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[DECEMBER 2016 CASES] 1

FIRST DIVISION

[G.R. No. 223254. December 1, 2016.]

ROSALIE SY AYSON, petitioner, vs. FIL-ESTATE


PROPERTIES, INC., and FAIRWAYS AND BLUEWATER
RESORT AND COUNTRY CLUB, INC., respondent.

[G.R. No. 223269. December 1, 2016.]

FIL-ESTATE PROPERTIES, INC., and FAIRWAYS &


BLUEWATER RESORT & COUNTRY CLUB,
INC., petitioners, vs. ROSALIE SY AYSON, respondent.

DECISION

PERLAS-BERNABE, J p:
Assailed in these consolidated petitions for review
on certiorari 1 are the Decision 2 dated March 1, 2013 and the
Resolution 3 dated February 22, 2016 of the Court of Appeals (CA)
in CA-G.R. CV. No. 03010, which affirmed with modification the
Decision 4 dated March 1, 2004 and the Order 5 dated February 6,
2009 of the Regional Trial Court of Kalibo, Aklan, Branch 9 (RTC) in
Civil Case No. 5627 and, accordingly, ordered Fil-Estate Properties,
Inc. (Fil-Estate) and Fairways & Bluewater Resort & Country Club,
Inc. (Fairways) to pay Rosalie Sy Ayson (Ayson), inter alia, the
amount of US$40,000.00 or its Philippine Peso equivalent,
representing the value of the land subject of litigation.
The Facts
The instant case arose from a Complaint 6 for recovery of
possession and damages filed by Ayson against Fil-Estate and
Fairways before the RTC, alleging that she is the registered owner of
a 1,000-square meter parcel of land, more or less, located in Yapak,
Malay, Aklan, i.e., the northwestern area of Boracay Island,
denominated as Lot No. 14-S and covered by Transfer Certificate of
Title (TCT) No. T-24562 7 (subject land). Sometime in June 1997, she
discovered that Fil-Estate and Fairways illegally entered into the
subject land and included it in the construction of its golf course
without her prior consent and authorization. Despite receipt of a

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Notice to Cease and Desist 8 from Ayson, Fil-Estate and Fairways


continued their encroachment and development of the subject land
making it now a part of the entire golf course. Thus, she was
constrained to file the instant complaint. 9
In their defense, 10 Fil-Estate and Fairways maintain that the
subject land was formerly owned by one Divina Marte Villanueva
(Villanueva), with whom they entered into a Joint Venture
Agreement (JVA) for the development of the Fairways and Bluewater
Resort Golf and Country Club. Fil-Estate and Fairways explained that
prior to the JVA, Villanueva sold portions of her property to various
buyers, including Ayson, with the caveat that such portions may be
used in a development project. In this light, Villanueva allegedly
convinced her buyers to agree to a land swap should such
development push through. When the project commenced, the
other buyers readily agreed to said land swaps. Unfortunately, talks
with Ayson stalled, prompting Fil-Estate and Fairways to "exclude"
development work on the subject land. Nevertheless, Fil-Estate and
Fairways commenced construction on the subject land, allegedly
relying in good faith upon Villanueva's assurance that her other
former buyers, e.g., Ayson, would eventually agree with the land
swap agreements. According to Fil-Estate and Fairways, Ayson only
signified her objection to the inclusion of the subject land in the
development project when construction was almost finished. Fil-
Estate and Fairways further averred that they tried to remedy the
situation by negotiating with Ayson, but to no avail. 11
The RTC Ruling
In a Decision 12 dated March 1, 2004, the RTC ruled in
Ayson's favor and, accordingly, ordered Fil-Estate and Fairways to
pay her the following amounts: (a) US$100,000.00 or its Philippine
Peso equivalent, representing the value of the subject land, plus
P50,000.00 monthly rentals for the use and occupancy of said land
starting December 1997 until the aforesaid value has been fully
paid; (b) P900,000.00 as actual damages; (c) P1,000,000.00 as
moral damages; (d) P1,000,000.00 as exemplary
damages; (e) P300,000.00 as attorney's fees and other litigation
expenses; and(f) the costs of suit. 13
The RTC found that contrary to Fil-Estate and Fairways'
assertions, Ayson never agreed to any future land swapping
arrangement with Villanueva, considering that Ayson already paid
Villanueva the amount of US$20,000.00 representing the purchase
price of the subject land way back April 1994 (albeit the Deed of
Sale 14 was only executed on April 15, 1996), while the
construction of the golf course was only conceptualized sometime in
early 1995. As such, it was error for Fil-Estate and Fairways to

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merely rely on Villanueva's assurance that she will be able to


convince her buyers to enter into a land swapping arrangement,
especially considering that the title to the same was already in
Ayson's name. In this regard, the RTC opined that Fil-Estate and
Fairways should have first secured permission from Ayson to enter
into the subject land before proceeding with the construction of the
golf course. Thus, the RTC concluded that Fil-Estate and Fairways did
not exercise the ordinary diligence of a good father of a family
before entering into the subject land, which caused damage to
Ayson for which they should be liable. The foregoing
notwithstanding, the RTC no longer ordered the return of the subject
land to Ayson, ratiocinating that its exclusion from Fil-Estate and
Fairways' development project at this late stage would lead to major
re-planning, re-routing, and relocation works, which in turn, would
massively prejudice the Fil-Estate and Fairways' economic position,
and affect its integrity and reputation. Instead, the RTC ordered Fil-
Estate and Fairways to pay Ayson the purported reasonable value of
the subject land, which it pegged at US$100,000.00, or her
acquisition cost multiplied by five, in view of the rapid increase of
real estate properties in Boracay Island for the past few
years. 15 DETACa
Fil-Estate and Fairways moved for reconsideration, 16 which
was, however, denied in an Order 17 dated February 6, 2009.
Aggrieved, they appealed 18 to the CA.
The CA Ruling
In a Decision 19 dated March 1, 2013, the CA affirmed the RTC
ruling with modification reducing the award of damages as
follows: (a) US$40,000.00 or its Philippine Peso equivalent,
representing the value of the subject land, plus P1,000.00 monthly
rentals for the use and occupancy of said land starting December
1997 until the aforesaid value has been fully paid; (b)P52,666.00
plus US$4,316.06 or its Philippine Peso equivalent as actual
damages; (c) P500,000.00 as moral damages; (d) P300,000.00 as
exemplary damages; and (e) P200,000.00 as attorney's fees and
other litigation expenses. 20
The CA held that despite recognizing Ayson as the registered
owner of the subject land, Fil-Estate and Fairways still entered into
the same and included it in its golf course development project
without the former's prior knowledge and consent. In this regard, it
held that Fil-Estate and Fairways should not have relied on
Villanueva's assurances that she would secure Ayson's
acquiescence to a land swap arrangement, but instead, exercised
due diligence and prudence in taking steps to ensure that Ayson
indeed agreed to the inclusion of her property in the golf course

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development project. Further, the CA agreed with the RTC that the
subject land should no longer be returned to Ayson, and that Fil-
Estate and Fairways should pay her its value instead. However,
absent any competent evidence on the valuation of the subject
land, the CA fixed its value at US$40,000.00, or the amount double
its acquisition cost, and likewise reduced the rent to P1,000.00 per
month. In the same vein, the CA found it appropriate to reduce the
other awards of damages to Ayson in keeping with the evidence
adduced in the case as well as the prevailing circumstances. 21
Dissatisfied, both parties separately moved for
reconsideration 22 assailing the valuation of the subject land as
well as the other monetary awards. Fil-Estate and Fairways likewise
assailed the CA's failure to expressly state in its Decision that upon
full payment of the value of the subject land, Ayson should
surrender her title over the same and that a new title be issued in
their names. 23
In a Resolution 24 dated February 22, 2016, the CA denied
the parties' respective motions, holding that: (a) in pegging the
value of the subject land, it took judicial notice of the rapid increase
and appreciation of the value of the real estate properties in
Boracay Island for the past years; (b) the amounts fixed
representing the awards for damages are correct, fair, and
reasonable under the circumstances; and (c) there is no more
necessity to expressly declare that upon Fil-Estate and Fairways'
payment of the value of the subject land, Ayson should surrender
her title over the same and a new title must be issued in their
names, as such is a necessary consequence of its Decision. 25
Hence, these consolidated petitions.
The Issues Before the Court
At the outset, the Court notes that the issues raised in the
instant petition largely pertain only to the propriety of the awards of
moral damages, exemplary damages, and attorney's fees in Ayson's
favor and the corresponding amounts thereof, as well as the
correctness of the valuation of the subject land at US$40,000.00
and the monthly rental therefor. As such, the Court shall limit its
discussion on the foregoing and shall no longer delve on other
matters not raised before it.
Essentially, Fil-Estate and Fairways contend that there is no
basis to award moral damages, exemplary damages, and attorney's
fees to Ayson as they were in good faith in relying on Villanueva's
assurances that Ayson will agree on the land swap arrangement
before they proceeded with the golf course development project.
They likewise contend that Ayson never objected to the construction

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on the subject land until after the golf course had been
completed. 26 As to the valuation of the subject land, Fil-Estate and
Fairways argue that the CA's appraisal of the same at US$40,000.00
(or even that of the RTC at US$100,000.00) does not have any basis
as no competent evidence on record supports such estimation. In
this regard, Fil-Estate and Fairways insist that the value of the
subject land is only P100,000.00, as stated in the Deed of
Sale 27 executed by Ayson and Villanueva. 28
On the other hand, Ayson disputes the reduction of the
amounts of moral damages, exemplary damages, and attorney's
fees awarded to her, justifying the RTC's higher awards as just,
proper, and equitable in light of Fil-Estate's gross and utter bad faith
in entering into her property and making it a part of its golf course
without her knowledge and consent. 29 In the same vein, Ayson
assails CA's reduced valuation of the subject land as well as the
monthly rent therefor, maintaining that the RTC correctly took
judicial notice of the rapid valuation of properties in Boracay
Island. 30
The Court's Ruling
The petition is partly meritorious.
I.
To recapitulate, both the RTC and the CA found that Ayson is
the undisputed owner of the subject land, as evidenced by TCT No.
T-24562. Despite such knowledge, Fil-Estate and Fairways
nevertheless chose to rely on Villanueva's empty assurances that
she will be able to convince Ayson to agree on a land swap
arrangement; and thereafter, proceeded to enter the subject land
and introduce improvements thereon. The courts a quo further
found that since such acts were without Ayson's knowledge and
consent, she, thus: (a) suffered sleepless nights and mental anguish
knowing that the property she and her husband had invested for
their future retirement had been utilized by Fil-Estate and Fairways
for their own sake; and (b) had to seek legal remedies to vindicate
her rights. Thus, both lower courts concluded that Fil-Estate and
Fairways' acts were done in bad faith and resulted in injury to
Ayson; hence, they are liable for, inter alia, moral damages,
exemplary damages, and attorney's fees.
Verily, the finding of Fil-Estate and Fairways' bad faith, 31 as
well as their liability for moral damages, 32 exemplary
damages, 33 and attorney's fees, 34 are all factual matters which
are not within the ambit of the instant petition for review
on certiorari under Rule 45 of the Rules of Court. In this regard, it
has long been settled that factual findings of the trial court, affirmed

