez’consent, she was presumed to have willingly and voluntarily agreed to the higher purchase price; hence, she was bound by the terms of the contract.

The Board, however, deleted the arbiter’s award of damages to Enriquez on the ground that the latter was not free from liability herself, given that she was remiss in her monthly amortizations to DELTA.

The dispositive portion of the Board’s Decision reads:

Wherefore, in view of the foregoing, the Office below’s decision dated June 01, 2000 is hereby modified to read as follows:

1. Ordering [Enriquez] to pay [DELTA] the amount due from the time she suspended payment up to filing of the complaint with 12% interest thereon per annum; thereafter the provisions of the Contract to Sell shall apply until full payment is made;

2. Ordering [DELTA] to pay an [a]dministrative [f]ine of P10,000.00 for violation of its license to sell and for violation of Section 18 of P.D. 957.

SO ORDERED. Quezon City.29

Enriquez moved for a reconsideration of the Board’s Decision30 upholding the contractual purchase price. She maintained that the price for Lot 4 should not exceed the price ceiling provided in BP 220.31lawph!l

Finding Enriquez’s arguments as having already been passed upon in the decision, the Board denied reconsideration. The board, however, modified its decision, with respect to the period for the imposition of interest payments. The Board’s resolution32 reads:

WHEREFORE, premises considered, to [sic] directive No. 1 of the dispositive portion of the decision of our decision [sic] is MODIFIED as follows:

1. Ordering complainant to pay respondent DELTA the amount due from the time she suspended (sic) at 12% interest per annum, reckoned from finality of this decision[,] thereafter the provisions of the Contract to Sell shall apply until full payment is made.

In all other respects, the decision is AFFIRMED.

SO ORDERED.33

Both Enriquez and the BANK appealed to the Office of the President (OP).34 The BANK disagreed with the ruling upholding Enriquez’s Contract to Sell; and insisted on its ownership over Lot 4. It argued that it has become impossible for DELTA to comply with the terms of the contract to sell and to deliver Lot 4’s title to Enriquez given that DELTA had already relinquished all its rights to Lot 4 in favor of the BANK35 via the dation in payment.

Meanwhile, Enriquez insisted that the Board erred in not applying the ceiling price as prescribed in BP 220.36

Ruling of the Office of the President37

The OP adopted by reference the findings of fact and conclusions of law of the HLURB Decisions, which it affirmed in toto.

Enriquez filed a motion for reconsideration, insisting that she was entitled to a reduction of the purchase price, in order to conform to the provisions of BP 220.38 The motion was denied for lack of merit.39

Only the BANK appealed the OP’s Decision to the CA.40 The BANK reiterated that DELTA can no longer deliver Lot 4 to Enriquez because DELTA had sold the same to the BANK by virtue of the dacion en pago.41 As an alternative argument, in case the appellate court should find that DELTA retained ownership over Lot 4 and could convey the same to Enriquez, the BANK prayed that its REM over Lot 4 be respected such that DELTA would have to redeem it first before it could convey the same to Enriquez in accordance with Section 2542 of PD 957.43

The BANK likewise sought an award of exemplary damages and attorney’s fees in its favor because of the baseless suit filed by Enriquez against it.44

Ruling of the Court of Appeals45

The CA ruled against the validity of the dacion en pago executed in favor of the BANK on the ground that DELTA had earlier relinquished its ownership over Lot 4 in favor of Enriquez via the Contract to Sell.46

Since the dacion en pago is invalid with respect to Lot 4, the appellate court held that DELTA remained indebted to the BANK to the extent of Lot 4’s value. Thus, the CA ordered DELTA to pay the corresponding value of Lot 4 to the BANK.47

The CA also rejected the BANK’s argument that, before DELTA can deliver the title to Lot 4 to Enriquez, DELTA should first redeem the mortgaged property from the BANK. The CA held that the BANK does not have a first lien on Lot 4 because its real estate mortgage over the same had already been extinguished by the dacion en pago. Without a mortgage, the BANK cannot require DELTA to redeem Lot 4 prior to delivery of title to Enriquez.48

The CA denied the BANK’s prayer for the award of exemplary damages and attorney’s fees for lack of factual and legal basis.49

Both DELTA50 and the BANK51 moved for a reconsideration of the CA’s Decision, but both were denied.52

Hence, these separate petitions of the BANK and DELTA.

Petitioner Delta’s arguments53

DELTA assails the CA Decision for holding that DELTA conveyed its ownership over Lot 4 to Enriquez via the Contract to Sell. DELTA points out that the Contract to Sell contained a condition that ownership shall only be transferred to Enriquez upon the latter’s full payment of the purchase price to DELTA. Since Enriquez has yet to

comply with this suspensive condition, ownership is retained by DELTA.54 As the owner of Lot 4, DELTA had every right to enter into a dation in payment to extinguish its loan obligation to the BANK. The BANK’s acceptance of the assignment, without any reservation or exception, resulted in the extinguishment of the entire loan obligation; hence, DELTA has no more obligation to pay the value of Enriquez’s house and lot to the BANK.55

DELTA prays for the reinstatement of the OP Decision.

The BANK’s arguments56

Echoing the argument of DELTA, the BANK argues that the Contract to Sell did not involve a conveyance of DELTA’s ownership over Lot 4 to Enriquez. The Contract to Sell expressly provides that DELTA retained ownership over Lot 4 until Enriquez paid the full purchase price. Since Enriquez has not yet made such full payment, DELTA retained ownership over Lot 4 and could validly convey the same to the BANK via dacion en pago.57

Should the dacion en pago over Lot 4 be invalidated and the property ordered to be delivered to Enriquez, the BANK contends that DELTA should pay the corresponding value of Lot 4 to the BANK. It maintains that the loan obligation extinguished by the dacion en pago only extends to the value of the properties delivered; if Lot 4 cannot be delivered to the BANK, then the loan obligation of DELTA remains to the extent of Lot 4’s value.58

The BANK prays to be declared the rightful owner of the subject house and lot and asks for an award of exemplary damages and attorney’s fees.

Enriquez’s waiver

Enriquez did not file comments59 or memoranda in both cases; instead, she manifested that she will just await the outcome of the case.60

Issues

The following are the issues raised by the two petitions:

1. Whether the Contract to Sell conveys ownership;

2. Whether the dacion en pago extinguished the loan obligation, such that DELTA has no more obligations to the BANK;

3. Whether the BANK is entitled to damages and attorney’s fees for being compelled to litigate; and

4. What is the effect of Enriquez’s failure to appeal the OP’s Decision regarding her obligation to pay the balance on the purchase price.

Our Ruling

Mortgage contract void

As the HLURB Arbiter and Board of Commissioners both found, DELTA violated Section 18 of PD 957 in mortgaging the properties in Delta Homes I (including Lot 4) to the BANK without prior clearance from the HLURB. This point need not be belabored since the parties have chosen not to appeal the administrative fine imposed on DELTA for violation of Section 18.

This violation of Section 18 renders the mortgage executed by DELTA void. We have held before that "a mortgage contract executed in breach of Section 18 of [PD 957] is null and void."61 Considering that "PD 957 aims to protect innocent subdivision lot and condominium unit buyers against fraudulent real estate practices," we have construed Section 18 thereof as "prohibitory and acts committed contrary to it are void."62

Because of the nullity of the mortgage, neither DELTA nor the BANK could assert any right arising therefrom. The BANK’s loan of P8 million to DELTA has effectively become unsecured due to the nullity of the mortgage. The said loan, however, was eventually settled by the two contracting parties via a dation in payment. In the appealed Decision, the CA invalidated this dation in payment on the ground that DELTA, by previously entering into a Contract to Sell, had already conveyed its ownership over Lot 4 to Enriquez and could no longer convey the same to the BANK. This is error, prescinding from a wrong understanding of the nature of a contract to sell.

Contract to sell does not transfer ownership

Both parties are correct in arguing that the Contract to Sell executed by DELTA in favor of Enriquez did not transfer ownership over Lot 4 to Enriquez. A contract to sell is one where the prospective seller reserves the transfer of title to the prospective buyer until the happening of an event, such as full payment of the purchase price. What the seller obliges himself to do is to sell the subject property only when the entire amount of the purchase price has already

been delivered to him. "In other words, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer."63 It does not, by itself, transfer ownership to the buyer.64

In the instant case, there is nothing in the provisions of the contract entered into by DELTA and Enriquez that would exempt it from the general definition of a contract to sell. The terms thereof provide for the reservation of DELTA’s ownership until full payment of the purchase price; such that DELTA even reserved the right to unilaterally void the contract should Enriquez fail to pay three successive monthly amortizations.

Since the Contract to Sell did not transfer ownership of Lot 4 to Enriquez, said ownership remained with DELTA. DELTA could then validly transfer such ownership (as it did) to another person (the BANK). However, the transferee BANK is bound by the Contract to Sell and has to respect Enriquez’s rights thereunder. This is because the Contract to Sell, involving a subdivision lot, is covered and protected by PD 957. One of the protections afforded by PD 957 to buyers such as Enriquez is the right to have her contract to sell registered with the Register of Deeds in order to make it binding on third parties. Thus, Section 17 of PD 957 provides:

Section 17. Registration. All contracts to sell, deeds of sale, and other similar instruments relative to the sale or conveyance of the subdivision lots and condominium units, whether or not the purchase price is paid in full, shall be registered by the seller in the Office of the Register of Deeds of the province or city where the property is situated.

x x x x (Emphasis supplied.)

The purpose of registration is to protect the buyers from any future unscrupulous transactions involving the object of the sale or contract to sell, whether the purchase price therefor has been fully paid or not. Registration of the sale or contract to sell makes it binding on third parties; it serves as a notice to the whole world that the property is subject to the prior right of the buyer of the property (under a contract to sell or an absolute sale), and anyone who wishes to deal with the said property will be held bound by such prior right.

While DELTA, in the instant case, failed to register Enriquez’s Contract to Sell with the Register of Deeds, this failure will not prejudice Enriquez or relieve the BANK from its obligation to respect Enriquez’s Contract to Sell. Despite the non-registration, the BANK cannot be considered, under the circumstances, an innocent purchaser for value of Lot 4 when it accepted the latter (together with other assigned properties) as payment for DELTA’s obligation. The BANK was well aware that the assigned properties, including Lot 4, were subdivision lots and therefore within the purview of PD 957. It knew that the loaned amounts were to be used for the development of DELTA’s subdivision project, for this was indicated in the corresponding promissory notes. The technical description of Lot 4 indicates its location, which can easily be determined as included within the subdivision development. Under these circumstances, the BANK knew or should have known of the possibility and risk that the assigned properties were already covered by existing contracts to sell in favor of subdivision lot buyers. As observed by the Court in another case involving a bank regarding a subdivision lot that was already subject of a contract to sell with a third party:

[The Bank] should have considered that it was dealing with a property subject of a real estate development project. A reasonable person, particularly a financial institution x x x, should have been aware that, to finance the project, funds other than those obtained from the loan could have been used to serve the purpose, albeit partially. Hence, there was a need to verify whether any part of the property was already intended to be the subject of any other contract involving buyers or potential buyers. In granting the loan, [the Bank] should not have been content merely with a clean title, considering the presence of circumstances indicating the need for a thorough investigation of the existence of buyers x x x. Wanting in care and prudence, the [Bank] cannot be deemed to be an innocent mortgagee. x x x65

Further, as an entity engaged in the banking business, the BANK is required to observe more care and prudence when dealing with registered properties. The Court cannot accept that the BANK was unaware of the Contract to Sell existing in favor of Enriquez. In Keppel Bank Philippines, Inc. v. Adao,66 we held that a bank dealing with a property that is already subject of a contract to sell and is protected by the provisions of PD 957, is bound by the contract to sell (even if the contract to sell in that case was not registered). In the Court’s words:

It is true that persons dealing with registered property can rely solely on the certificate of title and need not go beyond it. However, x x x, this rule does not apply to banks. Banks are required to exercise more care and prudence than private individuals in dealing even with registered properties for their business is affected with public interest. As master of its business, petitioner should have sent its representatives to check the assigned properties before signing the compromise agreement and it would have discovered that respondent was already occupying one of the condominium units and that a contract to sell existed between [the vendee] and [the developer]. In our view, petitioner was not a purchaser in good faith and we are constrained to rule that petitioner is bound by the contract to sell.67

Bound by the terms of the Contract to Sell, the BANK is obliged to respect the same and honor the payments already made by Enriquez for the purchase price of Lot 4. Thus, the BANK can only collect the balance of the

purchase price from Enriquez and has the obligation, upon full payment, to deliver to Enriquez a clean title over the subject property.68

Dacion en pago extinguished the loan obligation

The BANK then posits that, if title to Lot 4 is ordered delivered to Enriquez, DELTA has the obligation to pay the BANK the corresponding value of Lot 4. According to the BANK, the dation in payment extinguished the loan only to the extent of the value of the thing delivered. Since Lot 4 would have no value to the BANK if it will be delivered to Enriquez, DELTA would remain indebted to that extent.

We are not persuaded. Like in all contracts, the intention of the parties to the dation in payment is paramount and controlling. The contractual intention determines whether the property subject of the dation will be considered as the full equivalent of the debt and will therefore serve as full satisfaction for the debt. "The dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement, express or implied, or by their silence, consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished."69

In the case at bar, the Dacion en Pago executed by DELTA and the BANK indicates a clear intention by the parties that the assigned properties would serve as full payment for DELTA’s entire obligation:

KNOW ALL MEN BY THESE PRESENTS:

This instrument, made and executed by and between:

x x x x

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

x x x x

of which the ASSIGNOR is the registered owner being evidenced by TCT No. x x x issued by the Registry of Deeds of Trece Martires City.

THAT, the ASSIGNEE does hereby accept this ASSIGNMENT IN PAYMENT OF THE TOTAL OBLIGATION owing to him by the ASSIGNOR as above-stated;70

Without any reservation or condition, the Dacion stated that the assigned properties served as full payment of DELTA’s "total obligation" to the BANK. The BANK accepted said properties as equivalent of the loaned amount and as full satisfaction of DELTA’s debt. The BANK cannot complain if, as it turned out, some of those assigned properties (such as Lot 4) are covered by existing contracts to sell. As noted earlier, the BANK knew that the assigned properties were subdivision lots and covered by PD 957. It was aware of the nature of DELTA’s business, of the location of the assigned properties within DELTA’s subdivision development, and the possibility that some of the properties may be subjects of existing contracts to sell which enjoy protection under PD 957. Banks dealing with subdivision properties are expected to conduct a thorough due diligence review to discover the status of the properties they deal with. It may thus be said that the BANK, in accepting the assigned properties as full payment of DELTA’s "total obligation," has assumed the risk that some of the assigned properties (such as Lot 4) are covered by contracts to sell which it is bound to honor under PD 957.

A dacion en pago is governed by the law of sales.71 Contracts of sale come with warranties, either express (if explicitly stipulated by the parties) or implied (under Article 1547 et seq. of the Civil Code). In this case, however, the BANK does not even point to any breach of warranty by DELTA in connection with the Dation in Payment. To be sure, the Dation in Payment has no express warranties relating to existing contracts to sell over the assigned properties. As to the implied warranty in case of eviction, it is waivable72 and cannot be invoked if the buyer knew of the risks or danger of eviction and assumed its consequences.73 As we have noted earlier, the BANK, in accepting the assigned properties as full payment of DELTA’s "total obligation," has assumed the risk that some of the assigned properties are covered by contracts to sell which must be honored under PD 957.

Award of damages

There is nothing on record that warrants the award of exemplary damages74 as well as attorney’s fees75 in favor of the BANK.

Balance to be paid by Enriquez

As already mentioned, the Contract to Sell in favor of Enriquez must be respected by the BANK. 1avvphi1 Upon Enriquez’s full payment of the balance of the purchase price, the BANK is bound to deliver the title over Lot 4 to her. As to the amount of the balance which Enriquez must pay, we adopt the OP’s ruling thereon which sustained the amount stipulated in the Contract to Sell. We will not review Enriquez’s initial claims about the supposed violation of the price ceiling in BP 220, since this issue was no longer pursued by the parties, not even by Enriquez, who chose not to file the required pleadings76 before the Court. The parties were informed in the Court’s September 5, 2007 Resolution that issues that are not included in their memoranda shall be deemed waived or abandoned. Since Enriquez did not file a memorandum in either petition, she is deemed to have waived the said issue.

WHEREFORE, premises considered, the appealed November 30, 2004 Decision of the Court of Appeals, as well as its June 22, 2005 Resolution in CA-G.R. SP No. 81280 are hereby AFFIRMED with the MODIFICATIONS that Delta Development and Management Services, Inc. is NOT LIABLE TO PAY Luzon Development Bank the value of the subject lot; and respondent Angeles Catherine Enriquez is ordered to PAY the balance of the purchase price and the interests accruing thereon, as decreed by the Court of Appeals, to the Luzon Development Bank, instead of Delta Development and Management Services, Inc., within thirty (30) days from finality of this Decision. The Luzon Development Bank is ordered to DELIVER a CLEAN TITLE to Angeles Catherine Enriquez upon the latter’s full payment of the balance of the purchase price and the accrued interests.

SO ORDERED.

G.R. No. 176008               August 10, 2011

METROPOLITAN BANK and TRUST COMPANY, substituted by MERIDIAN (SPV-AMCI) CORPORATION,Petitioner, vs.INTERNATIONAL EXCHANGE BANK, Respondent.

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

G.R. No. 176131

CHUAYUCO STEEL MANUFACTURING, Petitioner, vs.INTERNATIONAL EXCHANGE BANK (now UNION BANK OF THE PHILIPPINES), Respondent.

PERALTA, J.:

Before the Court are two consolidated petitions for review on certiorari under Rule 45 of the Rules of Court, both of which are seeking the reversal and setting aside of the Decision1 and Resolution2 of the Court of Appeals (CA) dated May 5, 2006 and December 22, 2006, respectively, in CA-G.R. SP No. 00549-MIN which annulled and set aside the Orders dated September 6, 2004 and February 14, 2005, the Resolution dated March 15, 2005 and the Joint Resolution dated June 8, 2005 of the Regional Trial Court (RTC) of Misamis Oriental, Branch 17 in Civil Case Nos. 2004-197 and 2004-200.

The pertinent factual and procedural antecedents of the case are as follows:

Sacramento Steel Corporation (SSC) is a business entity engaged in manufacturing and producing steel and steel products, such as cold rolled coils and galvanized sheets, in its own steel manufacturing plant located at Tagoloan, Misamis Oriental.

For the purpose of increasing its capital, SSC entered into a Credit Agreement with herein respondent International Exchange Bank (IEB) on September 10, 2001 wherein the latter granted the former an omnibus credit line in the amount of P60,000,000.00, a loan of P20,000,000.00 and a subsequent credit line with a limit ofP100,000,000.00.

As security for its loan obligations, SSC executed five separate deeds of chattel mortgage constituted over various equipment found in its steel manufacturing plant. The deeds of mortgage were dated September 17, 2001, February 26, 2003, April 16, 2003, May 25, 2004 and June 7, 2004.

Subsequently, SSC defaulted in the payment of its obligations. IEB's demand for payment went unheeded. On July 7, 2004, the IEB filed with the RTC of Misamis Oriental an action for injunction for the purpose of enjoining SSC from taking out the mortgaged equipment from its premises. The case was docketed as Civil Case No. 2004-197. Thereafter, IEB filed a Supplemental Complaint praying for the issuance of a writ of replevin or, in the alternative, for the payment of SSC's outstanding obligations and attorney's fees.3

On the other hand, on July 18, 2004, SSC filed with the same RTC of Misamis Oriental a Complaint for annulment of mortgage and specific performance for the purpose of compelling the IEB to restructure SSC's outstanding obligations. SSC also prayed for the issuance of a Temporary Restraining Order (TRO) and writ of preliminary injunction to prevent IEB from taking any steps to dispossess SSC of any equipment in its steel manufacturing plant

as well as to restrain it from foreclosing the mortgage on the said equipment.4 The RTC issued a TRO. The case was docketed as Civil Case No. 2004-200 and was subsequently consolidated with Civil Case No. 2004-197.

On July 23, 2004, the RTC issued an Order5 granting IEB's application for the issuance of a writ of replevin. However, upon agreement of the parties, the implementation of the said writ was held in abeyance pending the trial court's resolution of the other incidents in the said case.6 The RTC also directed that there shall be "no commercial operation without court approval.7

On August 26, 2004, the IEB filed a petition for extrajudicial foreclosure of chattel mortgage.

SSC opposed IEB's petition and prayed for the issuance of a writ of preliminary injunction.

On September 6, 2004, the RTC issued an Order disposing as follows:

WHEREFORE, let a Writ of preliminary injunction be issued restraining defendant iBank [IEB], the Sheriff, his agents and other person/s acting in their behalf as agents – privies or representative[s] in whatever capacity, from conducting foreclosure, whether judicial or extrajudicial, of any properties subject of the controversy and are further directed not to take any steps that will, in effect, dispossess plaintiff [SSC] of any of its machineries and equipment in its steel manufacturing plant pending determination of the case. Let a bond (cash or surety) of Five Hundred Thousand (P500,000.00) Pesos be posted by the plaintiff Sacramento Steel Corporation as required by law.

SO ORDERED.8

Meanwhile, on August 30, 2004, SSC entered into a Capacity Lease Agreement with herein petitioner Chuayuco Steel Manufacturing Corporation (CSMC) which allowed the latter to lease and operate the former's cold rolling mill and galvanizing plant for a period of five years.

On October 21, 2004, herein petitioner Metropolitan Bank and Trust Company (Metrobank) filed a motion for intervention contending that it has legal interest in the properties subject of the litigation between IEB and SSC because it is a creditor of SSC and that the mortgage contracts between IEB and SSC were entered into to defraud the latter's creditors.9 Metrobank prayed for the rescission of the chattel mortgages executed by SSC in favor of IEB.

On January 21, 2005, CSMC filed an Omnibus Motion for intervention and for allowance to immediately operate the cold rolling mill and galvanizing plant of SSC contending that its purpose in intervening is to seek the approval of the court to operate the said plant pursuant to the Capacity Lease Agreement it entered into with SSC.10 IEB filed its Opposition to the said Motion.11

On February 14, 2005, the RTC issued an Order12 admitting the motions for intervention filed by CSMC and Metrobank.

On March 15, 2005, the RTC issued a Resolution, the dispositive portion of which reads, thus:

WHEREFORE, premises considered, the motion to operate the machineries pendente lite is hereby GRANTED based on law and equity as soon as practicable. This is without prejudice on the part of the I-bank [IEB] to assert the enforcement of the proposed schedule of payment submitted by SSC to the Court (Exh. "A" – Motion for Early Resolution, 2/16/2005 hearing) and to continually post their security guards unless withdrawn.

SO ORDERED.13

On June 8, 2005, the RTC issued a Joint Resolution14 reiterating its admission of CSMC's motion for intervention and directing the latter to file its complaint-in-intervention.

On August 25, 2005, IEB filed a petition for certiorari, prohibition and mandamus with the CA assailing the RTC Orders dated September 6, 2004 and February 14, 2005, Resolution dated March 15, 2005 and Joint Resolution dated June 8, 2005.15

On May 5, 2006, the CA rendered its presently assailed Decision which disposed of the case as follows:

WHEREFORE, the petition is hereby GRANTED. The questioned Orders dated September 6, 2004, February 14, 2005, March 15, 2005 and June 8, 2005 issued by public respondent RTC, Branch 17, Misamis Oriental, presided by Hon. Florencia D. Sealana-Abbu in Civil Case Nos. 2004-197 and 2004-200 are hereby ANNULLED and SET ASIDE. Public respondent is hereby DIRECTED to turn-over the mortgaged properties covered by the writ of replevin to petitioner I-Bank for the eventual foreclosure thereof.

SO ORDERED.16

Metrobank, CSMC and SSC filed their respective motions for reconsideration, but these were all denied by the CA in its Resolution dated December 22, 2006.

Hence, the instant petitions for review on certiorari.

In G.R. No. 176008, petitioner Metrobank submits the following issues:

(A) WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED WHEN IT RULED THAT PETITIONER'S COMPLAINT-IN-INTERVENTION IS AN ACCION PAULIANA, A SUBSIDIARY ACTION, WHICH PRESUPPOSES AN UNSATISFIED JUDGMENT, WHICH UNSATISFIED JUDGMENT IS ABSENT IN THE CASE AT BAR.

(B) WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED WHEN IT RULED THAT THE TRIAL COURT COMMITTED GRAVE ABUSE OF DISCRETION IN ALLOWING PETITIONER'S COMPLAINT-IN-INTERVENTION.17

In G.R. No. 176131, petitioner CSMC raises the following grounds:

I. THE HONORABLE COURT ERRED IN NOT PASSING UPON THE ISSUE THAT HEREIN RESPONDENT IBANK IS GUILTY OF FORUM-SHOPPING.

II. THE HONORABLE COURT ERRED IN NOT RULING THAT HEREIN RESPONDENT IBANK'S FAILURE TO FILE A MOTION FOR RECONSIDERATION TO THE ORDER DATED 08 JUNE 2005 IS FATAL TO ITS PETITION.

III. THE HONORABLE COURT ERRED IN RULING THAT THE ORDER OF JUDGE SEALANA-ABBU ADMITTING THE INTERVENTION OF HEREIN PETITIONER CSMC IS WITHOUT LEGAL BASIS.18

In a Manifestation and Motion dated September 26, 2007, petitioner Metrobank manifested that it no longer has any interest in pursuing the instant case as the loan obligation owed by SSC to it has been sold by the latter to a corporation known as Meridian (SPV-AMC) Corporation (Meridian). Accordingly, Metrobank prayed that it be substituted by Meridian as petitioner in the instant case.19

In a Resolution20 dated November 12, 2007, this Court granted Metrobank's Motion.

At the outset, the Court takes note that no arguments or questions were raised by petitioners with respect to the September 6, 2004 Order and March 15, 2005 Resolution of the RTC which were annulled by the CA. Hence, the only issues left for resolution in the instant petition are whether or not petitioners Metrobank and CSMC may be allowed to intervene in Civil Case Nos. 2004-197 and 2004-200.

The Court will dwell first on the issues raised by Metrobank in G.R. No. 176008.

In its first assigned error, Metrobank contends that the CA erred in ruling that its Complaint-in-Intervention is in the nature of an accion pauliana.

The Court does not agree.

A perusal of Metrobank's Complaint-in-Intervention would show that its main objective is to have the chattel mortgages executed by SSC in favor of IEB rescinded. This is clearly evident in its prayer, which reads as follows:

WHEREFORE, premises considered, it is respectfully prayed unto the Honorable Court that judgment be rendered:

(1) RESCINDING the chattel mortgages executed by Defendants Sacramento and Delmo in favor of Defendant Ibank dated May 25, 2004 and June 7, 2004, respectively;

(2) Ordering defendants Sacramento, Delmo and Ibank to pay, jointly and severally, Plaintiff-Intervenor the amounts of:

(A) P500,000.00, as and by way of exemplary damages;

(B) P500,000.00, as and by way of attorney's fees; and

(C) Costs of suit.

Other reliefs as may be just and equitable under the premises are likewise prayed for.

x x x x21

Under Article 1381 of the Civil Code, an accion pauliana is an action to rescind contracts in fraud of creditors.22

However, jurisprudence is clear that the following successive measures must be taken by a creditor before he may bring an action for rescission of an allegedly fraudulent contract: (1) exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution; (2) exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana).23 It is thus apparent that an action to rescind, or an accion pauliana, must be of last resort, availed of only after the creditor has exhausted all the properties of the debtor not exempt from execution or after all other legal remedies have been exhausted and have been proven futile.24

It does not appear that Metrobank sought other properties of SSC other than the subject lots alleged to have been transferred in fraud of creditors. Neither is there any showing that Metrobank subrogated itself in SSC's transmissible rights and actions. Without availing of the first and second remedies, Metrobank simply undertook the third measure and filed an action for annulment of the chattel mortgages. This cannot be done. Article 1383 of the New Civil Code is very explicit that the right or remedy of the creditor to impugn the acts which the debtor may have done to defraud them is subsidiary in nature.25 It can only be availed of in the absence of any other legal remedy to obtain reparation for the injury.26 This fact is not present in this case. No evidence was presented nor even an allegation was offered to show that Metrobank had availed of the abovementioned remedies before it tried to question the validity of the contracts of chattel mortgage between IEB and SSC.

Metrobank also contends that in order to apply the concept of, and the rules pertaining to, accion pauliana, the subject matter must be a conveyance, otherwise valid, which is undertaken in fraud of creditors. Metrobank claims that since there is no conveyance involved in the contract of chattel mortgage between SSC and IEB, which Metrobank seeks to rescind, the CA erred in ruling that the latter's Complaint-in-Intervention is an accion pauliana.

The Court is not persuaded.

In the instant case, the contract of chattel mortgage entered into by and between SSC and IEB involves a conveyance of patrimonial benefit in favor of the latter as the properties subject of the chattel mortgage stand as security for the credit it extended to SSC. In a very recent case involving an action for the rescission of a real estate mortgage,27 while this Court found that some of the elements of accion pauliana were not present, it found that a mortgage contract involves the conveyance of a patrimonial benefit.

In sum, Metrobank may not be allowed to intervene and pray for the rescission of the chattel mortgages executed by SSC in favor of IEB. The remedy being sought by Metrobank is in the nature of an accion pauliana which, under the factual circumstances obtaining in the present case, may not be allowed. Based on the foregoing, the Court finds no error in the ruling of the CA that the RTC committed grave abuse of discretion in allowing Metrobank's intervention.

The Court will now proceed to resolve the issues raised by petitioner CSMC in G.R. No. 176131.

Firstly, CSMC contends that IEB was forum shopping when it filed a petition for certiorari with the CA seeking, among others, the enjoinment of the commercial operation of the subject machineries and equipment when its Opposition28 to the implementation of the Capacity Lease Agreement between SSC and CSMC is still pending determination by the RTC.

The Court does not agree.

Forum shopping has been defined as an act of a party, against whom an adverse judgment has been rendered in one forum, of seeking and possibly getting a favorable opinion in another forum, other than by appeal or a special civil action for certiorari, or the institution of two or more actions or proceedings grounded on the same cause on the supposition that one or the other court would make a favorable disposition.29

Forum shopping exists when two or more actions involve the same transactions, essential facts and circumstances, and raise identical causes of action, subject matter, and issues.30 Still another test of forum shopping is when the elements of litis pendencia are present or where a final judgment in one case will amount tores judicata in another – whether in the two or more pending cases, there is an identity of (a) parties (or at least such parties as represent the same interests in both actions); (b) rights or causes of action, and (c) reliefs sought.31

In the instant case on the one hand, IEB's Opposition questions the legality and seeks to prevent the implementation of the Capacity Lease Agreement between CSMC and SSC which, in essence, authorizes CSMC to operate the subject machineries pendente lite. On the other hand, the petition for certiorari filed by IEB assails and seeks to nullify, among others, the March 15, 2005 and June 8, 2005 Orders of the RTC allowing SSC to operate the subject machineries pendente lite. It is, thus, clear that there is no identity of subject matter, cause of action and reliefs sought in IEB's Opposition filed with the RTC and in its petition for certiorari filed with the CA. Hence, IEB is not guilty of forum shopping.

Secondly, CSMC argues that IEB's failure to file a motion for reconsideration of the RTC Order dated June 8, 2005 is fatal to its petition for certiorari filed with the CA.

The Court is not persuaded.

While the general rule is that before certiorari may be availed of, petitioner must have filed a motion for reconsideration of the act or order complained of, the Court has dispensed with this requirement in several instances.32 Thus, a previous motion for reconsideration before the filing of a petition for certiorari is necessary unless: (i) the issue raised is one purely of law; (ii) public interest is involved; (iii) there is urgency; (iv) a question of jurisdiction is squarely raised before and decided by the lower court; and (v) the order is a patent nullity.33 In the instant case, the Court agrees with the CA that there is no need for such motion because the issue regarding the applicability of the rule on intervention raised by IEB in its petition for certiorari filed with the CA, insofar as the June 8, 2005 Order of the RTC is concerned, is one purely of law.

The foregoing notwithstanding, the Court finds that the CA erred in ruling that the allowance of CSMC's motion for intervention is improper. CSMC's intervention should be allowed.

The purpose of intervention is to enable a stranger to an action to become a party in order for him to protect his interest and for the court to settle all conflicting claims.34 Intervention is allowed to avoid multiplicity of suits more than on due process considerations.35 To warrant intervention under Rule 19 of the Rules of Court, two requisites must concur: (1) the movant has a legal interest on the matter in litigation; and (2) intervention must not unduly delay or prejudice the adjudication of the rights of the parties, nor should the claim of the intervenor be capable of being properly decided in a separate proceeding.36

In the present case, CSMC, being a lessee of the subject properties, has a legal interest therein. 1awphil The RTC correctly held, thus:

Under the Rules of Court, intervention is permissive and maybe permitted by the Court when the applicant shows facts which satisfy the requirements of the law authorizing intervention. (Firestone Ceramics Inc. vs. CA 313 SCRA 522) Records of the case showed that on August 30, 2004, an agreement was finalized and entered into by applicant Chuayuco and defendant/plaintiff Sacramento Steel Corporation whereby the former shall lease and make use of the machineries of Sacramento Steel under the Capacity Lease Agreement (CLA). One of the terms and condition[s] under [the] CLA was for the monthly lease payments to take effect upon signing of the contract. A person seeking to intervene in a suit must show that he has legal interest which must be actual and material, direct and immediate. He must show that he will either gain or lose by direct legal operation and effect of a judgment. (Hrs. of Nicolas Orosa vs. Migrino 218 SCRA 311) The Court finds that Chuayuco had a constituted and sufficient legal interest in the machineries subject of the litigation which is actual and material. Any disposition of the case will adversely affect the standing of the intervenor.37

Moreover, considering that CSMC's interest is limited only to the operation of the subject machineries pursuant to its lease contract with SSC, its intervention would not unduly delay or prejudice the adjudication of the rights of SSC and IEB. CSMC's intervention should be treated as one pro interesse suo which is a mode of intervention in equity wherein a stranger desires to intervene for the purpose of asserting a property right in the res, or thing, which is the subject matter of the litigation, without becoming a formal plaintiff or defendant, and without acquiring control over the course of a litigation, which is conceded to the main actors therein.38

Lastly, the Court does not agree with the CA when it ruled that the applicable provision is Rule 3, Section 19 (erroneously cited as Section 20) of the Rules of Court on transfer of interest and substitution of parties. Being a mere lessee of the subject properties, CSMC is a stranger insofar as the dispute between SSC and IEB is concerned. The action filed by IEB against SSC is an action for the payment or satisfaction of the loans incurred by the latter, which includes a possible foreclosure of the subject properties given as security for the said loans. CSMC may not be considered a successor, and may not be substituted in place of SSC, insofar as these loans are concerned. If any, what has been transferred to CSMC is only the right of SSC to operate the subject equipment and machineries which it owns. As such, SSC may not be removed as defendant because its interest in the subject properties remains, being the owner thereof.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 00549-MIN areAFFIRMED with MODIFICATION. The February 14, 2005 Order of the Regional Trial Court of Misamis Oriental, Branch 17, is MODIFIED by denying Metrobank's Motion for Intervention, while the Joint Resolution of the same trial court, dated June 8, 2005, reiterating its admission of CSMC's Motion for Intervention and directing the latter to file its complaint-in-intervention, is REINSTATED.

SO ORDERED.

G.R. No. 160322               August 24, 2011

PILIPINO TELEPHONE CORPORATION, Petitioner, vs.RADIOMARINE NETWORK (SMARTNET) PHILIPPINES, INC., Respondent.

ABAD, J.:

This case is about a party’s right to summary judgment when the pleadings show that there are no genuine issues of fact to be tried.

The Facts and the Case

On December 11, 1996 petitioner Pilipino Telephone Corporation (Piltel) expressed its willingness, on purely best effort, to buy in 1997 from respondent Radiomarine Network, Inc. (Smartnet) 300,000 units of various brands of cellular phones and accessories (Motorola, Mitsubishi, and Ericsson).1

On the following day, December 12, 1996, Piltel agreed to sell to Smartnet a 3,500-square meter lot,2 known as the Valgoson Property, in Makati City for P560 million. Smartnet agreed to pay Piltel P180 million as down payment with the balance of P380 million to be partly set off against the obligations that Piltel was to incur from its projected purchase of cellular phones and accessories from Smartnet. Smartnet agreed to settle any unpaid portion of the purchase price of the land after the set off on or about April 30, 1997.

The contract to sell between the parties provides:

The total consideration of FIVE HUNDRED SIXTY MILLION PESOS (P560,000,000.00) shall be paid by the VENDEE [Smartnet], without the need of any demand, to the VENDOR [Piltel] in the following manner:

(a) a downpayment in the amount of ONE HUNDRED EIGHTY MILLION (P180,000,000.00) PESOS, to be paid on or before December 28, 1996;

(b) Any and all outstanding payables which the VENDOR [Piltel] owes to the VENDEE [Smartnet] in consideration of the cellular phone units and accessories ordered by the VENDOR [Piltel] and delivered by the VENDEE [Smartnet] between the initial downpayment date i.e. December 28, 1996 and April 30, 1997, shall be credited to the VENDEE [Smartnet] as additional payment of the purchase price.

(c) The remaining balance, after deducting (a) and (b) above, shall be paid on or about April 30, 1997. It is expressly understood however, that the VENDOR [Piltel] shall submit to the VENDEE [Smartnet], on or about April 20, 1997, a Statement of Account updating the deliveries of cellular phones and its outstanding amount in order that the VENDEE [Smartnet] can prepare the final payment. In this way, the amount of final payment shall be made to the VENDOR [Piltel] on or before April 30, 1997. Should the VENDOR [Piltel] be delayed in the submission of the said Statement on the stipulated date, the date of payment of the remaining balance shall be automatically adjusted for a period equivalent to the number of days by which the VENDOR [Piltel] is delayed in the submission thereof.3

The parties also agreed on a rescission and forfeiture clause4 which provided that, if Smartnet fails to pay the full price of the land within the stipulated period and within five days after receipt of a notice of delinquency, it would automatically forfeit to Piltel 10% of the P180 million down payment or P18 million and the contract shall be without force and effect.

Smartnet failed to pay the P380 million balance of the purchase price on or about the date it fell due. On December 19, 1997 Piltel returned P50 million to Smartnet, a portion of the P180 million down payment that it received. Smartnet later requested Piltel for the return of the remaining P130 million but the latter failed to do so.5

On December 1, 1999 Smartnet filed a complaint6 against Piltel for rescission of their contract to sell involving the Valgoson Property or its partial specific performance before the Regional Trial Court (RTC)7 of Makati City in Civil Case 99-2041. Smartnet alleged, among other things, that it withheld payment of the balance of the purchase price of the subject property because Piltel reneged on its commitment to purchase from Smartnet 300,000 units of cellular phones and accessories.

Smartnet asked the court to (a) order Piltel to convey to Smartnet at least 32% interest in the Valgoson Property, representing the value of its down payment of P180 million or, in the alternative, order Piltel to return to Smartnet its P180 million down payment plus interest; (b) order Piltel to pay Smartnet P81,300,764.96, representing the value of the 300,000 units of various cellular phones which it acquired pursuant to Piltel’s commitment to buy them but which commitment Piltel disregarded, plus interest, as actual and compensatory damages; and (c) order Piltel to pay Smartnet P500,000.00 in attorney’s fees.

In its answer with counterclaims,8 Piltel claimed that the agreement to purchase cellular phones and accessories was not part of its contract with Smartnet for the sale of the Valgoson Property and that Piltel committed to buy equipment from Smartnet only on a best effort basis. For this reason, Piltel pointed out, Smartnet did not have the power to rescind the contract to sell the Valgoson Property and, hence, cannot invoke that contract’s rescission and forfeiture clause. Piltel sought full payment by Smartnet of the purchase price for the Valgoson Property, moral damages, exemplary damages, and litigation expenses.

On October 3, 2000 Smartnet filed a motion for partial summary judgment9 for the return of the down payment it paid Piltel. The RTC granted the motion on November 13, 200010 and ordered Piltel to return the P180 million down payment that it received less the forfeited amount of P18 million and the cash advance of P50 million or a net of P112 million, with interest at 6% per annum from the time of the extrajudicial demand on it on October 20, 1998 until finality of the judgment and an additional 12% legal interest after the judgment becomes final and executory

until the same is satisfied. Piltel filed a motion for reconsideration which the RTC denied for lack of merit on January 30, 2001.

On March 15, 2001 Smartnet filed a manifestation and motion, withdrawing its two remaining causes of action and praying for the issuance of a writ of execution. On March 20, 2001 it filed an alternative motion for execution pending appeal of the RTC’s partial decision.

On April 4, 2001 Piltel filed with the Court of Appeals (CA)11 a special civil action for certiorari with application for a temporary restraining order and a writ of preliminary injunction. Piltel alleged that the RTC presiding judge, Reinato G. Quilala, gravely abused his discretion when he issued a partial summary judgment in the case and denied Piltel’s motion for reconsideration. But the CA dismissed the petition, prompting Piltel to challenge such dismissal before this Court in G.R. 152092.

Meantime, on April 23, 2001 the RTC granted (a) Smartnet’s motion to withdraw its remaining causes of action and (b) its motion for execution pending appeal.12 Consequently, a writ of execution was issued on April 24, 2001.

On April 25, 2001 Piltel filed a notice of appeal to the CA from the judgment of November 13, 2000 and from the April 23, 2001 Order that allowed execution pending appeal. The appeal to the CA was docketed as CA-G.R. CV 71805.

On April 26, 2001 Piltel filed with the RTC a motion to defer execution pending appeal upon the posting of a supersedeas bond. The RTC denied the motion. Piltel filed a motion for reconsideration but the court denied it on August 14, 200113 and directed Piltel to pay 12% interest on the judgment amount from April 23, 2001, when it allowed the execution pending appeal. Piltel filed a supplemental notice of appeal to the CA from this last order.

On June 11, 2003 the CA dismissed Piltel’s appeal in CA-G.R. CV 71805.14 The appellate court held that the RTC did not err when it granted summary judgment since there were no genuine issues involved in the case. The CA said that Smartnet’s failure to pay the balance of the purchase price ipso facto avoids the contract to sell. With the denial of its motion for reconsideration,15 Piltel filed this petition under Rule 45 of the Rules of Court.

Meantime, the Court in G.R. 15209216 denied Piltel’s petition on August 4, 2010. The Court affirmed the CA’s ruling in CA-G.R. SP 64155 that appeal, and not certiorari, is the proper remedy. Moreover, it held that Piltel committed forum shopping when it filed a petition for certiorari and a notice of appeal to assail the same resolutions and orders of the RTC.

With the denial of G.R. 152092, the Court is now left with this petition assailing the CA’s dismissal of Piltel’s appeal in CA-G.R. CV 71805.

The Issue Presented

The core issue for resolution is whether or not there are genuine issues of fact to be tried in this case.

The Court’s Ruling

A genuine issue of fact is that which requires the presentation of evidence, as distinguished from a sham, fictitious, contrived or false issue. When the facts as pleaded appear uncontested or undisputed, then there is no real or genuine issue. Summary judgment is proper in such a case.17

Here, Piltel contends that summary judgment is out of place because the parties raise factual issues of fraud and breach of contract. Although their contract has a built-in rescission and forfeiture clause, this becomes operative only upon the occurrence of the following conditions: 1) Piltel sends a Statement of Account to Smartnet; 2) Smartnet fails to pay within 10 days from receipt of the statement; 3) Piltel sends a Notice of Delinquency to Smartnet; and 4) Smartnet fails to pay within five days from receipt of the notice.

The rescission and forfeiture clause thus reads:

In case the VENDEE fails to fully pay, within the stipulated period, the balance of the total consideration under Article 2(c) of this Contract to Sell, the VENDOR shall send a notice of delinquency to the VENDEE. Failure on the part of the VENDEE to pay within five (5) days from receipt of said notice, ten (10%) percent of the downpayment or EIGHTEEN MILLION PESOS (P18,000,000.00) PESOS, Philippine Currency shall automatically be forfeited in favor of the VENDOR and the Contract to Sell shall be without force and effect.18

Notably, however, both Piltel and Smartnet admit that they entered into a contract to sell covering the Valgoson Property; that Smartnet agreed to pay Piltel P560 million for it, with a down payment of P180 million; and that Smartnet failed to pay the balance of the purchase price on or about April 30, 1997.

With these common admissions, it is clear that there are no genuine issues of fact as to the existence and nature of the contract to sell as well as Smartnet’s failure to pay the balance of the purchase price within the agreed period.

Thus, the RTC was correct in skipping trial and deciding the case through a summary judgment based on the undisputed facts.

Smartnet’s allegations respecting fraud and breach of contract referred to what appears to be Piltel’s non-binding promise to buy cellular phones and accessories from Smartnet. These are matters independent of the parties’ agreement concerning Piltel’s sale of the Valgoson Property to Smartnet. The contract to sell of such property was not legally linked or made dependent on the aborted cellular phone deal between the parties. Indeed, Smartnet dropped with leave of court its causes of action relating to such deal.

All that matters is that since Smartnet failed to pay the balance of the purchase price, automatic rescission set in and this placed Piltel under an obligation to return the down payment it received, less the portion that it forfeited due to Smartnet’s default. Consequently, it is but proper for Piltel to fully abide by such obligation. Piltel cannot avoid rescission since it in fact partially abided by rescission’s consequences when it returned to Smartnet on December 19, 1997 a P50 million portion of the down payment it received.

By returning part of the down payment, it is clear that Piltel recognized that the contract to sell the Valgoson Property had reached the point of automatic rescission. Piltel is, therefore, in estoppel to deny rescission based on a claim that it had not yet sent a statement of account or a notice of delinquency to Smartnet regarding the latter’s default. Such statement of account and notice of delinquency had become academic.

Piltel argues that Smartnet cannot, as a defaulting buyer, rescind the contract to sell between them by the simple act of refusing to pay. But, Smartnet’s nonpayment of the full price of the property was not an act of rescission. It was but an event that rendered the contract to sell without force and effect. In a contract to sell, the prospective seller binds himself to part with his property only upon fulfillment of the condition agreed, in this case, the payment in full of the purchase price. If this condition is not fulfilled, the seller is then released from his obligation to sell.

As the Court said in Heirs of Cayetano Pangan and Consuelo Pangan v. Perreras,19 the payment of the purchase price in a contract to sell is a positive suspensive condition, the failure of which is not a breach but a situation that results in the cancellation of the contract. Strictly speaking, therefore, there can be no rescission or resolution of an obligation that is still non-existent due to the non-happening of the suspensive condition.20

Likewise, a cause of action for specific performance does not arise where the contract to sell has been cancelled due to nonpayment of the purchase price.21 Smartnet obviously cannot demand title to the Valgoson Property because it did not pay the purchase price in full. For its part, Piltel also cannot insist on full payment since Smartnet’s failure to pay resulted in the cancellation of the contract to sell. Indeed, in the case of Ayala Life Assurance, Inc. v. Ray Burton Dev’t. Corp.,22 the Court rejected the seller’s demand for full payment and instead ordered it to refund to the buyer all sums previously paid. The order to refund is correct based on the principle that no one should unjustly enrich himself at the expense of another.23 1avvphil

Lastly, the Court sustains the CA’s imposition of 12% interest pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.24

WHEREFORE, premises considered, the Court DENIES the petition and AFFIRMS the June 11, 2003 Decision and the October 6, 2003 Resolution of the Court of Appeals in CA-G.R. CV 71805.

SO ORDERED.

G.R. No. 178218               December 14, 2011

RAMONA RAMOS and THE ESTATE OF LUIS T. RAMOS, Petitioners, vs.PHILIPPINE NATIONAL BANK, OPAL PORTFOLIO INVESTMENTS (SPV-AMC), INC. and GOLDEN DRAGON STAR EQUITIES, INC., Respondents.

LEONARDO – DE CASTRO, J.:

Assailed in this Petition for Review on Certiorari1 under Rule 45 of the Rules of Court are the Decision2 dated November 8, 2006 and the Resolution3 dated May 28, 2007 of the Court of Appeals in CA-G.R. CV No. 64360.

From the records of the case, the following facts emerge:

The Real Estate Mortgage

In 1973, Luis Ramos obtained a credit line under an agricultural loan account from the Philippine National Bank (PNB), Balayan Branch, for P83,000.00.4 To secure the loan, the parties executed a Real Estate Mortgage5 on October 23, 1973, the relevant provisions of which stated:

That for and in consideration of certain loans, overdrafts and other credit accommodations obtained from the Mortgagee, which is hereby fixed at P 83,000.00  Philippine Currency and to secure the payment of the same and those others that the Mortgagee may extend to the Mortgagor, including interest and expenses, and other obligations owing by the Mortgagor to the Mortgagee, whether direct or indirect principal or secondary, as appear in the accounts, books and records of the Mortgagee, the Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee, its successors or assigns, the parcels of land which are described in the list inserted at the back of this document, or in a supplementary list attached hereto, together with all the buildings and improvements now existing or which may hereafter be erected or constructed thereon and all easements, sugar quotas, agricultural or land indemnities, aids or subsidies, including all other rights or benefits annexed to or inherent therein now existing or which may hereafter exist, and also other assets acquired with the proceeds of the loan hereby secured all of which the mortgagor declares that he is the absolute owner free from all liens and encumbrances. In case the Mortgagor executes subsequent promissory note or notes either as a renewal of the former note, as an extension thereof, or as a new loan, or is given any other kind of accommodations such as overdrafts, letters of credit, acceptances and bills of exchange, releases of import shipments on Trust Receipts, etc., this mortgage shall also stand as security for the payment of the said promissory note or notes and/or accommodations without the necessity of executing a new contract and this mortgage shall have the same force and effect as if the said promissory note or notes and/or accommodations were existing on the date thereof. This mortgage shall also stand as security for said obligations and any and all other obligations of the Mortgagor to the Mortgagee of whatever kind and nature whether such obligations have been contracted before, during or after the constitution of this mortgage. However, if the Mortgagor shall pay to the Mortgagee, its successors or assigns the obligations secured by this mortgage, together with interests, cost and other expenses, on or before the date they are due, and shall keep and perform all the covenants and agreements herein contained for the Mortgagor to keep and perform, then this mortgage shall be null and void, otherwise, it shall remain in full force and effect.6

The properties included in the mortgage were the parcels of land covered under Transfer Certificate of Title (TCT) Nos. 17217, (T-262) RT-644, 259, (T-265) RT-646, (T-261) RT-6437 of the Registry of Deeds of Batangas. From the year 1973, Luis Ramos would renew the loan every year after paying the amounts falling due therein.8

The Sugar Quedan Financing Loans

On March 31, 1989, Luis Ramos and PNB entered into a Credit Line Agreement9 in the amount ofP50,000,000.00 under the bank’s sugar quedan financing program. The agreement pertinently provided thus:

For and in consideration of the Bank agreeing to extend to the Borrower a Revolving Credit Line (the "Line") in an amount not to exceed PESOS: FIFTY MILLION ONLY ( P 50,000,000.00) , under the Bank’s Sugar Quedan Financing Program for Crop Year 88/89, the parties hereto hereby agree as follows:

SECTION 1. TERMS OF THE LINE

1.01 Amount and Purpose of the Line. The Line shall be available to the Borrower in an aggregate amount not to exceed FIFTY MILLION ONLY Pesos ( P 50,000,000.00) . x x x Availments on the Line shall be used by the Borrower exclusively for additional capital in sugar quedan financing.

1.02 Availability Period; Availments. (a) Subject to the terms and conditions hereof, the Line shall be available to the Borrower in several availments (individually an "Availment" and collectively the "Availments") on any Banking Day x x x during the period commencing on the Effectivity Date x x x and terminating on the earliest of (i) August 31, 19__, or (ii) the date the Bank revokes the Line, or (iii) the date the Borrower ceases to be entitled to avail of the Line under the terms hereof.

x x x x

1.03 Promissory Notes. Availments on the Line shall be evidenced by promissory notes (individually a "Note" and collectively the "Notes") issued by the Borrower in favor of the Bank in the form and substance acceptable to the Bank. Each Note shall be (i) dated the date of Availment, (ii) in the principal amount of such Availment, with interest thereon at the rate as provided in Section 1.04 hereof, and (iii) payable on the date occurring sixty (60) days from date of the availment, but in no case later than August 31, 19__ (the "Initial Repayment Date").

x x x x

SECTION 3. SECURITY

3.01 Security Document. The full payment of any and all sums payable by the Borrower hereunder and under the Notes, the Renewal Notes and the other documents contemplated hereby and the performance of all obligations of the Borrower hereunder and under the Notes, the Renewal Notes and such other documents shall be secured by a pledge (the "Pledge") on the Borrower’s quedans for crop year ____, as more particularly described in and subject to the terms and conditions of that Contract of Pledge to be executed by the Borrower in favor of the Bank, which Contract shall in any event be in form and substance acceptable to the Bank (the "Security Document").10 (Emphases ours.)

Pursuant to the above agreement, Luis Ramos obtained an availment of P7,800,000.00, which was evidenced by a promissory note dated April 3, 1989.11 Accordingly, Luis Ramos executed a Contract of Pledge12 in favor of PNB on April 6, 1989. Pledged as security for the availment were two official warehouse receipts (quedans) for refined sugar issued by Noah’s Ark Sugar Refinery (Noah’s Ark), which bore the serial numbers NASR RS-18080 and NASR RS-18081.13 The said quedans were duly indorsed to PNB.

On June 6, 1989, Luis Ramos procured another availment of P7,800,000.00 that was likewise contained in a promissory note14 and for which he executed another Contract of Pledge15 on the aforementioned quedans on even date.

Thereafter, Luis Ramos was granted a renewal on the promissory notes dated April 3, 1989 and June 6, 1989. Hence, he executed in favor of PNB the promissory notes dated October 3, 1989 and October 9, 1989.16

Luis Ramos eventually failed to settle his sugar quedan financing loans amounting to P15,600,000.00. On December 28, 1989, he issued an Authorization17 in favor of PNB, stating as follows:

AUTHORIZATION

KNOW ALL MEN BY THESE PRESENTS:

In consideration of my Sugar Quedan Financing line granted by Philippine National Bank, Balayan Branch in the amount of P 50.0 Million , as evidenced by Credit Agreement dated March 31, 1989, the undersigned, as borrower, authorizes the Philippine National Bank, Balayan Branch, or any of its duly authorized officer, to dispose and sell all the Quedan Receipts (Warehouse Receipts) pledged to said bank, after maturity date of the Sugar Quedan Financing line.

