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FIRST DIVISION
DECISION
BERSAMIN, J.:
The petitioners who were the buyers of the mortgaged property of the
respondents seek the reversal of the decision promulgated on October 20,
2003,1 whereby the Court of Appeals (CA) affirmed with modification the
adverse judgment rendered on August 30, 1999 by the Regional Trial Court
(RTC), Branch 77, in Quezon City. 2 In their respective rulings, the CA and the
RTC both declared the deed of sale respecting the respondents' property as
void and inexistent, albeit premised upon different reasons.
Antecedents
On April 9, 1986, the appellees (the Julians) obtained a P60,000.00 loan from
appellant Adelaida Pen. On May 23, 1986 and on the (sic) May 27, 1986, they
were again extended loans in the amounts of P50,000.00 and P10,000.00,
respectively by appellant Adelaida. The initial interests were deducted by
appellant Adelaida, (1) P3,600.00 from the P60,000.00 loan; (2) P2,400.00
from the P50,000.00 loan; and (3) P600.00 from the P10,000.00 loan. Two (2)
promissory notes were executed by the appellees in favor of appellant
Adelaida to evidence the foregoing loans, one dated April 9, 1986 and
payable on June 15, 1986 for the P60,000.00 loan and another dated May 22,
1986 payable on July 22, 1986 for the P50,000.00 loan. Both Joans were
charged interest at 6% per month. As security, on May 23, 1986, the
appellees executed a Real Estate Mortgage over their property covered by
TCT No. 327733 registered under the name of appellee Santos Julian, Jr. The
owner's duplicate of TCT No. 327733 was delivered to the appellants.
Appellant's version of the subsequent events run as follows: When the loans
became due and demandable, appellees failed to pay despite several
demands. As such, appellant Adelaida decided to institute foreclosure
proceedings. However, she was prevailed upon by appellee Linda not to
foreclose the property because of the cost of litigation and since it would
On July 1989, appellants allege that appellee Linda offered to repurchase the
property to which the former agreed at the repurchase price of P436,l 15.00
payable in cash on July 31, 1989. The appellees failed to repurchase on the
agreed date. On February 1990, appellees again offered to repurchase the
property for the same amount, but they still failed to repurchase. On June 28,
1990, another offer was made to repurchase the property for the same
amount. Appellee Linda offered to pay P100,000.00 in cash as sign of good
faith. The offer was rejected by appellant Adelaida. The latter held the money
only for safekeeping upon the pleading of appellee Linda. Upon the
agreement of the parties, the amount of P100,000.00 was deducted from the
balance of the appellees' indebtedness, so that as of October 15, 1997, their
unpaid balance amounted to P319,065.00. Appellants allege that instead of
paying lthe] said balance, the appellees instituted on September 8, 1994 the
civil complaint and filed an adverse claim and lis pendens which were
annotated at the back of the title to the property.
On the other hand, the appellees aver the following: At the time the
mortgage was executed, they were likewise required by the appellant
Adelaida to sign a one (1) page document purportedly an "Absolute Deed of
Sale". Said document did not contain any consideration, and was "undated,
unfilled and unnotarized". They allege that their total payments amounted to
P115,400.00 and that their last payment was on June 28, 1990 in the amount
of P100,000.00.
1994, formally demanded the reconveyance of the title and/or the property to
them, but the appellants refused. In the process of obtaining other
documents; the appellees also discovered that the appellants have obtained
several Declarations of Real Property, and a Deed of Sale consisting of two (2)
pages which was notarized by one Atty. Cesar Ching. Said document indicates
a consideration of P70,000.00 for the lot, and was made to appear as having
been executed on October 22, 1986. On September 8, 1994, appellees filed a
suit for the Cancellation of Sale, Cancellation of Title issued to the appellants;
Recovery of Possession; Damages with Prayer for Preliminary Injunction. The
complaint alleged that appellant Adelaida, through obvious bad faith,
maliciously typed, unilaterally filled up, and caused to be notarized the Deed
of Sale earlier signed by appellee Julian, and used this spurious deed of sale
as the vehicle for her fraudulent transfer unto herself the parcel of land
covered by TCT No. 327733.3
In its judgment rendered on August 30, 1999, 4 the RTC ruled in favor of the
respondents. According greater credence to the version of the respondents
on the true nature of their transaction, the trial court concluded that they had
not agreed on the consideration for the sale at the time they signed the deed
of sale; that in the absence of the consideration, the sale lacked one of the
essential requisites of a valid contract; that the defense of prescription was
rejected because the action to impugn the void contract was imprescriptible;
and that the promissory notes and the real estate mortgage in favor of the
petitioners were nonetheless valid, rendering the respondents liable to still
pay their outstanding obligation with interest.
No pronouncement as to cost.
SO ORDERED.5
Decision of the CA
On appeal by the petitioners, the CA affirmed the RTC with modification under
its assailed decision of October 20, 2003,6 decreeing:
SO ORDERED.7
The CA pronounced the deed of sale as void but not because of the supposed
lack of consideration as the R TC had indicated, but because of the deed of
sale having been executed at the same time as the real estate mortgage,
which rendered the sale as a prohibited pactum commissorium in light of the
fact that the deed of sale was blank as to the consideration and the date,
which details would be filled out upon the default by the respondents; that
the promissory notes contained no stipulation on the payment of interest on
the obligation, for which reason no monetary interest could be imposed for
the use of money; and that compensatory interest should instead be imposed
as a form of damages arising from Linda's failure to pay the outstanding
obligation.
Issues
In this appeal, the petitioners posit the following issues, namely: (1) whether
or not the CA erred in ruling against the validity of the deed of sale; and (2)
whether or not the CA erred in ruling that no monetary interest was due for
Linda's use of Adelaida's money.
That the petitioners are raising factual issues about the true nature of their
transaction with the respondent is already of itself, sufficient reason to
forthwith deny due course to the petition for review on certiorari. They cannot
ignore that any appeal to the Court is limited to questions of law because the
Court is not a trier of facts. As such, the factual findings of the CA should be
respected and accorded great weight, and even finality when supported by
the substantial evidence on record. 8 Moreover, in view of the unanimity
between the RTC and the CA on the deed of sale being void, varying only in
their justifications, the Court affirms the CA, and adopts its conclusions on the
invalidity of the deed of sale.
Nonetheless, We will take the occasion to explain why we concur with the
CA's justification in discrediting the deed of sale between the parties
as pactum commissorium.
Article 2088 of the Civil Code prohibits the creditor from appropriating the
things given by way of pledge or mortgage, or from disposing of them; any
stipulation to the contrary is null and void. The elements for pactum
commissorium to exist are as follows, to wit: (a) that there should be a pledge
or mortgage wherein property is pledged or mortgaged by way of security for
the payment of the principal obligation; and (b) that there should be a
stipulation for an automatic appropriation by the creditor of the thing pledged
or mortgaged in the event of non-payment of the principal obligation within
the stipulated period.9 The first element was present considering that the
property of the respondents was mortgaged by Linda in favor of Adelaida as
security for the farmer's indebtedness. As to the second, the authorization for
Adelaida to appropriate the property subject of the mortgage upon Linda's
default was implied from Linda's having signed the blank deed of sale
simultaneously with her signing of the real estate mortgage. The haste with
which the transfer of property was made upon the default by Linda on her
obligation, and the eventual transfer of the property in a manner not in the
form of a valid dacion en pago ultimately confirmed the nature of the
transaction as a pactum commissorium.
It is notable that in reaching its conclusion that Linda's deed of sale had been
executed simultaneously with the real estate mortgage, the CA first
compared the unfilled deed of sale presented by Linda with the notarized
deed of sale adduced by Adelaida. The CA justly deduced that the completion
and execution of the deed of sale had been conditioned on the non-payment
of the debt by Linda, and reasonably pronounced that such circumstances
rendered the transaction pactum commissorium. The Court should not disturb
or undo the CA's conclusion in the absence of the clear showing of abuse,
arbitrariness or capriciousness on the part of the CA. 10
The petitioners have theorized that their transaction with the respondents
was a valid dacion en pago by highlighting that it was Linda who had offered
to sell her property upon her default. Their theory cannot stand
scrutiny. Dacion en pago is in the nature of a sale because property is
The petitioners insist that the parties agreed that the deed of sale would not
yet contain the date and the consideration because they had still to agree on
the price.13 Their insistence is not supported by the established
circumstances. It appears that two days after the loan fell due on October 15,
1986,14 Linda offered to sell the mortgaged property; 15 hence, the parties
made the ocular inspection of the premises on October 18, 1986. By that
time, Adelaida had already become aware that the appraiser had valued the
property at P70,000.00. If that was so, there was no plausible reason for still
leaving the consideration on the deed of sale blank if the deed was drafted by
Adelaida on October 20, 1986, especially considering that they could have
conveniently communicated with each other in the meanwhile on this
significant aspect of their transaction. It was also improbable for Adelaida to
still hand the unfilled deed of sale to Linda as her copy if, after all, the deed
of sale would be eventually notarized on October 22, 1986.
According to Article 1318 of the Civil Code, the requisites for any contract to
be valid are, namely: (a) the consent of the contracting parties; (b) the
object; and (c) the consideration. There is a perfection of a contract when
there is a meeting of the minds of the parties on each of these
requisites.16 The following passage has fittingly discussed the process of
perfection in Moreno, Jr. v. Private Management Office: 17
To reach that moment of perfection, the parties must agree on the same
thing in the same sense, so that their minds meet as to all the terms. They
must have a distinct intention common to both and without doubt or
difference; until all understand alike, there can be no assent, and therefore no
contract. The minds of parties must meet at every point; nothing can be left
open for further arrangement. So long as there is any uncertainty or
indefiniteness, or future negotiations or considerations to be had between the
parties, there is not a completed contract, and in fact, there is no contract at
all.18
In a sale, the contract is perfected at the moment when the seller obligates
herself to deliver and to transfer ownership of a thing or right to the buyer for
a price certain, as to which the latter agrees. 19 The absence of the
consideration from Linda's copy of the deed of sale was credible proof of the
lack of an essential requisite for the sale. In other words, the meeting of the
minds of the parties so vital in the perfection of the contract of sale did not
transpire. And, even assuming that Linda's leaving the consideration blank
implied the authority of Adelaida to fill in that essential detail in the deed of
sale upon Linda's default on the loan, the conclusion of the CA that the deed
of sale was a pactum commisorium still holds, for, as earlier mentioned, all
the elements of pactum commisorium were present.
Interest that is the compensation fixed by the parties for the use or
forbearance of money is referred to as monetary interest.1wphi1 On the
other hand, interest that may be imposed by law or by the courts as penalty
or indemnity for damages is called compensatory interest. In other words, the
right to recover interest arises only either by vi11ue of a contract or as
damages for delay or failure to pay the principal loan on which the interest is
demanded.20
The CA correctly deleted the monetary interest from the judgment. Pursuant
to Article 1956 of the Civil Code, no interest shall be due unless it has been
expressly stipulated in writing. In order for monetary interest to be imposed,
therefore, two requirements must be present, specifically: (a) that there has
been an express stipulation for the payment of interest; and (b) that the
agreement for the payment of interest has been reduced in
writing.21Considering that the promissory notes contained no stipulation on
the payment of monetary interest, monetary interest cannot be validly
imposed.
2.
SECOND DIVISION
DECISION
LEONEN, J.:
3 Other Matters:
On January 17, 1983, Bangko Sentral ng Pilipinas mortgage lien over the
Iligan City properties and Aurora de Leons certification were annotated on
Transfer Certificates of Title Nos. T-15696 and T-15697. 18 On January 18, 1983,
Bangko Sentral ng Pilipinas mortgage lien over the Iligan City properties was
also annotated on the tax declarations covering the Iligan City properties. 19
On January 11, 1985, FISLAI, DSLAI, and Land Bank of the Philippines entered
into a Memorandum of Agreement intended to rehabilitate the thrift banks,
which had been suffering from their depositors heavy withdrawals. Among
the terms of the agreement was the merger of FISLAI and DSLAI, with DSLAI
as the surviving corporation. DSLAI later became known as Mindanao Savings
and Loan Association, Inc. (MSLAI). 21
MSLAI failed to recover from its losses and was liquidated on May 24, 1991. 23
In its reply to Bangko Sentral ng Pilipinas June 18, 1999 letter, University of
Mindanao, through its Vice President for Accounting, Gloria E. Detoya, denied
that University of Mindanaos properties were mortgaged. It also denied
having received any loan proceeds from Bangko Sentral ng Pilipinas. 25
On July 16, 1999, University of Mindanao filed two Complaints for nullification
and cancellation of mortgage. One Complaint was filed before the Regional
Trial Court of Cagayan de Oro City, and the other Complaint was filed before
the Regional Trial Court of Iligan City.26
University of Mindanao alleged in its Complaints that it did not obtain any
loan from Bangko Sentral ng Pilipinas. It also did not receive any loan
proceeds from the bank.27
On November 23, 2001, the Regional Trial Court of Cagayan de Oro City
rendered a Decision in favor of University of Mindanao, 29 thus:
Prayer for attorneys fee [sic] is hereby denied there being no proof that in
demanding payment of the emergency loan, defendant BANGKO SENTRAL NG
PILIPINAS was motivated by evident bad faith,
The Regional Trial Court of Cagayan de Oro City found that there was no
board resolution giving Saturnino Petalcorin authority to execute mortgage
contracts on behalf of University of Mindanao. The Cagayan de Oro City trial
court gave weight to Aurora de Leons testimony that University of
Mindanaos Board of Trustees did not issue a board resolution that would
support the Secretarys Certificate she issued. She testified that she signed
the Secretarys Certificate only upon Guillermo B. Torres orders. 31
Bangko Sentral ng Pilipinas witness Daciano Pagui, Jr. also admitted that
there was no board resolution giving Saturnino Petalcorin authority to execute
mortgage contracts on behalf of University of Mindanao. 33
The Regional Trial Court of Cagayan de Oro City ruled that Saturnino
Petalcorin was not authorized to execute mortgage contracts for University of
Mindanao. Hence, the mortgage of University of Mindanaos Cagayan de Oro
City property was unenforceable. Saturnino Petalcorins unauthorized acts
should be annulled.34
1. Nullifying and canceling [sic] the subject Deed of Real Estate Mortgage
dated November 5, 1982 for being unenforceable or void contract;
2. Ordering the Office of the Register of Deeds of Iligan City to cancel the
entries on TCT No. T-15696 and TCT No. T-15697 with respect to the aforesaid
Deed of Real Estate Mortgage dated November 5, 1982 and all other entries
related thereto;
5. Making the Preliminary Injunction per Order of this Court dated October 13,
2000 permanent.
The Iligan City trial court found that the Secretarys Certificate issued by
Aurora de Leon was fictitious 37 and irregular for being unnumbered. 38 It also
did not specify the identity, description, or location of the mortgaged
properties.39
The Iligan City trial court gave credence to Aurora de Leons testimony that
the University of Mindanaos Board of Trustees did not take up the documents
in its meetings. Saturnino Petalcorin corroborated her testimony. 40
The Iligan City trial court ruled that the lack of a board resolution authorizing
Saturnino Petalcorin to execute documents of mortgage on behalf of
University of Mindanao made the real estate mortgage contract
unenforceable under Article 1403 41 of the Civil Code.42 The mortgage contract
and the subsequent acts of foreclosure and auction sale were void because
the mortgage contract was executed without University of Mindanaos
authority.43
The Iligan City trial court also ruled that the annotations on the titles of
University of Mindanaos properties do not operate as notice to the University
because annotations only bind third parties and not owners. 44 Further, Bangko
Sentral ng Pilipinas right to foreclose the University of Mindanaos properties
had already prescribed.45
FOR THE REASONS STATED, the Decision dated 23 November 2001 of the
Regional Trial Court of Cagayan de Oro City, Branch 24 in Civil Case No. 99-
414 and the Decision dated 7 December 2001 of the Regional Trial Court of
Iligan City, Branch 1 in Civil Case No. 4790 are REVERSED and SET
ASIDE. The Complaints in both cases before the trial courts
are DISMISSED. The Writ of Preliminary Injunction issued by the Regional
Trial Court of Iligan City, Branch 1 in Civil Case No. 4790 is LIFTED and SET
ASIDE.
SO ORDERED.47
The Court of Appeals ruled that "[a]lthough BSP failed to prove that the UM
Board of Trustees actually passed a Board Resolution authorizing Petalcorin to
mortgage the subject real properties," 48 Aurora de Leons Secretarys
Certificate "clothed Petalcorin with apparent and ostensible authority to
execute the mortgage deed on its behalf[.]" 49Bangko Sentral ng Pilipinas
merely relied in good faith on the Secretarys Certificate. 50 University of
Mindanao is estopped from denying Saturnino Petalcorins authority. 51
The Court of Appeals also ruled that since University of Mindanaos officers,
Guillermo B. Torres and his wife, Dolores P. Torres, signed the promissory
notes, University of Mindanao was presumed to have knowledge of the
transaction.54 Knowledge of an officer in relation to matters within the scope
of his or her authority is notice to the corporation. 55
The Court of Appeals also ruled that Bangko Sentral ng Pilipinas action for
foreclosure had not yet prescribed because the due date extensions that
Bangko Sentral ng Pilipinas granted to FISLAI extended the due date of
payment to five (5) years from February 8, 1985.58 The banks demand letter
to Dolores P. Torres on June 18, 1999 also interrupted the prescriptive
period.59
2. GRANT the appellees three (3) motions for extension of time to file
comment/opposition and NOTE the Comment on the appellants Motion for
Partial Reconsideration it filed on July 26, 2010;
3. NOTE the appellants "Motion for Leave to File Attached Reply Dated
August 11, 2010" filed on August 13, 2010 and DENY the attached "Reply to
Comment Dated July 26, 2010";
4. DENY the appellees Motion for Reconsideration as it does not offer any
arguments sufficiently meritorious to warrant modification or reversal of the
Courts 17 December 2009 Decision. The Court finds that there is no
compelling reason to reconsider its ruling; and
"FOR THE REASONS STATED, the Decision dated 23 November 2001 of the
Regional Trial Court of Cagayan de Oro City, Branch 24 in Civil Case No. 99-
414 and the Decision dated 7 December 2001 of the Regional Trial Court of
Iligan City, Branch 1 in Civil Case No. 4790 are REVERSED and SET
ASIDE. The Complaints in both cases before the trial courts
are DISMISSED. The Writs of Preliminary Injunction issued by the Regional
Trial Court of Iligan City, Branch 1 in Civil Case No. 4790 and in the Regional
Trial Court of Cagayan de Oro City, Branch 24 in Civil Case No. 99-414
are LIFTED and SET ASIDE."
Petitioner is mistaken.
The prescriptive period for actions on mortgages is ten (10) years from the
day they may be brought.64 Actions on mortgages may be brought not upon
the execution of the mortgage contract but upon default in payment of the
obligation secured by the mortgage.65
ART. 1169. Those obliged to deliver or to do something incur in delay from the
time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that
delay may exist:
(2) When from the nature and the circumstances of the obligation it appears
that the designation of the time when the thing is to be delivered or the
service is to be rendered was a controlling motive for the establishment of
the contract; or
(3) When demand would be useless, as when the obligor has rendered it
beyond his power to perform.
Article 1193 of the Civil Code provides that an obligation is demandable only
upon due date. It provides:
ART. 1193. Obligations for whose fulfillment a day certain has been fixed,
shall be demandable only when that day comes.
Obligations with a resolutory period take effect at once, but terminate upon
arrival of the day certain.
If the uncertainty consists in whether the day will come or not, the obligation
is conditional, and it shall be regulated by the rules of the preceding Section.
In other words, as a general rule, a person defaults and prescriptive period for
action runs when (1) the obligation becomes due and demandable; and (2)
demand for payment has been made.
The prescriptive period neither runs from the date of the execution of a
contract nor does the prescriptive period necessarily run on the date when
the loan becomes due and demandable. 66 Prescriptive period runs from the
date of demand,67 subject to certain exceptions.
In other words, ten (10) years may lapse from the date of the execution of
contract, without barring a cause of action on the mortgage when there is a
gap between the period of execution of the contract and the due date or
between the due date and the demand date in cases when demand is
necessary.68
The prescriptive period for filing an action may run either (1) from 1990 when
the loan became due, if the obligation was covered by the exceptions under
Article 1169 of the Civil Code; (2) or from 1999 when respondent demanded
payment, if the obligation was not covered by the exceptions under Article
1169 of the Civil Code.
Given the termination of all traces of FISLAIs existence,70 demand may have
been rendered unnecessary under Article 1169(3) 71 of the Civil Code.
Granting that this is the case, respondent would have had ten (10) years from
due date in 1990 or until 2000 to institute an action on the mortgage
contract.
However, under Article 115572 of the Civil Code, prescription of actions may
be interrupted by (1) the filing of a court action; (2) a written extrajudicial
demand; and (3) the written acknowledgment of the debt by the debtor.
Assuming that demand was necessary, respondents action was within the
ten (10)-year prescriptive period. Respondent demanded payment of the
loans in 1999 and filed an action in the same year.
II
Petitioner argues that the execution of the mortgage contract was ultra vires.
As an educational institution, it may not secure the loans of third
persons.73 Securing loans of third persons is not among the purposes for
which petitioner was established.74
Petitioner is correct.
A corporation may exercise its powers only within those definitions. Corporate
acts that are outside those express definitions under the law or articles of
incorporation or those "committed outside the object for which a corporation
is created"76 are ultra vires.
The only exception to this rule is when acts are necessary and incidental to
carry out a corporations purposes, and to the exercise of powers conferred
by the Corporation Code and under a corporations articles of
incorporation.77This exception is specifically included in the general powers of
a corporation under Section 36 of the Corporation Code:
2. Of succession by its corporate name for the period of time stated in the
articles of incorporation and the certificate of incorporation;
9. To make reasonable donations, including those for the public welfare or for
hospital, charitable, cultural, scientific, civic, or similar
purposes: Provided, That no corporation, domestic or foreign, shall give
donations in aid of any political party or candidate or for purposes of partisan
political activity;
10. To establish pension, retirement, and other plans for the benefit of its
directors, trustees, officers and employees; and
c. To do and perform the various and sundry acts and things permitted by the
laws of the Philippines unto corporations like classes and kinds;
Petitioner does not have the power to mortgage its properties in order to
secure loans of other persons. As an educational institution, it is limited to
developing human capital through formal instruction. It is not a corporation
engaged in the business of securing loans of others.
This court upheld the validity of corporate acts when those acts were shown
to be clearly within the corporations powers or were connected to the
corporations purposes.
In Pirovano, et al. v. De la Rama Steamship Co.,82 this court declared valid the
donation given to the children of a deceased person who contributed to the
growth of the corporation. 83 This court found that this donation was within the
broad scope of powers and purposes of the corporation to "aid in any other
manner any person . . . in which any interest is held by this corporation or in
the affairs or prosperity of which this corporation has a lawful interest." 84
This court has, in effect, created a presumption that corporate acts are valid
if, on their face, the acts were within the corporations powers or purposes.
This presumption was explained as early as in 1915 in Coleman v. Hotel De
France89 where this court ruled that contracts entered into by corporations in
the exercise of their incidental powers are not ultra vires. 90
In ruling in favor of the contracts validity, this court considered the incidental
powers of the hotel to include the execution of employment contracts with
entertainers for the purpose of providing its guests entertainment and
increasing patronage.92
When a contract is not on its face necessarily beyond the scope of the power
of the corporation by which it was made, it will, in the absence of proof to the
contrary, be presumed to be valid. Corporations are presumed to contract
within their powers. The doctrine of ultra vires, when invoked for or against a
corporation, should not be allowed to prevail where it would defeat the ends
of justice or work a legal wrong. 94
(b) The tenant is not permitted to deny the title of his landlord at the time of
the commencement of the relation of landlord and tenant between them.
wrong under certain circumstances, and courts are expected to apply them,
keeping in mind the nuances of every experience that may render the
expectations wrong.
In this case, the presumption that the execution of mortgage contracts was
within petitioners corporate powers does not apply. Securing third-party
loans is not connected to petitioners purposes as an educational institution.
III
Parties dealing with corporations cannot simply assume that their transaction
is within the corporate powers. The acts of a corporation are still limited by its
powers and purposes as provided in the law and its articles of incorporation.
Thus, regardless of the number of shares that petitioner had with FISLAI,
DSLAI, or MSLAI, securing loans of third persons is still beyond petitioners
power to do. It is still inconsistent with its purposes under the law 104 and its
articles of incorporation.105
The separate personality of corporations means that they are "vest[ed] [with]
rights, powers, and attributes [of their own] as if they were natural
persons[.]"106 Their assets and liabilities are their own and not their officers,
shareholders, or another corporations. In the same vein, the assets and
liabilities of their officers and shareholders are not the corporations.
Obligations incurred by corporations are not obligations of their officers and
shareholders. Obligations of officers and shareholders are not obligations of
corporations.107 In other words, corporate interests are separate from the
personal interests of the natural persons that comprise corporations.
Since petitioner is an entity distinct and separate not only from its own
officers and shareholders but also from FISLAI, its interests as an educational
institution may not be consistent with FISLAIs.
While petitioner and FISLAI exist ultimately to benefit their stockholders, their
constituencies affect the means by which they can maintain their existence.
Their interests are congruent with sustaining their constituents needs
because their existence depends on that. Petitioner can exist only if it
continues to provide for the kind and quality of instruction that is needed by
its constituents. Its operations and existence are placed at risk when
resources are used on activities that are not geared toward the attainment of
its purpose. Petitioner has no business in securing FISLAI, DSLAI, or MSLAIs
loans. This activity is not compatible with its business of providing quality
instruction to its constituents.
These instances have not been shown in this case. There is no evidence
pointing to the possibility that petitioner used its separate personality to
defraud third persons or commit illegal acts. Neither is there evidence to
show that petitioner was merely a farce of a corporation. What has been
shown instead was that petitioner, too, had been victimized by fraudulent
and unauthorized acts of its own officers and directors.
IV
Petitioner argues that it did not authorize Saturnino Petalcorin to mortgage its
properties on its behalf. There was no board resolution to that effect. Thus,
the mortgages executed by Saturnino Petalcorin were unenforceable. 111
Petitioner must exercise its powers and conduct its business through its Board
of Trustees. Section 23 of the Corporation Code provides:
ART. 1317. No one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to represent him.
ART. 1317. . . .
A contract entered into in the name of another by one who has no authority
or legal representation, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on
whose behalf it has been executed, before it is revoked by the other
contracting party.
....
ART. 1403. The following contracts are unenforceable, unless they are
ratified:
(1) Those entered into in the name of another person by one who has been
given no authority or legal representation, or who has acted beyond his
powers[.]
Two trial courts118 found that the Secretarys Certificate and the board
resolution were either non-existent or fictitious. The trial courts based their
findings on the testimony of the Corporate Secretary, Aurora de Leon herself.
She signed the Secretarys Certificate and the excerpt of the minutes of the
alleged board meeting purporting to authorize Saturnino Petalcorin to
mortgage petitioners properties. There was no board meeting to that effect.
Guillermo B. Torres ordered the issuance of the Secretarys Certificate. Aurora
de Leons testimony was corroborated by Saturnino Petalcorin.
Even the Court of Appeals, which reversed the trial courts decisions,
recognized that "BSP failed to prove that the UM Board of Trustees actually
Well-entrenched is the rule that this court, not being a trier of facts, is bound
by the findings of fact of the trial courts and the Court of Appeals when such
findings are supported by evidence on record. 120 Hence, not having the proper
board resolution to authorize Saturnino Petalcorin to execute the mortgage
contracts for petitioner, the contracts he executed are unenforceable against
petitioner. They cannot bind petitioner.
Unauthorized acts that are merely beyond the powers of the corporation
under its articles of incorporation are not void ab initio.
In Pirovano, et al., this court explained that corporate acts may be ultra vires
but not void.123 Corporate acts may be capable of ratification: 124
[A] distinction should be made between corporate acts or contracts which are
illegal and those which are merely ultra vires. The former contemplates the
doing of an act which is contrary to law, morals, or public order, or
contravene some rules of public policy or public duty, and are, like similar
transactions between individuals, void. They cannot serve as basis of a court
action, nor acquire validity by performance, ratification, or estoppel. Mere
ultra vires acts, on the other hand, or those which are not illegal and void ab
initio, but are not merely within the scope of the articles of incorporation, are
merely voidable and may become binding and enforceable when ratified by
the stockholders.125
Thus, even though a person did not give another person authority to act on
his or her behalf, the action may be enforced against him or her if it is shown
that he or she ratified it or allowed the other person to act as if he or she had
full authority to do so. The Civil Code provides:
ART. 1910. The principal must comply with all the obligations which the agent
may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal
is not bound except when he ratifies it expressly or tacitly.
ART. 1911. Even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to act as
though he had full powers. (Emphasis supplied)
Indeed, a corporation, being a person created by mere fiction of law, can act
only through natural persons such as its directors, officers, agents, and
However, even though the Spouses Guillermo and Dolores Torres were
officers of both the thrift banks and petitioner, their knowledge of the
mortgage contracts cannot be considered as knowledge of the corporation.
VI
Respondent argues that Saturnino Petalcorin was clothed with the authority
to transact on behalf of petitioner, based on the board resolution dated March
30, 1982 and Aurora de Leons notarized Secretarys Certificate. 140 According
to respondent, petitioner is bound by the mortgage contracts executed by
Saturnino Petalcorin.141
The doctrine of apparent authority does not go into the question of the
corporations competence or power to do a particular act. It involves the
question of whether the officer has the power or is clothed with the
appearance of having the power to act for the corporation. A finding that
there is apparent authority is not the same as a finding that the corporate act
in question is within the corporations limited powers.
The rule on apparent authority is based on the principle of estoppel. The Civil
Code provides:
....
ART. 1869. Agency may be express, or implied from the acts of the principal,
from his silence or lack of action, or his failure to repudiate the agency,
knowing that another person is acting on his behalf without authority.
telegram sent by the Board Secretary and its silence while it accepted all
payments made by Francisco for the redemption of property. 146
The doctrine of apparent authority does not apply if the principal did not
commit any acts or conduct which a third party knew and relied upon in good
faith as a result of the exercise of reasonable prudence. Moreover, the
agents acts or conduct must have produced a change of position to the third
partys detriment.148 (Citation omitted)
VII
In Basilio v. Court of Appeals,152 this court was convinced that the purported
signatory on a deed of sale was not as represented, despite testimony from
the notary public that the signatory appeared before him and signed the
instrument.153 Apart from finding that there was forgery,154 this court noted:
The notary public, Atty. Ruben Silvestre, testified that he was the one who
notarized the document and that Dionisio Z. Basilio appeared personally
before him and signed the instrument himself. However, he admitted that he
did not know Dionisio Z. Basilio personally to ascertain if the person who
signed the document was actually Dionisio Z. Basilio himself, or another
person who stood in his place. He could not even recall whether the
document had been executed in his office or not.
In Suntay v. Court of Appeals,156 this court held that a notarized deed of sale
was void because it was a mere sham. 157 It was not intended to have any
effect between the parties.158 This court said:
[I]t is not the intention nor the function of the notary public to validate and
make binding an instrument never, in the first place, intended to have any
binding legal effect upon the parties thereto. 159
Since the notarized Secretarys Certificate was found to have been issued
without a supporting board resolution, it produced no effect. It is not binding
upon petitioner. It should not have been relied on by respondent especially
given its status as a bank.