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by the CA, are final and conclusive and may not be reviewed on
appeal, 35 save for certain exceptions, 36 which Fil-Estate and
Fairways failed to show in this case at least regarding this issue.
Relatedly, the CA correctly reduced the awards for moral
damages, exemplary damages, and attorney's fees to P500,000.00,
P300,000.00, and P200,000.00, respectively, in light of the evidence
adduced as well as the prevailing circumstances of the instant case.
It must be stressed that "[m]oral damages are not meant to be
punitive but are designed to compensate and alleviate the physical
suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and
similar harm unjustly caused to a person."37 Similarly, exemplary
damages are imposed "by way of example or correction for the
public good, in addition to the moral, temperate, liquidated or
compensatory damages" and are awarded "only if the guilty party
acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner." 38 Lastly, attorney's fees should be reasonable in all
cases where an award thereof is warranted under the
circumstances. 39 aDSIHc
In sum, Fil-Estate and Fairways' liability for moral damages,
exemplary damages, and attorney's fees, as well as the amounts
thereof, must be upheld in light of the surrounding circumstances of
this case. In addition, a legal interest at the rate of six percent (6%)
per annum should be imposed on all monetary awards to Ayson
from the time of the finality of this Decision until fully paid. 40
II.
Anent the valuation of the subject land, the RTC deemed the
amount of US$100,000.00 or its Philippine Peso equivalent as its
reasonable value "considering the rapid increase or appreciation of
the value of real estate properties in Boracay Island for the past 10
years." 41 On the other hand, the CA pegged its value at
US$40,000.00, or the amount double the purchase price, "in
consideration and after proper adjustment of the [RTC's] valuation
which took judicial notice of the rapid increase and appreciation of
the value of real estate properties in Boracay Island for the past
years and considering further that the property is located in the
prime tourist destination." 42
After a judicious perusal of the records, the Court views such
valuations as grounded entirely on speculation, surmises, or
conjectures as there was no evidence presented by the parties
supporting the same. In fact, even the CA acknowledged the
absence of any piece of evidence that would provide a competent
valuation of the subject land. 43 Undoubtedly, such valuations,
including the amount of monthly rentals that Fil-Estate and Fairways

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must pay Ayson for the use of the subject land, must be struck
down.
In the same vein, the Court likewise finds untenable Fil-Estate
and Fairways' assertion that the valuation of the subject land is only
P100,000.00, as stated in the Deed of Sale 44 executed by Ayson
and Villanueva in 1996. 45 At the most, the value stated in said
Deed would only reflect the market value of the subject land at the
time of its execution and is in no way indicative of the current
market value of the said land, which is the amount that Fil-Estate
and Fairways should pay Ayson. 46
In view of the foregoing circumstances, the Court finds it
prudent to remand the case back to the RTC for the determination
of the current market value of the subject land, as well as the
reasonable amount of monthly rental. Once the current market
value as well as the reasonable rent has been reasonably
ascertained, the same shall be subjected to the appropriate interest
rates. 47 Moreover, once the value of the subject land, monthly
rentals, and applicable interests have been fully paid, Ayson should
execute the necessary documents to effectuate the transfer of the
property to Fil-Estate and Fairways.
WHEREFORE, the petition is PARTLY GRANTED. The
Decision dated March 1, 2013 and the Resolution dated February
22, 2016 of the Court of Appeals in CA-G.R. CV. No. 03010 are
herebyAFFIRMED with MODIFICATION as follows:
(a) petitioners Fil-Estate Properties, Inc. and Fairways &
Bluewater Resort & Country Club, Inc.
are ORDERED to jointly and solidarily pay Rosalie
Sy Ayson the amounts of P52,666.00 and
US$4,316.06 or its Philippine Peso equivalent as
actual damages, P500,000.00 as moral damages,
P300,000.00 as exemplary damages, and
P200,000.00 as attorney's fees and litigation
expenses, with legal interest at the rate of six
percent (6%) per annum on all amounts due from
finality of judgment until fully paid;

(b) the issue of the proper valuation of Lot No. 14-S


covered by Transfer Certificate of Title No. T-24562
is REMANDED to the Regional Trial Court of Kalibo,
Aklan, Branch 9 to determine its current market
value, reasonable monthly rental, and the
applicable interest rate thereon to be paid by Fil-
Estate Properties, Inc. and Fairways & Bluewater
Resort & Country Club, Inc.; and

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(c) upon full payment of the ascertained current market


value, monthly rental, and interests, Rosalie Sy
Ayson shall execute the necessary documents to
effectuate the transfer of Lot No. 14-S covered by
Transfer Certificate of Title No. T-24562 to Fil-Estate
Properties, Inc. and Fairways & Bluewater Resort &
Country Club, Inc.

SO ORDERED.
Sereno, C.J., Leonardo-de Castro, Bersamin and Caguioa, JJ.,
concur.
||| (Ayson v. Fil-Estate Properties, Inc., G.R. Nos. 223254 & 223269,
[December 1, 2016])
Note: as to civil liability
FIRST DIVISION
[G.R. No. 196256. December 5, 2016.]

PEOPLE OF THE PHILIPPINES, plaintiff-


appellee, vs. WILLY VALLAR, HERACLEO VALLAR, JR.
(a.k.a. ORACLEO VALLAR, JR.) DANNY VALLAR, AND
EDGARDO MABELIN, accused,

HERACLEO VALLAR, JR. (a.k.a. ORACLEO VALLAR,


JR.), accused-appellant.

DECISION

SERENO, C.J p:
This is an appeal from the Decision 1 of the Court of Appeals
(CA) affirming the Decision 2 of the Regional Trial Court (RTC) of
Gingoog City, Branch 27. The RTC found appellant Oracleo Vallar, Jr.
(Oracleo) guilty of the crime of robbery with homicide, attended by
the aggravating circumstance of employment of disguise and abuse
of superior strength.
THE INFORMATION
Criminal Case No. 89-323
That on or about the 21st day of June 1989, at
more or less 7:00 o'clock in the evening, at San Isidro,

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Malibud, Gingoog City, Philippines and within the


jurisdiction of this Honorable Court, the above-named
accused, conspiring, confederating together and
mutually helping one another, armed with high powered
firearms and bladed weapon with which the accused
were conveniently provided, did then and there wilfully,
unlawfully and feloniously and by means of violence,
with intent of gain and against the consent of the
owner, take, steal and carry away cash money worth
Fifteen Thousand (P15,000.00) Pesos belonging to
Eugracia Bagabaldo, to the damage and prejudice of the
said owner in the aforementioned sum of P15,000.00,
Philippine currency, and that on the occasion of said
robbery, the said accused in pursuance of their
conspiracy, did then and there unlawfully and
feloniously with treachery and evident premeditation,
taking advantage of their superior number and strength,
treacherously attack assault, shoot and stab the person
of Cipriano Opiso, thereby wounding him on the
epigastric area penetrating abdominal cavity and other
parts of his body, and perform all acts of execution
which would have killed said Cipriano Opiso as a
consequence thereof, but nevertheless did not produce
it by reason of causes independent of the will of the
accused that is because of the timely and able medical
attendance given to Opiso which prevented his death,
and also the said accused in pursuance of their
conspiracy, did then and there unlawfully and
feloniously with treachery and evident premeditation,
taking advantage of their superior number and strength,
treacherously attack, shoot, assault and violate the
person of Eufracio Bagabaldo, without giving Bagabaldo
the chance to defend himself, inflicting upon Bagabaldo
gunshot wounds on the left auxiliary region, left side of
the face and other parts of his body resulting to the
instantaneous death of Eufracio Bagabaldo. That the
offense was committed with the aggravating
circumstances of nighttime, band, evident
premeditation, use of disguise, taking advantage of
treachery and superior strength to facilitate the
commission of the crime.
Contrary to and in violation of Article 293 in
relation to Article 294 and Article 14, paragraphs 6, 13,
14, 15 and 16 of the Revised Penal Code. 3
EVIDENCE PRESENTED

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According to the prosecution, the robbery incident occurred


around seven o'clock in the evening of 21 June 1989. At the time,
Cipriano Opiso (Opiso) was sitting on a bench alongside the store of
Eufracio Bagabaldo (Eufracio), when the following persons arrived,
all wearing masks: Willy Vallar (Willy), Danny Vallar (Danny),
Oracleo and Edgardo Mabelin (Edgardo). 4 Willy pointed his M14
rifle to the left side of the body of Opiso and said, "Don't move
because this is a robbery." The latter managed to stand up, hold the
muzzle of the gun and raise it upward, after which it exploded
hitting the top of his head. Opiso continued to grapple for
possession of the rifle and, in the process, unmasked
Willy. 5 Suddenly, accused Oracleo moved toward Opiso and
stabbed the latter in the stomach. Willy pushed Opiso, who fell to
the bench, pleading "Do not kill me because I will die with this
wound already." 6 Willy and Danny left Opiso and proceeded into
the store. Edgardo and Oracleo remained on the roadside and
served as lookouts. 7 TIADCc
Once inside, Danny and Willy pointed their weapons at the
spouses Eufracio and Pedrita Bagabaldo. Danny fired his pistol into
the air and declared, "Money, this is a robbery." Unnoticed by the
accused, Oscar Omac (Omac), the Bagabaldos' household helper,
hid beside a table, from which he witnessed the entire incident.
Meanwhile, Pedrita begged for their lives and placed P15,000 cash
on the table upon which Danny put the cash inside a bag.
Unsatisfied, he demanded for more money, but Pedrita explained
that it was the only amount left. 8 Thereafter, he and Willy held
Eufracio by his shirt collar and dragged him outside the store.
Pedrita ran to the kitchen to hide. 9
Meanwhile, Opiso was crawling towards the residence of
Eufracio for safety when he heard two
gunshots. 10 Pedrita, 11 Omac, 12 and a neighbour Paterio
Denoso (Denoso) also heard the gunshots. 13 Denoso
immediately went out to check what happened. On the way, he
heard footsteps so he hid himself behind tall grasses. From his
position, he recognized Willy and three other persons. After the four
left, Denoso continued towards the Bagabaldo residence and found
Eufracio lying on the ground dead. 14 The latter's remains were
then brought inside the house, while Opiso was rushed to the
hospital. 15
The post-mortem report prepared by the medico-legal officer
of Gingoog City revealed that Eufracio sustained a gunshot wound
in the brain. Meanwhile, the medical examination of Opiso showed
that the victim sustained a two-centimeter stab wound that
penetrated his abdominal cavity and would have caused his death if
not for the timely medical treatment. 16