The Sugar Quedan Receipts are hereunder specifically enumerated:

Official Warehouse Receipt (Quedan) Serial Nos.:

1) NASR RS – 18081 Crop Year 1988-89 (16,129.03 – 50 kilo bags)

2) NASR RS – 18080 Crop Year 1988-89 (16,393.44 – 50 kilo bags)

Incidentally, the above-mentioned sugar quedans became the subject of three other cases between PNB and Noah’s Ark, which cases have since reached this Court.18

The Agricultural Crop Loan

Meanwhile, on August 7, 1989, the spouses Luis Ramos and Ramona Ramos (spouses Ramos) also obtained an agricultural loan of P160,000.00 from PNB. Said loan was evidenced by a promissory note19 issued by the spouses on even date. The said loan was secured by the real estate mortgage previously executed by the parties on October 23, 1973.

On November 2, 1990, the spouses Ramos fully settled the agricultural loan of P160,000.00.20 They then demanded from PNB the release of the real estate mortgage. PNB, however, refused to heed the spouses’ demand.21

On February 28, 1996, the spouses Ramos filed a complaint for Specific Performance22 against the PNB, Balayan Branch, which was docketed as Civil Case No. 3241 in the Regional Trial Court (RTC) of Balayan, Batangas. The spouses claimed that the actions of PNB impaired their rights in the properties included in the real estate mortgage. They alleged that they lost business opportunities since they could not raise enough capital, which they could have acquired by mortgaging or disposing of the said properties. The spouses Ramos prayed for the trial court to order PNB to release the real estate mortgage on their properties and to return to the spouses the TCTs of the properties subject of the mortgage.

In its Answer,23 PNB countered that the spouses Ramos had no cause of action against it since the latter knew that the real estate mortgage secured not only their P160,000.00 agricultural loan but also the other loans the spouses obtained from the bank. Specifically, PNB alleged that the spouses’ sugar quedan financing loan ofP15,600,000.00 remained unpaid as the quedans were dishonored by the warehouseman Noah’s Ark. PNB averred that it filed a civil action for specific performance against Noah’s Ark involving the quedans and the case was still pending at that time. As PNB was still unable to collect on the quedans, it claimed that the spouses Ramos’ loan obligations were yet to be fully satisfied. Thus, PNB argued that it could not release the real estate mortgage in favor of the spouses.

On March 26, 1999, the RTC rendered a Decision24 in favor of the spouses Ramos, holding that:

A careful analysis of the evidence on record clearly shows that there is merit to the [spouses Ramos’] complaint that their obligation with [PNB] has long been paid and satisfied.

As the records show, PNB admitted that [Luis Ramos] has already paid his sugar crop loan in the amount ofP160,000.00 x x x. The reason why it refused to release the certificates of titles to the [spouses Ramos] was allegedly because the said titles were also mortgaged to secure the other obligations of Luis Ramos, particularly the sugar crop loan in the amount of P15.6 Million. However, even assuming that its argument is correct that the said certificates of titles were also security for the said sugar financing loan, the same is of no consequence since the [spouses Ramos] have likewise fully paid the sugar loan when they effectively transferred the sugar quedans to [PNB] by issuing a letter authority, authorizing it to dispose and sell all the Quedan Receipts (Warehouse Receipts) of the [spouses Ramos] which they pledged to the bank on December 29, 1989 x x x. [Luis Ramos] executed the said letter of authority to the PNB when he could not anymore afford to pay his loan which became due. There is no doubt that [PNB] accepted the said quedans with the understanding that the same shall be treated as payment of [spouses Ramos’] obligation, considering that it did not hesitate to proceed to demand from Noah’s Ark Sugar Refinery, the delivery of the sugar stocks to them as new owners thereof. It is, therefore, very clear that the authorization issued by [Luis Ramos] in favor of [PNB], giving the latter the right to dispose and sell the pledged warehouse receipts/quedans totally terminated the contract of pledge between the [spouses Ramos] and [PNB]. In effect there was a novation of their agreement and dation in payment set in between the parties thereby extinguishing the loan obligation of the [spouses Ramos], as provided in Article 1245 of the Civil Code.

Article 1245 of the Civil Code provides that dation in payment is a special form of payment whereby property is alienated by the debtor to the creditor in satisfaction of a debt in money. As stated differently by the noted commentator Manresa, dacion en pago is the transfer of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of an obligation. This was what precisely plaintiff Luis Ramos did in this case. He alienated the ownership of the sugar quedans and the goods covered by said quedans to [PNB] in satisfaction of his loan obligation with [PNB].

x x x x

WHEREFORE, the defendant Philippine National Bank, Balayan Branch is hereby ORDERED to RELEASE the real estate mortgage on the properties of the [spouses Ramos] and to return to them all the transfer certificates of titles which were pledged as security for the agricultural loan which had long been paid and satisfied and to pay the costs.25 (Emphasis ours.)

PNB filed a Notice of Appeal26 involving the above decision, which was given due course by the RTC in an Order dated May 11, 1999. The records of the case were then forwarded to the Court of Appeals where the case was docketed as CA-G.R. CV No. 64360.

Before the appellate court, PNB contested the ruling of the RTC that the spouses Ramos have already settled their sugar quedan financing loan with PNB when they issued a letter of authority, which authorized PNB to sell the quedan receipts of the spouses Ramos. PNB also contended that the real estate mortgage executed by the spouses Ramos in its favor secured not only the spouses Ramos’ agricultural crop loan in the amount ofP160,000.00, but also their 1989 sugar quedan financing loan.27

On the other hand, the spouses Ramos averred that the authorization issued by Luis Ramos in favor of PNB, authorizing the latter to dispose and sell the pledged sugar quedans terminated the contract of pledge between the spouses Ramos and PNB. There was in effect a novation of the contract of pledge and, thereafter, dation in payment set in between the parties.28 The spouses Ramos also claimed that the condition in the parties’ real estate mortgage, which stated that the "mortgage shall also stand as security for said obligations and any and all other obligations of the MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such obligations have been contracted before, during or after the constitution of mortgage[,]" was essentially a contract of adhesion and violated the doctrine of mutuality of contract.29

On November 8, 2006, the Court of Appeals promulgated its assailed decision, reversing the judgment of the RTC. The appellate court elucidated thus:

In the instant appeal, the trial court ruled that the issuance of [the] authorization letter by [spouses Ramos] in favor of [PNB] terminated the contract of pledge between the parties and in effect dation in payment sets-in.

We do not agree. First, the authorization letter did not provide that ownership of the goods pledged would pass to [PNB] for failure of [spouses Ramos] to pay the loan on time. This is contrary to the concept of Dacion en pago as the "delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation." Second, the authorization merely provided for the appointment of [PNB] as attorney-in-fact with authority, among other things, to sell or otherwise dispose of the said real rights, in case of default by [spouses Ramos], and to apply the proceeds to the payment of the loan. This provision is a standard condition in pledge contracts and is in conformity with Article 2087 of the Civil Code, which authorizes the pledgee to foreclose the pledge and alienate the pledged property for the payment of the principal obligation. Lastly, there was no meeting of the minds between [spouses Ramos] and [PNB] that the loan would be extinguished by dation in payment.

Article 1245 of the Civil Code provides that the law on sales shall govern an agreement of dacion en pago. A contract of sale is perfected at the moment there is a meeting of the minds of the parties thereto upon the thing which is the object of the contract and upon the price. x x x.

x x x x

In this case, there was no meeting of the mind between the parties that would lead us to conclude that dation in payment has set-in. The trial court based its decision that there was dation in payment solely on the authorization letter, which we do not agree. This is because the authorization letter merely authorizes "the Philippine National Bank, Balayan Branch, or any of its duly authorized officer, to dispose and sell all the Quedan Receipts (Warehouse Receipts) pledge to said bank, after maturity date of the Sugar Quedan Financing Loan."

Moreover, in case of doubt as to whether a transaction is a pledge or dation in payment, the presumption is in favor of pledge, the latter being the lesser transmission of rights and interest.

x x x x

WHEREFORE, the appeal is hereby GRANTED. ACCORDINGLY, the Decision dated March 26, 1999 of the Regional Trial Court of Balayan, Batangas, Branch 9, is hereby REVERSED and a new one is entered ordering [PNB] to hold the release of all the transfer certificates of titles which were pledged as security for the agricultural loan of [spouses Ramos].30

On November 30, 2006, the spouses Ramos filed a Motion for Reconsideration31 of the Court of Appeals decision. The spouses then asserted that it was unclear whether the parties intended that the real estate mortgage would also secure the sugar quedan financing loan, which was specifically secured by the pledge on the quedans. They alleged that the sugar quedan financing loan, the contract of pledge and the promissory notes did not even make any reference to the real estate mortgage. PNB apparently violated its implied duty of good faith by wrongfully retaining the spouses Ramos’ collateral and improperly invoking the obscure terms of the real estate mortgage it prepared.

Subsequently, the spouses Ramos filed a Motion for Leave to File Supplemental Argument.32 They added that PNB could not have acquired a security interest on the real estate mortgage for the purpose of the sugar quedan financing loan because when the real estate mortgage was constituted, the credit line from whence the sugar quedan financing loan was sourced did not yet exist. The spouses Ramos also argued that PNB was in bad faith in retaining the collateral of their real estate mortgage as it knew or should have known that the said security was already void given that the agricultural crop loan secured by the mortgage was already fully paid.

In the assailed Resolution dated May 28, 2007, the Court of Appeals denied the spouses Ramos’ motion for reconsideration as it found no compelling reason to reverse its Decision dated November 8, 2006.

On June 18, 2007, the counsel for the spouses Ramos notified the Court of Appeals that Luis Ramos had passed away and that the latter’s wife, Ramona Ramos, acted as the legal representative of Luis’ estate.

Thereafter, Ramona Ramos and the estate of Luis Ramos (petitioners) filed the instant petition in a final bid to have the real estate mortgage declared null and void as regards their sugar quedan financing loan, as well as to compel PNB to return the TCTs of the properties included in the said mortgage.

On September 10, 2007, PNB filed a Motion for Substitution of Party,33 alleging that it has sold to Golden Dragon Star Equities, Inc. all of its rights, titles and interests in and all obligations arising out of or in connection with several cases, including the instant case. Afterwards, Golden Dragon Star Equities, Inc. assigned to Opal Portfolio Investments (SPV-AMC) Inc. all of its rights and obligations as a purchaser under the contract of sale with PNB. Thus, PNB prayed that it be substituted by Opal Portfolio Investments (SPV-AMC) Inc. as party respondent in the petition.

In the Resolution34 dated October 10, 2007, the Court denied the above motion of PNB and instead ordered that Opal Portfolio Investments (SPV-AMC) Inc. and Golden Dragon Star Equities, Inc. be included as respondents in addition to PNB. The said corporations were then required to file their comment on the petition within ten days from notice.35 On January 25, 2008, Opal Portfolio Investments (SPV-AMC) Inc. and Golden Dragon Star Equities, Inc. manifested that they were adopting as their own the comment filed by PNB.36

The Issues

Petitioners raise the following issues:

1.

IS THE MEANING OF THE GENERAL TERMS OF THE REAL ESTATE MORTGAGE CLEAR AND LEAVE NO DOUBT THAT THERE IS NO NEED TO DETERMINE WHETHER THE PARTIES INTENDED TO CREATE AND PROVIDE SECURITY INTEREST ON THE REAL ESTATE COLLATERAL OF BORROWER

LUIS T. RAMOS FOR THE SUGAR QUEDAN FINANCING LOAN GRANTED TO HIM BY LENDER PNB, IN ADDITION TO THE AGRICULTURAL CROP LOAN THAT WAS UNDISPUTEDLY AGREED UPON BY THEM TO BE COVERED BY THE COLLATERAL?

2.

SHOULD THE GENERAL TERMS OF THE REAL ESTATE MORTGAGE EXECUTED BY BORROWER LUIS T. RAMOS IN FAVOR OF LENDER PNB BE UNDERSTOOD TO INCLUDE IN ITS COVERAGE THE BORROWER’S SUGAR QUEDAN FINANCING LOAN THAT IS DIFFERENT FROM HIS AGRICULTURAL CROP LOAN UNDISPUTEDLY AGREED UPON BY THE PARTIES TO BE COVERED BY THE COLLATERAL?

3.

SHOULD THE REAL ESTATE MORTGAGE EXECUTED IN 1973 BE CONSIDERED VALID AND EXISTING SECURITY DEVICE AGREEMENT FOR SUGAR QUEDAN FINANCING LOAN OBTAINED PURSUANT TO CREDIT LINE AGREEMENT EXECUTED ONLY IN 1989?37

Petitioners principally argue that the scope and coverage of the real estate mortgage excluded the sugar quedan financing loan. Petitioners assert that the mortgage contained a blanket mortgage clause or a dragnet clause, which stated that the mortgage would secure not only the loans already obtained but also any other amount that Luis Ramos may loan from PNB. Petitioners posit that a dragnet clause will cover and secure a subsequent loan only if said loan is made in reliance on the original security containing the dragnet clause. Petitioners state that said condition did not exist in the instant case, as the sugar quedan financing loan was not obtained in reliance on the previously executed real estate mortgage. Such fact was supposedly apparent from the documents pertaining to the sugar quedan financing loans, i.e., the credit line agreement, the various promissory notes and the contracts of pledge.

PNB responded that the issue of whether the parties intended for the real estate mortgage to secure the sugar quedan financing loan was never raised in the RTC or in the Court of Appeals. Therefore, the same cannot be raised for the first time in the motion for reconsideration of the Court of Appeals decision and in the instant petition. Likewise, PNB asserts that the spouses Ramos consented to the terms of the real estate mortgage that the real properties subject thereof should be used to secure future and subsequent loans of the mortgagor. Since the spouses never contested the validity and enforceability of the real estate mortgage, the same must be respected and should govern the relations of the parties therein.

PNB also avers that the Court of Appeals did not err in ruling that there was no dacion en pago and/or novation under the circumstances prevailing in the instant case. The Authorization issued by Luis Ramos in favor of PNB did not terminate the contract of pledge between the parties as PNB was merely authorized to dispose and sell the sugar quedans to be applied as payment to the obligation. Hence, no transfer of ownership occurred. Article 2103 of the Civil Code expressly states that "unless the thing pledged is expropriated, the debtor continues to be the owner thereof." PNB argued that when it accepted the Authorization, it recognized that it was merely being authorized by Luis Ramos to dispose of the quedans. Therefore, until the spouses Ramos fully settle their loans from PNB, the latter believes that it has every right to retain possession of the properties offered as collateral thereto.

After due consideration of the issues raised, we are compelled to deny the petition.

To begin with, we note that, indeed, petitioners are presently raising issues that were neither invoked nor discussed before the RTC and the main proceedings before the Court of Appeals. The very issues laid down by petitioners for our consideration were first brought up only in their motion for reconsideration of the Court of Appeals Decision dated November 8, 2006.

In their complaint before the RTC and in their reply to PNB’s appeal to the Court of Appeals, petitioners relied on the theory that they have already settled all of their loan obligations with PNB, including their sugar quedan financing loan, such that they were entitled to the release of the real estate mortgage that secured the said obligations. When the Court of Appeals rendered the assailed decision, petitioners foisted a new argument in their motion for reconsideration that the parties did not intend for the sugar quedan financing loan to be covered by the real estate mortgage. Before this Court, petitioners are now reiterating and expounding on their argument that their sugar quedan financing loan was beyond the ambit of the previously executed real estate mortgage. We rule that such a change in petitioners’ theory may not be allowed at such late a stage in the case.

The general rule is that issues raised for the first time on appeal and not raised in the proceedings in the lower court are barred by estoppel. Points of law, theories, issues, and arguments not brought to the attention of the trial court ought not to be considered by a reviewing court, as these cannot be raised for the first time on appeal. To consider the alleged facts and arguments raised belatedly would amount to trampling on the basic principles of fair play, justice, and due process.38

Jurisprudence, nonetheless, provides for certain exceptions to the above rule. First, it is a settled rule that the issue of jurisdiction may be raised at any time, even on appeal, provided that its application does not result in a mockery

of the tenets of fair play. Second, as held in Lianga Lumber Company v. Lianga Timber Co., Inc.,39 in the interest of justice and within the sound discretion of the appellate court, a party may change his legal theory on appeal only when the factual bases thereof would not require presentation of any further evidence by the adverse party in order to enable it to properly meet the issue raised in the new theory.

None of the above exceptions, however, applies to the instant case. As regards the first exception, the issue of jurisdiction was never raised at any point in this case. Anent the second exception, the Court finds that the application of the same in the case would be improper, as further evidence is needed in order to answer and/or refute the issue raised in petitioners’ new theory.

To recapitulate, petitioners are now claiming that the sugar quedan financing loan it availed from PNB was not obtained in reliance on the real estate mortgage. Petitioners even insist that the credit line agreement, the promissory notes and the contracts of pledge entered into by the parties were silent as to the applicability thereto of the real estate mortgage. Otherwise stated, petitioners are harping on the intention of the parties vis-à-vis the security arrangement for the credit line agreement and the availments thereof constituting the sugar quedan financing loan. The impropriety of the petitioners’ posturing is further confounded by the fact that the credit line agreement under PNB’s sugar quedan financing program and the availments thereto were entered into by Luis Ramos and PNB as far back as the year 1989. Petitioners’ new theory, on the other hand, was only raised much later on the spouses’ motion for reconsideration of the Court of Appeals decision dated November 8, 2006, or after a period of more or less seventeen years since the execution of the credit line agreement. The Court, therefore, finds itself unable to give credit to the new theory proffered by petitioners since to do so would gravely offend the rights of PNB to due process.

Even if the Court were willing to overlook petitioners’ procedural misstep on appeal, their belatedly proffered theory still fails to convince us that the Court of Appeals committed any reversible error in its resolution of the present case.

According to petitioners, their case requires an application of Article 1371 of the Civil Code, which provides that "in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered." To their mind, the mere fact that the 1989 credit line agreement, the promissory notes and the contracts of pledge executed in relation to the sugar quedan financing loan contained no reference to the real estate mortgage is sufficient proof that the parties did not intend the real estate mortgage to secure the sugar quedan financing loan, but only the agricultural crop loans. The Court finds that it cannot uphold this proposition.

In Prisma Construction & Development Corporation v. Menchavez,40 we discussed the settled principles that:

Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. When the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations governs. In such cases, courts have no authority to alter the contract by construction or to make a new contract for the parties; a court's duty is confined to the interpretation of the contract the parties made for themselves without regard to its wisdom or folly, as the court cannot supply material stipulations or read into the contract words the contract does not contain. It is only when the contract is vague and ambiguous that courts are permitted to resort to the interpretation of its terms to determine the parties' intent.41

Here, it cannot be denied that the real estate mortgage executed by the parties provided that it shall stand as security for any "subsequent promissory note or notes either as a renewal of the former note, as an extension thereof, or as a new loan, or is given any other kind of accommodations such as overdrafts, letters of credit, acceptances and bills of exchange, releases of import shipments on Trust Receipts, etc." The same real estate mortgage likewise expressly covered "any and all other obligations of the Mortgagor to the Mortgagee of whatever kind and nature whether such obligations have been contracted before, during or after the constitution of this mortgage." Thus, from the clear and unambiguous terms of the mortgage contract, the same has application even to future loans and obligations of the mortgagor of any kind, not only agricultural crop loans.

Such a "blanket clause" or "dragnet clause" in mortgage contracts has long been recognized in our jurisprudence. Thus, in another case, we held:

As a general rule, a mortgage liability is usually limited to the amount mentioned in the contract. However, the amounts named as consideration in a contract of mortgage do not limit the amount for which the mortgage may stand as security if, from the four corners of the instrument, the intent to secure future and other indebtedness can be gathered. This stipulation is valid and binding between the parties and is known as the "blanket mortgage clause" (also known as the "dragnet clause)."

In the present case, the mortgage contract indisputably provides that the subject properties serve as security, not only for the payment of the subject loan, but also for "such other loans or advances already obtained, or still to be obtained." The cross-collateral stipulation in the mortgage contract between the parties is thus simply a variety of a dragnet clause. After agreeing to such stipulation, the petitioners cannot insist that the subject properties be released from mortgage since the security covers not only the subject loan but the two other loans as well.42(Emphases supplied.)

Moreover, petitioners’ reliance on Prudential Bank v. Alviar43 is sorely misplaced. In Prudential, the fact that another security was given for subsequent loans did not remove such loans from the ambit of the dragnet clause in a previous real estate mortgage contract. However, it was held in Prudential that the special security for subsequent loans must first be exhausted before the creditor may foreclose on the real estate mortgage. In other words, the creditor is allowed to hold on to the previous security (the real estate mortgage) in case of deficiency after resort to the special security given for the subsequent loans. Verily, even under the Prudential ruling cited by petitioners, they are not entitled to the release of the real estate mortgage and the titles to the properties mentioned therein.

Ultimately, we likewise find no reason to overturn the assailed ruling of the Court of Appeals that the contract of pledge between petitioners and PNB was not terminated by the Authorization letter issued by Luis Ramos in favor of PNB. The status of PNB as a pledgee of the sugar quedans involved in this case had long been confirmed by the Court in its Decision dated July 9, 1998 in Philippine National Bank v. Sayo, Jr.44 and the same is neither disputed in the instant case. We reiterate our ruling in Sayo that:

The creditor, in a contract of real security, like pledge, cannot appropriate without foreclosure the things given by way of pledge. Any stipulation to the contrary, termed pactum commissorio, is null and void. The law requires foreclosure in order to allow a transfer of title of the good given by way of security from its pledgor, and before any such foreclosure, the pledgor, not the pledgee, is the owner of the goods. x x x.45

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A close reading of the Authorization executed by Luis Ramos reveals that it was nothing more than a letter that gave PNB the authority to dispose of and sell the sugar quedans after the maturity date thereof. As held by the Court of Appeals, the said grant of authority on the part of PNB is a standard condition in a contract of pledge, in accordance with the provisions of Article 2087 of the Civil Code that "it is also of the essence of these contracts that when the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment to the creditor." More importantly, Article 2115 of the Civil Code expressly provides that the sale of the thing pledged shall extinguish the principal obligation, whether or not the proceeds of the sale are equal to the amount of the principal obligation, interest and expenses in a proper case. As we adverted to in Sayo, it is the foreclosure of the thing pledged that results in the satisfaction of the loan liabilities to the pledgee of the pledgors. Thus, prior to the actual foreclosure of the thing pleged, the sugar quedan financing loan in this case is yet to be settled.

As matters stand, with more reason that PNB cannot be compelled to release the real estate mortgage and the titles involved therein since the issue of whether the sugar quedan financing loan will be fully paid through the pledged sugar receipts remains the subject of pending litigation.

WHEREFORE, the petition is DENIED. The Decision dated November 8, 2006 and the Resolution dated May 28, 2007 of the Court of Appeals in CA-G.R. CV No. 64360 are hereby AFFIRMED. Costs against petitioners.

SO ORDERED.

G.R. No. 152313               October 19, 2011

REPUBLIC FLOUR MILLS CORPORATION, Petitioner, vs.FORBES FACTORS, INC. Respondent.

SERENO, J.:

Petitioner filed this present Petition for Review1 under Rule 45 of the Rules of Court, seeking a reversal of the Court of Appeals Decision,2 the dispositive portion of which states:

WHEREFORE, premises considered, the Decision dated April 15, 1996 rendered by the Regional Trial Court of Makati City, Branch 60, is hereby AFFIRMED, with MODIFICATIONS, as follows:

1) The legal interest rate of six percent (6%) per annum should be computed from the date of the filing of the complaint which shall become twelve percent (12%) per annum from the time the judgment becomes final and executory until its satisfaction.

2) The award of P300,000.00 as exemplary damages is reduced to P50,000.00;

3) The award of P400,00.00 as attorney’s fees is likewise reduced to P75,000.00;

4) The Decision is hereby affirmed in all other respects.

SO ORDERED.

The case arose when petitioner refused to pay the demurrage being collected by respondent.

The facts are as follows:

In a contract dated 26 April 1983, respondent was appointed as the exclusive Philippine indent representative of Richco Rotterdam B.V. (Richco), a foreign corporation, in the sale of the latter’s commodities. Under one of the terms of the contract, respondent was to assume the liabilities of all the Philippine buyers, should they fail to honor the commitments on the discharging operations of each vessel, including the payment of demurrage and other penalties. In such instances, Richco shall have the option to debit the account of respondent corresponding to the liabilities of the buyers, and respondent shall then be deemed to be subrogated to all the rights of Richco against these defaulting buyers.3

Sometime in 1987, petitioner purchased Canadian barley and soybean meal from Richco. The latter thereafter chartered four (4) vessels to transport the products to the Philippines. Each of the carrier bulk cargoes was covered by a Contract of Sale executed between respondent as the seller and duly authorized representative of Richco and petitioner as the buyer. The four contracts specifically referred to the charter party in determining demurrage or dispatch rate. The contract further provided that petitioner guarantees to settle any demurrage due within one (1) month from respondent’s presentation of the statement.

Upon delivery of the barley and soybean meal, petitioner failed to discharge the cargoes from the four (4) vessels at the computed allowable period to do so. Thus, it incurred a demurrage amounting to a total of US$193,937.41.

On numerous occasions, on behalf of Richco, respondent demanded from petitioner the payment of the demurrage, to no avail. Consequently, on 20 October 1991, Richco sent a communication to respondent, informing it that the demurrage due from petitioner had been debited from the respondent’s account.

Thereafter, on 12 February 1992, respondent filed with the Regional Trial Court (RTC), National Capital Judicial Region, Makati City, a Complaint for demurrage and damages against petitioner. Meanwhile, the latter raised the defense that the delay was due to respondent’s inefficiency in unloading the cargo.

On 15 April 1996, after trial on the merits, the RTC rendered a Decision4 holding petitioner liable to pay demurrage and damages to respondent, to wit:

34. WHEREFORE, the Court hereby renders judgment as follows:

34.1 The defendant REPUBLIC FLOUR MILLS CORPORATION is ordered to pay the plaintiff FORBES FACTORS, INC. the following:

34.1.1. US$193,937.41 or its Philippine PESO equivalent at the rate of exchange at the time of payment – As demurrage.

34.1.2 Six (6) percent of the amount in the preceding paragraph 34.1.1 – Per annum from October 29, 1991 until the said amount is fully paid – As damages.

34.1.3. P300,000.00 – As exemplary damages.

34.1.4. P 400,000.00 – As attorney’s fees.

34.2. The COUNTERCLAIM is DISMISSED; and

34.3. Cost is taxed against the defendant.

The RTC found that the delay in discharging the cargoes within the allowable period was due to petitioner’s failure to provide enough barges on which to load the goods. It likewise found that petitioner in fact acknowledged that the latter had incurred demurrage when it alleged that the computation was bloated. Petitioner was thus liable to pay demurrage based on the sales contracts executed with respondent and on the contract executed between respondent and Richco.

Finally, the court ruled that respondent was entitled to damages from petitioner’s "wanton, fraudulent, reckless, oppressive or malevolent" refusal to pay the latter’s liabilities despite repeated demands.

Subsequently, petitioner appealed to the Court of Appeals (CA), alleging that respondent was not a real party-in-interest to bring the collection suit. Petitioner insisted that the payment of demurrage should be made to the owner of the vessels that transported the goods, and not to respondent who was merely the indent representative of Richco, the charterer of the vessel. In addition, petitioner claimed that it was denied due process when the RTC refused to reset the hearing for the presentation of Reynaldo Santos, petitioner’s witness and export manager. Finally, petitioner contested the RTC’s award of exemplary damages and attorney’s fees.

On 18 February 2002, the CA promulgated the assailed Decision. It upheld the validity of the Contracts of Sale and held that these had the force of law between the contracting parties and must be complied with in good faith.

However, the appellate court modified the trial court’s award of damages. It held that exemplary damages are not intended to enrich anyone, thus, reducing the amount from P300,000 to P50,000. It also found the award of attorney’s fees to be excessive, and consequently reduced it from P400,000 to P75,000.

Hence this Petition.

Three issues are raised for the resolution by this Court. First, petitioner assails the right of respondent to demand payment of demurrage. Petitioner asserts that, by definition, demurrage is the sum fixed by the contract of carriage as remuneration to the ship owner for the detention of the vessel beyond the number of days allowed by the charter party.5 Thus, since respondent is not the ship owner, it has no right to demand the payment of demurrage and has no personality to bring the claim against petitioner. Second, petitioner questions the propriety of the award of damages in favor of respondent. And third, the former insists that it was denied due process when the RTC denied its Motion to reset the hearing to present its witness.

We find the petition without merit.

The facts are undisputed. The delay incurred by petitioner in discharging the cargoes from the vessels was due to its own fault. Its obligation to demurrage is established by the Contracts of Sale it executed, wherein it agreed to the conditions to provide all discharging facilities at its expense in order to effect the immediate discharge of cargo; and to place for its account all discharging costs, fees, taxes, duties and all other charges incurred due to the nature of the importation.6

Meanwhile, respondent unequivocally established that Richco charged to it the demurrage due from petitioner. Thus, at the moment that Richco debited the account of respondent, the latter is deemed to have subrogated to the rights of the former, who in turn, paid demurrage to the ship owner. It is therefore immaterial that respondent is not the ship owner, since it has been able to prove that it has stepped into the shoes of the creditor.

Subrogation is either "legal" or "conventional." Legal subrogation is an equitable doctrine and arises by operation of the law, without any agreement to that effect executed between the parties; conventional subrogation rests on a contract, arising where "an agreement is made that the person paying the debt shall be subrogated to the rights and remedies of the original creditor."7 The case at bar is an example of legal subrogation, the petitioner and respondent having no express agreement on the right of subrogation. Thus, it is of no moment that the Contracts of Sale did not expressly state that demurrage shall be paid to respondent. By operation of law, respondent has become the real party-in-interest to pursue the payment of demurrage. As aptly stated by the RTC:

19. True it is that demurrage is, as a rule, an amount payable to a shipowner by a charterer for the detention of the vessel beyond the period allowed for the loading or unloading or sailing. This however, does not mean that a party cannot stipulate with another who is not a shipowner, on demurrage. In this case, FORBES stipulated under the charter parties on demurrage with the shipowners. This stipulation could be the basis of the provisions on demurrage in the four (4) Contracts of Sale (Exhs. B, N, X, and CC) and contract between FORBES and RICHCO (Exh. A).

x x x           x x x          x x x

20. RICHCO debited the US$193,937.41 from the accounts of FORBES as evidenced by Exh. OO. Hence, FORBES was subrogated to the right of RICHCO to collect the said amount from RFM pursuant to the contract between RICHCO and FORBES (Exh. A).

21. Under Exh. A, FORBES guaranteed its "…buyers (sic) payment schedule…" Consequently, it was subrogated to the rights of RICHCO arising from the failure of RFM to pay its demurrage and FORBES paid for it. The subrogation was pursuant to Articles 1302 and 2067, New Civil Code, which read:

"Art. 1302. It is presumed that there is legal subrogation:

(1) When a creditor pays another creditor who is preferred, even without the debtor’s knowledge;

(2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor;

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

"Art. 2067. The guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor.

If the guarantor has compromised with the creditor, he cannot demand of the debtor more than what he has really paid."

As we held in Fireman’s Fund Insurance Company v. Jamila & Company, Inc.:

…Subrogation has been referred to as the doctrine of substitution. It "is an arm of equity that may guide or even force one to pay a debt for which an obligation was incurred but which was in whole or in part paid by another" (83 C.J.S. 576, 678, note 16, citing Fireman's Fund Indemnity Co. vs. State Compensation Insurance Fund, 209 Pac. 2d 55).

"Subrogation is founded on principles of justice and equity, and its operation is governed by principles of equity. It rests on the principle that substantial justice should be attained regardless of form, that is, its basis is the doing of complete, essential, and perfect justice between all the parties without regard to form"(83 C.J.S. 579- 80)8

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Anent the second issue, we have previously held in Pepsi Cola Products Phil., Inc. v. Court of Appeals,9 that a motion for continuance of postponement is not a matter of right. Rather, the motion is addressed to the sound discretion of the court, whose action thereon will not be disturbed by appellate courts in the absence of clear and manifest abuse of discretion, resulting in a denial of substantial justice.

On the last issue, we find that the award of exemplary damages proper. Petitioner refused to honor the contract despite respondent’s repeated demands and its proof of payment to Richco; and despite its repeated promise to settle its outstanding obligations in the span of almost five years. Petitioner indeed acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. Because respondent was also forced to initiate the present Complaint, it was only proper that it was awarded attorney’s fees. Lastly, the CA was correct in reducing the award of exemplary damages or attorney’s fees, since neither is meant to enrich anyone.

WHEREFORE, in view of the foregoing, the assailed Decision of the Court of Appeals is hereby AFFIRMED. The present Petition is DENIED.

SO ORDERED.

G.R. No. 188064               June 1, 2011

MILA A. REYES, Petitioner, vs.VICTORIA T. TUPARAN, Respondent.

MENDOZA, J.:

Subject of this petition for review is the February 13, 2009 Decision1 of the Court of Appeals (CA) which affirmed with modification the February 22, 2006 Decision2 of the Regional Trial Court, Branch 172, Valenzuela City (RTC), in Civil Case No. 3945-V-92, an action for Rescission of Contract with Damages.

On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint for Rescission of Contract with Damages against Victoria T. Tuparan (respondent) before the RTC. In her Complaint, petitioner alleged, among others, that she was the registered owner of a 1,274 square meter residential and commercial lot located in Karuhatan, Valenzuela City, and covered by TCT No. V-4130; that on that property, she put up a three-storey commercial building known as RBJ Building and a residential apartment building; that since 1990, she had been operating a drugstore and cosmetics store on the ground floor of RBJ Building where she also had been residing while the other areas of the buildings including the sidewalks were being leased and occupied by tenants and street vendors.

In December 1989, respondent leased from petitioner a space on the ground floor of the RBJ Building for her pawnshop business for a monthly rental of ₱4,000.00. A close friendship developed between the two which led to the respondent investing thousands of pesos in petitioner’s financing/lending business from February 7, 1990 to May 27, 1990, with interest at the rate of 6% a month.

On June 20, 1988, petitioner mortgaged the subject real properties to the Farmers Savings Bank and Loan Bank, Inc. (FSL Bank) to secure a loan of ₱2,000,000.00 payable in installments. On November 15, 1990, petitioner’s outstanding account on the mortgage reached ₱2,278,078.13. Petitioner then decided to sell her real properties for at least ₱6,500,000.00 so she could liquidate her bank loan and finance her businesses. As a gesture of friendship, respondent verbally offered to conditionally buy petitioner’s real properties for ₱4,200,000.00 payable on installment basis without interest and to assume the bank loan. To induce the petitioner to accept her offer, respondent offered the following conditions/concessions:

1. That the conditional sale will be cancelled if the plaintiff (petitioner) can find a buyer of said properties for the amount of ₱6,500,000.00 within the next three (3) months provided all amounts received by the plaintiff from the defendant (respondent) including payments actually made by defendant to Farmers Savings and Loan Bank would be refunded to the defendant with additional interest of six (6%) monthly;

2. That the plaintiff would continue using the space occupied by her and drugstore and cosmetics store without any rentals for the duration of the installment payments;

3. That there will be a lease for fifteen (15) years in favor of the plaintiff over the space for drugstore and cosmetics store at a monthly rental of only ₱8,000.00 after full payment of the stipulated installment payments are made by the defendant;

4. That the defendant will undertake the renewal and payment of the fire insurance policies on the two (2) subject buildings following the expiration of the then existing fire insurance policy of the plaintiff up to the time that plaintiff is fully paid of the total purchase price of ₱4,200,000.00.3

After petitioner’s verbal acceptance of all the conditions/concessions, both parties worked together to obtain FSL Bank’s approval for respondent to assume her (petitioner’s) outstanding bank account. The assumption would be part of respondent’s purchase price for petitioner’s mortgaged real properties. FSL Bank approved their proposal on the condition that petitioner would sign or remain as co-maker for the mortgage obligation assumed by respondent.

On November 26, 1990, the parties and FSL Bank executed the corresponding Deed of Conditional Sale of Real Properties with Assumption of Mortgage. Due to their close personal friendship and business relationship, both parties chose not to reduce into writing the other terms of their agreement mentioned in paragraph 11 of the complaint. Besides, FSL Bank did not want to incorporate in the Deed of Conditional Sale of Real Properties with Assumption of Mortgage any other side agreement between petitioner and respondent.

Under the Deed of Conditional Sale of Real Properties with Assumption of Mortgage, respondent was bound to pay the petitioner a lump sum of ₱1.2 million pesos without interest as part of the purchase price in three (3) fixed installments as follows:

a) ₱200,000.00 – due January 31, 1991

b) ₱200,000.00 – due June 30, 1991

c) ₱800,000.00 – due December 31, 1991

Respondent, however, defaulted in the payment of her obligations on their due dates. Instead of paying the amounts due in lump sum on their respective maturity dates, respondent paid petitioner in small amounts from time to time. To compensate for her delayed payments, respondent agreed to pay petitioner an interest of 6% a month. As of August 31, 1992, respondent had only paid ₱395,000.00, leaving a balance of ₱805,000.00 as principal on the unpaid installments and ₱466,893.25 as unpaid accumulated interest.

Petitioner further averred that despite her success in finding a prospective buyer for the subject real properties within the 3-month period agreed upon, respondent reneged on her promise to allow the cancellation of their deed of conditional sale. Instead, respondent became interested in owning the subject real properties and even wanted to convert the entire property into a modern commercial complex. Nonetheless, she consented because respondent repeatedly professed friendship and assured her that all their verbal side agreement would be honored as shown by the fact that since December 1990, she (respondent) had not collected any rentals from the petitioner for the space occupied by her drugstore and cosmetics store.

On March 19, 1992, the residential building was gutted by fire which caused the petitioner to lose rental income in the amount of ₱8,000.00 a month since April 1992. Respondent neglected to renew the fire insurance policy on the subject buildings.

Since December 1990, respondent had taken possession of the subject real properties and had been continuously collecting and receiving monthly rental income from the tenants of the buildings and vendors of the sidewalk fronting the RBJ building without sharing it with petitioner.

On September 2, 1992, respondent offered the amount of ₱751,000.00 only payable on September 7, 1992, as full payment of the purchase price of the subject real properties and demanded the simultaneous execution of the corresponding deed of absolute sale.

Respondent’s Answer

Respondent countered, among others, that the tripartite agreement erroneously designated by the petitioner as a Deed of Conditional Sale of Real Property with Assumption of Mortgage was actually a pure and absolute contract of sale with a term period. It could not be considered a conditional sale because the acquisition of contractual rights and the performance of the obligation therein did not depend upon a future and uncertain event. Moreover, the capital gains and documentary stamps and other miscellaneous expenses and real estate taxes up to 1990 were supposed to be paid by petitioner but she failed to do so.

Respondent further averred that she successfully rescued the properties from a definite foreclosure by paying the assumed mortgage in the amount of ₱2,278,078.13 plus interest and other finance charges. Because of her payment, she was able to obtain a deed of cancellation of mortgage and secure a release of mortgage on the subject real properties including petitioner’s ancestral residential property in Sta. Maria, Bulacan.

Petitioner’s claim for the balance of the purchase price of the subject real properties was baseless and unwarranted because the full amount of the purchase price had already been paid, as she did pay more than ₱4,200,000.00, the agreed purchase price of the subject real properties, and she had even introduced improvements thereon worth more than ₱4,800,000.00. As the parties could no longer be restored to their original positions, rescission could not be resorted to.

Respondent added that as a result of their business relationship, petitioner was able to obtain from her a loan in the amount of ₱400,000.00 with interest and took several pieces of jewelry worth ₱120,000.00. Petitioner also failed and refused to pay the monthly rental of ₱20,000.00 since November 16, 1990 up to the present for the use and occupancy of the ground floor of the building on the subject real property, thus, accumulating arrearages in the amount of ₱470,000.00 as of October 1992.

Ruling of the RTC

On February 22, 2006, the RTC handed down its decision finding that respondent failed to pay in full the ₱4.2 million total purchase price of the subject real properties leaving a balance of ₱805,000.00. It stated that the checks and receipts presented by respondent refer to her payments of the mortgage obligation with FSL Bank and not the payment of the balance of ₱1,200,000.00. The RTC also considered the Deed of Conditional Sale of Real Property with Assumption of Mortgage executed by and among the two parties and FSL Bank a contract to sell, and not a contract of sale. It was of the opinion that although the petitioner was entitled to a rescission of the contract, it could not be permitted because her non-payment in full of the purchase price "may not be considered as substantial and fundamental breach of the contract as to defeat the object of the parties in entering into the contract."4 The RTC believed that the respondent’s offer stated in her counsel’s letter dated September 2, 1992 to settle what she thought was her unpaid balance of ₱751,000.00 showed her sincerity and willingness to settle her obligation. Hence, it would be more equitable to give respondent a chance to pay the balance plus interest within a given period of time.

Finally, the RTC stated that there was no factual or legal basis to award damages and attorney’s fees because there was no proof that either party acted fraudulently or in bad faith.

Thus, the dispositive portion of the RTC Decision reads:

WHEREFORE, judgment is hereby rendered as follows:

1. Allowing the defendant to pay the plaintiff within thirty (30) days from the finality hereof the amount of ₱805,000.00, representing the unpaid purchase price of the subject property, with interest thereon at 2% a month from January 1, 1992 until fully paid. Failure of the defendant to pay said amount within the said period shall cause the automatic rescission of the contract (Deed of Conditional Sale of Real Property with Assumption of Mortgage) and the plaintiff and the defendant shall be restored to their former positions relative to the subject property with each returning to the other whatever benefits each derived from the transaction;

2. Directing the defendant to allow the plaintiff to continue using the space occupied by her for drugstore and cosmetic store without any rental pending payment of the aforesaid balance of the purchase price.

3. Ordering the defendant, upon her full payment of the purchase price together with interest, to execute a contract of lease for fifteen (15) years in favor of the plaintiff over the space for the drugstore and cosmetic store at a fixed monthly rental of ₱8,000.00; and

4. Directing the plaintiff, upon full payment to her by the defendant of the purchase price together with interest, to execute the necessary deed of sale, as well as to pay the Capital Gains Tax, documentary stamps and other miscellaneous expenses necessary for securing the BIR Clearance, and to pay the real estate taxes due on the subject property up to 1990, all necessary to transfer ownership of the subject property to the defendant.

No pronouncement as to damages, attorney’s fees and costs.

SO ORDERED.5

Ruling of the CA

On February 13, 2009, the CA rendered its decision affirming with modification the RTC Decision. The CA agreed with the RTC that the contract entered into by the parties is a contract to sell but ruled that the remedy of rescission could not apply because the respondent’s failure to pay the petitioner the balance of the purchase price in the total amount of ₱805,000.00 was not a breach of contract, but merely an event that prevented the seller (petitioner) from conveying title to the purchaser (respondent). It reasoned that out of the total purchase price of the subject property in the amount of ₱4,200,000.00, respondent’s remaining unpaid balance was only ₱805,000.00. Since respondent had already paid a substantial amount of the purchase price, it was but right and just to allow her to pay the unpaid balance of the purchase price plus interest. Thus, the decretal portion of the CA Decision reads:

WHEREFORE, premises considered, the Decision dated 22 February 2006 and Order dated 22 December 2006 of the Regional Trial Court of Valenzuela City, Branch 172 in Civil Case No. 3945-V-92 are AFFIRMED with MODIFICATION in that defendant-appellant Victoria T. Tuparan is hereby ORDERED to pay plaintiff-appellee/appellant Mila A. Reyes, within 30 days from finality of this Decision, the amount of ₱805,000.00 representing the unpaid balance of the purchase price of the subject property, plus interest thereon at the rate of 6% per annum from 11 September 1992 up to finality of this Decision and, thereafter, at the rate of 12% per annum until full payment. The ruling of the trial court on the automatic rescission of the Deed of Conditional Sale with Assumption of Mortgage is hereby DELETED. Subject to the foregoing, the dispositive portion of the trial court’s decision is AFFIRMED in all other respects.

SO ORDERED.6

After the denial of petitioner’s motion for reconsideration and respondent’s motion for partial reconsideration, petitioner filed the subject petition for review praying for the reversal and setting aside of the CA Decision anchored on the following

ASSIGNMENT OF ERRORS

A. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DISALLOWING THE OUTRIGHT RESCISSION OF THE SUBJECT DEED OF CONDITIONAL SALE OF REAL PROPERTIES WITH ASSUMPTION OF MORTGAGE ON THE GROUND THAT RESPONDENT TUPARAN’S FAILURE TO PAY PETITIONER REYES THE BALANCE OF THE PURCHASE PRICE OF ₱805,000.00 IS NOT A BREACH OF CONTRACT DESPITE ITS OWN FINDINGS THAT PETITIONER STILL RETAINS OWNERSHIP AND TITLE OVER THE SUBJECT REAL PROPERTIES DUE TO RESPONDENT’S REFUSAL TO PAY THE BALANCE OF THE TOTAL PURCHASE PRICE OF ₱805,000.00 WHICH IS EQUAL TO 20% OF THE TOTAL PURCHASE PRICE OF ₱4,200,000.00 OR 66% OF THE STIPULATED LAST INSTALLMENT OF ₱1,200,000.00 PLUS THE INTEREST THEREON. IN EFFECT, THE COURT OF APPEALS AFFIRMED AND ADOPTED THE TRIAL COURT’S CONCLUSION THAT THE RESPONDENT’S NON-PAYMENT OF THE ₱805,000.00 IS ONLY A SLIGHT OR CASUAL BREACH OF CONTRACT.

B. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DISREGARDING AS GROUND FOR THE RESCISSION OF THE SUBJECT CONTRACT THE OTHER FRAUDULENT AND MALICIOUS ACTS COMMITTED BY THE RESPONDENT AGAINST THE PETITIONER WHICH BY THEMSELVES SUFFICIENTLY JUSTIFY A DENIAL OF A GRACE PERIOD OF THIRTY (30) DAYS TO THE RESPONDENT WITHIN WHICH TO PAY TO THE PETITIONER THE ₱805,000.00 PLUS INTEREST THEREON.

C. EVEN ASSUMING ARGUENDO THAT PETITIONER IS NOT ENTITLED TO THE RESCISSION OF THE SUBJECT CONTRACT, THE COURT OF APPEALS STILL SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN REDUCING THE INTEREST ON THE ₱805,000.00 TO ONLY "6% PER ANNUM STARTING FROM THE DATE OF FILING OF THE COMPLAINT ON SEPTEMBER 11, 1992" DESPITE THE PERSONAL COMMITMENT OF THE RESPONDENT AND AGREEMENT BETWEEN THE PARTIES THAT RESPONDENT WILL PAY INTEREST ON THE ₱805,000.00 AT THE RATE OF 6% MONTHLY STARTING THE DATE OF DELINQUENCY ON DECEMBER 31, 1991.

D. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN THE APPRECIATION AND/OR MISAPPRECIATION OF FACTS RESULTING INTO THE DENIAL OF THE CLAIM OF PETITIONER REYES FOR ACTUAL DAMAGES WHICH CORRESPOND TO THE MILLIONS OF PESOS OF RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES WHICH RESPONDENT TUPARAN COLLECTED CONTINUOUSLY SINCE DECEMBER 1990, EVEN WITH THE UNPAID BALANCE OF ₱805,000.00 AND DESPITE THE FACT THAT RESPONDENT DID NOT CONTROVERT SUCH CLAIM OF THE PETITIONER AS CONTAINED IN HER AMENDED COMPLAINT DATED APRIL 22, 2006.

E. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN THE APPRECIATION OF FACTS RESULTING INTO THE DENIAL OF THE CLAIM OF PETITIONER REYES FOR THE ₱29,609.00 BACK RENTALS THAT WERE COLLECTED BY RESPONDENT TUPARAN FROM THE OLD TENANTS OF THE PETITIONER.

F. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DENYING THE PETITIONER’S EARLIER "URGENT MOTION FOR ISSUANCE OF A PRELIMINARY MANDATORY AND PROHIBITORY INJUNCTION" DATED JULY 7, 2008 AND THE "SUPPLEMENT" THERETO DATED AUGUST 4, 2008 THEREBY CONDONING THE UNJUSTIFIABLE FAILURE/REFUSAL OF JUDGE FLORO ALEJO TO RESOLVE WITHIN ELEVEN (11) YEARS THE PETITIONER’S THREE (3) SEPARATE "MOTIONS FOR PRELIMINARY INJUNCTION/ TEMPORARY RESTRAINING ORDER, ACCOUNTING AND DEPOSIT OF RENTAL INCOME" DATED MARCH 17, 1995, AUGUST 19, 1996 AND JANUARY 7, 2006 THEREBY PERMITTING THE RESPONDENT TO UNJUSTLY ENRICH HERSELF BY CONTINUOUSLY COLLECTING ALL THE RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES WITHOUT ANY ACCOUNTING AND COURT DEPOSIT OF THE COLLECTED RENTALS/FRUITS AND THE PETITIONERS "URGENT MOTION TO DIRECT DEFENDANT VICTORIA TUPARAN TO PAY THE ACCUMULATED UNPAID REAL ESTATE TAXES AND SEF TAXES ON THE SUBJECT REAL PROPERTIES" DATED JANUARY 13, 2007 THEREBY EXPOSING THE

SUBJECT REAL PROPERTIES TO IMMINENT AUCTION SALE BY THE CITY TREASURER OF VALENZUELA CITY.

G. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DENYING THE PETITIONER’S CLAIM FOR MORAL AND EXEMPLARY DAMAGES AND ATTORNEY’S FEES AGAINST THE RESPONDENT.

In sum, the crucial issue that needs to be resolved is whether or not the CA was correct in ruling that there was no legal basis for the rescission of the Deed of Conditional Sale with Assumption of Mortgage.

Position of the Petitioner

The petitioner basically argues that the CA should have granted the rescission of the subject Deed of Conditional Sale of Real Properties with Assumption of Mortgage for the following reasons:

1. The subject deed of conditional sale is a reciprocal obligation whose outstanding characteristic is reciprocity arising from identity of cause by virtue of which one obligation is correlative of the other.

2. The petitioner was rescinding – not enforcing – the subject Deed of Conditional Sale pursuant to Article 1191 of the Civil Code because of the respondent’s failure/refusal to pay the ₱805,000.00 balance of the total purchase price of the petitioner’s properties within the stipulated period ending December 31, 1991.

3. There was no slight or casual breach on the part of the respondent because she (respondent) deliberately failed to comply with her contractual obligations with the petitioner by violating the terms or manner of payment of the ₱1,200,000.00 balance and unjustly enriched herself at the expense of the petitioner by collecting all rental payments for her personal benefit and enjoyment.

Furthermore, the petitioner claims that the respondent is liable to pay interest at the rate of 6% per month on her unpaid installment of ₱805,000.00 from the date of the delinquency, December 31, 1991, because she obligated herself to do so.

Finally, the petitioner asserts that her claim for damages or lost income as well as for the back rentals in the amount of ₱29,609.00 has been fully substantiated and, therefore, should have been granted by the CA. Her claim for moral and exemplary damages and attorney’s fees has been likewise substantiated.

Position of the Respondent

The respondent counters that the subject Deed of Conditional Sale with Assumption of Mortgage entered into between the parties is a contract to sell and not a contract of sale because the title of the subject properties still remains with the petitioner as she failed to pay the installment payments in accordance with their agreement.

Respondent echoes the RTC position that her inability to pay the full balance on the purchase price may not be considered as a substantial and fundamental breach of the subject contract and it would be more equitable if she would be allowed to pay the balance including interest within a certain period of time. She claims that as early as 1992, she has shown her sincerity by offering to pay a certain amount which was, however, rejected by the petitioner.

Finally, respondent states that the subject deed of conditional sale explicitly provides that the installment payments shall not bear any interest. Moreover, petitioner failed to prove that she was entitled to back rentals.

The Court’s Ruling

The petition lacks merit.

The Court agrees with the ruling of the courts below that the subject Deed of Conditional Sale with Assumption of Mortgage entered into by and among the two parties and FSL Bank on November 26, 1990 is a contract to sell and not a contract of sale. The subject contract was correctly classified as a contract to sell based on the following pertinent stipulations:

8. That the title and ownership of the subject real properties shall remain with the First Party until the full payment of the Second Party of the balance of the purchase price and liquidation of the mortgage obligation of ₱2,000,000.00. Pending payment of the balance of the purchase price and liquidation of the mortgage obligation that was assumed by the Second Party, the Second Party shall not sell, transfer and convey and otherwise encumber the subject real properties without the written consent of the First and Third Party.

9. That upon full payment by the Second Party of the full balance of the purchase price and the assumed mortgage obligation herein mentioned the Third Party shall issue the corresponding Deed of Cancellation of Mortgage and the First Party shall execute the corresponding Deed of Absolute Sale in favor of the Second Party.7

Based on the above provisions, the title and ownership of the subject properties remains with the petitioner until the respondent fully pays the balance of the purchase price and the assumed mortgage obligation. Thereafter, FSL Bank shall then issue the corresponding deed of cancellation of mortgage and the petitioner shall execute the corresponding deed of absolute sale in favor of the respondent.

Accordingly, the petitioner’s obligation to sell the subject properties becomes demandable only upon the happening of the positive suspensive condition, which is the respondent’s full payment of the purchase price. Without respondent’s full payment, there can be no breach of contract to speak of because petitioner has no obligation yet to turn over the title. Respondent’s failure to pay in full the purchase price is not the breach of contract contemplated under Article 1191 of the New Civil Code but rather just an event that prevents the petitioner from being bound to convey title to the respondent. The 2009 case of Nabus v. Joaquin & Julia Pacson8is enlightening:

The Court holds that the contract entered into by the Spouses Nabus and respondents was a contract to sell, not a contract of sale.

A contract of sale is defined in Article 1458 of the Civil Code, thus:

Art. 1458. By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

x x x

Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a contract of sale are the following:

a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;

b) Determinate subject matter; and

c) Price certain in money or its equivalent.

Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and, thus, ownership is retained by the prospective seller without further remedies by the prospective buyer.

x x x           x x x          x x x

Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the prospective seller’s obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code which states:

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.

A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.

A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated. However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller.

In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously delivered to

him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.

Further, Chua v. Court of Appeals, cited this distinction between a contract of sale and a contract to sell:

In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until full payment of the price. In the latter contract, payment of the price is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.