VIII
The banking institution is "impressed with public interest" 160 such that the
publics faith is "of paramount importance." 161 Thus, banks are required to
exercise the highest degree of diligence in their transactions. 162 In China
Banking Corporation v. Lagon,163 this court found that the bank was not a
mortgagee in good faith for its failure to question the due execution of a
Special Power of Attorney that was presented to it in relation to a mortgage
contract.164 This court said:
Banks cannot rely on assumptions. This will be contrary to the high standard
of diligence required of them.
VI
Annotations are merely claims of interest or claims of the legal nature and
incidents of relationship between the person whose name appears on the
document and the person who caused the annotation. It does not say
anything about the validity of the claim or convert a defective claim or
document into a valid one. 170 These claims may be proved or disproved
during trial.
Thus, annotations are not conclusive upon courts or upon owners who may
not have reason to doubt the security of their claim as their properties' title
holders.
3.
SECOND DIVISION
DECISION
LEONEN, J.:
This is a Petition for Review1 appealing the August 26, 2005 Decision2 of the
Court of Tax Appeals En Banc, which in turn affirmed the December 22, 2004
Decision3 and April 8, 2005 Resolution4 of the Court of Tax Appeals First
Division denying Air Canadas claim for refund.
Air Canada is a "foreign corporation organized and existing under the laws of
Canada[.]"5 On April 24, 2000, it was granted an authority to operate as an
offline carrier by the Civil Aeronautics Board, subject to certain conditions,
which authority would expire on April 24, 2005. 6 "As an off-line carrier, [Air
Canada] does not have flights originating from or coming to the Philippines
[and does not] operate any airplane [in] the Philippines[.]" 7
On July 1, 1999, Air Canada engaged the services of Aerotel Ltd., Corp.
(Aerotel) as its general sales agent in the Philippines. 8 Aerotel "sells [Air
Canadas] passage documents in the Philippines." 9
For the period ranging from the third quarter of 2000 to the second quarter of
2002, Air Canada, through Aerotel, filed quarterly and annual income tax
returns and paid the income tax on Gross Philippine Billings in the total
amount of 5,185,676.77,10 detailed as follows:
On November 28, 2002, Air Canada filed a written claim for refund of alleged
erroneously paid income taxes amounting to 5,185,676.77 before the
Bureau of Internal Revenue,12 Revenue District Office No. 47-East Makati. 13It
found basis from the revised definition 14 of Gross Philippine Billings under
Section 28(A)(3)(a) of the 1997 National Internal Revenue Code:
....
(a) International Air Carrier. - Gross Philippine Billings refers to the amount
of gross revenue derived from carriage of persons, excess baggage,
cargo and mail originating from the Philippines in a continuous and
To prevent the running of the prescriptive period, Air Canada filed a Petition
for Review before the Court of Tax Appeals on November 29, 2002. 15 The case
was docketed as C.T.A. Case No. 6572.16
On December 22, 2004, the Court of Tax Appeals First Division rendered its
Decision denying the Petition for Review and, hence, the claim for refund. 17 It
found that Air Canada was engaged in business in the Philippines through a
local agent that sells airline tickets on its behalf. As such, it should be taxed
as a resident foreign corporation at the regular rate of 32%. 18 Further,
according to the Court of Tax Appeals First Division, Air Canada was deemed
to have established a "permanent establishment" 19 in the Philippines under
Article V(2)(i) of the Republic of the Philippines-Canada Tax Treaty 20 by the
appointment of the local sales agent, "in which [the] petitioner uses its
premises as an outlet where sales of [airline] tickets are made[.]" 21
Air Canada seasonably filed a Motion for Reconsideration, but the Motion was
denied in the Court of Tax Appeals First Divisions Resolution dated April 8,
2005 for lack of merit.22 The First Division held that while Air Canada was not
liable for tax on its Gross Philippine Billings under Section 28(A)(3), it was
nevertheless liable to pay the 32% corporate income tax on income derived
from the sale of airline tickets within the Philippines pursuant to Section 28(A)
(1).23
In the Decision dated August 26, 2005, the Court of Tax Appeals En Banc
affirmed the findings of the First Division. 26 The En Banc ruled that Air Canada
is subject to tax as a resident foreign corporation doing business in the
Philippines since it sold airline tickets in the Philippines. 27 The Court of Tax
Appeals En Banc disposed thus:
Petitioner claims that the general provision imposing the regular corporate
income tax on resident foreign corporations provided under Section 28(A)(1)
of the 1997 National Internal Revenue Code does not apply to "international
carriers,"31 which are especially classified and taxed under Section 28(A)
(3).32 It adds that the fact that it is no longer subject to Gross Philippine
Billings tax as ruled in the assailed Court of Tax Appeals Decision "does not
render it ipso facto subject to 32% income tax on taxable income as a
resident foreign corporation." 33 Petitioner argues that to impose the 32%
regular corporate income tax on its income would violate the Philippine
governments covenant under Article VIII of the Republic of the Philippines-
Canada Tax Treaty not to impose a tax higher than 1% of the carriers gross
revenue derived from sources within the Philippines. 34 It would also allegedly
result in "inequitable tax treatment of on-line and off-line international air
carriers[.]"35
Also, petitioner states that the income it derived from the sale of airline
tickets in the Philippines was income from services and not income from sales
of personal property.36 Petitioner cites the deliberations of the Bicameral
Conference Committee on House Bill No. 9077 (which eventually became the
1997 National Internal Revenue Code), particularly Senator Juan Ponce
Enriles statement,37 to reveal the "legislative intent to treat the revenue
derived from air carriage as income from services, and that the carriage of
passenger or cargo as the activity that generates the income." 38 Accordingly,
applying the principle on the situs of taxation in taxation of services,
petitioner claims that its income derived "from services rendered outside the
Philippines [was] not subject to Philippine income taxation." 39
On the other hand, respondent maintains that petitioner is subject to the 32%
corporate income tax as a resident foreign corporation doing business in the
Philippines. Petitioners total payment of 5,185,676.77 allegedly shows that
petitioner was earning a sizable income from the sale of its plane tickets
within the Philippines during the relevant period. 47 Respondent further points
out that this court in Commissioner of Internal Revenue v. American Airlines,
Inc.,48 which in turn cited the cases involving the British Overseas Airways
Corporation and Air India, had already settled that "foreign airline companies
which sold tickets in the Philippines through their local agents . . . [are]
considered resident foreign corporations engaged in trade or business in the
country."49 It also cites Revenue Regulations No. 6-78 dated April 25, 1978,
which defined the phrase "doing business in the Philippines" as including
"regular sale of tickets in the Philippines by offline international airlines either
by themselves or through their agents." 50
Respondent further contends that petitioner is not entitled to its claim for
refund because the amount of 5,185,676.77 it paid as tax from the third
quarter of 2000 to the second quarter of 2001 was still short of the 32%
income tax due for the period.51 Petitioner cannot allegedly claim good faith
in its failure to pay the right amount of tax since the National Internal
Revenue Code became operative on January 1, 1998 and by 2000, petitioner
should have already been aware of the implications of Section 28(A)(3) and
the decided cases of this courts ruling on the taxability of offline
international carriers selling passage tickets in the Philippines. 52
At the outset, we affirm the Court of Tax Appeals ruling that petitioner, as an
offline international carrier with no landing rights in the Philippines, is not
liable to tax on Gross Philippine Billings under Section 28(A)(3) of the 1997
National Internal Revenue Code:
....
(a) International Air Carrier. - 'Gross Philippine Billings' refers to the amount
of gross revenue derived from carriage of persons, excess baggage, cargo
and mail originating from the Philippines in a continuous and uninterrupted
flight, irrespective of the place of sale or issue and the place of payment of
the ticket or passage document: Provided, That tickets revalidated,
exchanged and/or indorsed to another international airline form part of the
Gross Philippine Billings if the passenger boards a plane in a port or point in
the Philippines: Provided, further, That for a flight which originates from the
Philippines, but transshipment of passenger takes place at any port outside
the Philippines on another airline, only the aliquot portion of the cost of the
ticket corresponding to the leg flown from the Philippines to the point of
transshipment shall form part of Gross Philippine Billings. (Emphasis supplied)
Under the foregoing provision, the tax attaches only when the carriage of
persons, excess baggage, cargo, and mail originated from the Philippines in a
continuous and uninterrupted flight, regardless of where the passage
documents were sold.
Not having flights to and from the Philippines, petitioner is clearly not liable
for the Gross Philippine Billings tax.
II
of the taxable income derived in the preceding taxable year from all
sources within the Philippines: Provided, That effective January 1, 1998,
the rate of income tax shall be thirty-four percent (34%); effective January 1,
1999, the rate shall be thirty-three percent (33%); and effective January 1,
2000 and thereafter, the rate shall be thirty-two percent (32% 54). (Emphasis
supplied)
Commonwealth Act No. 466, known as the National Internal Revenue Code
and approved on June 15, 1939, defined "resident foreign corporation" as
applying to "a foreign corporation engaged in trade or business within the
Philippines or having an office or place of business therein." 55
Presidential Decree No. 1158-A took effect on June 3, 1977 amending certain
sections of the 1939 National Internal Revenue Code. Section 24(b)(2) on
foreign resident corporations was amended, but it still provides that "[a]
corporation organized, authorized, or existing under the laws of any foreign
country, engaged in trade or business within the Philippines, shall be taxable
as provided in subsection (a) of this section upon the total net income
received in the preceding taxable year from all sources within the
Philippines[.]"57
Republic Act No. 7042 or the Foreign Investments Act of 1991 also provides
guidance with its definition of "doing business" with regard to foreign
corporations. Section 3(d) of the law enumerates the activities that constitute
doing business:
domiciled in the Philippines which transacts business in its own name and for
its own account[.]61 (Emphasis supplied)
An offline carrier is "any foreign air carrier not certificated by the [Civil
Aeronautics] Board, but who maintains office or who has designated or
appointed agents or employees in the Philippines, who sells or offers for sale
any air transportation in behalf of said foreign air carrier and/or others, or
negotiate for, or holds itself out by solicitation, advertisement, or otherwise
sells, provides, furnishes, contracts, or arranges for such transportation." 63
Aerotel performs acts or works or exercises functions that are incidental and
beneficial to the purpose of petitioners business. The activities of Aerotel
bring direct receipts or profits to petitioner. 66 There is nothing on record to
show that Aerotel solicited orders alone and for its own account and without
interference from, let alone direction of, petitioner. On the contrary, Aerotel
cannot "enter into any contract on behalf of [petitioner Air Canada] without
the express written consent of [the latter,]" 67 and it must perform its
functions according to the standards required by petitioner. 68 Through Aerotel,
petitioner is able to engage in an economic activity in the Philippines.
III
However, the application of the regular 32% tax rate under Section 28(A)(1)
of the 1997 National Internal Revenue Code must consider the existence of
an effective tax treaty between the Philippines and the home country of the
foreign air carrier.
This court in South African Airways declared that the correct interpretation of
these provisions is that: "international air carrier[s] maintain[ing] flights to
and from the Philippines . . . shall be taxed at the rate of 2% of its Gross
Philippine Billings[;] while international air carriers that do not have flights to
and from the Philippines but nonetheless earn income from other activities in
the country [like sale of airline tickets] will be taxed at the rate of 32% of
such [taxable] income."72
In this case, there is a tax treaty that must be taken into consideration to
determine the proper tax rate.
The apparent rationale for doing away with double taxation is to encourage
the free flow of goods and services and the movement of capital, technology
and persons between countries, conditions deemed vital in creating robust
and dynamic economies. Foreign investments will only thrive in a fairly
predictable and reasonable international investment climate and the
protection against double taxation is crucial in creating such a
climate.75 (Emphasis in the original, citations omitted)
Tax treaties are entered into "to reconcile the national fiscal legislations of the
contracting parties and, in turn, help the taxpayer avoid simultaneous
taxations in two different jurisdictions." CIR v. S.C. Johnson and Son,
Inc. further clarifies that "tax conventions are drafted with a view towards the
elimination of international juridical double taxation, which is defined as the
imposition of comparable taxes in two or more states on the same taxpayer
in respect of the same subject matter and for identical periods. The apparent
rationale for doing away with double taxation is to encourage the free flow of
goods and services and the movement of capital, technology and persons
between countries, conditions deemed vital in creating robust and dynamic
economies. Foreign investments will only thrive in a fairly predictable and
reasonable international investment climate and the protection against
double taxation is crucial in creating such a climate." Simply put, tax treaties
are entered into to minimize, if not eliminate the harshness of international
juridical double taxation, which is why they are also known as double tax
treaty or double tax agreements.
"A state that has contracted valid international obligations is bound to make
in its legislations those modifications that may be necessary to ensure the
fulfillment of the obligations undertaken." Thus, laws and issuances must
ensure that the reliefs granted under tax treaties are accorded to the parties
entitled thereto. The BIR must not impose additional requirements that would
negate the availment of the reliefs provided for under international
agreements. More so, when the RPGermany Tax Treaty does not provide for
any pre-requisite for the availment of the benefits under said agreement.
....
Bearing in mind the rationale of tax treaties, the period of application for the
availment of tax treaty relief as required by RMO No. 1-2000 should not
operate to divest entitlement to the relief as it would constitute a violation of
the duty required by good faith in complying with a tax treaty. The denial of
the availment of tax relief for the failure of a taxpayer to apply within the
prescribed period under the administrative issuance would impair the value
of the tax treaty. At most, the application for a tax treaty relief from the BIR
should merely operate to confirm the entitlement of the taxpayer to the relief.
The obligation to comply with a tax treaty must take precedence over the
objective of RMO No. 1-2000. Logically, noncompliance with tax treaties has
negative implications on international relations, and unduly discourages
foreign investors. While the consequences sought to be prevented by RMO
No. 1-2000 involve an administrative procedure, these may be remedied
through other system management processes, e.g., the imposition of a fine or
penalty. But we cannot totally deprive those who are entitled to the benefit of
a treaty for failure to strictly comply with an administrative issuance requiring
prior application for tax treaty relief.81 (Emphasis supplied, citations omitted)
On March 11, 1976, the representatives 82 for the government of the Republic
of the Philippines and for the government of Canada signed the Convention
between the Philippines and Canada for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with Respect to Taxes on Income
(Republic of the Philippines-Canada Tax Treaty). This treaty entered into force
on December 21, 1977.
On the other hand, Article V(6) provides that "[a]n enterprise of a Contracting
State shall not be deemed to have a permanent establishment in the other
Considering Article XV86 of the same Treaty, which covers dependent personal
services, the term "dependent" would imply a relationship between the
principal and the agent that is akin to an employer-employee relationship.
Section 3 of Republic Act No. 776, as amended, also known as The Civil
Aeronautics Act of the Philippines, defines a general sales agent as "a person,
not a bonafide employee of an air carrier, who pursuant to an authority from
an airline, by itself or through an agent, sells or offers for sale any air
transportation, or negotiates for, or holds himself out by solicitation,
advertisement or otherwise as one who sells, provides, furnishes, contracts or
arranges for, such air transportation." 88 General sales agents and their
property, property rights, equipment, facilities, and franchise are subject to
the regulation and control of the Civil Aeronautics Board. 89 A permit or
authorization issued by the Civil Aeronautics Board is required before a
general sales agent may engage in such an activity. 90
ARTICLE 7
GSA SERVICES
The GSA [Aerotel Ltd., Corp.] shall perform on behalf of AC [Air Canada] the
following services:
a) Be the fiduciary of AC and in such capacity act solely and entirely for the
benefit of AC in every matter relating to this Agreement;
....
....
e) Without the need for endorsement by AC, arrange for the reissuance, in
the Territory of the GSA [Philippines], of traffic documents issued by AC
outside the said territory of the GSA [Philippines], as required by the
passenger(s);
....
....
....
....
....
Under the terms of the Passenger General Sales Agency Agreement, Aerotel
will "provide at its own expense and acceptable to [petitioner Air Canada],
adequate and suitable premises, qualified staff, equipment, documentation,
facilities and supervision and in consideration of the remuneration and
expenses payable[,] [will] defray all costs and expenses of and incidental to
the Agency."92 "[I]t is the sole employer of its employees and . . . is
responsible for [their] actions . . . or those of any subcontractor." 93 In
remuneration for its services, Aerotel would be paid by petitioner a
commission on sales of transportation plus override commission on flown
revenues.94 Aerotel would also be reimbursed "for all authorized expenses
supported by original supplier invoices." 95
"If representing more than one carrier, [Aerotel must] represent all carriers in
an unbiased way."97 Aerotel cannot "accept additional appointments as
General Sales Agent of any other carrier without the prior written consent of
[petitioner Air Canada]."98
First, Aerotel must give petitioner written notice "within 7 days of the date [it]
acquires or takes control of another entity or merges with or is acquired or
controlled by another person or entity[.]" 101 Except with the written consent
of petitioner, Aerotel must not acquire a substantial interest in the ownership,
management, or profits of a passenger sales agent affiliated with the
International Air Transport Association or a non-affiliated passenger sales
agent nor shall an affiliated passenger sales agent acquire a substantial
interest in Aerotel as to influence its commercial policy and/or management
decisions.102 Aerotel must also provide petitioner "with a report on any
interests held by [it], its owners, directors, officers, employees and their
immediate families in companies and other entities in the aviation industry or
. . . industries related to it[.]" 103 Petitioner may require that any interest be
divested within a set period of time.104
Second, in carrying out the services, Aerotel cannot enter into any contract
on behalf of petitioner without the express written consent of the latter; 105 it
must act according to the standards required by petitioner; 106 "follow the
terms and provisions of the [petitioner Air Canada] GSA Manual [and all]
written instructions of [petitioner Air Canada;]" 107 and "[i]n the absence of an
applicable provision in the Manual or instructions, [Aerotel must] carry out its
functions in accordance with [its own] standard practices and
procedures[.]"108
Third, Aerotel must only "issue traffic documents approved by [petitioner Air
Canada] for all transportation over [its] services[.]" 109 All use of petitioners
name, logo, and marks must be with the written consent of petitioner and
according to petitioners corporate standards and guidelines set out in the
Manual.110
Fourth, all claims, liabilities, fines, and expenses arising from or in connection
with the transportation sold by Aerotel are for the account of petitioner,
except in the case of negligence of Aerotel. 111
IV
Tax treaties form part of the law of the land, 118 and jurisprudence has applied
the statutory construction principle that specific laws prevail over general
ones.119
These rules of interpretation apply even though one of the sources is a treaty
and not simply a statute.
This provision states the second of two ways through which international
obligations become binding. Article II, Section 2 of the Constitution deals with
international obligations that are incorporated, while Article VII, Section 21
deals with international obligations that become binding through ratification.
"Valid and effective" means that treaty provisions that define rights and
duties as well as definite prestations have effects equivalent to a statute.
Thus, these specific treaty provisions may amend statutory provisions.
Statutory provisions may also amend these types of treaty obligations.
We only deal here with bilateral treaty state obligations that are not
international obligations erga omnes. We are also not required to rule in this
case on the effect of international customary norms especially those with jus
cogens character.
The second paragraph of Article VIII states that "profits from sources within a
Contracting State derived by an enterprise of the other Contracting State
from the operation of ships or aircraft in international traffic may be taxed in
the first-mentioned State but the tax so charged shall not exceed the lesser
of a) one and one-half per cent of the gross revenues derived from sources in
that State; and b) the lowest rate of Philippine tax imposed on such profits
derived by an enterprise of a third State."
ARTICLE XVI
(Taxation)
The Contracting Parties shall act in accordance with the provisions of Article
VIII of the Convention between the Philippines and Canada for the Avoidance
of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes
on Income, signed at Manila on March 31, 1976 and entered into force on
December 21, 1977, and any amendments thereto, in respect of the
operation of aircraft in international traffic. 123
Finally, we reject petitioners contention that the Court of Tax Appeals erred in
denying its claim for refund of erroneously paid Gross Philippine Billings tax
on the ground that it is subject to income tax under Section 28(A)(1) of the
National Internal Revenue Code because (a) it has not been assessed at all by
the Bureau of Internal Revenue for any income tax liability; 125 and (b) internal
revenue taxes cannot be the subject of set-off or
compensation,126citing Republic v. Mambulao Lumber Co., et al.127 and Francia
v. Intermediate Appellate Court.128
Petitioner argued that the Court of Tax Appeals had no jurisdiction to subject
it to 6% capital gains tax or other taxes at the first instance. The Court of Tax
Appeals has no power to make an assessment.
The determination of the proper category of tax that petitioner should have
paid is an incidental matter necessary for the resolution of the principal issue,
which is whether petitioner was entitled to a refund.
The issue of petitioners claim for tax refund is intertwined with the issue of
the proper taxes that are due from petitioner. A claim for tax refund carries
the assumption that the tax returns filed were correct. If the tax return filed
was not proper, the correctness of the amount paid and, therefore, the claim
for refund become questionable. In that case, the court must determine if a
taxpayer claiming refund of erroneously paid taxes is more properly liable for
taxes other than that paid.
In this case, petitioners claim that it erroneously paid the 5% final tax is an
admission that the quarterly tax return it filed in 2000 was improper. Hence,
to determine if petitioner was entitled to the refund being claimed, the Court
of Tax Appeals has the duty to determine if petitioner was indeed not liable
for the 5% final tax and, instead, liable for taxes other than the 5% final tax.
As in South African Airways, petitioners request for refund can neither be
granted nor denied outright without such determination.
If the taxpayer is found liable for taxes other than the erroneously paid 5%
final tax, the amount of the taxpayers liability should be computed and
deducted from the refundable amount.
Hence, the Court of Tax Appeals properly denied petitioners claim for refund
of allegedly erroneously paid tax on its Gross Philippine Billings, on the
ground that it was liable instead for the regular 32% tax on its taxable
income received from sources within the Philippines. Its determination of
petitioners liability for the 32% regular income tax was made merely for the
purpose of ascertaining petitioners entitlement to a tax refund and not for
imposing any deficiency tax.
charges still due and owing from it. 134Rejecting Mambulaos claim of legal
compensation, this court ruled:
[A]ppellant and appellee are not mutually creditors and debtors of each other.
Consequently, the law on compensation is inapplicable. On this point, the trial
court correctly observed:
Under Article 1278, NCC, compensation should take place when two persons
in their own right are creditors and debtors of each other. With respect to the
forest charges which the defendant Mambulao Lumber Company has paid to
the government, they are in the coffers of the government as taxes
collected, and the government does not owe anything to defendant
Mambulao Lumber Company. So, it is crystal clear that the Republic of the
Philippines and the Mambulao Lumber Company are not creditors and
debtors of each other, because compensation refers to mutual debts. * * *.
And the weight of authority is to the effect that internal revenue taxes, such
as the forest charges in question, can not be the subject of set-off or
compensation.
The general rule, based on grounds of public policy is well-settled that no set-
off is admissible against demands for taxes levied for general or local
governmental purposes. The reason on which the general rule is based, is
that taxes are not in the nature of contracts between the party and party but
grow out of a duty to, and are the positive acts of the government, to the
making and enforcing of which, the personal consent of individual taxpayers
is not required. * * * If the taxpayer can properly refuse to pay his tax when
called upon by the Collector, because he has a claim against the
governmental body which is not included in the tax levy, it is plain that some
legitimate and necessary expenditure must be curtailed. If the taxpayers
claim is disputed, the collection of the tax must await and abide the result of
a lawsuit, and meanwhile the financial affairs of the government will be
thrown into great confusion. (47 Am. Jur. 766767.) 135 (Emphasis supplied)
In Francia, this court did not allow legal compensation since not all requisites
of legal compensation provided under Article 1279 were present. 136 In that
case, a portion of Francias property in Pasay was expropriated by the
national government,137 which did not immediately pay Francia. In the
meantime, he failed to pay the real property tax due on his remaining
property to the local government of Pasay, which later on would auction the
property on account of such delinquency. 138 He then moved to set aside the
auction sale and argued, among others, that his real property tax
(1) that each one of the obligors be bound principally and that he be at the
same time a principal creditor of the other;
....
There are other factors which compel us to rule against the petitioner. The
tax was due to the city government while the expropriation was effected by
the national government. Moreover, the amount of 4,116.00 paid by the
national government for the 125 square meter portion of his lot was
deposited with the Philippine National Bank long before the sale at public
auction of his remaining property. Notice of the deposit dated September 28,
1977 was received by the petitioner on September 30, 1977. The petitioner
admitted in his testimony that he knew about the 4,116.00 deposited with
the bank but he did not withdraw it. It would have been an easy matter to
withdraw 2,400.00 from the deposit so that he could pay the tax obligation
thus aborting the sale at public auction. 140
[A] taxpayer may not offset taxes due from the claims that he may have
against the government. Taxes cannot be the subject of compensation
because the government and taxpayer are not mutually creditors and debtors
of each other and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.143 (Citations omitted)
Philex Mining ruled that "[t]here is a material distinction between a tax and
debt. Debts are due to the Government in its corporate capacity, while taxes
are due to the Government in its sovereign capacity." 144 Rejecting Philex
Minings assertion that the imposition of surcharge and interest was
unjustified because it had no obligation to pay the excise tax liabilities within
the prescribed period since, after all, it still had pending claims for VAT input
credit/refund with the Bureau of Internal Revenue, this court explained:
To be sure, we cannot allow Philex to refuse the payment of its tax liabilities
on the ground that it has a pending tax claim for refund or credit against the
government which has not yet been granted. It must be noted that a
distinguishing feature of a tax is that it is compulsory rather than a matter of
bargain. Hence, a tax does not depend upon the consent of the taxpayer. If
any tax payer can defer the payment of taxes by raising the defense that it
still has a pending claim for refund or credit, this would adversely affect the
government revenue system. A taxpayer cannot refuse to pay his taxes when
they fall due simply because he has a claim against the government or that
the collection of the tax is contingent on the result of the lawsuit it filed
against the government. Moreover, Philexs theory that would automatically
apply its VAT input credit/refund against its tax liabilities can easily give rise
to confusion and abuse, depriving the government of authority over the
manner by which taxpayers credit and offset their tax liabilities. 145 (Citations
omitted)
In sum, the rulings in those cases were to the effect that the taxpayer cannot
simply refuse to pay tax on the ground that the tax liabilities were off-set
against any alleged claim the taxpayer may have against the government.
Such would merely be in keeping with the basic policy on prompt collection of
taxes as the lifeblood of the government.1wphi1
Squarely applicable is South African Airways where this court rejected similar
arguments on the denial of claim for tax refund:
Further, it is also worth noting that the Court of Tax Appeals erred in denying
petitioners supplemental motion for reconsideration alleging bringing to said
courts attention the existence of the deficiency income and business tax
assessment against Citytrust. The fact of such deficiency assessment is
intimately related to and inextricably intertwined with the right of respondent
bank to claim for a tax refund for the same year. To award such refund
despite the existence of that deficiency assessment is an absurdity and a
polarity in conceptual effects. Herein private respondent cannot be entitled to
refund and at the same time be liable for a tax deficiency assessment for the
same year.
The grant of a refund is founded on the assumption that the tax return is
valid, that is, the facts stated therein are true and correct. The deficiency
assessment, although not yet final, created a doubt as to and constitutes a
challenge against the truth and accuracy of the facts stated in said return
which, by itself and without unquestionable evidence, cannot be the basis for
the grant of the refund.
Section 82, Chapter IX of the National Internal Revenue Code of 1977, which
was the applicable law when the claim of Citytrust was filed, provides that
"(w)hen an assessment is made in case of any list, statement, or return,
which in the opinion of the Commissioner of Internal Revenue was false or
fraudulent or contained any understatement or undervaluation, no tax
collected under such assessment shall be recovered by any suits unless it is
proved that the said list, statement, or return was not false nor fraudulent
and did not contain any understatement or undervaluation; but this provision
shall not apply to statements or returns made or to be made in good faith
regarding annual depreciation of oil or gas wells and mines."
In fact, as the Court of Tax Appeals itself has heretofore conceded, it would be
only just and fair that the taxpayer and the Government alike be given equal
opportunities to avail of remedies under the law to defeat each others claim
and to determine all matters of dispute between them in one single case. It is
important to note that in determining whether or not petitioner is entitled to
the refund of the amount paid, it would [be] necessary to determine how
much the Government is entitled to collect as taxes. This would necessarily
include the determination of the correct liability of the taxpayer and,
certainly, a determination of this case would constitute res judicata on both
parties as to all the matters subject thereof or necessarily involved therein.
Sec. 82, Chapter IX of the 1977 Tax Code is now Sec. 72, Chapter XI of the
1997 NIRC. The above pronouncements are, therefore, still applicable today.
Here, petitioner's similar tax refund claim assumes that the tax return that it
filed was correct. Given, however, the finding of the CTA that petitioner,
although not liable under Sec. 28(A)(3)(a) of the 1997 NIRC, is liable under
Sec. 28(A)(l), the correctness of the return filed by petitioner is now put in
doubt. As such, we cannot grant the prayer for a refund. 146 (Emphasis
supplied, citation omitted)
In this case, the P5,185,676.77 Gross Philippine Billings tax paid by petitioner
was computed at the rate of 1 % of its gross revenues amounting to
P345,711,806.08149 from the third quarter of 2000 to the second quarter of
2002. It is quite apparent that the tax imposable under Section 28(A)(l) of the
1997 National Internal Revenue Code [32% of t.axable income, that is, gross
income less deductions] will exceed the maximum ceiling of 1 % of gross
revenues as decreed in Article VIII of the Republic of the Philippines-Canada
Tax Treaty. Hence, no refund is forthcoming.
WHEREFORE, the Petition is DENIED. The Decision dated August 26, 2005
and Resolution dated April 8, 2005 of the Court of Tax Appeals En Banc
are AFFIRMED.
4.
SECOND DIVISION
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review 1 assailing the Decision2 dated 29
February 2012 and Resolution3 dated 28 February 2013 of the Court of
Appeals in CA-G.R. CEB CV No. 02306, affirming the Order 4 dated 2 October
2007 of the Regional Trial Court (RTC), Branch 12, San Jose, Antique in RTC
Cad. Case No. 2004-819, Cad. Record No. 936.
On 19 August 2004, Mae Flor Galido (petitioner) filed before the RTC of San
Jose, Antique a petition 5 to cancel all entries appearing on Transfer Certificate
of Title (TCT) Nos. T-22374, T-22375 and T-22376, all in the name of Isagani
Andigan (Andigan), and to annul TCT No. T-24815 and all other TCTs issued
pursuant to the Order dated 18 October 2011 of RTC Branch 11, San Jose,
Antique (Branch 11) in RTC Civil Case No. 2001-2-3230. The petition was
raffled to RTC Branch 12, San Jose, Antique (trial court) and docketed as RTC
Cad. Case No. 2004-819 Cad. Record No. 936.
Andigan caused the subdivision of Lot 1052-A into five lots, namely: Lot 1052-
A-1, Lot 1052-A-2, Lot 1052-A-3, Lot 1052-A-4 and Lot 1052-A-5. On 18
October 1999, TCT No. T-21405 was cancelled and new certificates were
issued for the subdivided portions. Pertinent to the case are TCT No. T-22374
which was issued for Lot 1052-A-1, TCT No. T-22375 for Lot 1052-A-2 and TCT
No. T-22376 for Lot 1052-A-3, all in the name of Andigan. Andigan did not turn
over the new TCTs to Magrare, Palcat and Bayombong, and the latter were
unaware of the subdivision.
On 8 May 2000, Andigan mortgaged the same three lots to petitioner and the
latter came into possession of the owners duplicate copies of TCT Nos. T-
22374, T-22375 and T-22376.