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During trial, Opiso claimed that though the other accused


wore masks, he was able to recognize their identity because he had
known them personally for twenty years from the time that they
were still students. 17 Omac testified that he clearly saw Willy's
face; recognized Danny based on his stature, voice and mannerism;
and was very familiar with the Vallar brothers, because they were
residents of Malibud. 18 Meanwhile, Candelaria Solijon testified that
on the day of the incident, at around six o'clock in the afternoon,
she saw the four accused walking together. 19
For his defense, Willy denied committing the crime and
claimed that he was working as a farmer at the time of the
incident. 20 Danny also denied any involvement, explaining that he
was with his family inside their house at that time. 21 Meanwhile,
Edgardo testified that during the date and time of the incident, he
was in Cagayan de Oro City busy tending the farmland owned by
one Oscar Ramos. 22
Oracleo likewise invoked the defenses of denial and alibi,
averring that he was at the Gingoog City Junior College attending
his classes, at around 5:30 and 7:30 p.m. on the date of the
incident. He further asserted that after his last class on that day, he
accompanied his girlfriend-classmate to her residence in Recurro,
Gingoog City, and even met another classmate named Cecilia
Bitangcor (Bitangcor) on the way. He further alleged that after
conducting his girlfriend to her house, he proceeded to his
residence at Lapak, Gingoog City. To corroborate his story, he
presented his teacher Sheila Daapong (Daapong) who claimed that
Oracleo attended both classes and even took the quizzes scheduled
at 5:30 to 6:30 and at 6:30 to 7:30 p.m. Bitangcor also testified that
she met Oracleo and his girlfriend at around eight o'clock on the
date of the incident on Motoomull Street, Gingoog City. 23
THE RTC RULING
In a Decision dated 20 July 2002, the RTC found Willy, Danny,
Oracleo, and Edgardo guilty of the crime of robbery with homicide
and frustrated homicide attended by the aggravating circumstance
of employment of disguise and commission of the crime by a
band. 24 Appellants were sentenced to suffer the penalty
of reclusion perpetua and to indemnify the offended parties
Pedrita in the amounts of P100,000 as moral damages and P50,000
as compensatory damages; and to Opiso the amount of P50,000 for
actual expenses and P30,000 for moral damages. 25With respect to
Willy who had already died, his criminal liability was deemed
extinguished pursuant to Article 89, par. 1 of the Revised Penal
Code. 26

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The trial court gave no credence to the defenses of denial and


alibi proffered by the accused. The RTC reiterated the time-honored
principle that the defense of alibi cannot prevail over the positive
declaration of witnesses who have convincingly identified the
accused as the perpetrators of the crime charged. 27 In particular,
with regard to Oracleo's defense, the RTC observed that the
testimony of Daapong was vague, as she admitted that there were
errors in her class record and that, at times, she did not check
attendance in her classes. Furthermore, none of Oracleo's
classmates were presented to prove his allegation, except Bitangcor
who was absent from class that evening. 28 The RTC further noted
that the accused Willy, Danny, Oracleo, and Edgar were charged
with robbery in Criminal Case No. 89-395. 29 In sum, the trial court
concluded that the prosecution was able to prove their guilt, and
that the offense was attended by the aggravating circumstance of
employment of disguise and commission of the crime by a
band. 30 Thereafter, Edgar and Oracleo elevated their conviction to
the CA. AIDSTE
THE CA RULING
The CA rendered a Decision 31 modifying that of the RTC. The
appellate court found accused-appellants guilty of the crime of
robbery with homicide only, attended by the aggravating
circumstances of employment of disguise and abuse of superior
strength. The award of P50,000 compensatory damages was
deleted; and instead, both accused-appellants were ordered to pay
each of the offended parties P25,000 as temperate damages. The
moral damages awarded to Pedrita were reduced from P100,000 to
P50,000. Accused-appellants were further ordered to pay civil
indemnity to Pedrita in the amount of P50,000, as well as exemplary
damages to each of the offended parties in the amount of P25,000,
plus costs of the suit. 32
The CA was convinced that the prosecution witnesses,
specifically Opiso, had positively identified accused-appellants
Oracleo and Edgardo as among the four perpetrators of the
crime. 33As for the defense, the CA ruled that the two accused-
appellants had failed to prove that it was physically impossible for
them to have been at or near the scene of the crime. 34
Appellant perfected his appeal to this Court with the timely
filing of a Notice of Appeal. He and the Solicitor General separately
manifested that they would adopt their respective briefs filed before
the CA as their supplemental briefs.
ISSUE

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Whether there is proof beyond reasonable doubt that


appellant is guilty of the crime of robbery with homicide, attended
by the aggravating circumstances of employment of disguise and
abuse of superior strength.
OUR RULING
We deny the appeal. SDAaTC
There is no merit in the contentions that the testimonies on
the exact participation of accused-appellant were inconclusive and
unreliable. 35 A judicious review of the records shows that the
testimonies of the prosecution witnesses especially Opiso were
clear, categorical and straightforward. While it is true that none of
the prosecution witnesses directly saw the face of accused-
appellant, Opiso positively identified him because of the latter's
utmost familiarity with appellant's physical build and bodily actions.
Opiso had personally known the four accused for about 20 years,
because they were residents of the same barangay, and they used
to buy from the store. 36
Further, there is no merit in the contention of appellant that
the testimony of his teacher substantially corroborated his defense
that he was attending class at the time of the incident. 37We quote
with approval the CA's conclusions:
Appellant Oracleo apparently failed to establish the
requisite physical impossibility of his having been at
the locus and tempus of the crime's commission.
The locus criminis was merely five (5) kilometres away
from Gingoog City proper the place where appellant
claims he was when the crime was committed. It must
be noted that several public utility jeepneys and private
motorcycles are plying the route. Besides, the Barangay
of San Isidro, Malibud, Gingoog City could be reached in
only about thirty (3) minutes from the City proper.
Furthermore, Sheila Daapong's testimony to the
effect that appellant Oracleo continuously attended her
classes on June 21, 1989 from 5:30 p.m. to 7:30 p.m.
cannot be heavily relied upon inasmuch as she herself
admitted that she was not checking the attendance of
her students in class. And even assuming that Oracleo
indeed took the quizzes she gave in her two classes, it
was not concretely proven that appellant stayed in
school for the whole period from 5:30 p.m. to 7:30 p.m.
As a matter of fact, Ms. Daapong even declared that her
students could very well finish the examinations in thirty
(30) minutes. Given these circumstances, it is highly

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probable that appellant had finished the examinations in


the second subject and left the class before 7:00 p.m.
Similarly futile is the testimony of Ma. Cecilia
Bitangcor that she met Oracleo and his girlfriend-
classmate, Merlin Lupoy at J. Motoomull Street, Gingoog
City, at around 8:00 o'clock in the evening of June 21,
1989. Ms. Bitangcor's testimony could not concretely
support appellant's defense of alibi as the robbery-
shooting incident happened at around 7:00 o'clock in
the evening. Appellant failed to establish his physical
impossibility of being at the crime scene an hour before
his alleged meeting with Ms. Bitangor at J. Motoomull
Street, Gingoog City. 38
Time and again, We have held that that the factual findings of
the trial court involving the credibility of witnesses are accorded
respect especially when affirmed by the CA. 39 This is clearly
because the trial judge was the one who personally heard the
accused and the witnesses and observed their demeanor, as well as
the manner in which they testified during trial. Accordingly, the trial
court is in a better position to assess and weigh the evidence
presented during trial. 40 Here, the trial court and the CA gave full
weight to the testimonies of the prosecution witnesses, and We find
no compelling reason to disturb their assessment.
Appellants were properly convicted
of robbery with homicide
We agree with the CA however, in its modification of the crime
to robbery with homicide:
Concerning the legal characterization of the
crime, the Court finds that its proper designation is not
robbery with homicide and frustrated homicide, as
inaccurately labelled by the prosecution and unwittingly
adopted by the trial court, but is simply one of robbery
with homicide. It has been jurisprudentially settled that
the term homicide in Article 294, paragraph 1, of
the Revised Penal Code is to be used in its generic
sense, to embrace not only acts that result in death, but
all other acts producing any bodily injury short of death.
It is thus characterized as such regardless of the
number of homicides committed and the physical
injuries inflicted. 41
We also agree with the CA when it corrected the trial court's
appreciation of the aggravating circumstances present at that time.
While both lower courts properly appreciated the aggravating

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circumstance of employment of disguise, the commission of a crime


by a band was not established because only Willy, Danny and
Oracleo were proven to have carried arms. 42Nevertheless, the CA
properly appreciated the aggravating circumstance of superior
strength, considering the number of malefactors and the kind of
weapons used in facilitating the commission of the crime. Because
the crime was attended by two aggravating circumstances, the
appropriate penalty should be reclusion perpetua 43 in lieu of
death, pursuant to R.A. 9346. 44
Civil Aspect of the Case
In robbery with homicide, civil indemnity and moral damages
are awarded automatically without need of allegation and evidence
other than the death of the victim owing to the crime. 45The CA
was correct in granting these awards, except that for Pedrita, the
amount that should be granted is P100,000 in conformity with
prevailing jurisprudence. 46 Opiso, as a victim who suffered mortal
or fatal wounds and could have died if not for timely medical
intervention, is also entitled to civil indemnity and moral damages
in the amount of P75,000. 47 acEHCD
The CA further awarded exemplary damages in view of the
two aggravating circumstances of disguise and abuse of superior
strength. We, however, modify the amount that should be awarded
from P25,000 to P100,000 for Pedrita, and P25,000 to P75,000 for
Opiso. As for temperate damages, the CA awarded Pedrita and
Opiso temperate damages in the amount of P25,000 in lieu of actual
damages, it having been shown that she suffered some pecuniary
losses, though its amount could not be proven with certainty. In line
with prevailing jurisprudence, We increase Pedrita's award of
temperate damages to P50,000. 48
WHEREFORE, the Petition is DENIED. The CA Decision dated
9 December 2010 in CA-G.R. CR-H.C. No. 00158-MIN convicting
appellant Heracleo Vallar, Jr. (a.k.a. Oracleo Vallar, Jr.) of the crime
of robbery with homicide is AFFIRMED with MODIFICATIONS.
For Pedrita Bagabaldo: (a) civil indemnity and moral damages are
increased from P50,000 to P100,000, respectively; (b) exemplary
damages are also increased from P25,000 to P100,000; and (c)
temperate damages are likewise increased from P25,000 to
P50,000. For Cipriano Opiso: (a) he is granted civil indemnity in the
amount of P75,000; (b) moral damages are increased from P30,000
to P75,000; and (c) exemplary damages are increased from P25,000
to P75,000.
SO ORDERED.