It is not the title of the contract, but its express terms or stipulations that determine the kind of contract entered into by the parties. In this case, the contract entitled "Deed of Conditional Sale" is actually a contract to sell. The contract stipulated that "as soon as the full consideration of the sale has been paid by the vendee, the corresponding transfer documents shall be executed by the vendor to the vendee for the portion sold." Where the vendor promises to execute a deed of absolute sale upon the completion by the vendee of the payment of the price, the contract is only a contract to sell." The aforecited stipulation shows that the vendors reserved title to the subject property until full payment of the purchase price.

x x x

Unfortunately for the Spouses Pacson, since the Deed of Conditional Sale executed in their favor was merely a contract to sell, the obligation of the seller to sell becomes demandable only upon the happening of the suspensive condition. The full payment of the purchase price is the positive suspensive condition, the failure of which is not a breach of contract, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. Thus, for its non-fulfilment, there is no contract to speak of, the obligor having failed to perform the suspensive condition which enforces a juridical relation. With this circumstance, there can be no rescission or fulfillment of an obligation that is still non-existent, the suspensive condition not having occurred as yet. Emphasis should be made that the breach contemplated in Article 1191 of the New Civil Code is the obligor’s failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation.   [Emphases and underscoring supplied]

Consistently, the Court handed down a similar ruling in the 2010 case of Heirs of Atienza v. Espidol, 9 where it was written:

Regarding the right to cancel the contract for non-payment of an installment, there is need to initially determine if what the parties had was a contract of sale or a contract to sell. In a contract of sale, the title to the property passes to the buyer upon the delivery of the thing sold. In a contract to sell, on the other hand, the ownership is, by agreement, retained by the seller and is not to pass to the vendee until full payment of the purchase price. In the contract of sale, the buyer’s non-payment of the price is a negative resolutory condition; in the contract to sell, the buyer’s full payment of the price is a positive suspensive condition to the coming into effect of the agreement. In the first case, the seller has lost and cannot recover the ownership of the property unless he takes action to set aside the contract of sale. In the second case, the title simply remains in the seller if the buyer does not comply with the condition precedent of making payment at the time specified in the contract. Here, it is quite evident that the contract involved was one of a contract to sell since the Atienzas, as sellers, were to retain title of ownership to the land until respondent Espidol, the buyer, has paid the agreed price. Indeed, there seems no question that the parties understood this to be the case.

Admittedly, Espidol was unable to pay the second installment of P1,750,000.00 that fell due in December 2002. That payment, said both the RTC and the CA, was a positive suspensive condition failure of which was notregarded a breach in the sense that there can be no rescission of an obligation (to turn over title) that did not yet exist since the suspensive condition had not taken place .   x x x. [Emphases and underscoring supplied]

Thus, the Court fully agrees with the CA when it resolved: "Considering, however, that the Deed of Conditional Sale was not cancelled by Vendor Reyes (petitioner) and that out of the total purchase price of the subject property in the amount of ₱4,200,000.00, the remaining unpaid balance of Tuparan (respondent) is only ₱805,000.00, a substantial amount of the purchase price has already been paid. It is only right and just to allow Tuparan to pay the said unpaid balance of the purchase price to Reyes."10

Granting that a rescission can be permitted under Article 1191, the Court still cannot allow it for the reason that, considering the circumstances, there was only a slight or casual breach in the fulfillment of the obligation.

Unless the parties stipulated it, rescission is allowed only when the breach of the contract is substantial and fundamental to the fulfillment of the obligation. Whether the breach is slight or substantial is largely determined by the attendant circumstances.11 In the case at bench, the subject contract stipulated the following important provisions:

2. That the purchase price of ₱4,200,000.00 shall be paid as follows:

a) ₱278,078.13 received in cash by the First Party but directly paid to the Third Party as partial payment of the mortgage obligation of the First Party in order to reduce the amount to ₱2,000,000.00 only as of November 15, 1990;

b) ₱721,921.87 received in cash by the First Party as additional payment of the Second Party;

c) ₱1,200,000.00 to be paid in installments as follows:

1. ₱200,000.00 payable on or before January 31, 1991;

2. ₱200,000.00 payable on or before June 30, 1991;

3. ₱800,000.00 payable on or before December 31, 1991;

Note: All the installments shall not bear any interest.

d) ₱2,000,000.00 outstanding balance of the mortgage obligation as of November 15, 1990 which is hereby assumed by the Second Party.

x x x

3. That the Third Party hereby acknowledges receipts from the Second Party P278,078.13 as partial payment of the loan obligation of First Party in order to reduce the account to only ₱2,000,000.00 as of November 15, 1990 to be assumed by the Second Party effective November 15, 1990.12

From the records, it cannot be denied that respondent paid to FSL Bank petitioner’s mortgage obligation in the amount of ₱2,278,078.13, which formed part of the purchase price of the subject property. Likewise, it is not disputed that respondent paid directly to petitioner the amount of ₱721,921.87 representing the additional payment for the purchase of the subject property. Clearly, out of the total price of ₱4,200,000.00, respondent was able to pay the total amount of ₱3,000,000.00, leaving a balance of ₱1,200,000.00 payable in three (3) installments.

Out of the ₱1,200,000.00 remaining balance, respondent paid on several dates the first and second installments of ₱200,000.00 each. She, however, failed to pay the third and last installment of ₱800,000.00 due on December 31, 1991. Nevertheless, on August 31, 1992, respondent, through counsel, offered to pay the amount of ₱751,000.00, which was rejected by petitioner for the reason that the actual balance was ₱805,000.00 excluding the interest charges.

Considering that out of the total purchase price of ₱4,200,000.00, respondent has already paid the substantial amount of ₱3,400,000.00, more or less, leaving an unpaid balance of only ₱805,000.00, it is right and just to allow her to settle, within a reasonable period of time, the balance of the unpaid purchase price. The Court agrees with the courts below that the respondent showed her sincerity and willingness to comply with her obligation when she offered to pay the petitioner the amount of ₱751,000.00.

On the issue of interest, petitioner failed to substantiate her claim that respondent made a personal commitment to pay a 6% monthly interest on the ₱805,000.00 from the date of delinquency, December 31, 1991. As can be gleaned from the contract, there was a stipulation stating that: "All the installments shall not bear interest." The CA was, however, correct in imposing interest at the rate of 6% per annum starting from the filing of the complaint on September 11, 1992.1avvphi1

Finally, the Court upholds the ruling of the courts below regarding the non-imposition of damages and attorney’s fees. Aside from petitioner’s self-serving statements, there is not enough evidence on record to prove that respondent acted fraudulently and maliciously against the petitioner. In the case of Heirs of Atienza v. Espidol,13 it was stated:

Respondents are not entitled to moral damages because contracts are not referred to in Article 2219 of the Civil Code, which enumerates the cases when moral damages may be recovered. Article 2220 of the Civil Code allows the recovery of moral damages in breaches of contract where the defendant acted fraudulently or in bad faith. However, this case involves a contract to sell, wherein full payment of the purchase price is a positive suspensive condition, the non-fulfillment of which is not a breach of contract, but merely an event that prevents the seller from conveying title to the purchaser. Since there is no breach of contract in this case, respondents are not entitled to moral damages.

In the absence of moral, temperate, liquidated or compensatory damages, exemplary damages cannot be granted for they are allowed only in addition to any of the four kinds of damages mentioned.

WHEREFORE, the petition is DENIED.

SO ORDERED.

G.R. No. 172577               January 19, 2011

SOLEDAD DALTON, vs.Petitioner, FGR REALTY AND DEVELOPMENT CORPORATION, FELIX NG, NENITA NG, and FLORA R. DAYRIT or FLORA REGNER, Respondents.

CARPIO, J.:

The Case

This is a petition1 for review on certiorari under Rule 45 of the Rules of Court. The petition challenges the 9 November 2005 Decision2 and 10 April 2006 Resolution3 of the Court of Appeals in CA-G.R. CV No. 76536. The Court of Appeals affirmed the 26 February 2002 Decision4 of the Regional Trial Court (RTC), Judicial Region 7, Branch 13, Cebu City, in Civil Case No. CEB 4218.

The Facts

Flora R. Dayrit (Dayrit) owned a 1,811-square meter parcel of land located at the corner of Rama Avenue and Velez Street in Cebu City. Petitioner Soledad Dalton (Dalton), Clemente Sasam, Romulo Villalonga, Miguela Villarente, Aniceta Fuentes, Perla Pormento, Bonifacio Cabajar, Carmencita Yuson, Angel Ponce, Pedro Regudo, Pedro Quebedo, Mary Cabanlit, Marciana Encabo and Dolores Lim (Sasam, et al.) leased portions of the property.

In June 1985, Dayrit sold the property to respondent FGR Realty and Development Corporation (FGR). In August 1985, Dayrit and FGR stopped accepting rental payments because they wanted to terminate the lease agreements with Dalton and Sasam, et al.

In a complaint5 dated 11 September 1985, Dalton and Sasam, et al. consigned the rental payments with the RTC. They failed to notify Dayrit and FGR about the consignation. In motions dated 27 March 1987,6 10 November 1987,7 8 July 1988,8 and 28 November 1994,9 Dayrit and FGR withdrew the rental payments. In their motions, Dayrit and FGR reserved the right to question the validity of the consignation.

Dayrit, FGR and Sasam, et al. entered into compromise agreements dated 25 March 199710 and 20 June 1997.11 In the compromise agreements, they agreed to abandon all claims against each other. Dalton did not enter into a compromise agreement with Dayrit and FGR.

The RTC’s Ruling

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

Soledad Dalton built a house which she initially used as a dwelling and store space. She vacated the premises when her children got married. She transferred her residence near F. Ramos Public Market, Cebu City.

She constructed the 20 feet by 20 feet floor area house sometime in 1973. The last monthly rental was P69.00. When defendants refused to accept rental and demanded vacation of the premises, she consignated [sic] her monthly rentals in court.

x x x x

It is very clear from the facts that there was no valid consignation made.

The requisites of consignation are as follows:

1. The existence of a valid debt.

2. Valid prior tender, unless tender is excuse [sic];

3. Prior notice of consignation (before deposit)

4. Actual consignation (deposit);

5. Subsequent notice of consignation;

Requisite Nos. 3 and 5 are absent or were not complied with. It is very clear that there were no prior notices of consignation (before deposit) and subsequent notices of consignation (after deposit)

Besides, the last deposit was made on December 21, 1988. At the time Dalton testified on December 22, 1999, she did not present evidence of payment in 1999. She had not, therefore, religiously paid her monthly obligation.

By clear preponderance of evidence, defendants have established that plaintiff was no longer residing at Eskina Banawa at the time she testified in court. She vacated her house and converted it into a store or business establishment. This is buttressed by the testimony of Rogelio Capacio, the court’s appointed commissioner, who submitted a report, the full text of which reads as follows:

REPORT AND/OR OBSERVATION

"The store and/or dwelling subject to ocular inspection is stuated [sic] on the left portion of the road which is about fifty-five (55) meters from the corner of Banawa-Guadalupe Streets, when turning right heading towards the direction of Guadalupe Church, if travelling from the Capitol Building.

I observed that when we arrived at the ocular inspection site, Mrs. Soledad Dalton with the use of a key opened the lock of a closed door. She claimed that it was a part of the dwelling which she occupies and was utilized as a store. There were few saleable items inside said space."

Soledad Dalton did not take exception to the said report.

Two witnesses who were former sub-lessees testified and clearly established that Mrs. Dalton use the house for business purposes and not for dwelling.12

Dalton appealed to the Court of Appeals.

The Court of Appeals’ Ruling

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

After a careful review of the facts and evidence in this case, we find no basis for overturning the decision of the lower court dismissing plaintiffs-appellants’ complaint, as we find that no valid consignation was made by the plaintiff-appellant.

Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses to accept payment and generally requires a prior tender of payment. In order that consignation may be effective, the debtor must show that: (1) there was a debt due; (2) the consignation of the obligation had been made because the creditor to whom tender of payment was made refused to accept it, or because he was absent or incapacitated, or because several persons claimed to be entitled to receive the amount due or because the title to the obligation has been lost; (3) previous notice of the consignation had been given to the person interested in the performance of the obligation; (4) the amount due was placed at the disposal of the court; and (5) after the consignation had been made the person interested was notified thereof. Failure in any of these requirements is enough ground to render a consignation ineffective.

Consignation is made by depositing the proper amount to the judicial authority, before whom the tender of payment and the announcement of the consignation shall be proved. All interested parties are to be notified of the consignation. It had been consistently held that compliance with these requisites is mandatory.

No error, therefore, can be attributed to the lower court when it held that the consignation made by the plaintiff-appellant was invalid for failure to meet requisites 3 and 5 of a valid consignation (i.e., previous notice of the consignation given to the person interested in the performance of the obligation and, after the consignation had been made, the person interested was notified thereof).

Plaintiff-appellant failed to notify defendants-appellees of her intention to consign the amount due to them as rentals. She, however, justifies such failure by claiming that there had been substantial compliance with the said requirement of notice upon the service of the complaint on the defendants-appellees together with the summons.

We do not agree with such contention.

The prevailing rule is that substantial compliance with the requisites of a valid consignation is not enough. In Licuanan vs. Diaz, reiterating the ruling in Soco vs. Militante, the Supreme Court had the occasion to rule thus:

"In addition, it must be stated that in the case of Soco v. Militante (123 SCRA 160, 166-167 [1983]), this Court ruled that the codal provisions of the Civil Code dealing with consignation (Articles 1252-1261) should be accorded mandatory construction —

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

Clearly then, no valid consignation was made by the plaintiff-appellant for she did not give notice to the defendants-appellees of her intention to so consign her rental payments. Without any announcement of the intention to resort to consignation first having been made to persons interested in the fulfillment of the obligation, the consignation as a means of payment is void.

As to the other issues raised by the plaintiff-appellant in her second and third assigned errors, we hold that the ruling of the lower court on such issues is supported by the evidence adduced in this case.

That plaintiff-appellant is not residing at the leased premises in Eskina Banawa and that she is using the same for business purposes, not as dwelling place, is amply supported by the testimony of two of plaintiff-appellant’s sub-lessees. The Commissioner’s Report submitted by Rogelio Capacio, who was commissioned by the lower court to conduct an ocular inspection of the leased premises, further lends support to the lower court’s findings. On the other hand, plaintiff-appellant only has her self-serving claims that she is residing at the leased premises in Eskina Banawa to prove her continued use of the leased premises as dwelling place.

There is thus no merit to plaintiff-appellant’s fourth assigned error. The lower court acted within its authority in ordering the plaintiff-appellant to vacate the leased premises. The evidence shows that plaintiff-appellant had failed to continuously pay the rentals due to the defendants-appellees. It was therefore within the powers of the lower court to grant such other relief and remedies equitable under the circumstances.

In sum, there having been no valid consignation and with the plaintiff-appellant having failed to pay the rentals due to the defendants-appellees, no error can be attributed to the lower court in rendering its assailed decision.13

Hence, the present petition. Dalton raises as issues that the Court of Appeals erred in ruling that (1) the consignation was void, and (2) Dalton failed to pay rent.

The Court’s Ruling

The petition is unmeritorious.

Dalton claims that, "the issue as to whether the consignation made by the petitioner is valid or not for lack of notice has already been rendered moot and academic with the withdrawal by the private respondents of the amounts consigned and deposited by the petitioner as rental of the subject premises."14

The Court is not impressed. First, in withdrawing the amounts consigned, Dayrit and FGR expressly reserved the right to question the validity of the consignation. In Riesenbeck v. Court of Appeals,15 the Court held that:

A sensu contrario, when the creditor’s acceptance of the money consigned is conditional and with reservations, he is not deemed to have waived the claims he reserved against his debtor. Thus, when the amount consigned does not cover the entire obligation, the creditor may accept it, reserving his right to the balance (Tolentino, Civil Code of the Phil., Vol. IV, 1973 Ed., p. 317, citing 3 Llerena 263). The same factual milieu obtains here because the respondent creditor accepted with reservation the amount consigned in court by the petitioner-debtor. Therefore, the creditor is not barred from raising his other claims, as he did in his answer with special defenses and counterclaim against petitioner-debtor.

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

Second, compliance with the requisites of a valid consignation is mandatory. Failure to comply strictly with any of the requisites will render the consignation void. Substantial compliance is not enough.

In Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc.,17 the Court enumerated the requisites of a valid consignation: (1) a debt due; (2) the creditor to whom tender of payment was made refused without just cause to accept the payment, or the creditor was absent, unknown or incapacitated, or several persons claimed the same right to collect, or the title of the obligation was lost; (3) the person interested in the performance of the obligation was given notice before consignation was made; (4) the amount was placed at the disposal of the court; and (5) the person interested in the performance of the obligation was given notice after the consignation was made.

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

Art. 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation.

The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment.

Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases.

The consignation having been made, the interested parties shall also be notified thereof. (Emphasis supplied)

The giving of notice to the persons interested in the performance of the obligation is mandatory. Failure to notify the persons interested in the performance of the obligation will render the consignation void. In Ramos v. Sarao,18 the Court held that, "All interested parties are to be notified of the consignation. Compliance with[this requisite] is mandatory."19 In Valdellon v. Tengco,20 the Court held that:

Under Art. 1257 of our Civil Code, in order that consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation. The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment. In said Article 1258, it is further stated that the consignation having been made, the interested party shall also be notified thereof.21 (Emphasis supplied)

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

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

Dalton claims that the Court of Appeals erred in ruling that she failed to pay rent. The Court is not impressed. Section 1, Rule 45 of the Rules of Court states that petitions for review on certiorari "shall raise only questions of law which must be distinctly set forth." In Pagsibigan v. People,24 the Court held that:

A petition for review under Rule 45 of the Rules of Court should cover only questions of law. Questions of fact are not reviewable. A question of law exists when the doubt centers on what the law is on a certain set of facts. A question of fact exists when the doubt centers on the truth or falsity of the alleged facts. 1avvphi1

There is a question of law if the issue raised is capable of being resolved without need of reviewing the probative value of the evidence. The issue to be resolved must be limited to determining what the law is on a certain set of facts. Once the issue invites a review of the evidence, the question posed is one of fact.25

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

The factual findings of the lower courts are binding on the Court. The exceptions to this rule are (1) when there is grave abuse of discretion; (2) when the findings are grounded on speculation; (3) when the inference made is manifestly mistaken; (4) when the judgment of the Court of Appeals is based on a misapprehension of facts; (5) when the factual findings are conflicting; (6) when the Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions of the parties; (7) when the Court of Appeals overlooked undisputed facts which, if properly considered, would justify a different conclusion; (8) when the facts set forth by the petitioner are not disputed by the respondent; and (9) when the findings of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record.26 Dalton did not show that any of these circumstances is present.

WHEREFORE, the Court DENIES the petition. The Court AFFIRMS the 9 November 2005 Decision and 10 April 2006 Resolution of the Court of Appeals in CA-G.R. CV No. 76536.

SO ORDERED.

G.R. Nos. 173090-91               September 7, 2011

UNION BANK OF THE PHILIPPINES, Petitioner, vs.SPOUSES RODOLFO T. TIU AND VICTORIA N. TIU, Respondents.

LEONARDO-DE CASTRO, J.:

This is a Petition for Review on Certiorari seeking to reverse the Joint Decision1 of the Court of Appeals dated February 21, 2006 in CA-G.R. CV No. 00190 and CA-G.R. SP No. 00253, as well as the Resolution2 dated June 1, 2006 denying the Motion for Reconsideration.

The factual and procedural antecedents of this case are as follows:

On November 21, 1995, petitioner Union Bank of the Philippines (Union Bank) and respondent spouses Rodolfo T. Tiu and Victoria N. Tiu (the spouses Tiu) entered into a Credit Line Agreement (CLA) whereby Union Bank agreed to make available to the spouses Tiu credit facilities in such amounts as may be approved.3 From September 22, 1997 to March 26, 1998, the spouses Tiu took out various loans pursuant to this CLA in the total amount of three million six hundred thirty-two thousand dollars (US$3,632,000.00), as evidenced by promissory notes:

PN No. Amount in US$ Date Granted

87/98/111

72,000.00 02/16/98

87/98/108

84,000.00 02/13/98

87/98/152

320,000.00 03/02/98

87/98/075

150,000.00 01/30/98

87/98/211

32,000.00 03/26/98

87/98/071

110,000.00 01/29/98

87/98/107

135,000.00 02/13//98

87/98/100

75,000.00 02/12/98

87/98/197

195,000.00 03/19/98

87/97/761

60,000.00 09/26/97

87/97/768

30,000.00 09/29/97

87/97/767

180,000.00 09/29/97

87/97/970

110,000.00 12/29/97

87/97/747

50,000.00 09/22/97

87/96/944

605,000.00 12/19/97

87/98/191

470,000.00 03/16/98

87/98/198

505,000.00 03/19/98

87/98/090

449,000.00 02/09/98

US$3,632,000.004

On June 23, 1998, Union Bank advised the spouses Tiu through a letter5 that, in view of the existing currency risks, the loans shall be redenominated to their equivalent Philippine peso amount on July 15, 1998. On July 3, 1998, the spouses Tiu wrote to Union Bank authorizing the latter to redenominate the loans at the rate of US$1=P41.406 with interest of 19% for one year.7

On December 21, 1999, Union Bank and the spouses Tiu entered into a Restructuring Agreement.8 The Restructuring Agreement contains a clause wherein the spouses Tiu confirmed their debt and waived any action on account thereof. To quote said clause:

1. Confirmation of Debt – The BORROWER hereby confirms and accepts that as of December 8, 1999, its outstanding principal indebtedness to the BANK under the Agreement and the Notes amount to ONE HUNDRED FIFTY[-]FIVE MILLION THREE HUNDRED SIXTY[-]FOUR THOUSAND EIGHT HUNDRED PESOS (PHP 155,364,800.00) exclusive of interests, service and penalty charges (the "Indebtedness") and further confirms the correctness, legality, collectability and enforceability of the Indebtedness. The BORROWER unconditionally waives any action, demand or claim that they may otherwise have to dispute the amount of the Indebtedness as of the date specified in this Section, or the collectability and enforceability thereof. It is the understanding of the parties that the BORROWER’s acknowledgment, affirmation, and waiver herein are material considerations for the BANK’s agreeing to restructure the Indebtedness which would have already become due and payable as of the above date under the terms of the Agreement and the Notes.9

The restructured amount (P155,364,800.00) is the sum of the following figures: (1) P150,364,800.00, which is the value of the US$3,632,000.00 loan as redenominated under the above-mentioned exchange rate of US$1=P41.40; and (2) P5,000,000.00, an additional loan given to the spouses Tiu to update their interest payments.10

Under the same Restructuring Agreement, the parties declared that the loan obligation to be restructured (after deducting the dacion price of properties ceded by the Tiu spouses and adding: [1] the taxes, registration fees and other expenses advanced by Union Bank in registering the Deeds of Dation in Payment; and [2] other fees and charges incurred by the Indebtedness) is one hundred four million six hundred sixty-eight thousand seven hundred forty-one pesos (P104,668,741.00) (total restructured amount).11 The Deeds of Dation in Payment referred to are the following:

1. Dation of the Labangon properties – Deed executed by Juanita Tiu, the mother of respondent Rodolfo Tiu, involving ten parcels of land with improvements located in Labangon, Cebu City and with a total land area of 3,344 square meters, for the amount of P25,130,000.00. The Deed states that these properties shall be leased to the Tiu spouses at a monthly rate of P98,000.00 for a period of two years.12

2. Dation of the Mandaue property – Deed executed by the spouses Tiu involving one parcel of land with improvements located in A.S. Fortuna St., Mandaue City, covered by TCT No. T-31604 and with a land area of 2,960 square meters, for the amount of P36,080,000.00. The Deed states that said property shall be leased to the Tiu spouses at a monthly rate of P150,000.00 for a period of two years.13

As likewise provided in the Restructuring Agreement, the spouses Tiu executed a Real Estate Mortgage in favor of Union Bank over their "residential property inclusive of lot and improvements" located at P. Burgos St., Mandaue City, covered by TCT No. T-11951 with an area of 3,096 square meters.14

The spouses Tiu undertook to pay the total restructured amount (P104,668,741.00) via three loan facilities (payment schemes).

The spouses Tiu claim to have made the following payments: (1) P15,000,000.00 on August 3, 1999; and (2) another P13,197,546.79 as of May 8, 2001. Adding the amounts paid under the Deeds of Dation in Payment, the spouses Tiu postulate that their payments added up to P89,407,546.79.15

Asserting that the spouses Tiu failed to comply with the payment schemes set up in the Restructuring Agreement, Union Bank initiated extrajudicial foreclosure proceedings on the residential property of the spouses Tiu, covered by TCT No. T-11951. The property was to be sold at public auction on July 18, 2002.

The spouses Tiu, together with Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu, filed with the Regional Trial Court (RTC) of Mandaue City a Complaint seeking to have the Extrajudicial Foreclosure declared null and void. The case was docketed as Civil Case No. MAN-4363.16 Named as defendants were Union Bank and Sheriff IV Veronico C. Ouano (Sheriff Oano) of Branch 55, RTC, Mandaue City. Complainants therein prayed for the following: (1) that the spouses Tiu be declared to have fully paid their obligation to Union Bank; (2) that defendants be permanently enjoined from proceeding with the auction sale; (3) that Union Bank be ordered to return to the spouses Tiu their properties as listed in the Complaint; (4) that Union Bank be ordered to pay the plaintiffs the sum of P10,000,000.00 as moral damages, P2,000,000.00 as exemplary damages, P3,000,000.00 as attorney’s fees and P500,000.00 as expenses of litigation; and (5) a writ of preliminary injunction or temporary restraining order be issued enjoining the public auction sale to be held on July 18, 2002.17

The spouses Tiu claim that from the beginning the loans were in pesos, not in dollars. Their office clerk, Lilia Gutierrez, testified that the spouses Tiu merely received the peso equivalent of their US$3,632,000.00 loan at the

rate of US$1=P26.00. The spouses Tiu further claim that they were merely forced to sign the Restructuring Agreement and take up an additional loan of P5,000,000.00, the proceeds of which they never saw because this amount was immediately applied by Union Bank to interest payments.18

The spouses Tiu allege that the foreclosure sale of the mortgaged properties was invalid, as the loans have already been fully paid. They also allege that they are not the owners of the improvements constructed on the lot because the real owners thereof are their co-petitioners, Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu.19

The spouses Tiu further claim that prior to the signing of the Restructuring Agreement, they entered into a Memorandum of Agreement with Union Bank whereby the former deposited with the latter several certificates of shares of stock of various companies and four certificates of title of various parcels of land located in Cebu. The spouses Tiu claim that these properties have not been subjected to any lien in favor of Union Bank, yet the latter continues to hold on to these properties and has not returned the same to the former.20

On the other hand, Union Bank claims that the Restructuring Agreement was voluntarily and validly entered into by both parties. Presenting as evidence the Warranties embodied in the Real Estate Mortgage, Union Bank contends that the foreclosure of the mortgage on the residential property of the spouses Tiu was valid and that the improvements thereon were absolutely owned by them. Union Bank denies receiving certificates of shares of stock of various companies or the four certificates of title of various parcels of land from the spouses Tiu. However, Union Bank also alleges that even if said certificates were in its possession it is authorized under the Restructuring Agreement to retain any and all properties of the debtor as security for the loan.21

The RTC issued a Temporary Restraining Order22 and, eventually, a Writ of Preliminary Injunction23 preventing the sale of the residential property of the spouses Tiu. 24

On December 16, 2004, the RTC rendered its Decision25 in Civil Case No. MAN-4363 in favor of Union Bank. The dispositive portion of the Decision read:

WHEREFORE, premises considered, judgment is hereby rendered dismissing the Complaint and lifting and setting aside the Writ of Preliminary Injunction. No pronouncement as to damages, attorney’s fees and costs of suit.26

In upholding the validity of the Restructuring Agreement, the RTC held that the spouses Tiu failed to present any evidence to prove either fraud or intimidation or any other act vitiating their consent to the same. The exact obligation of the spouses Tiu to Union Bank is therefore P104,668,741.00, as agreed upon by the parties in the Restructuring Agreement. As regards the contention of the spouses Tiu that they have fully paid their indebtedness, the RTC noted that they could not present any detailed accounting as to the total amount they have paid after the execution of the Restructuring Agreement.27

On January 4, 2005, Union Bank filed a Motion for Partial Reconsideration,28 protesting the finding in the body of the December 16, 2004 Decision that the residential house on Lot No. 639 is not owned by the spouses Tiu and therefore should be excluded from the real properties covered by the real estate mortgage. On January 6, 2005, the spouses Tiu filed their own Motion for Partial Reconsideration and/or New Trial.29 They alleged that the trial court failed to rule on their fourth cause of action wherein they mentioned that they turned over the following titles to Union Bank: TCT Nos. 30271, 116287 and 116288 and OCT No. 0-3538. They also prayed for a partial new trial and for a declaration that they have fully paid their obligation to Union Bank.30

On January 11, 2005, the spouses Tiu received from Sheriff Oano a Second Notice of Extra-judicial Foreclosure Sale of Lot No. 639 to be held on February 3, 2005. To prevent the same, the Tiu spouses filed with the Court of Appeals a Petition for Prohibition and Injunction with Application for TRO/Writ of Preliminary Injunction.31 The petition was docketed as CA-G.R. SP No. 00253. The Court of Appeals issued a Temporary Restraining Order on January 27, 2005.32

On January 19, 2005, the RTC issued an Order denying Union Bank’s Motion for Partial Reconsideration and the Tiu spouses’ Motion for Partial Reconsideration and/or New Trial.33

Both the spouses Tiu and Union Bank appealed the case to the Court of Appeals.34 The two appeals were given a single docket number, CA-G.R. CEB-CV No. 00190. Acting on a motion filed by the spouses Tiu, the Court of Appeals consolidated CA-G.R. SP No. 00253 with CA-G.R. CEB-CV No. 00190.35

On April 19, 2005, the Court of Appeals issued a Resolution finding that there was no need for the issuance of a Writ of Preliminary Injunction as the judgment of the lower court has been stayed by the perfection of the appeal therefrom.36

On May 9, 2005, Sheriff Oano proceeded to conduct the extrajudicial sale. Union Bank submitted the lone bid ofP18,576,000.00.37 On June 14, 2005, Union Bank filed a motion with the Court of Appeals praying that Sheriff Oano be ordered to issue a definite and regular Certificate of Sale.38 On July 21, 2005, the Court of Appeals issued a Resolution denying the Motion and suspending the auction sale at whatever stage, pending resolution of the

appeal and conditioned upon the filing of a bond in the amount of P18,000,000.00 by the Tiu spouses.39 The Tiu spouses failed to file said bond.40

On February 21, 2006, the Court of Appeals rendered the assailed Joint Decision in CA-G.R. CV No. 00190 and CA-G.R. SP No. 00253. The Court of Appeals dismissed the Petition for Prohibition, CA-G.R. SP No. 00253, on the ground that the proper venue for the same is with the RTC.41

On the other hand, the Court of Appeals ruled in favor of the spouses Tiu in CA-G.R. CV No. 00190. The Court of Appeals held that the loan transactions were in pesos, since there was supposedly no stipulation the loans will be paid in dollars and since no dollars ever exchanged hands. Considering that the loans were in pesos from the beginning, the Court of Appeals reasoned that there is no need to convert the same. By making it appear that the loans were originally in dollars, Union Bank overstepped its rights as creditor, and made unwarranted interpretations of the original loan agreement. According to the Court of Appeals, the Restructuring Agreement, which purportedly attempts to create a novation of the original loan, was not clearly authorized by the debtors and was not supported by any cause or consideration. Since the Restructuring Agreement is void, the original loan ofP94,432,000.00 (representing the amount received by the spouses Tiu of US$3,632,000.00 using the US$1=P26.00 exchange rate) should subsist. The Court of Appeals likewise invalidated (1) the P5,000,000.00 charge for interest in the Restructuring Agreement, for having been unilaterally imposed by Union Bank; and (2) the lease of the properties conveyed in dacion en pago, for being against public policy. 42

In sum, the Court of Appeals found Union Bank liable to the spouses Tiu in the amount of P927,546.79. For convenient reference, we quote relevant portion of the Court of Appeal’s Decision here:

To summarize the obligation of the Tiu spouses, they owe Union Bank P94,432,000.00. The Tiu spouses had already paid Union Bank the amount of P89,407,546.79. On the other hand, Union Bank must return to the Tiu spouses the illegally collected rentals in the amount of P5,952,000.00. Given these findings, the obligation of the Tiu spouses has already been fully paid. In fact, it is the Union Bank that must return to the Tiu spouses the amount of NINE HUNDRED TWENTY[-]SEVEN THOUSAND FIVE HUNDRED FORTY[-]SIX PESOS AND SEVENTY[-]NINE CENTAVOS (P927,546.79).43

With regard to the ownership of the improvements on the subject mortgaged property, the Court of Appeals ruled that it belonged to respondent Rodolfo Tiu’s father, Jose Tiu, since 1981. According to the Court of Appeals, Union Bank should not have relied on warranties made by debtors that they are the owners of the property. The appellate court went on to permanently enjoin Union Bank from foreclosing the mortgage not only of the property covered by TCT No. T-11951, but also any other mortgage over any other property of the spouses Tiu.44

The Court of Appeals likewise found Union Bank liable to return the certificates of stocks and titles to real properties of the spouses Tiu in its possession. The appellate court held that Union Bank made judicial admissions of such possession in its Reply to Plaintiff’s Request for Admission.45 In the event that Union Bank can no longer return these certificates and titles, it was mandated to shoulder the cost for their replacement.46

Finally, the Court of Appeals took judicial notice that before or during the financial crisis, banks actively convinced debtors to make dollar loans in the guise of benevolence, saddling borrowers with loans that ballooned twice or thrice their original loans. The Court of Appeals, noting "the cavalier way with which banks exploited and manipulated the situation,"47 held Union Bank liable to the spouses Tiu for P100,000.00 in moral damages,P100,000.00 in exemplary damages, and P50,000.00 in attorney’s fees.48

The Court of Appeals disposed of the case as follows:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us permanently enjoining Union Bank from foreclosing the mortgage of the residential property of the Tiu spouses which is covered by Transfer Certificate of Title No. 11951 and from pursuing other foreclosure of mortgages over any other properties of the Tiu spouses for the above-litigated debt that has already been fully paid. If a foreclosure sale has already been made over such properties, this Court orders the cancellation of such foreclosure sale and the Certificate of Sale thereof if any has been issued. This Court orders Union Bank to return to the Tiu spouses the amount of NINE HUNDRED TWENTY[-]SEVEN THOUSAND FIVE HUNDRED FORTY[-]SIX PESOS AND SEVENTY[-]NINE CENTAVOS (P927,546.79) representing illegally collected rentals. This Court also orders Union Bank to return to the Tiu spouses all the certificates of shares of stocks and titles to real properties of the Tiu spouses that were deposited to it or, in lieu thereof, to pay the cost for the replacement and issuance of new certificates and new titles over the said properties. This Court finally orders Union Bank to pay the Tiu spouses ONE HUNDRED THOUSAND PESOS (P100,000.00) in moral damages, ONE HUNDRED THOUSAND PESOS (P100,000.00) in exemplary damages, FIFTY THOUSAND PESOS (P50,000.00) in attorney’s fees and cost, both in the lower court and in this Court.49

On June 1, 2006, the Court of Appeals rendered the assailed Resolution denying Union Bank’s Motion for Reconsideration.

Hence, this Petition for Review on Certiorari, wherein Union Bank submits the following issues for the consideration of this Court:

1. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT CONCLUDED THAT THERE WERE NO DOLLAR LOANS OBTAINED BY [THE] TIU SPOUSES FROM UNION BANK DESPITE [THE] CLEAR ADMISSION OF INDEBTEDNESS BY THE BORROWER-MORTGAGOR TIU SPOUSES.

2. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT NULLIFIED THE RESTRUCTURING AGREEMENT BETWEEN TIU SPOUSES AND UNION BANK FOR LACK OF CAUSE OR CONSIDERATION DESPITE THE ADMISSION OF THE BORROWER-MORTGAGOR TIU SPOUSES OF THE DUE AND VOLUNTARY EXECUTION OF SAID RESTRUCTURING AGREEMENT.

3. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT PERMANENTLY ENJOINED UNION BANK FROM FORECLOSING THE MORTGAGE ON THE RESIDENTIAL PROPERTY OF THE TIU SPOUSES DESPITE THE ADMISSION OF NON-PAYMENT OF THEIR OUTSTANDING LOAN TO THE BANK BY THE BORROWER-MORTGAGOR TIU SPOUSES;

4. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT FIXED THE AMOUNT OF THE OBLIGATION OF RESPONDENT SPOUSES CONTRARY TO THE PROVISIONS OF THE PROMISSORY NOTES, RESTRUCTURING AGREEMENT AND [THE] VOLUNTARY ADMISSIONS BY BORROWER-MORTGAGOR TIU SPOUSES;

5. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT RULED ON THE ALLEGED RENTALS PAID BY RESPONDENT SPOUSES WITHOUT ANY FACTUAL BASIS;

6. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT HELD WITHOUT ANY FACTUAL BASIS THAT THE LOAN OBLIGATION OF TIU SPOUSES HAS BEEN FULLY PAID;

7. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT HELD WITHOUT ANY FACTUAL BASIS THAT THE HOUSE INCLUDED IN THE REAL ESTATE MORTGAGE DID NOT BELONG TO THE TIU SPOUSES.

8. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR IN ORDERING UNION BANK TO RETURN THE CERTIFICATES OF SHARES OF STOCK AND TITLES TO REAL PROPERTIES OF TIU SPOUSES ALLEGEDLY IN THE POSSESSION OF UNION BANK.

9. WHETHER OR NOT THE COURT OF APPEALS VIOLATED THE DOCTRINES AND PRINCIPLES ON APPELLATE JURISDICTION.

10. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR IN AWARDING DAMAGES AGAINST UNION BANK.50

Validity of the Restructuring Agreement

As previously discussed, the Court of Appeals declared that the Restructuring Agreement is void on account of its being a failed novation of the original loan agreements. The Court of Appeals explained that since there was no stipulation that the loans will be paid in dollars, and since no dollars ever exchanged hands, the original loan transactions were in pesos.51 Proceeding from this premise, the Court of Appeals held that the Restructuring Agreement, which was meant to convert the loans into pesos, was unwarranted. Thus, the Court of Appeals reasoned that:

Be that as it may, however, since the loans of the Tiu spouses from Union Bank were peso loans from the very beginning, there is no need for conversion thereof. A Restructuring Agreement should merely confirm the loans, not add thereto. By making it appear in the Restructuring Agreement that the loans were originally dollar loans, Union Bank overstepped its rights as a creditor and made unwarranted interpretations of the original loan agreement. This Court is not bound by such interpretations made by Union Bank. When one party makes an interpretation of a contract, he makes it at his own risk, subject to a subsequent challenge by the other party and a modification by the courts. In this case, that party making the interpretation is not just any party, but a well entrenched and highly respected bank. The matter that was being interpreted was also a financial matter that is within the profound expertise of the bank. A normal person who does not possess the same financial proficiency or acumen as that of a bank will most likely defer to the latter’s esteemed opinion, representations and interpretations. It has been often stated in our jurisprudence that banks have a fiduciary duty to their depositors. According to the case of Bank of the Philippine Islands vs. IAC (G.R. No. 69162, February 21, 1992), "as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship." Such fiduciary relationship should also extend to the bank’s borrowers who, more often than not, are also depositors of the bank. Banks are in the business of lending while most borrowers hardly know the basics of such business. When transacting with a bank, most borrowers concede to the expertise of the bank and consider their procedures, pronouncements and

representations as unassailable, whether such be true or not. Therefore, when there is a doubtful banking transaction, this Court will tip the scales in favor of the borrower.

Given the above ruling, the Restructuring Agreement, therefore, between the Tiu spouses and Union Bank does not operate to supersede all previous loan documents, as claimed by Union Bank. But the said Restructuring Agreement, as it was crafted by Union Bank, does not merely confirm the original loan of the Tiu spouses but attempts to create a novation of the said original loan that is not clearly authorized by the debtors and that is not supported by any cause or consideration. According to Article 1292 of the New Civil Code, in order that an obligation may by 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. Such is not the case in this instance. No valid novation of the original obligation took place. Even granting arguendo that there was a novation, the sudden change in the original amount of the loan to the new amount declared in the Restructuring Agreement is not supported by any cause or consideration. Under Article 1352 of the Civil Code, contracts without cause, or with unlawful cause, produce no effect whatever. A contract whose cause did not exist at the time of the transaction is void. Accordingly, Article 1297 of the New Civil Code mandates that, if the new obligation is void, the original one shall subsist, unless the parties intended that the former relation should be extinguished at any event. Since the Restructuring Agreement is void and since there was no intention to extinguish the original loan, the original loan shall subsist.52

Union Bank does not dispute that the spouses Tiu received the loaned amount of US$3,632,000.00 in Philippine pesos, not dollars, at the prevailing exchange rate of US$1=P26.53 However, Union Bank claims that this does not change the true nature of the loan as a foreign currency loan,54 and proceeded to illustrate in its Memorandum that the spouses Tiu obtained favorable interest rates by opting to borrow in dollars (but receiving the equivalent peso amount) as opposed to borrowing in pesos.55

We agree with Union Bank on this point. Although indeed, the spouses Tiu received peso equivalents of the borrowed amounts, the loan documents presented as evidence, i.e., the promissory notes,56 expressed the amount of the loans in US dollars and not in any other currency. This clearly indicates that the spouses Tiu were bound to pay Union Bank in dollars, the amount stipulated in said loan documents. Thus, before the Restructuring Agreement, the spouses Tiu were bound to pay Union Bank the amount of US$3,632,000.00 plus the interest stipulated in the promissory notes, without converting the same to pesos. The spouses Tiu, who are in the construction business and appear to be dealing primarily in Philippine currency, should therefore purchase the necessary amount of dollars to pay Union Bank, who could have justly refused payment in any currency other than that which was stipulated in the promissory notes.

We disagree with the finding of the Court of Appeals that the testimony of Lila Gutierrez, which merely attests to the fact that the spouses Tiu received the peso equivalent of their dollar loan, proves the intention of the parties that such loans should be paid in pesos. If such had been the intention of the parties, the promissory notes could have easily indicated the same.

Such stipulation of payment in dollars is not prohibited by any prevailing law or jurisprudence at the time the loans were taken. In this regard, Article 1249 of the Civil Code provides:

Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.

Although the Civil Code took effect on August 30, 1950, jurisprudence had upheld57 the continued effectivity of Republic Act No. 529, which took effect earlier on June 16, 1950. Pursuant to Section 158 of Republic Act No. 529, any agreement to pay an obligation in a currency other than the Philippine currency is void; the most that could be demanded is to pay said obligation in Philippine currency to be measured in the prevailing rate of exchange at the time the obligation was incurred.59 On June 19, 1964, Republic Act No. 4100 took effect, modifying Republic Act No. 529 by providing for several exceptions to the nullity of agreements to pay in foreign currency.60

On April 13, 1993, Central Bank Circular No. 138961 was issued, lifting foreign exchange restrictions and liberalizing trade in foreign currency. In cases of foreign borrowings and foreign currency loans, however, prior Bangko Sentral approval was required. On July 5, 1996, Republic Act No. 8183 took effect,62 expressly repealing Republic Act No. 529 in Section 263 thereof. The same statute also explicitly provided that parties may agree that the obligation or transaction shall be settled in a currency other than Philippine currency at the time of payment.64

Although the Credit Line Agreement between the spouses Tiu and Union Bank was entered into on November 21, 1995,65 when the agreement to pay in foreign currency was still considered void under Republic Act No. 529, the actual loans,66 as shown in the promissory notes, were taken out from September 22, 1997 to March 26, 1998, during which time Republic Act No. 8183 was already in effect. In United Coconut Planters Bank v. Beluso,67 we held that:

[O]pening a credit line does not create a credit transaction of loan or mutuum, since the former is merely a preparatory contract to the contract of loan or mutuum. Under such credit line, the bank is merely obliged, for the considerations specified therefor, to lend to the other party amounts not exceeding the limit provided. The credit transaction thus occurred not when the credit line was opened, but rather when the credit line was availed of. x x x.68

Having established that Union Bank and the spouses Tiu validly entered into dollar loans, the conclusion of the Court of Appeals that there were no dollar loans to novate into peso loans must necessarily fail.

Similarly, the Court of Appeals’ pronouncement that the novation was not supported by any cause or consideration is likewise incorrect. This conclusion suggests that when the parties signed the Restructuring Agreement, Union Bank got something out of nothing or that the spouses Tiu received no benefit from the restructuring of their existing loan and was merely taken advantage of by the bank. It is important to note at this point that in the determination of the nullity of a contract based on the lack of consideration, the debtor has the burden to prove the same. Article 1354 of the Civil Code provides that "[a]though the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary."

In the case at bar, the Restructuring Agreement was signed at the height of the financial crisis when the Philippine peso was rapidly depreciating. Since the spouses Tiu were bound to pay their debt in dollars, the cost of purchasing the required currency was likewise swiftly increasing. If the parties did not enter into the Restructuring Agreement in December 1999 and the peso continued to deteriorate, the ability of the spouses Tiu to pay and the ability of Union Bank to collect would both have immensely suffered. As shown by the evidence presented by Union Bank, the peso indeed continued to deteriorate, climbing to US$1=P50.01 on December 2000.69 Hence, in order to ensure the stability of the loan agreement, Union Bank and the spouses Tiu agreed in the Restructuring Agreement to peg the principal loan at P150,364,800.00 and the unpaid interest at P5,000,000.00.

Before this Court, the spouses Tiu belatedly argue that their consent to the Restructuring Agreement was vitiated by fraud and mistake, alleging that (1) the Restructuring Agreement did not take into consideration their substantial payment in the amount of P40,447,185.60 before its execution; and (2) the dollar loans had already been redenominated in 1997 at the rate of US$1=P26.34.70

We have painstakingly perused over the records of this case, but failed to find any documentary evidence of the alleged payment of P40,447,185.60 before the execution of the Restructuring Agreement. In paragraph 16 of their Amended Complaint, the spouses Tiu alleged payment of P40,447,185.60 for interests before the conversion of the dollar loan.71 This was specifically denied by Union Bank in paragraph 5 of its Answer with Counterclaim.72 Respondent Rodolfo Tiu testified that they made "50 million plus" in cash payment plus "other monthly interest payments,"73 and identified a computation of payments dated July 17, 2002 signed by himself.74Such computation, however, was never formally offered in evidence and was in any event, wholly self-serving.

As regards the alleged redenomination of the same dollar loans in 1997 at the rate of US$1=P26.34, the spouses Tiu merely relied on the following direct testimony of Herbert Hojas, one of the witnesses of Union Bank:

Q: Could you please describe what kind of loan was the loan of the spouses Rodolfo Tiu, the plaintiffs in this case?

A: It was originally an FCDU, meaning a dollar loan.

Q: What happened to this FCDU loan or dollar loan?

A: The dollar loan was re-denominated in view of the very unstable exchange of the dollar and the peso at that time,

Q: Could you still remember what year this account was re-denominated from dollar to peso?

A: I think it was on the year 1997.

Q: Could [you] still remember what was then the prevailing exchange rate between the dollar and the peso at that year 1997?

A: Yes. I have here the list of the dollar exchange rate from January 1987 (sic). It was P26.34 per dollar.75

Neither party presented any documentary evidence of the alleged redenomination in 1997. Respondent Rodolfo Tiu did not even mention it in his testimony. Furthermore, Hojas was obviously uncertain in his statement that said redenomination was made in 1997.

As pointed out by the trial court, the Restructuring Agreement, being notarized, is a public document enjoying a prima facie presumption of authenticity and due execution. Clear and convincing evidence must be presented to overcome such legal presumption.76 The spouses Tiu, who attested before the notary public that the Restructuring Agreement "is their own free and voluntary act and deed,"77 failed to present sufficient evidence to prove otherwise. It is difficult to believe that the spouses Tiu, veteran businessmen who operate a multi-million peso company, would sign a very important document without fully understanding its contents and consequences.

This Court therefore rules that the Restructuring Agreement is valid and, as such, a valid and binding novation of loans of the spouses Tiu entered into from September 22, 1997 to March 26, 1998 which had a total amount of US$3,632,000.00.

Validity of the Foreclosure of Mortgage

The spouses Tiu challenge the validity of the foreclosure of the mortgage on two grounds, claiming that: (1) the debt had already been fully paid; and (2) they are not the owners of the improvements on the mortgaged property.

(1) Allegation of full payment of the mortgage debt

In the preceding discussion, we have ruled that the Restructuring Agreement is a valid and binding novation of loans of the spouses Tiu entered into from September 22, 1997 to March 26, 1998 in the total amount of US$3,632,000.00. Thus, in order that the spouses Tiu can be held to have fully paid their loan obligation, they should present evidence showing their payment of the total restructured amount under the Restructuring Agreement which was P104,668,741.00. As we have discussed above, however, while respondent Rodolfo Tiu appeared to have identified during his testimony a computation dated July 17, 2002 of the alleged payments made to Union Bank,78 the same was not formally offered in evidence. Applying Section 34, Rule 13279 of the Rules of Court, such computation cannot be considered by this Court. We have held that a formal offer is necessary because judges are mandated to rest their findings of facts and their judgment only and strictly upon the evidence offered by the parties at the trial. It has several functions: (1) to enable the trial judge to know the purpose or purposes for which the proponent is presenting the evidence; (2) to allow opposing parties to examine the evidence and object to its admissibility; and (3) to facilitate review by the appellate court, which will not be required to review documents not previously scrutinized by the trial court.80 Moreover, even if such computation were admitted in evidence, the same is self-serving and cannot be given probative weight. In the case at bar, the records do not contain even a single receipt evidencing payment to Union Bank.

The Court of Appeals, however, held that several payments made by the spouses Tiu had been admitted by Union Bank. Indeed, Section 11, Rule 8 of the Rules of Court provides that an allegation not specifically denied is deemed admitted. In such a case, no further evidence would be required to prove the antecedent facts. We should therefore examine which of the payments specified by the spouses Tiu in their Amended Complaint81were not specifically denied by Union Bank.

The allegations of payment are made in paragraphs 16 to 21 of the Amended Complaint:

16. Before conversion of the dollar loan into a peso loan[,] the spouses Tiu had already paid the defendant bank the amount of P40,447,185.60 for interests;

17. On August 3, 1999 and August 12, 1999, plaintiffs made payments in the amount of P15,000,000.00;

18. In order to lessen the obligation of plaintiffs, the mother of plaintiff Rodolfo T. Tiu, plaintiff Juanita T. Tiu, executed a deed of dacion in payment in favor of defendant involving her 10 parcels of land located in Labangon, Cebu City for the amount of P25,130,000.00. Copy of the deed was attached to the original complaint as Annex "C";

19. For the same purpose, plaintiffs spouses Tiu also executed a deed of dacion in payment of their property located at A.S. Fortuna St., Mandaue City for the amount of P36,080,000.00. Copy of the deed was attached to the original complaint as Annex "D";

20. The total amount of the two dacions in payment made by the plaintiffs was P61,210,000.00;

21. Plaintiffs spouses Tiu also made other payment of the amount of P13,197,546.79 as of May 8, 2001;82

In paragraphs 4 and 5 of their Answer with Counterclaim,83 Union Bank specifically denied the allegation in paragraph 9 of the Complaint, but admitted the allegations in paragraphs 17, 18, 19, 20 and 21 thereof. Paragraphs 18, 19 and 20 allege the two deeds of dacion. However, these instruments were already incorporated in the computation of the outstanding debt (i.e., subtracted from the confirmed debt of P155,364,800.00), as can be gleaned from the following provisions in the Restructuring Agreement:

a.) The loan obligation to the BANK to be restructured herein after deducting from the Indebtedness of the BORROWER the dacion price of the properties subject of the Deeds of Dacion and adding to the Indebtedness all the taxes, registration fees and other expenses advanced by the bank in registering the Deeds of Dacion, and also adding to the Indebtedness the interest, and other fees and charges incurred by the Indebtedness, amounts to ONE HUNDRED FOUR MILLION SIX HUNDRED SIXTY-EIGHT THOUSAND SEVEN HUNDRED FORTY-ONE PESOS (PHP104,668,741.00) (the "TOTAL RESTRUCTURED AMOUNT").84

As regards the allegations of cash payments in paragraphs 17 and 21 of the Amended Complaint, the date of the alleged payment is critical as to whether they were included in the Restructuring Agreement. The payment ofP15,000,000.00 alleged in paragraph 17 of the Amended Complaint was supposedly made on August 3 and 12,

1999. This payment was before the date of execution of the Restructuring Agreement on December 21, 1999, and is therefore already factored into the restructured obligation of the spouses.85 On the other hand, the payment of P13,197,546.79 alleged in paragraph 21 of the Amended Complaint was dated May, 8, 2001. Said payment cannot be deemed included in the computation of the spouses Tiu’s debt in the Restructuring Agreement, which was assented to more than a year earlier. This amount (P13,197,546.79) is even absent86 in the computation of Union Bank of the outstanding debt, in contrast with the P15,000,000.00 payment which is included87 therein. Union Bank did not explain this discrepancy and merely relied on the spouses Tiu’s failure to formally offer supporting evidence. Since this payment of P13,197,546.79 on May 8, 2001 was admitted by Union Bank in their Answer with Counterclaim, there was no need on the part of the spouses Tiu to present evidence on the same. Nonetheless, if we subtract this figure from the total restructured amount (P104,668,741.00) in the Restructuring Agreement, the result is that the spouses Tiu still owe Union Bank P91,471,194.21.