A:M 11:00
P:M 3:006
A:M 11:00
P:M 3:007
A:M 11:00
P:M 3:008
On 22 February 2001, Magrare, Palcat and Bayombong filed before the RTC of
San Jose, Antique a Petition to Compel the Surrender to the Register of Deeds
of Antique the Owners Duplicate Copies of TCT No. T-22374 Issued for Lot
1052-A-1; TCT No. T-22375 Issued for Lot 1052-A-2; and TCT No. T-22376
Issued for Lot 1052-A-3, all of the San Jose Cadastre against the Spouses
Isagani and Merle Andigan.9 The case, raffled to Branch 11 and docketed as
Civil Case No. 2001-2-3230, was tried and decided on its merits.
If for any reason the outstanding owners duplicate copies of the subject
certificates of title cannot be so surrendered or delivered, the Register of
Deeds for Antique is hereby ordered to annul the same, issue new certificates
of title in lieu thereof which shall contain a memorandum of the annulment of
the outstanding owners duplicate copies.
SO ORDERED.12
Spouses Andigan through counsel filed a Notice of Appeal. The appeal was
docketed as CA G.R. CV 73363. However, they failed to timely file their
appellants brief, and the appeal was dismissed in a Resolution dated 15
October 2002.13 The 15 October 2002 Resolution became final and executory
on 22 December 2002 and was recorded in the Book of Entries of
Judgments.14
Upon Motion for Execution, RTC Branch 11 issued the Writ of Execution
directing the Provincial Sheriff of Antique to cause the satisfaction of the
Order dated 18 October 2001. 15 For failure to gain satisfaction of the order
from the Spouses Andigan, the Register of Deeds was notified and
commanded to annul the duplicate copies of TCT Nos. T-22374, T-22375 and
T-22376 and new ones were issued in lieu thereof. 16
The records bare that petitioner filed a Third Party Claimants Affidavit dated
3 March 200417 before the RTC Branch 11 after learning of the Notification
and Writ of Execution.
The following were also inscribed on TCT Nos. T-22374, T-22375, and T-22376:
(2) Order issued by RTC Branch 11 directing the Register of Deeds for Antique
to annul the subject certificates and issue new ones in lieu thereof, on 21
April 2004;
(3) Resolution by the Court of Appeals dismissing the appeal from the RTC
Branch 11 decision in Civil Case No. 2001-2-3230, on 21 April 2004;
(4) Writ of Execution issued by RTC Branch 11, on 21 April 2004; and
(5) Notification issued by the Sheriff to cancel the owners duplicate copies,
on 21 April 2004.18
Meanwhile, petitioner also filed with the RTC a case for foreclosure of
mortgage against the heirs of Isagani Andigan, entitled Mae Flor Galido v.
Heirs of Isagani Andigan.19 The case was raffled to Branch 10 and docketed as
Civil Case No. 3345.
It appears that petitioner prevailed in Civil Case No. 3345. As a result, the
Sheriff issued a Certificate of Sale20 in favor of petitioner of the properties
covered by TCT Nos. T-22374, T-22375 and T-22376.
RTC Cad. Case No. 2004-819, Cad. Record No. 936 (RTC Branch 12)
Petitioner alleged that she had been a holder in good faith of the following
owners duplicate certificates of title, all of the San Jose Cadastre, in the
name of one Andigan:
And that she had prevailed in Civil Case No. 3345 (RTC Branch 10) and was
issued a Certificate of Sale by the Sheriff. She also averred that the titles
contained adverse claims filed by Magrare, Palcat and Bayombong, and
annotations in connection with Civil Case No. 2001-2-3230.
Finding that the case was contentious in nature, the trial court ordered
petitioner to amend her petition to implead the following: (1) Magrare, in
whose name TCT No. T-24815 was registered and who had earlier registered
an adverse claim on TCT No. T-22374; (2) Palcat, who had registered an
adverse claim on TCT No. T-22375; and (3) Bayombong, who had registered
an adverse claim on TCT No. T-22376.22
After petitioner amended her petition, the trial court issued summons to
Magrare, Palcat and Bayombong.23 The summons were duly served on
Magrare and Palcat. However, the sheriff reported that Bayombong was not
served because he was already dead. 24 Petitioner moved to substitute the
heirs of Bayombong, but the trial court ruled that the substitution was
without legal basis because Bayombong was not properly impleaded. He died
on 13 December 2001 and could not have been made a party to the petition
filed on 19 August 2004. Hence, the trial court dismissed the case against
Bayombong in an Order dated 22 April 2005.25
Petitioner moved to amend her petition for the second time to include the
heirs of Bayombong and the Rural Bank of Sibalom (Antique), Inc., whose
mortgage was registered on TCT No. T-24815. The trial court ruled that the
names and addresses of all the heirs of Bayombong were not identified, and
that there was no showing that the widow of Bayombong represented all the
heirs.26 The trial court also found no legal or factual basis to implead the
bank. Hence, the trial court denied petitioners motion to further amend the
petition.27
Upon motion, the trial court held a summary hearing on the affirmative
defenses. Despite due notice, neither petitioner nor her counsel appeared.
The trial court allowed respondents counsel to proceed with the presentation
of evidence.29
On the basis of the foregoing findings and observations, this court finds
meritorious the affirmative defenses put up by the respondents/adverse
claimants, that, the petitioner Mae Flor Galido has no cause of action against
them and, that, this case is already barred by prior judgment rendered in Civil
Case No. 2001-2-3230. In Nicasio I. Alacantara, et al. vs. Vicente C. Ponce, et
al., G.R. No. 131547, Dec. 15, 2005, it was ruled that, "Litigation must end
and terminate sometime and somewhere, and it is essential to an effective
and efficient administration of justice that once a judgment has become final,
the winning party be not, through a mere subterfuge, deprived of the fruits of
the verdict. Court[s] must therefore guard against any scheme calculated to
bring about the result. Constituted as they are to put an end to the
controversies, courts should frown upon any attempt to prolong them."
PREMISES CONSIDERED, the petition in this case is hereby DENIED and, this
case dismissed for the reasons aforestated. 33
The trial court found petitioners prayer for cancellation of entries concerning
the adverse claims of respondents moot and academic because the same
were already cancelled.34 Further, the decision in Civil Case No. 2001-2-3230
had already become final and in fact was executed. 35 The trial court also ruled
that since Andigan had already sold Lots 1052-A-1 and 1052-A-2 to
respondents when he mortgaged the same to her, it was as if nothing was
mortgaged at all.36
Petitioner filed an appeal before the Court of Appeals with the following
assignment of errors:
For lack of merit, the Court of Appeals denied petitioners motion for
reconsideration in a Resolution40 dated 28 February 2013.
The Issues
At the crux is the question of who has a better right to the properties
concerned: petitioner on the one hand, and Magrare, Palcat and Bayombong
on the other?
Petitioner derives her title from Andigan, as mortgagor. However, at the time
Andigan mortgaged the lots to petitioner he had already sold the same to
Magrare, Palcat and Bayombong. Indeed, petitioners case is negated by Civil
Case No. 2001-2-3230. There, Andigan admitted that Lot Nos. 1052-A-1,
1052-A-2 and 1052-A-3 were the parcels of land he sold to Magrare, Palcat
and Bayombong, respectively, on 28 December 1998. 42 Hence, when Andigan
mortgaged the lots to petitioner on 8 May 2000, he no longer had any right to
do so. We quote with approval the discussion of the trial court:
Finally, when the spouses Andigan mortgaged to the herein petitioner Galido
Lot Nos. 1052-A-1 and 1052-A-2, the said lots were already sold to the
respondents Palcat and Magrare. It is therefore as if nothing was mortgaged
to her because Isagani Andigan was no longer the owner of the mortgaged
real property. Under Art. 2085 of the Civil Code, two of the prescribed
requisites for a valid mortgage are, that, the mortgagor be the absolute
owner of the thing mortgaged and, that, he has the free disposal thereof.
These requisites are absent when Isagani Andigan and his wife mortgaged
the lots alluded to above to the herein petitioner. 43
A spring cannot rise higher than its source. Since Andigan no longer had any
interest in the subject properties at the time he mortgaged them to her,
petitioner had nothing to foreclose.
The parcels of land involved in this case are registered under the Torrens
system. One who deals with property registered under the Torrens system
need not go beyond the certificate of title, but only has to rely on the
certificate of title.44 Every subsequent purchaser of registered land taking a
certificate of title for value and in good faith shall hold the same free from all
encumbrances except those noted on said certificate and any of the
encumbrances provided by law. 45
The act of registration shall be the operative act to convey or affect the land
insofar as third persons are concerned, and in all cases under this Decree, the
registration shall be made in the office of the Register of Deeds for the
province or city where the land lies.1wphi1
Petitioner does not hide the fact that she was aware of the adverse claim and
the proceedings in Civil Case No. 2001-2-3230. In her petition before the
Court, she stated that "on March 03, 2004, petitioner had filed a third party
claim with the Regional Trial Court, Branch 11 in said Civil Case No. 2001-2-
3230."47
Instead, petitioner insists that it was illegal for Magrare, Palcat and
Bayombong to file a case compelling the surrender of the owners duplicates
of TCT Nos. T-22374, T-22375 and T-22376. On the contrary, the law itself
provides the recourse they took registering an adverse claim and filing a
petition in court to compel surrender of the owners duplicate certificate of
title:
Sec. 70. Adverse claim. Whoever claims any part or interest in registered land
adverse to the registered owner, arising subsequent to the date of the
original registration, may if no other provision is made in this Decree for
registering the same, make a statement in writing setting forth fully his
alleged right or interest, and how or under whom acquired, a reference to the
number of the certificate of title of the registered owner, the name of the
registered owner, and a description of the land which the right or interest is
claimed.
xxxx
Further, RTC Branch 11, after trial on the merits of Civil Case No. 2001-2-
3230, found for Magrare, Palcat and Bayombong. That decision has attained
finality and was entered in the Book of Judgments. The trial court was correct
in not touching upon the final and executory decision in that case.
But even assuming that the mortgage was valid, petitioner can hardly be
considered a buyer in good faith. A purchaser in good faith and for value is
one who buys the property of another without notice that some other person
has a right to or interest in such property and pays a full and fair price for the
same at the time of such purchase, or before he has notice of the claims or
interest of some other person in the property. 48
Hence, the trial courts dismissal of the case against Magrare and Palcat is in
order. There is no need for us to discuss petitioners other assignments of
error. Besides, the same issues were sufficiently addressed by the Court of
Appeals.
However, we find reversible error on the part of the trial court in not
impleading the heirs of Bayombong. Indispensable parties are parties in
interest without whom no final determination can be had of an
action.50Petitioners action was for the cancellation of titles, including TCT No.
T-22376. In its Order dated 17 January 2005, 51 the trial court itself recognized
that the controversy was contentious in nature, and required the participation
of Bayombong, among others. Bayombong, like respondents Magrare and
Palcat stood to be benefited or prejudiced by the outcome of the case. Since
he was already dead at the time the case was filed by petitioner, the heirs of
Bayombong stand in his stead not only as parties in interest, but
indispensable parties. Without the heirs of Bayombong to represent the
interest of Bayombong, there can be no complete determination of all the
issues presented by petitioner, particularly, in regard to TCT No. T-22376.
We note that the counsel representing Magrare and Palcat is the same
counsel that represented Magrare, Palcat and Bayombong in Civil Case No.
2001-2-3230. There is no information on record, apart from petitioners
allegation, whether or not counsel informed the court of the death of
Bayombong, in accordance with Section 16, Rule 3 of the Rules of Court.
Nevertheless, for expediency, Atty. Alexis C. Salvani is directed to provide the
trial court and petitioner the full names and addresses of the heirs of
Bayombong to enable the trial court to properly implead them.
Case No. 2004-819, Cad. Record No. 936, is: (1) AFFIRMED insofar as the
dismissal of the case with respect to Nelson P. Magrare and Evangeline M.
Palcat; and (2) REVERSED insofar as the dismissal of the case pertaining to
TCT No. T-22376. The heirs of Rodolfo Bayombong are ORDERED
IMPLEADED as parties-defendants and the trial court is directed to proceed
with the case pertaining to TCT No. T-22376. Atty. Alexis C. Salvani is further
directed to provide the full names and addresses of the heirs of Bayombong.
5.
THIRD DIVISION
DECISION
PERALTA, J.:
The present case is a continuation of Yu v. The Orchard Gold & Country Club,
Inc.4 decided by this Court on March 1, 2007. For brevity, the relevant facts
narrated therein are quoted as follows:
that they should just tee off anyway, regardless of what management's
reaction would be. [Respondents] then teed off, without permission from
Montallana. They were thus able to play, although they did so without
securing a tee time control slip before teeing off, again in disregard of a rule
in the handbook. As a result of [respondents] actions, Montallana filed a
report on the same day with the board of directors (the board).
In separate letters dated May 31, 2000, the board, through [petitioner]
Clemente, requested [respondents] to submit their written comments on
Montallanas incident report dated May 28, 2000. The reportwas submitted
for the consideration of the board.
On July 11, 2000, [respondents] filed separate petitions for injunction with
application for temporary restraining order (TRO) and/or preliminary
injunction with the Securities Investigation and Clearing Department (SICD) of
the Securities and Exchange Commission (SEC), at that time the tribunal
vested by law with jurisdiction to hear and decide intra-corporate
controversies. The cases, in which [respondents] assailed the validity of their
suspension, were docketed as SEC Case Nos. 07-00-6680 and 07-00-6681.
They were eventually consolidated.
On October 31, 2000, the board held a special meeting in which it resolved to
implement the June 29, 2000 order for the suspension of [respondents] in
view of the fact that the writs of injunction issued by the SICD in their
respective cases had already [elapsed] on August 8, 2000 under the SEC
guidelines.
In an order dated December 13, 2000, the Dasmarias, Cavite RTC, Branch
90, through Judge Dolores [L.] Espaol, directed the parties to maintain the
"last, actual, peaceable and uncontested state of things," effectively restoring
the writ of preliminary injunction, and also ordered [petitioners] to file their
answer to the petition. [Petitioners] did not file a motion for reconsideration
but filed a petition for certiorari and prohibition with the CA, docketed as CA-
G.R. SP No. 62309, contesting the propriety of the December 13, 2000 order
of Judge Espaol. They also prayed for the issuance of a TRO and writ of
preliminary injunction.
On September 7, 2001, the Imus, Cavite RTC issued a TRO. [Petitioners] filed
a motion for reconsideration on September [11,] 2001.
It was after the issuance of this TRO that [respondents] filed, on September
12, 2001, a motion for reconsideration of the CAs decision in CA-G.R. SP No.
62309. In a resolution dated October 10, 2001, the CA denied [respondents]
motion, prompting them to elevate the matter to this Court via petition for
review on certiorari, docketed as G.R. No. 150335.
In an order dated September 21, 2001, the Imus, Cavite RTC denied
[petitioners] motion for reconsideration and directed the issuance of a writ of
preliminary injunction. This prompted [petitioners] to file another petition
for certiorari in the Court of Appeals [docketed as CA-G.R. SP No. 67664]
which x x x issued [on March 26, 2002] a TRO against the Imus, Cavite RTC,
enjoining it from implementing the writ of preliminary injunction.
At this point, [respondents] filed their second petition in this Court, this time a
special civil action for certiorari, docketed as G.R. No. 152687, which included
a prayer for the issuance of a TRO and/or the issuance of a writ of preliminary
injunction to restrain the enforcement of the CA-issued TRO.
On May 6, 2002, the Court issued a resolution consolidating G.R. No. 152687
and G.R. No. 150335.
In G.R. No. 150335, the issue for consideration [was] whether Sections 1 and
2 of the SEC guidelines dated August 1, 2000 shortened the life span of the
writs of preliminary injunction issued on August 7, 2000 by the SEC-SICD in
SEC Case Nos. 07-00-6680 and 07-00-6681, thereby making them effective
only until August 8, 2000.
At issue in G.R. No. 152687, on the other hand, [was] whether or not the CA
committed grave abuse of discretion amounting to lack of jurisdiction by
issuing a TRO against the Imus, Cavite RTC and enjoining the implementation
of its writ of preliminary injunction against [petitioners]. 5
On March 1, 2007, the Court denied the petitions in G.R. Nos. 150335 and
152687. In G.R. No. 150335, it was held that the parties were allowed to file
their cases before August 8, 2000 but any provisional remedies the SEC
granted them were to be effective only until that date. Given that the SEC
Order and Writ of Injunction were issued on August 2 and 7, 2000,
respectively, both were covered by the guidelines and the stated cut-off date.
As to G.R. No. 152687, We ruled that the petition became moot and academic
because the TRO issued by the CA on March 26, 2002 already expired, its
lifetime under Rule 58 of the Rules being only 60 days, and petitioners
themselves admitted that the CA allowed its TRO to elapse.
Meanwhile, per Order dated September 24, 2002 of the Imus RTC, SEC Case
Nos. 001-01 and 002-01 were set for pre-trial conference. 6 Trial on the merits
thereafter ensued.
[Petitioners] are hereby directed to jointly and severally pay each of the
[respondents] the following amounts:
SO ORDERED.8
Upon receiving a copy of the Imus RTC Decision on December 22, 2008,
petitioners filed a Notice of Appeal accompanied by the payment of docket
fees on January 5, 2009.9 Respondents then filed an Opposition to Notice of
Appeal with Motion for Issuance of Writ of Execution, 10 arguing that the
December 4, 2008 Decision already became final and executory since no
petition for review under Rule 43 of the Rules was filed before the CA
pursuant to Administrative Matter No. 04-9-07-SC.
Realizing the mistake, petitioners filed on January 13, 2009 an Urgent Motion
for Extension of Time to File a Petition. 11 Before the Imus RTC, they also filed a
Motion to Withdraw the Notice of Appeal.12
Before the Imus RTC, respondents motion for execution was granted on
February 17, 2009. The trial court opined that the proper appellate mode of
review was not filed within the period prescribed by the Rules and that the CA
issued no restraining order. 17 On March 2, 2009, the Writ of Execution was
issued.18 Eventually, on March 30, 2009, the Sheriff received the total amount
of P9,200,000.00, as evidenced by two managers check payable to
respondents in the amount of P4,600,000.00 each, which were turned over to
respondents counsel.19
The Court initially denied the petition, but reinstated the same on October 6,
2010.23
The cases of LBP and Atty. Abrenica are inapplicable. In LBP, the Court
affirmed the CAs denial of the banks motion for extension of time to file a
petition for review. Examination of said case revealed that the bank filed a
motion for reconsideration of the trial courts adverse judgment dated March
15, 2006, in violation of Section 8(3), Rule 1 of the Interim Rules of Procedure
Governing Intra-Corporate Controversies under Republic Act No. 8799. It was
held that the filing of such prohibited pleading did not toll the reglementary
period to appeal the judgment via a petition for review under Rule 43 of the
Rules. Thus, the CA already lacked jurisdiction to entertain the petition which
the bank intended to file, much less to grant the motion for extension of time
that was belatedly filed on July 25, 2006.
Second, petitioner had known about the new rules on the second week of
January, 2005 when he received a copy of respondents Opposition (To
Defendants Notice of Appeal) dated January 6, 2005. In their opposition,
respondents specifically pointed to the applicability of A.M. No. 04-9-07-SC to
the instant case.
Third, petitioner originally insisted in his Reply with Manifestation (To the
Opposition to Defendants Notice of Appeal) that the correct mode of appeal
was a "notice of appeal."
Finally, petitioner filed his Motion to Admit Attached Petition for Review only
on June 10, 2005, or almost eight months from the effectivity of A.M. No.
04-9-07-SC on October 15, 2004, after he received the trial courts Order of
May 11, 2005.24
Notably, under A.M. No. 04-9-07-SC (Re: Mode of Appeal in Cases Formerly
Cognizable by the Securities and Exchange Commission), 28 while the petition
for review under Rule 43 of the Rules should be filed within fifteen (15) days
from notice of the decision or final order of the RTC, the CA may actually
grant an additional period of fifteen (15) days within which to file the petition
and a further extension of time not exceeding fifteen (15) days for the most
compelling reasons. This implies that the reglementary period is neither an
impregnable nor an unyielding rule.
More importantly, the substantive merits of the case deserve Our utmost
consideration.
Respondents assert that the "no twosome" policy was relaxed by the
management when a member or player would not be prejudiced or, in the
words of Yu, allowed when "maluwag."32 Yet a thorough reading of the
transcript of stenographic records (TSN) disclosed that such claim is based
not on concrete examples. No specific instance as to when and under what
circumstance the supposed relaxation took place was cited. Yuhico roughly
recollected two incidents but, assuming them to be true, these happened
only after May 28, 2000.33 Further, the tee pass or control slip and the Clubs
Palmer Course Card,34 which was identified by respondents witness, Pepito
Dimabuyo, to prove that he and another member were allowed to play
twosome on June 13, 2004, a Sunday, indicated that they were allowed to tee
off only at 1:45 p.m.35 Lastly, granting, for the sake of argument, that the "no
twosome" policy had been relaxed in the past, Montallana cannot be faulted
in exercising his prerogative to disallow respondents from playing since they
made no prior reservation and that there were standing flights waiting for tee
time. Per Cipriano Santos Report, May 28, 2000 was a relatively busy day as
it had 200 registered players to accommodate as of 8:00 a.m.
It was averred that respondents teed off without the required tee time slip
based on the thinking that it was no longer necessary since Santos, the
Clubs Manager, allowed them by waving his hands when Yuhicos caddie
tried to pick up the slip in the registration office. Such excuse is flimsy
because it ignored the reality that Santos, a mere subordinate of Montallana
who already earned the ire of Yu, was practically more helpless to contain the
stubborn insistence of respondents.
Records reveal that respondents were given due notice and opportunity to be
heard before the Board of Directors imposed the penalty of suspension as
Club members. Respondent Yu was served with the May 31, 2000
Likewise, respondent Yuhico was given by Clemente a letter dated May 31,
2000 informing him of violating the "no twosome" policy and teeing off
without the required tee time slip.44 After receiving the same, Yuhico called up
Clemente to hear his side.45 Like Yu, however, Yuhico later refused to attend a
meeting with the Board. 46
Way different from the trial courts findings, there is, therefore, no factual and
legal basis to grant moral and exemplary damages, attorneys fees and costs
of suit in favor of respondents. The damages suffered, if there are any,
partake of the nature of a damnum absque injuria. As elaborated in Spouses
Custodio v. CA:53
x x x [T]he mere fact that the plaintiff suffered losses does not give rise to a
right to recover damages. To warrant the recovery of damages, there must be
both a right of action for a legal wrong inflicted by the defendant, and
damage resulting to the plaintiff therefrom. Wrong without damage, or
damage without wrong, does not constitute a cause of action, since damages
are merely part of the remedy allowed for the injury caused by a breach or
wrong.
In order that a plaintiff may maintain an action for the injuries of which he
complains, he must establish that such injuries resulted from a breach of duty
which the defendant owed to the plaintiff a concurrence of injury to the
plaintiff and legal responsibility by the person causing it. The underlying basis
for the award of tort damages is the premise that an individual was injured in
contemplation of law. Thus, there must first be the breach of some duty and
the imposition of liability for that breach before damages may be awarded; it
is not sufficient to state that there should be tort liability merely because the
plaintiff suffered some pain and suffering.
Many accidents occur and many injuries are inflicted by acts or omissions
which cause damage or loss to another but which violate no legal duty to
such other person, and consequently create no cause of action in his favor. In
such cases, the consequences must be borne by the injured person alone.
The law affords no remedy for damages resulting from an act which does not
amount to a legal injury or wrong.
In other words, in order that the law will give redress for an act causing
damage, that act must be not only hurtful, but wrongful. There must
be damnum et injuria. If, as may happen in many cases, a person sustains
actual damage, that is, harm or loss to his person or property, without
sustaining any legal injury, that is, an act or omission which the law does not
deem an injury, the damage is regarded as damnum absque injuria.
xxxx
The proper exercise of a lawful right cannot constitute a legal wrong for which
an action will lie, although the act may result in damage to another, for no
legal right has been invaded. One may use any lawful means to accomplish a
lawful purpose and though the means adopted may cause damage to
another, no cause of action arises in the latters favor. Any injury or damage
occasioned thereby is damnum absque injuria. The courts can give no redress
for hardship to an individual resulting from action reasonably calculated to
achieve a lawful end by lawful means.54
"One who makes use of his own legal right does no injury. Qui jure suo utitur
nullum damnum facit. If damage results from a person's exercising his legal
rights, it is damnum absque injuria."55 In this case, respondents failed to
prove by preponderance of evidence that there is fault or negligence on the
part of petitioners in order to oblige them to pay for the alleged damage
sustained as a result of their suspension as Club members. Certainly,
membership in the Club is a privilege.56 Regular members are entitled to use
all the facilities and privileges of the Club, subject to its rules and
regulations.57 As correctly pointed out by petitioners, the mental anguish
respondents experienced, assuming to be true, was brought upon them by
themselves for deliberately and consciously violating the rules and
regulations of the Club. Considering that respondents were validly
suspended, there is no reason for the Club to compensate them. Indeed, the
penalty of suspension provided for in Section 1, Article XIV of the By-Laws is a
means to protect and preserve the interest and purposes of the Club. This
being so, the suspension of respondents does not fall under any of the
provisions of the Civil Code pertaining to the grant of moral and exemplary
damages, attorneys fees, and litigation costs.
6.
SECOND DIVISION
DECISION
LEONEN, J.:
This is a Petition for Review on Certiorari filed on April 20, 2005 assailing the
March 30, 2005 Decision1 and September 9, 2005 Amended Decision 2 of the
Court of Appeals, which modified the February 26, 1999 Decision 3 of the
Regional Trial Court by reducing the amount of damages awarded to
petitioners Spouses Alexander and Julie Lam (Lam Spouses). 4 The Lam
Spouses argue that respondent Kodak Philippines, Ltd.s breach of their
contract of sale entitles them to damages more than the amount awarded by
the Court of Appeals.5
On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into
an agreement (Letter Agreement) for the sale of three (3) units of the Kodak
Minilab System 22XL6 (Minilab Equipment) in the amount of 1,796,000.00
per unit,7 with the following terms:
This confirms our verbal agreement for Kodak Phils., Ltd. To provide Colorkwik
Laboratories, Inc. with three (3) units Kodak Minilab System 22XL . . . for your
proposed outlets in Rizal Avenue (Manila), Tagum (Davao del Norte), and your
existing Multicolor photo counter in Cotabato City under the following terms
and conditions:
1. Said Minilab Equipment packages will avail a total of 19% multiple order
discount based on prevailing equipment price provided said equipment
packages will be purchased not later than June 30, 1992.
3. NO DOWNPAYMENT.
On January 15, 1992, Kodak Philippines, Ltd. delivered one (1) unit of the
Minilab Equipment in Tagum, Davao Province. 9 The delivered unit was
installed by Noritsu representatives on March 9, 1992. 10 The Lam Spouses
issued postdated checks amounting to 35,000.00 each for 12 months as
payment for the first delivered unit, with the first check due on March 31,
1992.11
The Lam Spouses requested that Kodak Philippines, Ltd. not negotiate the
check dated March 31, 1992 allegedly due to insufficiency of funds. 12 The
same request was made for the check due on April 30, 1992. However, both
checks were negotiated by Kodak Philippines, Ltd. and were honored by the
depository bank.13 The 10 other checks were subsequently dishonored after
the Lam Spouses ordered the depository bank to stop payment. 14
Kodak Philippines, Ltd. canceled the sale and demanded that the Lam
Spouses return the unit it delivered together with its accessories. 15 The Lam
Spouses ignored the demand but also rescinded the contract through the
letter dated November 18, 1992 on account of Kodak Philippines, Ltd.s
failure to deliver the two (2) remaining Minilab Equipment units. 16
On November 25, 1992, Kodak Philippines, Ltd. filed a Complaint for replevin
and/or recovery of sum of money. The case was raffled to Branch 61 of the
Regional Trial Court, Makati City. 17 The Summons and a copy of Kodak
Philippines, Ltd.s Complaint was personally served on the Lam Spouses. 18
The Lam Spouses failed to appear during the pre-trial conference and submit
their pre-trial brief despite being given extensions. 19 Thus, on July 30, 1993,
they were declared in default.20 Kodak Philippines, Ltd. presented evidence
ex-parte.21 The trial court issued the Decision in favor of Kodak Philippines,
Ltd. ordering the seizure of the Minilab Equipment, which included the lone
delivered unit, its standard accessories, and a separate generator
set.22 Based on this Decision, Kodak Philippines, Ltd. was able to obtain a writ
of seizure on December 16, 1992 for the Minilab Equipment installed at the
Lam Spouses outlet in Tagum, Davao Province. 23 The writ was enforced on
December 21, 1992, and Kodak Philippines, Ltd. gained possession of the
Minilab Equipment unit, accessories, and the generator set. 24
The Lam Spouses then filed before the Court of Appeals a Petition to Set
Aside the Orders issued by the trial court dated July 30, 1993 and August 13,
1993. These Orders were subsequently set aside by the Court of Appeals
Ninth Division, and the case was remanded to the trial court for pre-trial. 25
On September 12, 1995, an Urgent Motion for Inhibition was filed against
Judge Fernando V. Gorospe, Jr., 26 who had issued the writ of seizure. 27 The
ground for the motion for inhibition was not provided. Nevertheless, Judge
Fernando V. Gorospe Jr. inhibited himself, and the case was reassigned to
Branch 65 of the Regional Trial Court, Makati City on October 3, 1995. 28
In the Decision dated February 26, 1999, the Regional Trial Court found that
Kodak Philippines, Ltd. defaulted in the performance of its obligation under its
Letter Agreement with the Lam Spouses. 29 It held that Kodak Philippines,
Ltd.s failure to deliver two (2) out of the three (3) units of the Minilab
Equipment caused the Lam Spouses to stop paying for the rest of the
installments.30 The trial court noted that while the Letter Agreement did not
specify a period within which the delivery of all units was to be made, the
Civil Code provides "reasonable time" as the standard period for compliance:
Where by a contract of sale the seller is bound to send the goods to the
buyer, but no time for sending them is fixed, the seller is bound to send them
within a reasonable time.
Kodak Philippines, Ltd. failed to give a sufficient explanation for its failure to
deliver all three (3) purchased units within a reasonable time. 32
Kodak would have the court believe that it did not deliver the other two (2)
units due to the failure of defendants to make good the installments
subsequent to the second. The court is not convinced. First of all, there
should have been simultaneous delivery on account of the circumstances
surrounding the transaction. . . . Even after the first delivery . . . no delivery
was made despite repeated demands from the defendants and despite the
fact no installments were due. Then in March and in April (three and four
months respectively from the date of the agreement and the first delivery)
when the installments due were both honored, still no delivery was made.
Second, although it might be said that Kodak was testing the waters with just
one delivery - determining first defendants capacity to pay - it was not at
liberty to do so. It is implicit in the letter agreement that delivery within a
reasonable time was of the essence and failure to so deliver within a
reasonable time and despite demand would render the vendor in default.
....
Third, at least two (2) checks were honored. If indeed Kodak refused delivery
on account of defendants inability to pay, non-delivery during the two (2)
months that payments were honored is unjustified. 33
Nevertheless, the trial court also ruled that when the Lam Spouses accepted
delivery of the first unit, they became liable for the fair value of the goods
received:
On the other hand, defendants accepted delivery of one (1) unit. Under
Article 1522 of the Civil Code, in the event the buyer accepts incomplete
delivery and uses the goods so delivered, not then knowing that there would
not be any further delivery by the seller, the buyer shall be liable only for the
fair value to him of the goods received. In other words, the buyer is still liable
for the value of the property received. Defendants were under obligation to
pay the amount of the unit. Failure of delivery of the other units did not
thereby give unto them the right to suspend payment on the unit delivered.