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Leonardo-de Castro, Bersamin, Perlas-Bernabe and Caguioa,


JJ., concur.
||| (People v. Vallar, Jr., G.R. No. 196256, [December 5, 2016])

THIRD DIVISION

[G.R. No. 195876. December 5, 2016.]

PILIPINAS SHELL PETROLEUM


CORPORATION, petitioner, vs. COMMISSIONER OF
CUSTOMS, respondent.

DECISION

PEREZ, J p:
Before the Court is a Petition for Review on Certiorari seeking
to reverse and set aside the 13 May 2010 Decision 1 and the 22
February 2011 Resolution 2 rendered by the Court of Tax Appeals
(CTA) Former En Banc in C.T.A. EB No. 472 which dismissed
petitioner's petition, and accordingly affirmed with modification as
to the additional imposition of legal interest the 19 June 2008
Decision 3 of the CTA Former First Division (CTA in Division) ordering
petitioner to pay the amount of P936,899,883.90, representing the
total dutiable value of its 1996 crude oil importation, which was
considered as abandoned in favor of the government by operation
of law.
The Facts
The factual antecedents of the case are as follows:
On 16 April 1996, Republic Act (R.A.) No. 8180, 4 otherwise
known as the "Downstream Oil Industry Deregulation Act of 1996"
took effect. It provides, among others, for the reduction of the tariff
duty on imported crude oil from ten percent (10%) to three percent
(3%). The particular provision of which is hereunder quoted as
follows:
Section 5. Liberalization of
Downstream Oil Industry and Tarif
Treatment. . . .
b) Any law to the contrary
notwithstanding and starting with the

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effectivity of this Act, tariff shall be imposed


and collected on imported crude oil at the
rate of three percent (3%) and imported
refined petroleum products at the rate of
seven percent (7%), except fuel oil and LPG,
the rate for which shall be the same as that
for imported crude oil Provided, That
beginning on January 1, 2004 the tariff rate
on imported crude oil and refined petroleum
products shall be the same: Provided,
further, That this provision may be amended
only by an Act of Congress.
Prior to its effectivity, petitioner's importation of 1,979,674.85
U.S. barrels of Arab Light Crude Oil, thru the Ex MT Lanistels, arrived
on 7 April 1996 nine (9) days earlier than the effectivity of the
liberalization provision. Within a period of three days thereafter, or
specifically on 10 April 1996, said shipment was unloaded from the
carrying vessels docked at a wharf owned and operated by
petitioner, to its oil tanks located at Batangas City.
Subsequently, petitioner filed the Import Entry and Internal
Revenue Declaration and paid the import duty of said shipment in
the amount of P11,231,081.00 on 23 May 1996.
More than four (4) years later or on 1 August 2000, petitioner
received a demand letter 5 dated 27 July 2000 from the Bureau of
Customs (BOC), through the District Collector of Batangas,
assessing it to pay the deficiency customs duties in the amount of
P120,162,991.00 due from the aforementioned crude oil
importation, representing the difference between the amount
allegedly due (at the old rate of ten percent (10%) or before the
effectivity of R.A. No. 8180) and the actual amount of duties paid by
petitioner (on the rate of 3%). CAIHTE
Petitioner protested the assessment on 14 August 2000, 6 to
which the District Collector of the BOC replied on 4 September
2000 7 reiterating his demand for the payment of said deficiency
customs duties.
On 11 October 2000, 8 petitioner appealed the 4 September
2000 decision of the District Collector of the BOC to the respondent
and requested for the cancellation of the assessment for the same
customs duties.
However, on 29 October 2001, 9 five years after petitioner
paid the allegedly deficient import duty' it received by telefax from
the respondent a demand letter for the payment of the amount of
P936,899,885.90, representing the dutiable value of its 1996 crude

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oil importation which had been allegedly abandoned in favor of the


government by operation of law. Respondent stated that Import
Entry No. 683-96 covering the subject importation had been
irregularly filed and accepted beyond the thirty-day (30) period
prescribed by law. Petitioner protested the aforesaid demand letter
on 7 November 2001 10 for lack of factual and legal basis, and on
the ground of prescription.
Seeking clarification as to what course of action the BOC is
taking, and reiterating its position that the respondent's demand
letters dated 29 October 2001 and 27 July 2000 have no legal basis,
petitioner sent a letter to the Director of Legal Service of the BOC on
3 December 2001 for said purpose.
On 28 December 2001, 11 BOC Deputy Commissioner Gil A.
Valera sent petitioner a letter which stated that the latter had not
responded to the respondent's 29 October 2001 demand letter and
demanded payment of the amount of P936,899,885.90, under
threat to hold delivery of petitioner's subsequent shipments,
pursuant to Section 1508 12 of the Tariff and Customs Code of the
Philippines (TCCP), 13 and to file a civil complaint against petitioner.
In reply thereto, petitioner sent a letter dated 4 January
2002 14 to the BOC Deputy Commissioner and expressed that it
had already responded to the aforesaid demand letter through the
letters dated 7 November 2001 and 3 December 2001 sent to
respondent and to the Director of Legal Service of the BOC,
respectively.
On 11 April 2002, the BOC filed a civil case for collection of
sum of money against petitioner, together with Caltex Philippines,
Inc. as co-party therein, docketed as Civil Case No. 02103239,
before Branch XXV, Regional Trial Court (RTC), of the City of
Manila. 15
Consequently, on 27 May 2002, petitioner filed with the Court
of Tax Appeals (CTA) a Petition for Review, raffled to the Former First
Division (CTA in Division), and docketed as C.T.A. Case No. 6485,
upon consideration that the civil complaint filed in the RTC of Manila
was the final decision of the BOC on its protest. 16
Respondent filed on 2 August 2002 a motion to dismiss the
said petition raising lack of jurisdiction and failure to state a cause
of action as its grounds, which the CTA in Division denied in the
Resolution dated 17 January 2003. Likewise, respondent's motion for
reconsideration filed on 14 February 2003 was denied on its 16 June
2003 Resolution. 17
Subsequently, respondent, through the Office of the Solicitor
General, filed on 13 August 2003 before the Court of Appeals (CA) a

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Petition for Certiorari and Prohibition with Prayer for the Issuance of
a Temporary Restraining Order and Writ of Preliminary Injunction,
docketed as CA-G.R. SP No. 78563, praying for the reversal and
setting aside of the CTA in Division's Resolutions dated 17 January
2003 and 16 June 2003. 18
In the interim, respondent filed his Answer to the petition in
C.T.A. Case No. 6485 on 20 October 2003 which reiterated the lack
of jurisdiction and failure to state a cause of action. Thereafter, trial
on the merits ensued.
On 15 February 2007, the Former First Division of the CA
dismissed respondent's petition in CA-G.R. SP No. 78563. Similarly,
respondent's motion for reconsideration of the 15 February 2007
Decision was denied in its 24 July 2007 Resolution. 19
The Ruling of the CTA in Division
In a Decision dated 19 June 2008, 20 the CTA in Division ruled
to dismiss the Petition for Review on C.T.A. Case No. 6485 for lack of
merit and accordingly ordered petitioner to pay the entire amount of
P936,899,883.90 21 representing the total dutiable value of the
subject shipment of Arab Light Crude Oil on the ground of implied
abandonment pursuant to Sections 1801 and 1802 of the TCCP.
Relevant thereto, the CTA in Division made the following
factual and legal findings: (a) that petitioner filed the specified entry
form (Import Entry and Internal Revenue Declaration) beyond the
30-day period prescribed under Section 1301 of the TCCP; 22 (b)
that for failure to file within the aforesaid 30-day period, the subject
importation was deemed abandoned in favor of the government in
accordance with Sections 1801 and 1802 of the TCCP; 23 (c) that
petitioner's excuses in the delay of filing its Import Entry and
Internal Revenue Declaration were implausible; 24 (d) that since the
government became the owner of the subject shipment by
operation of law, petitioner has no right to withdraw the same and
should be held liable to pay for the total dutiable value of said
shipment computed at the time the importation was withdrawn from
the carrying vessel pursuant to Section 204 of the TCCP; 25 (e) that
there was fraud in the present case considering that "the District
Collector, in conspiracy with the officials of Caltex and Shell acted
without authority or [with] abused (sic) [of] authority by giving
undue benefits to the importers by allowing the processing,
payment and subsequent release of the shipments to the damage
and prejudice of the government who, under the law is already the
owner of the shipments . . .;" thus, prescription under Section 1603
of the TCCP does not apply herein; 26 and (f) that the findings of
facts of administrative bodies charged with their specific field of
expertise, are afforded great weight by the courts; and in the

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absence of substantial showing that such findings are made from an


erroneous estimation of the evidence presented, they are
conclusive, and in the interest of stability of the government
structure, should not be disturbed. 27
On 24 February 2009, the CTA in Division denied petitioner's
Motion for Reconsideration for lack of merit citing Section 5
(b), 28 Rule 6 of the 2005 Revised Rules of the CTA, as sole legal
basis in considering the Memorandum dated 2 February 2001 issued
by the Customs Intelligence & Investigation Service, Investigation &
Prosecution Division (CIIS-IPD) of the BOC as evidence to establish
fraud, and the case of Chevron Phils., Inc. v. Commissioner of the
Bureau of Customs, 29 as the jurisprudential foundation therein. 30
Aggrieved, petitioner appealed to the CTA Former En Banc by
filing a Petition for Review on 31 March 2009, under Section 3 (b),
Rule 8 of the 2005 Revised Rules of the CTA, as amended, in relation
to Rule 43 of the 1997 Rules of Civil Procedure, as amended,
docketed as C.T.A. EB No. 472. HEITAD
The Ruling of the CTA Former En Banc
In the 13 May 2010 Decision, 31 the CTA Former En
Banc affirmed the CTA in Division's ruling pertaining to the implied
abandonment caused by petitioner's failure to file the Import Entry
and Internal Revenue Declaration within the 30-day period, and
transfer of ownership by operation of law to the government of the
subject shipment in accordance with Sections 1801 and 1802, in
relation to Section 1301, of the TCCP, and with the pronouncements
made in the Chevron case. Notably however, the ponente of the
assailed Decision declared therein that the existence of fraud is not
controlling in the case at bench and would not actually affect
petitioner's liability to pay the dutiable value of its imported crude
oil, pertinent portion of which are quoted hereunder for ready
reference, to wit:
As regards the issue on the
existence of fraud, it should be
emphasized that fraud is not
controlling in this case. Even in the
absence of fraud, petitioner Shell is
still liable for the payment of the
dutiable value by operation of law. The
liability of petitioner Shell for the payment
of the dutiable value of its imported crude
oil arose from the moment it appropriated
for itself the said importation, which were
already a property of the government by
operation of law. Absence of fraud in this