(2) Allegation of third party ownership of the improvements on the mortgaged lot

The Court of Appeals, taking into consideration its earlier ruling that the loan was already fully paid, permanently enjoined Union Bank from foreclosing the mortgage on the property covered by Transfer Certificate of Title No. 11951 (Lot No. 639) and from pursuing other foreclosure of mortgages over any other properties of the spouses Tiu. The Court of Appeals ruled:

The prayer, therefore, of the Tiu spouses to enjoin the foreclosure of the real estate mortgage over their residential property has merit. The loan has already been fully paid. It should also be noted that the house constructed on the residential property of the Tiu spouses is not registered in the name of the Tiu spouses, but in the name of Jose Tiu (Records, pp. 127-132), the father of appellant and petitioner Rodolfo Tiu, since 1981. It had been alleged by the Tiu spouses that Jose Tiu died on December 18, 1983, and, that consequently upon his death, Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu became owners of the house (Records, p. 116). This allegation has not been substantially denied by Union Bank. All that the Union Bank presented to refute this allegation are a Transfer Certificate of Title and a couple of Tax Declarations which do not indicate that a residential house is titled in the name of the Tiu spouses. In fact, in one of the Tax Declarations, the market value of the improvements is worth only P3,630.00. Certainly, Union Bank should have been aware that this Tax Declaration did not cover the residential house. Union Bank should also not rely on warranties made by debtors that they are the owners of the property. They should investigate such representations. The courts have made consistent rulings that a bank, being in the business of lending, is obligated to verify the true ownership of the properties mortgaged to them. Consequently, this Court permanently enjoins Union Bank from foreclosing the mortgage of the residential property of the Tiu spouses which is covered by Transfer Certificate of Title No. 11951 and from pursuing other foreclosure of mortgages over any other properties of the Tiu spouses. If a foreclosure sale has already been made over such properties, this Court orders the cancellation of such foreclosure sale and the Certificate of Sale thereof if any has been issued, and the return of the title to the Tiu spouses.88

We disagree. Contrary to the ruling of the Court of Appeals, the burden to prove the spouses Tiu’s allegation – that they do not own the improvements on Lot No. 639, despite having such improvements included in the mortgage – is on the spouses Tiu themselves. The fundamental rule is that he who alleges must prove.89 The allegations of the spouses Tiu on this matter, which are found in paragraphs 35 to 3990 of their Amended Complaint, were specifically denied in paragraph 9 of Union Bank’s Answer with Counterclaim.91

Upon careful examination of the evidence, we find that the spouses Tiu failed to prove that the improvements on Lot No. 639 were owned by third persons. In fact, the evidence presented by the spouses Tiu merely attempt to prove that the improvements on Lot No. 639 were declared for taxes in the name of respondent Rodolfo Tiu’s father, Jose Tiu, who allegedly died on December 18, 1983. There was no effort to show how their co-plaintiffs in the original complaint, namely Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu, became co-owners of the house. The spouses Tiu did not present evidence as to (1) who the heirs of Jose Tiu are; (2) if Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu are indeed included as heirs; and (3) why petitioner Rodolfo Tiu is not included as an heir despite being the son of Jose Tiu. No birth certificate of the alleged heirs, will of the deceased, or any other piece of evidence showing judicial or extrajudicial settlement of the estate of Jose Tiu was presented.

In light of the foregoing, this Court therefore sets aside the ruling of the Court of Appeals permanently enjoining Union Bank from foreclosing the mortgage on Lot No. 639, including the improvements thereon.

Validity of Alleged Rental Payments on the Properties Conveyed to the Bank via Dacion en Pago

The Court of Appeals found the lease contracts over the properties conveyed to Union Bank via dacion en pago to be void for being against public policy. The appellate court held that since the General Banking Law of 200092mandates banks to immediately dispose of real estate properties that are not necessary for its own use in the conduct of its business, banks should not enter into two-year contracts of lease over properties paid to them through dacion.93 The Court of Appeals thus ordered Union Bank to return the rentals it collected. To determine the amount of rentals paid by the spouses Tiu to Union Bank, the Court of Appeals simply multiplied the monthly rental stipulated in the Restructuring Agreement by the stipulated period of the lease agreement:

For the Labangon property, the Tiu spouses paid rentals in the amount of P98,000.00 per month for two years, or a total amount of P2,352,000.00. For the A.S. Fortuna property, the Tiu spouses paid rentals in the amount ofP150,000.00 per month for two years, or a total amount of P3,600,000.00. The total amount in rentals paid by the Tiu spouses to Union Bank is FIVE MILLION NINE HUNDRED FIFTY- TWO THOUSAND PESOS (P5,952,000.00). This Court finds that the return of this amount to the Tiu spouses is called for since it will better serve public policy. These properties that were given by the Tiu spouses to Union Bank as payment should not be used by the latter to extract more money from the former. This situation is analogous to having a debtor pay interest for a debt already paid. Instead of leasing the properties, Union Bank should have instructed the Tiu spouses to vacate the said properties so that it could dispose of them.94

The Court of Appeals committed a serious error in this regard. As pointed out by petitioner Union Bank, the spouses Tiu did not present any proof of the alleged rental payments. Not a single receipt was formally offered in evidence. The mere stipulation in a contract of the monthly rent to be paid by the lessee is certainly not evidence that the same has been paid. Since the spouses Tiu failed to prove their payment to Union Bank of the amount ofP5,952,000.00, we are constrained to reverse the ruling of the Court of Appeals ordering its return.

Even assuming arguendo that the spouses Tiu had duly proven that it had paid rent to Union Bank, we nevertheless disagree with the finding of the Court of Appeals that it is against public policy for banks to enter into two-year contracts of lease of properties ceded to them through dacion en pago. The provisions of law cited by the Court of Appeals, namely Sections 51 and 52 of the General Banking Law of 2000, merely provide:

SECTION 51. Ceiling on Investments in Certain Assets. — Any bank may acquire real estate as shall be necessary for its own use in the conduct of its business: Provided, however, That the total investment in such real estate and improvements thereof, including bank equipment, shall not exceed fifty percent (50%) of combined capital accounts: Provided, further, That the equity investment of a bank in another corporation engaged primarily in real estate shall be considered as part of the bank's total investment in real estate, unless otherwise provided by the Monetary Board.

SECTION 52. Acquisition of Real Estate by Way of Satisfaction of Claims. — Notwithstanding the limitations of the preceding Section, a bank may acquire, hold or convey real property under the following circumstances:

52.1. Such as shall be mortgaged to it in good faith by way of security for debts;

52.2. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings; or

52.3. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it and such as it shall purchase to secure debts due it.

Any real property acquired or held under the circumstances enumerated in the above paragraph shall be disposed of by the bank within a period of five (5) years or as may be prescribed by the Monetary Board: Provided, however, That the bank may, after said period, continue to hold the property for its own use, subject to the limitations of the preceding Section.

Section 52.2 contemplates a dacion en pago. Thus, Section 52 undeniably gives banks five years to dispose of properties conveyed to them in satisfaction of debts previously contracted in the course of its dealings, unless another period is prescribed by the Monetary Board. Furthermore, there appears to be no legal impediment for a bank to lease the real properties it has received in satisfaction of debts, within the five-year period that such bank is allowed to hold the acquired realty.

We do not dispute the interpretation of the Court of Appeals that the purpose of the law is to prevent the concentration of land holdings in a few hands, and that banks should not be allowed to hold on to the properties contemplated in Section 52 beyond the five-year period unless such bank has exerted its best efforts to dispose of the property in good faith but failed. However, inquiries as to whether the banks exerted best efforts to dispose of the property can only be done if said banks fail to dispose of the same within the period provided. Such inquiry is furthermore irrelevant to the issues in the case at bar.

Order to Return Certificates Allegedly in Union Bank’s Possession

In the Amended Complaint, the spouses Tiu alleged95 that they delivered several certificates and titles to Union Bank pursuant to a Memorandum of Agreement. These certificates and titles were not subjected to any lien in favor of Union Bank, but the latter allegedly continued to hold on to said properties.

The RTC failed to rule on this issue. The Court of Appeals, tackling this issue for the first time, ruled in favor of the Tiu spouses and ordered the return of these certificates and titles. The appellate court added that if Union Bank can no longer return these certificates or titles, it should shoulder the cost for their replacement.96

Union Bank, asserting that the Memorandum of Agreement did not, in fact, push through, denies having received the subject certificates and titles. Union Bank added that even assuming arguendo that it is in possession of said documents, the Restructuring Agreement itself allows such possession.97

The evidence on hand lends credibility to the allegation of Union Bank that the Memorandum of Agreement did not push through. The copy of the Memorandum of Agreement attached by the spouses Tiu themselves to their original complaint did not bear the signature of any representative from Union Bank and was not notarized.98

We, however, agree with the finding of the Court of Appeals that despite the failure of the Memorandum of Agreement to push through, the certificates and titles mentioned therein do appear to be in the possession of Union Bank. As held by the Court of Appeals:

Lastly, this Court will order, as it hereby orders, Union Bank to return to the Tiu spouses all the certificates of shares of stocks and titles to real properties of the Tiu spouses in its possession. Union Bank cannot deny possession of these items since it had made judicial admissions of such possession in their document entitled "Reply to Plaintiffs’ request for Admission" (records, pp. 216-217). While in that document, Union Bank only admitted to the possession of four real estate titles, this Court is convinced that all the certificates and titles mentioned in the unconsummated Memorandum of Agreement (Records, pp. 211-213) were given by the Tiu spouses to Union Bank for appraisal. This finding is further bolstered by the admission of the Union Bank that it kept the titles for safekeeping after it rejected the Memorandum of Agreement. Since Union Bank rejected these certificates and titles of property, it should return the said items to the Tiu spouses. If Union Bank can no longer return these certificates and titles or if it has misplaced them, it shall shoulder the cost for the replacement and issuance of new certificates and new titles over the said properties.99

As regards Union Bank’s argument that it has the right to retain said documents pursuant to the Restructuring Agreement, it is referring to paragraph 11(b), which provides that:

11. Effects of Default – When the BORROWER is in default, such default shall have the following effects, alternative, concurrent and cumulative with each other:

x x x x

(b) The BANK shall be entitled to all the remedies provided for and further shall have the right to effect or apply against the partial or full payment of any and all obligations of the BORROWER under this Restructuring Agreement any and all moneys or other properties of the BORROWER which, for any reason, are or may hereafter come into the possession of the Bank or the Bank’s agent. All such moneys or properties shall be deemed in the BANK’s possession as soon as put in transit to the BANK by mail or carrier.100

In the first place, notwithstanding the foregoing provision, there is no clear intention on the part of the spouses Tiu to deliver the certificates over certain shares of stock and real properties as security for their debt. From the terms of the Memorandum of Agreement, these certificates were surrendered to Union Bank in order that the said properties described therein be given their corresponding loan values required for the restructuring of the spouses Tiu’s outstanding obligations. However, in the event the parties fail to agree on the valuation of the subject properties, Union Bank agrees to release the same.101 As Union Bank itself vehemently alleges, the Memorandum of Agreement was not consummated. Moreover, despite the fact that the Bank was aware, or in possession, of these certificates,102 at the time of execution of the Restructuring Agreement, only the mortgage over the real property covered by TCT No. T-11951 was expressly mentioned as a security in the Restructuring Agreement. In fact, in its Reply to Request for Admission,103 Union Bank admitted that (1) the titles to the real properties were submitted to it for appraisal but were subsequently rejected, and (2) no real estate mortgages were executed over the said properties. There being no agreement that these properties shall secure respondents’ obligation, Union Bank has no right to retain said certificates.1avvphi1

Assuming arguendo that paragraph 11(b) of the Restructuring Agreement indeed allows the retention of the certificates (submitted to the Bank ostensibly for safekeeping and appraisal) as security for spouses Tiu’s debt, Union Bank’s position still cannot be upheld. Insofar as said provision permits Union Bank to apply properties of the spouses Tiu in its possession to the full or partial payment of the latter’s obligations, the same appears to impliedly allow Union Bank to appropriate these properties for such purpose. However, said provision cannot be validly applied to the subject certificates and titles without violating the prohibition against pactum commissorium contained in Article 2088 of the Civil Code, to the effect that "[t]he creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them[;] [a]ny stipulation to the contrary is null and void." Applicable by analogy to the present case is our ruling in Nakpil v. Intermediate Appellate Court,104 wherein property held in trust was ceded to the trustee upon failure of the beneficiary to answer for the amounts owed to the former, to wit:

For, there was to be automatic appropriation of the property by Valdes in the event of failure of petitioner to pay the value of the advances. Thus, contrary to respondent's manifestations, all the elements of a pactum commissorium were present: there was a creditor-debtor relationship between the parties; the property was used as security for the loan; and, there was automatic appropriation by respondent of Pulong Maulap in case of default of petitioner.105 (Emphases supplied.)

This Court therefore affirms the order of the Court of Appeals for Union Bank to return to the spouses Tiu all the certificates of shares of stock and titles to real properties that were submitted to it or, in lieu thereof, to pay the cost for the replacement and issuance of new certificates and new titles over the said properties.

Validity of the Award of Damages

The Court of Appeals awarded damages in favor of the spouses Tiu based on its taking judicial notice of the alleged exploitation by many banks of the Asian financial crisis, as well as the foreclosure of the mortgage of the home of the spouses Tiu despite the alleged full payment by the latter. As regards the alleged manipulation of the financial crisis, the Court of Appeals held:

As a final note, this Court observes the irregularity in the circumstances [surrounding] dollar loans granted by banks right before or during the Asian financial crisis. It is of common knowledge that many banks, around that time, actively pursued and convinced debtors to make dollar loans or to convert their peso loans to dollar loans allegedly because of the lower interest rate of dollar loans. This is a highly suspect behavior on the part of the banks because it is irrational for the banks to voluntarily and actively proffer a conversion that would give them substantially less income. In the guise of benevolence, many banks were able to convince borrowers to make dollar loans or to convert their peso loans to dollar loans. Soon thereafter, the Asian financial crisis hit, and many borrowers were saddled with loans that ballooned to twice or thrice the amount of their original loans. This court takes judicial notice of these events or matters which are of public knowledge. It is inconceivable that the banks were unaware of the looming Asian financial crisis. Being in the forefront of the financial world and having access to financial data that were not available to the average borrower, the banks were in such a position that they had a higher vantage point with respect to the financial landscape over their average clients. The cavalier way with which banks exploited and manipulated the situation is almost too palpable that they openly and unabashedly struck heavy blows on the Philippine economy, industries and businesses. The banks have a fiduciary duty to their clients and to the Filipino people to be transparent in their dealings and to make sure that the latter’s interest are not prejudiced by the former’s interest. Article 1339 of the New Civil Code provides that the failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud. Undoubtedly, the banks and their clients are bound by confidential relations. The almost perfect timing of the banks in convincing their clients to shift to dollar loans just when the Asian financial crisis struck indicates that the banks not only failed to disclose facts to their clients of the looming crisis, but also suggests of the insidious design to take advantage of these undisclosed facts.106

We have already held that the foreclosure of the mortgage was warranted under the circumstances. As regards the alleged exploitation by many banks of the Asian financial crisis, this Court rules that the generalization made by the appellate court is unfounded and cannot be the subject of judicial notice. "It is axiomatic that good faith is always presumed unless convincing evidence to the contrary is adduced. It is incumbent upon the party alleging bad faith to sufficiently prove such allegation. Absent enough proof thereof, the presumption of good faith prevails."107 The alleged insidious design of many banks to betray their clients during the Asian financial crisis is certainly not of public knowledge. The deletion of the award of moral and exemplary damages in favor of the spouses Tiu is therefore in order.

WHEREFORE, the Petition is PARTIALLY GRANTED. The Joint Decision of the Court of Appeals in CA-G.R. CV No. 00190 and CA-G.R. SP No. 00253 dated February 21, 2006 is hereby AFFIRMED insofar as it ordered petitioner Union Bank of the Philippines to return to the respondent spouses Rodolfo T. Tiu and Victoria N. Tiu all the certificates of shares of stock and titles to real properties that were submitted to it or, in lieu thereof, to pay the cost for the replacement and issuance of new certificates and new titles over the said properties. The foregoing Joint Decision is hereby SET ASIDE: (1) insofar as it permanently enjoined Union Bank of the Philippines from foreclosing the mortgage of the residential property of respondent spouses Rodolfo T. Tiu and Victoria N. Tiu which is covered by Transfer Certificate of Title No. 11951; (2) insofar as it ordered Union Bank of the Philippines to return to the respondent spouses Rodolfo T. Tiu and Victoria N. Tiu the amount of P927,546.79 representing illegally collected rentals; and (3) insofar as it ordered Union Bank of the Philippines to pay the respondent spouses Rodolfo T. Tiu and Victoria N. Tiu P100,000.00 in moral damages, P100,000.00 in exemplary damages,P50,000.00 in attorney’s fees and cost, both in the lower court and in this Court.

No further pronouncement as to costs.

SO ORDERED.

G.R. No. 165548               June 13, 2011

PHILIPPINE REALTY AND HOLDINGS CORPORATION, Petitioner, vs.LEY CONSTRUCTION AND DEVELOPMENT CORPORATION, Respondent.

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

G.R. No. 167879

LEY CONSTRUCTION AND DEVELOPMENT CORPORATION, Petitioner, vs.PHILIPPINE REALTY AND HOLDINGS CORPORATION, Respondent.

SERENO, J.:

These are consolidated petitions for review under Rule 45 of the New Rules of Civil Procedure filed by both parties from a Court of Appeals (CA) Decision in CA-GR No. 71293 dated 30 September 2004. This Decision reversed a Decision of the Regional Trial Court (RTC), National Capital Judicial Region (NCJR), Branch 135 in Makati City dated 31 January 2001 in Civil Case No. 96-160.

The foregoing are the facts culled from the record, and from the findings of the CA and the RTC.

Ley Construction and Development Corporation (LCDC) was the project contractor for the construction of several buildings for Philippine Realty & Holdings Corporation (PRHC), the project owner. Engineer Dennis Abcede (Abcede) was the project construction manager of PRHC, while Joselito Santos (Santos) was its general manager and vice-president for operations.

Sometime between April 1988 and October 1989, the two corporations entered into four major construction projects, as evidenced by four duly notarized "construction agreements." LCDC committed itself to the construction of the buildings needed by PRHC, which in turn committed itself to pay the contract price agreed upon. These were the four construction projects the parties entered into involving a Project 1, Project 2, Project 3 (all of which involve the Alexandra buildings) and a Tektite Building:

1. Construction Agreement dated 25 April 1988 – Alexandra-Cluster C – involving the construction of two units of seven-storey buildings with basement at a contract price of P 68,000,000 (Project 1);

2. Construction Agreement dated 25 July 1988 – Alexandra-Cluster B – involving the construction of an eleven-storey twin-tower building with a common basement at a contract price of P 140,500,000 (Project 2);

3. Construction Agreement dated 23 November 1988 – Alexandra-Cluster E – involving the construction of an eleven-storey twin-tower building with common basement at a contract price of P 140,500,000 (Project 3); and

4. Construction Agreement dated 10 October 1989 – Tektite Towers Phase I – involving the construction of Tektite Tower Building I at Tektite Road at a contract price of P 729,138,964 (Tektite Building).

The agreement covering the construction of the Tektite Building was signed by a Mr. Campos under the words "Phil. Realty & Holdings Corp." and by Santos as a witness. Manuel Ley, the president of LCDC, signed under the words "Ley Const. & Dev. Corp."

The terms embodied in the afore-listed construction agreements were almost identical. Each agreement provided for a fixed price to be paid by PRHC for every project.

All the aforementioned agreements contain the following provisions:

ARTICLE IV – CONTRACT PRICE

. . .           . . .          . . .

The Contract Price shall not be subject to escalation except due to work addition, (approved by the OWNER and the ARCHITECT) and to official increase in minimum wage as covered by the Labor Adjustment Clause below. All costs and expenses over and above the Contract Price except as provided in Article V hereof shall be for the account of the CONTRACTOR. It is understood that there shall be no escalation on the price of materials. However, should there be any increase in minimum daily wage level, the adjustment on labor cost only shall be considered based on conditions as stipulated below.

. . .           . . .          . . .

ARTICLE VII – TIME OF COMPLETION

. . .           . . .          . . .

Should the work be delayed by any act or omission of the OWNER or any other person employed by or contracted by the OWNER in the project, including days in the delivery or (sic) materials furnished by the OWNER or others, or by any appreciable additions or alterations in the work ordered by the OWNER or the ARCHITECT, under Article V or by force majeure, war, rebellion, strikes, epidemics, fires, riots, or acts of the civil or military authorities, the CONTRACTOR shall be granted time extension.

Sometime after the execution of these agreements, two more were entered into by the parties:

1. Letter-agreement dated 24 August 1989 – Project 3 – for the construction of the drivers’ quarters in Project 3; and

2. Agreement dated 7 January 1993 – Tektite Towers – for the concreting works on "GL, 5, 9, & A" (ground floor to the 5th floor) of the Tektite Towers.

Santos signed the letter-agreement on the construction of the drivers’ quarters in Project 3,1 while both he and Abcede signed the letter-agreement on the concreting works on GL, 5, 9, and A, and also of Project 3.2

In order to jump-start the construction operations, LCDC was required to submit a performance bond as provided for in the construction agreements. As stated in these agreements, as soon as PRHC received the performance bond, it would deliver its initial payment to LCDC. The remaining balance was to be paid in monthly progress payments based on actual work completed. In practice, these monthly progress payments were used by LCDC to purchase the materials needed to continue the construction of the remaining parts of the building.

In the course of the construction of the Tektite Building, it became evident to both parties that LCDC would not be able to finish the project within the agreed period. Thus, through its president, LCDC met with Abcede to discuss the cause of the delay. LCDC explained that the unanticipated delay in construction was due mainly to the sudden, unexpected hike in the prices of cement and other construction materials. It claimed that, without a corresponding increase in the fixed prices found in the agreements, it would be impossible for it to finish the construction of the Tektite Building. In their analysis of the project plans for the building and of all the external factors affecting the completion of the project, the parties discovered that even if LCDC were able to collect the entire balance from the contract, the collected amount would still be insufficient to purchase all the materials needed to complete the construction of the building.

Both parties agreed that their foremost objective should be to ensure that the Tektite Building project would be completed. To achieve this goal, they entered into another agreement. Abcede asked LCDC to advance the amount necessary to complete construction. Its president acceded, on the absolute condition that it be allowed to escalate the contract price. It wanted PRHC to allow the escalation and to disregard the prohibition contained in Article VII of the agreements. Abcede replied that he would take this matter up with the board of directors of PRHC.

The board of directors turned down the request for an escalation agreement.3 Neither PRHC nor Abcede gave notice to LCDC of the alleged denial of the proposal. However, on 9 August 1991 Abcede sent a formal letter to LCDC, asking for its conformity, to the effect that should it infuse P36 million into the project, a contract price escalation for the same amount would be granted in its favor by PRHC.4

This letter was signed by Abcede above the title "Construction Manager," as well as by LCDC.5 A plain reading of the letter-agreement will reveal that the blank above the words "PHIL. REALTY & HOLDINGS CORP." was never signed,6 viz:

Very truly yours,

(Signed)_______________________DENNIS A. ABCEDEConstruction Manager

C O N F O R M E :

(Signed)_______________________LEY CONST. & DEV. CORP.

APPROVED & ACCEPTED :

_______________________PHIL. REALTY & HOLDINGS CORP.

Notwithstanding the absence of a signature above PRHC’s name, LCDC proceeded with the construction of the Tektite Building, expending the entire amount necessary to complete the project. From August to December 1991, it infused amounts totaling P 38,248,463.92. These amounts were not deposited into the joint account of LCDC and PRHC, but paid directly to the suppliers upon the instruction of Santos.7

LCDC religiously submitted to PRHC monthly reports8 that contained the amounts of infusion it made from the period August 1991 to December 1991. These monthly reports all had the following heading:

. . .           . . .          . . .

MR. JOSELITO L. SANTOSVICE PRESIDENT OPERATIONPHIL. REALTY & HOLDINGS CORP.4th Floor Quad Alpha Centrum Bldg.125 Pioneer St., Mandaluyong, M.M.

T H R U : D.A. ABCEDE & ASSOCIATES

Construction Managers

SUBJECT : P 36.0M INFUSION-TEKTITE TOWERS PROJECT

From these monthly reports, it can be gleaned that the following were the cash infusions made by LCDC:

Month Amount Date of monthly report

August 1991 PhP 6,724,632.26 15 October 19919

September 1991 PhP 7,326,230.69 7 October 199110

October 1991 PhP 7,756,846.88 7 November 199111

November 1991 PhP 8,553,313.50 7 December 199112

December 1991 PhP 7,887,440.50 9 January 199213

PhP 38,248,463.92

PRHC never replied to any of these monthly reports.

On 20 January 1992, LCDC wrote a letter addressed to Santos stating that it had already complied with its commitment as of 31 December 1991 and was requesting the release of P 2,248,463.92. It attached a 16 January 1992 letter written by D.A. Abcede & Associates, informing PRHC of the total cash infusion made by LCDC to the project, to wit:

in compliance with the commitment of Ley Construction and Dev’t Corp. to infuse P36.00M for the above subject project x x x

x x x we would like to present the total cash infusion by LCDC for the period covering the month of August, 1991 to December 1991 broken down as follows:

. . .           . . .          . . .

T O T A L: P 38,248,463.92

PRHC never replied to this letter.

In another letter dated 7 September 1992, there was a reconciliation of accounts between the two corporations with respect to the balances due for Projects 1, 2, and 3. The reconciliation of accounts resulted in PRHC owing LCDC the sum of P 20,862,546.41, broken down as follows:

Project 1 P 1,783,046.72

Project 2 P 13,550,003.93

Project 3 P 5,529,495.76

P 20,862,546.41

In a letter dated 8 September 1992,14 when 96.43% of Tektite Building had been completed, LCDC requested the release of the P 36 million escalation price. PRHC did not reply, but after the construction of the building was completed, it conveyed its decision in a letter on 7 December 1992.15 That decision was to set off, in the form of liquidated damages, its claim to the supposed liability of LCDC, to wit:

. . .           . . .          . . .

In this regard, please be advised that per owner’s decision; your claim of P 36,000,00.00 adjustment will be applied to the liquidated damages for concreting works computed in the amount of Thirty Nine Million Three Hundred Twenty Six Thousand Eight Hundred Seventeen & 15/100 (P39,326,817.15) as shown in the attached sheet.

Further, the net difference P 3,326,817.15 will also be considered waived as additional consideration.

. . .           . . .          . . .

In a letter dated 18 January 1993, LCDC, through counsel, demanded payment of the agreed escalation price ofP 36 million. In its reply on 16 February 1993, PRHC suddenly denied any liability for the escalation price. In the same letter, it claimed that LCDC had incurred 111 days of delay in the construction of the Tektite Building and demanded that the latter pay P 39,326,817.15 as liquidated damages. This claim was set forth in PRHC’s earlier 7 December 1992 letter.

LCDC countered that there were many times when its requests for time extension – although due to reasonable causes sanctioned by the construction agreement such as power failures, water supply interruption, and scarcity of construction materials – were unreasonably reduced to shorter periods by PRHC. In its letter dated 9 December 1992, LCDC claimed that in a period of over two years, out of the 618 days of extension it requested, only 256 days – or not even half the number of days originally requested – were considered. It further claimed that its president inquired from Abcede and Santos why its requests for extension of time were not granted in full. The two, however, assured him that LCDC would not be penalized with damages for even a single day of delay, because the fact that it was working hard on the Tektite Building project was known to PRHC.16

Thereafter, in a letter dated 18 January 1993, LCDC demanded payment of the agreed total balance for Projects 1, 2, and 3. Through a reply letter dated 16 February 1993, PRHC denied any liability. During the course of the proceedings, both parties conducted another reconciliation of their respective records. The reconciliation showed the following balances in favor of LCDC:

Project 1 P 1,703,955.07

Project 2 P 13,251,152.61

Project 3 P 5,529,495.76

Total: P 20,484,603.44

In addition to the agreed-upon outstanding balance in favor of LCDC, the latter claimed another outstanding balance of P 232,367.96 in its favor for the construction of the drivers’ quarters in Project 3.

It also further claimed the amount of P 7,112,738.82, representing the balance for the concreting works from the ground floor to the fifth floor of the Tektite Building.

Seeking to recover all the above-mentioned amounts, LCDC filed a Complaint with Application for the Issuance of a Writ of Preliminary Attachment on 2 February 1996 before the RTC in Makati City docketed as Civil Case No. 96-160:

WHEREFORE, it is respectfully prayed that:

1. Immediately upon the filing of this Complaint, an order of preliminary attachment be issued over defendant Philrealty’s properties as security for any judgment which plaintiff may recover against said defendant; and

2. After trial, judgment be rendered as follows:

2.1. On the first, second and third alternative causes of action,

(a) Ordering defendant Philrealty to pay plaintiff actual damages in the amount ofP36,000,00.00 with legal interest thereon from the filing of this Complaint until fully paid;

(b) In the alternative, ordering defendants Abcede and Santos to jointly and severally, in the event that they acted without necessary authority, to pay plaintiff actual damages in the amount of P36,000,00.00 with legal interest thereon from the filing of this Complaint until fully paid; and

(c) Ordering defendant Philrealty or defendants Abcede and Santos to pay plaintiff exemplary damages in the amount to be determined by the Honorable Court but not less thanP5,000,000.00

2.2. On the fourth cause of action, ordering defendant Philrealty to pay plaintiff

(a) Actual damages in the amount of P7,112,738.82 with legal interest thereon from the filing of this Complaint until fully paid; and

(b) Exemplary damages in the amount to be determined by the Honorable Court but not less than P1,000,000.00

2.3. On the fifth cause of action, ordering defendant Philrealty to pay plaintiff

(a) Actual damages in the amount of P20,862,546.41 with legal interest thereon from the filing of this Complaint until fully paid; and

(b) Exemplary damages in an amount to be determined by the Honorable Court but not less than P5,000,000.00.

2.4. On the sixth cause of action, ordering defendant Philrealty to pay plaintiff

(a) Actual damages in the amount of P232,367.96 with legal interest thereon from the filing of this Complaint until fully paid; and

(b) Exemplary damages in the amount to be determined by the Honorable Court but not less than P100,000.00

2.5. On the seventh cause of action, ordering defendant Philrealty and/or defendants Abcede and Santos to pay plaintiff attorney’s fees in the amount of P750,000.00 and expenses of litigation in the amount of P50,000.00, plus costs.

Plaintiff prays for such other just and equitable reliefs as may be warranted by the circumstances.

On 23 July 1999, a joint Stipulation of Facts17 was filed by the parties. In the said stipulation, they reconciled their respective claims on the payments made and the balances due for the construction of the Tektite Building project, Project 1, and Project 2. The reconciliation shows that the following amounts are due and/or overpaid:

Due to LCDC Overpaid to LCDC

Tektite Building P4,646,947.35

Project 1 P1,703,955.07

Project 2 P3,251,152.61

P14,955,107.68 P4,646,947.35

Both parties agreed that the only remaining issues to be resolved by the court, with respect to the Tektite Building project and Projects 1 to 3, were as follows:

a) The validity of Ley Construction’s claim that Philrealty had granted the former a contract price escalation for Tektite Tower I in the amount of P36,000,000.00

b) The validity of the claim of Philrealty that the following amounts should be charged to Ley Construction:

Payments/Advances without LCDC’s conformity and recommendation of the Construction Manager, D.A. Abcede & Associates that subject items are LCDC’s account:

a. Esicor, Inc. – waterproofing works Cluster B P1,121,000.00

b. Ideal Marketing, Inc. – waterproofing works at Cluster B, Quadrant 2 P 885,000.00   P2,006,000.00

c) The claim of Philrealty for liquidated damages for delay in completion of the construction as follows:

d) Tektite Tower I - P39,326,817.15

Alexandra Cluster B - 12,785,000.00

Alexandra Cluster C - 1,100,000.00

and

e) The claim of Ley Construction for additional sum of P2,248,463.92 which it allegedly infused for the Tektite Tower I project over and above the original P36,000,000.00 it had allegedly bound itself to infuse.18

On 31 January 2001, the RTC promulgated its Decision. LCDC filed a Motion for Partial Reconsideration, which was granted.

It must be noted that in the Stipulation of Facts, the parties had jointly agreed that the P7,112,738.82 unpaid account in the concreting of Tektite Building would no longer be included in the list of claims submitted to the RTC for decision. Nonetheless, this amount was still included as an award in the trial court’s 7 May 2001 amended Decision, the dispositive portion of which provides:

WHEREFORE, premises considered, judgment is hereby rendered:

A. Dismissing the counter-claim of defendant DENNIS ABCEDE and the cross-claim of defendant JOSELITO SANTOS; and

B. Ordering defendant PHILIPPINE REALTY AND HOLDING CORPORATION to pay plaintiff LEY CONSTRUCTION AND DEVELOPMENT CORPORATION:

1. P33,601,316.17, for the Tektite Tower I Project with legal interest thereon from date of the filing of the complaint until fully paid;

2. P13,251,152.61 for Alexandra Cluster B with legal interest thereon from date of the filing of the complaint until fully paid;

3. P1,703,955.07 for Alexandra Cluster C with legal interest thereon from date of the filing of the complaint until fully paid;

4. P7,112,738.82 in actual damages for the concreting works of Tektite Tower I, with legal interest thereon from the date of the filing of the complaint until fully paid;

5. P5,529,495.76 in actual damages for the construction of Alexandra Cluster E, with legal interest thereon from the date of the filing of the complaint until fully paid;

6. P232,367.96 in actual damages for the construction of the driver’s quarters of Alexandra Cluster E, with legal interest thereon from the date of the filing of the complaint until fully paid;

7. P750,000.00 for attorney’s fees and expenses of litigation; and

8. Costs.

SO ORDERED.19

PRHC filed a Notice of Appeal on 14 June 2001. The Court of Appeals, in CA-G.R. CV No. 71293,20 reversed the lower court’s amended Decision on 30 September 2004 and ruled thus:

WHEREFORE, premises considered, the assailed January 31, 2001 decision and the May 7, 2001 amended decision are hereby REVERSED and SET ASIDE and a new one is entered:

I. FINDING plaintiff-appellee LCDC LIABLE to defendant-appellant PRHC in the amount of Sixty million Four Hundred Sixty Four (Thousand) Seven Hundred Sixty Four 90/100 (P60,464,764.90) PESOS detailed as follows:

[1] P39,326,817.15 liquidated damages pursuant to contract for delay incurred by plaintiff-appellee LCDC in the construction of Tektite Tower Phase I, the length of delay having been signed and confirmed by LCDC;

[2] P12,785,000.00 liquidated damages pursuant to contract for delay incurred by plaintiff-appellee LCDC in the construction of Alexandra Cluster B, the length of delay having been signed and confirmed by LCDC;

[3] P1,700,000.00 liquidated damages pursuant to contract for delay incurred by plaintiff appellee LCDC in the construction of Alexandra Cluster C, the length of delay having been confirmed by LCDC;

[4] P4,646,947.75 overpayment by defendant-appellant PRHC to plaintiff-appellee LCDC for the Tektite Tower Phase I Project;

[5] P1,121,000.00 expenses incurred by defendant-appellant PRHC for corrective works to redo/repair allegedly defective Waterproofing construction work or plaintiff-appellee LCDC in the Alexander Cluster B Project which was paid by defendant-appellant PRHC to contractor Escritor, Inc.;

[6] P885,000.00 expenses incurred by defendant-appellant PRHC for corrective works to redo/repair allegedly defective Waterproofing construction work of plaintiff-appellee LCDC at the Alexandra Cluster B

Quadrant in the Alexander Cluster B Project which was paid by defendant-appellant PRHC to contractor Ideal Marketing Inc., and consideration.

. . .           . . .          . . .

In a letter dated 18 January 1993, LCDC, through counsel, demanded payment of the agreed escalation price ofP 36 million. In its reply on 16 February 1993, PRHC suddenly denied any liability for the escalation price. In the same letter, it claimed that LCDC had incurred 111 days of delay in the construction of the Tektite Building and demanded that the latter pay P 39,326,817.15 as liquidated damages. This claim was set forth in PRHC’s earlier 7 December 1992 letter.

LCDC countered that there were many times when its requests for time extension – although due to reasonable causes sanctioned by the construction agreement such as power failures, water supply interruption, and scarcity of construction materials – were unreasonably reduced to shorter periods by PRHC. In its letter dated 9 December 1992, LCDC claimed that in a period of over two years, out of the 618 days of extension it requested, only 256 days – or not even half the number of days originally requested – were considered. It further claimed that its president inquired from Abcede and Santos why its requests for extension of time were not granted in full. The two, however, assured him that LCDC would not be penalized with damages for even a single day of delay, because the fact that it was working hard on the Tektite Building project was known to PRHC.16

Thereafter, in a letter dated 18 January 1993, LCDC demanded payment of the agreed total balance for Projects 1, 2, and 3. Through a reply letter dated 16 February 1993, PRHC denied any liability. During the course of the proceedings, both parties conducted another reconciliation of their respective records. The reconciliation showed the following balances in favor of LCDC:

Project 1 P 1,703,955.07

Project 2 P 13,251,152.61

Project 3 P 5,529,495.76

Total: P 20,484,603.44

In addition to the agreed-upon outstanding balance in favor of LCDC, the latter claimed another outstanding balance of P 232,367.96 in its favor for the construction of the drivers’ quarters in Project 3.

It also further claimed the amount of P 7,112,738.82, representing the balance for the concreting works from the ground floor to the fifth floor of the Tektite Building.

Seeking to recover all the above-mentioned amounts, LCDC filed a Complaint with Application for the Issuance of a Writ of Preliminary Attachment on 2 February 1996 before the RTC in Makati City docketed as Civil Case No. 96-160:

WHEREFORE, it is respectfully prayed that:

1. Immediately upon the filing of this Complaint, an order of preliminary attachment be issued over defendant Philrealty’s properties as security for any judgment which plaintiff may recover against said defendant; and

2. After trial, judgment be rendered as follows:

2.1. On the first, second and third alternative causes of action,

(a) Ordering defendant Philrealty to pay plaintiff actual damages in the amount ofP36,000,00.00 with legal interest thereon from the filing of this Complaint until fully paid;

(b) In the alternative, ordering defendants Abcede and Santos to jointly and severally, in the event that they acted without necessary authority, to pay plaintiff actual damages in the amount of P36,000,00.00 with legal interest thereon from the filing of this Complaint until fully paid; and

(c) Ordering defendant Philrealty or defendants Abcede and Santos to pay plaintiff exemplary damages in the amount to be determined by the Honorable Court but not less thanP5,000,000.00

2.2. On the fourth cause of action, ordering defendant Philrealty to pay plaintiff

(a) Actual damages in the amount of P7,112,738.82 with legal interest thereon from the filing of this Complaint until fully paid; and

(b) Exemplary damages in the amount to be determined by the Honorable Court but not less than P1,000,000.00

2.3. On the fifth cause of action, ordering defendant Philrealty to pay plaintiff

(a) Actual damages in the amount of P20,862,546.41 with legal interest thereon from the filing of this Complaint until fully paid; and

(b) Exemplary damages in an amount to be determined by the Honorable Court but not less than P5,000,000.00.

2.4. On the sixth cause of action, ordering defendant Philrealty to pay plaintiff

(a) Actual damages in the amount of P232,367.96 with legal interest thereon from the filing of this Complaint until fully paid; and

(b) Exemplary damages in the amount to be determined by the Honorable Court but not less than P100,000.00

2.5. On the seventh cause of action, ordering defendant Philrealty and/or defendants Abcede and Santos to pay plaintiff attorney’s fees in the amount of P750,000.00 and expenses of litigation in the amount of P50,000.00, plus costs.

Plaintiff prays for such other just and equitable reliefs as may be warranted by the circumstances.

On 23 July 1999, a joint Stipulation of Facts17 was filed by the parties. In the said stipulation, they reconciled their respective claims on the payments made and the balances due for the construction of the Tektite Building project, Project 1, and Project 2. The reconciliation shows that the following amounts are due and/or overpaid:

Due to LCDC Overpaid to LCDC

Tektite Building P4,646,947.35

Project 1 P1,703,955.07

Project 2 P3,251,152.61

P14,955,107.68 P4,646,947.35

Both parties agreed that the only remaining issues to be resolved by the court, with respect to the Tektite Building project and Projects 1 to 3, were as follows:

a) The validity of Ley Construction’s claim that Philrealty had granted the former a contract price escalation for Tektite Tower I in the amount of P36,000,000.00

b) The validity of the claim of Philrealty that the following amounts should be charged to Ley Construction:

Payments/Advances without LCDC’s conformity and recommendation of the Construction Manager, D.A. Abcede & Associates that subject items are LCDC’s account:

a. Esicor, Inc. – waterproofing works Cluster B P1,121,000.00

b. Ideal Marketing, Inc. – waterproofing works at Cluster B, Quadrant 2 P 885,000.00   P2,006,000.00

c) The claim of Philrealty for liquidated damages for delay in completion of the construction as follows:

d) Tektite Tower I - P39,326,817.15

Alexandra Cluster B - 12,785,000.00

Alexandra Cluster C - 1,100,000.00

and

e) The claim of Ley Construction for additional sum of P2,248,463.92 which it allegedly infused for the Tektite Tower I project over and above the original P36,000,000.00 it had allegedly bound itself to infuse.18

On 31 January 2001, the RTC promulgated its Decision. LCDC filed a Motion for Partial Reconsideration, which was granted.

It must be noted that in the Stipulation of Facts, the parties had jointly agreed that the P7,112,738.82 unpaid account in the concreting of Tektite Building would no longer be included in the list of claims submitted to the RTC for decision. Nonetheless, this amount was still included as an award in the trial court’s 7 May 2001 amended Decision, the dispositive portion of which provides:

WHEREFORE, premises considered, judgment is hereby rendered:

A. Dismissing the counter-claim of defendant DENNIS ABCEDE and the cross-claim of defendant JOSELITO SANTOS; and

B. Ordering defendant PHILIPPINE REALTY AND HOLDING CORPORATION to pay plaintiff LEY CONSTRUCTION AND DEVELOPMENT CORPORATION:

1. P33,601,316.17, for the Tektite Tower I Project with legal interest thereon from date of the filing of the complaint until fully paid;

2. P13,251,152.61 for Alexandra Cluster B with legal interest thereon from date of the filing of the complaint until fully paid;

3. P1,703,955.07 for Alexandra Cluster C with legal interest thereon from date of the filing of the complaint until fully paid;

4. P7,112,738.82 in actual damages for the concreting works of Tektite Tower I, with legal interest thereon from the date of the filing of the complaint until fully paid;

5. P5,529,495.76 in actual damages for the construction of Alexandra Cluster E, with legal interest thereon from the date of the filing of the complaint until fully paid;

6. P232,367.96 in actual damages for the construction of the driver’s quarters of Alexandra Cluster E, with legal interest thereon from the date of the filing of the complaint until fully paid;

7. P750,000.00 for attorney’s fees and expenses of litigation; and

8. Costs.

SO ORDERED.19

PRHC filed a Notice of Appeal on 14 June 2001. The Court of Appeals, in CA-G.R. CV No. 71293,20 reversed the lower court’s amended Decision on 30 September 2004 and ruled thus:

WHEREFORE, premises considered, the assailed January 31, 2001 decision and the May 7, 2001 amended decision are hereby REVERSED and SET ASIDE and a new one is entered:

I. FINDING plaintiff-appellee LCDC LIABLE to defendant-appellant PRHC in the amount of Sixty million Four Hundred Sixty Four (Thousand) Seven Hundred Sixty Four 90/100 (P60,464,764.90) PESOS detailed as follows:

[1] P39,326,817.15 liquidated damages pursuant to contract for delay incurred by plaintiff-appellee LCDC in the construction of Tektite Tower Phase I, the length of delay having been signed and confirmed by LCDC;

[2] P12,785,000.00 liquidated damages pursuant to contract for delay incurred by plaintiff-appellee LCDC in the construction of Alexandra Cluster B, the length of delay having been signed and confirmed by LCDC;

[3] P1,700,000.00 liquidated damages pursuant to contract for delay incurred by plaintiff appellee LCDC in the construction of Alexandra Cluster C, the length of delay having been confirmed by LCDC;

[4] P4,646,947.75 overpayment by defendant-appellant PRHC to plaintiff-appellee LCDC for the Tektite Tower Phase I Project;

[5] P1,121,000.00 expenses incurred by defendant-appellant PRHC for corrective works to redo/repair allegedly defective Waterproofing construction work or plaintiff-appellee LCDC in the Alexander Cluster B Project which was paid by defendant-appellant PRHC to contractor Escritor, Inc.;

[6] P885,000.00 expenses incurred by defendant-appellant PRHC for corrective works to redo/repair allegedly defective Waterproofing construction work of plaintiff-appellee LCDC at the Alexandra Cluster B Quadrant in the Alexander Cluster B Project which was paid by defendant-appellant PRHC to contractor Ideal Marketing Inc., and

II. FINDING defendant-appellant PRHC LIABLE to plaintiff-appellee LCDC in the amount of Fifty Six million Seven Hundred Sixteen Thousand Nine Hundred Seventy One 40/100 (P56,716,971.40) detailed as follows:

In Yao Ka Sin Trading v. Court of Appeals, et al,.43 this Court discussed the applicable rules on the doctrine of apparent authority, to wit:

The rule is of course settled that "[a]lthough an officer or agent acts without, or in excess of, his actual authority if he acts within the scope of an apparent authority with which the corporation has clothed him by holding him out or permitting him to appear as having such authority, the corporation is bound thereby in favor of a person who deals with him in good faith in reliance on such apparent authority, as where an officer is allowed to exercise a particular authority with respect to the business, or a particular branch of it, continuously and publicly, for a considerable time." Also, "if a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will be estopped to deny that such apparent authority is real, as to innocent third persons dealing in good faith with such officers or agents." 44

In People’s Aircargo and Warehousing Co. Inc. v. Court of Appeals, et al.,45 we held that apparent authority is derived not merely from practice:

Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers.

We rule that Santos and Abcede held themselves out as possessing the authority to act, negotiate and sign documents on behalf of PRHC; and that PRHC sanctioned these acts. It would be the height of incongruity to now allow PRHC to deny the extent of the authority with which it had clothed both individuals. We find that Abcede’s role as construction manager, with regard to the construction projects, was akin to that of a general manager with regard to the general operations of the corporation he or she is representing.

Consequently, the escalation agreement entered into by LCDC and Abcede is a valid agreement that PRHC is obligated to comply with. This escalation agreement – whether written or verbal – has lifted, through novation, the prohibition contained in the Tektite Building Agreement.

In order for novation to take place, the concurrence of the following requisites is indispensable:

1. There must be a previous valid obligation.

2. The parties concerned must agree to a new contract.

3. The old contract must be extinguished.

4. There must be a valid new contract.46

All the aforementioned requisites are present in this case. The obligation of both parties not to increase the contract price in the Tektite Building Agreement was extinguished, and a new obligation increasing the old contract price by P 36 million was created by the parties to take its place.

What makes this Court believe that it is incorrect to allow PRHC to escape liability for the escalation price is the fact that LCDC was never informed of the board of directors’ supposed non-approval of the escalation agreement until it was too late. Instead, PRHC, for its own benefit, waited for the former to finish infusing the entire amount into the construction of the building before informing it that the said agreement had never been approved by the board of directors. LCDC diligently informed PRHC each month of the partial amounts the former infused into the project. PRHC must be deemed estopped from denying the existence of the escalation agreement for having allowed LCDC to continue infusing additional money spending for its own project, when it could have promptly notified LCDC of the alleged disapproval of the proposed escalation price by its board of directors.

Estoppel is an equitable principle rooted in natural justice; it is meant to prevent persons from going back on their own acts and representations, to the prejudice of others who have relied on them.47 Article 1431 of the Civil Code provides:

Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.

Article 1431 is reflected in Rule 131, Section 2 (a) of the Rules of Court, viz.:

Sec. 2. Conclusive presumptions. — The following are instances of conclusive presumptions:

(a) Whenever a party has by his own declaration, act or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act or omission be permitted to falsify it.

This Court has identified the elements of estoppel as:

[F]irst, the actor who usually must have knowledge, notice or suspicion of the true facts, communicates something to another in a misleading way, either by words, conduct or silence; second, the other in fact relies, and relies reasonably or justifiably, upon that communication; third, the other would be harmed materially if the actor is later permitted to assert any claim inconsistent with his earlier conduct; and fourth, the actor knows, expects or foresees that the other would act upon the information given or that a reasonable person in the actor's position would expect or foresee such action.48

This liability of PRHC, however, has a ceiling. The escalation agreement entered into was for P 36 million—the maximum amount that LCDC contracted itself to infuse and that PRHC agreed to reimburse. Thus, the Court of Appeals was correct in ruling that the P 2,248,463.92 infused by LCDC over and above the P 36 million should be for its account, since PRHC never agreed to pay anything beyond the latter amount. While PRHC benefited from this excess infusion, this did not result in its unjust enrichment, as defined by law.

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."49 Under Art. 22 of the Civil Code, there is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another.50 The term is further defined thus:

Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request.51

In order for an unjust enrichment claim to prosper, one must not only prove that the other party benefited from one’s efforts or the obligations of others; it must also be shown that the other party was unjustly enriched in the sense that the term "unjustly" could mean "illegally" or "unlawfully."52 LCDC was aware that the escalation agreement was limited to P36 million. It is not entitled to remuneration of the excess, since it did not confer this benefit by mistake, fraud, coercion, or request. Rather, it voluntarily infused the excess amount with full knowledge that PRHC had no obligation to reimburse it.

Parenthetically, we note that the CA had ruled that the 7 December 1992 letter demonstrates that PRHC treated the P 36 million as a loan deductible from the liquidated damages for which LCDC is supposedly liable.53 It ruled that when PRHC informed LCDC that it would apply the P 36 million to the liquidated damages, PRHC, in effect, acknowledged that it was in debt to LCDC in the amount of P 36 million, and that forms the basis for PRHC’s liability to LCDC for the said amount.

We disagree with this analysis.

In a contract of loan, ownership of the money is transferred from the lender to the borrower.54 In this case, ownership of the P 36 million was never transferred to PRHC. As previously mentioned, such amount was paid directly to the suppliers.55 We find that arrangement between PRHC and LCDC cannot be construed as a loan agreement but rather, it was an agreement to advance the costs of construction. In Liwanag v. Court of Appeals et al., we state:

Neither can the transaction be considered a loan, since in a contract of loan once the money is received by the debtor, ownership over the same is transferred. Being the owner, the borrower can dispose of it for whatever purpose he may deem proper. In the instant petition, however, it is evident that Liwanag could not dispose of the money as she pleased because it was only delivered to her for a single purpose, namely, for the purchase of cigarettes, and if this was not possible then to return the money to Rosales.

LCDC is not liable for liquidated damages for delay in the construction of the buildings for PRHC.

There is no question that LCDC was not able to fully construct the Tektite Building and Projects 1, 2, and 3 on time. It reasons that it should not be made liable for liquidated damages, because its rightful and reasonable requests for time extension were denied by PRHC.56

It is important to note that PRHC does not question the veracity of the factual representations of LCDC to justify the latter’s requests for extension of time. It insists, however, that in any event LCDC agreed to the limits of the time extensions it granted.57

The practice of the parties is that each time LCDC requests for more time, an extension agreement is executed and signed by both parties to indicate their joint approval of the number of days of extension agreed upon.

The applicable provision in the parties’ agreements is as follows:

ARTICLE VII – TIME OF COMPLETION

. . .           . . .          . . .

Should the work be delayed by any act or omission of the OWNER or any other person employed by or contracted by the OWNER in the project, including days in the delivery or (sic) materials furnished by the OWNER or others, or by any appreciable additions or alterations in the work ordered by the OWNER or the ARCHITECT, under Article V or by force majeure, war, rebellion, strikes, epidemics, fires, riots, or acts of the civil or military authorities, the CONTRACTOR shall be granted time extension.

In case the CONTRACTOR encounters any justifiable cause or reason for delay, the CONTRACTOR shall within ten (10) days, after encountering such cause of delay submit to the OWNER in writing a written request for time extension indicating therein the requested contract time extension. Failure by the CONTRACTOR to comply with this requirements (sic) will be adequate reason for the OWNER not to grant the time extension. 1avvphi1

The following table shows the dates of LCDC’s letter-requests, the supposed causes justifying them, the number of days requested, and the number of days granted by PRHC and supposedly conformed to by LCDC:

1avvphi1

Cause # of days requested# of days granted

1 Mar 1990Due to additional works and shortage of supplies and

cement30 11

14 Apr 1990 Shortage of cement supply 18 6

10 May 1990 Frequent power failures 10 2

9 Jul 1990Bad weather which endangered the lives of the construction

workers ("heavy winds")10 2

4 Sep 1990Inclement weather that endangered the lives of the

construction workers10 3

28 Feb 1991Architectural and structural revisions of R.C. beams at the

8th floor level20 8

28 Aug 1991For change order work and revisions in the plans initiated by the architect and Abcede’s delay in giving the revised

plans to contractor271 136

2 Sep 1991 Inclement weather and scarcity of cement 25 17

13 Oct 1991Water supply interruption and power failures preventing the

mixing of cement15 6

5 Dec 1991Typhoon Uring and water supply interruption (typhoon Uring alone caused a delay for more than 10 days due to strong

and continuous rains)15 2

2 Apr 1992Inadequate supply of Portland cement and frequent power

failures15 12

5 May 1992 Inadequate supply of cement and frequent power failures 17 12

456 217

additions and alterations in the work ordered by the owner and architect

108 20

564 237

As previously mentioned, LCDC sent a 9 December 1992 letter to PRHC claiming that, in a period of over two years, only 256 out of the 618 days of extension requested were considered. We disregard these numbers presented by LCDC because of its failure to present evidence to prove its allegation. The tally that we will accept—as reflected by the evidence submitted to the lower court—is as follows: out of the 564 days requested, only 237 were considered.

Essentially the same aforementioned reasons or causes are presented by LCDC as defense against liability for both Projects 1 and 2.58 In this regard, the CA ruled:

Plaintiff-appellee’s allegation that determination by PHRC of extensions of time were unreasonable or arbitrary is untenable in the light of express provisions of the Construction Agreements which prescribed precise procedures for extensions of time. In fact the procedure is fool-proof because both OWNER and CONTRACTOR sign to indicate approval of the number of days of extension. Computation of the penalty becomes mechanical after that. Each extension as signed by the parties is a contract by itself and has the force of law between them.

In fact, the parties followed that prescribed procedure strictly – the CONTRACTOR first requested the OWNER to approve the number of days applied for as extension of time to finish the particular project and the OWNER will counter-offer by approving only a lower number of days extension of time for CONTRACTOR to finish the contract as recommended by the CONSTRUCTION MANAGER ABCEDE, and in the end, both CONTRACTOR and OWNER sign jointly the approved number of days agreed upon. That signed extension of time is taken to be the contract between the parties.59

The appellate court further ruled that each signed extension is a separate contract that becomes the law between the parties:60

there is nothing arbitrary or unreasonable about the number of days extension of time because each extension is a meeting of the minds between the parties, each under joint signature OWNER and CONTRACTOR witnessed by the CONSTRUCTION MANAGER.61

Inasmuch as LCDC’s claimed exemption from liability are beyond the approved time extensions, LCDC, according to the majority of the CA, is liable therefor.

Justice Juan Q. Enriquez, in his Dissenting Opinion, held that the reasons submitted by LCDC fell under the definition of force majeure.62 This specific point was not refuted by the majority.

We agree with Justice Enriquez on this point and thereby disagree with the majority ruling of the CA.

Article 1174 of the Civil Code provides: "Except in cases expressly specified by the law, or when it is otherwise declared by stipulation or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable." A perusal of the construction agreements shows that the parties never agreed to make LCDC liable even in cases of force majeure. Neither was the assumption of risk required. Thus, in the occurrence of events that could not be foreseen, or though foreseen were inevitable, neither party should be held responsible.