Indeed, in incomplete deliveries, the buyer has the remedy of refusing
payment unless delivery is first made. In this case though, payment for the
two undelivered units have not even commenced; the installments made
were for only one (1) unit.
The Lam Spouses were under obligation to pay for the amount of one unit,
and the failure to deliver the remaining units did not give them the right to
suspend payment for the unit already delivered. 35 However, the trial court
held that since Kodak Philippines, Ltd. had elected to cancel the sale and
retrieve the delivered unit, it could no longer seek payment for any
deterioration that the unit may have suffered while under the custody of the
Lam Spouses.36
As to the generator set, the trial court ruled that Kodak Philippines, Ltd.
attempted to mislead the court by claiming that it had delivered the
generator set with its accessories to the Lam Spouses, when the evidence
showed that the Lam Spouses had purchased it from Davao Ken Trading, not
from Kodak Philippines, Ltd.37 Thus, the generator set that Kodak Philippines,
Ltd. wrongfully took from the Lam Spouses should be replaced. 38
1) PHP 130,000.00 representing the amount of the generator set, plus legal
interest at 12% per annum from December 1992 until fully paid; and
SO ORDERED.39
On March 31, 1999, the Lam Spouses filed their Notice of Partial Appeal,
raising as an issue the Regional Trial Courts failure to order Kodak
Philippines, Ltd. to pay: (1) 2,040,000 in actual damages; (2) 50,000,000 in
moral damages; (3) 20,000,000 in exemplary damages; (4) 353,000 in
attorneys fees; and (5) 300,000 as litigation expenses. 40 The Lam Spouses
did not appeal the Regional Trial Courts award for the generator set and the
renovation expenses.41
In the Decision45 dated March 30, 2005, the Court of Appeals Special
Fourteenth Division modified the February 26, 1999 Decision of the Regional
Trial Court:
The Court of Appeals agreed with the trial courts Decision, but extensively
discussed the basis for the modification of the dispositive portion.
The Court of Appeals ruled that the Letter Agreement executed by the parties
showed that their obligations were susceptible of partial performance. Under
Article 1225 of the New Civil Code, their obligations are divisible:
Applying the foregoing factors to this case, We found that the intention of the
parties is to be bound separately for each Minilab Equipment to be delivered
as shown by the separate purchase price for each of the item, by the
acceptance of Sps. Lam of separate deliveries for the first Minilab Equipment
and for those of the remaining two and the separate payment arrangements
for each of the equipment. Under this premise, Sps. Lam shall be liable for
the entire amount of the purchase price of the Minilab
Third, it is also evident that the contract is one that is severable in character
as demonstrated by the separate purchase price for each of the minilab
equipment. "If the part to be performed by one party consists in several
distinct and separate items and the price is apportioned to each of them, the
contract will generally be held to be severable. In such case, each distinct
stipulation relating to a separate subject matter will be treated as a separate
contract." Considering this, Kodak's breach of its obligation to deliver the
other two (2) equipment cannot bar its recovery for the full payment of the
equipment already delivered. As far as Kodak is concerned, it had already
fully complied with its separable obligation to deliver the first unit of Minilab
Equipment.47 (Emphasis supplied)
The Court of Appeals held that the issuance of a writ of replevin is proper
insofar as the delivered Minilab Equipment unit and its standard accessories
are concerned, since Kodak Philippines, Ltd. had the right to possess it: 48
payment for the Minilab Equipment delivered to them. Clearly then, Kodak
ha[d] the right to repossess the said equipment, through this replevin suit.
Sps. Lam cannot excuse themselves from paying in full the purchase price of
the equipment delivered to them on account of Kodaks breach of the
contract to deliver the other two (2) Minilab Equipment, as contemplated in
the Letter Agreement.49(Emphasis supplied)
Echoing the ruling of the trial court, the Court of Appeals held that the liability
of the Lam Spouses to pay the remaining balance for the first delivered unit is
based on the second sentence of Article 1592 of the New Civil Code. 50 The
Lam Spouses receipt and use of the Minilab Equipment before they knew
that Kodak Philippines, Ltd. would not deliver the two (2) remaining units has
made them liable for the unpaid portion of the purchase price. 51
The Court of Appeals noted that Kodak Philippines, Ltd. sought the rescission
of its contract with the Lam Spouses in the letter dated October 14,
1992.52 The rescission was based on Article 1191 of the New Civil Code, which
provides: "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."53 In its letter, Kodak Philippines, Ltd. demanded that the Lam Spouses
surrender the lone delivered unit of Minilab Equipment along with its standard
accessories.54
The Court of Appeals likewise noted that the Lam Spouses rescinded the
contract through its letter dated November 18, 1992 on account of Kodak
Philippines, Inc.s breach of the parties agreement to deliver the two (2)
remaining units.55
As a result of this rescission under Article 1191, the Court of Appeals ruled
that "both parties must be restored to their original situation, as far as
practicable, as if the contract was never entered into." 56 The Court of Appeals
ratiocinated that Article 1191 had the effect of extinguishing the obligatory
relation as if one was never created: 57
As to the actual damages sought by the parties, the Court of Appeals found
that the Lam Spouses were able to substantiate the following:
Incentive fee paid to Mr. Ruales in the amount of P100,000.00; the rider to
the contract of lease which made the Sps. Lam liable, by way of advance
payment, in the amount of P40,000.00, the same being intended for the
repair of the flooring of the leased premises; and lastly, the payment of
P300,000.00, as compromise agreement for the pre-termination of the
contract of lease with Ruales.60
The total amount is 440,000.00. The Court of Appeals found that all other
claims made by the Lam Spouses were not supported by evidence, either
through official receipts or check payments.61
As regards the generator set improperly seized from Kodak Philippines, Ltd.
on the basis of the writ of replevin, the Court of Appeals found that there was
no basis for the Lam Spouses claim for reasonable rental of 5,000.00. It
held that the trial courts award of 12% interest, in addition to the cost of the
generator set in the amount of 130,000.00, is sufficient compensation for
whatever damage the Lam Spouses suffered on account of its improper
seizure.62
The Court of Appeals also ruled on the Lam Spouses entitlement to moral
and exemplary damages, as well as attorneys fees and litigation expenses:
With respect to the attorneys fees and litigation expenses, We find that there
is no basis to award Sps. Lam the amount sought for. 63
Going over the Decision, specifically page 12 thereof, the Court noted that, in
addition to the amount of Two Hundred Seventy Thousand (P270,000.00)
which plaintiff-appellant should return to the defendantsappellants, the Court
also ruled that defendants-appellants should, in turn, relinquish possession of
The Lam Spouses filed this Petition for Review on April 14, 2005. On the other
hand, Kodak Philippines, Ltd. filed its Motion for Reconsideration 66 before the
Court of Appeals on April 22, 2005.
While the Petition for Review on Certiorari filed by the Lam Spouses was
pending before this court, the Court of Appeals Special Fourteenth Division,
acting on Kodak Philippines, Ltd.s Motion for Reconsideration, issued the
Amended Decision67 dated September 9, 2005. The dispositive portion of the
Decision reads:
B. The decretal portion of the 30 March 2005 Decision should now read as
follows:
SO ORDERED."
Certiorari under Rule 45 of the 1997 Rules of Civil Procedure before this
court.69
This was docketed as G.R. No. 169639. In the Motion for Consolidation dated
November 2, 2005, the Lam Spouses moved that G.R. No. 167615 and G.R.
No. 169639 be consolidated since both involved the same parties, issues,
transactions, and essential facts and circumstances. 70
In the Resolution dated November 16, 2005, this court noted the Lam
Spouses September 23 and September 30, 2005 Manifestations praying that
the Court of Appeals September 9, 2005 Amended Decision be considered in
the resolution of the Petition for Review on Certiorari. 71 It also granted the
Lam Spouses Motion for Consolidation.72
In the Resolution73 dated September 20, 2006, this court deconsolidated G.R
No. 167615 from G.R. No. 169639 and declared G.R. No. 169639 closed and
terminated since Kodak Philippines, Ltd. failed to file its Petition for Review.
II
First, whether the contract between petitioners Spouses Alexander and Julie
Lam and respondent Kodak Philippines, Ltd. pertained to obligations that are
severable, divisible, and susceptible of partial performance under Article
1225 of the New Civil Code; and
Second, upon rescission of the contract, what the parties are entitled to
under Article 1190 and Article 1522 of the New Civil Code.
Petitioners argue that the Letter Agreement it executed with respondent for
three (3) Minilab Equipment units was not severable, divisible, and
susceptible of partial performance. Respondents recovery of the delivered
unit was unjustified.74
Petitioners assert that the obligations of the parties were not susceptible of
partial performance since the Letter Agreement was for a package deal
consisting of three (3) units. 75 For the delivery of these units, petitioners were
obliged to pay 48 monthly payments, the total of which constituted one
debt.76 Having relied on respondents assurance that the three units would be
delivered at the same time, petitioners simultaneously rented and renovated
three stores in anticipation of simultaneous operations. 77 Petitioners argue
that the divisibility of the object does not necessarily determine the
divisibility of the obligation since the latter is tested against its susceptibility
to a partial performance.78 They argue that even if the object is susceptible of
separate deliveries, the transaction is indivisible if the parties intended the
realization of all parts of the agreed obligation. 79
Petitioners support the claim that it was the parties intention to have an
indivisible agreement by asserting that the payments they made to
respondent were intended to be applied to the whole package of three
units.80 The postdated checks were also intended as initial payment for the
whole package.81 The separate purchase price for each item was merely
intended to particularize the unit prices, not to negate the indivisible nature
of their transaction.82 As to the issue of delivery, petitioners claim that their
acceptance of separate deliveries of the units was solely due to the
constraints faced by respondent, who had sole control over delivery
matters.83
Petitioners also argue that they are entitled to moral damages more than the
50,000.00 awarded by the Court of Appeals since respondents wrongful act
of accusing them of non-payment of their obligations caused them sleepless
nights, mental anguish, and wounded feelings. 85 They further claim that, to
serve as an example for the public good, they are entitled to exemplary
damages as respondent, in making false allegations, acted in evident bad
faith and in a wanton, oppressive, capricious, and malevolent manner. 86
Petitioners also assert that they are entitled to attorneys fees and litigation
expenses under Article 2208 of the New Civil Code since respondents act of
bringing a suit against them was baseless and malicious. This prompted them
to engage the services of a lawyer. 87
The three (3) Minilab Equipment are intended by petitioners LAM for
install[a]tion at their Tagum, Davao del Norte, Sta. Cruz, Manila and Cotabato
City outlets. Each of these units [is] independent from one another, as many
of them may perform its own job without the other. Clearly the objective or
purpose of the prestation, the obligation is divisible.
The nature of each unit of the three (3) Minilab Equipment is such that one
can perform its own functions, without awaiting for the other units to perform
and complete its job. So much so, the nature of the object of the Letter
Agreement is susceptible of partial performance, thus the obligation is
divisible.90
Respondent also argues that petitioners benefited from the use of the Minilab
Equipment for 10 monthsfrom March to December 1992 despite having
paid only two (2) monthly installments. 94 Respondent avers that the two
monthly installments amounting to 70,000.00 should be the subject of an
offset against the amount the Court of Appeals awarded to petitioners. 95
Respondent further avers that petitioners have no basis for claiming damages
since the seizure and recovery of the Minilab Equipment was not in bad faith
and respondent was well within its right. 96
III
This confirms our verbal agreement for Kodak Phils., Ltd. to provide Colorkwik
Laboratories, Inc. with three (3) units Kodak Minilab System 22XL . . . for your
proposed outlets in Rizal Avenue (Manila), Tagum (Davao del Norte), and your
existing Multicolor photo counter in Cotabato City under the following terms
and conditions:
1. Said Minilab Equipment packages will avail a total of 19% multiple order
discount based on prevailing equipment price provided said equipment
packages will be purchased not later than June 30, 1992.
3. NO DOWNPAYMENT.
the first 12 months; the balance shall be re-amortized for the remaining 36
months and the prevailing interest shall be applied.
Based on the foregoing, the intention of the parties is for there to be a single
transaction covering all three (3) units of the Minilab Equipment.
Respondents obligation was to deliver all products purchased under a
"package," and, in turn, petitioners obligation was to pay for the total
purchase price, payable in installments.
In ruling that the contract between the parties intended to cover divisible
obligations, the Court of Appeals highlighted: (a) the separate purchase price
of each item; (b) petitioners acceptance of separate deliveries of the units;
and (c) the separate payment arrangements for each unit. 100 However,
through the specified terms and conditions, the tenor of the Letter Agreement
indicated an intention for a single transaction. This intent must prevail even
though the articles involved are physically separable and capable of being
paid for and delivered individually, consistent with the New Civil Code:
Article 1225. For the purposes of the preceding articles, obligations to give
definite things and those which are not susceptible of partial performance
shall be deemed to be indivisible.
When the obligation has for its object the execution of a certain number of
days of work, the accomplishment of work by metrical units, or analogous
things which by their nature are susceptible of partial performance, it shall be
divisible.
IV
With both parties opting for rescission of the contract under Article 1191, the
Court of Appeals correctly ordered for restitution.
The contract between the parties is one of sale, where one party obligates
himself or herself to transfer the ownership and deliver a determinate thing,
while the other pays a certain price in money or its equivalent. 103 A contract
of sale is perfected upon the meeting of minds as to the object and the price,
and the parties may reciprocally demand the performance of their respective
obligations from that point on.104
The Court of Appeals correctly noted that respondent had rescinded the
parties Letter Agreement through the letter dated October 14, 1992. 105 It
likewise noted petitioners rescission through the letter dated November 18,
1992.106This rescission from both parties is founded on Article 1191 of the
New Civil Code:
The injured party may choose between the fulfilment and the rescission of
the obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfilment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
Rescission abrogates the contract from its inception and requires a mutual
restitution of benefits received.
....
Rescission creates the obligation to return the object of the contract. It can
be carried out only when the one who demands rescission can return
whatever he may be obliged to restore. To rescind is to declare a contract
void at its inception and to put an end to it as though it never was. It is not
merely to terminate it and release the parties from further obligations to
each other, but to abrogate it from the beginning and restore the parties to
their relative positions as if no contract has been made.109 (Emphasis
supplied, citations omitted)
The Court of Appeals correctly ruled that both parties must be restored to
their original situation as far as practicable, as if the contract was never
entered into. Petitioners must relinquish possession of the delivered Minilab
Equipment unit and accessories, while respondent must return the amount
tendered by petitioners as partial payment for the unit received. Further,
respondent cannot claim that the two (2) monthly installments should be
offset against the amount awarded by the Court of Appeals to petitioners
because the effect of rescission under Article 1191 is to bring the parties
back to their original positions before the contract was entered into. Also
in Velarde:
Considering that the rescission of the contract is based on Article 1191 of the
Civil Code, mutual restitution is required to bring back the parties to their
original situation prior to the inception of the contract. Accordingly, the initial
When rescission is sought under Article 1191 of the Civil Code, it need not be
judicially invoked because the power to resolve is implied in reciprocal
obligations.111 The right to resolve allows an injured party to minimize the
damages he or she may suffer on account of the other partys failure to
perform what is incumbent upon him or her. 112 When a party fails to comply
with his or her obligation, the other partys right to resolve the contract is
triggered.113 The resolution immediately produces legal effects if the non-
performing party does not question the resolution. 114 Court intervention only
becomes necessary when the party who allegedly failed to comply with his or
her obligation disputes the resolution of the contract. 115 Since both parties in
this case have exercised their right to resolve under Article 1191, there is no
need for a judicial decree before the resolution produces effects.
For a question to be one of law, the same 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.
....
For the same reason, we would ordinarily disregard the petitioners allegation
as to the propriety of the award of moral damages and attorneys fees in
favor of the respondent as it is a question of fact. Thus, questions on whether
or not there was a preponderance of evidence to justify the award of
damages or whether or not there was a causal connection between the given
set of facts and the damage suffered by the private complainant or whether
or not the act from which civil liability might arise exists are questions of fact.
Article 1192 of the Civil Code provides that in case both parties have
committed a breach of their reciprocal obligations, the liability of the first
infractor shall be equitably tempered by the courts. WE rule that the liability
of Island Savings Bank for damages in not furnishing the entire loan is offset
by the liability of Sulpicio M. Tolentino for damages, in the form of penalties
and surcharges, for not paying his overdue 17,000.00 debt. The liability of
Sulpicio M. Tolentino for interest on his 17,000.00 debt shall not be included
in offsetting the liabilities of both parties. Since Sulpicio M. Tolentino derived
some benefit for his use of the 17,000.00, it is just that he should account
for the interest thereon.126 (Emphasis supplied)
The award for moral and exemplary damages also appears to be sufficient.
Moral damages are granted to alleviate the moral suffering suffered by a
party due to an act of another, but it is not intended to enrich the victim at
the defendants expense.127 It is not meant to punish the culpable party and,
therefore, must always be reasonable vis-a-vis the injury
caused.128 Exemplary damages, on the other hand, are awarded when the
injurious act is attended by bad faith. 129 In this case, respondent was found to
have misrepresented its right over the generator set that was seized. As
such, it is properly liable for exemplary damages as an example to the
public.130
(b) P130,000.00, representing the amount of the generator set, plus legal
interest at 12% .per annum from December 1992 until fully paid;
Petitioners are ordered to return the Kodak Minilab System 22XL unit and its
standard accessories to respondent.
7.
THIRD DIVISION
DECISION
SERENO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of
Civil Procedure questioning the Decision1 dated 31 January 2007 of the Court
of Appeals (CA) in CA-G.R. SP No. 86321, which reversed the Decision 2 of the
Office of the President (OP) dated 28 January 2004. The OP Decision upheld
Conversion Order No. 4-97-1029-051 issued by then Secretary of the
Department of Agrarian Reform (DAR) Ernesto Garilao, as well as the Orders
issued by Secretary Hernani Braganza and Secretary Roberto Pagdanganan
both affirming the conversion.
The CA found merit in the OPs rationale for maintaining the Conversion
Order, yet invalidated the same on the basis that a Notice of Coverage and a
Notice of Acquisition had already been issued over the lands hence, they
could no longer be subject to conversion. Thus, landowner Capitol Citifarms,
Inc. (CCFI) and its successor-in-interest Ayala Land, Inc. (ALI) filed the present
petition imputing error on the appellate court for the following reasons: 1) the
CA resolved an issue that the alleged Notice of Acquisition prevents the land
from being converted raised for the first time on appeal, 2) the CAs finding
has no factual basis, 3) the DAR itself found that the subject property has
long been converted to non-agricultural uses, and 4) a Certificate of Finality
of the Braganza Order has already been issued.
I. For the first time on appeal, respondents raised a new issue that had never
been passed upon by the DAR or by the Office of the President; hence, the CA
is barred from entertaining the claim.
II. The rule that a prior Notice of Acquisition bars the issuance of a Conversion
Order is only a guiding principle; upon applicants compliance with the
application requirements, the DAR is rightly authorized to determine the
propriety of conversion.
III. Respondents are barred from appealing the Conversion Order long after it
has attained finality.
IV. The conversion and/ or reclassification of the said lands has become an
operative fact.
V. The OP has long resolved that the lands that are the subject of this case
are exempted from the Comprehensive Agrarian Reform Law (CARL) partly to
maintain the stability of the countrys banking system.
CCFI owned two parcels of land with a total area of 221.3048 hectares
located at Barangay Tibig in Silang, Cavite hereon referred to as the subject
land. The subject land was mortgaged in favor of one of CCFIs creditors,
MBC. Pursuant to Resolution No. 505 of the Monetary Board of the Bangko
Sentral ng Pilipinas (BSP), MBC was placed under receivership on 22 May
1987, in accordance with Section 29 of the Central Bank Act (Republic Act
265). Pursuant to this law, the assets of MBC were placed in the hands of its
receiver under custodia legis. 3 On 29 September 1989, the DAR issued a
Notice of Coverage placing the property under compulsory acquisition under
the Comprehensive Agrarian Reform Law of 1988.4
In the meantime, CCFI was unable to comply with its mortgage obligations to
MBC. The latter foreclosed on the lien, and the land was awarded to it in an
auction sale held on 4 January 1991. The sale was duly annotated on the
titles as Entry No. 5324-44. Subsequently, the Supreme Court in G.R. No.
85960 ordered MBCs partial liquidation and allowed the receiver-designate of
the BSP to sell the banks assets, including the subject landholding, "at their
fair market value, under the best terms and condition and for the highest
price under current real estate appraisals..." 5In a Deed of Partial
Redemption,6 CCFI was authorized to partially redeem the two parcels of land
and sell them to a third party, pending full payment of the redemption price.
Under the Deed, the downpayment, which was 30% of the purchase price,
would be payable to the bank only upon approval of the exemption of the two
parcels of land from the coverage of CARL or upon their conversion to non-
agricultural use.
the payment of the price and the delivery of the titles. The Deed stated that
MBC was to continue to have custody of the corresponding titles for as long
as any obligation remained due it.
Instead of ruling on the motion alone, however, the OP, through Executive
Secretary Ruben D. Torres, decided to rule on the merits of the petition, as
"what is involved in this case is the susceptibility of a bank to undergo
rehabilitation which will be jeopardized by the distribution of its
assets"7 Secretary Torres remanded the case to the DAR and ordered the
agency to determine which parcels of land were exempt from the coverage of
the CARL. He stated that the ends of justice would be better served if BSP
were given the fullest opportunity to monetize the banks assets that were
outside the coverage of CARL or could be converted into non-agricultural
uses. He then ordered the DAR to respect the BSPs temporary custody of the
landholdings, as well as to cease and desist from subjecting MBCs properties
to the CARL or from otherwise distributing to farmer-beneficiaries those
parcels of land already covered. 8
Secretary Torres denied the Motion for Reconsideration filed by the DAR. He
reiterated the need to balance the goal of the agrarian reform program vis--
vis the interest of the bank (under receivership by the BSP), and the banks
creditors (85% of whose credit, or a total of P8,771,893,000, was payable to
BSP).9
property in Silang, based on the findings of the DARs Center for Land Use
Policy, Planning and Implementation (CLUPPI) and of the Municipal Agrarian
Reform Officer (MARO). These agencies found that the property was exempt
from agrarian reform coverage, as it was beyond eighteen (18) degrees in
slope. They recommended conversion, subject to the submission of several
documentary requirements. On 1 December 1997, CCFI complied by
submitting the following groups of documents:
On 19 May 2000, almost three years after the Conversion Order had been in
force and effect, the farmers tilling the subject land (hereinafter known as
farmers) filed a Petition for Revocation of Conversion Order No. 4-97-1029-
051. They alleged (1) that the sale in 1995 by CCFI to ALI was invalid; and (2)
that CCFI and ALI were guilty of misrepresentation in claiming that the
property had been reclassified through a mere Resolution, when the law
required an ordinance of the Sanggunian. 13 The issue of the alleged Notice of
Acquisition was never raised. Neither was there any mention of the issuance
of a Notice of Coverage.
CCFI and ALI, on the other hand, argued that the claim of the farmers had
prescribed, as mandated by Section 34 of Administrative Order No. (A.O.) 1,
Series of 1999, which laid down a one-year prescriptive period for the filing of
a petition to cancel or withdraw conversion. They stated further that the
farmers had already received their disturbance compensation as evidenced in
a Kasunduan, in compliance with the Conversion Order.
As for the two issues raised by the farmer-beneficiaries, these were resolved
by Secretary Morales in favor of CCFI and ALI. First, he found that CCFI did not
violate the order of conversion when it sold the land to ALI, because the
prohibition to sell is not a condition for the conversion. In fact, the sale
preceded the issuance of the Conversion Order. Second, he ruled that there
was no misrepresentation by CCFI and ALI regarding the lands
reclassification. However, he found a new issue for withdrawing the grant of
conversion, that was not previously raised by petitioner-farmers. Apparently
unaware of the earlier history of the land as property in custodia legis, he
ruled that the delayed registration of the sale was evidence of respondents
intention to evade coverage of the landholding under agrarian reform.
Because the sale was concealed from the Register of Deeds, and the land was
still agricultural at that time, Secretary Morales opined that ALI and CCFI
violated the CARL. It must be remembered however, that contrary to Morales
findings, it was the Supreme Court itself that ordered the sale of the lands
through its Resolution in G.R. No 85960. Thus there could be no finding by
any government body that the sale was illegal.
Secretary Morales never passed upon or even mentioned any matter related
to the Notice of Acquisition. The gist of both the Petition for Revocation and
the Morales Decision revolved exclusively around the illicit intent behind the
sale of the land to ALI:
The gravamen of respondents acts lies not upon the sale by respondent
Capitol of the land to ALI, and upon ALI having bought the land from Capitol.
It lies somewhere deeper: that the sale was done as early as 1995 prior to the
lands conversion, and was concealed in the application until it was registered
in 1999.
At the time of the registration of the deed on 29 September 1999, the subject
land had ceased to be an agricultural land since it has already been
converted to other uses by virtue of an approved conversion application. As
such, the requirement of reporting by the Register of Deeds of any
transaction involving agricultural lands beyond five (5) hectares, was not
made as it is no longer necessary. 14
Was ownership included in the bundle of rights that was transferred from CCFI
to ALI? This Office answers in the negative.
For CCFI to convey ownership to ALI, MBC must have first transferred this
right to CCFI under the DEED OF PARTIAL REDEMPTION for the reason that
CCFI can only convey its present rights and obligations to ALI.
The fact that MBC is holding on to the Transfer Certificates of Title pending
full payment of the purchase price is indicative of the reservation of
ownership in MBC.
Thus, it is only upon the full payment of consideration shall the title to the
subject landholding be issued to CCFI or its successor-in-interest, ALI. 16
The farmers then went to the OP and raised only two issues:
The Appeal Memorandum pointed out that DARs grant of conversion was
issued under "suspicious circumstances." They attached to the Appeal
Memorandum an uncertified photocopy of a Notice of Coverage as "Annex
B."21 The photocopy of the Notice of Coverage was mentioned in passing
when the farmers cited paragraph VI-E of Administrative Order No. 12, Series
of 1994. Additionally, farmer-beneficiaries alleged that a Notice of Acquisition
was also in existence. No such document, however, could be found in the
memorandum or in any prior or subsequent pleadings filed by farmer-
beneficiaries. They never stated that the issue of the Notice of Acquisition
prevents the conversion of the land.
On 23 January 2004, the Office of the President dismissed the appeal 22 and
affirmed the Pagdanganan Order. The OP found the subject property to have
been legally converted into non-agricultural land, citing the findings of the
local agencies of Silang that the property was beyond eighteen (18) degrees
in slope, remained undeveloped, was not irrigated, and was without any other
source of irrigation in the area. The OP stated: "Upon our examination of the
voluminous motions, memoranda, evidence submitted by appellants, but not
a single document sufficiently controverts the factual finding of the DAR that
the subject property had long been converted to non-agricultural
uses."23 Farmer-beneficiaries then elevated the case to the CA. The CA
reversed the findings of the OP and the DAR, prompting ALI and CCFI to file
the instant Petition.
The CA found the Conversion Order valid on all points, with the sole exception
of the effect of the alleged issuance of a Notice of Acquisition. In its eight-
page Decision, the CA merely asserted in two lines: "no less than the cited
DAR Administrative Order No. 12 enjoins the conversion of lands directly
under a notice of acquisition."24
After perusing the records of the DAR and the OP, however, we find no
admissible proof presented to support this claim. What was attached to the
Petition for Review25 to the CA was not a Notice of Acquisition, but a mere
photocopy of the Notice of Coverage. A Notice of Acquisition was never
offered in evidence before the DAR and never became part of the records
even at the trial court level. Thus, its existence is not a fully established fact
for the purpose of serving as the sole basis the entire history of the policy
decisions made by the DAR and the OP were to be overturned. The CA
committed reversible error when it gave credence to a mere assertion by the
tenant-farmers, rather than to the policy evaluation made by the OP.
Assuming arguendo however, that the farmers had submitted the proper
document to the appellate court, the latter could not have reversed the OP
Decision on nothing more than this submission, as the issue of the Notice of
Acquisition had never been raised before the administrative agency
concerned. In fact, the records show that this issue was not raised in the
original Petition for Revocation in the second Motion for Reconsideration filed
by the farmers before the DAR, and that no Notice of Acquisition was
attached to their Appeal Memorandum to the OP. As a consequence, the OP,
Secretary Pagdanganan, Secretary Braganza, and Secretary Morales did not
have any opportunity to dwell on this issue in their Orders and Decision.
Instead, what respondents persistently allege is the concealment of the sale
by CCFI and ALI. The three DAR Secretaries, including Secretary Garilao who
issued the Conversion Order, correctly found this allegation bereft of merit.
Appellants lapses in not raising the issues before the DAR which has the
expertise to resolve the same and in a position to conduct due hearings and
reception of evidence from contending parties pertaining to the issue, puts
the appellants in estoppel to question the same for the first time on appeal.
Jurisprudence dictates the following:
The petitioner for the first time, to allow him to assume a different posture
when he comes before the court and challenge the position he had accepted
at the administrative level, would be to sanction a procedure whereby the
court which is supposed to review administrative determinations would
not review, but determine and decide for the first time, a question not raised
at the administrative forum. This cannot be permitted, for the same reason
that underlies the requirement of prior exhaustion of administrative remedies
to give administrative authorities the prior authority to decide controversies
within its competence, and in much the same way that, on the judicial level,
issues not raised in the lower court cannot be raised for the first time on
appeal. (Aguinaldo Industries Corporation vs. Commissioner of Internal
Revenue & Court of Tax Appeals, 112 SCRA 136) 26
It is well established 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 belatedly raised would amount to trampling on the basic
principles of fair play, justice, and due process. 27 More important, if these
matters had been raised earlier, they could have been seriously examined by
the administrative agency concerned.28
Courts will not interfere in matters which are addressed to the sound
discretion of the government agency entrusted with the regulation of
activities coming under its special and technical training and knowledgeand
the latter are given wide latitude in the evaluation of evidence and in the
exercise of their adjudicative functions. 29 This Court has always given primary
importance to the DAR Secretarys ruling and will not disturb such ruling
without substantial reason:
The CA erred in passing upon and ruling on an issue not raised by the farmers
themselves. This Court must not countenance the violation of petitioners
right to due process by the CA upholding its conclusion founded on a legal
If at the time of the application, the land still falls within the agricultural zone,
conversion shall be allowed only on the following instances:
a) When the land has ceased to be economically feasible and sound for
agricultural purposes, as certified by the Regional Director of the Department
of Agriculture (DA) or
b) When the locality has become highly urbanized and the land will have a
greater economic value for residential, commercial and industrial purposes,
as certified by the local government unit.
The thrust of this provision, which DAR Secretary Garilao rightly took into
account in issuing the Conversion Order, is that even if the land has not yet
been reclassified, if its use has changed towards the modernization of the
community, conversion is still allowed.
As DAR Secretary, Garilao had full authority to balance the guiding principle
in paragraph E against that in paragraph B (3) and to find for conversion.
Note that the same guiding principle which includes the general proscription
against conversion was scrapped from the new rules on conversion, DAR A.O.
1, Series of 2002, or the "Comprehensive Rules on Land Use Conversion." It
must be emphasized that the policy allowing conversion, on the other hand,
was retained. This is a complex case in which there can be no simplistic or
mechanical solution. The Comprehensive Agrarian Reform Law is not
intractable, nor does it condemn a piece of land to a single use forever. With
the same conviction that the state promotes rural development, 32 it also
"recognizes the indispensable role of the private sector, encourages private
enterprise, and provides incentives to needed investments." 33
Paragraph E and paragraph B (3) were thus set merely as guidelines in issues
of conversion. CARL is to be solely implemented by the DAR, taking into
account current land use as governed by the needs and political will of the
local government and its people. The palpable intent of the Administrative
Order is to make the DAR the principal agency in deciding questions on
conversion. A.O. 12-94 clearly states:
B. Section 5 (1) of E.O. No. 129-A, Series of 1987, vests in the DAR, exclusive
authority to approve or disapprove applications for conversion of agricultural
lands for residential, commercial, industrial, and other land uses. 35
III. The Conversion Order has long attained finality and may no longer be
questioned.