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case would not exclude petitioner Shell


from the coverage of Sections 1801
and 1802 of the TCCP. 32 (Emphasis
supplied)
Furthermore, citing the case of Eastern Shipping Lines, Inc. v.
Court of Appeals and Mercantile Insurance Company, Inc., 33 the
CTA Former En Banc imposed an additional legal interest of six
percent (6%) per annum on the total dutiable value of
P936,899,883.90, accruing from the date said decision was
promulgated until its finality; and afterwards, an interest rate of
twelve percent (12%) per annum shall be applied until its full
satisfaction. 34
Not satisfied, petitioner filed a motion for reconsideration
thereof which was denied in the assailed Resolution dated 22
February 2011.
Consequently, this Petition for Review wherein petitioner
seeks the reversal and setting aside of the aforementioned Decision
and Resolution dated 13 May 2010 and 22 February 2011,
respectively, and accordingly prays that a decision be rendered
finding: (a) that petitioner has already paid the proper duties on its
importation and therefore not liable anymore; and (b) that petitioner
is not deemed to have abandoned its subject shipment; or, in the
alternative, (c) that respondent's attempt to collect is devoid of any
legal and factual basis considering that the right to collect against
petitioner relating to its subject shipment has already prescribed.
In support of its petition, petitioner posits the following
assigned errors:
I
THE CTA FORMER EN BANC ERRED WHEN IT HELD IN
THE QUESTIONED DECISION THAT PETITIONER PSPC IS
DEEMED TO HAVE IMPLIEDLY ABANDONED THE SUBJECT
SHIPMENT AND, THUS, IS LIABLE FOR THE ENTIRE VALUE
OF THE SUBJECT SHIPMENT, PLUS INTEREST, DESPITE
THE FACT THAT SUCH CLAIM, IF ANY AT ALL, HAS
ALREADY PRESCRIBED, ESPECIALLY BECAUSE
PETITIONER PSPC DID NOT COMMIT ANY FRAUD.
II
THE CTA FORMER EN BANC ERRED WHEN IT FAILED TO
RECOGNIZE THAT THE GOVERNMENT DID NOT SUFFER
ANY DAMAGE OR REVENUE LOSS SINCE ALL TARIFF
DUTIES IMPOSABLE ON THE SUBJECT SHIPMENT WERE
ALREADY PAID TO THE GOVERNMENT, SUCH THAT TO

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ALLOW RESPONDENT COMMISSIONER TO RECOVER THE


ENTIRE VALUE OF THE SUBJECT SHIPMENT WOULD BE
CONFISCATORY AND AMOUNT TO UNJUST ENRICHMENT
ON THE PART OF THE GOVERNMENT.
III
THE CTA FORMER EN BANC ERRED WHEN IT
CONSIDERED THE SUBJECT SHIPMENT AS IMPLIEDLY
ABANDONED, DEPRIVING PETITIONER PSPC OF ITS
RIGHT TO DUE PROCESS AND EQUAL PROTECTION OF
THE LAW, CONSIDERING:
A. RESPONDENT COMMISSIONER DID NOT OBSERVE THE
DUE NOTICE REQUIREMENT UNDER SECTION 1801
OF THE TCCP OR COMPLIED WITH THE RULES THAT
BOC HAD PROMULGATED, WHICH DUE NOTICE IS
MANDATORY IN THE ABSENCE OF FRAUD AS HELD
IN THE CHEVRON CASE. ATICcS
B. THE DUE NOTICE REQUIRED UNDER SECTION 1801 OF
THE TCCP ACTUALLY REFERS TO THE NOTICE TO
FILE ENTRY FOR IMPORTED ARTICLES AND NOT THE
ARRIVAL THEREOF.
C. PETITIONER PSPC's ADVANCE FILING OF ITS IED
WHICH, BY LAW, ALREADY CONSTITUTES A VALID
AND EFFECTIVE IMPORT ENTRY FORM, AND ITS
CLEAR ACTUATIONS SHOWED AN
INTENTIONNOT TO ABANDON THE SUBJECT
SHIPMENT, ESPECIALLY SINCE IT HAD
ALREADY FULLY PAID THE TARIFF DUTY DUE ON THE
SHIPMENT IN ADVANCE.
D. RESPONDENT COMMISSIONER DID NOT CONSIDER
PETITIONER PSPC'S REASONABLE AND JUSTIFIABLE
REASONS FOR THE SLIGHT DELAY IN FILING ITS
IEIRD.
E. TO SUSTAIN THE CTA FORMER EN BANC IS TO TREAT
PETITIONER PSPC WORSE THAN SMUGGLERS AND
COMMON CRIMINALS, AS TO DEPRIVE IT OF ITS
RIGHT TO EQUAL PROTECTION OF THE LAW.
IV
THE CTA [FORMER] EN BANC ERRED IN FAILING TO
RECOGNIZE THAT THE IMPOSITION OF A NINE HUNDRED
THIRTY-SIX MILLION EIGHT HUNDRED EIGHTY-NINE
THOUSAND EIGHT HUNDRED EIGHTY-THREE AND 90/100
PESOS (P936,889,883.90) PENALTY BY REASON OF
IMPLIED ABANDONMENT AGAINST PETITIONER PSPC,
DESPITE ITS FULL PAYMENT OF THE TARIFF DUTY DUE

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ON THE SHIPMENT AND THE JUSTIFIABLE SLIGHT DELAY


IN THE LATTER's SUBMISSION OF ITS IEIRD, IS IN
VIOLATION OF INTERNATIONAL LAW UNDER THE
REVISED KYOTO CONVENTION.
V
THE CTA [FORMER] EN BANC ERRED IN FAILING TO
RECOGNIZE THAT THERE IS NO STATUTORY PROVISION
EMPOWERING RESPONDENT COMMISSIONER TO
SUBSTITUTE ITS CLAIMS FOR THE ABANDONED GOODS
WITH THE VALUE THEREOF. ETHIDa
VI
THE CTA [FORMER] EN BANC GROSSLY MISAPPRECIATED
THE FACTS AND MISAPPLIED THE RULING OF THE
HONORABLE COURT IN THE CHEVRON CASE WHEN IT
HELD THAT PRESCRIPTION IS NOT A DEFENSE AND THAT
THE NOTICE REQUIREMENT UNDER SECTION 1801 OF
THE TCCP AND THE BOC's OWN RULES AND
REGULATIONS DO NOT APPLY EVEN IN THE ABSENCE OF
FRAUD. QUITE THE CONTRARY, THE CHEVRON
CASE CLEARLY RECOGNIZED THAT THE PRESCRIPTIVE
PERIOD OF THE FINALITY OF THE LIQUIDATION UNDER
SECTION 1603 OF THE TCCP IS A DEFENSE IN THE
ABSENCE OF FRAUD AND THE NOTICE REQUIREMENT
WAS SET ASIDE DUE TO THE FINDING OF FRAUD
AGAINST CHEVRON. MOREOVER, UNLIKE IN
THE CHEVRON CASE WHERE THE HONORABLE COURT
FOUND CHEVRON TO HAVE BENEFITED FROM ITS DELAY
AND WAS GUILTY OF FRAUD, THE
QUESTIONED DECISION AND RESOLUTION BOTH DID
NOT FIND FRAUD ON THE PART OF PETITIONER PRPC. 35
Petitioner asseverates that: (a) in the absence of fraud, the
right of respondent to claim against petitioner, assuming there is
any, has already prescribed since an action involving payment of
customs duties demanded after a period of one (1) year from the
date of final payment of duties shall not succeed, relying on Section
1603 of the TCCP; (b) the alleged Memorandum dated 2 February
2001 issued by the Investigation and Prosecution Division (IPD) of
the BOC, which served as the court a quo's basis in finding fraud on
the part of petitioner, was never presented, authenticated, marked,
identified, nor formally offered in evidence; hence, inadmissible and
cannot be the basis of any finding of fraud; (c) even if the
Memorandum dated 2 February 2001 is legally admitted in
evidence, it still does not constitute clear and convincing proof to
establish any fraud on the part of petitioner since, unlike in

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the Chevron case, it was entitled to avail of the reduced three


percent (3%) rate under R.A. No. 8180, which was already in effect
as early as 16 April 1996; thus, petitioner did not gain any undue
advantage or benefit from its justifiable delay in filing the Import
Entry and Internal Revenue Declaration within the 30-day
mandatory period; and (d) the evidence on record and the acts of
petitioner [filing of Import Entry Declaration (IED) and paying
advance duties] disclose honest and good faith on its part showing
clear absence of any fraudulent intent to evade the payment of the
proper customs duties and taxes due at the time of the entry of its
imported crude oil in the Philippines. 36
Petitioner further argues that the government suffered or lost
nothing when petitioner filed its Import Entry and Internal Revenue
Declaration thirteen (13) days beyond the period allowed by law,
considering that the former did not lose any tax collection when
petitioner had allegedly paid in advance the amount of
P71,923,285.00 for the regular tariff duty of 10% then prevailing,
notwithstanding its entitlement to the reduced 3% rate under RA
No. 8180. Consequently, by ordering petitioner to pay for the entire
dutiable value amounting to P936,899,883.90, the government shall
be guilty of unjust enrichment, and such would result to deprivation
of property on the part of petitioner without due process of law. 37
Moreover, it is petitioner's contention that the principles
enunciated in the Chevron case were misapplied in the case at
bench. It explained that the reason for such ruling establishing the
"ipso facto abandonment" doctrine was because there was a finding
of fraud on the part of Chevron, being the importer. The existence of
fraud was a critical and essential fact in the disposition on the
issues in the Chevron case that justified the goods to be deemed
impliedly abandoned in favor of the government. Corollarily, in the
absence of fraud, goods cannot be deemed impliedly abandoned
and ipso facto owned by the government arising from a mere delay
in the submission of the Import Entry and Internal Revenue
Declaration, such as in the present case. In other words, petitioner
is convinced that the provisions of Sections 1801 and 1802 cannot
be applied blindly which may cause goods to be impliedly
abandoned in favor of the government, without even recognizing
the peculiar circumstances of the case and without allowing the
importer (petitioner herein) to provide justifications for the delay in
the submission of its Import Entry and Internal Revenue Declaration.
Allegedly, both notices to the importer to file entry and for its failure
to file an entry within the non-extendible period of 30 days are
essential before a shipment can be considered impliedly
abandoned. Otherwise, to do so would constitute violation of the
basic substantial constitutional rights of petitioner. cSEDTC

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Petitioner explains that, in issuing Customs Administrative