Under Article 1174 of the Civil Code, to exempt the obligor from liability for a breach of an obligation due to an "act of God" or force majeure, the following must concur:

(a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor.63

The shortage in supplies and cement may be characterized as force majeure.64 In the present case, hardware stores did not have enough cement available in their supplies or stocks at the time of the construction in the 1990s. Likewise, typhoons, power failures and interruptions of water supply all clearly fall under force majeure. Since LCDC could not possibly continue constructing the building under the circumstances prevailing, it cannot be held liable for any delay that resulted from the causes aforementioned.

Further, PRHC is barred by the doctrine of promissory estoppel from denying that it agreed, and even promised, to hold LCDC free and clear of any liquidated damages. Abcede and Santos also promised that the latter corporation would not be held liable for liquidated damages even for a single day of delay despite the non-approval of the requests for extension.65 Mr. Ley testified to this fact as follows:

Q: So, Mr. Witness in all those requests for extension and whenever the D.A. Abcede & Associates did not grant you the actual number of days stated in your requests for extension, what did Ley construction and Development do, if any?

A: We talked to Dennis Abcede and Mr. Santos, Ma’am.

Q: And what did you tell them?

A: I will tell them why did you not grant the extension for us, Ma’am.

Q: What was the response of Mr. Abcede and Mr. Santos?

A: Mr. Abcede and Mr. Santos told me, Mr. Ley don’t worry, you will not be liquidated of any single day for this because we can see that you worked so hard for this project, Ma’am.

Q: And what did you do after you were given that response of Mr. Abcede and Mr. Santos?

A: They told me you just relax and finish the project, and we will pay you up to the last centavos, Ma’am.

Q: What did you do after taking that statement or assurance?

A: As gentleman’s agreement I just continued working without complaining anymore, Ma’am.66

The above testimony is uncontradicted. Even assuming that all the reasons LCDC presented do not qualify as fortuitous events, as contemplated by law, this Court finds that PRHC is estopped from denying that it had granted a waiver of the liquidated damages the latter corporation may collect from the former due to a delay in the construction of any of the buildings.

Courts may rule on causes of action not included in the Complaint, as long as these have been proven during trial without the objection of the opposing party.

PRHC argues that since the parties had already limited the issues to those reflected in their joint stipulation of facts, neither the trial court nor the appellate court has the authority to rule upon issues not included therein. Thus it was wrong for the trial court and the CA to have awarded the amounts of P 5,529,495.76 representing the remaining balance for Project 3 as well as for the P 232,367.96 representing the balance for the construction of the drivers’ quarters in Project 3. PRHC claims that in the Stipulation of Facts, all the issues regarding Project 3 were already made part of the computation of the balances for the other projects. It thus argues that the computation for the Tektite Building showed that the overpayment for Project 3 in the amount of P 9,531,181.80 was credited as payment for the Tektite Tower Project.67 It reasons that, considering that it actually made an overpayment for Project 3, it should not be made liable for the remaining balances for Project 3 and the drivers’ quarters in Project 3.68 It is LCDC’s position, however, that the Stipulation of Facts covers the balances due only for the Tektite Tower Project, Project 1, and Project 2.69 Since Project 3 was not included in the reconciliation contained in the said stipulation, it maintains that the balance for Project 3 remains at P 5,529,495.76,70 and that the balance for the construction of the drivers’ quarters in Project 3 remains at P 232,367.96.

On its part, LCDC disputes the deletion by the CA of the lower court’s grant of the alleged P 7,112,738.82 unpaid balance for the concreting works in the Tektite Building. The CA had ruled that this cause of action was withdrawn by the parties when they did not include it in their Joint Stipulation of Facts. LCDC argues that to the contrary, the silence of the Stipulation of Facts on this matter proves that the claim still stands.71

Considering that the unpaid balances for Project 3, its driver’s quarters, and the concreting works in the Tektite Building were not covered by the Stipulation of Facts entered into by the parties, we rule that no judicial admission could have been made by LCDC regarding any issue involving the unpaid balances for those pieces of work.

We affirm in this case the doctrine that courts may rule or decide on matters that, although not submitted as issues, were proven during trial. The admission of evidence, presented to support an allegation not submitted as an issue, should be objected to at the time of its presentation by the party to be affected thereby; otherwise, the court may admit the evidence, and the fact that such evidence seeks to prove a matter not included or presented as an issue in the pleadings submitted becomes irrelevant, because of the failure of the appropriate party to object to the presentation.

No objection was raised when LCDC presented evidence to prove the outstanding balances for Project 3, its driver’s quarters, and the concreting works in the Tektite Building.

In Phil. Export and Foreign Loan Guarantee Corp. v. Phil. Infrastructures, et al.,72 this Court held:

It is settled that even if the complaint be defective, but the parties go to trial thereon, and the plaintiff, without objection, introduces sufficient evidence to constitute the particular cause of action which it intended to allege in the original complaint, and the defendant voluntarily produces witnesses to meet the cause of action thus established, an issue is joined as fully and as effectively as if it had been previously joined by the most perfect pleadings. Likewise, when issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings.

Considering the absence of timely and appropriate objections, the trial court did not err in admitting evidence of the unpaid balances for Project 3, its driver’s quarters, and the concreting works in the Tektite Building. Furthermore, both the lower and the appellate courts found that the supporting evidence presented by LCDC were sufficient to prove that the claimed amounts were due, but that they remained unpaid.

LCDC should be held liable for the corrective works to redo or repair the defective waterproofing in Project 2.

The waterproofing of Project 2 was not undertaken by LCDC. Instead, Vulchem Corporation (Vulchem), which was recommended by Santos and Abcede, was hired for that task. Vulchem’s waterproofing turned out to be defective. In order to correct or repair the defective waterproofing, PRHC had to contract the services of another corporation, which charged it P2,006,000.

Denying liability by alleging that PRHC forced it into hiring Vulchem Corporation for the waterproofing works in Project 2, LCDC argues that under Article 1892, an agent is responsible for the acts of the substitute if he was given the power to appoint a substitute. Conversely, if it is the principal and not the agent who appointed the substitute, the agent bears no responsibility for the acts of the sub-agent.73 The provision reads:

"Art. 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall be responsible for the acts of the substitute:

(1) When he was not given the power to appoint one;

(2) When he was given such power, but without designating the person, and the person appointed was notoriously incompetent or insolvent."

LCDC argues that because PRHC, as the principal, had designated Vulchem as sub-agent, LCDC, as the agent, should not be made responsible for the acts of the substitute, even in the instance where the latter were notoriously incompetent.74

LCDC’s reliance on Art. 1892 is misplaced. The principles of agency are not to be applied to this case, since the legal relationship between PRHC and LCDC was not one of agency, but was rather that between the owner of the project and an independent contractor under a contract of service. Thus, it is the agreement between the parties and not the Civil Code provisions on agency that should be applied to resolve this issue.

Art. XIV of the Project 2 Agreement clearly states that if the contractor sublets any part of the agreement to a third party, who in effect becomes a sub-contractor, the losses or expenses that result from the acts/inactions of the sub-contractor should be for the contractor’s account, to wit:

ARTICLE XIV – ASSIGNMENT

This Agreement, and/or any of the payments to be due hereunder shall not be assigned in whole or in part by the CONTRACTOR nor shall any part of the works be sublet by CONTRACTOR without the prior written consent of OWNER, and such consent shall not relieve the CONTRACTOR from full responsibility and liability for the works hereunder shall not be granted in any event until CONTRACTOR has furnished OWNER with satisfactory evidence that the Sub-Contractor is carrying ample insurance to the same extent and in the same manner as herein provided to be furnished by CONTRACTOR. If the agreement is assigned or any part thereof is sublet, CONTRACTOR shall exonerate, indemnify and save harmless the OWNER from and against any and all losses or expenses caused thereby.75

LCDC had every right to reject Vulchem as sub-contractor for the waterproofing work of Project 2 but it did not do so and proceeded to hire the latter. It is not unusual for project owners to recommend sub-contractors, and such recommendations do not diminish the liability of contractors in the presence of an Article XIV-type clause in the construction agreement. The failure of LCDC to ensure that the work of its sub-contractor is satisfactory makes it liable for the expenses PRHC incurred in order to correct the defective works of the sub-contractor. The CA did not err in ruling that the contract itself gave PRHC the authority to recover the expenses for the "re-do" works arising from the defective work of Vulchem.76

LCDC is entitled to attorney’s fees and the expenses of litigation and costs.

According to the CA, LCDC was not entitled to attorney’s fees, because it was not the aggrieved party, but was the one that violated the terms of the construction agreements and should thus be made to pay costs.77 LCDC claims, on the other hand, that the CA seriously erred in deleting the lower court’s award of P750,000 attorney’s fees and the expenses of litigation in its favor, since this award is justified under the law.78 To support its claim, LCDC cites Article 2208(5), which provides:

ART. 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other than judicial costs, cannot be recovered, except:

. . .           . . .          . . .

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim;

. . .           . . .          . . .

Attorney's fees may be awarded when the act or omission of the defendant compelled the plaintiff to incur expenses to protect the latter’s interest.79 In ABS-CBN Broadcasting Corp. v. CA,80 we held thus:

The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. They are not to be awarded every time a party wins a suit. The power of the court to award attorney's fees under Article 2208 demands factual, legal, and equitable justification. Even when a claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney's fees may not be awarded where no sufficient showing of bad faith could be reflected in a party's persistence in a case other than an erroneous conviction of the righteousness of his cause.

LCDC has failed to establish bad faith on the part of PRHC so as to sustain its position that it is entitled to attorney’s fees. Nevertheless, the CA erred in reversing the lower court’s Decision granting LCDC’s claim for attorney’s fees considering that the construction agreements contain a penal clause that deals with the award of attorney’s fees, as follows:

In the event the OWNER/CONTRACTOR institutes a judicial proceeding in order to enforce any terms or conditions of this Agreement, the CONTRACTOR/OWNER should it be adjudged liable in whole or in part, shall pay the OWNER/CONTRACTOR reasonable attorney’s fees in the amount equivalent to Twenty Percent (20%) of the total amount claimed in addition to all expenses of litigation and costs of the suit.

Equivalent to at least Twenty Percent (20%) of the total amount claimed in addition to all expenses of litigation and costs of the suit.

As long as a stipulation does not contravene the law, morals, and public order, it is binding upon the obligor.81Thus, LCDC is entitled to recover attorney’s fees. Nevertheless, this Court deems it proper to equitably reduce the stipulated amount. Courts have the power to reduce the amount of attorney’s fees when found to be excessive,82viz:

We affirm the equitable reduction in attorney’s fees. These are not an integral part of the cost of borrowing, but arise only when collecting upon the Notes becomes necessary. The purpose of these fees is not to give respondent a larger compensation for the loan than the law already allows, but to protect it against any future loss or damage by being compelled to retain counsel – in-house or not—to institute judicial proceedings for the collection of its credit. Courts have has the power to determine their reasonableness based on quantum meruit and to reduce the amount thereof if excessive.83

We reverse the appellate court’s Decision and reinstate the lower court’s award of attorney’s fees, but reduce the amount from P750,000 to P200,000.

WHEREFORE, we SET ASIDE the Decision of the Court of Appeals and RULE as follows:

I. We find Philippine Realty and Holdings Corporation (PRHC) LIABLE to Ley Construction Development Corporation (LCDC) in the amount of P 64,029,710.22, detailed as follows:

1. P 13,251,152.61 as balance yet unpaid by PRHC for Project 2;

2. P 1,703,955.07 as balance yet unpaid by PRHC for Project 1;

3. P 5,529,495.76 as balance yet unpaid by PRHC for Project 3;

4. P 232,367.96 as balance yet unpaid by PRHC for the drivers’ quarters for Project 3;

5. P 36,000,000.00 as agreed upon in the escalation agreement entered into by PRHC’s representatives and LCDC for the Tektite Building;

6. P 7,112,738.82 as balance yet unpaid by PRHC for the concreting works from the ground floor to the fifth floor of the Tektite Building;

7. P 200,000.00 as LCDC’s reduced attorney’s fees.

II. Further, we find LCDC LIABLE to PRHC in the amount of P 6,652,947.75 detailed as follows:

1. P 4,646,947.75 for the overpayment made by PRHC for the Tektite Building;

2. P 2,006,000.00 for the expenses incurred by PRHC for corrective works to redo/repair the allegedly defective waterproofing construction work done by LCDC in Project 2.

The respective liabilities of the parties as enumerated above are hereby SET OFF against each other, and PRHC is hereby DIRECTED to pay LCDC the net amount due, which is P 57,376,762.47, with legal interest from the date of the filing of Complaint.

SO ORDERED.

G.R. No. 182563, April 11, 2011JOSE MIGUEL ANTON, PETITIONER, VS.SPOUSES ERNESTO OLIVA AND CORAZON OLIVA AS SUBSTITUTED BY HER LEGAL HEIRS, NAMELY: GRAZIELA MARIE COLLANTES, GRETEL ELAINE DING, GLADYS MIRIAM OLIVA, GEOFFREY JOSEPH OLIVA AND GLYNNIS CARMEN CALPOTURA, RESPONDENTS.

ABAD, J.:This case is about the obligation to continue complying with the terms of the agreement despite the court's declaration that no partnership exist between the parties. The Facts and the CaseOn September 9, 2008 respondents Ernesto and Corazon Oliva (the Olivas) filed an action for accounting and specific performance with damages against petitioner spouses Jose Miguel and Gladys Miriam Anton (the Antons) before the Regional Trial Court (RTC) of Quezon City. The Olivas alleged that they entered into three Memoranda of Agreement (MOA) with Gladys Miriam, their daughter, and Jose Miguel, their son-in-law, setting up a business partnership covering three fast food stores, known as "Pinoy Toppings" that were to be established at SM Megamall, SM Cubao, and SM Southmall. Under the MOAs, the Olivas wer,e entitled to 30% share of the net profits of the SM Megamall store and 20% in the cases of SM Cubao and SM Southmall stores. The pertinent portions of the first MOA dated May 2, 1992, covering the SM Megamall store, provides:That the FIRST PARTY shall be considered a partner with a THIRTY PERCENT (30%) share in the above-mentioned outlet to be set up by the SECOND PARTY;

That the proceeds of said business, after deducting the expenses, shall be used to pay the principal amount of £500,000.00 and the interest therein which is to be computed based on the bank rate since the FIRST PARTY secured the above amount through a bank loan; That the net profits, if any, after deducting the expenses and payments of the principal and interest shall be divided in a seventy percent (70%) for the SECOND PARTY and thirty percent (30%) to the FIRST PARTY; That the SECOND PARTY, particularly JOSE MIGUEL ANTON, shall have a free hand in running the above-described business without any interference from his partners, their agents, representatives, or assigns and should such interference happens, the SECOND PARTY has the right to buy back the share of the FIRST PARTY less the amounts already paid on the principal and to dissolve the partnership agreement. In case the above amount together with its corresponding interest had been fully paid and said interference shall take place, the SECOND PARTY shall also be entitled to dissolve the partnership agreement; That the parties agree to strictly comply with the terms and conditions of this agreementThe pertinent terms of the second MOA dated May 6, 1993, covering the SM Cubao store, reads:That the First Party shall be considered a partner with a 20% share in the above-mentioned outlet to be set up by the Second Party; That the proceeds of said business, after deducting the expenses, will be used to pay the principal amount of P240,000.00 and the interest therein which is to be computed based on the RCBC rate; That the net proceeds, if any, after deducting the expenses and payments of the principal and interest shall be divided on an eighty-twenty basis; That the Second Party, particularly JOSE MIGUEL ANTON, shall have a free hand in running the above-described establishment without any interference from his partners. That the Second Party, particularly JOSE MIGUEL ANTON shall submit his monthly sales report in connection with the above-mentioned business to his partners.The pertinent portions of the third MOA dated April 20, 1995, covering the SM Southmall Branch, has essentially the same terms, thus:That the First Party shall be considered a partner with a twenty (20%) percent share in the above-mentioned outlet to be set up by the Second Party; 

That the proceeds of said business, after deducting the expenses, will be used to pay the principal amount of P300,000.00;That the net profits, if any, after deducting the expenses and payments of the principal and interest shall be divided on a eighty-twenty percent; That the Second Party, particularly JOSE MIGUEL ANTON, shall have a free hand in running the above-described business without any interference from his partners; That the Second Party-, particularly JOSE MIGUEL ANTON shall submit his monthly sales report in connection with the above business.The Olivas alleged that while the Antons gave them a total of P2,547,000.00 representing their monthly shares of the net profits from the operations of the SM Megamall and SM Southmall stores, the Antons did not give them their shares of the net profits from the store at SM Cubao. Further, Jose Miguel did not render to them an account of the operations of the three stores. And, beginning November 1997, the Antons altogether stopped giving the Olivas their share in the net profits of the three stores. The Olivas demanded an accounting of partnership funds but, in response, Jose Miguel terminated their partnership agreements. Answering the complaint, Jose Miguel alleged that he and his wife, Gladys Miriam, never partnered with the Olivas in the operations of the three stores. The Antons merely borrowed money from the Olivas to finance the opening of those stores. Gladys Miriam, who managed the operations of the business, remitted to the Olivas the amounts due them even after the loans had been paid. If any accounting was needed, it should orily be for the purpose of ascertaining the correctness the payments made. On Gladys Miriam's part, she affirmed having managed the three stores up until she and Jose Miguel separated. They paid the Olivas in checks, representing their share in the profits of the business. Gladys Miriam filed a case for legal separation against her husband, Jose Miguel, prompting the latter to terminate their business partnership with her parents. On October 17, 2003 the RTC rendered judgment, holding that no partnership relation existed between the Olivas and the Antons but Jose Miguel had an obligation to render an accounting from the start of the business until the termination of their MOAs and, thereafter, pay the Olivas their share of the net profits, if any, plus interests.Jose Miguel appealed the RTC decision to the Court of Appeals (CA) in CA-G.R. CV 85521. On November 22, 2007 the CA rendered a decision, essentially affirming the RTC finding that no partnership existed between the parties. But the CA modified the RTC decision and a) deleted the RTC order that directed the Antons to get an independent accountant, approved by the Olivas, to do an accounting of the operations of the three stores; b) directed the Antons to pay the Olivas the P240,000.00 loan in connection with the third MOA as well as their share in the net profits of the three stores from November 1997 to the present, with legal interest until the same shall have been paid in full; and c) ordered the Antons to furnish the Olivas copies of the monthly sales reports of the stores at SM Southmall and SM Cubao as provided in the May 6, 1993 and April 20, 1995 MOAs, from November 1997 to the present.The Key Issue Presented

The key issue in this case is whether or not the CA erred in holding that, notwithstanding the absence of a partnership between the Olivas and the Antons, the latter have the obligation to pay the former their shares of the net profits of the three stores plus legal interest on those shares until they have been paid. Ruling of the CourtTo begin with, the Court will not disturb the finding of both the RTC and the CA that, based on the terms of the MOAs and the circumstances surrounding its implementation, the relationship between the Olivas and the Antons was one of creditor-debtor, not of partnership. The finding is sound since, although the MOA denominated the Olivas as "partners." the amounts they gave did not appear to be capital contributions to the establishment of the stores. Indeed, the stores had to pay the amounts back with interests. Moreover, the MOAs forbade the Olivas from interfering with the running of the stores. At any rate, none of the parties has made an issue of the common finding of the courts below respecting the nature of their relationship. Petitioner Jose Miguel points out that since the Olivas were not the Antons' partners in the stores, they were not entitled to receive percentage shares of the net profits from the stores' operations. But, as the CA correctly held, although the Olivas were mere creditors, not partners, the Antons agreed to compensate them for the risks they had taken. The Olivas gave the loans with no security and they were to be paid such loans only if the stores made profits. Had the business suffered loses and could not pay what it owed, the Olivas would have ultimately assumed those loses just by themselves. Still there was nothing illegal or immoral about this compensation scheme. Thus, unless the MOAs are subsequently rescinded on valid grounds or the parties mutually terminate them, the same remain valid and enforceable. It did not matter that the Antons had already paid for two of the loans and their interests. Their obligation to share net profits with the Olivas was not extinguished by such payment. Indeed, the Antons paid the Olivas their share of the profits from two stores although the loans corresponding to them had in the meantime been paid. Only after Jose Miguel's marital relation with Gladys Miriam turned sour in November 1997 did he cease to pay the Olivas their shares of the profits.The CA also correctly ruled that, since the Olivas were mere creditors, not partners, they had no right to demand that the Antons make an accounting of the money loaned out to them. Still, the Olivas were entitled to know from the

Antons how much net profits the three stores were making annually since the Olivas were entitled to certain percentages of those profits. Indeed, the third and second MO A directed the Antons to provide the Olivas with copies of the monthly sales reports from the operations of the stores involved, apparently to enable them to know how much were due them. There is no reason why the Antons should not furnish the Olivas copies of similar reports from the operations of the store at SM Megamall, this merely being a consequence of the Antons' obligation to share with the Olivas the net profits from that store.Jose Miguel also complains that the CA had no basis in awarding interest on the third loan covering the establishment of the SM SouthiAall store since the particular MOA did not provide for such interest. But, actually, the interests that the CA awarded to the Olivas referred, not to interests on the loans they gave, but to interest that their unpaid shares of the net profits of the three stores should earn on account of Jose Miguel's unjustified refusal to pay them beginning November 1997.Given that the legal interests that the CA directed the Antons to pay referred to the Olivas' unpaid shares of the net profits of the three stores from November 1997, such interests cannot be regarded as forbearance for money that warrants an interest of 12% per annum. Rather, they were for unjust withholding of the Olivas" shares of the net profits from the Antons' three stores that would warrant an interest of 6% per annum. WHEREFORE, the Court DENIES the petition and AFFIRMS the decision dated November 22, 2007 of the Court of Appeals in CA-G.R. CV 85521 with the following MODIFICATIONS:1. The legal interest that petitioner Jose Miguel Anton shall pay respondent Ernesto Oliva and the substituted heirs of respondent Corazon Oliva on their unpaid shares in the net profits of the "Pinoy Toppings" stores at SM Southmall, SM Megamall, and SM Cubao shall be computed at the rate of 6% per annum; and

2. Petitioner Jose Miguel Anton is to furnish respondent Ernesto Oliva and the substituted legal heirs of respondent Corazon Oliva copies of the monthly sales reports of all three "Pinoy Toppings" stores at SM Southmall, SM Cubao, and SM Megamall from November 1997 until the proper termination of their Memoranda of Agreement dated May 2, 1992, May 6, 1993, and April 20, 1995.SO ORDERED.

G.R. No. 193178               May 30, 2011

PHILIPPINE SAVINGS BANK, Petitioner, vs.SPOUSES ALFREDO M. CASTILLO AND ELIZABETH C. CASTILLO, and SPOUSES ROMEO B. CAPATI and AQUILINA M. LOBO, Respondents.

NACHURA, J.:

This is a petition for review on certiorari1 under Rule 45 of the Rules of Court, seeking to partially reconsider and modify the Decision2 dated August 27, 2009 and the Resolution3 dated August 4, 2010 of the Court of Appeals (CA) in CA-G.R. CV No. 86445.

Respondent spouses Alfredo M. Castillo and Elizabeth Capati-Castillo were the registered owners of a lot located in Tondo, Manila, covered by Transfer Certificate of Title (TCT) No. 233242. Respondent spouses Romeo B. Capati and Aquilina M. Lobo were the registered owners of another lot, covered by TCT No. 227858, also located in Tondo, Manila.

On May 7, 1997, respondents obtained a loan, with real estate mortgage over the said properties, from petitioner Philippine Savings Bank, as evidenced by a Promissory Note with a face value of P2,500,000.00. The Promissory Note, in part, reads:

FOR VALUE RECEIVED, I/We, solidarily, jointly and severally, promise to pay to the order of PHILIPPINE SAVINGS BANK, at its head office or at the above stated Branch the sum of TWO MILLION FIVE HUNDRED THOUSAND PESOS ONLY (P2,500,000.00), Philippine currency, with interest at the rate of seventeen per centum (17%) per annum, from date until paid, as follows:

P43,449.41 (principal and interest) monthly for fifty nine (59) months starting June 07, 1997 and every 7th day of the month thereafter with balloon payment on May 07, 2002.

Also, the rate of interest herein provided shall be subject to review and/or adjustment every ninety (90) days.

All amortizations which are not paid on due date shall bear a penalty equivalent to three percent (3%) of the amount due for every month or fraction of a month’s delay.

The rate of interest and/or bank charges herein stipulated, during the terms of this promissory note, its extensions, renewals or other modifications, may be increased, decreased or otherwise changed from time to time within the

rate of interest and charges allowed under present or future law(s) and/or government regulation(s) as the PHILIPPINE SAVINGS BANK may prescribe for its debtors.

Upon default of payment of any installment and/or interest when due, all other installments and interest remaining unpaid shall immediately become due and payable. Also, said interest not paid when due shall be added to, and become part of the principal and shall likewise bear interest at the same rate herein provided.4

From the release of the loan in May 1997 until December 1999, petitioner had increased and decreased the rate of interest, the highest of which was 29% and the lowest was 15.5% per annum, per the Promissory Note.

Respondents were notified in writing of these changes in the interest rate. They neither gave their confirmation thereto nor did they formally question the changes. However, respondent Alfredo Castillo sent several letters to petitioner requesting for the reduction of the interest rates.5 Petitioner denied these requests.

Respondents regularly paid their amortizations until December 1999, when they defaulted due to financial constraints. Per petitioner’s table of application of payment, respondents’ outstanding balance wasP2,231,798.11.6 Petitioner claimed that as of February 11, 2000, respondents had a total outstanding obligation of P2,525,910.29.7 Petitioner sent them demand letters. Respondents failed to pay.

Thus, petitioner initiated an extrajudicial foreclosure sale of the mortgaged properties. The auction sale was conducted on June 16, 2000, with the properties sold for P2,778,611.27 and awarded to petitioner as the only bidder. Being the mortgagee, petitioner no longer paid the said amount but rather credited it to the loan amortizations and arrears, past due interest, penalty charges, attorney’s fees, all legal fees and expenses incidental to the foreclosure and sale, and partial payment of the mortgaged debt. On even date, a certificate of sale was issued and submitted to the Clerk of Court and to the Ex-Officio Sheriff of Manila.

On July 3, 2000, the certificate of sale, sans the approval of the Executive Judge of the Regional Trial Court (RTC), was registered with the Registry of Deeds of Manila.

Respondents failed to redeem the property within the one-year redemption period. However, on July 18, 2001, Alfredo Castillo sent a letter to petitioner requesting for an extension of 60 days before consolidation of its title so that they could redeem the properties, offering P3,000,000.00 as redemption price. Petitioner conceded to Alfredo Castillo’s request, but respondents still failed to redeem the properties.

On October 1, 2001, respondents filed a case for Reformation of Instruments, Declaration of Nullity of Notarial Foreclosure Proceedings and Certificate of Sale, Cancellation of Annotations on TCT Nos. 233242 and 227858, and Damages, with a plea for the issuance of a temporary restraining order (TRO) and/or writ of preliminary prohibitory injunction, with the RTC, Branch 14, Manila.

On October 5, 2001, the RTC issued a TRO. Eventually, on October 25, 2001, it issued a writ of preliminary injunction.

After trial, the RTC rendered its decision dated July 30, 2005, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs, and against the defendants in the following manner:

1. Declaring the questioned increases of interest as unreasonable, excessive and arbitrary and ordering the defendant Philippine Savings Bank to refund to the plaintiffs, the amount of interest collected in excess of seventeen percent (17%) per annum;

2. Declaring the Extrajudicial Foreclosure conducted by the defendants on June 16, 2000 and the subsequent proceedings taken thereafter to be void ab initio. In this connection, defendant Register of Deeds is hereby ordered to cause the cancellation of the corresponding annotations at the back of Transfer Certificates of Title No. 227858 and 233242 in the name of Spouses Alfredo and Elizabeth Castillo and Spouses Romeo Capati and Aquilina M. Lobo;

3. Defendant Philippine Savings Bank is adjudged to pay plaintiffs the amount of Php50,000.00 as moral damages; Php50,000.00 as exemplary damages; and attorney’s fees in the amount of Php30,000.00 and Php3,000.00 per appearance.

4. Defendants’ counterclaims are hereby DISMISSED for lack of merit.

With costs against the defendant Philippine Savings Bank, Inc.

SO ORDERED.8

Petitioner filed a motion for reconsideration. The RTC partially granted the motion in its November 30, 2005 Order, modifying the interest rate from 17% to 24% per annum.9

Petitioner appealed to the CA. The CA modified the decision of the RTC, thus—

WHEREFORE, in view of the foregoing, the Decision of the Regional Trial Court is hereby AFFIRMED WITH MODIFICATIONS. The fallo shall now read:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants in the following manner:

1. Declaring the questioned increases of interest as unreasonable, excessive and arbitrary and ordering the defendant Philippine Savings Bank to refund to the plaintiffs, the amount of interest collected in excess of seventeen percent (17%) per annum;

2. Declaring the Extrajudicial Foreclosure conducted by the defendants on June 16, 2000 and the subsequent proceedings taken thereafter to be valid[;]

3. Defendant Philippine Savings Bank is adjudged to pay plaintiffs the amount of Php 25,000.00 as moral damages; Php 50,000.00 as exemplary damages; and attorney’s fees in the amount of Php 30,000.00 and Php 3,000.00 per appearance;

4. Defendants’ counterclaims are hereby DISMISSED for lack of merit.

With costs against the defendant Philippine Savings Bank, Inc.

SO ORDERED.10

Hence, this petition anchored on the contention that the CA erred in: (1) declaring that the modifications in the interest rates are unreasonable; and (2) sustaining the award of damages and attorney’s fees.

The petition should be partially granted.

The unilateral determination and imposition of the increased rates is violative of the principle of mutuality of contracts under Article 1308 of the Civil Code, which provides that "[t]he contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them."11 A perusal of the Promissory Note will readily show that the increase or decrease of interest rates hinges solely on the discretion of petitioner. It does not require the conformity of the maker before a new interest rate could be enforced. Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result, thus partaking of the nature of a contract of adhesion, is void. Any stipulation regarding the validity or compliance of the contract left solely to the will of one of the parties is likewise invalid.

Petitioner contends that respondents acquiesced to the imposition of the modified interest rates; thus, there was no violation of the principle of mutuality of contracts. To buttress its position, petitioner points out that the exhibits presented by respondents during trial contained a uniform provision, which states:

The interest rate adjustment is in accordance with the Conformity Letter you have signed amending your account’s interest rate review period from ninety (90) to thirty days.12

It further claims that respondents requested several times for the reduction of the interest rates, thus, manifesting their recognition of the legality of the said rates. It also asserts that the contractual provision on the interest rates cannot be said to be lopsided in its favor, considering that it had, on several occasions, lowered the interest rates.

We disagree. The above-quoted provision of respondents’ exhibits readily shows that the conformity letter signed by them does not pertain to the modification of the interest rates, but rather only to the amendment of the interest rate review period from 90 days to 30 days. Verily, the conformity of respondents with respect to the shortening of the interest rate review period from 90 days to 30 days is separate and distinct from and cannot substitute for the required conformity of respondents with respect to the modification of the interest rate itself.

Moreover, respondents’ assent to the modifications in the interest rates cannot be implied from their lack of response to the memos sent by petitioner, informing them of the amendments. The said memos were in the nature of a proposal to change the contract with respect to one of its significant components, i.e., the interest rates. As we have held, no one receiving a proposal to change a contract is obliged to answer the proposal.13Therefore, respondents could neither be faulted, nor could they be deemed to have assented to the modified interest rates, for not replying to the said memos from petitioner.

We likewise disagree with petitioner’s assertion that respondents recognized the legality of the imposed interest rates through the letters requesting for the reduction of the rates. The request for reduction of the interest does not

translate to consent thereto. To be sure, a cursory reading of the said letters would clearly show that Alfredo Castillo was, in fact, questioning the propriety of the interest rates imposed on their loan, viz.:

The undersigned is a mortgagor of Philippine Savings Bank with an outstanding balance of TWO MILLION FOUR HUNDRED THIRTY EIGHT THOUSAND SIX HUNDRED SIX and 63/100 (P2,438,606.63) at an interest rate of 26% per annum (as per April 6, 1997 inquiry to Leo of the Accounting Dep’t.) and with a monthly amortization of FIFTY EIGHT THOUSAND THREE HUNDRED FIFTY EIGHT AND 38/100 (P58,358.38).

I understand that the present interest rate is lower than the last month’s 27%. However, it does not give our company any break from coping with our receivables. Our clients, Mercure Philippine Village Hotel, Puerto Azul Beach Hotel, Grand Air Caterer, to name a few, did not settle their obligation to us inspite of what was agreed upon during our meeting held last February 1998. Their pledge of paying us at least ONE MILLION PESOS PER AFFILIATION, which we allocate to pay our balance to your bank, was not a reliable deal to foresee because, as of this very day, not even half of the amount assured to us was settled. This situation puts the company in critical condition since we will again shoulder all the interests imposed on our loans, while, we ourselves, did not impose any surcharge with our receivables.

In connection with this, may I request for a reduction of interest rate, in my favor, i.e., from 26% to 21% per annum. If such appeal is granted to us, we are assuring you of our prompt payment and keen observance to your rules and regulations.14

The undersigned is a mortgagor of Philippine Savings Bank with an outstanding balance of TWO MILLION FOUR HUNDRED THIRTY THREE THOUSAND EIGHTY FOUR and 73/100 (P2,433,084.73) at an interest rate of 22.5% per annum (as per April 24, 1998 memo faxed to us) and with a monthly amortization of FIFTY TWO THOUSAND FIVE HUNDRED FIFTY EIGHT AND 01/100 (P52,55[8].01).

Such reduction of interest rate is an effect of our currency’s development. But based on our inquiries and research to different financial institutions, the rate your bank is imposing to us is still higher compared to the eighteen and a half percent (18.5%) others are asking. With this situation, we are again requesting for a decrease on the interest rate, that is, from 22.5% to 18.5%. This figure stated is not fictitious since other bank’s advertising are published to leading newspapers. The difference between your rate is visibly greater and has an immense effect on our financial obligations.15

The undersigned is a mortgagor at Philippine Savings Bank with an outstanding balance of TWO MILLION FOUR HUNDRED THOUSAND EIGHT HUNDRED ELEVEN and 03/100 (Php 2,40[0],811.03) at an interest rate of 21% per annum.

Letters of reconsideration were constantly sent to you to grant us lower interest rate. However, no assistance with regard to that request has been extended to us. In view of this, I am requesting for a transfer of our loan from PSBank Head Office to PSBank Mabini Branch. This transfer is purposely intended for an appeal [for] a lower interest rate.16

Being a mortgagor of PSBank, I have [been] repeatedly asking for a reduction of your interest rate. However, my request has been denied since the term I started. Many banks offer a much lower interest rate and fair business transactions (e.g. Development Bank of Singapore [which] offers 13% p.a. interest rate).

In this connection, once more, I am requesting for a reduction of the interest rate applied to my loan to maintain our business relationship.17

Basic is the rule that there can be no contract in its true sense without the mutual assent of the parties. If this consent is absent on the part of one who contracts, the act has no more efficacy than if it had been done under duress or by a person of unsound mind. Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties must meet as to the proposed modification, especially when it affects an important aspect of the agreement. In the case of loan contracts, the interest rate is undeniably always a vital component, for it can make or break a capital venture. Thus, any change must be mutually agreed upon, otherwise, it produces no binding effect.18

Escalation clauses are generally valid and do not contravene public policy. They are common in credit agreements as means of maintaining fiscal stability and retaining the value of money on long-term contracts. To prevent any one-sidedness that these clauses may cause, we have held in Banco Filipino Savings and Mortgage Bank v. Judge Navarro19 that there should be a corresponding de-escalation clause that would authorize a reduction in the interest rates corresponding to downward changes made by law or by the Monetary Board. As can be gleaned from the parties’ loan agreement, a de-escalation clause is provided, by virtue of which, petitioner had lowered its interest rates.1avvphi1

Nevertheless, the validity of the escalation clause did not give petitioner the unbridled right to unilaterally adjust interest rates. The adjustment should have still been subjected to the mutual agreement of the contracting parties. In light of the absence of consent on the part of respondents to the modifications in the interest rates, the adjusted rates cannot bind them notwithstanding the inclusion of a de-escalation clause in the loan agreement.

The order of refund was based on the fact that the increases in the interest rate were null and void for being violative of the principle of mutuality of contracts. The amount to be refunded refers to that paid by respondents when they had no obligation to do so. Simply put, petitioner should refund the amount of interest that it has illegally imposed upon respondents. Any deficiency in the payment of the obligation can be collected by petitioner in a foreclosure proceeding, which it already did.

On the matter of damages, we agree with petitioner. Moral damages are not recoverable simply because a contract has been breached. They are recoverable only if the party from whom it is claimed acted fraudulently or in bad faith or in wanton disregard of his contractual obligations. The breach must be wanton, reckless, malicious or in bad faith, and oppressive or abusive. Likewise, a breach of contract may give rise to exemplary damages only if the guilty party acted in a fraudulent or malevolent manner.20

In this case, we are not sufficiently convinced that fraud, bad faith, or wanton disregard of contractual obligations can be imputed to petitioner simply because it unilaterally imposed the changes in interest rates, which can be attributed merely to bad business judgment or attendant negligence. Bad faith pertains to a dishonest purpose, to some moral obliquity, or to the conscious doing of a wrong, a breach of a known duty attributable to a motive, interest or ill will that partakes of the nature of fraud. Respondents failed to sufficiently establish this requirement. Thus, the award of moral and exemplary damages is unwarranted. In the same vein, respondents cannot recover attorney’s fees and litigation expenses. Accordingly, these awards should be deleted.21

However, as regards the above mentioned award for refund to respondents of their interest payments in excess of 17% per annum, the same should include legal interest. In Eastern Shipping Lines, Inc. v. Court of Appeals,22we have held that when an obligation is breached, and it consists in the payment of a sum of money, the interest on the amount of damages shall be at the rate of 12% per annum, reckoned from the time of the filing of the complaint.23

WHEREFORE, the petition is PARTIALLY GRANTED. The assailed Decision dated August 27, 2009 and the Resolution dated August 4, 2010 of the Court of Appeals in CA-G.R. CV No. 86445 are AFFIRMED WITH MODIFICATIONS, such that the award for moral damages, exemplary damages, attorney’s fees, and litigation expenses is DELETED, and the order of refund in favor of respondents of interest payments made in excess of 17% per annum shall bear interest of 12% per annum from the time of the filing of the complaint until its full satisfaction.

SO ORDERED.

G.R. No. 176019               January 12, 2011

BPI FAMILY SAVINGS BANK, INC., Petitioner, vs.GOLDEN POWER DIESEL SALES CENTER, INC. and RENATO C. TAN, Respondents.

CARPIO, J.:

The Case

This is a petition for review1 of the 13 March 2006 Decision2 and 19 December 2006 Resolution3 of the Court of Appeals in CA-G.R. SP No. 78626. In its 13 March 2006 Decision, the Court of Appeals denied petitioner BPI Family Savings Bank, Inc.ʼs (BPI Family) petition for mandamus and certiorari. In its 19 December 2006 Resolution, the Court of Appeals denied BPI Familyʼs motion for reconsideration.

The Facts

On 26 October 1994, CEDEC Transport, Inc. (CEDEC) mortgaged two parcels of land covered by Transfer Certificate of Title (TCT) Nos. 134327 and 134328 situated in Malibay, Pasay City, including all the improvements thereon (properties), in favor of BPI Family to secure a loan of P6,570,000. On the same day, the mortgage was duly annotated on the titles under Entry No. 94-2878. On 5 April and 27 November 1995, CEDEC obtained from BPI Family additional loans of P2,160,000 and P1,140,000, respectively, and again mortgaged the same properties. These latter mortgages were duly annotated on the titles under Entry Nos. 95-6861 and 95-11041, respectively, on the same day the loans were obtained.

Despite demand, CEDEC defaulted in its mortgage obligations. On 12 October 1998, BPI Family filed with the ex-officio sheriff of the Regional Trial Court of Pasay City (RTC) a verified petition for extrajudicial foreclosure of real estate mortgage over the properties under Act No. 3135, as amended.4

On 10 December 1998, after due notice and publication, the sheriff sold the properties at public auction. BPI Family, as the highest bidder, acquired the properties for P13,793,705.31. On 14 May 1999, the Certificate of Sheriffʼs Sale, dated 24 February 1999, was duly annotated on the titles covering the properties.

On 15 May 1999, the one-year redemption period expired without CEDEC redeeming the properties. Thus, the titles to the properties were consolidated in the name of BPI Family. On 13 September 2000, the Registry of Deeds of Pasay City issued new titles, TCT Nos. 142935 and 142936, in the name of BPI Family.

However, despite several demand letters, CEDEC refused to vacate the properties and to surrender possession to BPI Family. On 31 January 2002, BPI Family filed an Ex-Parte Petition for Writ of Possession over the properties with Branch 114 of the Regional Trial Court of Pasay City (trial court). In its 27 June 2002 Decision, the trial court granted BPI Familyʼs petition.5 On 12 July 2002, the trial court issued the Writ of Possession.

On 29 July 2002, respondents Golden Power Diesel Sales Center, Inc. and Renato C. Tan6 (respondents) filed a Motion to Hold Implementation of the Writ of Possession.7 Respondents alleged that they are in possession of the properties which they acquired from CEDEC on 10 September 1998 pursuant to the Deed of Absolute Sale with Assumption of Mortgage (Deed of Sale).8 Respondents argued that they are third persons claiming rights adverse to CEDEC, the judgment obligor and they cannot be deprived of possession over the properties. Respondents also disclosed that they filed a complaint before Branch 111 of the Regional Trial Court of Pasay City, docketed as Civil Case No. 99-0360, for the cancellation of the Sheriffʼs Certificate of Sale and an order to direct BPI Family to honor and accept the Deed of Absolute Sale between CEDEC and respondents.9

On 12 September 2002, the trial court denied respondents’ motion.10 Thereafter, the trial court issued an alias writ of possession which was served upon CEDEC and all other persons claiming rights under them.

However, the writ of possession expired without being implemented. On 22 January 2003, BPI Family filed an Urgent Ex-Parte Motion to Order the Honorable Branch Clerk of Court to Issue Alias Writ of Possession. In an Order dated 27 January 2003, the trial court granted BPI Familyʼs motion.

Before the alias writ could be implemented, respondent Renato C. Tan filed with the trial court an Affidavit of Third Party Claim11 on the properties. Instead of implementing the writ, the sheriff referred the matter to the trial court for resolution.

On 11 February 2003, BPI Family filed an Urgent Motion to Compel Honorable Sheriff and/or his Deputy to Enforce Writ of Possession and to Break Open the properties. In its 7 March 2003 Resolution, the trial court denied BPI Familyʼs motion and ordered the sheriff to suspend the implementation of the alias writ of possession.12 According to the trial court, "the order granting the alias writ of possession should not affect third persons holding adverse rights to the judgment obligor." The trial court admitted that in issuing the first writ of possession it failed to take into consideration respondents’ complaint before Branch 111 claiming ownership of the property. The trial court also noted that respondents were in actual possession of the properties and had been updating the payment of CEDECʼs loan balances with BPI Family. Thus, the trial court found it necessary to amend its 12 September 2002 Order and suspend the implementation of the writ of possession until Civil Case No. 99-0360 is resolved.

BPI Family filed a motion for reconsideration. In its 20 June 2003 Resolution, the trial court denied the motion.13

BPI Family then filed a petition for mandamus and certiorari with application for a temporary restraining order or preliminary injunction before the Court of Appeals. BPI Family argued that the trial court acted with grave abuse of discretion amounting to lack or excess of jurisdiction when it ordered the suspension of the implementation of the alias writ of possession. According to BPI Family, it was the ministerial duty of the trial court to grant the writ of possession in its favor considering that it was now the owner of the properties and that once issued, the writ should be implemented without delay.

The Court of Appeals dismissed BPI Familyʼs petition. The dispositive portion of the 13 March 2006 Decision reads:

WHEREFORE, the instant Petition for Writ of Mandamus and Writ of Certiorari with Application for a TRO and/or Preliminary Injunction is hereby DENIED. The twin Resolutions dated March 7, 2003 and June 20, 2003, both issued by the public respondent in LRC Case No. 02-0003, ordering the sheriff to suspend the implementation of the Alias Writ of Possession issued in favor of the petitioner, and denying its Urgent Omnibus Motion thereof, respectively, are hereby AFFIRMED.

SO ORDERED.14

BPI Family filed a motion for reconsideration. In its 19 December 2006 Resolution, the Court of Appeals denied the motion.

The Ruling of the Court of Appeals

The Court of Appeals ruled that the trial court did not commit grave abuse of discretion in suspending the implementation of the alias writ of possession because respondents were in actual possession of the properties and are claiming rights adverse to CEDEC, the judgment obligor. According to the Court of Appeals, the principle that the implementation of the writ of possession is a mere ministerial function of the trial court is not without exception. The Court of Appeals held that the obligation of the court to issue an ex parte writ of possession in favor of the purchaser in an extrajudicial foreclosure sale ceases to be ministerial once it appears that there is a third party in possession of the property who is claiming a right adverse to that of the debtor or mortgagor.

The Issues

BPI Family raises the following issues:

A.

The Honorable Court of Appeals seriously erred in upholding the finding of the Honorable Regional Trial Court that despite the fact that private respondents merely stepped into the shoes of mortgagor CEDEC, being the vendee of the properties in question, they are categorized as third persons in possession thereof who are claiming a right adverse to that of the debtor/mortgagor CEDEC.

B.

The Honorable Court of Appeals gravely erred in sustaining the aforementioned twin orders suspending the implementation of the writ of possession on the ground that the annulment case filed by private respondents is still pending despite the established ruling that pendency of a case questioning the legality of a mortgage or auction sale cannot be a ground for the non-issuance and/or non-implementation of a writ of possession.15

The Ruling of the Court

The petition is meritorious.

BPI Family argues that respondents cannot be considered "a third party who is claiming a right adverse to that of the debtor or mortgagor" because respondents, as vendee, merely stepped into the shoes of CEDEC, the vendor and judgment obligor. According to BPI Family, respondents are mere extensions or successors-in-interest of CEDEC. BPI Family also argues that the pendency of an action questioning the validity of a mortgage or auction sale cannot be a ground to oppose the implementation of a writ of possession.

On the other hand, respondents insist that they are third persons who claim rights over the properties adverse to CEDEC. Respondents argue that the obligation of the court to issue an ex parte writ of possession in favor of the purchaser in an extrajudicial foreclosure sale ceases to be ministerial once it appears that there is a third party in possession of the property who is claiming a right adverse to that of the judgment obligor.

In extrajudicial foreclosures of real estate mortgages, the issuance of a writ of possession is governed by Section 7 of Act No. 3135, as amended, which provides:

SECTION 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance (Regional Trial Court) of the province or place where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of this Act. Such petition shall be made under oath and filed in form of an ex parte motion in the registration or cadastral proceedings if the property is registered, or in special proceedings in the case of property registered under the Mortgage Law or under section one hundred and ninety-four of the Administrative Code, or of any other real property encumbered with a mortgage duly registered in the office of any register of deeds in accordance with any existing law, and in each case the clerk of the court shall, upon the filing of such petition, collect the fees specified in paragraph eleven of section one hundred and fourteen of Act Numbered Four hundred and ninety-six, as amended by Act Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval of the bond, order that a writ of possession issue, addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately.

This procedure may also be availed of by the purchaser seeking possession of the foreclosed property bought at the public auction sale after the redemption period has expired without redemption having been made.16

In China Banking Corporation v. Lozada,17 we ruled:

It is thus settled that the buyer in a foreclosure sale becomes the absolute owner of the property purchased if it is not redeemed during the period of one year after the registration of the sale. As such, he is entitled to the possession of the said property and can demand it at any time following the consolidation of ownership in his name and the issuance to him of a new transfer certificate of title. The buyer can in fact demand possession of the land even during the redemption period except that he has to post a bond in accordance with Section 7 of Act No. 3135, as amended. No such bond is required after the redemption period if the property is not redeemed.Possession of the land then becomes an absolute right of the purchaser as confirmed owner. Upon proper application and proof of title, the issuance of the writ of possession becomes a ministerial duty of the court.18 (Emphasis supplied) 

Thus, the general rule is that a purchaser in a public auction sale of a foreclosed property is entitled to a writ of possession and, upon an ex parte petition of the purchaser, it is ministerial upon the trial court to issue the writ of possession in favor of the purchaser.

There is, however, an exception. Section 33, Rule 39 of the Rules of Court provides:

Section 33. Deed and possession to be given at expiration of redemption period; by whom executed or given. - x x x

Upon the expiration of the right of redemption, the purchaser or redemptioner shall be substituted to and acquire all the rights, title, interest and claim of the judgment obligor to the property as of the time of the levy. The possession of the property shall be given to the purchaser or last redemptioner by the same officer unless a third party is actually holding the property adversely to the judgment obligor. (Emphasis supplied)

Therefore, in an extrajudicial foreclosure of real property, when the foreclosed property is in the possession of a third party holding the same adversely to the judgment obligor, the issuance by the trial court of a writ of possession in favor of the purchaser of said real property ceases to be ministerial and may no longer be done ex parte.19 The procedure is for the trial court to order a hearing to determine the nature of the adverse possession.20 For the exception to apply, however, the property need not only be possessed by a third party, but also held by the third party adversely to the judgment obligor.

In this case, BPI Family invokes the general rule that they are entitled to a writ of possession because respondents are mere successors-in-interest of CEDEC and do not possess the properties adversely to CEDEC. Respondents, on the other hand, assert the exception and insist that they hold the properties adversely to CEDEC and that their possession is a sufficient obstacle to the ex parte issuance of a writ of possession in favor of BPI Family.

Respondentsʼ argument fails to persuade the Court. It is clear that respondents acquired possession over the properties pursuant to the Deed of Sale which provides that for P15,000,000 CEDEC will "sell, transfer and convey" to respondents the properties "free from all liens and encumbrances excepting the mortgage as may be subsisting in favor of the BPI FAMILY SAVINGS BANK."21 Moreover, the Deed of Sale provides that respondents bind themselves to assume "the payment of the unpaid balance of the mortgage indebtedness of the VENDOR (CEDEC) amounting to P7,889,472.48, as of July 31, 1998, in favor of the aforementioned mortgagee (BPI Family) by the mortgage instruments and does hereby further agree to be bound by the precise terms and conditions therein contained."22

In Roxas v. Buan,23 we ruled:

It will be recalled that Roxasʼ possession of the property was premised on its alleged sale to him by Valentin for the amount of P100,000.00. Assuming this to be true, it is readily apparent that Roxas holds title to and possesses the property as Valentinʼs transferee. Any right he has to the property is necessarily derived from that of Valentin. As transferee, he steps into the latterʼs shoes. Thus, in the instant case, considering that the property had already been sold at public auction pursuant to an extrajudicial foreclosure, the only interest that may be transferred by Valentin to Roxas is the right to redeem it within the period prescribed by law. Roxas is therefore the successor-in-interest of Valentin, to whom the latter had conveyed his interest in the property for the purpose of redemption. Consequently, Roxasʼ occupancy of the property cannot be considered adverse to Valentin.24

In this case, respondentsʼ possession of the properties was premised on the sale to them by CEDEC for the amount of P15,000,000. Therefore, respondents hold title to and possess the properties as CEDECʼs transferees and any right they have over the properties is derived from CEDEC. As transferees of CEDEC, respondents merely stepped into CEDEC’s shoes and are necessarily bound to acknowledge and respect the mortgage CEDEC had earlier executed in favor of BPI Family.25 Respondents are the successors-in-interest of CEDEC and thus, respondentsʼ occupancy over the properties cannot be considered adverse to CEDEC.

Moreover, in China Bank v. Lozada,26 we discussed the meaning of "a third party who is actually holding the property adversely to the judgment obligor." We stated:

The exception provided under Section 33 of Rule 39 of the Revised Rules of Court contemplates a situation in which a third party holds the property by adverse title or right, such as that of a co-owner, tenant or usufructuary. The co-owner, agricultural tenant, and usufructuary possess the property in their own right, and they are not merely the successor or transferee of the right of possession of another co-owner or the owner of the property.27

In this case, respondents cannot claim that their right to possession over the properties is analogous to any of these.1avvphi1 Respondents cannot assert that their right of possession is adverse to that of CEDEC when they have no independent right of possession other than what they acquired from CEDEC. Since respondents are not holding the properties adversely to CEDEC, being the latterʼs successors-in-interest, there was no reason for the trial court to order the suspension of the implementation of the writ of possession.

Furthermore, it is settled that a pending action for annulment of mortgage or foreclosure sale does not stay the issuance of the writ of possession.28 The trial court, where the application for a writ of possession is filed, does not need to look into the validity of the mortgage or the manner of its foreclosure.29 The purchaser is entitled to a writ of possession without prejudice to the outcome of the pending annulment case.30

In this case, the trial court erred in issuing its 7 March 2003 Order suspending the implementation of the alias writ of possession. Despite the pendency of Civil Case No. 99-0360, the trial court should not have ordered the sheriff to suspend the implementation of the writ of possession. BPI Family, as purchaser in the foreclosure sale, is entitled to a writ of possession without prejudice to the outcome of Civil Case No. 99-0360.

WHEREFORE, we GRANT the petition. We SET ASIDE the 13 March 2006 Decision and the 19 December 2006 Resolution of the Court of Appeals in CA-G.R. SP No. 78626. We SET ASIDE the 7 March and 20 June 2003 Resolutions of the Regional Trial Court, Branch 114, Pasay City. We ORDER the sheriff to proceed with the implementation of the writ of possession without prejudice to the outcome of Civil Case No. 99-0360.

SO ORDERED.

G.R. No. 168523               March 9, 2011

Spouses FERNANDO and ANGELINA EDRALIN, Petitioners, vs.PHILIPPINE VETERANS BANK, Respondent.

DEL CASTILLO, J.:

The right to possess a property follows the right of ownership; consequently, it would be illogical to hold that a person having ownership of a parcel of land is barred from seeking possession thereof.

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,1 assailing the Decision2 dated June 10, 2005 of the Court of Appeals (CA) in CA-G.R. SP No. 89248. The dispositive portion of the assailed Decision reads:

WHEREFORE, premises considered, the present petition is hereby GIVEN DUE COURSE and the writ prayed for accordingly GRANTED. The assailed Orders dated November 8, 2004 and January 28, 2005 dismissing the ex-parte petition for issuance of writ of possession and denying petitioner’s motion for reconsideration, respectively, are hereby ANNULLED and SET ASIDE. Respondent Judge is hereby DIRECTED to issue the writ of possession prayed for by the petitioner Philippine Veterans Bank over the subject property covered by TCT No. 78332 of the Registry of Deeds for Parañaque City, Metro Manila.