Respondents came forward as claimants under CARL almost three years after
the Conversion Order was issued. In arguing that the claim of respondents
had already prescribed, petitioner ALI applied DAR A.O. 1, Series of 1999,
which lays down a one-year prescriptive period for petitions for cancellation
or withdrawal. Section 34 thereof states:
Respondents, on the other hand, state that the applicable rule is A.O. 12
(promulgated in 1994), which was the rule subsisting at the time the
Conversion Order was issued. A.O. 12-94 imposes a prescriptive period of five
(5) years; thus, according to the farmers, the petition was filed well within the
period.
SEC. 56. Effectivity This Order shall take effect ten (10) days after its
publication in two (2) national newspapers of general circulation.
A.O. 01-99 was promulgated on 30 March 1999 and published in Malaya and
Manila Standard on the following day, 31 March 1999. Thus, A.O. 01-99 was
the rule governing the filing of a "petition for cancellation or withdrawal of the
conversion order" at the time the farmers filed their petition.
Respondent farmers argue that, according to A.O. No. 01-99, the one-year
prescriptive period should be reckoned from the issuance of the Conversion
Order. They point out that it was impossible for them to receive notice of this
rule when Secretary Garilao issued the Conversion Order, since the rule was
published only one year and seven months after the issuance of the Order.
Thus, it should be A.O. 12-94, or the five-year prescription period, that should
be applied to them, and not the one-year period in A.O. 01-99.
Respondents assume that the rule to be applied is that prevailing at the time
of the issuance of the Conversion Order. This is incorrect. The rule applicable
in determining the timeliness of a petition for cancellation or withdrawal of a
conversion order is the rule prevailing at the time of the filing of that petition,
and not at the time of the issuance of the Conversion Order. It is axiomatic
that laws have prospective effect, as the Administrative Code
provides.36While A.O. 01-99 was not yet promulgated at the time of the
issuance of the Conversion Order, it was already published and in effect when
the Petition for Revocation was filed on 19 May 2000.
The Conversion Order is final and executory. The Court ruled in Villorente v.
Aplaya Laiya Corporation:
Indubitably, the Conversion Order of the DAR was a final order, because it
resolved the issue of whether the subject property may be converted to non-
agricultural use. The finality of such Conversion Order is not dependent upon
the subsequent determination, either by agreement of the parties or by the
DAR, of the compensation due to the tenants/occupants of the property
caused by its conversion to non-agricultural use. Once final and executory,
the Conversion Order can no longer be questioned. 37
We are convinced that the petition for review filed by the petitioners with the
CA was merely an afterthought
It must be borne in mind that there can be no vested right to judicial relief, as
ruled by the Court in United Paracale Mining v. Dela Rosa:
There can be no vested right in a judicial relief for this is a mere statutory
privilege and not a property rightthe right to judicial relief is not a right
which may constitute vested right because to be vested, a right must have
become a title, legal or equitable, to the present or future enjoyment of
property, or to the present or future enforcement of a demand or legal
exemption from a demand made by another. 39
IV. The conversion and/or reclassification of the said lands has become an
operative fact.
Respondent farmers do not deny that at the time of filing of the Petition for
Revocation, the lands in question were no longer agricultural. Secretary
Morales affirmed this fact in his Decision, even as he revoked Secretary
Garilaos Order of conversion:
When respondent Capitol applied for conversion of the subject land on 7 May
1996, the land is already reclassified from agricultural to other uses.
Respondent Capitol applied for conversion as the registered owner of the
land, although in truth it was no longer the owner of the same by virtue of its
sale to ALI. This fact of transfer of ownership is not known since the absolute
sale of the land was not yet public, the deed of sale not having been
registered before the Register of Deeds at that time.
At the time of the registration of the deed on 29 September 1999, the subject
land had ceased to be an agricultural land since it has already been
converted to other uses by virtue of an approved conversion application. As
such, the requirement of reporting by the Register of Deeds of any
transaction involving agricultural lands beyond five (5) hectares, was not
made as it is no longer necessary.
Clearly, the findings of the CLUPPI, the Sangguniang Bayan of Silang, and
Secretary Morales himself confirm as an operative fact the reclassification
and/or conversion of the lands. Both the DAR and the Sangguniang Bayan
anchored their findings on the Certifications from the CLUPPI (obtained by the
CLUPPIs executive committee as required by the DAR procedure), the
National Irrigation Administration, the Philippine Coconut Authority, and the
Department of Environment and Natural Resources. 40 The CLUPPI and the
MARO (Municipal Agrarian Reform Office) conducted their own ocular
inspection. The Sangguniang Bayan of Silang conducted plebiscites before
issuing the Resolution for reclassification. 41
1. The property is about ten (10) kilometers from the provincial road.
5. The land is outside the irrigable area of the Cavite Friar Lands Irrigation
Systems.
Whereas, the land use reclassification of the said parcels of land will benefit
the people of Silang by way of increased municipal revenue, generate
employment, increased commercial activities and general (sic) uplift the
socio-economic condition of the people particularly those in the vicinity of
said parcels of land.
V. It has long been resolved by the Office of the President that the lands in
this case are exempted from CARL coverage, partly in order to maintain the
stability of the countrys banking system.
Upon review of the entire records of the case, this Office is persuaded that a
stringent appreciation of the issues raised by the parties may not do justice
to their respective causes, and the public in general. What is involved is the
susceptibility of a bank to undergo rehabilitation which will be jeopardized by
the distribution of its assetsa careful balance between the interest of the
petitioner bank, its creditors (which includes the Bangko Sentral ng Pilipinas)
and the general public on the one hand, and adherence to the
implementation of the agrarian reform program on the other, must be
established.
Secretary Torres denied the Motion for Reconsideration filed by the DAR. The
denial was based precisely on the need to balance the agrarian reform law
with another policy consideration, the stability of the banking system. He
explained as follows:
Finally, we wish to reiterate the need to balance the interest between the
petitioner bank (under receivership by the BSP), its creditors (85% of which or
a total of P8, 771, 893, 000 is payable to BSP) and the general public on one
In light of the foregoing, it would be absurd to impute bad faith to ALI solely
because it chose to purchase the redeemed land. Similarly, ALI cannot be
held accountable for all the years that the land remained idle pending
conversion. To deny relief to ALI would be tantamount to placing the private
sector in the unjust situation of investing, upon invitation from the
government, in a banks distressed assets among which are lands the
government itself has ordered converted then subsequently confiscating
the same from it.1avvphi1
It was the OPs first Decision, together with the Supreme Court Resolution,
that ultimately paved the way for ALI to acquire title to the subject lands as a
third party buyer. When the dispute over the subject land reached the OP for
the second time when the validity of the conversion order was in dispute
the OP of course found no merit in the allegation of concealment. There is
therefore absolutely no basis for the imputation of bad faith upon ALI simply
on account of the alleged delay in the registration of the sale from CCFI to it.
It must be emphasized that the OPs ground for supporting conversion finds
its moorings in DAR Memorandum Circular 11-79 governing the conversion of
private agricultural lands into other uses. The Circular states that conversion
may be allowed when it is by reason of the changes in the predominant land
use, brought about by urban development. The OP Decision pointed to the
fact that the close proximity of Cavite to Manila opened Cavite to the effects
The DAR found merit in the thrust of the local government to "disperse urban
growth towards neighboring regions of Metro Manila"; to encourage the
movement of residential development in the area; and to support the housing
needs not just of the neighboring Santa Rosa Technopark, but also of other
commercial centers. It is helpful to remember that it is the local government,
in this case, that of Silang, Cavite, that occupies the primary policy role of
allowing the development of real estate to generate real property taxes and
other local revenues.
The only justification for the CA ruling that the lands had already been
subjected to a Notice of Acquisition, hence no conversion thereof can take
place cannot stand in the light of two points: 1) the record before this Court
(including the CA and the DAR records) is bereft of any copy, certified or
otherwise, of the alleged Notice of Acquisition; and 2) even if the land is
subject to a Notice of Acquisition, this issue was never raised before the DAR
or the OP, nor was it argued before the CA. It existed as a single-line
statement in petitioners Appeal Memorandum. 46 Since the DAR and the OP
had ruled for petitioners CCFI and ALI, and the CA itself admitted that
petitioners stand would have been valid if not for the alleged Notice, the CA
should have been more circumspect in verifying whether the evidence on
record supported respondents self-serving claim.
Before the CAs unilateral action, this unsupported allegation was never
raised as a live legal issue. Hence, CCFI and ALI were deprived of any
opportunity to controvert the fact of the Notice of Acquisition and its legal
effect, because they were never alerted that the existence of such Notice
would in any way endanger their legal position. They had the right to expect
that only issues properly raised before the administrative tribunals needed to
be addressed. Even assuming that the Notice of Acquisition did exist,
considering that CCFI and ALI had no chance to controvert the CA finding of
its legal bar to conversion, this Court is unable to ascertain the details of the
Notice of Acquisition at this belated stage, or rule on its legal effect on the
Conversion Order duly issued by the DAR, without undermining the technical
expertise of the DAR itself. To do so would run counter to another basic rule
that courts will not resolve a controversy involving a question that is within
the jurisdiction of the administrative tribunal prior to its resolution of that
question.47
SO ORDERED.
8.
EN BANC
DECISION
PERCURIAM:
Complaint's Position
Atty. Sison alleged that Atty. Camacho was the counsel of MDAHI in an
insurance claim action against Paramount Life & General Insurance
Corp. (Paramount Insurance), docketed as Civil Case No. 05-655, before the
Regional Trial Court, Makati City, Branch 139 (RTC). The initial insurance claim
of MDAHI against Paramount Insurance was P14,863,777.00.
On March 4, 2011, Atty. Camacho met with Atty. Enrique Dimaano (Atty.
Dimaano), corporate secretary of MDAHI, and proposed to increase their
claim to P64,412,534. l 8 by taking into account the interests imposed. Atty.
Camacho, however, clarified that the increase in the claim would require
additional docket fees in the amount of Pl,288,260.00, as shown in his hand-
written computation.2 MDAHI agreed and granted the said amount to Atty.
Dimaano which was evidenced by a Payment Request/Order Form. 3 On May
27, 2011, Atty. Dimaano gave the money for docket fees to Atty. Camacho
who promised to issue a receipt for the said amount, but never did. 4
Atty. Sison later discovered that on May 26, 2011, the RTC had already
rendered a decision5 in favor of MDAHI granting its insurance claim plus
interests in the amount of approximately P65,000,000.00.
On August 18, 2011, Atty. Sison met with Atty. Camacho to clarify the events
that transpired.8 He asked Atty. Camacho whether he paid the amount of
Pl,288,260.00 as additional dockets fees, and the latter replied that he simply
gave it to the clerk of court as the payment period had lapsed.
Respondent's Position
In his verified answer,10 dated October 30, 2012, Atty. Camacho denied all the
allegations against him. He stressed that he had the authority to enter into
the compromise agreement. Moreover, the alleged docket fees given to him
by MDAHI formed part of his attorney's fees.
He further stated in his position paper11 that the judgment debt was paid and
accepted by MDAHI without any objection, as duly evidenced by an
acknowledgment receipt.12 Thus, there was no irregularity in the compromise
agreement.
With respect to the amount handed to him, Atty. Camacho averred that he
filed a Motion to Compel Plaintiff to Pay Attorney's Fee on September 13,
2011 before the RTC. The Court granted the said motion in its April 12, 2012
Order13 stating that the amount of Pl,288,260.00 was considered as part of
his attorney's fees.
part of his unpaid attorney's fees. He stressed that the said RTC order had
attained finality and constituted res judicata on the present administrative
case. He added that MDAHI disregarded the RTC order as it filed an estafa
case against him concerning the amount ofl:ll,288,260.00.
After the mandatory conference on January 24, 2013 and upon a thorough
evaluation of the evidence presented by the parties in their respective
position papers, the IBP-CBD submitted its Report and
Recommendation,16 dated April 1, 2013 finding Atty. Camacho to have
violated the provisions of Rule 1.01 and Rule 16.01 of the CPR and
recommending the imposition of the penalty of one (1) year suspension from
the practice of law against him. In its Resolution No. XX-2013-474, 17 dated
April 16, 2013, the Board of Governors of the Integrated Bar of the
Philippines (Board) adopted the said report and recommendation of
Investigating Commissioner Eldrid C. Antiquiera.
In its Resolution No. XXI-2014-532,20 dated August 10, 2014, the Board
adopted the report and recommendation 21of National Director Dominic C.M.
Solis. The Board partially granted the motion for reconsideration and
dismissed, without prejudice, the charge regarding the failure to account for
the money, because it was premature to act on such issue due to the pending
criminal case against the Atty. Camacho. Accordingly, the penalty of one (1)
year suspension imposed was lowered to six (6) months suspension from the
practice of law.
The Court finds that Atty. Camacho violated Rules 1.01 and 16.01 of the CPR.
Those in the legal profession must always conduct themselves with honesty
and integrity in all their dealings. Members of the Bar took their oath to
conduct themselves according to the best of their knowledge and discretion
with all good fidelity as well to the courts as to their clients and to delay no
man for money or malice. These mandates apply especially to dealings of
lawyers with their clients considering the highly fiduciary nature of their
relationship.22
In line with the fiduciary duty of the Members of the Bar, Section 23, Rule 138
of the Rules of Court specifies a stringent requirement with respect to
compromise agreements, to wit:
In the case at bench, the R TC decision, dated May 26, 2011, awarded MDAHI
approximately P65,000,000.00. When Paramount Insurance offered a
compromise settlement in the amount of Pl5,000,000.00, it was clear as
daylight that MDAHI never consented to the said offer. As can be gleaned
from Atty. Camacho's letter, MDAHI did not sign the conforme regarding the
compromise agreement.23
Atty. Camacho was also charged with violation of Rule 16.01 of the CPR,
which provides for a lawyer's duty to "account for all money or property
collected or received for or from the client."
Here, Atty. Sison alleged that MDAHI gave Atty. Camacho the amount of P
1,288,260.00 as payment of additional docket fees but the latter failed to
apply the same for its intended purpose. In contrast, Atty. Camacho invoked
the July 6, 2012 Order of the RTC which declared the MDAHI allegation as
unsubstantiated, and claimed that the said amount formed part of his
attorney's fees. The Board, on the other hand, opined that it was still
premature to decide such issue because there was a pending estafa case,
docketed as Criminal Case No. 13-1688, filed by MDAHI against Atty.
Camacho involving the same amount of P 1,288,260.00.
The Court is of the view that it is not premature to rule on the charge against
Atty. Camacho for his failure to account for the money of his client. The
pending case against him is criminal in nature. The issue therein is whether
he is guilty beyond reasonable doubt of misappropriating the amount of
Pl,288,260.00 entrusted to him by his client. The present case, however, is
administrative in character, requiring only substantial evidence. It only entails
a determination of whether Atty. Camacho violated his solemn oath by failing
to account for the money of his client. Evidently, the adjudication of such
issue in this administrative case shall not, in any way, affect the separate
criminal proceeding.
Delving into the substance of the allegation, the Court rules that Atty.
Camacho indeed violated Rule 16.01 of the CPR. When Atty. Camacho
personally requested MDAHI for additional docket fees, the latter obediently
granted the amount of Pl ,288,260.00 to the former. Certainly, it was
understood that such amount was necessary for the payment of supposed
additional docket fees in Civil Case No. 05-655. Yet, when Atty. Sison
confronted Atty. Camacho regarding the said amount, the latter replied that
he simply gave it to the clerk of court as the payment period had lapsed.
Whether the said amount was pocketed by him or improperly given to the
clerk of court as a form of bribery, it was unmistakably clear that Atty.
Camacho did not apply the amount given to him by his client for its intended
legal purpose.
Atty. Camacho did not even deny making that request to MDAHI for additional
docket fees and receiving such amount from his client. Rather, he set up a
defense that the said amount formed part of his attorney's fees. Such
defense, however, is grossly contradictory to the established purpose of
the Pl,288,260.00. In its Payment Request/Order Form, 27 it is plainly indicated
therein that MDAHI released the said amount only to be applied as payment
for additional docket fees, and not for any other purposes. Consequently, the
lame excuse of Atty. Camacho is bereft of merit because it constitutes a mere
afterthought and a manifest disrespect to the legal profession. Atty. Camacho
is treading on a perilous path where the payment of his attorney's fees is
more important than his fiduciary and faithful duty of accounting the money
of his client. Well-settled is the rule that lawyers are not entitled to
unilaterally appropriate their clients' money for themselves by the mere fact
that the clients owe them attorney's fees. 28
Moreover, Atty. Camacho failed to issue a receipt to MDAHI from the moment
he received the said amount. In Tarog v. Ricafort,29 the Court held that ethical
and practical considerations made it both natural and imperative for a lawyer
to issue receipts, even if not demanded, and to keep copies of the receipts for
his own records. Pursuant to Rule 16.01 of the CPR, a lawyer must be aware
that he is accountable for the money entrusted to him by the clients, and that
his only means of ensuring accountability is by issuing and keeping receipts.
Worse, on May 26, 2011, the RTC already rendered its decision in Civil Case
No. 05-655, adjudging MDAHI entitled to an insurance claim in the amount of
approximately P.65,000,000.00. From that date on, there was no more need
for additional docket fees. Apparently, still unaware of the judgment, MDAHI
subsequently released the money for additional docket fees to Atty. Dimaano,
who handed it to Atty. Camacho on May 27, 2011. Despite a decision having
been rendered, Atty. Camacho did not reject the said amount or return it to
his client upon receipt. Instead, he unilaterally withheld the said amount by
capriciously invoking the payment of his attorney's fees.
The fiduciary nature of the relationship between the counsel and his client
imposes on the lawyer the duty to account for the money or property
collected or received for or from his client. Money entrusted to a lawyer for a
specific purpose but not used for the purpose should be immediately
returned. A lawyer's failure, to return upon demand, the funds held by him on
behalf of his client gives rise to the presumption that he has appropriated the
same for his own use in violation of the trust reposed in him by his client.
Such act is a gross violation of general morality as well as of professional
ethics. It impairs public confidence in the legal profession and deserves
punishment.30
Administrative penalty
In Luna v. Galarrita,32 the Court suspended the respondent lawyer for two
(2) years because he accepted a compromise agreement without valid
authority and he failed to tum over the payment to his client. In the case
of Melendrez v. Decena,33 the lawyer therein was disbarred because he
entered into a compromise agreement without the special authority of his
client and he drafted deceptive and dishonest contracts. Similarly, in Navarro
v. Meneses III,34 another lawyer, who misappropriated the money entrusted to
him by his client which he failed and/or refused to account for despite
repeated demands, was disbarred because his lack of personal honesty and
good moral character rendered him unworthy of public confidence.
In this case, Atty. Camacho entered into a compromise agreement without the
conformity of his client which is evidently against the provisions of the CPR
and the law. Moreover, he deliberately failed to account for the money he
received from his client, which was supposed to be paid as additional docket
fees. He even had the gall to impute that the money was illicitly given to an
officer of the court. The palpable indiscretions of Atty. Camacho shall not be
countenanced by the Court for these constitute as a blatant and deliberate
desecration of the fiduciary duty that a lawyer owes to his client.
The Court finds that Atty. Camacho's acts are so reprehensible, and his
violations of the CPR are so flagrant, exhibiting his moral unfitness and
inability to discharge his duties as a member of the Bar. His actions erode
rather than enhance the public perception of the legal profession. Therefore,
in view of the totality of his violations, as well as the damage and prejudice
they caused to his client, Atty. Camacho deserves the ultimate penalty of
disbarment.
Let a copy of this decision be furnished the Office of the Bar Confidant to be
entered into the records of respondent Atty. Manuel N. Camacho. Copies shall
likewise be furnished the Integrated Bar of the Philippines and the Office of
the Court Administrator for circulation to all courts concerned.
9.
FIRST DIVISION
x-----------------------x
DECISION
SERENO, J.:
FACTUAL ANTECEDENTS
Petitioner Dulos Realty was the registered owner of certain residential lots
covered by Transfer Certificate of Title (TCT) Nos. S-39767, S-39775, S-28335,
S-39778 and S-29776, located at Airmen's Village Subdivision, Pulang Lupa II,
Las Pinas, Metro Manila.
On 29 March 1981, Dulos Realty entered into a Contract to Sell with petitioner
Cahayag over the lot covered by TCT No. S-39775. 6
On 12 August 1981, Dulos Realty entered into another Contract to Sell, this
time with petitioner Rivera over the lot covered by TCT No. S-28335. 7
Accordingly, TCT Nos. 74531, 74532, 74533 and 74534 were cancelled; and
TCT Nos. 77012, 77013, 77014 and 770015 were issued to respondent Qua
on 5 January 1984.16
On 8 March 1988, the MTC issued a Writ of Execution to enforce its Decision
dated 20 October 1986 in Civil Case No. 2257 against Dulos Realty "and all
persons claiming right under defendant." 21 The subject of the writ of
execution was Lot 11 Block II, 22 which was the lot sold by Dulos Realty to
petitioner Baldoza.
On 6 July 1992, the RTC rendered a Decision, 28 which ruled that the houses
were not included in the Real Estate Mortgage; and that the foreclosure of the
mortgage over the subject lots, as well as the housing units, was not
valid.29 The trial court held that this conclusion was established by the
plaintiffs' evidence, which went unrefuted when defendants were declared in
default.30
THE CA DECISION
After establishing the inclusion of the housing units in the Real Estate
Mortgage, the CA determined the rights of the buyers in the Contracts to
Sell/Contract of Sale vis-a-vis those of the mortgagee and its successor-in-
interest.
As regards Baldoza, though the case involved a Contract of Sale, and not a
mere Contract to Sell, the CA declared the transaction null and void on the
purported ground that Dulos was no longer the owner at the time of the sale.
The CA accordingly reversed and set aside the RTC Decision, dismissed the
case for lack of merit, and ordered petitioners to surrender possession of the
properties to respondent Qua.
On 30 May 2005, petitioners Cahayag and Rivera filed their Rule 45 Petition
with this Court.32 For their part, petitioners Dulos Realty, Baldoza and
Escalona filed their Rule 45 Petition on 19 July 2005. 33
In the Petition under G.R. No. 168357, it is argued, among others, that the
Deed of Absolute Sale in favor of petitioner Baldoza was the culmination of a
Contract to Sell between her and Dulos Realty. She claims that the Contract
to Sell, marked as Exhibit "L" during the trial, was executed on 10 January
1979, which preceded the execution of the Deed of Real Estate Mortgage and
the registration of the mortgage on 3 February 1981. 34 After full payment of
the price under the Contract to Sell, Dulos Realty executed the Deed of
Absolute Sale. In other words, Baldoza is arguing that she has a better title to
the property than respondent Qua since the unregistered contract to sell in
her favor was executed before the registration of the mortgage. But the CA
ignored Exhibit "L" and merely stated that there was only a Deed of Absolute
Sale in favor of Baldoza.
THE ARGUMENTS
Initially, petitioners attempt to stave off the effects of the extra judicial
foreclosure by attacking the coverage of the Real Estate Mortgage with
respect to its subject-matter.35 They draw attention to the fact that the List of
Properties attached to the Deed of Real Estate Mortgage refers merely to the
lands themselves and does not include the housing units found
thereon.36 Petitioners also contend that doubts should be resolved against the
drafter inasmuch as the agreement is a contract of adhesion, having been
prepared by the mortgagee.37
As backup argument for the theory that the houses are outside the coverage
of the mortgage agreement, petitioners argue that the improvements were
not owned by Dulos Realty, the mortgagor, but by its buyers under the
Contracts to Sell and Contracts of Sale; hence, those improvements are
excluded from the coverage of the real estate mortgage.
Petitioners next challenge the validity of the foreclosure sale on the ground
that the mortgage executed by the mortgagor (petitioner Dulos Realty) and
the mortgagee (respondent CCC) was null and void. 38 Petitioners claim that
Dulos Realty was no longer the owner of the properties it had mortgaged at
the time of the execution of the mortgage contract, as they were sold under
existing Contracts to Sell and Deed of Absolute Sale. 39
They also raise the contention that lack of full payment of the purchase price
under the Contracts to Sell on the part of Cahayag, Rivera and Escalona was
due to respondent Qua's "harassment and unlawful actuations. 43
Finally, petitioners allege that the mortgage contract in this case was not
approved by the BLURB, which violates Section 18 of P.D. 957 45 and results in
the nullity of the mortgage.46
THE ISSUES
1. Whether the real mortgage covers the lands only, as enumerated in the
Deed of Real Estate Mortgage or the housing units as well;
2. Whether Dulos Realty was the owner of the properties it had mortgaged at
the time of its execution in view of the various Contracts to Sell and Deed of
Absolute Sale respectively executed in favor of petitioners Cahayag, Rivera,
Escalona and Cahayag;
4. Whether the Deed of Absolute Sale in favor of Baldoza was not preceded
by a Contract to Sell and full payment of the purchase price; and
5. Whether the mortgage is void on the ground that it lacked the prior written
approval of the HLURB.
OUR RULING
It is true that the List of Properties attached to the Deed of Real Estate
Mortgage refers merely to the lands themselves and does not include the
housing units found thereon. A plain reading of the Real Estate Mortgage,
however, reveals that it covers the housing units as well. We quote the
pertinent provision of the agreement:
Thus, the housing units would fall under the catch-all phrase "together with
all the buildings and/or other improvements now existing or which
may hereafter be placed or constructed thereon."
The contra proferentem rule finds no application to this case. The doctrine
provides that in the interpretation of documents, ambiguities are to be
construed against the drafter.48 By its very nature, the precept assumes the
existence of an ambiguity in the contract, which is why contra proferentem is
also called the ambiguity doctrine.49 In this case, the Deed of Real Estate
Mortgage clearly establishes that the improvements found on the real
properties listed therein are included as subject-matter of the contract. It
covers not only the real properties, but the buildings and improvements
thereon as well.
To begin with, the Contracts to Sell and Deed of Absolute Sale could not have
posed an impediment at all to the mortgage, given that these contracts had
yet to materialize when the mortgage was constituted. They were all
executed after the constitution of the Real Estate Mortgage on 20
December 1980.
At this juncture, we note that the CA, for reasons unknown, specified 29
September 1980,52 and not 29 March 1981, as the date of the execution of
the Contract to Sell in its Decision. Respondent Qua has raised this point in
her Memorandum filed with us. This Court cannot be bound by the factual
finding of the CA with regard to the date of the Contract to Sell in favor of
Cahayag. The general rule that the Court is bound by the factual findings of
the CA must yield in this case, as it falls under one of the exceptions: when
the findings of the CA are contradicted by the evidence on record. 53 In this
case, there is nothing in the records to support the CA's conclusion that the
Contract to Sell was executed on 29 September 1980. The evidence on
record, however, reveals that the correct date is 29 March 1981.
In the case of petitioner Rivera, the corresponding Contract to Sell in his favor
was executed only on 12 August 1981, or almost eight months after the
perfection of the mortgage contract on 20 December 1980.
Lastly, Dulos Realty executed the Deed of Absolute Sale in favor of petitioner
Baldoza on 10 December 1983, which was almost three years from the time
the mortgage contract was executed on 20 December 1980.
There was neither a contract to sell nor a deed of absolute sale to speak of
when the mortgage was executed.
The purpose of registration is to notify persons other than the parties to the
contract that a transaction concerning the property was entered
into.65 Ultimately, registration, because it provides constructive notice to the
whole world, makes the certificate of title reliable, such that third persons
dealing with registered land need only look at the certificate to determine the
status of the property.66
In this case, the Real Estate Mortgage over the property was registered on 3
February 1981. On the other hand, the Contracts to Sell were all executed
after the registration of the mortgage. The Contract to Sell in favor of
petitioner Cahayag was executed on 29 March 1981, or almost two
months after the registration of the mortgage. The corresponding Contract to
Sell in favor of Rivera was executed only on 12 August 1981, roughly six
months after the registration of the mortgage contract. Lastly, the Contract to
Sell in favor of Escalona was executed on 13 January 1983, or nearly two
years after the registration of the mortgage on 3 February 1981.
Petitioner invokes the above case. Dela Merced involved a clash between an
unrecorded contract to sell and a registered mortgage contract. The contract
to sell between the mortgagors (Spouses Zulueta) and the buyer (Francisco
Dela Merced) was executed before the former's constitution of the mortgage
in favor of GSIS. Because the Zuluetas defaulted on their loans, the mortgage
was foreclosed; the properties were sold at public auction to GSIS as the
highest bidder; and the titles were consolidated after the spouses' failure to
redeem the properties within the one-year redemption period. GSIS later sold
the contested lot to Elizabeth D. Manlongat and Ma. Therese D. Manlongat.
However, Dela Merced was able to fully pay the purchase price to Spouses
Zulueta, who executed a Deed of Absolute Sale in his favor prior to the
foreclosure sale.
This Court stated therein the general rule that the purchaser is not required
to go beyond the Torrens title if there is nothing therein to indicate any cloud
or vice in the ownership of the property or any encumbrance thereon. The
case nonetheless provided an exception to the general rule. The exception
arises when the purchaser or mortgagee has knowledge of a defect in the
vendor's title or lack thereof, or is aware of sufficient facts to induce a
reasonably prudent person to inquire into the status of the property under
litigation. The Court applied the exception, taking into consideration the fact
that GSIS, the mortgagee, was a financing institution.
But Dela Merced is not relevant here. Dela Merced involved a Contract to Sell
that was executed prior to the mortgage, while the Contracts to Sell in this
case were all executed after the constitution and registration of the
mortgage.
In Dela Merced, since GSIS had knowledge of the contract to sell, this
knowledge was equivalent to the registration of the Contract to Sell.
Effectively, this constitutes registration canceled out the subsequent
registration of the mortgage. In other words, the buyer under the Contract to
Sell became the- first to register. Following the priority in time rule in civil law,
the lot buyer was accorded preference or priority in right in Dela Merced.
In this case, the registration of the mortgage, which predated the Contracts
to Sell, already bound the buyers to the mortgage. Consequently, the
determination of good faith does not come into play.
Dela Merced materially differs from this case on another point. The Contract
to Sell in favor of Dela Merced was followed by full payment of the price
and execution of the Deed of Absolute Sale. In this case, the Contract to
Sell in favor of each of petitioners Cahayag, Rivera and Escalona, is not
coupled with full payment and execution of a deed of absolute sale.
There are points of distinction between the case at bar and Luzon
Development Bank. First, there is a definite finding in Luzon Development
Bank that the mortgage was without prior HLURB approval, rendering the
mortgage void. In the present case, as will be discussed later, there is no
proof from the records on whether the HLURB did or did not approve the
mortgage. Second, Luzon Development Bank did not even reach the
foreclosure stage of the mortgage. This case, however, not only reached the
foreclosure stage; it even went past the redemption period, consolidation of
the title in the owner, and sale of the property by the highest bidder to a third
person.
In this case, on account of its registration, and the fact that the contracts
were entered into after it, the mortgage is valid even as to petitioners.
As the foreclosure sale took place prior to the advent of the General Banking
Law of 2000, the applicable redemption period is one year. In this case,
because the Certificate of Sale in favor of respondent CCC was registered on
8 March 1982, the redemption period was until 8 March 1983. It lapsed
without any right of redemption having been exercised by Dulos Realty.