Order (CAO) No. 5-93 dated 1 September 1993 and Customs
Memorandum Order (CMO) No. 15-94 dated 29 April 1994,
respondent even recognized the significance of the due notice
requirement before any goods may be deemed impliedly abandoned
articles. Such notice purportedly refers to notice to file entry, and
not notice of arrival as mistakenly interpreted by the CTA Former En
Banc. Thus, in the absence of such notice in the present case, there
could have been no implied abandonment in favor of the
government of the said imported crude oil by petitioner pursuant to
Section 1801 of the TCCP.
Lastly, petitioner believes that affirmance of the ruling a quo,
would be tantamount to a clear violation of international
laws, i.e. the Revised Kyoto Convention, which generally prohibit the
imposition of substantial penalties for errors when there is no fraud
or gross negligence on the part of an importer. Consequently, such
current and reasonable trend in the international and uniform
application of customs rules and laws shows how unreasonable,
unjust, confiscatory, iniquitous and incongruent the disposition
made against petitioner in the instant case; hence, the very need to
set aside the assailed Decision and Resolution of the CTA Former En
Banc in C.T.A. EB No. 472, in order to prevent the creation of a legal
precedent which contravenes State commitments.
Respondent, on the other hand, counters that petitioner's
failure to file its Import Entry and Internal Revenue Declaration
within the non-extendible period of 30 days was fatal to its cause of
action. Resultantly, the subject imported crude oil is deemed
abandoned in favor of the government by reason of such non-filing
of the imported entries within said prescriptive period. 38
Our Ruling
The submissions of the parties to this case bring to fore two
timelines and the consequences of the lapse of the prescribed
periods. Petitioner appears to be covered by Section 1801, in
relation to Section 1301, which respectively states:
Sec. 1801. Abandonment, Kinds and
Effects of. An imported article is deemed
abandoned under any of the following
circumstances:
(a) When the owner, importer or consignee of the
imported article expressly signifies in writing to the
Collector of Customs his intentions to abandon; or
(b) When the owner, importer, consignee or interested
party after due notice, fails to file an entry within

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thirty (30) days, which shall not be extendible,


from the date of discharge of the last package from
the vessel or aircraft, or having filed such entry,
fails to claim his importation within fifteen (15) days
which shall not likewise be extendible, from the
date of posting of the notice to claim such
importation. (Emphasis supplied)
Any person who abandons an article
or who fails to claim his importation as
provided for in the preceding paragraph
shall be deemed to have renounced all his
interests and property rights therein.
xxx xxx xxx
Sec. 1301. Persons Authorized to
Make Import Entry. Imported articles
must be entered in the customhouse at the
port of entry within thirty (30) days, which
shall not be extendible, from the date of
discharge of the last package from the
vessel or aircraft either (a) by the importer,
being holder of the bill of lading, (b) by a
duly licensed customs broker acting under
authority from a holder of the bill or (c) by a
person duly empowered to act as agent or
attorney-in-fact for each holder: Provided,
That where the entry is filed by a party
other than the importer, said importer shall
himself be required to declare under oath
and under the penalties of falsification or
perjury that the declarations and
statements contained in the entry are true
and correct: Provided, further, That such
statements under oath shall
constitute prima facie evidence of
knowledge and consent of the importer of
violations against applicable provisions of
this Code when the importation is found to
be unlawful.
Tersely put, when an importer after due notice fails to file an Import
Entry and Internal Revenue Declaration within an unextendible
period of thirty (30) days from the discharge of the last package,
the imported article is deemed abandoned in favor of the
government.

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Upon the other hand, respondent is covered in a manner


likewise mandatory, by the provisions of Section 1603 which states
that:
Sec. 1603. Finality of Liquidation.
When articles have been entered and
passed free of duty or final adjustment of
duties made, with subsequent delivery, such
entry and passage free of duty or
settlement of duties will, after the
expiration of one year, from the date of
the final payment of duties, in the absence
of fraud or protest, be final and conclusive
upon all parties, unless the liquidation of the
import entry was merely tentative.
(Emphasis supplied) SDAaTC
We rule that in this case, Section 1603 is squarely applicable.
The finality of liquidation which arises one (1) year after the date of
the final payment of duties, which is in this case 23 May 1996,
renders inoperable the provisions of Section 1801.
Discussion
At the outset, it bears emphasis that the determination of the
issues presented in this case requires a comprehensive assessment
of the pronouncements made in the case of Chevron Philippines,
Inc. v. Commissioner of the Bureau of Customs; 39 thus, we find it
imperative to reproduce hereunder the points there considered
which are germane to the controversy under review.
THE IMPORTATION WERE ABANDONED
IN FAVOR OF THE GOVERNMENT
The law is clear and explicit. It
gives a non-extendible period of 30
days for the importer to file the entry
which we have already ruled pertains
to both the IED and IEIRD. Thus under
Section 1801 in relation to Section
1301, when the importer fails to file
the entry within the said period, he
"shall be deemed to have renounced all
his interests and property rights" to
the importations and these shall be
considered impliedly abandoned in
favor of the government:
Section 1801. Abandonment, Kinds
and Effect of.

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xxx xxx xxx


Any person who abandons an
article or who fails to claim his importation
as provided for in the preceding
paragraph shall be deemed to have
renounced all his interests and
property rights therein.
According to petitioner, the shipments
should not be considered impliedly
abandoned because none of its overt acts
(filing of the IEDs and paying advance
duties) revealed any intention to abandon
the importations.
Unfortunately for petitioner, it
was the law itself which considered the
importation abandoned when it failed
to file the IEIRDs within the allotted
time. Before it was amended, Section 1801
was worded as follows:
Sec. 1801. Abandonment, Kinds and Effect
of. Abandonment is express when it is
made direct to the Collector by the
interested party in writing and it is implied
when, from the action or omission of
the interested party, an intention to
abandon can be clearly inferred. The
failure of any interested party to file the
import entry within fifteen days or any
extension thereof from the discharge of the
vessel or aircraft, shall be implied
abandonment. An implied abandonment
shall not be effective until the article is
declared by the Collector to have been
abandoned after notice thereof is given
to the interested party as in seizure
cases.
Any person who abandons an
imported article renounces all his interests
and property rights therein.
After it was amended by RA 7651, there was an indubitable
shift in language as to what could be considered implied
abandonment:
Section 1801. Abandonment, Kinds and
Effect of. An imported article is deemed

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abandoned under any of the following


circumstances:
a. When the owner, importer, consignee of the
imported article expressly signifies in writing
to the Collector of Customs his intention to
abandon;
b. When the owner, importer, consignee or
interested party after due notice, fails to
file an entry within thirty (30) days,
which shall not be extendible, from the
date of discharge of the last package
from the vessel or aircraft . . . .
From the wording of the
amendment, RA 7651 no longer
requires that there be other acts or
omissions where an intent to abandon
can be inferred. It is enough that the
importer fails to file the required
import entries within the reglementary
period. The lawmakers could have easily
retained the words used in the old law (with
respect to the intention to abandon) but
opted to omit them. It would be error on our
part to continue applying the old law despite
the clear changes introduced by the
amendment. 40 (Emphasis and underlining
supplied) acEHCD
Based on the foregoing, it appears that in the Chevron case,
the Court simply applied the clear provision of Section 1801 (b), in
relation to Section 1301, of the TCCP, as amended, which
categorically provides that mere failure on the part of the owner,
importer, consignee or interested party, after due notice, to file an
entry within a non-extendible period of 30 days from the date of
discharge of the last package (shipment) from the vessel, would
mean that such owner, importer, consignee or interested party is
deemed to have abandoned said shipment. Consequently,
abandonment of such shipment (imported article) constitutes
renouncement of all his interests and property rights therein.
The rationale of strict compliance with the non-extendible
period of 30 days within which import entries (IEIRDs) must be filed
for imported articles are as follows: (a) to prevent considerable
delay in the payment of duties and taxes; (b) to compel importers to
file import entries and claim their importation as early as possible
under the threat of having their importation declared as abandoned
and forfeited in favor of the government; (c) to minimize the

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opportunity of graft; (d) to compel both the BOC and the importers
to work for the early release of cargo, thus decongesting all ports of
entry; (e) to facilitate the release of goods and thereby promoting
trade and commerce; and (f) to minimize the pilferage of imported
cargo at the ports of entry. 41The aforesaid policy considerations
were significant to justify a firm observance of the aforesaid
prescriptive period.
It was observed that it is the law itself that considers an
imported article abandoned for failure to file the corresponding
Import Entry and Internal Revenue Declaration within the allotted
time. No acts or omissions to establish intent to abandon is
necessary to effectuate the clear provision of the law. Since Section
1801 (b) does not provide any qualification as to what may have
caused such failure in filing said import entry within the prescriptive
period in order to render the imported article abandoned, this Court
shall likewise make no distinction and plainly apply the law as
clearly stated. Hence, upon the lapse of the aforesaid non-
extendible period of 30 days, without the required import entry filed
by the importer within said period, its imported article is therefore
deemed abandoned.
Moreover, Section 1802 of the same Code states to whom said
abandoned imported articles belong as a consequence of such
renouncement by the owner, importer, consignee or interested
party. It provides:
Sec. 1802. Abandonment of Imported
Articles. An abandoned article shall ipso
facto be deemed the property of the
Government and shall be disposed of in
accordance with the provisions of this Code.
xxx xxx xxx (Emphasis supplied)
In the Chevron case, we explained that the term "ipso
facto" is defined as "by the very act itself" or "by mere act." Hence,
there is no need for any affirmative act on the part of the
government with respect to abandoned imported articles given that
the law itself categorically provides that said articles shall ipso
facto be deemed the property of the government. By using the term
"ipso facto" in Section 1802 of the TCCP, as amended by R.A. No.
7651, 42 the legislature removed the need for abandonment
proceedings and for any declaration that imported articles have
been abandoned before ownership thereof can be effectively
transferred to the government. In other words, ownership over the
abandoned imported articles is transferred to the government by
operation of law.