No pronouncement as to costs.

SO ORDERED.3

Factual Antecedents

Respondent Philippine Veterans Bank (Veterans Bank) is a commercial banking institution created under Republic Act (RA) No. 3518,4 as amended by RA No. 7169.5

On February 5, 1976, Veterans Bank granted petitioner spouses Fernando and Angelina Edralin (Edralins) a loan in the amount of Two Hundred Seventy Thousand Pesos (P270,000.00). As security thereof, petitioners executed a Real Estate Mortgage (REM)6 in favor of Veterans Bank over a real property situated in the Municipality of Parañaque and registered in the name of petitioner Fernando Edralin. The mortgaged property is more particularly described in Transfer Certificate of Title (TCT) No. 204889. The REM was registered with the Registry of Deeds of the Province of Rizal.7 The REM and its subsequent amendments8 were all duly annotated at the back of TCT No. 204889.9

The Edralins failed to pay their obligation to Veterans Bank. Thus, on June 28, 1983, Veterans Bank filed a Petition for Extrajudicial Foreclosure10 of the REM with the Office of the Clerk of Court and Ex-Officio Sheriff of Rizal.

In due course, the foreclosure sale was held on September 8, 1983, in which the Ex-Officio Sheriff of Rizal sold the mortgaged property at public auction. Veterans Bank emerged as the highest bidder at the said foreclosure sale and was issued the corresponding Certificate of Sale.11 The said Certificate of Sale was registered with the Registry of Deeds of the Province of Rizal and annotated at the back of TCT No. 204889 under Entry No. 83-62953/T-No. 43153-A on October 25, 1983.12

Upon the Edralins’ failure to redeem the property during the one-year period provided under Act No. 3135, Veterans Bank acquired absolute ownership of the subject property. Consequently, Veterans Bank caused the consolidation of ownership of the subject property in its name on January 19, 1994.13 The Register of Deeds of Parañaque, Metro Manila cancelled TCT No. 204889 under the name of Fernando Edralin and replaced it with a new transfer certificate of title, TCT No. 78332,14 in the name of Veterans Bank on February 3, 1994.

Despite the foregoing, the Edralins failed to vacate and surrender possession of the subject property to Veterans Bank. Thus, on May 24, 1996, Veterans Bank filed an Ex-Parte Petition for the Issuance of a Writ of Possession, docketed as Land Registration Case (LRC) No. 06-060 before Branch 274 of the Regional Trial Court (RTC) of Parañaque City. The same, however, was dismissed for Veterans Bank’s failure to prosecute.15

On July 29, 2003, Veterans Bank again filed an Ex-Parte Petition for Issuance of Writ of Possession,16 this time docketed as Land Registration Case No. 03-0121, before the RTC of Parañaque City. Veterans Bank divulged in its

Certification against Forum-Shopping17 that the earlier case, LRC No. 96-060, involving the same subject matter and parties, was dismissed.

The Edralins moved to dismiss18 the petition on the ground that the dismissal of LRC No. 96-060 constituted res judicata.

Ruling of the Regional Trial Court

The trial court denied the motion to dismiss explaining that the ground of failure to present evidence is not a determination of the merits of the case hence does not constitute res judicata on the petition for issuance of a writ of possession.19

Nevertheless, the trial court found no merit in the Veterans Bank’s application and dismissed the same in its Order dated November 8, 2004.20 The trial court explained that, under paragraph (d) of the REM, the Veterans Bank agreed to take possession of the Edralins’ property without any judicial intervention. The court held that granting the writ of possession to the Veterans Bank will violate the contractual agreement of the parties. Paragraph (d) reads:

(d) Effective upon the breach of any condition of this mortgage and in addition to the remedies herein stipulated, the Mortgagee is hereby likewise appointed attorney-in-fact of the Mortgagor with full powers and authority, with the use of force, if necessary to take actual possession of the mortgaged property, without the necessity of any judicial order or any permission, or power, to collect rents, to eject tenants, to lease or sell the mortgaged property or any part thereof, at a private sale without previous notice or advertisement of any kind and execute the corresponding bills of sale, lease or other agreement that may be deemed convenient, to make repairs or improvements on the mortgaged property and pay for the same and perform any other act which the Mortgagee may deem convenient for the proper administration of the mortgaged property. The payment of any expenses advanced by the Mortgagee in connection with the purposes indicated herein is also guaranteed by this Mortgage and such amount advanced shall bear interest at the rate of 12% per annum. Any amount received from sale, disposal or administration above-mentioned may be applied to the payment of the repairs, improvements, taxes and any other incidental expenses and obligations and also the payment of the original indebtedness and interest thereof. The power herein granted shall not be revoked during the life of this mortgage, and all acts that may be executed by the Mortgagee by virtue of said power are hereby ratified. In addition to the foregoing, the Mortgagor also hereby agrees, that the Auditor General shall withhold any money due or which may become due the Mortgagor or debtor from the Government or from any of its instrumentalities, except those exempted by law from attachment or execution, and apply the same in settlement of any and all amount due to the Mortgagee;21

The trial court held that, assuming the contract allowed for the issuance of a writ of possession, Veterans Bank’s right to seek possession had already prescribed. Without citing authority and adequate explanation, the court held that Veterans Bank had only 10 years from February 24, 1983 to seek possession of the property.

Veterans Bank moved for the reconsideration22 of the adverse decision. It directed the court’s attention to paragraph (c) of the real estate mortgage, which expressly granted the mortgagee the right to avail itself of the remedy of extrajudicial foreclosure in case of the mortgagor’s default. Paragraph (c) reads:

(c) If at any time the Mortgagor shall fail or refuse to pay the obligations herein secured, or any of the amortizations of such indebtedness when due, or to comply with any of the conditions and stipulations herein agreed, or shall, during the time this mortgage is in force, institute insolvency proceedings or be involuntarily declared insolvent, or shall use the proceeds of this loan for purposes other than those specified herein, or if this mortgage cannot be recorded in the corresponding Registry of Deeds, then all the obligations of the Mortgagor secured by this Mortgage and all the amortization thereof shall immediately become due, payable and defaulted, and the Mortgagee may immediately foreclose this mortgage judicially in accordance with the Rules of Court, or extra-judicially in accordance with Act No. 3135, as amended, and under Act 2612, as amended. For the purpose of extra-judicial foreclosure the Mortgagor hereby appoints the Mortgagee his attorney-in-fact to sell the property mortgaged under Act No. 3135, as amended, to sign all documents and perform any act requisite and necessary to accomplish said purpose and to appoint its substitutes as such attorney-in-fact with the same powers as above specified. x x x23

The motion for reconsideration was set for hearing on January 28, 2005. Due to a conflict of schedule, Veterans Bank’s counsel moved24 to reset the hearing on its motion. In apparent denial of the motion to reset, the trial court proceeded to deny Veterans Bank’s motion for reconsideration in the Order dated January 28, 2005.25 The trial court reiterated that paragraph (d) of the REM allowed Veterans Bank to take immediate possession of the property without need of a judicial order. It would be redundant for the court to issue a writ of possession in its favor.

This prompted Veterans Bank to file a Petition for Mandamus with Prayer for Issuance of a Preliminary Mandatory Injunction26 before the CA.

First among its arguments, Veterans Bank maintained that it was the trial court’s ministerial duty27 to grant a writ of possession to the mortgagee who has consolidated and registered the property in its name.

Veterans Bank then assailed the trial court’s holding that its right to a writ of possession had already prescribed. Respondent maintained that the writ can be issued at any time after the mortgagor failed to redeem the foreclosed property.28

Lastly, Veterans Bank argued that, contrary to the trial court’s finding, it did not contract away its right to an extrajudicial foreclosure under Act No. 3135, as amended, by the inclusion of paragraph (d) in the REM. Veterans Bank pointed out that, as evidenced by paragraph (c) of the REM, it expressly reserved the right to avail of the remedies under Act No. 3135.29

Ruling of the Court of Appeals30

The appellate court ruled in favor of Veterans Bank.

It held that the contractual provision in paragraph (d) to immediately take possession of the mortgaged property without need of judicial intervention is distinct from the right to avail of extrajudicial foreclosure under Section 7 of Act No. 3135, which was expressly reserved by Veterans Bank in paragraph (c) of the REM. The fact that the two paragraphs do not negate each other is evidenced by the qualifying phrase "in addition to the remedies herein stipulated" found in paragraph (c).

Having availed itself of the remedy of extrajudicial foreclosure, Veterans Bank, as the highest bidder, has the right to a writ of possession. This right may be availed of any time after the buyer consolidates ownership. In fact, the issuance of the writ of possession is a ministerial function, the right to which cannot be enjoined or stayed, even by an action for annulment of the mortgage or the foreclosure sale itself.

The trial court’s ruling that Veterans Bank’s right to possess has prescribed is likewise erroneous. As already stated, Veterans Bank’s right to possess the property is not based on their contract but on Act No. 3135.

Since the issuance of a writ of possession is a ministerial act of the trial judge, mandamus lies to compel the performance of the said duty.

Petitioners immediately filed this petition for review.

Issues

Petitioners submit the following issues for our consideration:

1. Whether mandamus was resorted to as a substitute for a lost appeal

2. Whether mandamus is the proper remedy to seek a review of the final orders of the trial court

3. Whether the consolidation of ownership of the extrajudicially foreclosed property through a Deed of Sale is in accordance with law

4. Whether the issuance of a writ of possession under Act [No.] 3135 is subject to the statute of limitations31

Our Ruling

Propriety of the Remedy of Mandamus

Petitioners argue that Veterans Bank availed itself of the remedy of mandamus as a substitute for a lost appeal.32Petitioners narrate the relevant dates that allegedly show the belatedness and impropriety of the petition for mandamus. Veterans Bank received the Order dated November 8, 2004 on November 18, 2004, thus it had until December 3, 2004 to file a motion for reconsideration. Since December 3, 2004 was declared a non-working holiday, Veterans Bank filed its motion for reconsideration on the next working day, December 6, 2004. With the said dates, it had only one day left from receipt of the January 28, 2005 Order, or until February 10, 2005, to file an appeal (citing Section 2, Rule 22) of the Rules of Court. Since Veterans Bank did not file an appeal on the following day, it had lost its right to appeal and the assailed orders allegedly attained finality.

Respondent counters that the issuance of a writ of possession is not an ordinary action for which the rules on appeal apply. The writ being a mere motion or an order of execution, appeal is not the proper remedy to question the trial court’s ruling. In fact, Section 1, Rule 41 of the Rules of Court provides that no appeal may be taken from an order of execution, but Rule 65 special civil actions are available.33 Given that the issuance of the writ of possession is a ministerial act of the judge, respondent maintains that a petition for mandamus is the proper remedy.

Respondent adds that, even if appeal were available, the same is not the plain, speedy and adequate remedy to compel the performance of the ministerial act.34 Respondent maintains that Section 3 of Rule 65 recognizes that the remedy of mandamus is available in conjunction with an appeal. The qualifying phrase "and there is no appeal

[available]," which appears in certiorari and prohibition petitions, is conspicuously missing for petitions for mandamus.

We rule that mandamus is a proper remedy to compel the issuance of a writ of possession. The purpose of mandamus is to compel the performance of a ministerial duty. A ministerial act is "one which an officer or tribunal performs in a given state of facts, in a prescribed manner, in obedience to the mandate of legal authority, without regard to or the exercise of his own judgment upon the propriety or impropriety of the act done."35

The issuance of a writ of possession is outlined in Section 7 of Act No. 3135, as amended by Act No. 4118, which provides:

SEC. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the province or place where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of [this] Act. Such petition shall be made under oath and filed in form of an ex parte motion x x x and the court shall, upon approval of the bond, order that a writ of possession issue, addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately.

During the period of redemption, the mortgagee is entitled to a writ of possession upon depositing the approved bond. When the redemption period expires without the mortgagor exercising his right of redemption, the mortgagor is deemed to have lost all interest over the foreclosed property, and the purchaser acquires absolute ownership of the property. The purchaser’s right is aptly described thus:

Consequently, the purchaser, who has a right to possession after the expiration of the redemption period, becomes the absolute owner of the property when no redemption is made. In this regard, the bond is no longer needed. The purchaser can demand possession at any time following the consolidation of ownership in his name and the issuance to him of a new TCT. After consolidation of title in the purchaser’s name for failure of the mortgagor to redeem the property, the purchaser’s right to possession ripens into the absolute right of a confirmed owner. At that point, the issuance of a writ of possession, upon proper application and proof of title becomes merely a ministerial function. Effectively, the court cannot exercise its discretion.

Therefore, the issuance by the RTC of a writ of possession in favor of the respondent in this case is proper. We have consistently held that the duty of the trial court to grant a writ of possession in such instances is ministerial, and the court may not exercise discretion or judgment x x x36

With the consolidated title, the purchaser becomes entitled to a writ of possession and the trial court has the ministerial duty to issue such writ of possession.37 Thus, "the remedy of mandamus lies to compel the performance of [this] ministerial duty."38

Does the charter of Veterans Bank prohibit extrajudicial foreclosures?

Petitioners then assail Veterans Bank’s power to extrajudicially foreclose on mortgages. They maintain that the legislature intended to limit Veterans Bank to judicial foreclosures only,39 citing Section 18 of the Veterans Bank’s charter, RA No. 3518, which provides:

Section 18. Right of redemption of property foreclosed. – The mortgagor shall have the right, within one year after the sale of the real estate as a result of the foreclosure of a mortgage, to redeem the property by paying the amount fixed by the court in the order of execution, with interest thereon at the rate specified in the mortgage, and all the costs and other judicial expenses incurred by the Bank by reason of the execution and sale, and for the custody of said property.

Respondent counters that the inclusion of the phrase "fixed by the Court" in Section 18 of RA No. 3518 does not necessarily mean that only judicial foreclosures are available to Veterans Bank. Moreover, resort to an extrajudicial foreclosure was voluntarily entered into by the contracting parties in their REM.40

There is no merit in petitioners’ contention.

The aforequoted Section 18 grants to mortgagors of Veterans Bank the right to redeem their judicially foreclosed properties. This provision had to be included because in judicial foreclosures, mortgagors generally do not have the right of redemption unless there is an express grant by law.41

But, contrary to petitioners’ averments, there is nothing in Section 18 which can be interpreted to mean that Veterans Bank is limited to judicial foreclosures only, or that it cannot avail itself of the benefits provided under Act No. 3135,42 as amended, allowing extrajudicial foreclosures.

Moreover, the availability of extra-judicial foreclosure to a mortgagee depends upon the agreement of the contracting parties. Section 1 of Act No. 3135 provides:

Section 1. When a sale is made under a special power inserted in or attached to any real-estate mortgage hereafter made as security for the payment of money or the fulfillment of any other obligation, the provisions of the following sections shall govern as to the manner in which the sale and redemption shall be effected, whether or not provision for the same is made in the power. (Emphasis supplied.)

In the case at bar, paragraph (c) of the parties’ REM granted Veterans Bank the special power as attorney-in-fact of the petitioners to perform all acts necessary for the purpose of extrajudicial foreclosure under Act No. 3135. Thus, there is no obstacle preventing Veterans Bank from availing itself of the remedy of extrajudicial foreclosure.

Was the consolidation of title done in accordance with law?

Petitioners argue that Veterans Bank is not entitled to a writ of possession because it failed to properly consolidate its title over the subject property.43 They maintain that the Deed of Sale executed by the Veterans Bank in the bank’s own favor during the consolidation of title constitutes a pactum commissorium, which is prohibited under Article 2088 of the Civil Code.44

Respondent contends that petitioners never questioned the validity of the foreclosure proceedings or the auction sale. The failure to do so resulted in the ripening of the consolidation of ownership.45

There is no merit in petitioners’ argument.

Pactum commissorium is "a stipulation empowering the creditor to appropriate the thing given as guaranty for the fulfillment of the obligation in the event the obligor fails to live up to his undertakings, without further formality, such as foreclosure proceedings, and a public sale."46 "The elements of pactum commissorium, which enable the mortgagee to acquire ownership of the mortgaged property without the need of any foreclosure proceedings, are: (1) there should be a property mortgaged by way of security for the payment of the principal obligation, and (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period."47

The second element is missing to characterize the Deed of Sale as a form of pactum commissorium. Veterans Bank did not, upon the petitioners’ default, automatically acquire or appropriate the mortgaged property for itself. On the contrary, the Veterans Bank resorted to extrajudicial foreclosure and was issued a Certificate of Sale by the sheriff as proof of its purchase of the subject property during the foreclosure sale. That Veterans Bank went through all the stages of extrajudicial foreclosure indicates that there was no pactum commissorium.

Does the right to a writ of possession prescribe?

Petitioners assail the CA’s ruling that the issuance of a writ of possession does not prescribe.48 They maintain that Articles 1139,49 1149,50 and 115051 of the Civil Code regarding prescriptive periods cover all kinds of action, which necessarily include the issuance of a writ of possession. Petitioners posit that, for purposes of the latter, it is the five-year prescriptive period provided in Article 1149 of the Civil Code which applies because Act No. 3135 itself did not provide for its prescriptive period. Thus, Veterans Bank had only five years from September 12, 1983, the date when the Certificate of Sale was issued in its favor, to move for the issuance of a writ of possession.52

Respondent argues that jurisprudence has consistently held that a registered owner of the land, such as the buyer in an auction sale, is entitled to a writ of possession at any time after the consolidation of ownership.53

We cannot accept petitioners’ contention. We have held before that the purchaser’s right "to request for the issuance of the writ of possession of the land never prescribes."54 "The right to possess a property merely follows the right of ownership,"55 and it would be illogical to hold that a person having ownership of a parcel of land is barred from seeking possession thereof. In Calacala v. Republic of the Philippines,56 the Republic was the highest bidder in the public auction but failed for a long period of time to execute an Affidavit of Consolidation and to seek a writ of possession. Calacala insisted that, by such inaction, the Republic’s right over the land had prescribed, been abandoned or waived. The Court’s language in rejecting Calacala’s theory is illuminating:

[T]he Republic’s failure to execute the acts referred to by the petitioners within ten (10) years from the registration of the Certificate of Sale cannot, in any way, operate to restore whatever rights petitioners’ predecessors-in-interest had over the same. For sure, petitioners have yet to cite any provision of law or rule of jurisprudence, and we are not aware of any, to the effect that the failure of a buyer in a foreclosure sale to secure a Certificate of Final Sale, execute an Affidavit of Consolidation of Ownership and obtain a writ of possession over the property thus acquired, within ten (10) years from the registration of the Certificate of Sale will operate to bring ownership back to him whose property has been previously foreclosed and sold. x x x

x x x x

Moreover, with the rule that the expiration of the 1-year redemption period forecloses the obligors’ right to redeem and that the sale thereby becomes absolute, the issuance thereafter of a final deed of sale is at best a mere formality and mere confirmation of the title that is already vested in the purchaser. x x x57

Moreover, the provisions cited by petitioners refer to prescription of actions. An action is "defined as an ordinary suit in a court of justice, by which one party prosecutes another for the enforcement or protection of a right, or the prevention or redress of a wrong."58 On the other hand "[a] petition for the issuance of the writ, under Section 7 of Act No. 3135, as amended, is not an ordinary action filed in court, by which one party ‘sues another for the enforcement or protection of a right, or prevention or redress of a wrong.’ It is in the nature of an ex parte motion [in] which the court hears only one side. It is taken or granted at the instance and for the benefit of one party, and without notice to or consent by any party adversely affected. Accordingly, upon the filing of a proper motion by the purchaser in a foreclosure sale, and the approval of the corresponding bond, the writ of possession issues as a matter of course and the trial court has no discretion on this matter."59

WHEREFORE, premises considered, the Petition is DENIED for lack of merit. The CA Decision dated June 10, 2005 in CA-G.R. SP No. 89248 is AFFIRMED.

SO ORDERED.

G.R. No. 190823               April 4, 2011

DOMINGO CARABEO, Petitioner, vs.SPOUSES NORBERTO and SUSAN DINGCO, Respondents.

CARPIO MORALES, J.:

On July 10, 1990, Domingo Carabeo (petitioner) entered into a contract denominated as "Kasunduan sa Bilihan ng Karapatan sa Lupa"1 (kasunduan) with Spouses Norberto and Susan Dingco (respondents) whereby petitioner agreed to sell his rights over a 648 square meter parcel of unregistered land situated in Purok III, Tugatog, Orani, Bataan to respondents for P38,000.

Respondents tendered their initial payment of P10,000 upon signing of the contract, the remaining balance to be paid on September 1990.

Respondents were later to claim that when they were about to hand in the balance of the purchase price, petitioner requested them to keep it first as he was yet to settle an on-going "squabble" over the land.

Nevertheless, respondents gave petitioner small sums of money from time to time which totaled P9,100, on petitioner’s request according to them; due to respondents’ inability to pay the amount of the remaining balance in full, according to petitioner.

By respondents’ claim, despite the alleged problem over the land, they insisted on petitioner’s acceptance of the remaining balance of P18,900 but petitioner remained firm in his refusal, proffering as reason therefor that he would register the land first.

Sometime in 1994, respondents learned that the alleged problem over the land had been settled and that petitioner had caused its registration in his name on December 21, 1993 under Transfer Certificate of Title No. 161806. They thereupon offered to pay the balance but petitioner declined, drawing them to file a complaint before the Katarungan Pambarangay. No settlement was reached, however, hence, respondent filed a complaint for specific performance before the Regional Trial Court (RTC) of Balanga, Bataan.

Petitioner countered in his Answer to the Complaint that the sale was void for lack of object certain, the kasunduan not having specified the metes and bounds of the land. In any event, petitioner alleged that if the validity of the kasunduan is upheld, respondents’ failure to comply with their reciprocal obligation to pay the balance of the purchase price would render the action premature. For, contrary to respondents’ claim, petitioner maintained that they failed to pay the balance of P28,000 on September 1990 to thus constrain him to accept installment payments totaling P9,100.

After the case was submitted for decision or on January 31, 2001,2 petitioner passed away. The records do not show that petitioner’s counsel informed Branch 1 of the Bataan RTC, where the complaint was lodged, of his death and that proper substitution was effected in accordance with Section 16, Rule 3, Rules of Court.3

By Decision of February 25, 2001,4 the trial court ruled in favor of respondents, disposing as follows:

WHEREFORE, premises considered, judgment is hereby rendered ordering:

1. The defendant to sell his right over 648 square meters of land pursuant to the contract dated July 10, 1990 by executing a Deed of Sale thereof after the payment of P18,900 by the plaintiffs;

2. The defendant to pay the costs of the suit.

SO ORDERED.5

Petitioner’s counsel filed a Notice of Appeal on March 20, 2001.

By the herein challenged Decision dated July 20, 2009,6 the Court of Appeals affirmed that of the trial court.

Petitioner’s motion for reconsideration having been denied by Resolution of January 8, 2010, the present petition for review was filed by Antonio Carabeo, petitioner’s son,7 faulting the appellate court:

(A)

… in holding that the element of a contract, i.e., an object certain is present in this case.

(B)

… in considering it unfair to expect respondents who are not lawyers to make judicial consignation after herein petitioner allegedly refused to accept payment of the balance of the purchase price.

(C)

… in upholding the validity of the contract, "Kasunduan sa Bilihan ng Karapatan sa Lupa," despite the lack of spousal consent, (underscoring supplied)

and proffering that

(D)

[t]he death of herein petitioner causes the dismissal of the action filed by respondents; respondents’ cause of action being an action in personam. (underscoring supplied)

The petition fails.

The pertinent portion of the kasunduan reads:8

x x x x

Na ako ay may isang partial na lupa na matatagpuan sa Purok 111, Tugatog, Orani Bataan, na may sukat na 27 x 24 metro kuwadrado, ang nasabing lupa ay may sakop na dalawang punong santol at isang punong mangga, kaya’t ako ay nakipagkasundo sa mag-asawang Norby Dingco at Susan Dingco na ipagbili sa kanila ang karapatan ng nasabing lupa sa halagang P38,000.00.

x x x x (underscoring supplied)

That the kasunduan did not specify the technical boundaries of the property did not render the sale a nullity. The requirement that a sale must have for its object a determinate thing is satisfied as long as, at the time the contract is entered into, the object of the sale is capable of being made determinate without the necessity of a new or further agreement between the parties.9 As the above-quoted portion of the kasunduan shows, there is no doubt that the object of the sale is determinate.

Clutching at straws, petitioner proffers lack of spousal consent. This was raised only on appeal, hence, will not be considered, in the present case, in the interest of fair play, justice and due process.10

Respecting the argument that petitioner’s death rendered respondents’ complaint against him dismissible, Bonilla v. Barcena11 enlightens:

The question as to whether an action survives or not depends on the nature of the action and the damage sued for. In the causes of action which survive, the wrong complained [of] affects primarily and principally property and property rights, the injuries to the person being merely incidental, while in the causes of action which do not survive, the injury complained of is to the person, the property and rights of property affected being incidental. (emphasis and underscoring supplied)

In the present case, respondents are pursuing a property right arising from the kasunduan, whereas petitioner is invoking nullity of the kasunduan to protect his proprietary interest. Assuming arguendo, however, that the kasunduan is deemed void, there is a corollary obligation of petitioner to return the money paid by respondents, and since the action involves property rights,12 it survives.1avvphi1

It bears noting that trial on the merits was already concluded before petitioner died. Since the trial court was not informed of petitioner’s death, it may not be faulted for proceeding to render judgment without ordering his substitution. Its judgment is thus valid and binding upon petitioner’s legal representatives or successors-in-interest, insofar as his interest in the property subject of the action is concerned.13

In another vein, the death of a client immediately divests the counsel of authority.14 Thus, in filing a Notice of Appeal, petitioner’s counsel of record had no personality to act on behalf of the already deceased client who, it bears reiteration, had not been substituted as a party after his death. The trial court’s decision had thereby become final and executory, no appeal having been perfected.

WHEREFORE, the petition is DENIED.

SO ORDERED.

G.R. No. 175816               December 7, 2011

BPI FAMILY SAVINGS BANK, INC., Petitioner, vs.MA. ARLYN T. AVENIDO & PACIFICO A. AVENIDO, Respondents.

LEONARDO-DE CASTRO, J.:

This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the Decision1 dated March 31, 2006 of the Court of Appeals in CA-G.R. CV No. 79008, which affirmed the Decision2 dated November 13, 2002 of the Regional Trial Court (RTC), Branch 58 of Cebu City, in Civil Case No. CEB-25629. The RTC dismissed the Complaint for Collection of Deficiency of Mortgage Obligation with Damages filed by petitioner BPI Family Savings Bank (BPI Family) against respondent spouses Pacifico A. Avenido and Ma. Arlyn T. Avenido (spouses Avenido), following the extrajudicial foreclosure of the property given by the latter as security for their loan. The instant Petition likewise challenges the Resolution3 dated November 16, 2006 of the Court of Appeals in the same case denying the Motion for Reconsideration of BPI Family.

The controversy arose from the following facts.

On September 20, 2000, BPI Family filed with the RTC a Complaint for Collection of Deficiency of Mortgage Obligation with Damages against the spouses Avenido, docketed as Civil Case No. CEB-25629.

BPI Family alleged in its Complaint that pursuant to a Mortgage Loan Agreement4 dated April 25, 1996, the spouses Avenido obtained from the bank a loan in the amount of P2,000,000.00, secured by a real estate mortgage on a parcel of land situated in Bais City, which is covered by Transfer Certificate of Title (TCT) No. T-1216 (mortgaged/foreclosed property). The spouses Avenido failed to pay their loan obligation despite demand, prompting BPI Family to institute before the Sheriff of Bais City extrajudicial foreclosure proceedings over the mortgaged property, in accordance with Act No. 3135, otherwise known as an Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages. At the public auction sale held on March 8, 1999, BPI Family was the highest bidder for the foreclosed property. The bid price of P2,142,616.00 of BPI Family was applied as partial payment of the mortgage obligation of the spouses Avenido, which had amounted to P2,917,381.43 on the date of the public auction sale, thus, still leaving an unpaid amount ofP794,765.43. The Certificate of Sale dated March 8, 1999 was registered on TCT No. T-1216 on May 25, 1999.5

BPI Family prayed that the RTC order the spouses Avenido to pay the deficiency of their mortgage obligation amounting to P794,765.43, plus legal interest thereon from the date of the filing of the Complaint until full payment; 15% as contractual attorney’s fees; P50,000.00 as litigation expenses; and costs of the suit.6

The spouses Avenido filed their Answer with Special/Affirmative Defenses and Counterclaims on September 18, 2001. The spouses Avenido averred therein that they had already paid a substantial amount to BPI Family, which could not be less than P1,000,000.00, but due to the imposition by BPI Family of unreasonable charges and penalties on their principal obligation, their payments seemed insignificant. Per the Notice of Extrajudicial Sale dated February 4, 1999, the spouses Avenido’s indebtedness to BPI Family only amounted to less thanP2,000,000.00, and such amount was already fully covered when the foreclosed property was sold at the public auction for P2,142,616.00. The spouses Avenido sought the dismissal of the Complaint for lack of merit, plus the award of P500,000.00 as moral damages and P300,000.00 as exemplary damages given the prejudice and unnecessary expenses they suffered because of the unjustified suit of BPI Family.7

1awphil

Failing to reach an amicable settlement during the pre-trial conference, trial ensued.

BPI Family submitted the following computation in support of its claim for deficiency mortgage obligation from the spouses Avenido:

1awphi1

AUCTION SALE: MARCH 8, 1999

Principal Balance P 1,918,722.47

Interest 266,754.66

Fire Insurance 1997-1998 6,725.00

1998-1999 6,725.00

Unpaid MRI 10,720.00

Late Charges 37,425.46

Less: Unapplied (0.18)

Sub-total 2,247,072.41

Foreclosure Expenses

Filing Fee P 5,719.60

Sheriff’s Fee 1,500.00

Cost of Publication 5,000.00

Interest on Litigation Expenses 232.17 12,451.77

2,259,524.18

Contractual Penalties

Attorney’s fees 338,928.63

Liquidated Damages 338,928.63

Total 2,937,381.43

Total Appraised Value as of 03/05/99 2,678,270.00

80% of TAV 2,142,616.00

Summary:

Total Exposure as of 03/08/99 2,937,381.43

Bid Price(lower amt. between total exposure or 80% of TAV)

2,142,616.00

Deficiency 794,765.43

Portion of Principal covered by bid price to be retained in IL 0.008

BPI Family presented as witness Alfred Rason (Rason), the Assistant Manager for Operation, who was in charge of keeping track and collecting unpaid obligations of the bank. Rason testified that in the Petition for Extrajudicial Foreclosure, BPI Family reported that the loan obligation of the spouses Avenido amounted to P1,918,722.47, inclusive of interest, penalty charges, insurance, foreclosure expenses, and others, as of November 16, 1998. However, as of the public auction sale of the foreclosed property on March 8, 1999, the total loan obligation of the spouses Avenido already reached P2,937,381.43. The foreclosed property was awarded to BPI Family as the highest bidder at the public auction sale for P2,142,616.00. The bid price was arrived at by BPI Family following bank policy, i.e., total exposure of claim or 80% of the total appraised value of the foreclosed property, whichever is lower. In a letter dated July 8, 2000, sent to the spouses Avenido through registered mail, counsel for BPI family demanded payment of the deficiency balance of P794,766.43 on the loan obligation of said spouses.9

When respondent Ma. Arlyn T. Avenido (Arlyn) took the witness stand, she admitted that she and her husband, co-respondent Pacifico A. Avenido (Pacifico), obtained from BPI Family a Motor Vehicle Loan in 1995 and a Home Mortgage Loan in 1996. The Home Mortgage Loan was for P2,000,000.00, payable in 15 years through debit memos (or automatic debit arrangement), instead of post-dated checks. The spouses Avenido failed to make some payments in 1998. The spouses Avenido subsequently deposited with their account at BPI Family branch in Bais City, Negros Occidental, the amount of P250,000.00, which would have been sufficient to cover their arrears; as well as made arrangements with Dumaguete City Rural Bank to buy out their loan from BPI Family. Yet, in February 1999, the spouses Avenido learned of the foreclosure proceedings over their mortgaged property only from court personnel. BPI Family never communicated with the spouses Avenido about the foreclosure proceedings except when the former sent the latter a demand letter in July 2000 for the P700,000.00 deficiency. Counsel for the spouses Avenido answered BPI Family through a letter dated August 2, 2000, stating that the demand of the bank for deficiency was not only surprising, but lacked basis in fact and in law, for the mortgaged property was already foreclosed and sold at the public auction for P2,142,616.00, which was more than theP1,918,722.47 loan obligation of the spouses Avenido. Next thing the spouses Avenido knew, BPI Family had filed Civil Case No. CEB-25629 against them. In addition, the spouses Avenido had already fully paid their Motor Vehicle Loan in 1999, but BPI Family refused to release the Hi-Lux from the mortgage constituted thereon. BPI Family attached the Hi-Lux to

cover the deficiency of the spouses Avenido on their home loan obligation. Due to the aforementioned acts of BPI Family, Arlyn suffered sleepless nights and humiliation. Hence, she prayed for the award of moral and exemplary damages and attorney’s fees and the release of the Hi-Lux.10

The RTC rendered its Decision on November 13, 2002.

According to the RTC, the principal issue to be resolved was "whether or not [BPI Family] is entitled to deficiency judgment," which includes "a determination of the existence of the right to recover deficiency, and how much, if any."11

At the outset, the RTC recognized that in an extrajudicial foreclosure, the mortgagee has a right to recover deficiency where the proceeds of the sale are insufficient to cover the debt:

Although Act 3135 is silent on the mortgagee’s right to recover the deficiency where the proceeds of the sale is insufficient to cover the debt, it is now well-settled that said mortgagee has the right to recover the deficiency. (PB Com v. De Vera, 6 SCRA 1026; DBP v. Vda. de Noel, 43 SCRA 82; DBP v. Zaragosa, 84 SCRA 668.). The reasons advanced are 1) Although Act 3135 discusses nothing as to the mortgagee’s right to recover such deficiency, neither is there any provision thereunder which expressly or impliedly prohibits such recovery; and 2) now Rule 68 on judicial foreclosure expressly grants to the mortgagee the right to recover deficiency and the underlying principle is the same for extra-judicial foreclosure that the mortgage is but a security and not a satisfaction of indebtedness.

In the case of DBP v. Tomeldon, 101 SCRA 171, the Supreme Court ruled that the action to recover the deficiency prescribes after ten (10) years from the time the right to action accrues x x x.

Thus, in the case at bar the mortgagee’s right and the period the said right is enforced are not contested. What is essentially in controversy is whether there is a deficiency and how much.12

The RTC then determined the total amount of the loan obligation of the spouses Avenido as follows:

In the Mortgage Loan Agreement (Exhibits A and I) the due execution and genuineness of which are admitted by both parties, the [spouses Avenido] obligated themselves as Borrower-Mortgagor to pay [BPI Family] the aggregate principal amount of TWO HUNDRED TWO MILLION PESOS (P202,000,000.00) and interest on the unpaid balance from the date thereof until paid in full on the repayment dates. It further provides that in case the mortgagee fails to pay any of the sums secured, the mortgagor has the right to declare the entire obligation due and payable and to foreclose the mortgage. Moreover, Exhibit "A-2" shows that the proceeds of sale of the mortgaged property shall be applied as follows: "a) to the payment of the expenses and cost of foreclosure and sale, including the attorney’s fees as herein provided; b) to the satisfaction of all interest and charges accruing upon the obligation herein and hereby secured; c) to the satisfaction of the principal amount of the obligation herein and hereby secured; d) to the satisfaction of all other obligation then owed to the bank or any of its subsidiaries. The balance, if any, to be due to the mortgagor." Finally, the attorney’s fees stipulated is 15% of the total amount claimed by the bank (Exhibit A-3). The Court, however, finds no stipulation as regards liquidated damages.

x x x x

This Court is not convinced that [spouses Avenido’s] total indebtedness should only be ONE MILLION NINE HUNDRED EIGHTEEN THOUSAND SEVEN HUNDRED TWENTY[-]TWO [PESOS] AND FORTY[-]SEVEN [CENTAVOS] (P1,918,722.47) because the Notice of Extra-Judicial Sale (Exhibit "3") itself states "x x x to satisfy the mortgaged indebtedness which as of November 16, 1998 amount to ONE MILLION NINE HUNDRED EIGHTEEN THOUSAND SEVEN HUNDRED TWENTY[-]TWO AND FORTY[-]SEVEN CENTAVOS (P1,918,722.47) plus interest and penalty charges thereon from June 30, 1998 to date of the foreclosure sale, attorney’s fees and necessary expenses for foreclosure x x x."

Foreclosure is not a single process and it is not therefore correct to conclude that what is material is the petition for extra-judicial sale nor the date of the filing of the application.

Thus, the Court gives credence to [BPI Family’s] Exhibit "C" but not including the claim for liquidated damages in the sum of THREE HUNDRED THIRTY[-]EIGHT THOUSAND NINE HUNDRED TWENTY PESOS AND SIXTY[-]THREE CENTAVOS (P330,920.63) because it has no basis whatsoever. Thus the total amount due is TWO MILLION FIVE HUNDRED NINETY[-]EIGHT THOUSAND FOUR HUNDRED FIFTY[-]TWO PESOS AND EIGHTY CENTAVOS (P2,598,452.80). x x x.13

More than just reducing the total loan obligation of the spouses Avenido to P2,598,452.80, the RTC, in the end, denied the claim for deficiency of BPI Family based on the following ratiocination:

[T]he Court finds very significant the admission by [BPI Family’s] witness that the appraised value of the foreclosed property is actually TWO MILLION SIX HUNDRED SEVENTY[-]EIGHT THOUSAND TWO HUNDRED SEVENTY PESOS (P2,678,270.00) but [BPI Family] bidded only for 80% of the value as a matter of bank policy (TSN Afredo Rason, Aug. 6, 2002, p. 17). In other words, the actual market value of the property is more than the amount of

TWO MILLION FIVE HUNDRED NINETY[-]EIGHT THOUSAND FOUR HUNDRED FIFTY[-]TWO PESOS AND EIGHTY CENTAVOS (P2,598,452.80).

Under this circumstance, it would be inequitable to still grant the [BPI Family’s] prayer for deficiency as it will be in effect allowing it to unjustly enrich itself at the expense of the [spouses Avenido].14

Hence, the RTC decreed:

Accordingly, the [BPI Family’s] complaint and [spouses Avenido’s] counterclaim are DISMISSED.15

Aggrieved by the RTC judgment, BPI Family filed an appeal before the Court of Appeals, docketed as CA-G.R. CV No. 79008, with a lone assignment of error, to wit:

THE LOWER COURT ERRED IN NOT HOLDING [THE SPOUSES AVENIDO] LIABLE TO [BPI FAMILY] FOR DEFICIENCY OF THE MORTGAGE OBLIGATION.16

In its Decision promulgated on March 31, 2006, the Court of Appeals ruled:

A careful scrutiny of the arguments presented in the case at bar yields no substantial and convincing reason for us to depart from the ruling found by the trial court x x x.

x x x x

Indubitably, mortgagors whose properties a foreclosed and are purchased by the mortgagee as highest bidder at the auction sale are decidedly at a great disadvantage because almost invariably, mortgagors forfeit their properties at a great loss as they are purchased at a nominal cost by the mortgagee himself, who ordinarily bids in no more than his credit or the balance thereof at the auction sale.

More importantly, the mortgage contract is also one of adhesion as it was prepared solely by [BPI Family] and the only participation of the [spouses Avenido] was the affixing of their signatures or adhesion thereto. Under such contracts, which are common in the Philippines and elsewhere, the lending institutions are free to require borrowers to provide assets, like real property, of much higher value than the desired loan amount, as collateral. Being a contract of adhesion, the mortgage is to be strictly construed against [BPI Family], the party which prepared the agreement.

In the case at bar, the intent of [BPI Family] is manifest that the [spouses Avenido] shall assume liability not only for the entire obligation mentioned in the mortgage but beyond, which is improper, as it will defeat the purpose of the foreclosure proceedings which is to answer or satisfy the principal obligation in case of default or non payment thereof.

Moreover, for all intents and purposes, we hold that [spouses Avenido] shall not be liable to pay for the deficiency of their mortgage obligation because it will be at their great disadvantage considering that their property was purchased at a nominal cost by [BPI Family] at the auction sale. As a matter [of] fact, there was an admission made by [BPI Family’s] witness that the amount of the bid was only 80% of the actual price of the property. This is unfair on the part of the [spouses Avenido].

Besides, if mortgagees were allowed such right, the debtors would be at the mercy of their creditors considering the summary nature of extrajudicial foreclosure proceedings. It is also worthy to note the limited readership of auction sale notices which lead to the sale.

Accordingly, We upheld the ruling of the court a quo in absolving the [spouses Avenido] from any liability corresponding to the amount of deficiency of mortgage obligation as it will in effect be allowing [BPI Family] to unjustly enrich itself at the expense of the [spouses Avenido].17

The dispositive of the Court of Appeals judgment reads:

WHEREFORE, premises considered, the assailed Decision dated November 13, 2002 of the Regional Trial Court, Cebu City, 7th Judicial Region, Branch 58, in Civil Case No. CEB-25629, is hereby AFFIRMED. No pronouncement as to costs.18

In its Resolution dated November 16, 2006, the Court of Appeals denied the Motion for Reconsideration of BPI Family since the arguments set forth therein were but a rehash, repetition and/or reinstatement of the arguments/matters already passed upon and extensively discussed by the appellate court in its earlier decision.

Hence, the present Petition for Review of BPI Family with the following assignment of errors:

I

WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RENDERING ITS DECISION (ANNEX "A") AND RESOLUTION (ANNEX "B") DECLARING THAT [BPI FAMILY] IS NOT ENTITLED TO ITS CLAIM AGAINST THE [SPOUSES AVENIDO] FOR DEFICIENCY OF MORTGAGE OBLIGATION DESPITE THE EXPRESS PROVISIONS OF THE MORTGAGE LAW AND NUMEROUS JURISPRUDENCE ENTITLING THE MORTGAGEE-[BPI FAMILY] TO THE SAME.

II

WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT BASED ITS FINDING THAT THERE IS NO MORE DEFICIENCY OF MORTGAGE OBLIGATION BY COMPARING THE MARKET VALUE OF THE FORECLOSED PROPERTY AGAINST THE LOAN OBLIGATION OF THE MORTGAGORS-RESPONDENTS INSTEAD OF COMPARING THE ACTUAL BID PRICE AT THE AUCTION SALE AGAINST THE LOAN OBLIGATION OF THE MORTGAGORS-[SPOUSES AVENIDO].19

The primary issue posed before us is whether or not BPI Family is still entitled to collect the deficiency mortgage obligation from the spouses Avenido in the amount of P455,836.80, plus interest.

We answer in the affirmative.

It is settled that if "the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of mortgage, the mortgagee is entitled to claim the deficiency from the debtor. While Act No. 3135, as amended, does not discuss the mortgagee’s right to recover the deficiency, neither does it contain any provision expressly or impliedly prohibiting recovery. If the legislature had intended to deny the creditor the right to sue for any deficiency resulting from the foreclosure of a security given to guarantee an obligation, the law would expressly so provide. Absent such a provision in Act No. 3135, as amended, the creditor is not precluded from taking action to recover any unpaid balance on the principal obligation simply because he chose to extrajudicially foreclose the real estate mortgage."20

It is no longer challenged before us that the outstanding loan obligation of the spouses Avenido amounted toP2,598,452.80, inclusive of interests, penalties, and charges, by March 8, 1999. The controversy herein now only revolves around the value to be attributed to the foreclosed property, which would be applied against the outstanding loan obligation of the spouses Avenido to BPI Family. BPI Family insists that it should beP2,142,616.00, its winning bid price for the foreclosed property at the public auction sale, which, being less than the outstanding loan obligation of the spouses Avenido, will still leave a deficiency collectible by BPI Family from the spouses Avenido in the amount of P455,836.80. The spouses Avenido maintain that, as the RTC and the Court of Appeals ruled, it should be P2,678,270.00, the fair market value of the foreclosed property, which, being more than the outstanding loan obligation of the spouses Avenido, will already fully settle their indebtedness.

The spouses Avenido, the RTC, and the Court of Appeals may not have said it outright, but they actually consider the winning bid of BPI Family for the foreclosed property at the public auction sale to be insufficient. They took exception to the fact that the winning bid of BPI Family was equivalent to "only" 80% of the appraised value of the mortgaged property. The RTC and the Court of Appeals even went as far as to refer to the amount of the winning bid of BPI Family as "nominal" and "unfair" and would "unjustly enrich" the bank at the expense of the spouses Avenido. So the RTC and the Court of Appeals disregarded the winning bid of BPI Family and applied instead the fair market value of the foreclosed property against the outstanding loan obligation of the spouses Avenido.

According to Section 4 of Act No. 3135, an extrajudicial foreclosure sale of a mortgaged real property shall be conducted as follows:

SEC. 4. Public Auction. - The sale shall be made at public auction, between the hours of nine in the morning and four in the afternoon; and shall be under the direction of the sheriff of the province, the justice or auxiliary justice of the peace of the municipality in which such sale has to be made, or a notary public of said municipality, who shall be entitled to collect a fee of five pesos for each day of actual work performed, in addition to his expenses.

Notably, the aforequoted provision does not mention any minimum bid at the public auction sale. There is no legal basis for requiring that the bid should at least be equal to the market value of the foreclosed property or the outstanding obligation of the mortgage debtor.

We have consistently held in previous cases that unlike in an ordinary sale, inadequacy of the price at a forced sale is immaterial and does not nullify the sale. In fact, in a forced sale, a low price is more beneficial to the mortgage debtor for it makes redemption of the property easier.

Section 6 of Act No. 3135 provides for the redemption of an extrajudicially foreclosed property within a one-year period, to wit:

Sec. 6. Redemption. – In all cases in which an extrajudicial sale is made under the special power herein before referred to, the debtor, his successors-in-interest or any judicial creditor or judgment creditor of said debtor, or any

person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act. (Emphasis ours.)

Republic Act No. 337, the General Banking Act, as amended, in force at the time of the herein transactions, had a specific provision on the redemption of property extrajudicially foreclosed by banks, which reads:

Sec. 78. Loans against real estate security shall not exceed seventy percent (70%) of the appraised value of the respective real estate security, plus seventy percent (70%) of the appraised value of the insured improvements, and such loans shall not be made unless title to the real estate shall be in the mortgagor. In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any loan granted before the passage of this Act or under the provisions of this Act, the mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially, for the full or partial payment of an obligation to any bank, banking or credit institution, within the purview of this Act shall have the right, within one year after the sale of the real estate as a result of the foreclosure of the respective mortgage, to redeem the property by paying the amount fixed by the court in order of execution, or the amount due under the mortgage deed, as the case may be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said property less the income received from the property. However, the purchaser at the auction sale concerned in a judicial foreclosure shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale by the court and administer the same in accordance with law. (Emphasis ours.)

If the foreclosed property is registered, the mortgagor has one year within which to redeem the property from and after registration of sale with the Register of Deeds.21

We explained in Prudential Bank v. Martinez22 that:

[T]he fact that the mortgaged property is sold at an amount less than its actual market value should not militate against the right to such recovery. We fail to see any disadvantage going for the mortgagor. On the contrary, a mortgagor stands to gain with a reduced price because he possesses the right of redemption. When there is the right to redeem, inadequacy of price should not be material, because the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered by the reason of the price obtained at the auction sale. Generally, in forced sales, low prices are usually offered and the mere inadequacy of the price obtained at the sheriff’s sale unless shocking to the conscience will not be sufficient to set aside a sale if there is no showing that in the event of a regular sale, a better price can be obtained.23 (Citations omitted.)

We elucidated further in New Sampaguita Builders Construction Inc. v. Philippine National Bank24 that:

In the accessory contract of real mortgage, in which immovable property or real rights thereto are used as security for the fulfillment of the principal loan obligation, the bid price may be lower than the property’s fair market value. In fact, the loan value itself is only 70 percent of the appraised value. As correctly emphasized by the appellate court, a low bid price will make it easier for the owner to effect redemption by subsequently reacquiring the property or by selling the right to redeem and thus recover alleged losses. x x x.25

In Hulst v. PR Builders, Inc.,26 we reiterated that:

[G]ross inadequacy of price does not nullify an execution sale. In an ordinary sale, for reason of equity, a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one’s conscience as to justify the courts to interfere; such does not follow when the law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to effect redemption. When there is a right to redeem, inadequacy of price should not be material because the judgment debtor may re-acquire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the execution sale. Thus, respondent stood to gain rather than be harmed by the low sale value of the auctioned properties because it possesses the right of redemption. x x x.27

lawphi1

In line with the foregoing jurisprudence, we refuse to consider the question of sufficiency of the winning bid price of BPI Family for the foreclosed property; and affirm the application of said winning bid in the amount ofP2,142,616.00 against the total outstanding loan obligation of the spouses Avenido by March 8, 1999 in the sum of P2,598,452.80, thus, leaving a deficiency of P455,836.80. BPI Family may still collect the said deficiency without violating the principle of unjust enrichment, as opined by the Court of Appeals.

"There is unjust enrichment 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. Article 22 of the Civil Code provides that every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. The principle of unjust enrichment under Article 22 requires two conditions: (1) that a person is

benefited without a valid basis or justification, and (2) that such benefit is derived at another’s expense or damage."28 There is no unjust enrichment to speak of in this case. There is strong legal basis for the claim of BPI Family against the spouses Avenido for the deficiency of their loan obligation.

BPI Family made an extrajudicial demand upon the spouses Avenido for the deficiency mortgage obligation in a letter dated July 8, 2000 and received by the spouses Avenido on July 17, 2000. Consequently, we impose the legal interest of 12% per annum on the deficiency mortgage obligation amounting to P455,836.80 from July 17, 2000 until the finality of this Decision. Thereafter, if the amount adjudged remains unpaid, it will be subject to interest at the rate of 12% per annum computed from the time the judgment became final and executory until fully satisfied.

WHEREFORE, the Petition is hereby GRANTED. The assailed Decision dated March 31, 2006 and Resolution dated November 16, 2006 of the Court of Appeals in CA-G.R. CV No. 79008, affirming the Decision dated November 13, 2002 of the Regional Trial Court, Branch 58 of Cebu City, in Civil Case No. CEB-25629, isREVERSED and SET ASIDE. Respondent spouses Ma. Arlyn T. Avenido and Pacifico A. Avenido are ORDEREDto pay petitioner BPI Family Savings Bank, Inc. the deficiency of their mortgage obligation in the amount ofP455,836.80, plus legal interest of 12% per annum from July 17, 2000 until the finality of this Decision. Thereafter, the amount adjudged shall be subject to legal interest of 12% per annum from the finality of this Decision up to its satisfaction. No cost.

SO ORDERED.

G.R. No. 183444               February 8, 2012

DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, Petitioner, vs.RONALDO E. QUIWA, doing business under the name "R.E.Q. Construction," EFREN N. RIGOR, doing business under the name "Chiara Construction," ROMEO R. DIMATULAC, doing business under the name "Ardy Construction," and FELICITAS C. SUMERA, doing business under the name "F.C.S. Construction," represented by her attorney-in-fact ROMEO M. DE LEON, Respondents.

SERENO, J.:

Assailed in this Motion for Partial Reconsideration dated 8 November 2011 filed by petitioner Department of Public Works and Highways (DPWH) is the 12 October 2011 Decision of the Court, primarily affirming the trial and the appellate courts’ judgments in favor of respondents’ entitlement to compensation.

To recall, after the Mt. Pinatubo tragedy in 1991, DPWH engaged a number of contractors, including the respondents, for the urgent rehabilitation of the affected river systems. Save for Chiara Construction and Ardy Construction, respectively owned by Efren N. Rigor and Romeo R. Dimatulac, the contractors signed written agreements with Engineer Philip Meñez, Project Manager II of the DPWH.

It is undisputed that the contractors have completed their assigned rehabilitation works.1 But DPWH refused to pay the contractors for the reason that the contracts were invalid due to non-compliance with legal requirements.2As such, respondents filed an action for a sum of money against DPWH.3 The Regional Trial Court (RTC) of Manila, in Civil Case No. 96-77180, held that the contracts were valid and thus directed payment of compensation to the contractors.4 DPWH appealed to the Court of Appeals (CA), which like the RTC, ruled that the respondents are entitled to their claim of compensation.5

Petitioner appealed by certiorari before this Court. In the questioned 12 October 2011 Decision, the Court primarily affirmed the trial and the appellate courts’ judgments in favor of respondents’ entitlement to compensation against petitioner DPWH.

On 10 November 2011, petitioner filed a Motion for Partial Reconsideration6 assailing the aforementioned Decision.

Petitioner’s main contention is that respondents did not come to court with clean hands to assert their money claims against petitioner in view of their failure to comply with the legal requirements concerning government contracts and in ascertaining the extent of authority of the public official with whom they contracted.7 These omissions made the contracts void ab initio and, as a consequence, petitioner should not be made to suffer by paying respondents huge sums of money arising from void contracts.8

We deny the motion.

Petitioner unsuccessfully established the applicability of the clean hands doctrine. Citing Muller v. Muller, petitioner points out that "a litigant may be denied relief by a court of equity on the ground that his conduct has been inequitable, unfair and dishonest, or fraudulent, or deceitful as to the controversy in issue."9

However, respondents’ purported omissions, standing alone, cannot be construed as fraudulent or deceitful. Petitioner did not present evidence of actual fraud and merely inferred that because of the omissions, the respondent contractors were in bad faith. "Fraud is never presumed but must be established by clear and convincing evidence. The strongest suspicion cannot sway judgment or overcome the presumption of regularity."10

Parties who do not come to court with clean hands cannot be allowed to profit from their own wrongdoing.11 The action (or inaction) of the party seeking equity must be "free from fault, and he must have done nothing to lull his adversary into repose, thereby obstructing and preventing vigilance on the part of the latter."12 Neither the trial court nor the appellate court found any design to defraud on the part of the respondent contractors.