Consequently, the right of respondent CCC, as purchaser of the subject lots,
became absolute. As a matter of right, it was entitled to the consolidation of
the titles in its name and to the possession of those lots. Further, the right of
respondent CCC over the lots was transferred to respondent Qua by virtue of
the Deed of Sale executed between them.
Given the foregoing considerations, respondent Qua, who now has title to the
properties subject of the various Contracts to Sell, is the lawful owner thereof.
When Dulos Realty executed a Deed of Absolute Sale covering the real
property registered under TCT No. S-39778 in favor of petitioner Baldoza on
10 December 1983, it was no longer the owner of the property. Titles to the
subject properties, including the one sold to Baldoza, had already been
consolidated in favor of respondent CCC as early as 10 November 1983. In
fact, on the same date, the titles to the subject lots in the name of Dulos
Realty had already been cancelled and new ones issued to respondent CCC.
The fact that Dulos Realty was no longer the owner of the real property at the
time of the sale led the CA to declare that the Contract of Sale was null and
void. On this premise, the appellate court concluded that respondent Qua had
a better title to the property over petitioner Baldoza.
We find no error in the conclusion of the CA that respondent Qua has a better
right to the property. The problem lies with its reasoning. We therefore take a
different route to reach the same conclusion.
Proper place of nemo dat quod non habet in the Law on Sales
Undeniably, there is an established rule under the law on sales that one
cannot give what one does not have (Nemo dat quad non ha bet).73 The CA,
however, confuses the application of this rule with respect to time. It makes
the nemo dat quad non habet rule a requirement for the perfection of a
contract of sale, such that a violation thereof goes into the validity of the
sale. But the Latin precept has been jurisprudentially held to apply to a
contract of sale at its consummation stage, and not at the perfection stage. 74
Cavite Development Bank v. Spouses Syrus Lim 75 puts nemo dat quad non
habet in its proper place.1wphi1 Initially, the Court rules out ownership as a
requirement for the perfection of a contract of sale. For all that is required is a
meeting of the minds upon the object of the contract and the price. The case
then proceeds to give examples of the rule. It cites Article 1434 of the Civil
Code, which provides that in case the seller does not own the subject matter
of the contract at the time of the sale, but later acquires title to the thing
sold, ownership shall pass to the buyer. The Court also refers to the rule as
the rationale behind Article 1462, which deals with sale of "future goods."
Case law also provides that the fact th,at the seller is not the owner of the
subject matter of the sale at the time of perfection does not make the sale
void.77
Hence, the lesson: for title to pass to the buyer, the seller must be the owner
of the thing sold at the consummation stage or at the time of delivery of the
item sold. The seller need not be the owner at the perfection stage of the
contract, whether it is of a contract to sell or a contract of sale. Ownership is
not a requirement for a valid contract of sale; it is a requirement for a valid
transfer of ownership'.
Consequently, it was not correct for the CA to consider the contract of sale
void. The CA erroneously considered lack of ownership on the part of the
seller as having an effect on the validity of the sale. The sale was very much
valid when the Deed of Absolute Sale between the parties was executed on
10 December 1983, even though title to the property had earlier been
consolidated in favor of respondent CCC as early as 10 November 1983. The
fact that Dulos Realty was no longer the owner of the property in question at
the time of the sale did not affect the validity of the contract.
On the contrary, lack of title goes into the performance of a contract of sale.
It is therefore crucial to determine in this case if the seller was the owner at
the time of delivery of the object of the sale. For this purpose, it should be
noted that execution of a public instrument evidencing a sale translates to
delivery.78 It transfers ownership of the item sold to the buyer. 79
In this case, the delivery coincided with the perfection of the contract -The
Deed of Absolute Sale covering the real property in favor of petitioner
Baldoza was executed on 10 December 1983. As already mentioned, Dulos
Realty was no longer the owner of the property on that date. Accordingly, it
could not have validly transferred ownership of the real property it had sold
to petitioner.
Thus, the correct conclusion that should be made is that while there was a
valid sale, there was no valid transfer of title to Baldoza, since Dulos Realty
was no longer the owner at the time of the execution of the Deed of Absolute
Sale.
The contention that Qua is a stockholder and former member of the Board of
Directors of respondent CCC and therefore she is not exactly a stranger to the
affairs of CCC is not even relevant.
An innocent purchaser for value is one who "buys the property of another
without notice that some other person has a right to or interest in it, and who
pays a full and fair price at the time of the purchase or before receiving any
notice of another person's claim."80 The concept thus presupposes that there
Respondent Qua traces her title to respondent CCC, whose acquisition over
the property proceeded from a foreclosure sale that was valid. As there is no
defect in the title of respondent CCC to speak of in this case, there is no need
to go into a discussion of whether Qua is an innocent purchaser for value.
A perusal of the records shows that the Contract to Sell that Baldoza referred
to had in fact been marked as Exhibit "L" during her direct examination in
court.81 Even so, Exhibit "L" was never formally offered as evidence. For this
reason, we reject her contention. Courts do not consider evidence that has
not been formally offered.82 This explains why the CA never mentioned the
alleged Contract to Sell in favor of Baldoza.
The rationale behind the rule rests on the need for judges to confine their
factual findings and ultimately their judgment solely and strictly to the
evidence offered by the parties to a suit. 83 The rule has a threefold purpose. It
allows the trial judge to know the purpose of the evidence presented; affords
opposing parties the opportunity to examine the evidence and object to its
admissibility when necessary; and facilitates review, given that an appellate
court does not have to review documents that have not been subjected to
scrutiny by the trial court.84
The rule, of course, admits an exception. Evidence not formally offered may
be admitted and considered by the trial court so long as the following
requirements obtain: (1) the evidence is duly identified by testimony duly
recorded; and (2) the evidence is incorporated into the records of the case.
The exception does not apply to the case of Baldoza. While she duly identified
the Contract to Sell during her direct examination, which was duly recorded,
Exhibit "L" was not incorporated into the records.
The fact that Dulos Realty ceased to be the owner of the property and
therefore it could no longer effect delivery of the property at the time the
Deed of Absolute Sale in favor of Baldoza was executed is the very reason
why the case of Baldoza cannot be compared with Dela Merced. In the case,
the buyer in the Contract to Sell was able to effect full payment of the
purchase price and to execute a Deed of Absolute Sale in his favor before
the foreclosure sale. In this case, the full payment of the purchase price
and the execution of a Deed of Absolute Sale in favor of Baldoza was
done after the foreclosure sale.
Equally important is the fact that petitioners failed to include the issue over
Exhibit "L" in any of the Memoranda they filed with us. The omission is
fatal. Issues raised in previous pleadings but not included in the
memorandum are deemed waived or abandoned (A.M. No. 99-2-04-SC).
As they are "a summation of the parties' previous pleadings, the memoranda
alone may be considered by the Court in deciding or resolving the
petition."85 Thus, even as the issue was raised in the Petition, the Court may
not consider it in resolving the case on the ground of failure of petitioners to
include the issue in the Memorandum. They have either waived or abandoned
it.
Petitioners allege before the Court that the mortgage contract in this case
was not approved by the HLURB. They claim that this violates Section 18 of
P.D. 95786 and results in the nullity of the mortgage. Respondents have
disputed the claim and counter-argue that the allegation of the petitioners is
not supported by evidence. Respondents likewise aver that the argument was
raised for the first time on appeal.87
It is rather too late in the day for petitioners to raise this argument. Parties
are not permitted to change their theory of a case at the appellate
stage.88 Thus, theories and issues not raised at the trial level will not be
considered by a reviewing court on the ground that they cannot be raised for
the first time on appeal.89 Overriding considerations of fair play, justice and
due process dictate this recognized rule. 90 This Court cannot even receive
evidence on this matter.
Petitioners' original theory of the case is the nullity of the mortgage on the
grounds previously discussed. If petitioners are allowed to introduce their new
theory, respondents would have no more opportunity to rebut the new claim
with contrary evidence, as the trial stage has already been terminated. In the
interest of fair play and justice, the introduction of the new argument must be
barred.91
The Court is aware that the foregoing is merely a general rule. Exceptions are
written in case law: first, an issue of jurisdiction may be raised at any time,
even on appeal, for as long as the exercise thereof will not result in a
mockery of the demands of fair play; 92 second, in the interest of justice and at
the sound discretion of the appellate court, a party may be allowed to change
its legal theory on appeal, but only when the factual bases thereof would not
require further presentation of evidence by the adverse party for the purpose
of addressing the issue raised in the new theory; 93 and last, which is actually
a bogus exception, is when the question falls within the issues raised at the
trial court.94
The exceptions do not apply to the instant case. The new argument offered in
this case concerns a factual matter - prior approval by the HLURB. This
prerequisite is not in any way related to jurisdiction, and so the first exception
is not applicable. There is nothing in the record to allow us to make any
conclusion with respect to this new allegation.
Neither will the case fall under the second exception. Evidence would be
required of the respondents to disprove the new allegation that the mortgage
did not have the requisite prior HLURB approval. Besides, to the mind of this
court, to allow petitioners to change their theory at this stage of the
proceedings will be exceedingly inappropriate.
WHEREFORE, premises considered, the Petitions are DENIED, and the Court
of Appeals Decision dated 2 November 2004 and Resolution dated 10 May
2005 in CA-G.R. CV No. 47421 are hereby AFFIRMED.
10.
THIRD DIVISION
DECISION
REYES, J.:
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the
Rules of Court seeking to annul and set aside the Decision 2 dated December
14, 2005 and the Resolution3 dated May 30, 2006 of the Court of Appeals (CA)
in CA-G.R. CV No. 67516. The CA affirmed the Decision dated April 19, 2000
of the Regional Trial Court (RTC) of Cebu City, Branch 11, in Civil Case No.
CEB-17994. The RTC ruled that the Deed of Absolute Sale elated October 15,
1987 between herein respondents Gregoria B. Aca-Ac, Eutiguia B. Aguila and
Julian Bacus (Julian) (Bacus siblings) and herein petitioner Timoteo Bacalso
(Timoteo) was void for want of consideration.
The Facts
The Bacus siblings were tbe registered owners of a parcel of land described
as Lot No. 1809-G-2 located in San Roque, Talisay, Cebu with an area of 1,200
square meters and covered by Transfer Certificate of Title (TCT) No. 59260.
The Bacus siblings inherited the said property from their mother Matea
Bacalso (Matea).4
On October 15, 1987, the Bacus siblings executed a Deed of Absolute Sale
conveying a portion of Lot No. 1809-G-2 with an area of 271 sq m, described
as Lot No. 1809-G-2-C, in favor of their cousin, Timoteo for and in
consideration of the amount of P8,000.00.5
On March 4, 1988, however, Timoteo, together with his sisters Lucena and
Victoria and some of his cousins filed a complaint for declaration of nullity of
documents, certificates of title, reconveyance of real property and damages
against the Bacus siblings and four other persons before the RTC of Cebu
City, Branch 12, and was docketed as Civil Case No. CEB-6693. They claimed
that they are co-owners of the three-fourths portion of Lot No. 1809-G (which
Lot No. 1809-G-2-C was originally part of) as Matea had paid for the said
property for and in behalf of her brother Alejandro (father of petitioner
Timoteo) and sisters Perpetua and Liberata, all surnamed Bacalso. 6
On November 29, 1989, the RTC found that Matea was the sole owner of Lot
No. 1809-G and affirmed the validity of the conveyances of portions of Lot No.
1809-G made by her children. The same was aflirmed by the CA in a Decision
dated March 23, 1992 and became final and executory on April 15, 1992. 7
Moreover, the petitioners alleged that the Bacus siblings have caused the
subdivision of Lot No. 1809-G-2 into four lots and one of which is Lot No.
1809-G-2-C which is now covered by TCT No. 70783. After subdividing the
property, the Bacus siblings, on February 11, 1992, without knowledge of the
petitioners, sold Lot No. 1809-G-2-C again to respondent Evelyn Sychangco
(Sychangco) and that TCT No. 74687 covering the same property was issued
in her name.9
In their answer, the Bacus siblings denied the allegations of the petitioners
and claimed that the alleged sale of Lot No. 1809-G-2-C in favor of the
petitioners did not push through because the petitioners failed to pay the
purchase price thereof.10
For her part, Sychangco averred that she is a buyer in good faith and for
value as she relied on what appeared in the certificate of title of the property
which appeared to be a clean title as no lien or encumbrance was annotated
therein.11
On April 19, 2000, the RTC issued a Decision declaring the Deed of Absolute
Sale dated October 15, 1987 void for want of consideration after finding that
the petitioners failed to pay the price of the subject property. Moreover, the
RTC held that even granting that the sale between the Bacus siblings and the
petitioners was valid, the petitioners still cannot ask for the rescission of the
sale of the disputed portion to Sychangco as the latter was a buyer in good
faith, thus has a better right to the property. 12
The Issues
I.
THE [CA] SERIOUSLY ERRED WHEN IT RELIED TOO MUCH ON THE RESPECTIVE
ORAL TESTIMONIES OF RESPONDENTS JULIAN BACUS AND EVELYN
SYCHANGCO UTTERLY DISREGARDING THE ORAL TESTIMONIES OF
PETITIONER TIMOTEO BACALSO AND THE LATTER'S WITNESS ROBERTO YBAS
AND THE DOCUMENTARY EVIDENCE OF THE PETITIONERS, THE DULY
EXECUTED AND NOTARIZED DEED OF ABSOLUTE SALE COVERING THE
SUBJECT LOT NO. 1809-G-2-C.
II
THE [CA] SERIOUSLY ERRED WHEN IT RULED THAT THE DEED OF ABSOLUTE
SALE DATED 15 OCTOBER 1987 IS NULL AND VOID AB INITIO FOR FAILURE OR
WANT OF CONSIDERATION.
III
THE [CA] SERIOUSLY ERRED WHEN IT DID NOT CONSIDER TI-IE FACT THAT
THE DEED OF ABSOLUTE SALE DATED 15 OCTOBER 1987 WAS NOTARIZED,
HENCE, A PUBLIC DOCUMENT WHICH ENJOYS THE PRESUMPTION OF
REGULARITY.
IV
THE [CA] SERIOUSLY ERRED WHEN IT DID NOT RULE THAT ON 15 OCTOBER
1987, THE [BACUS SIBLINGS] WERE NO LONGER OWNERS AND POSSESSORS
OF Tl-IE SUBJECT LOT AS THE SAME WAS ALREADY TRANSFERRED TO TI-IE
PETITIONERS BY REASON OF THE MERE EXECUTION OF A DEED OF SALE IN A
PUBLIC DOCUMENT, AS IN THIS CASE.14
Essentially, the issues presented to the Court for resolution could be reduced
into whether the CA erred in holding that the Deed of Absolute Sale dated
October 15, 1987 is void for want of consideration.
The Court has repeatedly held that it is not necessitated to examine, evaluate
or weigh the evidence considered in the lower courts all over again. "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,
afiirmed by the CA, are final and conclusive and may not be reviewed on
appeal."16
In any event, the Court has carefully reviewed the records of the instant case
and found no reason to disturb the findings of the RTC as affirmed by the CA.
Under the Civil Code, a contract is a meeting of minds, with respect to the
other, to give something or to render some service. Article 1318 provides:
In the case at bar, the petitioners argue that the Deed of Absolute Sale has all
the requisites of a valid contract. The petitioners contend that there is no lack
of consideration that would prevent the existence of a valid contract. They
assert that the testimonies of Timoteo and witness Roberto Ybas sufficiently
established that the purchase price of P5,000.00 for Lot No. 1809-G-2-C was
paid to Julian at Sto. Nifio Church in Cebu City before the execution of the
Deed of Absolute Sale. They also claim that even assuming that they failed to
pay the purchase price, such failure does not render the sale void for being
fictitious or simulated, rather, there is only non-payment of the consideration
within the period agreed upon for payment. 18
Contrary to the petitioners' claim, this is not merely a case of failure to pay
the purchase price which can only amount to a breach of obligation with
rescission as the proper remedy. As correctly observed by the RTC, the
disputed sale produces no effect and is considered void ab initio for failure to
or want of consideration since the petitioner failed to pay the consideration
stipulated in the Deed of Absolute Sale. The trial court's discussion on the
said issue, as affirmed by the CA, is hereby quoted:
To begin with, the Court hereby states that, from the totality of the evidence
adduced in this case which it scrutinized and evaluated, it has come up with a
finding that there was failure or want of consideration of the Deed of Sale of
Lot 1809-G-2-C executed in favor of the [petitioners] on October 15, 1987.
The Court is morally and sufficiently convinced that [Timoteo] had not paid to
the [Bacus siblings] the price for the said land. This fact has been
competently and preponderantly established by the testimony in court of
[Julian]. [Julian] made the following narration in his testimony:
Sometime in October 1987, he and his two sisters agreed to sell to the
[petitioners] Lot No. 1809-G-2-C because they needed money for the
issuance of the titles to the four lots into which Lot 1809-G-2 was subdivided.
[Timoteo] lured him and his sisters into selling the said land by his promise
and representation that money was coming from his sister, Lucena Bacalso,
from Jolo, Sulu. Timoteo Bacalso asked for two weeks within which to produce
the said money. However, no such money came. To the shock and surprise of
him and his sisters, a complaint was filed in Court against them in Civil Case
No. CEB-6693 by [Timoteo], together with nine others, when Lucena Bacalso
arrived from Jolo, Sulu, wherein they claimed as theirs Lot 1809-G. Instead of
being paid, he and his sisters were sued in Court. From then on, [Timoteo]
never cared anymore to pay for Lot 1809-G-2-C. He and his sisters just went
through the titling of Lots 1809-G-A, 1809-G-2-B, Lot 1809-G-2-C and 1809-G-
2-D on their own.
1. That he did not let [Julian] sign a receipt for the sum of P8,000.00
purportedly given by him to the latter as payment for the land in question;
2. That the alleged payment of the said sum of P8,000.00 was made not in
the presence of the notary public who notarized the document but in a place
near Sto. Nino Church in Cebu City;
3. That it was only [Julian] who appeared before the notary public, but he had
no special power of attorney from his two sisters;
4. That the Deed of Sale of Lot 1809-G-2-C was already in his possession
before Civil Case No. CEB-6693 was filed in court;
5. That he did not however show the said Deed of Sale to his lawyer who filed
for the plaintiffs the complaint in Civil Case No. CEB 6693, as in fact he
suppressed the said document from others;
6. That he did not bother to cause the segregation of Lot 1809-G-2-C from the
rest of the lots even after he had already bought it already;
7. That it was only after he lost in Civil Case No. CEB-6693 that he decided to
file the present case;
8. That he did not apply for building permits for the three houses that he
purportedly caused to be built on the land in question;
9. That he did not also declare for taxation purposes the said alleged houses;
10. That he did not declare either for taxation purposes the land in question
in his name or he had not paid taxes therefore; and
11. That he did not bother to register with the Registry of Deeds for the
Province of Cebu the Deed of Sale of the lot.1a\^/phi1
To the mind of the Court, [Timoteo] desisted from paying to [the Bacus
siblings] the price for Lot 1809-G-2-C when he, together with nine others,
filed in Court the complaint in Civil Case No. CEB-6693. He found it
convenient to just acquire the said land as supposed co-owners of Lot 1809-G
of which the land in question is merely a part of xx x:
xxxx
Thus, it is evident from all the foregoing circumstances that there was a
failure to or want of consideration of the supposed sale of the land in
question to the [petitioners] on October 15, 1987. So, the said sale could not
be given effect. Article 1352 of the New Civil Code of the Philippines is explicit
in providing that 'contracts without cause produce no effect whatsoever'. If
there is no cause, the contract is void. x x x There being no price paid, there
is no cause or consideration; hence, the contract is void as a sale. x x x
Consequently, in the case at bench, the plaintiffs have not become absolute
owners of Lot 1809-G-2-C of Psd-07-022093 by virtue of the Deed of Sale
thereof which was executed on October 15, 1987 by the [Bacus siblings] in
their favor.19 (Citations omitted)
It is clear from the factual findings of the RTC that the Deed of Absolute Sale
entirely lacked consideration and, consequently, void and without effect. No
portion of the P8,000.00 consideration indicated in the Deed of Absolute Sale
was ever paid by the petitioners.1wphi1
The Court also finds no compelling reason to depart from the court a
quo's finding that the Deed of Absolute Sale executed on October 15, 1987 is
null and void ab initio for lack of consideration, thus:
It must be stressed that the present case is not merely a case of failure to
pay the purchase price, as [the petitioners] claim, which can only amount to
a breach of obligation with rescission as the proper remedy. What we have
here is a purported contract that lacks a cause - one of the three essential
requisites of a valid contract. Failure to pay the consideration is different from
lack of consideration. The former results in a right to demand the fulfillment
or cancellation of the obligation under an existing valid contract while the
latter prevents the existence of a valid contract. Consequently, we rule that
the October 15, 1987 Deed of Sale is null and void ab initio for lack of
consideration.20 (Citation omitted)
Well-settled is the rule that where there is no consideration, the sale is null
and void ab initio. In Sps. Lequin v. Sps. Vizconde,21 the Court ruled that:
There can be no doubt that the contract of sale or Kasulatan lacked the
essential element of consideration.1wphi1 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 clcecl of sale is null and void ab initio for lack of
consideration.22 (Citation omitted)
11.
FIRST DIVISION
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated March
28, 2006 and the Resolution 3 dated June 26, 2006 of the Court of Appeals
(CA) in CA-G.R. CR No. 24871, which affirmed the conviction of petitioner Paz
Cheng y Chu (Cheng) for three (3) counts of the crime of Estafa defined and
penalized under Article 315 (1) (b) of the Revised Penal Code (RPC).
The Facts
The instant case arose from the filing of three (3) separate
Informations4 charging Cheng of the crime of Estafa defined and penalized
under Article 315 (1) (b) of the RPC before the Regional Trial Court of Quezon
City, Branch 226 (RTC), docketed as Criminal Case Nos. Q-98-75440, Q-98-
75441 and Q-98-75442. According to the prosecution, private complaint
"Rowena Rodriguez (Rodriguez) and Cheng entered into an agreement
whereby Rodriguez shall deliver pieces of jewelry to Cheng for the latter to
sell on commission basis. After one month, Cheng is obliged to either: (a)
remit the proceeds of the sold jewelry; or (b) return the unsold jewelry to the
former. On different dates (i.e., July 12, 1997, July 16, 1997, and August 12,
1997), Rodriguez delivered various sets of jewelry to Cheng in the respective
amounts of P18,000.00, P36,000.00, and P257,950.00. Upon delivery of the
last batch of jewelry, Cheng issued a check worth P120,000.00 as full security
for the first two (2) deliveries and as partial security for the last. When Cheng
failed to remit the proceeds or to return the unsold jewelry on due date,
Rodriguez presented the check to the bank for encashment, but was
dishonored due to insufficient funds. Upon assurance of Cheng, Rodriguez re-
deposited the check, but again, the same was dishonored because the
drawee account had been closed. Rodriguez then decided to confront Cheng,
who then uttered "Akala mo, babayaran pa kita?" Thus, Rodriguez was
constrained to file the instant charges.5
In defense, Cheng denied receiving any jewelry from Rodriguez or signing any
document purporting to be contracts of sale of jewelry, asserting that
Rodriguez is a usurious moneylender. She then admitted having an unpaid
loan with Rodriguez and that she issued a check to serve as security for the
same, but was nevertheless surprised of her arrest due to the latter's filing
of Estafa charges against her.6
In a Decision7 dated December 7, 2000, the RTC found Cheng guilty beyond
reasonable doubt of three (3) counts of Estafa and, accordingly, sentenced
her as follows: (a) for the first count, Cheng is sentenced to an indeterminate
penalty ranging from four (4) years, two (2) months, and one (1) day to six
(6) years, eight (8) months, and twenty-one (21) days to eight (8) years
of prision correccional in its maximum period to prision mayor in its minimum
period (maximum); (b) for the second count, Cheng is sentenced to an
indeterminate penalty ranging from six (6) months and one (1) day to one (1)
year, eight (8) months, and twenty (20) days of prision correccional in its
minimum and medium periods to six (6) years, eight (8) months, and twenty-
one (21) days to eight (8) years of prision correccional in its maximum period
to prision mayor in its minimum period (maximum); and (c) for the third
count, Cheng is sentenced to an indeterminate penalty ranging from six (6)
months and one (1) day to one (1) year, eight (8) months, and twenty (20)
days of prision correccional in its minimum and medium periods to four (4)
years, two (2) months, and one (1) day to five (5) years, five (5) months, and
ten (10) days of prision correccional in its maximum period to prision
mayor in its minimum period (minimum).8
The RTC found that the prosecution has sufficiently proven through
documentary and testimonial evidence that: (a) Rodriguez indeed gave
Cheng several pieces of jewelry for the latter- to either sell and remit the
proceeds or to return said jewelry if unsold to the former; and (b) Cheng
neither returned the jewelry nor remitted their proceeds to Rodriguez within
the specified period despite the latter's demands. In contrast, Cheng failed to
substantiate her claims through the documentary evidence she presented
while her testimony was deemed to be incredible and not worthy of belief. 9
The CA Ruling
In a Decision11 dated March 28, 2006, the CA affirmed Cheng's conviction for
three (3) counts of Estafa, with modification as to the penalties, as
follows: (a) for the first count of Estafa where the amount misappropriated is
P257,950.00, Cheng is sentenced to suffer the penalty of imprisonment for an
indeterminate period of four (4) years and two (2) months of prision
correccional, as minimum, to twenty (20) years of reclusion temporal, as
maximum; (b) for the second count of Estafa where the amount
misappropriated is P36,000.00, Cheng is sentenced to suffer the penalty of
imprisonment for an indeterminate period of four (4) years and two (2)
months of prision correccional, as minimum, to nine (9) years of prision
mayor, as maximum; and (c) for the third count of Estafa where the amount
misappropriated is Pl8,000.00, Cheng is sentenced to suffer the penalty of
imprisonment for an indeterminate period of four (4) years and two (2)
months of prision correccional, as minimum, to six (6) years, eight (8)
months, and twenty (20) days of prision mayor, as maximum.12
The CA agreed with the RTC's findings that the prosecution had sufficiently
established Cheng's guilt beyond reasonable doubt, pointing out that
Rodriguez's testimony was "'more candid, credible and straightforward and
that 'her demeanor in the witness stand is worthy of belief" as opposed to
that of Cheng which is highly self-serving and uncorroborated. 13 Further, the
CA found that a modification of Cheng's penalties is in order to conform with
prevailing law and jurisprudence on the matter. 14
The core issue for the Court's resolution is whether or not the CA correctly
affirmed Cheng's conviction for three counts of Estafa defined and penalized
under Article 315 (1) (b) of the RPC.
Art. 315. Swindling (estafa). - Any person who shall defraud another by any of
the means mentioned hereinbelow shall be punished by:
xxxx
xxxx
xxxx
The elements of Estafa under this provision are as follows: (1) the offender's
receipt of money, goods, or other personal property in trust, or on
commission, or for administration, or under any other obligation involving the
duty to deliver, or to return, the same; (2) misappropriation or conversion by
the offender of the money or property received, or denial of receipt of the
money or property; (3) the misappropriation, conversion or denial is to the
prejudice of another; and (4) demand by the offended party that the offender
return the money or property received. 17 In the case of Pamintuan v.
People,18 the Court had the opportunity to elucidate further on the essence of
the aforesaid crime, as well as the proof needed to sustain a conviction for
the same, to wit:
In this case, a judicious review of the case records reveals that the elements
of Estafa, as defined and penalized by the afore-cited provision, are present,
considering that: (a) Rodriguez delivered the jewelry to Cheng for the purpose
of selling them on commission basis; (b) Cheng was required to either remit
the proceeds of the sale or to return the jewelry after one month from
delivery; (c) Cheng failed to do what was required of her despite the lapse of
the aforesaid period; (d) Rodriguez attempted to encash the check given by
Cheng as security, but such check was dishonored twice for being drawn
against insufficient funds and against a closed account; (e) Rodriguez
demanded that Cheng comply with her undertaking, but the latter
disregarded such demand; (j) Cheng's acts clearly prejudiced Rodriguez who
lost the jewelry and/or its value.
xxxx
Q. So, all in all, you have sixty (60) days period with respect to this item, and
the first delivery expired I am referring to July 12, 1997 worth P18,000.00
which will mature on September 11, so, from September 11, what happened?
The foregoing "admission" on the part of Rodriguez did not change the fact
that her transactions with Cheng should be properly deemed as an agency on
a commission basis whereby Rodriguez, as the owner of the jewelry, is the
principal, while Cheng is the agent who is tasked to sell the same on
commission. In the eyes of the Court, Rodriguez merely accepted the check
as full security for the first and second batches of jewelry and as partial
security for the last batch. It was only when Cheng defaulted in her
Indisputably, there is no reason to deviate from the findings of the RTC and
the CA as they have fully considered the evidence presented by the
prosecution and the defense, and they have adequately explained the legal
and evidentiary reasons in concluding that Cheng is indeed guilty beyond
reasonable doubt of three (3) counts of Estafa by misappropriation defined
and penalized under Article 315 (1) (b) of the RPC. It is settled that factual
findings of the RTC, when affirmed by the CA, are entitled to great weight and
respect by this Court and are deemed final and conclusive when supported by
the evidence on record,25 as in this case.
WHEREFORE, the petition is DENIED. The Decision dated March 28, 2006
and the Resolution dated June 26, 2006 of the Court of Appeals in CA-G.R. CR
No. 24871 are hereby AFFIRMED.
SO ORDERED.
12.
THIRD DIVISION
DECISION
REYES, J.:
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the
Rules of Court seeking to annul the Decision 2 dated March 11, 2011 of the
Court of Appeals (CA) in CA-G.R. SP No. 101740, which affirmed, with
modification, the Decision3 dated November 22, 2007 of the Office of the
President (OP) in O.P. Case No. 97-E-8033, entitled Mover Enterprises, Inc.
and Philippine Commercial & International Bank (PCIB) v. The Housing and
Land Use Regulatory Board (HLURB) and Sunnyside Heights J-Jomeowners
Association, Inc.
The Facts
Mover Enterprises, Inc. (Mover) is the owner and developer of the Sunnyside
Heights Subdivision located in Batasan Hills, Quezon City. In March 1988,
Mover mortgaged Lot 5, Block 10 of Phase I of the said subdivision containing
5,764 square meters to the Philippine Commercial International Bank (PCIB)
to secure a loan of Pl ,700,000.00. Mover failed to pay its loan and PCIB
foreclosed on the mortgage. After title was consolidated in PCIB, the Registry
of Deeds of Quezon City issued Transfer Certificate of Title (TCT) No. 86389 to
the said bank on May 17, 1993.4
Sometime in mid-1994, PCIB advertised the aforesaid lot for sale in the
newspapers. This prompted the Sunnyside Heights Homeowners Association
(SI-IHA) to file before the Housing and Land Use Regulatory Board (I-ILURB) a
letter-complaint,5 docketed as HLURB Case No. REM-091594-6077, to declare
the mortgage between Mover and PCIB void on the ground that the subject
property, originally covered by TCT No. 366219, has been allocated as SHJ-
IA's open space pursuant to law. SHI-IA thus sought reconveyance of the
property.6
In its Answer,7 PCIB maintained that the mortgaged lot is different from the
lot referred to in SHI-IA's complaint, and moreover, the title to the said
mortgaged lot bears no annotation that it has been reserved as open space.
Claiming to be an innocent mortgagee in good faith and for value, PCIB
insisted that under Batas Pambansa Bilang 129 8 and Presidential Decree
(P.D.) No. 1344,9 the complaint should have been filed with the regular courts.