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The rulings in Chevron was generously applied by CTA


Former En Banc in the present case. Thus:
Petitioner Shell's failure to file
the required entries, within the
prescribed non-extendible period of
thirty (30) days from the date of
discharge of the last package from the
carrying vessel, constitutes implied
abandonment of its oil importation.
This means, that from the precise
moment that the non-extendible thirty-
day period had lapsed, the abandoned
shipment was deemed the property of
the government. Therefore, when
petitioner withdrew the oil shipment for
consumption, it appropriated for itself
properties which already belonged to the
government. . . .
Petitioner Shell's contention that
the belated filing of its import entries is
justified due to the late arrival of its
import documents, which are
necessary for the proper computation
of the import duties, cannot be
sustained. SDHTEC
xxx xxx xxx
The [CTA Former En Banc] cannot also
accept such excuses, as the absence of
supporting documents should not have
prevented petitioner Shell from
complying with the mandatory non-
extendible period, since the law
prescribes an extremely serious
consequence for delayed filing. If this
kind of excuse was to be accepted, then the
collection of customs duties would be at the
mercy of importers, which our lawmakers
try to avoid.
For all the foregoing, we rule that the
late filing of the IEIRDs alone, which
constituted implied abandonment, makes
petitioner Shell liable for the payment of the
dutiable value of the imported crude
oil. . . . 43 (Emphasis supplied)

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Since it is undisputed that the Import Entry and Internal


Revenue Declaration was belatedly filed by petitioner on 23 May
1996, or more than 30 days from the last day of discharge of its
importation counted from 10 April 1996, the importation may be
considered impliedly abandoned in favor of the government.
Petitioner argues that before Section 1802 can be applied and
theipso facto provision invoked, the requirement of due notice to file
entry and the determination of the intent of the importer are
essential in order to consider the subject imported crude oil of
petitioner impliedly abandoned in favor of the government. It
further asserts that, in the Chevron case, it was conceded that as a
general rule, due notice is indeed required before any imported
article can be considered impliedly abandoned, but Chevron's non-
entitlement to such prior notice was legally justified because of the
finding of fraud established against it, rendering it impossible for
the BOC to comply with the due notice requirement under the
prevailing rules. Consequently, it is petitioner's conclusion that such
finding of fraud is indispensable in order to waive the "due notice
requirement," that would eventually consider the subject imported
crude oil impliedly abandoned in favor of the government.
In Chevron, we observed that:
The minutes of the deliberations
in the House of Representatives
Committee on Ways and Means on the
proposed amendment to Section 1801
of the TCC show thatthe phrase "after
due notice" was intended for owners,
consignees, importers of the shipments
who live in rural areas or distant places
far from the port where the shipments
are discharged, who are unfamiliar
with customs procedures and need the
help and advice of people on how to
file an entry:
xxx xxx xxx
MR. FERIA. 1801, your Honor. The
question that was raised here in the last
hearing was whether notice is required to be
sent to the importer. And, it has been
brought forward that we can dispense
with the notice to the importer
because the shipping companies are
notifying the importers on the arrival
of their shipment. And, so that notice
is sufficient to . . . sufficient for the

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claimant or importer to know that the


shipments have already arrived.
Second, your Honor, the legitimate
businessmen always have . . . they
have their agents with the shipping
companies, and so they should know
the arrival of their shipment.
xxx xxx xxx
HON. QUIMPO. Okay. Comparing the
two, Mr. Chairman, I cannot help but notice
that in the substitution now there is a failure
to provide the phrase AFTER NOTICE
THEREOF IS GIVEN TO THE INTERESTED
PARTY, which was in the original. Now in the
second, in the substitution, it has been
deleted. I was first wondering whether this
would be necessary in order to provide for
due process. I'm thinking of certain cases,
Mr. Chairman, where the owner might not
have known. This is now on implied
abandonment not the express
abandonment.
xxx xxx xxx
HON. QUIMPO. Because I'm thinking,
Mr. Chairman. I'm thinking of certain
situations where the importer even though,
you know, in the normal course of business
sometimesthey fail to keep up the date
or something to that effect.
THE CHAIRMAN. Sometimes their
cargoes get lost.
HON. QUIMPO. So just to, you
know . . . anyway, this is only a notice
to be sent to them that they have a
cargo there. AScHCD
xxx xxx xxx
MR. PARAYNO. Your Honor, I think as a
general rule, five days [extendible] to
another five days is a good enough period of
time. But we cannot discount that there
are some consignees of shipments
located in rural areas or distant from
urban centers where the ports are
located to come to the [BOC] and to
ask for help particularly if a ship
consignment is made to an individual

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who is uninitiated with customs


procedures. He will probably have the
problem of coming over to the urban
centers, seek the advice of people on
how to file entry. And therefore, the
five day extendible to another five days
might really be a tight period for
some. But the majority of our
importers are knowledgeable of
procedures. And in fact, it is in their
interest to file the entry even before the
arrival of the shipment. That's why we have
a procedure in the bureau whereby
importers can file their entries even before
the shipment arrives in the country.
(Emphasis supplied)
xxx xxx xxx
Petitioner, a regular, large-scale
and multinational importer of oil and
oil products, fell under the category of
a knowledgeable importer which was
familiar with the governing rules and
procedures in the release of
importations.
Furthermore, notice to petitioner
was unnecessary because it was fully
aware that its shipments had in fact
arrived in the Port of Batangas. The oil
shipments were discharged from the
carriers docked in its private pier or
wharf, into its shore tanks. From then
on, petitioner had actual physical
possession of its oil importations. It
was thus incumbent upon it to know its
obligation to file the IEIRD within the
30-day period prescribed by law. As a
matter of fact, importers such as
petitioner can, under existing rules and
regulations, file in advance an import
entry even before the arrival of the
shipment to expedite the release of the
same. However, it deliberately chose
not to comply with its obligation under
Section 1301.

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The purpose of posting an "urgent


notice to file entry" pursuant to
Section B.2.1 of CMO 15-94 is only to
notify the importer of the "arrival of its
shipment" and the details of said
shipment. Since it already had
knowledge of such, notice was
superfluous. Besides, the entries had
already been filed, albeit belatedly. It
would have been oppressive to the
government to demand a literal
implementation of this notice
requirement. 44 (Emphasis and
underlining supplied)
Therefrom, it is without a doubt that the requirement of due
notice contemplated under Section 1801 (b) of the TCCP, as
amended, refers to the notice to the owner, importer, consignee or
interested party of the arrival of its shipment and details thereof.
The legislative intent was clear in emphasizing the importance of
said notice of arrival, which is intended solely to persons not
considered as knowledgeable importers, or those who are not
familiar with the governing rules and procedures in the release of
importations. We as much as said that the due notice requirement
under Section 1801 (b), do not apply to knowledgeable importers,
such as Chevron in the above-cited case, for having been
considered as one of the regular, large-scale and multinational
importers of oil and oil products, familiar with said rules and
procedures (including the duty and obligation of filing the IEIRD
within a non-extendible period of 30 days) and fully aware of the
arrival of its shipment on its privately owned pier or wharf in the
Port of Batangas. Applying Chevron, the decision assailed here said:
The due notice required
under Section 1301 is the notice of the
arrival of the shipment. In this case,
pursuant to the Chevron case, notice to
petitioner Shell is not required under the
peculiar circumstances of the
case. Petitioner Shell, like Chevron, is a
regular, large-scale and multinational
importer of oil and oil products, who
falls under the category of a
knowledgeable importer, familiar with
the governing rules and procedures in
the release of importations.

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More importantly, petitioner Shell


even admitted that it filed an
application for Special Permit to
Discharge and paid the corresponding
advance duties on March 22,
1996 (Exhibits "K" and "P"), which
undeniably proved knowledge on the
part of petitioner Shell of the arrival of
the shipment. Likewise, upon arrival of the
shipment, they were unloaded from the
carrying vessels docked at the wharf
owned by petitioner Shell at Tabangao,
Batangas City; thus, petitioner Shell
was fully aware that their importation
had already arrived. 45 (Emphasis
supplied)
The foregoing having been said, we must with equal concern,
go to the other timeline which is provided for in Section 1603 of
the TCCP, to wit:
Sec. 1603. Finality of Liquidation.
When articles have been entered and
passed free of duty or final adjustment of
duties made, with subsequent delivery, such
entry and passage free of duty or
settlement of duties will, after the expiration
of one year, from the date of the final
payment of duties, in the absence of fraud
or protest, be final and conclusive upon all
parties, unless the liquidation of the import
entry was merely tentative. AcICHD
Petitioner insists that, in the absence of fraud, the right of
respondent to claim against it has already prescribed considering
that an action involving the entry and payment of customs duties
involving imported articles demanded after a period of one (1) year
from the date of final payment of duties, shall not succeed,
pursuant to the clear provision of Section 1603. It therefore
contends that even if the subject imported crude oil of petitioner is
by law deemed abandoned by operation of law under Sections 1801
(b), in relation to Section 1301, of the Code, respondent's right to
claim abandonment had already lapsed since fraud is wanting in
this case. On the other hand, respondent counters that since there
was a factual finding of fraud committed by petitioner in the filing of
its Import Entry and Internal Revenue Declaration beyond the 30-
day period prescribed under Section 1301 of the TCCP, the 1-year
prescriptive period under Section 1603 therefore does not apply.

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At this point, it bears emphasis that in a petition for review


on certiorari under Rule 45 of the Rules of Court, only questions of
law may be raised. 46 The Court is not a trier of facts and does not
normally undertake the re-examination of the evidence presented
by the contending parties during the trial of the case considering
that the findings of facts of the CA are conclusive and binding on
the Court 47 and they carry even more weight when the CA
affirms the factual findings of the trial court. 48 However, it is
already a settled matter that, the Court had recognized several
exceptions to this rule, to wit: (1) when the findings are grounded
entirely on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3)
when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of facts
are conflicting; (6) when in making its findings the Court of Appeals
went beyond the issues of the case, or its findings are contrary to
the admissions of both the appellant and the appellee; (7) when the
findings are contrary to the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they are
based; (9) when the facts set forth in the petition as well as in the
petitioner's main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are premised on
the supposed absence of evidence and contradicted by the
evidence on record; and (11) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed by
the parties, which, if properly considered, would justify a
different conclusion. 49
Records of this case reveal that the CTA in Division in its 19
June 2008 Decision 50 made a pronouncement that there was
indeed fraud committed by petitioner based on the factual finding
contained in the Memorandum dated 2 February 2001 issued by
Special Investigator II Domingo B. Almeda and Special Investigator
III Nemesio C. Magno, Jr. of the CIIS-IPD of the BOC. Consequently,
since such memorandum made such factual finding of fraud against
petitioner, the court a quo ruled that prescription does not set in
even if respondent's claim was made beyond the 1-year
reglementary period.
Upon an assiduous review of the factual finding of fraud, we
find petitioner's contention meritorious. Hence, the instant case falls
among the exceptions to the general rule previously mentioned
which would require this Court's judicial prerogative to review the
court a quo's findings of fact.
Generally, fraud has been defined as "the deliberate intention
to cause damage or prejudice. It is voluntary execution of a
wrongful act, or a willful omission, knowing and intending the