While petitioner is correct in saying that one who seeks equity must do equity, and one who comes into equity must come with clean hands,13 it is equally true that an allegation of fraud and dishonesty to come within the doctrine’s purview must be substantiated:

Bad faith and fraud are allegations of fact that demand clear and convincing proof. They are serious accusations that can be so conveniently and casually invoked, and that is why they are never presumed. They amount to mere slogans or mudslinging unless convincingly substantiated by whoever is alleging them.14

This court recognizes that certain omissions will qualify as "acting with unclean hands." The omission, though, must be such as to give rise to a confusion that leads to an undesirable state of things.15

Here, even with the respondents’ supposed failure to ascertain the validity of the contract and the authority of the public official involved in the construction agreements, there is no such confusion as to the matter of the contract’s validity and the equivalent compensation. As found by the court a quo, petitioner had assured the contractors that they would be paid for the work that they would do, as even DPWH Undersecretary Teodoro T. Encarnacion had told them to "fast-track" the project.16 Hence, respondents cannot by any stretch of logic, be deprived of compensation for their services when - despite their ostensible omissions - they only heeded the assurance of DPWH and proceeded to work on the urgent project.

Lest it be forgotten, our courts are courts of both law and equity.17 The petitioner merely claims that the omissions of respondents amount to fraud, while the records show that the public benefitted from the services of respondents. Given these, this Court will remain true to the rule of substantial justice and direct the payment of compensation to the contractors, who have completed their services for the government’s Mt. Pinatubo Rehabilitation Project. Otherwise, urgent actions for emergency work in the future would be discouraged.

After the unfounded clean hands doctrine resorted to by petitioner DPWH is cleared up, all that remains is its repeated arguments. Petitioner reiterates that the contracts are void, without legal effect, and cannot be cured by ratification.18 In the same Motion, it claims that the contracts were unenforceable, as they were entered into beyond the authority of Engineer Meñez.19 Petitioner also stresses that since the construction contracts with Rigor and Dimatulac are unwritten, DPWH cannot be held liable.20 It raises the point that the writing of government contracts is a requirement for existence, validity and enforceability. Citing the treatise of Bartolome C. Fernandez,21 petitioner DPWH further asserts that the government, being an artificial person, cannot verbally consent to the contract.22

These arguments have already been ruled upon, and we find no reason to disturb the rulings. To reiterate, it has been settled in several cases that payment for services done on account of the government, but based on a void contract, cannot be avoided.23 The government is unjustified in denying what it owes to contractors and in leaving them uncompensated after it has benefitted from the already completed work.24 Jurisprudence recognizes the principle of quantum meruit. Accordingly, in the interest of substantial justice, the contractor’s entitlement to compensation has been and is hereby directed.25

IN VIEW THEREOF, the 8 November 2011 Motion for Partial Reconsideration of the 12 October 2011 Decision of this Court’s Second Division is denied for lack of merit.

SO ORDERED.

G.R. No. 173349               February 9, 2011

SAMUEL U. LEE and PAULINE LEE and ASIATRUST DEVELOPMENT BANK, INC., Petitioners, vs.BANGKOK BANK PUBLIC COMPANY, LIMITED, Respondent.

VELASCO, JR., J.:

The Case

In this Petition for Review on Certiorari under Rule 45, petitioners assail the March 15, 2006 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 79362, which reversed and set aside the April 21, 2003 Decision2 of the Regional Trial Court (RTC), Branch 73 in Antipolo City, in Civil Case No. 99-5388, entitled Bangkok Bank Public Company Limited v. Spouses Samuel U. Lee and Pauline Lee and Asiatrust Development Bank for the Rescission of Real Estate Mortgage (REM), Annulment of Foreclosure Sale, Cancellation of Titles and Damages. They assail also the June 29, 2006 CA Resolution denying their motion for reconsideration.

The Facts

Midas Diversified Export Corporation (MDEC) and Manila Home Textile, Inc. (MHI) entered into two separate Credit Line Agreements (CLAs) with Respondent Bangkok Bank Public Company, Limited (Bangkok Bank) on November 29, 1995 and April 17, 1996, respectively.3 MDEC and MHI are owned and controlled by the Lee family: Thelma U. Lee, Maybelle L. Lim, Daniel U. Lee and Samuel U. Lee (Samuel).4 Both corporations have interlocking directors and management led by the Lee family; and engaged in the manufacturing and export of garments, ladies’ bags and apparel.

Bangkok Bank required guarantees from the Lee family for the two CLAs. Consequently, the Lee family executed guarantees in favor of Bangkok Bank on December 1, 1995 for the CLA for MDEC and on April 17, 1996 for the CLA of MHI. Under the guarantees, the Lee family irrevocably and unconditionally guaranteed, as principal debtors, the payment of any and all indebtedness of MDEC and MHI with Bangkok Bank.5 Prior to the granting of the CLAs, Bangkok Bank conducted a property check on the Lee family and required Samuel to submit a list of his properties. Bangkok Bank, however, did not require the setting aside, as collateral, of any particular property to answer for any future unpaid obligation.6 Subsequently, MDEC and MHI made several availments from the CLAs. In time, the advances, which MDEC and MHI had taken out from the CLAs, amounted to three million dollars (USD 3,000,000).7

On July 25, 1996, MDEC was likewise granted a loan facility by Asiatrust Development Bank, Inc. (Asiatrust).8This facility had an available credit line of forty million pesos (PhP 40,000,000) for letters of credit, advances on bills and export packing; and a separate credit line of two million dollars (USD 2,000,000) for bills purchase.9

In the meantime, in May 1997, Samuel bought several parcels of land in Cupang, Antipolo, and later entered into a joint venture with Louisville Realty and Development Corporation to develop the properties into a residential subdivision, called Louisville Subdivision.10 These properties in Cupang, Antipolo are the subject properties in the instant case (Antipolo properties) and are covered by Transfer Certificate of Title (TCT) Nos. 329663 to 329511 of the Registry of Deeds of Rizal in Marikina City (RD).11

Throughout 1997, MDEC availed itself of the omnibus credit line granted by Asiatrust on three occasions: ten million pesos (PhP 10,000,000) to mature on July 15, 1997; eleven million pesos (PhP 11,000,000) to mature on February 6, 1998; and another ten million pesos (PhP 10,000,000) to mature on February 20, 1998. In the same year, particularly in August 1997, when MDEC had defaulted in the payment of its loan that matured on July 15, 1997, Asiatrust initiated negotiations with MDEC and required the Lee family to provide additional collateral that would secure the loan. In December 1997, the negotiation was concluded when Asiatrust had agreed to Samuel’s proposition that he would mortgage the subject Antipolo properties to secure the loan, and therefore execute a REM over the properties.12 While the titles of the Antipolo properties had been delivered by Samuel to Asiatrust and the REM had been executed in January 1998, spouses Samuel and Pauline Lee (spouses Lee) were requested to sign a new deed of mortgage on February 23, 1998, and, thus, it was only on that date that the said mortgage was actually notarized, registered, and annotated at the back of the titles.13

Similarly, MDEC and MHI initially had made payments with their CLAs until they defaulted and incurred aggregate obligations to Bangkok Bank in the amount of USD 1,998,554.60 for MDEC and USD 800,000 for MHI.14 Similarly, the Lee corporations defaulted in their obligations with other creditors. For example, Security Bank Corporation (SBC) filed a case against the Lee family for a sum of money resulting from the nonpayment of obligations before the RTC, Branch 132 in Makati City, entitled Security Bank Corporation v. Duty Free Superstore, Inc., Daniel U. Lee, Samuel U. Lee and Jacqueline M. Lee, docketed as Civil Case No. 98-196. On January 30, 1998, the RTC in Civil Case No. 98-196 issued a Writ of Preliminary Attachment in favor of SBC, granting attachment of the defendants’ real and personal properties.15 The writ, however, was neither registered nor annotated on the titles of the subject Antipolo properties at the RD.

On February 16, 1998, MDEC, MHI, and three other corporations owned by the Lee family filed before the Securities and Exchange Commission (SEC) a Consolidated Petition for the Declaration of a State of Suspension of Payments and for Appointment of a Management Committee/Rehabilitation Receiver.16 Said petition acknowledged, among others, MDEC and MHI’s indebtedness with Bangkok Bank, and admitted that matured and maturing obligations could not be met due to liquidity problems. The petition likewise had a list of creditors to whom the corporations remain indebted, which included Asiatrust.17 The petition stated that the Lee family and their corporations had more than sufficient properties to cover all liabilities to their creditors; and presented a list of all their properties including the subject properties located in Antipolo, Rizal. Notably, the list of properties attached to the petition indicated that the subject Antipolo properties of the spouses Lee had already been earmarked, or that they had already served as security, for MDEC’s unpaid obligation with Asiatrust.18

On February 20, 1998, the SEC issued a Suspension Order enjoining the Lee corporations from disposing of their property in any manner except in the ordinary course of business, and from making any payments outside the legitimate expenses of their business during the pendency of the petition.19

On March 12, 1998, Bangkok Bank instituted an action before the RTC, Branch 141 in Makati City to recover the loans extended to MDEC and MHI under the guarantees, docketed as Civil Case No. 98-628.20 Bangkok Bank’s application for the issuance of a writ of preliminary attachment was granted through the Orders dated March 17 and 18, 1998, covering the properties of the Lee family in Antipolo, Cavite, Quezon City, and Baguio, among others.21

While enforcing the writs of preliminary attachment, Bangkok Bank discovered that the spouses Lee had executed a REM over the subject Antipolo properties in favor of Asiatrust; and that the REM had previously been annotated on the titles.22 Thus, the writs of preliminary attachment were also inscribed at the back of the TCTs covering the subject Antipolo properties, next to the annotation of the REM.

With MDEC still unable to make payments on its defaulting loans with Asiatrust, the latter foreclosed the subject mortgaged Antipolo properties. On April 15, 1998, Asiatrust won as the highest bidder at the auction sale, purchasing the said properties for PhP 20,864,735.23 Thereafter, Asiatrust still filed an action against MDEC and the spouses Lee to collect the deficiency amounting to at least PhP 14,800,000. Up until the filing of the memoranda by the parties before this Court, the said action remained pending before the CA.24

Subsequently, the sale was registered on April 21, 1998.25 Believing the REM and the foreclosure sale to be fraudulent, Bangkok Bank did not redeem the subject properties. As there had been no effort to redeem the properties, consequently, the TCTs covering the subject properties were consolidated in the name of Asiatrust on April 30, 1999, and 120 new titles were issued in the name of Asiatrust without the annotation of the writs of preliminary attachment, which were deemed canceled.26

Among the 120 titles foreclosed by Asiatrust in Louisville Subdivision in Antipolo, only 12 properties were sold for a maximum price of PhP 250,000 for a house and lot, and 108 titles remained. Asiatrust was still unable to sell them and convert them into cash. From then on, Asiatrust maintained security services and paid the real estate taxes of the subject Antipolo properties, among others.

On July 20, 1999, Bangkok Bank filed the instant case before the RTC, Branch 73 in Antipolo City, docketed as Civil Case No. 99-5388 for the rescission of the REM over the subject properties, annulment of the April 15, 1998 foreclosure sale, cancellation of the new TCTs issued in favor of Asiatrust, and damages amounting to PhP 600,000. In its action, Bangkok Bank alleged, among others, that the presumption of fraud under Article 1387 of the Civil Code applies, considering that a writ of preliminary attachment was issued in January 1998 in favor of SBC against Samuel. It also claimed that collusion and fraud transpired between the spouses Lee and Asiatrust in the execution of the REM. On August 5, 1999, Bangkok Bank amended its complaint to implead the RD.

Meanwhile, on March 23, 2000, the RTC, Branch 141 in Makati City in Civil Case No. 98-628 rendered a Partial Decision in favor of Bangkok Bank, ordering the Lee family, pursuant to the guarantees, to pay USD 1,998,554.60 for the CLA of MDEC and USD 800,000 for the CLA of MHI, with the corresponding 12% interest per annum from the date of the filing of the complaint, i.e., on March 12, 1998, until fully paid.

But Bangkok Bank had only levied on the execution of the partial decision, some old equipment, office fixtures and furniture, garments, textiles, and other small production equipment with an approximate aggregate value of PhP 600,000.27 Considering the total liabilities of the Lee family to Bangkok Bank, the levied properties were insufficient to satisfy the partial judgment in Civil Case No. 98-628.

The Ruling of the RTC

After due hearing with the parties presenting their evidence, on April 21, 2003, the RTC rendered a Decision dismissing the case, the fallo reading:

WHEREFORE, premises considered, the instant case is hereby dismissed for lack of merit.

No findings as to the counterclaim of the defendants for insufficiency of evidence to support the claim.

SO ORDERED.28

In dismissing the instant case, the trial court found no concrete proof of the alleged fraud committed by the Lee family and Asiatrust, more so, that of a collusion or conspiracy between them. Consequently, it ruled that Art. 1381(3) of the Civil Code does not apply. Moreover, it noted that Bangkok Bank has not proved that it cannot in any manner collect its claims from the Lee family. For one, it held that Bangkok Bank chose not to exercise its right of redemption over the subject properties; for another, the subject properties were not the only properties of the Lee family as admitted by Bangkok Bank’s sole witness, Susan Capalaran.

The RTC explained that a mortgage contract is an onerous undertaking to secure payment of an obligation and cannot be considered as a gratuitous alienation; thus, Art. 1387 of the Civil Code does not apply.29 Finally, it held

that neither fraud nor a violation of the SEC suspension order can result from the execution of the REM and the foreclosure of the subject properties, because according to the testimony of Bangkok Bank’s sole witness, the subject properties are not covered by the SEC Suspension Order for which reason Bangkok Bank filed an action to attach them. As the subject properties are not covered by the SEC Suspension Order, the RTC held that there is nothing that precludes the spouses Lee from mortgaging them to Asiatrust.30

The Ruling of the CA

Aggrieved, Bangkok Bank appealed the trial court’s decision before the CA; and on March 15, 2006, the appellate court rendered the assailed decision, which granted the appeal, and reversed and set aside the RTC decision. The decretal portion reads:

WHEREFORE, premises considered, the instant appeal is hereby GRANTED. The assailed Decision dated April 21, 2003 of the trial court is REVERSED and SET ASIDE. A new judgment is rendered ordering the:

1. Rescission of the Real Estate Mortgage over Appellees-spouses Lee’s Antipolo properties in favor of appellee Asiatrust;

2. Annulment of the Foreclosure Sale conducted on April 15, 1998;

3. Cancellation of the Transfer Certificate of Titles in the name of Asiatrust; and

4. Reversion of the titles in favor of appellees-spouses Lee.

No costs.

SO ORDERED.31

In reversing and setting aside the RTC decision, the CA held as crucial the Letter dated April 4, 1998 sent by the counsel of the Midas Group of Companies to the Office of the Clerk of Court and Ex-Officio Sheriff of the trial court relative to the extra-judicial foreclosure of the REM scheduled on April 15, 1998. The letter assailed said proceeding as bereft of legal and factual bases in the light of the February 20, 1998 Suspension Order of the SEC.32 It held that the present counsel of petitioner-spouses Lee cannot take a 360-degree turn as regards their predecessor’s position, for Bangkok Bank merely adopted petitioners’ earlier stance. Thus, the CA ruled that petitioner-spouses Lee are in estoppel in pais, under Art. 1431 of the Civil Code and Section 2(a) of Rule 131 of the Revised Rules on Evidence.

The CA found that the subject Antipolo properties, though personal assets of the spouses Lee, are covered by the February 20, 1998 Suspension Order of the SEC, since they are included in the list submitted to SEC by the Lee family; and that Samuel is a guarantor of the loans incurred by MDEC and MHI from Bangkok Bank. It ruled that Samuel, being a guarantor, is jointly and severally liable to Bangkok Bank for the corporate debts of MDEC and MHI, as he divested himself from the protection of the limited liability doctrine, which, the CA held, was shown (1) through the inclusion of the said subject Antipolo properties in the list submitted to the SEC; and (2) by Samuel, through the guarantees that he executed, thus voluntarily binding himself to the payment of the loans incurred from Bangkok Bank.

The CA also rejected petitioners’ claim that the subject properties were allotted to Asiatrust. It reasoned that if the subject properties were indeed allotted to Asiatrust, then these would not have been included in the list of properties submitted to the SEC. It added that the absence of any encumbrance annotated on the TCTs or any document appurtenant to it prior to the January 30, 1998 writ of preliminary attachment issued in Civil Case No. 98-196 and the February 20, 1998 Suspension Order further belies petitioners’ claim. The CA held that fraud was perpetrated through the REM executed and registered on February 23, 1998 pursuant to the presumption in the second paragraph of Art. 1387 of the Civil Code, which provides that "alienations by onerous title are also presumed fraudulent when made by persons against whom x x x some writ of attachment has been issued." Consequently, the spouses Lee filed the instant petition.

The Issues

I.

Whether or not Bangkok Bank can maintain an action to rescind the REM on the subject Antipolo properties despite its failure to exhaust all legal remedies to satisfy its claim.

II.

Whether or not properties owned by private individuals should be covered by a suspension order issued by the SEC in an action for suspension of payments.

III.

Whether or not a surety or guarantor is guilty of defrauding creditors for executing a REM in favor of one creditor prior to the filing of a Petition for Suspension of Payments.33

The Court’s Ruling

The core issue is whether the February 23, 1998 REM executed over the subject Antipolo properties and the April 15, 1998 foreclosure sale were committed in fraud of petitioners’ other creditors, and, as a consequence of such fraud, the questioned mortgage could, therefore, be rescinded. Petitioners allege that no fraud exists.

The petition is meritorious.

Prevailing and applicable SEC laws

At the outset, it must be noted that at the time the Consolidated Petition for the Declaration of a State of Suspension of Payments and for Appointment of a Management Committee/Rehabilitation Receiver was filed before the SEC on February 16, 1998 by MDEC, MHI, and three other corporations owned by the Lee family, Batas Pambansa Blg. (BP) 178 or the then Revised Securities Act was the primary governing law along with Presidential Decree No. (PD) 902-A, as amended, and the Corporation Code of the Philippines. Pertinently, among others, the SEC was also covered by the Investment House Law (PD 129), the Financing Company Act under Republic Act. No. (RA) 2626, the Foreign Investments Act (RA 7042), and the Liberalized Foreign Investments Act (RA 8179). And subsequent to the filing of the instant case, the Securitization Act of 2004 (RA 9267) and the Lending Company Regularization Act of 2007 (RA 9474) were also enacted.

PD 902-A,34 however, was further amended by RA 8799 or the Securities Regulation Code, approved on July 19, 2000 by President Joseph Estrada.35 Under Sec. 5.2 of RA 8799,36 the SEC’s original and exclusive jurisdiction over all cases enumerated under Sec. 5 of PD 902-A37 was transferred to the appropriate RTC. RA 8799, Sec. 5.2, however, expressly stated as an exception, that the "[t]he Commission shall retain jurisdiction over pending suspension of payment/rehabilitation cases filed as of 30 June 2000 until finally disposed." Accordingly, the Consolidated Petition for the Declaration of a State of Suspension of Payments and for Appointment of a Management Committee/Rehabilitation Receiver filed on February 16, 1998 by MDEC, MHI and three other corporations owned by the Lee family, remained under the jurisdiction of the SEC until finally disposed of pursuant to the last sentence of Sec. 5.2 of RA 8799.

The subject properties are not under the purview of the SEC Suspension Order

Pivotal to the resolution of the instant case is whether the subject properties owned by the spouses Lee were subject to the February 20, 1998 SEC Suspension Order. On the one hand, the CA held and found these to be subject to the Suspension Order. The RTC, on the other hand, found contrariwise in that the assailed REM and foreclosure sale did not violate the SEC Suspension Order.

A review of the applicable laws and existing jurisprudence would show that the subject properties owned by the spouses Lee were not subject to the February 20, 1998 SEC Suspension Order.

PD 902-A vested the SEC with jurisdiction on petitions for suspension of payments only on corporations, partnerships and associations; not on individual persons

The SEC’s jurisdiction is evident from the statutorily vested power of jurisdiction, supervision and control by the SEC over all corporations, partnerships or associations, which are grantees of primary franchise, license or permit issued by the government to operate in the Philippines, and its then original and exclusive jurisdiction over petitions for suspension of payments of said entities. Secs. 3 and 5 of PD 902-A pertinently provides, thus:

Sec. 3. The Commission shall have absolute jurisdiction, supervision and control over all corporations, partnerships or associations, who are the grantees of primary franchise and/or a license or permit issued by the government to operate in the Philippines; and in the exercise of its authority, it shall have the power to enlist the aid and support of any and all enforcement agencies of the government, civil or military.

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving:

x x x x

(d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation, partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due or in cases where the corporation,

partnership or association has no sufficient assets to cover its liabilities, but is under the management of a Rehabilitation Receiver or Management Committee created pursuant to this Decree. (Emphasis Ours.)

It can be clearly gleaned from the above provisions that in cases of petitions for the suspension of payments, the SEC has jurisdiction over corporations, partnerships and associations, which are grantees of primary franchise or license or permit issued by the government to operate in the Philippines, and their properties. And it is indubitably clear from the aforequoted Sec. 5(d) that only corporations, partnerships and associations—NOT private individuals—can file with the SEC, petitions for declaration in a state of suspension of payments. Thus, it logically follows that the SEC does not have jurisdiction to entertain petitions for suspension of payments filed by parties other than corporations, partnerships or associations. Indeed, settled is the rule that it is axiomatic that jurisdiction is the authority to hear and determine a cause, which is conferred by law and not by the policy of any court or agency.38

Private individuals and their privately owned properties cannot be placed under the jurisdiction of the SEC in a petition for suspension of payments

In Chung Ka Bio v. Intermediate Appellate Court,39 this Court resolved in the negative the issue of whether private individuals can file with the SEC petitions for declaration in a state of suspension of payments. We held that Sec. 5(d) of PD 902-A clearly does not allow a mere individual to file the petition, which is limited to "corporations, partnerships or associations." Besides, We pointed out that the SEC, being a mere administrative agency, is a tribunal of limited jurisdiction and, as such, can only exercise those powers, which are specifically granted to them by their enabling statutes. We, thus, concluded that where no authority is granted to hear petitions of individuals for suspension of payments, such petitions are beyond the competence of the SEC. In short, the SEC has no jurisdiction over private individuals relative to any petition for suspension of payments, whether the private individual is a petitioner or a co-petitioner. We have said time and again that the SEC’s "jurisdiction is limited only to corporations and corporate assets;" it has no jurisdiction over the properties of private individuals or natural persons, even if they are the corporation’s officers or sureties.40 We have, thus, consistently applied this ruling to the subsequent Ong v. Philippine Commercial International Bank,41 Modern Paper Products, Inc. v. Court of Appeals,42 and Union Bank of the Philippines v. Court of Appeals.43

Here, it is undisputed that the petition for suspension of payments was collectively filed by the five corporations owned by the Lee family. It is likewise undisputed that together with the consolidated petition is a list of properties, which included the subject Antipolo properties owned by Samuel and Pauline Lee. The fact, however, that the subject properties were included in the list submitted to the SEC does not confer jurisdiction on the SEC over such properties. It is apparent that even if the members of the Lee family are joined as co-petitioners with the five corporations, still, this could not confer jurisdiction on the SEC over the Lee family members—as private individuals—nor could this affect their privately owned properties.

Further, the fact that the debts of MDEC and MHI to Bangkok Bank are secured by the Lee family through the guarantees will not likewise put the Lee family and their privately owned properties under the jurisdiction of the SEC through the consolidated petition for suspension of payments.

Therefore, the February 20, 1998 Suspension Order issued by the SEC did not and could not have included the subject properties. The RTC correctly grasped this point that the disposition of the subject properties did not violate the suspension order.

Bangkok Bank cannot take both opposing stances

Certainly, Bangkok Bank cannot take opposite positions at the same time. On the one hand, it instituted Civil Case No. 98-628 before the RTC, Branch 141 in Makati City on March 12, 1998—almost a month after the filing of the consolidated petition before the SEC and the issuance of the February 20, 1998 Suspension Order in order to recover the loans extended to MDEC and MHI under the guarantees. In it, Bangkok Bank contended that the subject lots were not part of the properties under the jurisdiction of the SEC in the case for suspension of payments. But, on the other hand, Bangkok Bank claims that the Antipolo properties are subject to the February 20, 1998 SEC Suspension Order, and, therefore, cannot be mortgaged by the spouses Lee to Asiatrust. By saying that the subject Antipolo properties are not under the jurisdiction of the SEC that is hearing the consolidated petition for suspension of payments, it necessarily follows that the same properties could not be subject to the SEC Suspension Order. This admission is also very clear in the statement made by Bangkok Bank’s sole witness, Susan Capalaran:44

Q: In other words, by your filing of an action in Makati on March 12, 1998, you are in effect saying that the properties owned by the individual stockholders are not covered by the Suspension Order of the Securities and Exchange Commission?

Susan Capalaran: Yes.

The allegations of fraud in the instant petition

At the heart of the present controversy is the allegation of fraud by Bangkok Bank against the spouses Lee and Asiatrust. It is in this regard that the issue of fraud shall be examined here in detail. Preliminary matters, such as the applicable laws and their interpretation, shall first be explained. And subsequently, in order to fully appreciate the

allegations of fraud by Bangkok Bank, they shall be discussed in three parts: (1) the existence of fraud on the part of the spouses Lee; (2) the existence of fraud on the part of Asiatrust; and separately, (3) the existence of collusion on the part of the spouses Lee and Asiatrust. It is imperative to expound on these points separately in order to illustrate that the mere existence of fraud on the part of one party, i.e., the spouses Lee (against whom some judgment or some writ of attachment has been issued),45 does not necessarily result in the rescission of a supposed alienation, if there is any.

The presumption of fraud under Art. 1387 of the Civil Code does not apply in the present case

Under Art. 1381(3) of the Civil Code, contracts, which were "undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them," are rescissible. Art. 1387 of the Code states when an act is presumed to be fraudulent, thus:

Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered in fraud of creditors, when the donor did not reserve sufficient property to pay all debts contracted before the donation.

Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been rendered in any instance or some writ of attachment has been issued. The decision or attachment need not refer to the property alienated, and need not have been obtained by the party seeking the rescission.

In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by the law of evidence.

It is with regard to the foregoing provisions that the CA anchored its ruling of the existence of a presumption of fraud in the instant case. This presumption, however, finds no application to this case.

The presumption of fraud established under Art. 1387 does not apply to registered lands IF "the judgment or attachment made is not also registered."46 In Abaya v. Enriquez,47 Abaya was able to obtain a judgment against Enriquez for a sum of money, and the judgment was partially unsatisfied after Enriquez made a partial payment. The judgment and the writ of execution, however, was never annotated on the titles of the registered lands owned by Enriquez.48 Subsequently, Enriquez sold the said lands. In an action for rescission instituted by Abaya, the Court ruled that the presumption of fraud does not apply as the judgment and the attachment have not been registered and annotated on the title.49 The Court held:

Where the judgment rendered against the defendant x x x has not been entered in the records of the register of deeds, relative to an immovable belonging to the judgment debtor, the subsequent sale of said property by the latter, shall not be rescinded upon the ground of fraud, unless the complicity of the buyer in the fraud imputed to said vendor is established by other means than the presumption of fraud x x x.50

In this case, prior to the annotation of the REM on February 23, 1998, SBC was able to successfully acquire a writ of preliminary attachment in its favor against the spouses Lee on January 30, 1998 in a case for a sum of money for nonpayment of its obligation. Bangkok Bank alleges that because of this, the presumption of fraud under Art. 1387 of the Civil Code applies. But while a judgment was made against the spouses Lee in favor of SBC on January 30, 1998, this, however, was not annotated on the titles of the subject properties. In fact, there is no showing that the judgment has ever been annotated on the titles of the subject properties. As established in the facts, there were only two annotations at the back of the titles of the Antipolo properties: first, the REM executed in favor of Asiatrust on February 23, 1998; and second, the writ of preliminary attachment in favor of Bangkok Bank on March 18, 1998. Considering that the earlier SBC judgment or attachment was not, and in fact never was, annotated on the titles of the subject Antipolo properties, prior to the execution of the REM, the presumption of fraud under Art. 1387 of the Code clearly cannot apply.

Even assuming that Art. 1387 of the Code applies, the execution of a mortgage is not contemplated within the meaning of alienation by onerous title under the said provision

Under Art. 1387 of the Code, fraud is presumed only in alienations by onerous title of a person against whom a judgment or attachment has been issued. The term, alienation, connotes the "transfer of the property and possession of lands, tenements, or other things, from one person to another."51 This term is "particularly applied to absolute conveyances of real property" and must involve a "complete transfer from one person to another."52 A mortgage does not contemplate a transfer or an absolute conveyance of a real property.53 It is "an interest in land created by a written instrument providing security for the performance of a duty or the payment of a debt."54When a debtor mortgages his property, he "merely subjects it to a lien but ownership thereof is not parted with."55It is merely a lien that neither creates a title nor an estate.56 It is, therefore, certainly not the alienation by onerous title that is contemplated in Art. 1387 where fraud is to be presumed.

In this very action, Bangkok Bank claims that when the spouses Lee executed the REM in favor of Asiatrust, the presumption of fraud under Art. 1387 became applicable. We hold in the negative. As We have plainly discussed, a mortgage is not that which is contemplated in the term "alienation" that would make the presumption of fraud under Art. 1387 apply. It requires a full and absolute conveyance or transfer of property from one person to another, such

as that in the form of a sale. As elucidated earlier, a mortgage merely creates a lien on the property that would afford the mortgagee/creditor greater security in the obligation of the mortgagor/debtor. This being so, as the REM is not the alienation contemplated in Art. 1387 of the Code, the presumption of fraud cannot apply.

In any case, the application of the presumption of fraud under Art. 1387, if applicable, could only be made to apply to the spouses Lee as the person against whom a judgment or writ of attachment has been issued; not to Asiatrust

A careful reading of Art. 1387 of the Code vis-à-vis its Art. 1385 would plainly show that the presumption of fraud in case of alienations by onerous title only applies to the person who made such alienation, and against whom some judgment has been rendered in any instance or some writ of attachment has been issued. A third person is not and should not be automatically presumed to be in fraud or in collusion with the judgment debtor. In allowing rescission in case of an alienation by onerous title, the third person who received the property conveyed should likewise be a party to the fraud.57 As clarified by Art. 1385(2) of the Code, so long as the person who is in legal possession of the property did not act in bad faith, rescission cannot take place. Thus, in all instances, as to the third person in legal possession of the questioned property, good faith is presumed. Accordingly, it is upon the person who alleges bad faith or fraud that rests the burden of proof.58

Asiatrust, being a third person in good faith, should not be automatically presumed to have acted fraudulently by the mere execution of the REM over the subject Antipolo properties, there being no evidence of fraud or bad faith. Regrettably, in ratiocinating that fraud was committed by both the spouses Lee and Asiatrust, the CA merely anchored its holding on the presumption espoused under Art. 1387 of the Code,59 nothing more.

The alleged fraud on the part of the spouses Lee was not proved and substantiated

It appears that the argument of Bangkok Bank on the existence of fraud on the part of the spouses Lee60revolves around the application of the presumption of fraud under Art. 1387 of the Code.61 Bangkok Bank failed to substantiate its allegations by presenting clear and convincing proof that the spouses Lee indeed committed fraud in mortgaging the subject properties to Asiatrust, and instead anchored its existence of the presumption under Art. 1387. This cannot stand before this Court.

On the contrary, the spouses Lee proved the absence of fraud on their part. During trial, the spouses Lee and Asiatrust were able to substantially establish that, indeed, a loan agreement has been existing between them since 1996 and that MDEC made use of it on several occasions in 1997. It has likewise been established that, as MDEC defaulted in its payment of the loan that matured in 1997, the parties began negotiations as to how MDEC could secure the loans. It was concluded in December 1997 upon Samuel’s proposal that his Antipolo properties be used to secure MDEC’s loans by means of a mortgage. This settlement has been agreed upon even before any action was filed against the Lee corporations in 1998. These facts have been established during trial without any controversy.

No deception could have been used by the spouses Lee in including in the list of properties, which they submitted to the SEC, the subject Antipolo properties. First, it is undisputed that the list of properties submitted by the Lee corporations to the SEC clearly indicated that the subject Antipolo properties have already been earmarked, or have already been serving as security, for its loan obligations with Asiatrust. Second, MDEC, through its counsel, truly believed in good faith that the inclusion of the spouses Lee’s private properties in the list submitted to the SEC is valid and regular. As can be seen in the letter sent by the counsel of the Midas Group of Companies to the Office of the Clerk of Court and Ex-Officio Sheriff of the Antipolo RTC on April 4, 1998, at the time when the subject Antipolo properties were being foreclosed by Asiatrust, its counsel vigorously countered the actions of Asiatrust and stated that the subject Antipolo properties cannot be foreclosed pursuant to the SEC Suspension Order.62 And as discussed infra, the alleged collusion between the spouses Lee and Asiatrust appears to be a mere figment of imagination.

In any case, the facts show no presence of fraud on the part of Asiatrust; therefore, the REM was not a sham

Even pushing further to say that the REM was executed by the spouses Lee to defraud creditors, the REM cannot be rescinded and shall, therefore, stand, as Asiatrust—the third party, in favor of which the REM was executed, and which subsequently foreclosed the subject properties—acted in good faith and without any badge of fraud. As a general rule, whether the person, against whom a judgment was made or some writ of attachment was issued, acted with or without fraud, so long as the third person who is in legal possession of the property in question did not act with fraud and in bad faith, an action for rescission cannot prosper. Art. 1385 of the Civil Code explicitly states this, thus:

Art. 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 restore.

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. (Emphasis Ours.)

As to who or which entity is in legal possession of a property, the registration in the Registry of Deeds of the subject property under the name of a third person indicates the legal possession of that person.63 In this case, Asiatrust is in the legal possession of the subject Antipolo properties after the titles under the name of Spouses Lee have been canceled, and new TCTs have been issued on April 20, 1999, under the name of Asiatrust. What is more, 12 title out of the 120 titles in the Antipolo properties in question have already been sold to different persons, which make them in legal possession of the properties. It is, thus, established that Asiatrust and the 12 other unnamed persons are in legal possession of the subject Antipolo properties; and it is imperative to prove that they legally took possession of them in good faith and without any badge of fraud.

Now, as to whether Asiatrust acted with fraud or bad faith, Bangkok Bank failed to present any clear and convincing evidence that would ascertain its existence.

Contracts in fraud of creditors are those executed with the intention to prejudice the rights of creditors. They should not be confused with those entered into without such mal-intent, even if, as a direct consequence, a creditor may suffer some damage. More so it is, when the allegation involves not only fraud on the part of the debtor, but also that of another creditor. In determining whether or not a certain conveying contract is fraudulent, what comes to mind first is the question of whether the conveyance was a bona fide transaction or a trick and contrivance to defeat creditors.64 Haste alone in the foreclosure of the mortgage does not constitute the existence of fraud. Considering that the totality of circumstances clearly manifests the want of fraud and bad faith on the part of the parties to the REM in question, consequently, the REM cannot be rescinded.

In this case, it is clearly established that there was a bona fide transaction between the spouses Lee and Asiatrust that necessitated the negotiations resulting from the former’s default in the payment of its obligations; and which brought about the execution of the REM to secure their pre-existing obligations. Particularly on the part of Asiatrust, the testimonies of Shirley Benedicto, its Vice-President, who was part of the bank’s account management group tasked to ensure the proper management of loans from its inception up to its collection, and of Atty. Neriza San Juan, the bank’s former Vice-President, and Head of its Credit Support Services and Legal Services Groups, amply proved the existence of good faith and dismissed the allegation of fraud. Asiatrust was able to establish (1) the existence of a loan agreement through a loan facility/credit line between Asiatrust and MDEC since July 25, 1996, which was guaranteed by the Lee family, including Samuel; (2) the advances made by MDEC throughout 1997, which amounted to an aggregate sum of PhP 31,000,000; (3) the default in payment of MDEC on its maturing loans; and (4) the negotiations, which took place between Asiatrust and Samuel on behalf of MDEC that led, in December 1997, to the agreement for Samuel to mortgage the subject Antipolo properties to secure the defaulting loan and the loans, which were yet to mature.65 And as the last advances made by MDEC matured on February 20, 1998, it was just timely and appropriate for Asiatrust to foreclose the subject properties on April 15, 1998 in order to ensure that it is paid of the obligations, which MDEC owed to it. In this case, Asiatrust was left with only one clear and practicable means by which it could be paid of MDEC’s obligations, i.e., by foreclosing the mortgaged properties. After all, "[t]he only right of a mortgagee in case of non-payment of a debt secured by mortgage would be to foreclose the mortgage and have the encumbered property sold to satisfy the outstanding indebtedness."66

Conversely, Asiatrust did not sleep on its rights as a mortgage creditor of MDEC by foreclosing the mortgage on the spouses Lee’s Antipolo properties. On the contrary, it is odd but worth noting that Bangkok Bank never acted on its rights as creditor at the soonest possible time. It could have asserted it rights as creditor at the time when the Lee family’s corporations started to default in their payments of the loans as early as October 1997.67 When Bangkok Bank finally instituted an action against the Lee family on March 12, 1998 to collect the outstanding obligations of MDEC and MHI, a writ of preliminary attachment was issued by the Makati RTC in the same month covering the properties of the Lee family, including the subject Antipolo properties. And while enforcing the said writ, Bangkok Bank discovered the existing REM that had already been annotated on the titles of the subject Antipolo properties. But Bangkok Bank did nothing upon its knowledge and discovery. Worse, even at the time of the foreclosure and the redemption period, or until April 30, 1999, Bangkok Bank likewise did not act on the alleged fraudulent execution of the REM; nor did it redeem the subject properties. Rather, it was only on July 20, 1999 that Bangkok Bank seems to have belatedly realized that the subject Antipolo properties could properly be another means by which it could be paid of the defaulting obligations of MDEC and MHI. Interestingly, even on the elevation of this case to Us, Bangkok Bank’s counsel had to move for four extensions, totaling to 52 days within which to file a comment on the instant petition, and has been warned for it.68 Asiatrust cannot be faulted for acting with prudence, in good faith, and without any badge of fraud in the creation of the REM and in the foreclosure of the mortgage to ensure the satisfaction of the debts owed to it by MDEC. Bangkok Bank should have likewise done so at the earliest possible opportunity.

Furthermore, Asiatrust, in good faith, conducted the necessary diligence and meticulousness expected of it. During cross-examination, Atty. San Juan established that when the spouses Lee offered the subject Antipolo properties as collateral, Asiatrust had them appraised and required the spouses Lee to submit a photocopy of the titles, location map, and the relevant tax declarations, which was forwarded to its Appraisal Team. She further explained that credit investigation is a continuing annual process since the bank considers the market information in connection with the account of the borrower.69 Indeed:

The mortgagee has a right to rely in good faith on what appears on the certificate of title of the mortgagor to the property given as security and in the absence of anything to excite suspicion, he is under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the fact of the certificate. Accordingly, the right or lien of an innocent mortgagee for value upon the mortgaged property must be respected and protected,

even if the mortgagor obtained his title through fraud. The remedy of the persons prejudiced is to bring an action for damages against the person who caused the fraud x x x.70

There was no collusion between the spouses Lee and Asiatrust

Besides the fact that individually, fraud was not sufficiently and convincingly established on the part of the spouses Lee and Asiatrust, Bangkok Bank’s allegation of collusion between them was likewise unsubstantiated and therefore untenable.

First, even after the subject Antipolo properties were foreclosed by Asiatrust, Asiatrust sought the recovery of the deficiency amounting to at least PhP 14,800,000. And until the filing of the memoranda by the parties before this Court, the said action remains pending before the CA.71

Second, Asiatrust filed a criminal case against Samuel for violation of BP 22.72 At the time of the filing of the petition for review, the case was still pending before the Metropolitan Trial Court of Quezon City.73 Later, at the time of the filing of the spouses Lee’s Memorandum, it was indicated that it has already been dismissed.

Third, contrary to the CA’s appreciation of the facts,74 the letter sent by Atty. Macam, counsel of the Midas Group of Companies, actually strengthens the proof that no collusion existed between the parties. Acting on the interest of MDEC, Atty. Macam sent a letter to the Clerk of Court and the Ex-Officio Sheriff of the Antipolo RTC, arguing that the subject Antipolo properties cannot be foreclosed as they are the subject of an existing SEC Suspension Order.75 In fact, counsel for MDEC alleged that the foreclosure sale was illegal.76 On the other hand, when the Ex-Officio Sheriff presented a copy of the letter to Asiatrust and asked the latter to comment, Asiatrust categorically stated that the subject properties could not be made a subject of the SEC Suspension Order, they being properties of the spouses Lee, natural persons outside the jurisdiction of the SEC.77 In fact, it was Bangkok Bank’s sole witness, Capalaran, who firmly agreed that, indeed, the subject properties are not covered by the Suspension Order that is why Bangkok Bank, too, filed an action against the spouses Lee on March 12, 1998 and sought the attachment of the said properties.78

With all the foregoing facts strongly established, We confirm the absence of fraud, bad faith, and collusion between the spouses Lee and Asiatrust.1avvphil

The requisite (1) good faith on the part of the third person and (2) fraud, necessary for an action to rescind under Art. 1381 of the Civil Code, were not complied with

In Siguan v. Lim,79 this Court held that in an action to rescind under Art. 1381, the following requisites must exist:

The action to rescind contracts in fraud of creditors is known as accion pauliana. For this action to prosper, the following requisites must be present: (1) the plaintiff asking for rescission has a credit prior to the alienation, although demandable later; (2) the debtor has made a subsequent contract conveying a patrimonial benefit to a third person; (3) the creditor has no other legal remedy to satisfy his claim; (4) the act being impugned is fraudulent; (5) the third person who received the property conveyed, if it is by onerous title, has been an accomplice in the fraud. (Emphasis Ours; citations omitted.)

Considering the discussions previously expounded, the extant records show that the fourth and fifth requisites enumerated above are absent.

As between Asiatrust and Bangkok Bank, the former has a better right over the subject Antipolo properties, it being the first to annotate its lien on the titles of the properties

It is evidently a well-settled and elementary principle that the rights of the first mortgage creditor or mortgagee over the mortgaged properties are superior to those of a subsequent attaching creditor and other junior mortgagees.80

In this case, it is a fact that the REM was annotated on the titles of the subject Antipolo properties ahead of the writs of preliminary attachment issued in favor of Bangkok Bank. In fact, it was admitted by Bangkok Bank that it only knew of the existing mortgage that has already been annotated at the back of the subject titles when it sought the annotation of the writs of preliminary attachment.81 Therefore, as between Asiatrust as mortgage creditor and Bangkok Bank as attaching creditor, it is apparent that the former has a superior right over the latter.

Besides, "as between two persons who both stand to suffer loss, the possessor of the property should be preferred in that possession, the ownership having been transferred by delivery."82 In this case, Asiatrust, being the entity with legal possession of the subject Antipolo properties, should be preferred in that possession. In addition, 12 of the titles in question have already been sold to 12 different persons, whose identities have not been introduced in the instant case and who have not been impleaded as parties. As these persons have been in legal possession of the said properties and are in good faith, their ownership and possession, should not be disturbed.

The redemption period has already lapsed

Sec. 27, Rule 39 of the Rules of Court states the persons who may redeem a real property sold, thus:

Sec. 27. Who may redeem real property so sold.

Real property sold as provided in the last preceding section, or any part thereof sold separately, may be redeemed in the manner hereinafter provided, by the following persons:

(a) The judgment obligor, or his successor in interest in the whole or any part of the property;

(b) A creditor having a lien by virtue of an attachment, judgment or mortgage on the property sold, or on some part thereof, subsequent to the lien under which the property was sold. Such redeeming creditor is termed a redemptioner. (Emphasis Ours.)

From the foregoing rule, it is clear that Bangkok Bank, as an attaching creditor, has the right to redeem the subject Antipolo properties that were foreclosed by Asiatrust.83

In determining the period within which to redeem the foreclosed Antipolo properties in the present case, RA 337 or the General Banking Act84 finds application. Pertinently, its Sec. 78 states:

Sec. 78. x x x In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any loan granted before the passage of this Act or under the provisions of this Act, the mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially, for the full or partial payment of an obligation to any bank, banking, or credit institution, within the purview of this Act, shall have the right, within one year after the sale of the real estate as a result of the foreclosure of the respective mortgage, to redeem the property by paying the amount fixed by the court in the order of execution, with interest thereon at the rate specified in the mortgage, and all the costs and other judicial expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said property less the income received from the property. However, the purchaser at the auction sale concerned shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same in accordance with law. (Emphasis Ours.)

In this case, the auction sale took place on April 15, 1998 and was registered with the RD on April 21, 1998. Subsequently, on April 30, 1999, a date already and certainly beyond the one-year redemption period provided by law, new titles were issued in favor of Asiatrust.85 Apparently, Bangkok Bank chose not to exercise its right of redemption over the subject Antipolo properties.

Even as a general rule, "[t]he period of redemption is not tolled by the filing of a complaint or petition for annulment of the mortgage and the foreclosure sale conducted pursuant to the said mortgage,"86 Bangkok Bank, however, filed its action for rescission way beyond the expiration of the said redemption period on July 20, 1999. After the expiration of the redemption period, Asiatrust as purchaser, therefore, became the absolute owner of the subject properties, and whose rights necessarily include the right to be in the legal possession of the properties.87

As a final note, in ruling for Bangkok Bank, the CA strangely did not even delve upon any fact that could have ascertained the allegation of fraud from which Bangkok Bank based its arguments. Quite the opposite, the RTC discussed in detail the facts and testimonies presented by the parties, upon which its finding of the absence of fraud was based. Indeed, factual findings by the trial court are afforded great weight by this Court especially when supported by substantial evidence on record.88

While prejudice to Bangkok Bank ultimately resulted in the series of inopportune events that led to the present case, it cannot be denied that no clear, satisfactory and convincing evidence was presented to show fraud on the part of both the spouses Lee and Asiatrust. Nor was bad faith on the part of Asiatrust and the 12 other subsequent purchasers established. Accordingly, the REM annotated on the titles of the subject Antipolo properties and the subsequent foreclosure of the same properties cannot and should not be rescinded.

Wherefore, premises considered, the petition is hereby GRANTED. Accordingly, the CA’s March 15, 2006 Decision and June 29, 2006 Resolution in CA-G.R. CV No. 79362 are REVERSED and SET ASIDE. The RTC’s April 21, 2003 Decision in Civil Case No. 99-5388 is hereby REINSTATED.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 158576               March 9, 2011

CORNELIA M. HERNANDEZ, Petitioner, vs.CECILIO F. HERNANDEZ, Respondent.

PEREZ, J.:

Before Us is a Petition for Review1 of the Decision of the Court of Appeals in CA-G.R. CV No. 701842 dated 29 May 2003. The appellate court reversed the Decision of the Regional Trial Court of Makati, Branch 150 (RTC Branch 150), in Civil Case No. 00-11483 dated 12 February 2001, declaring that the quitclaim signed by the petitioner is valid and incontrovertible.

The controversy between the parties began when the Republic of the Philippines, through the Department of Public Works and Highways (DPWH), offered to purchase a portion of a parcel of land with an area of 80,133 square meters, covered by TCT No. T-367514 of the Registry of Deeds for Tanauan, Batangas, located at San Rafael, Sto. Tomas, Batangas, for use in the expansion of the South Luzon Expressway. The land is pro-indiviso owned by Cornelia M. Hernandez (Cornelia), petitioner herein, Atty. Jose M. Hernandez, deceased father of respondent Cecilio F. Hernandez (Cecilio),5 represented by Paciencia Hernandez (Paciencia) and Mena Hernandez (Mena), also deceased and represented by her heirs.6

The initial purchase price that was offered by the government was allegedly at Thirty-Five pesos (P35.00) per square meter for 14,643 square meters of the aforementioned land.7 The Hernandez family rejected the offer. After a series of negotiations with the DPWH, the last offer stood at Seventy Pesos (P70.00) per square meter.8They still did not accept the offer and the government was forced to file an expropriation case.

On 9 August 1993, an expropriation case was filed by the Republic of the Philippines, through the DPWH, before the Regional Trial Court, Branch 83 (RTC Branch 83), Tanauan, Batangas.9 The case was first docketed as Civil Case No. T-859, then Civil Case No. C-023. Branch Clerk of Court Francisco Q. Balderama, Jr., issued a Certification dated 10 January 2001 certifying that the docket numbers stated refers to one and the same case.10

In Civil Case No. C-023, different parcels of land in Barangay Tripache, Tanauan Batangas, which belongs to thirty-four (34) families including the Hernandezes are affected by the expansion project of the DPWH. A similar case, Civil Case No. C-022, was consolidated with the former as it affects the same DPWH endeavor. Land in San Rafael, Sto. Tomas, Batangas, which belong to twenty-three (23) families, was also the subject of expropriation.

On 11 November 1993, the owners of the Hernandez property executed a letter indicating: (1) Cecilio as the representative of the owners of the land; and (2) the compensation he gets in doing such job. The letter reads:

November 11, 1993

Mr. Cecilio F. HernandezTanauan, Batangas

Dear Cecilio:

This would confirm to give you twenty (20%) percent of any amount in excess of Seventy (P70.00) Pesos per square meter of our respective shares as success fee for your effort in representing us in Civil Case No. T-859 entitled, "Republic of the Philippines, represented by the Public Works and Highways v. Sto. Tomas Agri-Farms, Inc. and the Appellate Courts."

Whatever excess beyond Three Hundred (P300.00) Pesos per square meter of the area shall likewise be given to you as additional incentive.

We will give you One Thousand Five Hundred (P8,500.00) (sic) Pesos each for the preparation of the pleading before the Regional Trial Court and such other reasonable expenses of litigation pro-indiviso.

Very Truly Yours,

(Sgd.) PACENCIA F. HERNANDEZ

(Sgd.) CORNELIA M. HERNANDEZ

Conforme:

(Sgd.) PACITA M. HERNANDEZ

(Sgd.)CECILIO F. HERNANDEZ

HEIRS OF MENA M. HERNANDEZ

By: (Sgd.) MA. ANTONIA H. LLAMZON

AND

(Sgd.) PERSEVERANDO M. HERNANDEZ11

During the course of the expropriation proceedings, an Order dated 13 September 1996 was issued by the RTC Branch 83, informing the parties of the appointment of commissioners to help determine the just compensation. Cecilio was appointed as one of the commissioners to represent the defendants in Civil Case No. C-022. The Order reads:

In order to determine the fair market value of the lands subject of expropriation, the following are appointed as commissioners: Engr. Melchor Dimaano, as representative of the Department of Public Works and Highways (DPWH), Messrs. Magno Aguilar and Cecilio Hernandez, as representatives of the landowners, and Mr. Eric Faustino Esperanza as representative of the Court.12 (Emphasis ours)

On 18 October 1996, Cornelia, and her other co-owners who were also signatories of the 11 November 1993 letter, executed an irrevocable Special Power of Attorney (SPA) appointing Cecilio Hernandez as their "true and lawful attorney" with respect to the expropriation of the subject property.13 The SPA stated that the authority shall be irrevocable and continue to be binding all throughout the negotiation. It further stated that the authority shall bind all successors and assigns in regard to any negotiation with the government until its consummation and binding transfer of a portion to be sold to that entity with Cecilio as the sole signatory in regard to the rights and interests of the signatories therein. There was no mention of the compensation scheme for Cecilio, the attorney-in-fact.

The just compensation for the condemned properties was fixed in the Decision14 dated 7 January 1998, penned by Judge Voltaire Y. Rosales (Judge Rosales) of RTC Branch 83, Tanauan, Batangas. The value of the land located at Barangay Tripache, Tanauan, Batangas, was pegged at One Thousand Five Hundred Pesos (P1,500.00) per square meter. The total area that was condemned for the Hernandez family was Fourteen Thousand Six Hundred Forty-Three (14,643) square meters. Thus, multiplying the values given, the Hernandez family will get a total of Twenty One Million, Nine Hundred Sixty-Four Thousand Five Hundred Pesos (P21,964,500.00) as just compensation.15

Included in the decision is the directive of the court to pay the amount of P4,000.00 to Cecilio, as Commissioner’s fees.16

On 6 October 1999, petitioner executed a Revocation of the SPA17 withdrawing the authority earlier granted to Cecilio in the SPA dated 18 October 1996. After the revocation, on 28 December 1999, without the termination of counsel on record, Cornelia, with a new lawyer, moved for the withdrawal of her one-third (1/3) share of the just compensation, which is equivalent to Seven Million Three Hundred Twenty-One Thousand Five Hundred Pesos (P7,321,500.00) – the amount a pro-indiviso owner is to receive.

In the Order18 dated 24 January 2000, Judge Rosales, even with the irregularity that the motion to withdraw was not filed by the counsel of record, granted the motion of petitioner, with the condition that the money shall be released only to the attorney-in-fact, Mr. Cecilio F. Hernandez. The trial court took cognizance of the irrevocable nature of the SPA dated 18 October 1996.19 Cecilio, therefore, was able to get not just one-third (1/3) of, but the entire sum of Twenty One Million, Nine Hundred Sixty-Four Thousand Five Hundred Pesos (P21,964,500.00).

On 7 February 2000, Cornelia received from Cecilio a Bank of the Philippine Islands Check amounting to One Million One Hundred Twenty-Three Thousand Pesos (P1,123,000.00).20 The check was however accompanied by a Receipt and Quitclaim21 document in favor of Cecilio. In essence it states that: (1) the amount received will be the share of Cornelia in the just compensation paid by the government in the expropriated property; (2) in consideration of the payment, it will release and forever discharge Cecilio from any action, damages, claims or demands; and (3) Cornelia will not institute any action and will not pursue her complaint or opposition to the release to Cecilio or his heirs or assigns, of the entire amount deposited in the Land Bank of the Philippines, Tanauan, Batangas, or in any other account with any bank, deposited or will be deposited therein, in connection with Civil Case No C-023, representing the total just compensation of expropriated properties under the aforementioned case.

The check was received by Cornelia with a heavy heart. She averred in her ex-parte testimony that she was forced to receive such amount because she needs the money immediately for medical expenses due to her frail condition.22

Moreover, Cornelia averred that after a few days from her receipt of the check, she sought the help of her niece, Daisy Castillo, to get the decision in Civil Case No. C-022.23 It was only then, when her niece got hold of the decision and explained its contents, that she learned that she was entitled to receive Seven Million Three Hundred Twenty-One Thousand Five Hundred Pesos (P7,321,500.00).24 In a Letter25 dated 22 June 2000, Cornelia demanded the accounting of the proceeds. The letter was left unanswered. She then decided to have the courts settle the issue. A Complaint for the Annulment of Quitclaim and Recovery of Sum of Money and Damages26 was filed before the RTC Branch 150 of Makati on 18 September 2000. The case was docketed as Civil Case No. 00-1184.