On August 28, 1995, the BLURB Arbiter dismissed SHHA's complaint for lack
of cause of action.10 He found that, per the records of the BLURB, the property
claimed by SHI-IA to be an open space is covered by TCT No. 223475, which
is not the same as the property originally covered by TCT No. 366219 in the
name of Mover, and now titled to PClB, viz:
There is no explanation or allegation, much less proof, that TCT [N]o. 366219
registered in the name of respondent Mover and subsequently registered as
TCT [N]o. 8638[9] in the name of respondent PCIB, and TCT [N]o. 223475 as
identified in the letter of the Technical Services Section of this Office, refer to
one and the same property.
From the foregoing, it has therefore not been established that the property of
respondent Mover covered by TCT [N]o. 366219 which had been mortgaged
and been foreclosed by respondent PCIB, is the very same property identified
as Lot 5, Block 10 and covered by TCT No. 223475, that was allocated as
open space for Sum1yside Heights Subdivision. The complaint therefore must
necessarily fail as it failed to state a cause of action x x x. 11
Upon review of our records on file, lot 5, block 10 was [an] open space
covered by TCT No. 223475; however, in view of the HL[U]RB's grant of
Alteration of Plan elated 18 May 1987, on which subject property was
involved, the boundaries of above[-]mentioned open space are [sic] modified
resulting to be identified as Block 7 of consolidation subdivision plan Pcs-
000990 covered by TCT No. 366219. xx x.13
to one and the same property. Concluding that the subject matter of the
mortgage and foreclosure in question was the designated open space of
Sunnyside Heights Subdivision,15 it ruled that the said open space, originally
covered by TCT No. 366219, and now registered in the name of PCIB, can
neither be mortgaged nor foreclosed, being inalienable, non-buildable and
beyond the commerce of man. The HLURB Board of Commissioners thus
ordered, as follows:
WHEREFORE, the decision of the Office below dated August 28, 1995 is
hereby SET ASIDE and a new decision entered as follows:
3. Ordering the Register of Deeds of Quezon City to cancel TCT No. 8638[9] in
the name of respondent PCIB and to issue a new title in the name of
respondent Mover;
Let a copy of this decision be furnished the Register of Deeds of Quezon City
for his/her guidance and appropriate action.
SO ORDERED.16
After its motion for reconsideration was denied, PCIB appealed to the OP.
Mover did not appeal.17 In the Decision18dated November 22, 2007, the OP
found no merit in the appeal, ruling that the HLURB has jurisdiction over
matters related to or connected with the complaint for annulment of
mortgage, as in this case.
In the petition for review filed with the CA, 19 Banco de Oro-EPCI, Inc. alleged
that:
II. PCIB IS A MORTGAGEE IN GOOD FAITH, THEREFORE, ITS TITLE OVER THE
SAID PROPERTY CANNOT BE ANNULLED;
Banco de Oro-EPCI, Inc. alleged in the main that the HLURB has no
jurisdiction over SHHA's letter-complaint to annul the mortgage between
Mover and PCIB. In the event that the nullification of the mortgage is
affirmed, it conceded that it was but fair that the mortgagor be also adjudged
to pay interest on the principal loan plus costs incurred. 21
On March 11, 2011, the CA rendered the assailed judgment ruling that "[t]he
jurisdiction of the HLURB to regulate the real estate trade is broad enough to
include jurisdiction over complaints for annulment of mortgage." 22 The CA
further noted Banco de Oro-EPCI, Inc. 's argument that Mover's obligation was
more than the principal amount of Pl,700,000.00. While the CA could not give
credence to Banco de Oro-EPCI, Inc.'s allegations of expenses it incurred, it
acknowledged that Mover was indebted to Banco de Oro-EPCI, Inc. in the
amount of Pl,700,000.00 as pointed out in the decision of the HLURB Board of
Commissioners. Inasmuch as the amount represents a loan, Mover must also
be held liable for the payment of interest at the rate stipulated in the
mortgage contract. In the absence thereof, the legal rate of 12% per
annum in accordance with Eastern Shipping Lines, Inc. v. CA23 shall be
imposed.24
SO ORDERED.25
Banco de Oro-EPCI, Inc. moved for reconsideration, 26 but the same was
denied on September 23, 2011.27
I.
THE [CA] HAS SO FAR DEPARTED FROM THE USUAL COURSE OF JUDICIAL
PROCEEDINGS IN ITS QUESTIONED DECISION AND RESOLUTION WHEN IT
AFFIRMED THE DECISIONS OF THE [OP] AND HLURB BOARD DESPITE THE
UNDISPUTED FACT THAT THE LATTER WAS BASED ON NEW EVIDENCE RAISED
FOR THE FIRST TIME BY [SHHA] ON APPEAL IN VIOLATION OF THE RIGHT OF
[BOO] TO DUE PROCESS OF LAW.
II.
III.
THE [CA] HAS SO FAR DEPARTED FROM THE USUAL COURSE OF JUDICIAL
PROCEEDINGS WHEN ITS QUESTIONED DECISION AND RESOLUTION DENIED
[BDO'S] PETITION FOR REVIEW DESPITE THE FACT THAT THE HLURB DOES
NOT HAVE JURISDICTION OVER THE INSTANT CASE.28
Section 3 of P.D. No. 95729 granted to the National Housing Authority (NBA)
exclusive jurisdiction to regulate the real estate trade and business in order
to curb swindling and fraudulent manipulations by unscrupulous subdivision
and condominium sellers and operators, such as failure to deliver titles to the
buyers or titles free from liens and encumbrances, or to pay real estate taxes,
and fraudulent sales of the same subdivision lots to different innocent
purchasers for value. P.D. No. 1344 in turn expanded the jurisdiction of the
NBA to include the following:
SECTION 1. In the exercise of its functions to regulate the real estate trade
and business and in addition to its powers provided for in Presidential Decree
No. 957, the National Housing Authority sl1all have exclusive jurisdiction to
hear and decide cases of the following nature:
b) Claims involving refund and any other claims filed by subdivision lot or
condominium unit buyer against the project owner, developer, dealer, broker
or salesman; and
Under Executive Order (E.O.) No. 648, which reorganized the Human
Settlements Regulatory Commission in 1981, the regulatory and quasi-judicial
functions of the NHA were transferred to the Human Settlements Regulatory
Commission, later renamed as HLURB under E.O. No. 90. 30 In the cases
reaching this Court, the consistent ruling has been that the HLURB has
jurisdiction over complaints arising from contracts between the subdivision
developer and the lot buyer, or those aimed at compelling the
developer to comply with its contractual and statutory obligations.31
SHHA's letter-complaint puts in issue the validity of the mortgage over Block
10, now renamed as Block 7, of Sunnyside Heights Subdivision, and the
detriment and prejudice to the residents and the violation by Mover of its
obligation to maintain its open space under P.D. No. 1216 32 are all too plain,
as the following "whereas" clauses of P.D. No. 1216 underscore:
Section 1 of P.D. No. 1216 defines "open space" as an area in the subdivision
reserved exclusively for parks, playgrounds, recreational uses, schools, roads,
places of worship, hospitals, health centers, barangay centers and other
similar facilities and amenities. Section 2 thereof further provides that these
reserved areas are non-alienable and non-buildable. The SHHA was correct to
seek the annulment of the mortgage between Mover and PCIB before the
HLURB, in view of its exclusive jurisdiction over "any claims filed by
subdivision lot or condominium unit buyer against the project owner,
developer, dealer, broker or salesman; and cases involving specific
As for the claim that SHHA violated BDO's right to due process when on
appeal it "belatedly" presented a certification to the HLURB Board of
Commissioners that in May 1987 an approved alteration of the subdivision
plan renamed Block 10 of Sunnyside Heights Subdivision as Block 7 but
retained it as open space, let it suffice that in view of BDO's continuing
objection to HLURB 's jurisdiction, it cannot now complain that additional
documentary proof has been adduced confirming its jurisdiction. As the
agency tasked to oversee the specific compliance by developers with their
contractual and statutory obligations, such as maintaining the open space as
non-alienable and non-buildable, there is no doubt that the HLURB is
empowered to annul the subject mortgage. For if a party may continually
interpose the HLURB's lack of jurisdiction, even raising the same for the first
time on appeal, since jurisdictional issues cannot be waived, then BDO is
estopped to complain that on appeal SHHA is finally able to present proof of
HLURB's jurisdiction over the present action. 33
The Court has long recognized and upheld the rationale behind P.D. No. 957,
which is to protect innocent lot buyers from scheming developers, 34 buyers
who are by law entitled to the enjoyment of an open space within the
subdivision.1wphi1 Thus, this Court has broadly construed HLURB's
jurisdiction to include complaints to annul mortgages of condominium or
subdivision units.35 In The Manila Banking Corp. v. Spouses Rabina, et
al.,36 the Court said:
The jurisdiction of the HLURB to regulate the real estate trade is broad
enough to include jurisdiction over complaints for annulment of mortgage. To
disassociate the issue of nullity of mortgage and lodge it separately with the
liquidation court would only cause inconvenience to the parties and would not
serve the ends of speedy and inexpensive administration of justice as
mandated by the laws vesting quasi-judicial powers in the agency. 37(Citations
omitted)
Coming now to Mover's liability, the Court agrees with the observation of the
HLURB Board of Commissioners that it would be unjust enrichment on the
part of Mover not to acknowledge its indebtedness to BDO in the amount of
Pl,700,000.00 in view of the nullity of the mortgage. 38 It should have known
that its mortgage security was invalid considering the alteration in its
subdivision plan in May 1987. In equity, it must therefore compensate PCIB
for the loss thereat: reckoned from the filing of SHHA's letter-complaint on
September 14, 1994. Eastern Shipping Lines, Inc.39 provides, "with regard
particularly to an award of interest in the concept of actual and compensatory
damages,"40 that the rate of interest, and the accrual thereof shall be
imposed as follows:
that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code. 41(Citations omitted)
WHEREFORE, the petition is DENIED. The Decision dated March 11, 2011 of
the Court of Appeals in CA-G.R. SP No. 101740 is AFFIRMED with
CLARIFICATION, in that Mover Enterprises, Inc. shall pay Banco de Oro-EPCI,
Inc., now Banco de Oro Unibank, Inc., the amount of'Pl,700,000.00 plus legal
interest at twelve percent (12%) per annum from September 14, 1994, the
date of the letter-complaint of Sunnyside Heights Homeowners Association,
Inc., the said rate to be reduced to six percent (6o/o) per annum starting July
1, 2013 until finality hereof. Thereafter, interest as thus computed shall, along
with the principal, earn interest at six percent (6%) per annum until fully paid.
13.
THIRD DIVISION
DECISION
JARDELEZA, J.:
The Facts
While NCLPI was able to deliver the postdated checks per its verbal
agreement with LMI, it failed to sign the promissory note and pay the checks
for June to October 1996. Thus, in a letter dated October 16, 1996, which was
sent on October 18, 1996 by registered mail, LMI informed NCLPI that it was
terminating their Contract of Lease due to arrears in the payment of rentals.
It also demanded that NCLPI (1) pay the amount of 2,651,570.39 for unpaid
rentals11 and (2) vacate the premises within five (5) days from receipt of the
notice.12
In the meantime, Proton sent NCLPI an undated request to use the premises
as a temporary display center for "Audi" brand cars for a period of ten (10)
days. In the same letter, Proton undertook "not to disturb [NCLPI and LMIs]
lease agreement and ensure that [NCLPI] will not breach the same [by]
lending the premises x x x without any consideration." 13 NCLPI acceded to
this request.14
In a letter dated October 24, 1996, NCLPI, through counsel, replied to LMIs
letter of October 16, 1996 acknowledging the arrearages incurred by it under
their Contract of Lease. Claiming, however, that it has no intention of
abandoning the lease and citing efforts to negotiate a possible sublease of
the property, NCLPI requested LMI to defer taking court action on the
matter.17
LMI, on November 8, 1996, entered into a Contract of Lease with Proton over
the subject premises.18
On November 12, 1996, LMI filed a Complaint 19 for sum of money with
damages seeking to recover from NCLPI the amount of 2,696,639.97,
equivalent to the balance of its unpaid rentals, with interest and penalties, as
well as exemplary damages, attorneys fees, and costs of litigation. 20
In its Answer25 and Third-Party Complaint26 against Proton, NCLPI alleged that
LMI and Proton "schemed" and "colluded" to unlawfully force NCLPI (and its
subsidiary NSC) from the premises. Since it has not abandoned its leasehold
right, NCLPI asserts that the lease contract between LMI and Proton is void for
lack of a valid cause or consideration.27 It likewise prayed for the award of: (1)
3,000,000.00, an amount it anticipates to lose on account of LMI and
Protons deprivation of its right to use and occupy the premises; (2)
1,000,000.00 as exemplary damages; and (3) 500,000.00 as attorneys
fees, plus 2,000.00 for every court appearance. 28
The trial court admitted29 the third-party complaint over LMIs opposition.30
Subsequently, or on April 17, 1998, Proton filed its Answer with Compulsory
Counterclaim against NCLPI.31According to Proton, the undated letter-request
supposedly sent by Proton to NCLPI was actually prepared by the latter so as
to keep from LMI its intention to sublease the premises to Proton until NCLPI
is able to secure LMIs consent. 32 Denying NCLPIs allegation that its use of
the lease premises was made without any consideration, Proton claims that it
"actually paid [NCLPI] rental of 200,000.00 for the use of subject property
for 10 days x x x."33
Proton further asserted that NCLPI had vacated the premises as early as
during the negotiations for the sublease and, in fact, authorized the former to
enter the property and commence renovations. 34 When NCLPI ultimately
failed to obtain LMIs consent to the proposed sublease and its lease contract
was terminated, Proton, having already incurred substantial expenses
renovating the premises, was constrained to enter into a Contract of Lease
with LMI. Thus, Proton prayed for the dismissal of the Third-Party Complaint,
and asked, by way of counterclaim, that NCLPI be ordered to pay exemplary
damages, attorneys fees, and costs of litigation. 35
On June 7, 2002, the trial court promulgated its Decision, 36 the decretal
portion of which reads:
The third party complaint filed by defendant is DENIED for lack of merit and in
addition to the foregoing and as prayed for, defendant NISSAN is ordered to
pay third party defendant PROTON PILIPINAS INC. the sum of Two Hundred
Thousand Pesos ([]200,000.00) representing exemplary damages and
attorneys fees due.
SO ORDERED.37
The trial court found that NCLPI purposely violated the terms of its contract
with LMI when it failed to pay the required rentals and contracted to sublease
the premises without the latters consent. 38 Under Article 1191 of the Civil
Code, LMI was therefore entitled to rescind the contract between the parties
and seek payment of the unpaid rentals and damages. 39 In addition, the trial
court ruled that LMIs act of notifying NCLPI of the termination of their lease
contract due to non-payment of rentals is expressly sanctioned under
paragraphs 1640 and 1841 of their contract.42
Contrary to NCLPIs claim that it was "fooled" into allowing Proton to occupy
the premises for a limited period after which the latter unilaterally usurped
the premises for itself, the trial court found that it was NCLPI "which
misrepresented itself to [Proton] as being a lessee of good standing, so that it
could induce the latter to occupy and renovate the premises when at that
time the negotiations were underway the lease between [LMI] and [NCLPI]
had already been terminated."43
Aggrieved, NCLPI filed a Petition for Review with the CA. In its Appellants
Brief,44 it argued that the trial court erred in: (1) holding that there was a valid
extrajudicial rescission of its lease contract with LMI; and (2) dismissing
NCLPIs claim for damages against LMI and Proton while at the same time
holding NCLPI liable to them for exemplary damages and attorneys fees. 45
The CA denied NCLPIs appeal and affirmed the trial courts decision with
modification. The decretal portion of the CAs Decision 46 reads:
WHEREFORE, the appealed Decision dated June 7, 2002 of the trial court is
affirmed, subject to modification that:
SO ORDERED.47
NCLPI sought for a reconsideration 48 of this decision. LMI, on the other hand,
filed a motion to clarify whether the amount of 2,365,569.61 representing
unpaid rentals was inclusive of interest. 49 The CA resolved both motions, thus:
SO ORDERED.50
The Petition
2. Do the prevailing facts warrant the dismissal of [LMI]s claims and the
award of NCLPIs claims?
3. How much interest should be paid in the delay of the release of a security
deposit in a lease contract? 51
Before going into the substantive merits of the case, however, we shall first
resolve the technical issue raised by LMI in its Comment 52 dated August 22,
2007.
According to LMI, NCLPIs petition must be denied outright on the ground that
Luis Manuel T. Banson (Banson), who caused the preparation of the petition
and signed the Verification and Certification against Forum Shopping, was not
duly authorized to do so. His apparent authority was based, not by virtue of
any NCLPI Board Resolution, but on a Special Power of Attorney (SPA) signed
only by NCLPIs Corporate Secretary Robel C. Lomibao. 53
In this case, Banson was President of NCLPI at the time of the filing of the
petition.57 Thus, and applying the foregoing ruling, he can sign the verification
and certification against forum shopping in the petition without the need of a
board resolution.58
Having settled the technical issue, we shall now proceed to discuss the
substantial issues.
It is clear from the records that NCLPI committed substantial breaches of its
Contract of Lease with LMI.
Aside from non-payment of rentals, it appears that NCLPI also breached its
obligations under Paragraphs 461 and 562 of the Contract of Lease which
prohibit it from subleasing the premises or introducing improvements or
alterations thereon without LMIs prior written consent. The trial court found:
[NCLPI]s assertion that they only allowed PROTON to utilize the premises for
ten days as a display center for Audi cars on the occasion of the historic visit
of Chancellor Helmut Kohl of Germany to the Philippines is belied by the
evidence offered by PROTON that by virtue of a Memorandum of
Agreement [NCLPI] had already permitted PROTON "to immediately
commence renovation work even prior to the execution of the
Contract of Sublease" and had accepted a check from PROTON
representing the rental deposit under the yet to be executed Contract of
Sublease. x x x
xxxx
There is no merit in [NCLPI]s claim for damages allegedly arising from [LMI]s
failure to maintain it in peaceful possession of the leased premises. It was
[NCLPI] who breached the lease contract by defaulting in the payment
of lease rentals, entering into a sublease contract with [Proton] and
allowing [Proton] to introduce renovations on the leased premises
without the consent of [LMI].64 x x x (Emphasis supplied)
Factual findings of the CA are binding and conclusive on the parties and upon
this Court and will not be reviewed or disturbed on appeal. While the rule
admits of certain exceptions, 65 NCLPI failed to prove that any of the
exceptions applies in this case.
The crux of the controversy rather revolves around the validity of LMIs act of
extrajudicially rescinding its Contract of Lease with NCLPI.
NCLPI maintains that while a lessor has a right to eject a delinquent lessee
from its property, such right must be exercised in accordance with law:
6.15. In this case, [LMI] did not comply with the requirement laid down in
Section 2 of Rule 70 of the Rules of Court, in unceremoniously ejecting
[NCLPI] from the property. The said Rule explicitly provides that the lessor
shall serve a written notice of the demand to pay or comply with the
conditions of the lease and to vacate or post such notice on the premises if
no person is found thereon, giving the lessee 15 days to comply with the
demand. [LMI]s demand letter dated 16 October 1996 provides only a
period of five days for [NCLPI] to comply with such demand and, thus,
defective.66 (Emphasis and underscoring supplied)
Rule 70 of the Rules of Court sets forth the procedure in relation to the filing
of suits for forcible entry and unlawful detainer. The action filed by LMI
against NCLPI, however, is one for the recovery of a sum of money. Clearly,
Section 2 of Rule 70 is not applicable.
In fact, it does not appear that it was even necessary for LMI to eject NCLPI
from the leased premises. NCLPI had already vacated the same as early as
October 11, 1996 when it surrendered possession of the premises to Proton,
by virtue of their Memorandum of Agreement, so that the latter can
commence renovations.68
NCLPI also maintains that LMI cannot unilaterally and extrajudicially rescind
their Contract of Lease in the absence of an express provision in their
Contract to that effect.69 According to NCLPI:
xxxx
already granted under Article 1191 of the Civil Code. 71 (Emphasis and
underscoring in the original)
It is true that NCLPI and LMIs Contract of Lease does not contain a provision
expressly authorizing extrajudicial rescission. LMI can nevertheless rescind
the contract, without prior court approval, pursuant to Art. 1191 of the Civil
Code.
[T]he law definitely does not require that the contracting party who believes
itself injured must first file suit and wait for a judgment before taking
extrajudicial steps to protect its interest. Otherwise, the party injured by
the other's breach will have to passively sit and watch its damages
accumulate during the pendency of the suit until the final judgment
of rescission is rendered when the law itself requires that he should
exercise due diligence to minimize its own damages (Civil Code, Article
2203). (Emphasis and underscoring supplied)
The seeming "conflict" between this and our previous rulings, however, is
more apparent than real.
In other words, the party who deems the contract violated may
consider it resolved or rescinded, and act accordingly, without
previous court action, but it proceeds at its own risk. For it is only
the final judgment of the corresponding court that will conclusively
and finally settle whether the action taken was or was not correct in
law. x x x (Emphasis and underscoring in the original)
In fact, the rule is the same even if the parties contract expressly allows
extrajudicial rescission. The other party denying the rescission may still seek
judicial intervention to determine whether or not the rescission was proper. 80
Having established that LMI can extrajudicially rescind its contract with NCLPI
even absent an express contractual stipulation to that effect, the question
now to be resolved is whether this extrajudicial rescission was proper under
the circumstances.
The Contract of Lease shows that the parties did not stipulate an applicable
interest rate in case of default in the payment of rentals. Thus, and following
this Courts ruling in Nacar v. Gallery Frames,82 the foregoing amount of rental
arrearages shall earn interest at the rate of six percent (6%) per annum
computed from October 18, 1996, the date of LMIs extrajudicial
demand,83 until the date of finality of this judgment. The total amount shall
thereafter earn interest at the rate of six percent (6%) per annum from such
finality of judgment until its satisfaction.
Security Deposit
NCLPI also argues that, assuming LMI could validly rescind their Contract of
Lease, the security deposit must be returned, with interest at the rate of
twelve percent (12%) per annum, the obligation to return being in the nature
of a forbearance of money.84
Improvements
In its Petition, NCLPI also prayed for the return of "all the equipment installed
and the other improvements on the property, or their value, pursuant to the
mandate of mutual restitution."89
NCLPI errs.
Denial of NCLPIs claim and award of damages in favor of LMI and Proton
proper
Both the trial court and CA found that NCLPI breached the Contract of Lease.
In sustaining the denial of NCLPIs claim for damages, the CA held:
There is no merit in [NCLPI]s claim for damages allegedly arising from [LMI]s
failure to maintain it in peaceful possession of the leased premises. It was
[NCLPI] who breached the lease contract x x x Moreover, the lease contract
between [LMI] and [Proton] was entered into only on November 8, 1996 x x x
after the lease contract between [LMI] and [NCLPI] had been terminated. As
aptly noted by the trial court:
xxxx
In other words, while in its responsive pleading [NCLPI] claims [that] it was
fooled into allowing [Proton] to occupy the subject premises for a limited
period, after which the latter, in alleged collusion with [LMI] unilaterally
usurped the premises for itself, the evidence shows that it was [NCLPI]
which misrepresented itself to PROTON as being a lessee of good
standing, so that it could induce the latter to occupy and renovate
the premises when at that time the negotiations were underway, the
lease between [LMI] and [NCLPI] had already been
terminated.92(Emphasis and underscoring supplied)
(2) NCLPI is ordered to pay the amount of P2,365,569.61 unpaid rentals, with
interest at the rate of six percent ( 6%) per annum computed from October
18, 1996 until the date of finality of this judgment. The total amount shall
thereafter earn interest at the rate of six percent (6%) per annum from the
finality of judgment until its satisfaction;
(3) LMI is ordered to return to NCLPI the balance of the security deposit
amounting to P883,253.72, with interest at the rate of six percent ( 6o/o)
starting March 25, 2003 until the finality of this Decision, after which the total
amount shall earn interest at the rate of six percent (6%) from the finality of
this Decision until satisfaction by LMI.94
14.
THIRD DIVISION
DECISION
PERALTA, J.:
Assailed in this petition for review on certiorari are the Resolution1 dated
February 28, 2011 and the Resolution 2dated August 31, 2011 issued by the
Court of Appeals (CA) Cebu City, in CA-G.R. SP No. 05594.
On October 19, 2009, petitioner Arturo C. Alba, Jr., duly represented by his
attorneys-in-fact, Arnulfo B. Alba and Alexander C. Alba, filed with the
Regional Trial Court (RTC) of Roxas City, Branch 15, a Complaint 3 against
respondents Raymund D. Malapajo, Ramil D. Malapajo and the Register of
Deeds of Roxas City for recovery of ownership and/or declaration of nullity or
cancellation of title and damages alleging, among others, that he was the
previous registered owner of a parcel of land consisting of 98,146 square
meters situated in Bolo, Roxas City, covered by TCT No. T-22345; that his title
was subsequently canceled by virtue of a deed of sale he allegedly executed
in favor of respondents Malapajo for a consideration of Five Hundred
Thousand Pesos (P500,000.00); that new TCT No. T-56840 was issued in the
name of respondents Malapajo; that the deed of sale was a forged document
which respondents Malapajo were the co-authors of.
Petitioner filed a Motion to Set the Case for Preliminary Hearing as if a Motion
to Dismiss had been Filed7 alleging that respondents counterclaims are in the
nature of a permissive counterclaim, thus, there must be payment of docket
fees and filing of a certification against forum shopping; and, that the
supposed loan extended by respondents mother to petitioner, must also be
dismissed as respondents are not the real parties-in-interest. Respondents
filed their Opposition8 thereto.
On June 4, 2010, the RTC issued an Order 9 denying petitioner's motion finding
that respondents counterclaims are compulsory. Petitioners motion for
reconsideration was denied in an Order10 dated September 30, 2010.
Petitioner filed a petition for certiorari with the CA which sought the
annulment of the RTC Orders dated June 4, 2010 and September 30, 2010.
Nevertheless, while petitioner filed with the Petition his Affidavit of Service
and incorporated the registry receipts, petitioner still failed to comply with
the requirement on proper proof of service. Post office receipt is not the
required proof of service by registered mail. Section 10, Rule 13 of the 1997
Rules of Civil Procedure specifically stated that service by registered mail is
complete upon actual receipt by the addressee, or after five (5) days from the
date he received the first notice of the postmaster, whichever is earlier.
Verily, registry receipts cannot be considered sufficient proof of service; they
are merely evidence of the mail matter with the post office of the sender, not
the delivery of said mail matter by the post office to the addressee. Moreover,
Section 13, Rule 13 of the 1997 Rules of Civil Procedure specifically stated
that the proof of personal service in the form of an affidavit of the party
serving shall contain a full statement of the date, place and manner of
service, which was not true in the instant petition. 11
Petitioner filed the instant petition for review raising the following assignment
of errors:
We find that the CA erred in denying petitioner's petition for certiorari after
the latter had clearly shown compliance with the proof of service of the
petition as required under Section 13 of Rule 13 of the 1997 Rules of Civil
Procedure, which provides:
post office were attached to the petition filed with the CA. Petitioner had
indeed complied with the rule on proof of service.
Since the case was dismissed outright on technicality, the arguments raised
in the petition for certiorari were not at all considered. However, we will now
resolve the issue on the merits so as not to delay further the disposition of
the case instead of remanding it to the CA.
relation between the claim and the counterclaim? 17 A positive answer to all
four questions would indicate that the counterclaim is compulsory. 18
xxxx
10. The plaintiff's cause of action is based on his allegation that his signature
on the Deed of Absolute Sale was forged.
The Deed of Absolute Sale is a unilateral instrument, i.e., it was signed only
by the vendor, who is the plaintiff in this case and his instrumental witnesses,
who are his parents in this case. It was presented to defendants already
completely prepared, accomplished and notarized. Defendants had no hand
in its preparation, accomplishment and notarization.
While the plaintiff claims that his signature on the instrument is forged, he
never questioned the genuineness of the signatures of his instrumental
witnesses, his parents Arturo P. Alba, Sr. and Norma C. Alba, who signed the
said instrument below the words "SIGNED IN THE PRESENCE OF" and above
the words "Father" and "Mother," respectively.
11. Before the plaintiff sold the property to the defendants, he secured a loan
from them in the sum of Six Hundred Thousand Pesos (P600,000.00) payable
on or before November 10, 2008. The loan is evidenced by a Promissory Note
and secured by a Real Estate Mortgage dated September 11, 2008, both
executed by him, covering the parcel of land subject of this case, Lot 2332-D,
Psd 06-000738. Like the Deed of Absolute Sale, the Real Estate Mortgage is a
unilateral instrument, was signed solely by the plaintiff, and furthermore, his
parents affixed their signatures thereon under the heading "WITH MY
PARENTAL CONSENT", and above the words, "Father" and "Mother,"
respectively.
Prior to this, or as early as July 25, 2008, the plaintiff also obtained a loan
payable on or before September 6, 2008 from defendants' mother, Alma D.
David, and already mortgaged to her Lot 2332-D, Psd 06-000738. The loan is
evidenced by a Promissory Note and a Real Estate Mortgage, both of which
were executed by plaintiff. Again, the Real Estate Mortgage is an unilateral
instrument, was signed solely by the plaintiff and furthermore, his parents
also affixed their signatures thereon under the heading, "WITH MY PARENTAL
CONSENT " and above the words, "Father" and "Mother," respectively.
In both instances, the plaintiff was always represented by his parents, who
always manifested their authority to transact in behalf of their son the
plaintiff.1wphi1
As in the case with the Deed of Absolute Sale, the defendants or their mother
did not have any hand in the preparation, accomplishment or notarization of
the two Promissory Notes with accompanying Real Estate Mortgages, x x x.
12. Considering the foregoing, the plaintiff's allegation that his signature on
the Deed of Absolute Sale was forged, and that the defendants are the "co-
authors" of the said forgery, are absolutely false and baseless.
13. If the Deed of Absolute Sale is declared null and void on the ground of
forgery, then the plaintiff should reimburse the defendants the loan he
obtained from them, which he did not deny having obtained, plus the agreed
monthly interest.19
xxxx
Can the Court adjudicate upon the issues [of whether or not the plaintiff could
recover ownership and or whether or not the title to the property in question
may be canceled or declared null and void, and damages] without the
presence of the mother of defendants in whose favor the Real Estate
Mortgage of the property subject of this action was executed?
Definitely, this Court can. That there was an allegation pertaining to the
mortgage of the property in question to defendants mother is only some sort
of a backgrounder on why a deed of sale was executed by plaintiff in
defendants favor, the truth or falsity of which will have to be evidentiary on
the part of the parties hereto. In short, the Court does not need the presence
of defendants mother before it can adjudicate on whether or not the deed of
absolute sale was genuine or falsified and whether or not the title to the
property may be cancelled.24
SO ORDERED.
15.
SECOND DIVISION
DECISION
BRION, J.:
THE ANTECEDENTS
Orix filed a complaint for replevin, sum of money, and damages with an
application for a writ of seizure against Cardline and the individual
respondents (collectively, the respondents) before the RTC. The case was
docketed as Civil Case No. 07-855.
The RTC issued a writ of seizure allowing Orix to recover the machines from
Cardline.
Thereafter, the RTC declared the respondents in default for failing to file an
answer, and allowed Orix to present evidence ex parte. The respondents filed
a motion to set aside the order of default, but the RTC denied their motion.