Cecilio, despite the service of summons and copy of the complaint failed to file an answer. The trial court explained further that Cecilio was present in the address supplied by the petitioner but refused to receive the copy. The trial court even gave Cecilio ten (10) more days, from his refusal to accept the summons, to file his answer. Upon the motion of the petitioner, respondent Cecilio was declared in default. The court allowed petitioner to adduce evidence ex parte.27

Cecilio tried to file a Motion for Reconsideration to lift the order of default. However, the trial court found that the leeway they have given Cecilio to file an answer was more than enough.

In the Decision dated 12 February 2001, the RTC Branch 150 of Makati, through Judge Zeus C. Abrogar denied the motion and nullified the quitclaim in favor of Cecilio. The fallo of the case reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, declaring the receipt and quitclaim signed by the plaintiff dated February 7, 2000 as null and void and ordering the defendant to pay the plaintiff the amount of;

1. P6,198,417.60, including the accrued interest thereon with 12% per annum, computed from the date of the filing hereof until the said amount is fully paid;

2. payment of P200,000.00 to the plaintiff by the defendant by way of moral damages;

3. attorney’s fees in the sum of P100,000.00 and;

4. cost of suit.28

Aggrieved, Cecilio appealed the Decision of the trial court. The Court of Appeals did not discuss whether the default order was proper. However, the appellate court, in its Decision dated 29 May 2003 reversed and set aside the ruling of the trial court. The dispositive portion reads:

WHEREFORE, premises considered, the Decision dated February 12, 2001, of the Regional Trial Court of Makati, National Capital Judicial Region, Branch 150, in Civil Case No. 00-1148, is hereby REVERSED and SET ASIDE and a new one is entered ordering the dismissal of the complaint filed on September 13, 2000 by the appellee against the appellant. No pronouncement as to costs.29

Petitioner Cornelia now submits that the Court of Appeals erred in holding the validity of the receipt and quitclaim document contrary to law and jurisprudence.30 She holds that the distribution of award that transpired is unjust and prays that the decision of the RTC Branch 150 of Makati be reinstated.

We agree.

The trial court awarded the Hernandez family, among others, a total amount of P21,964,500.00 for the expropriation of 14,643 square meters of land to be used as extension of the South Luzon Expressway. The three co-owners of the said land, Cornelia, Mena and Paciencia were listed as item number twenty (20) in the decision dated 7 January 1998, as one of the recipients of the just compensation to be given by the government.31 As pro-indiviso landowners of the property taken, each one of them ought to receive an equal share or one third (1/3) of the total amount which is equivalent to P7,321,500.00.

The equal division of proceeds, however, was contested by Cecilio. He avers that he is the agent of the owners of the property.32 He bound himself to render service on behalf of her cousins, aunt and mother, by virtue of the request of the latter.33 As an agent, Cecilio insists that he be given the compensation he deserves based on the agreement made in the letter dated 11 November 1993, also called as the service contract,34 which was signed by all the parties. This is the contract to which Cecilio anchors his claim of validity of the receipt and quitclaim that was signed in his favor.

I.

A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable.35In determining whether consent is vitiated by any of the circumstances mentioned, courts are given a wide latitude in weighing the facts or circumstances in a given case and in deciding in their favor what they believe to have actually occurred, considering the age, physical infirmity, intelligence, relationship, and the conduct of the parties at the time of the making of the contract and subsequent thereto, irrespective of whether the contract is in public or private writing.36 And, in order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or those conditions which have principally moved one or both parties to enter the contract.37

The compensation scheme of 20% of any amount over P70.00 per square meter and everything above P300.00 per square meter was granted in favor of Cecilio by the Hernandezes on 11 November 1993. At that time, the Hernandezes had just rejected the government’s offer of P35.00 per square meter, which offer last stood atP70.00 per square meter. It was the rejection likewise of the last offer that led to the filing of the expropriation case on 9 August 1993. It was in this case, and for Cecilio’s representation in it of the Hernandezes, that he was granted the compensation scheme. Clear as day, the conditions that moved the parties to the contract were the base price at P70.00 per square meter, the increase of which would be compensated by 20% of whatever may be added to the base price; and the ceiling price of P300.00 per square meter, which was considerably high reckoned from the base at P70.00, which would therefore, allow Cecilio to get all that which would be in excess of the elevated ceiling. The ceiling was, from the base, extraordinarily high, justifying the extraordinary grant to Cornelio of all that would exceed the ceiling.

It was on these base and ceiling prices, conditions which principally moved both parties to enter into the agreement on the scheme of compensation, that an obvious mistake was made. The trial court, deviating from the principle that just compensation is determined by the value of the land at the time either of the taking or filing,38 which was in 1993, determined the compensation as the 1998 value of P1,500.00 per square meter. The trial court ratiocinated that the 1998 value was considered for the reason, among others that:

3. It is common knowledge that prices of real estate in Batangas, including and/or particularly in Sto.Tomas and Tanauan have skyrocketed in the past two years;39 (Emphasis ours).

This 1998 "skyrocketed" price of P1,500.00 per square meter was pounced upon by Cecilio as the amount against which the 1993 ceiling of P300.00 per square meter should be compared, thereby giving him the amount computed40 as follows:

CECILIO’S FEES = (20% of anything over P70.00) + (everything in excess of P300)

*If the land value is at P1,500.00 per square meter, then,

= (20% of P230.00) + (P1,500.00 – P300.00)= P46.00 + P1,200.00= P 1,246.00 per square meter

CORNELIA’S SHARE= (land value at 1,500 less Cecilio’s fees)= P 254.00 per square meter

*The total expropriated property is at 14,643 m 2 ,  thus, Cecilio will get a total of

= P 1,246.00 * 14,643   = P 18,245,178.00 total compensatinon

*One Third of the above value shows that Cecilio will get, from Cornelia

=  P 6,081,726.00

It must be noted that:

*The Hernandez’ family gets P 21,964,500  for 14,643 m 2 ,  at P 1,500.00 per m 2

*One-third (1/3) of that is P 7,321,500  representing the share of a co-owner like Cornelia

*What will be left of Cornelia’s share if she pays Cecilio will be:

P 1,239,774  less: 124,953.60 (Nominal Cost of Litigation as averred by Cecilio)

1,500.00 (Nominal payment for preparation of pleadings)

OVERALL TOTAL AMOUNT CORNELIA WILL RECEIVE:

P   1,113,320.4

As opposed to:

OVERALL TOTAL AMOUNT CECILIO WILL RECEIVE: P 6,081,726.00

Cecilio’s position would give him 83.07% of the just compensation due Cornelia as a co-owner of the land. No evidence on record would show that Cornelia agreed, by way of the 11 November 1993 letter, to give Cecilio 83.07% of the proceeds of the sale of her land.

What is on record is that Cornelia asked for an accounting of the just compensation from Cecilio several times, but the request remained unheeded. Right at that point, it can be already said that Cecilio violated the fiduciary relationship of an agent and a principal. The relation of an agent to his principal is fiduciary and it is elementary that in regard to property subject matter of the agency, an agent is estopped from acquiring or asserting a title adverse to that of the principal. His position is analogous to that of a trustee and he cannot, consistently with the principles of good faith, be allowed to create in himself an interest in opposition to that of his principal or cestui que trust.41

Instead of an accounting, what Cornelia received was a receipt and quitclaim document that was ready for signing. As testified to by Cornelia, due to her frail condition and urgent need of money in order to buy medicines, she nevertheless signed the quitclaim in Cornelio’s favor. Quitclaims are also contracts and can be voided if there was fraud or intimidation that leads to lack of consent. The facts show that a simple accounting of the proceeds of the just compensation will be enough to satisfy the curiosity of Cornelia. However, Cecilio did not disclose the truth and

instead of coming up with the request of his aunt, he made a contract intended to bar Cornelia from recovering any further sum of money from the sale of her property.

The preparation by Cecilio of the receipt and quitclaim document which he asked Cornelia to sign, indicate that even Cecilio doubted that he could validly claim 83.07% of the price of Cornelia’s land on the basis of the 11 November 1993 agreement. Based on the attending circumstances, the receipt and quitclaim document is an act of fraud perpetuated by Cecilio. Very clearly, both the service contract of 11 November 1993 letter- agreement, and the later receipt and quitclaim document, the first vitiated by mistake and the second being fraudulent, are void.

II.

Cecilio’s last source of authority to collect payment from the proceeds of the expropriation is the SPA executed on 18 October 1996 by the Hernandezes in favor of Cecilio as their "true and lawful" attorney with respect to the expropriation of the Hernandez property. At the outset, it must be underscored that the SPA did not specify the compensation of Cecilio as attorney-in-fact of the Hernandezes.

The SPA, however, must be appreciated in the light of the fact that Cecilio was appointed and acted as appraisal commissioner in the expropriation case under the provisions of Section 5, Rule 67 of the Rules of Court, which provides:

SEC. 5. Ascertainment of compensation. — Upon the rendition of the order of expropriation, the court shall appoint not more than three (3) competent and disinterested persons as commissioners to ascertain and report to the court the just compensation for the property sought to be taken. The order of appointment shall designate the time and place of the first session of the hearing to be held by the commissioners and specify the time within which their report shall be submitted to the court. (Emphasis ours).

The commissioner to be appointed is specifically required to be disinterested. As defined, such person must be free from bias, prejudice or partiality.42 The record of performance by Cecilio of his duties as commissioner shows: (1) Order dated 13 September 1996 appointing Cecilio and three others as court commissioners; (2) Agreement on the course of action of the commissioners appointed 13 September 1996 whereby respondent Cecilio signed as a court commissioner; (3) Appraisal Commission Report dated 10 January 1997 signed by respondent and his fellow court commissioners; (4) Dissenting Opinion on the Lone Minority Report dated 14 February 1997 signed by respondent and two other court commissioners; and (5) Decision dated 7 February 1997 which sets the fees of the court commissioners.43

When Cecilio accepted the position as commissioner and proceeded to perform the duties of such commissioner until the completion of his mandate as such, he created a barrier that prevented his performance of his duties under the SPA. Due to the nature of his duties and functions as commissioner, Cecilio became an officer of the court. As stated in Section 5, Rule 67 of the Rules of Court, the commissioner’s duty is to "ascertain and report to the court the just compensation for the property to be taken." The undertaking of a commissioner is further stated under the rules, to wit:

SEC. 6. Proceedings by commissioners.—Before entering upon the performance of their duties, the commissioners shall take and subscribe an oath that they will faithfully perform their duties as commissioners, which oath shall be filed in court with the other proceedings in the case. Evidence may be introduced by either party before the commissioners who are authorized to administer oaths on hearings before them, and the commissioners shall, unless the parties consent to the contrary, after due notice to the parties to attend, view and examine the property sought to be expropriated and its surroundings, and may measure the same, after which either party may, by himself or counsel, argue the case. The commissioners shall assess the consequential damages to the property not taken and deduct from such consequential damages the consequential benefits to be derived by the owner from the public use or purpose of the property taken, the operation of its franchise by the corporation or the carrying on of the business of the corporation or person taking the property. But in no case shall the consequential benefits assessed exceed the consequential damages assessed, or the owner be deprived of the actual value of his property so taken.

Cecilio acted for the expropriation court. He cannot be allowed to consider such action as an act for or in behalf of the defendant in the same case. Cecilio could not have been a hearing officer and a defendant at the same time. Indeed, Cecilio foisted fraud on both the Court and the Hernandezes when, after his appointment as commissioner, he accepted the appointment by the Hernandezes to "represent" and "sue for" them.

It should be noted, finally, that, as completion of his appointment as commissioner, compensation for the work he has done for the court was awarded, as stated in the decision rendered in the case, thus:

Finally, plaintiff is directed to pay the corresponding Commissioner’s fees of the following, to wit:

1. Eric Faustino J. Esperanza – Chairman P5,000.00

2. Cecilio F. Hernandez – Member 4,000.00

3. Magno Aguilar – Member 4,000.00

4. Melchor Dimaano – Member 4,000.0044

III.

Cecilio breached an obligation that is neither a loan nor forbearance of money. The decision of the lower court ordering Cecilio to pay the amount of P6,189,417.60 to Cornelia at 12% per annum until fully paid should be modified to 6% per annum from the time of the filing of the complaint up to the date of the decision, and at 12% per annum from finality until fully paid, in order to conform to the doctrine enunciated by Eastern Shipping Lines, Inc. v. Court of Appeals,45 to wit:

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 of 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 of 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.

WHEREFORE, premises considered, the Decision of the Court of Appeals is hereby REVERSED and SET ASIDE. The Decision of the RTC of Makati, Branch 150 is REINSTATED with the following MODIFICATIONS that the interest on the monetary awards should be at 6% per annum from the time of the filing of the complaint up to the date of the decision, and at 12% per annum from finality until fully paid.

SO ORDERED.

G.R. No. 174104               February 14, 2011

INSURANCE OF THE PHILIPPINE ISLANDS CORPORATION, Petitioner, vs.SPOUSES VIDAL S. GREGORIO and JULITA GREGORIO, Respondents.

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the reversal and nullification of the Decision1 of the Court of Appeals (CA), dated June 14, 2006 and its Resolution2 dated August 10, 2006 in CA-G.R. CV No. 82303. The assailed CA Decision reversed the Decision3 of the Regional Trial Court (RTC) of Morong, Rizal, Branch 79, in Civil Case No. 748-M in favor of herein petitioner, while the questioned CA Resolution denied petitioner's motion for reconsideration.

The pertinent antecedent facts of the case, as summarized by the CA, are as follows:

On January 10, 1968, the spouses Vidal Gregorio and Julita Gregorio [herein respondents] obtained a loan from the Insurance of the Philippine Islands Corporation [herein petitioner] (formerly known as Pyramid Insurance Co., Inc.) in the sum of P2,200.00, payable on or before January 10, 1969, with interest thereon at the rate of 12% per annum. By way of security for the said loan, [respondents] executed a Real Estate Mortgage in favor of [petitioner] over a parcel of land known as Lot 6186 of the Morong Cadastre, then covered by Tax Declaration No. 7899 issued by the Municipal Assessor's Office of Morong, Rizal.

On February 14, 1968, [respondents] again obtained another loan from [petitioner] in the sum of P2,000.00, payable on or before February 14, 1969, with 12% interest per annum. Another Real Estate Mortgage, covering a parcel of land known as Lot No. 6190 of the Morong Cadastre under Tax Declaration No. 10518, was executed by [respondents] in favor of [petitioner].

On April 10, 1968, [respondents] obtained, for the third time, another loan from [petitioner] in the amount ofP4,500.00 payable on or before April 10, 1969 with 12% interest per annum. As a security for the loan, [respondents] again executed a Real Estate Mortgage, this time covering two parcels of land: Lot 3499 under Tax Declaration No. 10631-Rizal and a lot situated in Brgy. Kay Kuliat under Tax Declaration No. 3918.

[Respondents] failed to pay their loans, as a result of which the [mortgaged] properties were extrajudicially foreclosed. The extrajudicial foreclosure sale was conducted on December 11, 1969 where [petitioner] was the highest bidder. Since [respondents] failed to redeem the property, [petitioner] consolidated its ownership over the properties. The corresponding Tax Declarations were thereafter issued in the name of [petitioner].4

On February 20, 1996, petitioner filed a Complaint5 for damages against respondents alleging that in 1995, when it was in the process of gathering documents for the purpose of filing an application for the registration and confirmation of its title over the foreclosed properties, it discovered that the said lots were already registered in the names of third persons and transfer certificates of title (TCT) were issued to them.

Claiming that respondents acted in a fraudulent and malevolent manner in enticing it to grant their loan applications by misrepresenting ownership of the subject properties, petitioner prayed for the grant of actual and exemplary damages as well as attorney's fees and litigation expenses.

In their Amended Answer,6 respondents contended that their obligations in favor of petitioner were all settled by the foreclosure of the properties given as security therefor. In the alternative, respondents argue that petitioner's cause of action and right of action are already barred by prescription and laches. 1avvphi1

In its Decision dated February 23, 2004, the RTC of Morong, Rizal, ruled in favor of petitioner, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and as against the defendants, directing the latter to pay the plaintiff, jointly and severally, as follows:

a. Actual damages in the amount of P1,000,000.00, representing the fair market value of the real properties subject matter of this suit;

b. For defendants' deceit and bad faith, exemplary damage in the sum of P300,000.00;

c. Attorney's fees and litigation expenses in the amount of P200,000.00; and

d. Costs of suit.

SO ORDERED.7

Aggrieved, respondents appealed the judgment of the trial court to the CA.

On June 14, 2006, the CA rendered a Decision reversing and setting aside the decision of the RTC and dismissing the complaint of petitioner. It ruled that petitioner's action for damages is barred by prescription and laches.

Petitioner filed a Motion for Reconsideration but the CA denied it in its Resolution of August 10, 2006.

Hence, the instant petition.

Petitioner's main contention is that the CA erred in ruling that petitioner's right to any relief under the law has already prescribed or is barred by laches. Petitioner argues that the prescriptive period of its action for damages should be counted from 1995, which it alleges to be the time that it discovered the fraud committed by respondents against it.

On the other hand, the CA ruled that petitioner's right of action prescribed four years after the subject properties were registered with the Register of Deeds of Morong, Rizal and TCTs were subsequently issued in the names of third persons in the years 1970, 1973 and 1989.

The Court finds the petition meritorious.

Petitioner filed an action for damages on the ground of fraud committed against it by respondents. Under the provisions of Article 1146 of the Civil Code, actions upon an injury to the rights of the plaintiff or upon a quasi-delict must be instituted within four years from the time the cause of action accrued.8

The Court finds no error in the ruling of the CA that petitioner's cause of action accrued at the time it discovered the alleged fraud committed by respondents. It is at this point that the four-year prescriptive period should be counted. However, the Court does not agree with the CA in its ruling that the discovery of the fraud should be reckoned from the time of registration of the titles covering the subject properties.

The Court notes that what has been given by respondents to petitioner as evidence of their ownership of the subject properties at the time that they mortgaged the same are not certificates of title but tax declarations, in the guise that the said properties are unregistered. On the basis of the tax declarations alone and by reason of respondent's misrepresentations, petitioner could not have been reasonably expected to acquire knowledge of the fact that the said properties were already titled. As a consequence, petitioner may not be charged with any knowledge of any

subsequent entry of an encumbrance which may have been annotated on the said titles, much less any change of ownership of the properties covered thereby. As such, the Court agrees with petitioner that the reckoning period for prescription of petitioner's action should be from the time of actual discovery of the fraud in 1995. Hence, petitioner's suit for damages, filed on February 20, 1996, is well within the four-year prescriptive period.

Neither may the principle of laches apply in the present case.

The essence of laches or "stale demands" is the failure or neglect for an unreasonable and unexplained length of time to do that which, by exercising due diligence, could or should have been done earlier, thus, giving rise to a presumption that the party entitled to assert it either has abandoned or declined to assert it.9 It is not concerned with mere lapse of time; the fact of delay, standing alone, being insufficient to constitute laches.10

In addition, it is a rule of equity and applied not to penalize neglect or sleeping on one's rights, but rather to avoid recognizing a right when to do so would result in a clearly unfair situation.11 There is no absolute rule as to what constitutes laches or staleness of demand; each case is to be determined according to its particular circumstances.12 Ultimately, the question of laches is addressed to the sound discretion of the court and, being an equitable doctrine, its application is controlled by equitable considerations.13 It cannot be used to defeat justice or perpetrate fraud and injustice.14 It is the better rule that courts, under the principle of equity, will not be guided or bound strictly by the statute of limitations or the doctrine of laches when to be so, a manifest wrong or injustice would result.15

It is significant to point out at this juncture that the overriding consideration in the instant case is that petitioner was deprived of the subject properties which it should have rightly owned were it not for the fraud committed by respondents. Hence, it would be the height of injustice if respondents would be allowed to go scot-free simply because petitioner relied in good faith on the former's false representations. Besides, as earlier discussed, even in the exercise of due diligence, petitioner could not have been expected to immediately discover respondents' fraudulent scheme.

WHEREFORE, the instant petition is GRANTED. The Decision and Resolution, dated June 14, 2006 and August 10, 2006, respectively, of the Court of Appeals in CA-G.R. CV No. 82303, are REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Morong, Rizal, Branch 79, dated February 23, 2004 in Civil Case No. 748-M, is REINSTATED.

SO ORDERED.

G.R. No. 179323               November 28, 2011

VICENTE MANZANO, JR., Petitioner, vs.MARCELINO GARCIA, Respondent.

LEONARDO-DE CASTRO, J.:

This is a Petition for Review on Certiorari seeking the reversal of the Decision1 of the Court of Appeals in CA-G.R. CV No. 55408 dated September 26, 2006 and its Resolution2 dated August 9, 2007, denying the Motion for Reconsideration.

This case involves a parcel of land covered by Transfer Certificate of Title (TCT) No. T-25464, issued in the name of respondent Marcelino D. Garcia (Garcia). The subject parcel of land has an area of six thousand nine hundred fifty-one (6,951) square meters and is located in Balonguis, Balulang, Cagayan de Oro City.3

The above property was the subject of a deed of pacto de retro sale dated May 26, 1992 allegedly executed by Garcia in favor of Constancio Manzano, the predecessor-in-interest and brother of petitioner Vicente Manzano, Jr. (Vicente) for the amount of eighty thousand five hundred pesos (P80,500.00). Under said contract, Garcia purportedly reserved the right to repurchase the subject property for the same price within three months from the date of the instrument.4

On July 12, 1992, Constancio Manzano passed away. His properties, including the subject of this case, were adjudicated to his heirs by virtue of a deed of extrajudicial partition with special power of attorney executed by them. Vicente was named the administrator of the intestate estate of Constancio Manzano.5

Garcia did not redeem the subject property within the three-month period. Consequently, Vicente instituted apetition for consolidation of ownership over the property,6 docketed as Civil Case No. 93-610. Garcia filed an opposition and answer, alleging that the document evidencing the pacto de retro sale was a forgery. He claimed that he and his wife were in the United States of America (USA) from June 1, 1988 to November 14, 1992, and therefore could not have possibly executed the said pacto de retro sale on May 26, 1992.7

On February 15, 1994, Garcia filed a complaint for annulment of pacto de retro sale and recovery of the owner’s title with preliminary injunction against Vicente. The case was docketed as Civil Case No. 94-097. In his complaint, Garcia reiterated that he and his wife never participated in the execution of the alleged deed of pacto de retro sale dated May 26, 1992 and that in fact, they were still in possession of the said property. He further alleged that he came to know the existence of said document only when the counsel of Vicente sent him a letter on January 18, 1993 demanding that he should repurchase the property pursuant to the purported terms of the pacto de retro sale within fifteen days from receipt of said letter. Upon further inquiry, he discovered that a certain Mr. P. Pacot had executed the questioned document by misrepresenting himself as "Marcelino G. Garcia" (bearing the wrong middle initial) who resided in Casinglot, Misamis Oriental, as evidenced by the Residence Certificate used in the acknowledgement page of the pacto de retro sale.8

Vicente’s petition for consolidation of ownership over the property (Civil Case No. 93-610) and Garcia’s action for annulment of pacto de retro sale and recovery of the owner’s title with preliminary injunction (Civil Case No. 94-097) were consolidated before the trial court.9

During the trial, Vicente presented TCT No. T-25464 and Tax Declaration No. 41672 to prove the due execution of the pacto de retro sale, which was recorded in the office of the Register of Deeds of Cagayan de Oro City.

On the other hand, Garcia testified that he went to the USA on November 7, 1987. A few months later, he returned to the Philippines. He went back to the USA on June 1, 1988. His three children were left in the Philippines, while the titles to his properties were left in the office of his business establishment in Tablon, Cagayan de Oro City with two of their children. Garcia testified that the signatures appearing in the pacto de retro sale were not his and his wife’s. He presented his passport and driver’s license, both of which bear an entirely different signature than what appeared in the pacto de retro sale document.10

Atty. Demosthenes Mediante, Jr. (Atty. Mediante), the person who notarized the deed of conveyance in question, testified that the Marcelino Garcia who appeared in his office and who executed the pacto de retro sale is not the same Marcelino Garcia who was in court during the trial of the case.11

Perla Babano, one of the witnesses to the execution of the pacto de retro sale, likewise testified that the person who introduced himself as Marcelino G. Garcia and signed the document on May 26, 1992 is not the same Marcelino Garcia who was in court during the trial of the case.12

On August 30, 1996, the trial court rendered its Decision on the consolidated cases in favor of Vicente, disposing of the same as follows:

WHEREFORE, in view of the foregoing, Civil Case No. 94-097, is hereby dismissed and declaring the Deed of Pacto de Retro Sale legal and valid, and granting the prayer of petitioner in Civil Case No. 93-610 to consolidate ownership of the land in favor of Vicente Manzano, Jr. representing the heirs of Constancio Manzano, namely: Felix, Andrea, Maxima, Ramon and Marciana, all surnamed Manzano, for all legal purposes. No costs.13

The trial court held that Garcia failed to prove that his signature in the pacto de retro sale was forged. According to the court, Garcia should have presented an expert witness to determine whether the signatures were made by the same person. The trial court doubted the testimonies of Atty. Mediante (the notary public) and Babano (one of the witnesses to the pacto de retro sale). The court noted the admission of Atty. Mediante that he notarizes around 25 to 30 documents per month and could not describe or remember all the persons appearing before him for notarization. The court was likewise intrigued by the testimony of Atty. Mediante that he had seen the alleged impostor Marcelino Garcia sitting at the Cagayan de Oro Divisoria for two weeks. As regards Babano, the trial court found it unnatural for an impersonator to show her, a stranger, documents such as the title to the subject property. Also, the trial court found the low price paid for the property insignificant considering that the vendor had the right to repurchase the property within three months from the sale.

Garcia sought recourse with the Court of Appeals. The appeal was docketed as CA-G.R. CV No. 55408 and was raffled to the Court of Appeals’ twenty-third division in Cagayan de Oro City. On September 26, 2006, the appellate court rendered the assailed decision reversing that of the trial court. The dispositive portion of the decision read:

FOR THE REASONS STATED, We REVERSE and SET ASIDE the assailed decision of the Regional Trial Court. In its place, judgment is hereby rendered declaring the pacto de retro sale executed on May 26, 1992, VOID AB INITIO and dismissing Civil Case No. 93-610.

Furthermore, Appellee Vicente Manzano, Jr., is ordered to RETURN the owner’s duplicate copy of TCT No. T-25464 to Appellant Marcelino D. Garcia. Entry No. 164181 annotated at the back of the said title is hereby ordered cancelled.14

According to the Court of Appeals, there is no rule requiring expert testimony to determine the genuineness of a signature appearing on a document. Since it was plainly obvious from the evidence on record that the signature appearing on the pacto de retro sale is far different from the customary signature of Garcia that appeared in his passport and driver’s license, the testimony of Garcia that the signature was not his is sufficient evidence of the forgery pursuant to Section 50, Rule 13015 of the Rules of Court. The Court of Appeals added that on the basis of

Atty. Mediante’s testimony, the presumption of regularity in the execution of the public document has been sufficiently destroyed and overcome. The Court of Appeals concluded that the pacto de retro sale is void ab initio pursuant to Article 1409 in relation to Article 1505 of the Civil Code.

Hence, Vicente is now before this Court with the following assignment of errors:

I. THAT THE COURT OF APPEALS ERRED WHEN IT DECLARED THAT RESPONDENT AND HIS WIFE BEING IN THE UNITED STATES, COULD HAVE NOT EXECUTED THE DEED OF PACTO DE RETRO SALE.

II. THAT THE COURT OF APPEALS ERRED WHEN IT DECLARED, THAT WHEN THE QUESTIONED SIGNATURES APPEAR OBVIOUSLY FAR DIFFERENT FROM THE CUSTOMARY OR STANDARD SIGNATURES OF THE PERSON CLAIMING FORGERY, THERE IS NO NEED OF A HANDWRITING EXPERT TO DETERMINE WHICH DOCUMENT IS FORGED.

III. THAT THE COURT OF APPEALS ERRED IN HASTILY CONSIDERING THAT RESPONDENT PROVED BY CLEAR, POSITIVE AND CONVINCING EVIDENCE THE FORGERY OF HIS SIGNATURE AND OF HIS WIFE, ON THE GROUND OF THEIR NON-PARTICIPATION IN THE EXECUTION OF THE DEED OF PACTO DE RETRO SALE AND OF THE VARIANCE OF THE STROKES OF THE SIGNATURES THEREON WHEN COMPARED TO THE STROKES APPEARING IN THEIR GENUINE, CUSTOMARY AND STANDARD SIGNATURES FOUND IN OTHER DOCUMENTS.16

From an assiduous examination of the records of the case, it is plainly apparent to this Court that the alleged signature of Garcia in the pacto de retro sale is utterly dissimilar from his customary signature appearing in the evidence on record, as well as in the verifications of the pleadings before this Court and the courts a quo. From this circumstance alone, we are constrained to affirm the ruling of the Court of Appeals finding that the pacto de retro sale was forged and, therefore, void ab initio.

In assailing the finding of the Court of Appeals that the signature of Garcia in the pacto de retro sale was forged, Vicente echoes the opinion of the trial court that Garcia should have presented an expert witness to prove the same. Jurisprudence, however, is replete with instances wherein this Court dispensed with the testimony of expert witnesses to prove forgeries. Thus, in Estacio v. Jaranilla, 17 we held:

It bears stressing that the trial court may validly determine forgery from its own independent examination of the documentary evidence at hand. This the trial court judge can do without necessarily resorting to experts, especially when the question involved is mere handwriting similarity or dissimilarity, which can be determined by a visual comparison of specimen of the questioned signatures with those of the currently existing ones. Section 22 of Rule 132 of the Rules of Court explicitly authorizes the court, by itself, to make a comparison of the disputed handwriting "with writings admitted or treated as genuine by the party against whom the evidence is offered, or proved to be genuine to the satisfaction of the judge."18

Similarly, in the fairly recent case of Pontaoe v. Pontaoe, 19 this Court held:

As to the argument that handwriting experts should have been employed, handwriting experts are usually helpful in the examination of forged documents because of the technical procedure involved in analyzing them, but resort to these experts is not mandatory or indispensable to the examination or the comparison of handwritings. A finding of forgery does not depend entirely on the testimonies of handwriting experts, because the judge must conduct an examination of the questioned signature in order to arrive at a reasonable conclusion as to its authenticity. The opinions of handwriting experts are not binding upon courts, especially when the question involved is mere handwriting similarity or dissimilarity, which can be determined by a visual comparison of specimens of the questioned signatures with those of the currently existing ones. Moreover, Section 22 of Rule 132 of the Rules of Court likewise explicitly authorizes the court, by itself, to make a comparison of the disputed handwriting "with writings admitted or treated as genuine by the party against whom the evidence is offered, or proved to be genuine to the satisfaction of the judge."20

Insisting on the need to present an expert witness, Vicente points out our ruling in Rivera v. Turiano,21 wherein we declared:

While it is true that the testimonies of handwriting experts are not necessary, however, pursuant to the criteria enunciated in Ladignon, the private respondent must not only show material differences between or among the signatures. In addition, (1) he must demonstrate the extent, kind, and significance of the variation; (2) he must prove that the variation is due to the operation of a different personality and not merely an expected and inevitable variation found in the genuine writing of the same writer; and (3) he must show that the resemblance is a result of a more or less skillful imitation and not merely a habitual and characteristic resemblance which naturally appears in a genuine writing.22

In the case at bar, however, the variance in the alleged signature of Garcia in the pacto de retro sale, on one hand, and in the evidence on record and in the verifications of the pleadings before this Court and the courts a quo, on the other hand, was enormous and obvious, such that this Court can readily conclude that the pacto de retro sale was in all likelihood made by someone who has not even seen the customary signature of Garcia.

Furthermore, the falsity of the signature on the pacto de retro sale was affirmed by two persons present when the instrument was signed, one of which is the very person who notarized the same. An examination of their testimonies reveals that the trial court had disregarded their statements for very flimsy reasons.

The trial court was unconvinced by the testimony of the notary public Atty. Mediante on account of his admission that he could not describe or remember all the persons appearing before him for notarization and his statement that he had seen the alleged impostor Marcelino Garcia sitting at the Cagayan de Oro Divisoria for two weeks. The trial court found it incredulous that Atty. Mediante could have been observing the whereabouts of the alleged impostor for two weeks.23 These circumstances, however, were clearly explained by Atty. Mediante, who testified that two weeks prior to the signing of the document, he had been approached by the impostor Marcelino Garcia who was asking for help to secure a loan of P200,000.00 using his title as collateral. Atty. Mediante informed the impostor Garcia that his client, Tony Uy, had already stopped lending. It was after this event, and before the signing of the pacto de retro sale that Atty. Mediante observed the impostor Garcia in Divisoria. Certainly, while Atty. Mediante could not remember all of the parties in the 25 to 30 documents he notarized every month, he would remember the person who asked him to broker a loan for P200,000.00 and would probably recognize said person when he encountered him every now and then in a public place.

As regards Babano, the trial court found it unbelievable that an impersonator would show a stranger important documents such as the title to a property. We disagree with this observation. On the contrary, this Court is of the opinion that it would be highly suspicious for such an impersonator to withhold the title of the property being sold from a person signing as a witness to the sale. It was precisely the presentation of the title that would convince others that the impostor was the owner of the real property involved in the sale.

Neither did it escape this Court’s attention that the person who signed the pacto de retro sale used a residence certificate with the wrong middle initial of respondent Garcia. As the respondent’s full name is Marcelino de Claro Garcia, his middle initial should be either "D" or "C." It surely causes doubt when a person does not know his own middle initial.

All things considered, Garcia’s statement – that he and his wife could have easily paid the P80,500.00 but refused in principle to pay an account that is not theirs24 – is certainly believable. It is difficult to conceive that Garcia would sell their 6,951-square meter land at the heart of the city of Cagayan de Oro for only P80,500.00 (orP11.58 per square meter). Garcia estimates the value of the property at P4.5 million. While Garcia failed to present evidence on such market value in 1992, it can be ascertained that it is worth at least more than theP170,000.00 mortgage to China Banking Corporation which had been previously annotated and subsequently cancelled at the back of the title of the property.25 If the property could be mortgaged to a bank for P170,000.00, it is unlikely that a person needing money would instead opt to sell the same for a much smaller amount.

Petitioner likewise argues that the Court of Appeals erred in failing to appreciate that the notarized deed of pacto de retro sale was entitled to the presumption of regularity and should be given great weight. It is settled that while a notarized document enjoys this presumption, "the fact that a deed is notarized is not a guarantee of the validity of its contents."26 The "presumption of regularity of notarized documents is not absolute and may be rebutted by clear and convincing evidence to the contrary."27

Irregularities in the notarization of the document may be established by oral evidence of persons present in said proceeding. Thus, in Eulogio v. Apeles,28 where the party insisting on the presumption of regularity of a notarized deed of sale admitted that the same was notarized without his presence, this Court held that "such fact alone overcomes the presumption of regularity, since a notary public is enjoined not to notarize a document unless the persons who signed the same are the very same persons who executed and personally appeared before the said notary public to attest to the contents and truth of what are stated therein."29 In the case at bar, even more convincing evidence of the irregularity was presented as it was the notary public himself who testified that the person who appeared before him was not respondent Garcia. Since the very official who attested to the crucial facts in the notarization – i.e., that the persons who personally appeared before him are the same persons who executed the deed of conveyance – admitted in open court the falsity of said manifestation, the reliability of the Acknowledgment that clothes the document with a presumption of regularity is completely shattered. We, therefore, agree with the Court of Appeals that the presumption of regularity of the notarized deed of pacto de retro sale was sufficiently overcome by the testimony of Atty. Mediante. 1âwphi1

At this point, however, we should clarify that the proper basis for the nullity of the forged pacto de retro sale is not Article 140930 (which enumerates examples of void contracts) in relation to Article 150531 (which refers to an unenforceable contract and is applicable only to goods) of the Civil Code as stated by the Court of Appeals, but Article 1318 of the Civil Code, which enumerates the essential requisites of a valid contract:

Article 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

There are two types of void contracts: (1) those where one of the essential requisites of a valid contract as provided for by Article 1318 of the Civil Code is totally wanting; and (2) those declared to be so under Article 1409 of the Civil Code.32 "[C]onveyances by virtue of a forged signature x x x are void ab initio. The absence of the essential [requisites] of consent and cause or consideration in these cases rendered the contract inexistent. x x x."33

WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 55408 dated September 26, 2006 and its Resolution dated August 9, 2007 are hereby AFFIRMED.

SO ORDERED.

G.R. No. 165851               February 2, 2011

MANUEL CATINDIG, represented by his legal representative EMILIANO CATINDIG-RODRIGO, Petitioner, vs.AURORA IRENE VDA. DE MENESES, Respondent.

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G.R. No. 168875

SILVINO ROXAS, SR., represented by FELICISIMA VILLAFUERTE ROXAS, Petitioner, vs.COURT OF APPEALS and AURORA IRENE VDA. DE MENESES Respondents.

PERALTA, J.:

Before this Court are two consolidated cases, namely, (1) Petition for Review on Certiorari under Rule 45 of the Rules of Court, docketed as G.R. No. 165851, filed by petitioner Manuel Catindig, represented by Emiliano Catindig-Rodrigo, assailing the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 65697, which affirmed the Decision of the Regional Trial Court of Malolos, Bulacan in Civil Case No. 320-M-95; and (2) Petition forCertiorari under Rule 65 of the Rules of Court, docketed as G.R. No. 168875, filed by petitioner Silvino Roxas, Sr., represented by Felicisima Villafuerte Roxas, seeking to set aside the Decision2 and Resolution3 of the CA in CA-G.R. CV No. 65697, which affirmed the decision of the Regional Trial Court of Malolos, Bulacan in Civil Case No. 320-M-95.

The property subject of this controversy pertains to a parcel of land situated in Malolos, Bulacan, with an area of 49,139 square meters, titled in the name of the late Rosendo Meneses, Sr., under Transfer Certificate of Title (TCT) No. T-1749 (hereinafter referred to as the Masusuwi Fishpond). Respondent Aurora Irene C. Vda. de Meneses is the surviving spouse of the registered owner, Rosendo Meneses, Sr.. She was issued Letters of Administration over the estate of her late husband in Special Proceedings Case No. 91498 pending before the then Court of First Instance of the City of Manila, Branch 22. On May 17, 1995, respondent, in her capacity as administratrix of her husband's estate, filed a Complaint for Recovery of Possession, Sum of Money and Damages against petitioners Manuel Catindig and Silvino Roxas, Sr. before the Regional Trial Court of Malolos, Bulacan, to recover possession over the Masusuwi Fishpond.

Respondent alleged that in September 1975, petitioner Catindig, the first cousin of her husband, deprived her of the possession over the Masusuwi Fishpond, through fraud, undue influence and intimidation. Since then, petitioner Catindig unlawfully leased the property to petitioner Roxas. Respondent verbally demanded that petitioners vacate the Masusuwi Fishpond, but all were futile, thus, forcing respondent to send demand letters to petitioners Roxas and Catindig. However, petitioners still ignored said demands. Hence, respondent filed a suit against the petitioners to recover the property and demanded payment of unearned income, damages, attorney's fees and costs of suit.

In his Answer, petitioner Catindig maintained that he bought the Masusuwi Fishpond from respondent and her children in January 1978, as evidenced by a Deed of Absolute Sale. Catindig further argued that even assuming that respondent was indeed divested of her possession of the Masusuwi Fishpond by fraud, her cause of action had already prescribed considering the lapse of about 20 years from 1975, which was allegedly the year when she was fraudulently deprived of her possession over the property.

Petitioner Roxas, on the other hand, asserted in his own Answer that respondent has no cause of action against him, because Catindig is the lawful owner of the Masusuwi Fishpond, to whom he had paid his rentals in advance until the year 2001.

After trial, the trial court ruled in favor of respondent, thus:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff [respondent herein],

(a) Ordering the defendants [petitioners herein] to vacate the Masusuwi Fishpond and turn over the possession/occupancy thereof to plaintiff [respondent herein];

(b) Ordering the defendants [petitioners herein] to pay and/or reimburse plaintiff [respondent herein] the amount of P90,000.00 per year since 1985 up to the time possession of the fishpond is surrendered to plaintiff [respondent herein];

(c) Ordering the defendants [petitioners herein] jointly and severally to pay plaintiff [respondent herein] the amount of P100,000.00 as attorney's fees, and to pay the costs of suit.

The counterclaims of defendants [petitioners herein] are ordered dismissed, for lack of merit.

SO ORDERED.4

The trial court found that the Deed of Absolute Sale executed between respondent and petitioner Catindig was simulated and fictitious, and therefore, did not convey title over the Masusuwi Fishpond to petitioner Catindig. 1avvphi1 It gave due credence to the testimony of respondent that petitioner Catindig convinced her to sign the said deed of sale, because it was intended to be a mere proposal subject to the approval of the trial court wherein the proceedings for the settlement of the estate of Rosendo Meneses, Sr. was still pending. The court a quo was further convinced that the Deed of Absolute Sale lacked consideration, because respondent and her children never received the stipulated purchase price for the Masusuwi Fishpond which was pegged at PhP150,000.00. Since ownership over the property never transferred to Catindig, the trial court declared that he has no right to lease it to Roxas. The court also found that petitioner Roxas cannot claim good faith in leasing the Masusuwi Fishpond, because he relied on an incomplete and unnotarized Deed of Sale.

Aggrieved, petitioners separately challenged the trial court's Decision before the CA. The CA dismissed both the petitioners' appeals and affirmed the RTC. The CA ruled that the trial court properly rejected petitioners' reliance on the deed of absolute sale executed between respondent and petitioner Catindig. The CA also found that since it is settled that a Torrens title is a constructive notice to the whole world of a property's lawful owner, petitioner Roxas could not invoke good faith by relying on the Deed of Absolute Sale in favor of his lessor, petitioner Catindig.

Hence, petitioner Catindig filed this Petition for Review on Certiorari under Rule 45, raising the following issues:

1. WHETHER THE COURT OF APPEALS SERIOUSLY ERRED IN UPHOLDING THE TRIAL COURT'S DECISION IN NOT HOLDING THAT RESPONDENT'S CAUSE OF ACTION IS IN REALITY, ONE FOR ANNULMENT OF CONTRACT UNDER ARTICLES 1390 AND 1391 OF THE NEW CIVIL CODE.

2. WHETHER THE COURT OF APPEALS SERIOUSLY ERRED IN UPHOLDING THE TRIAL COURT'S DECISION IN NOT HOLDING THAT RESPONDENT'S CAUSE OF ACTION IS BASED ON ALLEGED FRAUD AND/OR INTIMIDATION, HAS NOT PRESCRIBED.

3. WHETHER THE COURT OF APPEALS SERIOUSLY AND GRAVELY ERRED IN DISREGARDING THE GENUINENESS AND DUE EXECUTION OF THE DEED OF ABSOLUTE SALE.

On the other hand, petitioner Silvino Roxas, Sr. filed a Petition for Certiorari under Rule 65, raising this lone issue:

WHETHER THE HONORABLE COURT OF APPEALS HAS ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN FINDING THAT THE PETITIONER IS JOINTLY AND SOLIDARILY LIABLE WITH HIS CO-DEFENDANT; AND IN NOT CONSIDERING THAT HE WAS A LESSEE IN GOOD FAITH OF THE SUBJECT PROPERTY.

The issues raised by petitioner Catindig could be reduced into whether the Deed of Sale was genuine or simulated.

Petitioner Catindig maintains that the deed of sale was voluntarily signed by respondent and her children, and that they received the consideration of PhP150,000.00 stipulated therein. Even on the assumption that they were defrauded into signing the agreement, this merely makes the deed voidable, at most, due to vitiated consent. Therefore, any cause of action respondent may have, had already prescribed, and the contract was already ratified by respondent's failure to file any action to annul the deed within four years from 1978, the year when respondent discovered the fraud.

Respondent, on the other hand, insists that the deed of sale is not merely voidable, but void for being simulated. Hence, she could not have filed an action for annulment of contract under Articles 1390 and 1391 of the Civil Code, because this remedy applies to voidable contracts. Instead, respondent filed an action for recovery of possession of the Masusuwi Fishpond.

The issue on the genuineness of the deed of sale is essentially a question of fact. It is settled that this Court is not duty-bound to analyze and weigh again the evidence considered in the proceedings below. This is especially true where the trial court's factual findings are adopted and affirmed by the CA as in the present case. Factual findings of the trial court, affirmed by the CA, are final and conclusive and may not be reviewed on appeal.5

The Court finds that there exists no reason for Us to disturb the trial court's finding that the deed of sale was simulated. The trial court's discussion on the said issue is hereby quoted:

After evaluating the evidence, both testimonial and documentary, presented by the parties, this court is convinced that the Deed of Absolute Sale relied upon by the defendants [petitioners herein] is simulated and fictitious and has no consideration.

On its face, the Deed of Absolute sale (Exh. "G", Exh. "1") is not complete and is not in due form. It is a 3-page document but with several items left unfilled or left blank, like the day the document was supposed to be entered into, the tax account numbers of the persons appearing as signatories to the document and the names of the witnesses. In other words, it was not witnessed by any one. More importantly, it was not notarized. While the name Ramon E. Rodrigo, appeared typed in the Acknowledgement, it was not signed by him (Exhs. "G", "G-1", "G-4").

The questioned deed was supposedly executed in January, 1978. Defendant [petitioner herein] Catindig testified that his brother Francisco Catindig was with him when plaintiff [respondent herein] signed the document. The evidence, however, shows that Francisco Catindig died on January 1, 1978 as certified to by the Office of the Municipal Civil Registrar of Malolos, Bulacan and the Parish Priest of Sta. Maria Assumpta Parish, Bulacan, Bulacan.

The document mentions 49,130 square meters, as the area sold by plaintiff [respondent herein] and her two (2) children to defendant [petitioner herein] Catindig. But this is the entire area of the property as appearing in the title and they are not the only owners. The other owner is Rosendo Meneses, Jr. [stepson of herein respondent] whose name does not appear in the document. The declaration of defendant [petitioner herein] Catindig that Rosendo Meneses, Jr. likewise sold his share of the property to him in another document does not inspire rational belief. This other document was not presented in evidence and Rosendo Meneses, Jr., did not testify, if only to corroborate defendant's [petitioner herein] claim.6

The Court also finds no compelling reason to depart from the court a quo's finding that respondent never received the consideration stipulated in the simulated deed of sale, thus:

Defendant [petitioner herein] Catindig declared that plaintiff [respondent herein] and her children signed the instrument freely and voluntarily and that the consideration of P150,000.00 as so stated in the document was paid by him to plaintiff [respondent herein]. However, it is not denied that the title to this property is still in the name of Rosendo Meneses, Sr., and the owner's duplicate copy of the title is still in the possession of the plaintiff [respondent herein]. If defendant [petitioner herein] Catindig was really a legitimate buyer of the property who paid the consideration with good money, why then did he not register the document of sale or had it annotated at the back of the title, or better still, why then did he not have the title in the name of Rosendo Meneses, Sr. canceled so that a new title can be issued in his name? After all, he claims that Rosendo Meneses, Jr. [stepson of herein respondent] also sold his share of the property to him. This will make him the owner of the entire property. But the owner's duplicate copy of the title remains in the possession of the plaintiff [respondent herein] and no evidence was presented to show that at anytime from 1978, he ever attempted to get it from her. Equally telling is defendant's (Catindig) failure to pay the real estate taxes for the property from 1978 up to the present. x x x7

It is a well-entrenched rule that where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void ab initio for lack of consideration. Moreover, Article 1471 of the Civil Code, provides that "if the price is simulated, the sale is void," which applies to the instant case, since the price purportedly paid as indicated in the contract of sale was simulated for no payment was actually made.8

Since it was well established that the Deed of Sale is simulated and, therefore void, petitioners’ claim that respondent's cause of action is one for annulment of contract, which already prescribed, is unavailing, because only voidable contracts may be annulled. On the other hand, respondent's defense for the declaration of the inexistence of the contract does not prescribe.9

Besides, it must be emphasized that this case is one for recovery of possession, also known as accion publiciana,which is a plenary action for recovery of possession in an ordinary civil proceeding, in order to determine the better and legal right to possess, independently of title.10 The objective of the plaintiffs in accion publiciana is to recover possession only, not ownership. However, where the parties raise the issue of ownership, the courts may pass upon the issue to determine who between the parties has the right to possess the property. This adjudication, however, is not a final and binding determination of the issue of ownership; it is only for the purpose of resolving the issue of possession where the issue of ownership is inseparably linked to the issue of possession. The adjudication of the issue of ownership, being provisional, is not a bar to an action between the same parties involving title to the property.11

Thus, even if we sustain petitioner Catindig's arguments and rule that the Deed of Sale is valid, this would still not help petitioners' case. It is undisputed that the subject property is covered by TCT No. T-1749, registered in the name of respondent's husband. On the other hand, petitioner Catindig's claim of ownership is based on a Deed of Sale. In Pascual v. Coronel,12 the Court held that as against the registered owners and the holder of an unregistered deed of sale, it is the former who has a better right to possess. In that case, the court held that:

Even if we sustain the petitioner's arguments and rule that the deeds of sale are valid contracts, it would still not bolster the petitioners’ case. In a number of cases, the Court had upheld the registered owners' superior right to possess the property. In Co v. Militar, the Court was confronted with a similar issue of which between the certificate of title and an unregistered deed of sale should be given more probative weight in resolving the issue of who has the better right to possess. There, the Court held that the court a quo correctly relied on the transfer certificate of title in the name of petitioner as opposed to the unregistered deeds of sale of respondents. x x x

Likewise, in the recent case of Umpoc v. Mercado, the Court declared that the trial court did not err in giving more probative weight to the TCT in the name of the decedent vis-a-vis the contested unregistered Deed of Sale. x x x13

There is even more reason to apply this doctrine here, because the subject Deed of Sale is not only unregistered, it is undated and unnotarized.

Further, 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.14 It is conclusive evidence with respect to the ownership of the land described therein.15 Moreover, the age-old rule is that the person who has a Torrens title over a land is entitled to possession thereof.16

In addition, as the registered owner, respondent's right to evict any person illegally occupying her property is imprescreptible. In the recent case of Gaudencio Labrador, represented by Lulu Labrador Uson, as Attorney-in-Fact v. Sps. Ildefonso Perlas and Pacencia Perlas and Sps. Rogelio Pobre and Melinda Fogata Pobre,17 the Court held that:

As a registered owner, petitioner has a right to eject any person illegally occupying his property. This right is imprescriptible and can never be barred by laches. In Bishop v. Court of Appeals, we held, thus:

As registered owners of the lots in question, the private respondents have a right to eject any person illegally occupying their property. This right is imprescriptible. Even if it be supposed that they were aware of the petitioners' occupation of the property, and regardless of the length of that possession, the lawful owners have a right to demand the return of their property at any time as long as the possession was unauthorized or merely tolerated, if at all. This right is never barred by laches.18

Petitioner Roxas assailed the Decision and the Resolution of the CA via Petition for Certiorari under Rule 65, when the proper remedy should have been the filing of a Petition for Review on Certiorari under Rule 45.

While petitioner Roxas claims that the CA committed grave abuse of discretion, this Court finds that the assailed findings of the CA, that Roxas is jointly and severally liable with petitioner Catindig and in not considering him as a lessee in good faith of the subject property, amount to nothing more than errors of judgment, correctible by appeal. When a court, tribunal, or officer has jurisdiction over the person and the subject matter of the dispute, the decision on all other questions arising in the case is an exercise of that jurisdiction. Consequently, all errors committed in the exercise of said jurisdiction are merely errors of judgment. Under prevailing procedural rules and jurisprudence, errors of judgment are not proper subjects of a special civil action for certiorari.19 Where the issue or question involved affects the wisdom or legal soundness of the decision, and not the jurisdiction of the court to render said decision, the same is beyond the province of a special civil action for certiorari.20

Settled is the rule that where appeal is available to the aggrieved party, the special civil action for certiorari will not be entertained – remedies of appeal and certiorari are mutually exclusive, not alternative or successive.21 Under Rule 45, decisions, final orders or resolutions of the Court of Appeals in any case, i.e., regardless of the nature of the action or proceedings involved, may be appealed to us by filing a petition for review, which would be but a continuation of the appellate process over the original case. On the other hand, a special civil action under Rule 65 is an independent action based on the specific ground therein provided and, as a general rule, cannot be availed of as a substitute for the lost remedy of an ordinary appeal, including that to be taken under Rule 45.22One of the requisites of certiorari is that there be no available appeal or any plain, speedy and adequate remedy. Where an appeal is available, certiorari will not prosper, even if the ground therefor is grave abuse of discretion. Accordingly, when a party adopts an improper remedy, his petition may be dismissed outright.23

In the present case, the CA issued its Decision and Resolution dated October 22, 2004 and May 20, 2005, respectively, dismissing the appeal filed by petitioner Roxas. Records show that petitioner Roxas received a copy of the May 20, 2005 Resolution of the CA denying the motion for reconsideration on May 30, 2005. Instead of filing a petition for review on certiorari under Rule 45 within 15 days from receipt thereof,24 petitioner, in addition to his several motions for extension, waited for almost four months before filing the instant petition on September 22, 2005. Indubitably, the Decision and the Resolution of the CA, as to petitioner Roxas, had by then already become final and executory, and thus, beyond the purview of this Court to act upon.25

It is settled that a decision that has acquired finality becomes immutable and unalterable and may no longer be modified in any respect, even if the modification is meant to correct erroneous conclusions of fact or law and whether it will be made by the court that rendered it or by the highest court of the land.26 When a decision becomes final and executory, the court loses jurisdiction over the case and not even an appellate court will have the power to review the said judgment. Otherwise, there will be no end to litigation and this will set to naught the main role of

courts of justice to assist in the enforcement of the rule of law and the maintenance of peace and order by settling justifiable controversies with finality.27

Finally, while it is true that this Court, in accordance with the liberal spirit which pervades the Rules of Court and in the interest of justice, may treat a Petition for Certiorari as having been filed under Rule 45, the instant Petition cannot be treated as such, primarily because it was filed way beyond the 15-day reglementary period within which to file the Petition for Review.28 Though there are instances when certiorari was granted despite the availability of appeal,29 none of these recognized exceptions were shown to be present in the case at bar.

WHEREFORE, the petition in G.R. No. 165851 is DENIED. The Decision of the Court of Appeals dated October 22, 2004 in CA-G.R. CV No. 65697, which affirmed the decision of the Regional Trial Court of Malolos, Bulacan in Civil Case No. 320-M-95, is AFFIRMED. The petition in G.R. No. 168875 is DISMISSED. The Decision and the Resolution of the Court of Appeals, dated October 22, 2004 and May 20, 2005, respectively, in CA-G.R. CV No. 65697, which affirmed the Decision of the Regional Trial Court of Malolos, Bulacan in Civil Case No. 320-M-95, are AFFIRMED.

SO ORDERED.