On May 6, 2008, the RTC rendered judgment in Orixs favor and ordered the
respondents to pay Orix, as follows:
On appeal, the respondents argued that the RTC erred in declaring them in
default. The CA,3 and subsequently this Court,4 denied the respondents
appeal. Our denial in G.R. No. 189877 became final and executory.
In the main case, Orix filed a motion for the issuance of a writ of execution
which the RTC granted in its December 1, 2010 order. Thereafter, the RTC
clerk of court issued a writ of execution commanding the sheriff to enforce
the May 8, 2009 judgment. The respondents filed a motion for a status quo
ante order but the RTC denied the motion.
THE CA RULING
The CA granted the petition, annulled the RTCs order dated December 1,
2010, and prohibited the sheriff from executing the judgment dated May 6,
2008.
In its petition, Orix argues that: (1) the market value of the returned
machines and the guaranty deposit do not offset the outstanding obligations;
(2) the individual respondents are solidarily liable to Orix and are not entitled
to the benefit of excussion; and (3) the respondents and their counsel
engaged in willful and deliberate forum shopping.
After the petition was filed, Atty. Efren C. Lizardo withdrew his appearance
and Atty. David A. Domingo entered his appearance as the respondents
counsel.
In their comment, the respondents argue that: (1) the RTCs judgment should
be interpreted as follows: if Orix recovers the properties, their market values
should be deducted from the respondents outstanding obligations; (2) the
individual respondents merely acted as guarantors, not as sureties; and (3)
the respondents committed no forum shopping because no cases were
pending before the courts when they filed the petition for prohibition.
OUR RULING
We note at the outset that the RTCs May 6, 2008 judgment has attained
finality and can no longer be altered. Once a judgment becomes final and
executory, all that remains is the execution of the decision. Thus, the RTC
issued the December 1, 2010 order of execution. An order of execution is not
appealable;10 otherwise, a case would never end.11
its jurisdiction and there is no other plain, speedy, and adequate remedy in
the ordinary course of law.16
In the present case, the respondents effectively argued that the terms of the
RTCs May 6, 2008 judgment are not clear enough such that the parties
agreement must be examined to arrive at the proper interpretation. The
respondents, however, did not give the RTC an opportunity to clarify its
judgment. The respondents filed a special civil action for prohibition before
the CA without first filing a motion to stay or quash the writ of execution
before the RTC. Hence, the petition for prohibition obviously lacked the
requirement that no "other plain, speedy, and adequate remedy" is available.
Thus, the petition should have been dismissed.
However, the CA gave due course to the petition. In granting the petition, the
CA ruled that the judgment had been satisfied; thus, there was no more
judgment to execute. To stress, the CA erred in granting the petition despite
the availability of a "plain, speedy, and adequate remedy."
Orix comes before us for a review of the CAs decision. The issues for
resolution are: (1) whether the CA correctly prohibited the RTC from enforcing
the writ of execution; (2) whether the individual respondents can invoke the
benefit of excussion; and (3) whether the respondents committed forum
shopping.
deducting the guaranty deposit from the outstanding debt, contrary to the
provisions of the lease agreements.
We review the lease agreements on two points: first, on whether the market
values of the returned machines were intended to reduce Cardlines debt;
and second, on whether the parties intended to deduct the guaranty deposit
from the unpaid obligation.
On the first point, the machines market values were not intended to
reduce, much less offset, Cardlines debt.
xxx
Should Orix choose to re-lease or sell the machines after repossessing them
pursuant to Section 19.2(d), Section 19.3 shall apply, to wit:
19.3 The proceeds derived from the sale or re-leasing of the PROPERTY, shall
x xx be applied first to the expenses incurred by the LESSOR in connection
with the repossession, sale, or re-leasing of the PROPERTY, a reasonable
compensation for undertaking such sale or re-lease, all legal costs and fees,
OTHER AMOUNTS, and the balance, if any, to the RENTAL due from the
LESSEE. x x x. (emphasis supplied)
Applying these provisions, when Cardline defaulted in paying rent, Orix was
authorized to: (a) re-possess the machines; and (b) recover all unpaid rent.
Considering that Orix neither re-leased nor sold the machines, Sections
19.2(d) and 19.3 are not applicable. Thus, the CA erred in applying these
provisions to the present case.
Even assuming that these provisions apply, Section 19.3 states that the net
"proceeds" derived from the sale, not the machines market values, shall be
applied to the unpaid rent. Therefore, these contractual provisions do
not support the CAs stance that the machines market values must
be reduced from Cardlines unpaid rent.
As Orix correctly argued, the CAs decision leads to an absurd situation where
Cardline pays for its liabilities to Orix using Orixs own properties. The Court
cannot affirm this unreasonable and inequitable interpretation.
On the second point, Sections 6.1 and 19.2(b) of the lease agreements
discuss the use of the guaranty deposit, to wit:
6.1 The LESSEE shall pay to the LESSOR simultaneously with the execution of
this Agreement, an amount by way of deposit (the "GUARANTY DEPOSIT") as
specified in the Lease Schedule, which deposit shall be held as security for
the faithful and timely performance by the LESSEE of its obligations
hereunder, as well as its compliance with all the provisions of this Agreement,
or of any extension or renewals thereof. Should the PROPERTY be
returned to the LESSOR for any reason whatsoever including
LESSEEs default under Section 19 hereof before the expiration of
this Agreement, then the GUARANTY DEPOSIT shall be forfeited
automatically in favor of the LESSOR as additional penalty over and
above those stipulated in Section 3.5 [on interest and penalty], without
prejudice to the right of the LESSOR to recover any unpaid RENTAL as
well as the OTHER AMOUNTS for which the LESSEE may be liable under this
agreement. (emphasis supplied)
19.2(b) The LESSOR may retain all amounts including any advance rental
paid to it hereunder as compensation for rent, use and depreciation of the
PROPERTY. Furthermore, the LESSOR may apply the GUARANTY DEPOSIT
towards the payment of liquidated damages.18
These provisions are relevant to determine the parties intent with respect to
the guaranty deposit. These provisions show that the parties did not intend to
deduct the guaranty deposit from Cardlines unpaid rent. On the contrary, the
guaranty deposit was intended to be automatically forfeited to serve as
penalty for Cardlines default. In any case, Orix retained the right to recover
the unpaid rent but it had the option to consider the guaranty deposit as
liquidated damages. Notably, Orix did not exercise this option. Thus, the CA
erred when it deducted the guaranty deposit from Cardlines unpaid rent.
After examining the RTCs judgment under the lease agreements lenses, we
rule that the return or recovery of the machines does not reduce Cardlines
outstanding obligation unless the returned machines are sold. No sale
transpired pursuant to the lease agreements. Moreover, the guaranty deposit
was not meant to reduce Cardlines unpaid obligation. Thus, Cardlines actual
damages remain at P9,369,657.00.
In sum, we rule that the CA erroneously interpreted the RTCs May 6, 2008
judgment. Consequently, the CA erred in preventing the RTC from enforcing
the writ of execution.
For clarity, we briefly discuss this issue and rule in favor of Orix.
The terms of a contract govern the parties rights and obligations. When a
party undertakes to be "jointly and severally" liable, it means that the
obligation is solidary. 19 Furthermore, even assuming that a party is liable only
as a guarantor, he can be held immediately liable without the benefit of
excussion if the guarantor agreed that his liability is direct and
immediate.20 In effect, the guarantor waived the benefit of excussion
pursuant to Article 2059(1) of the Civil Code.
In the present case, the records show that the individual respondents bound
themselves solidarily with Cardline. Section 31.1 21 of the lease agreements
states that the persons who sign separate instruments to secure Cardlines
obligations to Orix shall be jointly and severally liable with Cardline.
Without any doubt, the individual respondents can no longer avail of the
benefit of excussion.
III. Forum-Shopping
First, the respondents appealed before the CA to reverse the RTCs judgment
which held them liable for the unpaid rent. The CA, and subsequently this
Third, the respondents filed the petition for prohibition,26 dated February
21, 2011, to prevent the execution of the RTCs judgment.
Section 5 Rule 7 of the Rules prohibits forum shopping. The rule against
forum shopping seeks to address the great evil of two competent tribunals
rendering two separate and contradictory decisions. 27 Forum shopping exists
when a party initiates two or more actions, other than appeal
or certiorari, grounded on the same cause to obtain a more favorable
decision from any tribunal.28
The elements of forum shopping are: (i) identity of parties, or at least such
parties representing the same interest; (ii) identity of rights asserted and
relief prayed for, the latter founded on the same facts; (iii) any judgment
rendered in one action will amount to res judicata in the other action.29
In the present case, the CA correctly denied Ng Beng Shengs petition for
annulment of judgment. As in Reyes, the CA correctly reasoned out that the
issue on jurisdiction had been resolved with finality in the review
on certiorari. Thus, the issue could no longer be re-litigated.
After the denial of the petition for annulment of judgment, Ng Beng Shen
joined the other respondents in filing a petition for prohibition. We are now
called upon to ascertain whether the recourse to the petition for prohibition
amounted to forum shopping.
The two cases filed collectively by the respondents are similar only in that
they involve the same parties. The cases, however, involve different causes
of actions. The petition for review on certiorari was filed to review the merits
of the RTC's judgment. On the other hand, the petition for prohibition respects
the finality of the RTC's judgment on the merits but interprets the dispositive
portion in a way that would render the execution unnecessary. Thus, the
elements of forum shopping are not present in the two cases.
With these matters clarified, Orix should no longer be denied the fruits of its
victory. The RTC is hereby ordered to execute its long-final judgment.
SO ORDERED.
16.
SECOND DIVISION
DECISION
MENDOZA, J.:
Before this Court is a petition for review on certiorari under Rule 45 of the
Rules of Court filed by petitioner Michael C. Guy (Guy), assailing the June 25,
2012 Decision1 and the March 5, 2013 Resolution 2 of the Court of
Appeals (CA) in CA-G.R. CV No. 94816, which affirmed the June 28, 2009 3 and
February 19, 20104 Orders of the Regional Trial Court, Branch 52, Puerto
Princesa City, Palawan (RTC), in Civil Case No. 3108, a case for damages. The
assailed RTC orders denied Guy's Motion to Lift Attachment Upon
Personalty5 on the ground that he was not a judgment debtor.
The Facts
Time passed and Gacott did not receive the replacement units as promised.
QSC informed him that there were no available units and that it could not
refund the purchased price. Despite several demands, both oral and written,
Gacott was never given a replacement or a refund. The demands caused
Gacott to incur expenses in the total amount of P40,936.44. Thus, Gacott
filed a complaint for damages. Summons was served upon QSC and
Medestomas, afterwhich they filed their Answer, verified by Medestomas
himself and a certain Elton Ong (Ong). QSC and Medestomas did not present
any evidence during the trial.6
In a Decision,7 dated March 16, 2007, the RTC found that the two (2)
transreceivers were defective and that QSC and Medestomas failed to replace
the same or return Gacott's money. The dispositive portion of the decision
reads:
SO ORDERED.
The decision became final as QSC and Medestomas did not interpose an
appeal. Gacott then secured a Writ of Execution, 8 dated September 26, 2007.
During the execution stage, Gacott learned that QSC was not a corporation,
but was in fact a general partnership registered with the Securities and
Exchange Commission (SEC). In the articles of partnership,9 Guy was
appointed as General Manager of QSC.
Thereafter, Guy filed his Motion to Lift Attachment Upon Personalty, arguing
that he was not a judgment debtor and, therefore, his vehicle could not be
attached.13 Gacott filed an opposition to the motion.
On June 28, 2009, the RTC issued an order denying Guys motion. It explained
that considering QSC was not a corporation, but a registered partnership, Guy
should be treated as a general partner pursuant to Section 21 of the
Corporation Code, and he may be held jointly and severally liable with QSC
and Medestomas. The trial court wrote:
Accordingly, it disposed:
WHEREFORE, with the ample discussion of the matter, this Court finds and so
holds that the property of movant Michael Guy may be validly attached in
satisfaction of the liabilities adjudged by this Court against Quantech Co., the
latter being an ostensible Corporation and the movant being considered by
this Court as a general partner therein in accordance with the order of this
court impressed in its decision to this case imposing joint and several liability
to the defendants. The Motion to Lift Attachment Upon Personalty submitted
by the movant is therefore DENIED for lack of merit.
SO ORDERED.15
Not satisfied, Guy moved for reconsideration of the denial of his motion. He
argued that he was neither impleaded as a defendant nor validly served with
summons and, thus, the trial court did not acquire jurisdiction over his
person; that under Article 1824 of the Civil Code, the partners were only
solidarily liable for the partnership liability under exceptional circumstances;
and that in order for a partner to be liable for the debts of the partnership, it
must be shown that all partnership assets had first been exhausted. 16
On February 19, 2010, the RTC issued an order 17denying his motion.
The CA Ruling
On June 25, 2012, the CA rendered the assailed decision dismissing Guys
appeal for the same reasons given by the trial court. In addition thereto, the
appellate court stated:
We hold that Michael Guy, being listed as a general partner of QSC during
that time, cannot feign ignorance of the existence of the court summons. The
verified Answer filed by one of the partners, Elton Ong, binds him as a
partner because the Rules of Court does not require that summons be served
on all the partners. It is sufficient that service be made on the "president,
managing partner, general manager, corporate secretary, treasurer or in-
house counsel." To Our mind, it is immaterial whether the summons to QSC
was served on the theory that it was a corporation. What is important is that
the summons was served on QSCs authorized officer xxx. 18
The CA stressed that Guy, being a partner in QSC, was bound by the
summons served upon QSC based on Article 1821 of the Civil Code. The CA
further opined that the law did not require a partner to be actually involved in
a suit in order for him to be made liable. He remained solidarily liable
whether he participated or not, whether he ratified it or not, or whether he
had knowledge of the act or omission.19
Aggrieved, Guy filed a motion for reconsideration but it was denied by the CA
in its assailed resolution, dated March 5, 2013.
ISSUE
Guy argues that he is not solidarily liable with the partnership because the
solidary liability of the partners under Articles 1822, 1823 and 1824 of the
Civil Code only applies when it stemmed from the act of a partner. In this
case, the alleged lapses were not attributable to any of the partners. Guy
further invokes Article 1816 of the Civil Code which states that the liability of
the partners to the partnership is merely joint and subsidiary in nature.
In his Comment,21 Gacott countered, among others, that because Guy was a
general and managing partner of QSC, he could not feign ignorance of the
transactions undertaken by QSC. Gacott insisted that notice to one partner
must be considered as notice to the whole partnership, which included the
pendency of the civil suit against it.
In his Reply,22 Guy contended that jurisdiction over the person of the
partnership was not acquired because the summons was never served upon
it or through any of its authorized office. He also reiterated that a partners
liability was joint and subsidiary, and not solidary.
The service of summons was flawed; voluntary appearance cured the defect
Under Section 11, Rule 14 of the 1997 Revised Rules of Civil Procedure, when
the defendant is a corporation, partnership or association organized under
the laws of the Philippines with a juridical personality, the service of
summons may be made on the president, managing partner, general
manager, corporate secretary, treasurer, or in-house counsel. Jurisprudence is
replete with pronouncements that such provision provides an exclusive
enumeration of the persons authorized to receive summons for juridical
entities.25
The records of this case reveal that QSC was never shown to have been
served with the summons through any of the enumerated authorized persons
to receive such, namely: president, managing partner, general manager,
corporate secretary, treasurer or in-house counsel. Service of summons upon
persons other than those officers enumerated in Section 11 is invalid.
Even substantial compliance is not sufficient service of summons. 26 The CA
was obviously mistaken when it opined that it was immaterial whether the
summons to QSC was served on the theory that it was a corporation. 27
The next question posed is whether the trial courts jurisdiction over QSC
extended to the person of Guy insofar as holding him solidarily liable with the
partnership. After a thorough study of the relevant laws and jurisprudence,
the Court answers in the negative.
In Muoz v. Yabut, Jr., 32 the Court declared that a person not impleaded and
given the opportunity to take part in the proceedings was not bound by the
decision declaring as null and void the title from which his title to the
property had been derived. The effect of a judgment could not be extended
to non-parties by simply issuing an alias writ of execution against them, for
no man should be prejudiced by any proceeding to which he was a stranger.
Here, Guy was never made a party to the case. He did not have any
participation in the entire proceeding until his vehicle was levied upon and he
suddenly became QSCs co-defendant debtor during the judgment
execution stage. It is a basic principle of law that money judgments are
enforceable only against the property incontrovertibly belonging to the
judgment debtor. 35 Indeed, the power of the court in executing judgments
extends only to properties unquestionably belonging to the judgment debtor
alone. An execution can be issued only against a party and not against one
who did not have his day in court. The duty of the sheriff is to levy the
property of the judgment debtor not that of a third person. For, as the saying
goes, one man's goods shall not be sold for another man's debts. 36
In the spirit of fair play, it is a better rule that a partner must first be
impleaded before he could be prejudiced by the judgment against the
partnership. As will be discussed later, a partner may raise several defenses
during the trial to avoid or mitigate his obligation to the partnership liability.
Necessarily, before he could present evidence during the trial, he must first
be impleaded and informed of the case against him. It would be the height of
injustice to rob an innocent partner of his hard-earned personal belongings
without giving him an opportunity to be heard. Without any showing that Guy
himself acted maliciously on behalf of the company, causing damage or
injury to the complainant, then he and his personal properties cannot be
made directly and solely accountable for the liability of QSC, the judgment
debtor, because he was not a party to the case.
Further, Article 1821 of the Civil Code does not state that there is no
need to implead a partner in order to be bound by the partnership liability.
It provides that:
A careful reading of the provision shows that notice to any partner, under
certain circumstances, operates as notice to or knowledge to the partnership
only. Evidently, it does not provide for the reverse situation, or that notice to
the partnership is notice to the partners. Unless there is an unequivocal law
which states that a partner is automatically charged in a complaint against
the partnership, the constitutional right to due process takes precedence and
a partner must first be impleaded before he can be considered as a judgment
debtor. To rule otherwise would be a dangerous precedent, harping in favor of
the deprivation of property without ample notice and hearing, which the
Court certainly cannot countenance.
Partners liability is subsidiary and generally joint; immediate levy upon the
property of a partner cannot be made
Granting that Guy was properly impleaded in the complaint, the execution of
judgment would be improper. Article 1816 of the Civil Code governs the
liability of the partners to third persons, which states that:
Article 1816. All partners, including industrial ones, shall be liable pro
rata with all their property and after all the partnership assets have
been exhausted, for the contracts which may be entered into in the name
and for the account of the partnership, under its signature and by a person
authorized to act for the partnership. However, any partner may enter into a
separate obligation to perform a partnership contract.
[Emphasis Supplied]
This provision clearly states that, first, the partners obligation with respect to
the partnership liabilities is subsidiary in nature. It provides that the partners
shall only be liable with their property after all the partnership assets have
been exhausted. To say that ones liability is subsidiary means that it merely
becomes secondary and only arises if the one primarily liable fails to
sufficiently satisfy the obligation. Resort to the properties of a partner may be
made only after efforts in exhausting partnership assets have failed or that
such partnership assets are insufficient to cover the entire obligation. The
subsidiary nature of the partners liability with the partnership is one of the
valid defenses against a premature execution of judgment directed to a
partner.
In this case, had he been properly impleaded, Guys liability would only arise
after the properties of QSC would have been exhausted. The records,
however, miserably failed to show that the partnerships properties were
exhausted. The report37 of the sheriff showed that the latter went to the main
office of the DOTC-LTO in Quezon City and verified whether Medestomas, QSC
and Guy had personal properties registered therein. Gacott then instructed
the sheriff to proceed with the attachment of one of the motor vehicles of
Guy.38 The sheriff then served the Notice of Attachment/Levy upon Personalty
to the record custodian of the DOTC-LTO of Mandaluyong City. A similar notice
was served to Guy through his housemaid at his residence.
Clearly, no genuine efforts were made to locate the properties of QSC that
could have been attached to satisfy the judgment contrary to the clear
mandate of Article 1816. Being subsidiarily liable, Guy could only be held
personally liable if properly impleaded and after all partnership assets had
been exhausted.
Second, Article 1816 provides that the partners obligation to third persons
with respect to the partnership liability is pro rata or joint.1wphi1 Liability
is joint when a debtor is liable only for the payment of only a proportionate
part of the debt. In contrast, a solidary liability makes a debtor liable for the
payment of the entire debt. In the same vein, Article 1207 does not presume
solidary liability unless: 1) the obligation expressly so states; or 2) the law
or nature requires solidarity. With regard to partnerships, ordinarily, the
liability of the partners is not solidary. 39 The joint liability of the partners is a
defense that can be raised by a partner impleaded in a complaint against the
partnership.
Article 1822. Where, by any wrongful act or omission of any partner acting in
the ordinary course of the business of the partnership or with the authority of
his co-partners, loss or injury is caused to any person, not being a partner in
(1) Where one partner acting within the scope of his apparent authority
receives money or property of a third person and misapplies it; and
(2) Where the partnership in the course of its business receives money or
property of a third person and the money or property so received is
misapplied by any partner while it is in the custody of the partnership.
Article 1824. All partners are liable solidarily with the partnership for
everything chargeable to the partnership under Articles 1822 and 1823.
[Emphases Supplied]
In the case at bench, it was not shown that Guy or the other partners did a
wrongful act or misapplied the money or property he or the partnership
received from Gacott. A third person who transacted with said partnership
can hold the partners solidarily liable for the whole obligation if the case of
the third person falls under Articles 1822 or 1823.41 Gacotts claim
stemmed from the alleged defective transreceivers he bought from QSC,
through the latter's employee, Medestomas. It was for a breach of warranty in
a contractual obligation entered into in the name and for the account of QSC,
not due to the acts of any of the partners. For said reason, it is the general
rule under Article 1816 that governs the joint liability of such breach, and not
the exceptions under Articles 1822 to 1824. Thus, it was improper to hold
Guy solidarily liable for the obligation of the partnership.
been exhausted for the contracts which may be entered into in the name and
for the account of the partnership.
WHEREFORE, the petition is GRANTED. The June 25, 2012 Decision and the
March 5, 2013 Resolution of the Court of Appeals in CA-G.R. CV No. 94816 are
hereby REVERSED and SET ASIDE. Accordingly, the Regional Trial Court,
Branch 52, Puerto Princesa City, is ORDERED TO RELEASE Michael C. Guy's
Suzuki Grand Vitara subject of the Notice of Levy/ Attachment upon
Personalty.
17.
SECOND DIVISION
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review on certiorari assailing the 28 August
2012 Decision1 and the 7 February 2013 Resolution 2 of the Court of Appeals in
CA-G.R. CV No. 95150.
De[c]. 1910-June 1911 and that of the conso-subd., survey, executed by D.F.
Caparas, GE on June 22, 1991.3
Petitioner Helen B. Lukban (Lukban) was the highest and winning bidder of
the property during the public auction. She paid the amount of
P47,265.604 inclusive of penalties and publication fees. On 25 August 2005,
the City Treasurer issued Lukban a Certificate of Sale of Delinquent Real
Property to Purchaser, acknowledging receipt of her payment. Lukban then
paid the realty taxes, capital gains tax, documentary stamp tax, and all other
internal revenue taxes due on the property.
On 10 June 2008, Lukban filed a petition for the cancellation of TCT No.
234408 and the issuance by the Register of Deeds of Marikina City (Marikina
Register of Deeds) of a new TCT in her favor. The case was raffled to the
Regional Trial Court of Marikina City, Branch 272 (trial court) and docketed as
LRC Case No. R-08-1010-MK. In an Order 5dated 22 July 2008, the trial court
found that there was an entry on TCT No. 234408 annotating a prior Notice of
Levy in favor of Capitol Bank, denominated as Entry No. 285574/T-No.
234408Mortgage. It was annotated more than 12 years ahead of the Notice
of Levy for tax delinquency. The trial court noted that there was a possibility
that the owners duplicate certificate of title was not with Atienza but with
Capitol Bank. The trial court further noted that while Lukban provided it with
Atienzas address, she did not furnish the trial court with Capitol Banks
address. The trial court ordered Lukban to provide it with Capitol Banks
correct address so that it could be notified of the case as a party in interest.
Lukban sought the help of the Marikina Register of Deeds but it could not
provide her with Capitol Banks address.
(2) Order dated 9 September 2008 setting the initial hearing on 23 October
2008;
(3) Registry return slips showing that Lukban, Lukbans counsel, the Marikina
Register of Deeds, and RCBC separately received copies of the 9 September
2008 Order and the petition; and
The trial court then issued an Order setting the continuance of the
proceedings on 27 November 2008 and the initial presentation of evidence on
3 December 2008.
After the termination of the lone witness testimony but before Lukbans offer
of evidence, Optimum Bank filed an Urgent Manifestation and Motion to
Admit as well as its Opposition to Lukbans petition on the ground that its
rights would be affected should the petition be granted. Optimum Bank
alleged that while it was the registered mortgagee of the property, it was not
aware that it was sold by the City Treasurer in a public auction and that
Lukban was the highest bidder. Optimum Bank further alleged that the bid
was too low compared to the actual market value of the property and the
mortgage debt amounting to P340,000. Optimum Bank manifested that it had
the original duplicate title of the property in its possession. Optimum Bank
also reserved its right to present documentary evidence of its rights as
mortgagee.
Optimum Bank filed a petition for certiorari and prohibition before the Court
of Appeals assailing the 17 July 2009 and 30 October 2009 Orders of the trial
court. The case was docketed as CA-G.R. SP No. 111764. In a Decision 6dated
30 November 2010, the Court of Appeals dismissed the petition and upheld
the trial courts ruling that Optimum Bank had waived its right to present
evidence.
In its Decision7 dated 16 February 2010, the trial court granted Lukbans
petition. The trial court ruled that Lukban was able to satisfactorily prove that
she acquired the property from a public auction sale, that the one-year
redemption period lapsed without Atienza redeeming the property, and that a
Final Deed of Sale was issued in her favor. The trial court noted that the City
of Marikina complied with the requirements of notice and publication in
accordance with Republic Act No. 71608 (R.A. No. 7160). The trial court
further noted that Lukban paid the capital gains tax and that the Bureau of
Internal Revenue issued a Tax Clearance and a Certificate Authorizing
Registration in her favor.
SO ORDERED.9
In its assailed 28 August 2012 Decision, the Court of Appeals granted the
appeal and set aside the trial courts 16 February 2010 Decision.
The Court of Appeals ruled that actual notice to the registered owner of the
real property is a condition sine qua non for the validity of the auction sale.
The Court of Appeals ruled that the records of the case did not show that
Atienza actually received a notice of the auction sale. According to the Court
of Appeals, such failure invalidated the auction sale and as a consequence,
Lukban did not acquire any right therefrom. However, Optimum Bank, not
being the registered owner of the property, was not entitled to the notice of
sale. The Court of Appeals then ruled that it was no longer necessary to rule
on Optimum Banks arguments that the issuance of a new TCT to Lukban
would impair its rights as a mortgagee and that Lukban had the burden to
prove that the mortgage debt had been paid.
appellee Helen B. Lukban, in LRC Case No. 08-1010-MK, is SET ASIDE. The
public auction sale conducted on 18 August 2005 is declared VOID for lack of
notice to Melba T. Atienza, the registered owner of the subject property.
SO ORDERED.10
a. That petitioner did not adduce evidence that the so-called loan of Melba T.
Atienza had been paid;
b. That petitioner has the burden of proving that Melba T. Atienza had paid
her so-called loan; and
c. That respondent was entitled to personal notice of the public auction sale. 11
The Issues
In its petition before the Court of Appeals, Optimum Bank argued that Lukban
did not proffer any proof that the mortgage debt had been paid. It alleged
that since the annotation of the mortgage on the property had not been
cancelled, the presumption was that the mortgage amount of P340,000 in its
favor was still unpaid. Optimum Bank likewise argued that it should have
been notified of the delinquency sale because as a person having legal
interest in the property, it should have been given the right to redeem the
property under Section 261 of R.A. No. 7160. It further argued that the
cancellation of TCT No. 234408 would effectively extinguish its interest in the
property.
In resolving the issue before it, the Court of Appeals premised its Decision on
an issue that was not raised in the petition. Instead of ruling solely on the
issues raised by Optimum Bank, the Court of Appeals ruled on the basis of
the lack of notice of the auction sale on Atienza under Section 260 of R.A. No.
7160. According to the Court of Appeals, the records failed to disclose that
Atienza actually received a notice of the auction sale from the City Treasurer.
We must point out here that Atienza is not a party to the case before the
Court of Appeals and in the present case before this Court. On 9 September
2008, the trial court issued an Order which states:
WHEREFORE, notice is hereby given that the said petition will be heard by
this Court on October 23, 2008 at 8:30 in the morning.
Let this Order together with the petition be posted for three (3) consecutive
weeks prior to the date of hearing in three (3) conspicuous public places in
this city where the said land is situated and on the land itself at the expense
of the petitioner.
Likewise, let a copy of this Order together with copy of the petition be served
upon: 1) the Office of the Registry of Deeds of Marikina City; 2) the registered
owner Melba T. Atienza at her address stated in T.C.T. 234408, i.e., Rm. A-1,
992 Halili Complex, Quezon City; and 3) the registered mortgagee Capitol
Bank, now RCBC Savings Bank at its main office Tektite Bldg., West Tower,
Exchange Road, Ortigas Center, Pasig City and at its Marikina Branch, J.P.
Rizal St., San Roque, Marikina City. 12
The records showed that the copies of the Order and the Petition sent to
Atienza remained unserved despite several attempts to serve them on her. At
the back of the envelope containing the 9 September 2008 Order were
written notations of the attempts made on 18 September, 22 September and
23 September 2008 while the notations at the back of the envelope of the 23
October 2008 Order showed that attempts to serve were made on 3
November, 4 November, and 7 November 2008. The copies were returned to
sender with the notation "unclaimed." 13 Thus, Atienza did not participate in
the proceedings before the trial court. The only oppositor before the trial
court was Optimum Bank.
Only the registered owner of the property is deemed the taxpayer who is
entitled to a notice of delinquency and other proceedings relative to the tax
sale.14 In this case, Atienza received the Warrant of Levy 15 and the Notice of
Sale.16 Whether Atienza received the Notice of Public Auction is a factual
issue that was not raised by Optimum Bank because it is an issue that only
Atienza, being the registered owner, can raise.
We do not find merit in the claim of Optimum Bank that the issuance of a new
TCT in favor of Lukban will impair its rights as a mortgagee. The trial court
made a clear ruling on this. It stated:
In the dispositive portion of its Decision, the trial court mandated that "[t]he
mortgage annotated on the subject title shall be incorporated in or carried
over to the new transfer certificate of title and its duplicates and shall also
contain a memorandum of the annulment of the outstanding duplicate." 18 In
short, the rights of Optimum Bank as a mortgagee are amply protected, both
by the Decision and by Section 180 of R.A. No. 7160, 19 despite the
cancellation of the old TCT and the issuance of a new TCT in favor of Lukban.
Even in the petition before this Court, Lukban stressed that she never alleged
and prayed for the cancellation of the encumbrances on TCT No. 234408.
Within thirty (30) days after the sale, the local treasurer or his deputy shall
make a report of the sale to the sanggunian concerned, and which shall form
part of his records. The local treasurer shall likewise prepare and deliver to
the purchaser a certificate of sale which shall contain the name of the
purchaser, a description of the property sold, the amount of the delinquent
tax, the interest due thereon, the expenses of sale and a brief description of
the proceedings: Provided, however, That proceeds of the sale in excess of
the delinquent tax, the interest due thereon, and the expenses of sale shall
be remitted to the owner of the real property or person having legal interest
therein.
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