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effects which naturally and necessarily arise from such act or


omission. 51 For fraud to exist, it must be intentional, consisting of
deception willfully and deliberately done or resorted to in order to
induce another to give up some right. 52 It is never presumed and
the burden of proof to establish lies in the person making such
allegation since every person is presumed to be in good faith. 53To
discharge this burden, fraud must be proven by clear and
convincing evidence. 54 Also, fraud must be alleged and proven as
a fact where the following requisites must concur: (a) the fraud
must be established by evidence; and (b) the evidence of fraud
must be clear and convincing, and not merely preponderant. Upon
failure to establish these two (2) requisites, the presumption of good
faith must prevail.
Section 3611 (c) of the TCCP, as amended, defines the term
fraud as the occurrence of a "material false statement or act in
connection with the transaction which was committed or omitted
knowingly, voluntarily and intentionally, as established by clear and
convincing evidence." Again, such factual finding of fraud should be
established based on clear, convincing, and uncontroverted
evidence.
Relevant thereto, in the landmark case of Aznar v. Court of
Tax Appeals, 55 we explained the general concept of fraud as
applied to tax cases in the following fashion: TAIaHE
The fraud contemplated by law is
actual and not constructive. It must be
intentional fraud, consisting of
deception willfully and deliberately
done or resorted to in order to induce
another to give up some legal
right. Negligence, whether slight or gross,
is not equivalent to the fraud with intent to
evade the tax contemplated by the law. It
must amount to intentional wrong doing
with the sole object of avoiding the tax. It
necessarily follows that a mere mistake
cannot be considered as fraudulent
intent, and if both petitioner and
respondent Commissioner of Internal
Revenue committed mistakes in
making entries in the returns and in
the assessment, respectively, under
the inventory method of determining
tax liability, it would be unfair to treat
the mistakes of the petitioner as
tainted with fraud and those of the

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respondent as made in good


faith. 56 (Emphasis supplied)
In the case at bench, a perusal of the records reveals that
there is neither any iota of evidence nor concrete proof offered and
admitted to clearly establish that petitioner committed any
fraudulent acts. The CTA in Division relied solely on the
Memorandum dated 2 February 2001 issued by the CIIS-IPD of the
BOC in ruling the existence of fraud committed by petitioner.
However, there is no showing that such document was ever
presented, identified, and testified to or offered in evidence by
either party before the trial court.
Time and again, this Court has consistently declared that
cases filed before the CTA are litigated de novo, party-litigants must
prove every minute aspect of their cases. 57 Section 8 of R.A. No.
1125, 58 as amended by R.A. No. 9282, 59 categorically described
the CTA as a court of record. Indubitably, no evidentiary value can
be given to any documentary evidence merely attached to the BOC
Records, as the rules on documentary evidence require that such
documents must be formally, offered before the CTA. Pertinent is
Section 34, Rule 132 of the Rules of Court which reads:
Section 34. Offer of evidence. The
court shall consider no evidence which has
not been formally offered. The purpose for
which the evidence is offered must be
specified.
From the foregoing provision, it is clear that for evidence to be
considered by the court, the same must he formally offered.
Corollarily, the mere fact that a particular document is identified
and marked as an exhibit does not mean that it has already been
offered as part of the evidence of a party. In Interpacific Transit, Inc.
v. Aviles, 60 We had the occasion to make a distinction between
identification of documentary evidence and its formal offer as an
exhibit. We said that the first is done in the course of the trial and is
accompanied by the marking of the evidence as an exhibit while the
second is done only when the party rests its case and not before. A
party, therefore, may opt to formally offer his evidence if he
believes that it will advance his cause or not to do so at all. In the
event he chooses to do the latter, the trial court is not authorized by
the Rules to consider the same. 61
The Rule on this matter is patent that even documents which
are identified and marked as exhibits cannot be considered into
evidence when the same have not been formally offered as part of
the evidence, but more so if the same were not identified and
marked as exhibits, such as in the present case. An assay of the

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records reveals that the subject Memorandum dated 2 February


2001 was neither identified nor offered in evidence by respondent
during the entire proceedings before the CTA in Division.
Consequently, this is fatal to respondent's cause in establishing the
existence of fraud committed by petitioner since the burden of proof
to establish the same lies with the former alone. cDHAES
As a matter of fact, even if the aforesaid documentary
evidence was included as part of the BOC Records submitted before
the CTA in compliance with a lawful order of the court, 62 this does
not permit the trial court to consider the same in view of the fact
that the Rules prohibit it. The reasoning forwarded by the CTA in
Division in its Resolution dated 24 February 2009, that the apparent
purpose of transmittal of the records is to enable it to appreciate
and properly review the proceedings and findings before an
administrative agency, is misplaced. Unless any of the party
formally offered in evidence said Memorandum, and accordingly,
admitted by the court a quo, it cannot be considered as among the
legal and factual bases in resolving the controversy presented
before it.
By analogy, in Dizon v. CTA, 63 this Court underscored the
importance of a formal offer of evidence and the corresponding
admission thereafter. We quote:
While the CTA is not governed strictly
by technical rules of evidence, as rules of
procedure are not ends in themselves and
are primarily intended as tools in the
administration of justice, the presentation of
the BIR's evidence is not a mere procedural
technicality which may be disregarded
considering that it is the only means by
which the CTA may ascertain and verify the
truth of BIR's claims against the Estate. The
BIR's failure to formally offer these
pieces of evidence, despite CTA's
directives, is fatal to its cause. Such
failure is aggravated by the fact that not
even a single reason was advanced by the
BIR to justify such fatal omission. This, we
take against the BIR.
Per the records of this case, the BIR
was directed to present its evidence in the
hearing of February 21, 1996, but BIR's
counsel failed to appear. The CTA denied
petitioner's motion to consider BIR's

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presentation of evidence as waived, with a


warning to BIR that such presentation would
be considered waived if BIR's evidence
would not be presented at the next hearing.
Again, in the hearing of March 20, 1996,
BIR's counsel failed to appear. Thus, in its
Resolution dated March 21, 1996, the CTA
considered the BIR to have waived
presentation of its evidence. In the same
Resolution, the parties were directed to file
their respective memorandum. Petitioner
complied but BIR failed to do so. In all of
these proceedings, BIR was duly notified.
Hence, in this case, we are constrained to
apply our ruling in Heirs of Pedro Pasag v.
Parocha:
A formal offer is necessary
because judges are mandated to rest
their findings of facts and their
judgment only and strictly upon the
evidence offered by the parties at the
trial. Its function is to enable the trial
judge to know the purpose or purposes
for which the proponent is presenting
the evidence. On the other hand, this
allows opposing parties to examine the
evidence and object to its admissibility.
Moreover, it facilitates review as the
appellate court will not be required to
review documents not previously
scrutinized by the trial court.
Strict adherence to the said rule is not
a trivial matter. The Court in Constantino v.
Court of Appeals ruled that the formal
offer of one's evidence is deemed
waived after failing to submit it within
a considerable period of time. It
explained that the court cannot admit
an offer of evidence made after a lapse
of three (3) months because to do so
would "condone an inexcusable laxity if
not non-compliance with a court order
which, in effect, would encourage
needless delays and derail the speedy
administration of justice."

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Applying the aforementioned principle


in this case, we find that the trial court had
reasonable around to consider that
petitioners had waived their right to make a
formal offer of documentary or object
evidence. Despite several extensions of
time to make their formal offer, petitioners
failed to comply with their commitment and
allowed almost five months to lapse before
finally submitting it. Petitioners' failure to
comply with the rule on admissibility of
evidence is anathema to the efficient,
effective, and expeditious dispensation
of justice. (Emphasis and underlining
supplied)
Clearly therefore, evidence not formally offered during the
trial cannot be used for or against a party litigant by the trial court
in deciding the merits of the case. Neither may it be taken into
account on appeal. Since the rule on formal offer of evidence is not
a trivial matter, failure to make a formal offer within a considerable
period of time shall be deemed a waiver to submit it. Consequently,
any evidence that has not been offered and admitted thereafter
shall be excluded and rejected. ASEcHI
Moreover, even if not submitted as a contention herein, We
find it apropos to rule that the CTA likewise cannot motu
proprio justify the existence of fraud committed by petitioner by
applying the rules on judicial notice.
Judicial notice is the cognizance of certain facts which judges
may properly take and act on without proof because they already
know them. 64 Under the Rules of Court, judicial notice may either
be mandatory or discretionary. Pertinent portions of Rule 129 of
the Rules of Court provide as follows:
RULE 129
What Need Not Be Proved
Section 1. Judicial notice, when
mandatory. A court shall take judicial
notice, without the introduction of evidence,
of the existence and territorial extent of
states, their political history, forms of
government and symbols of nationality, the
law of nations, the admiralty and maritime
courts of the world and their seals, the
political constitution and history of the
Philippines, the official acts of legislative,

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executive and judicial departments of the


Philippines, the laws of nature, the measure
of time, and the geographical divisions.
Section 2. Judicial notice, when
discretionary. A court may take judicial
notice of matters which are of public
knowledge, or are capable to
unquestionable demonstration, or ought to
be known to judges because of their judicial
functions.
Section 3. Judicial notice, when
hearing necessary. During the trial, the
court, on its own initiative, or on request of
a party, may announce its intention to take
judicial notice of any matter and allow the
parties to be heard thereon.
After the trial, and before judgment or
on appeal, the proper court, on its own
initiative or on request of a party, may take
judicial notice of any matter and allow the
parties to be heard thereon if such matter is
decisive of a material issue in the case.
xxx xxx xxx
In relation thereto, it has been held that the doctrine of
judicial notice rests on the wisdom and discretion of the courts;
however, the power to take judicial notice is to be exercised by the
courts with caution; care must be taken that the requisite notoriety
exists; and every reasonable doubt upon the subject should be
promptly resolved in the negative. 65
As a general rule, courts are not authorized to take judicial
notice of the contents of the records of other cases, even when such
cases have been tried or are pending in the same court, and
notwithstanding the fact that both cases may have been tried or are
actually pending before the same judge. 66 However, this rule is
subject to the exception that in the absence of objectionand as a
matter of convenience to all parties, a court may properly treat all
or any part of the original record of the case filed in its archives as
read into the records of a case pending before it, when with the
knowledge of the opposing party, reference is made to it, by
name and number or in some other manner by which it is
sufficiently designated. 67 Thus, for said exception to apply, the
party concerned must be given an opportunity to object before the

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court could take judicial notice of any record pertaining to other


cases pending before it.
Such being the case, it would also be an error for the CTA in
Division to even take judicial notice of the subject Memorandum
being merely a part of the BOC Records submitted before the
court a quo, without the same being identified by a witness, offered
in and admitted as evidence, and effectively, depriving petitioner,
first and foremost, an opportunity to object thereto. Hence, the
subject Memorandum should not have been considered by the CTA
in Division in its disposition. ITAaHc
It is well-settled that procedural rules are designed to
facilitate the adjudication of cases. Courts and litigants alike are
enjoined to abide strictly by the rules. While it is true that litigation
is not a game of technicalities, it is equally true that every case
must be prosecuted in accordance with the prescribed procedure to
ensure an orderly and speedy administration of justice. Party
litigants and their counsel are well advised to abide by, rather than
flaunt, procedural rules for these rules illumine the path of the law
and rationalize the pursuit of justice. 68
The claim of respondent against petitioner has already
prescribed
Since we have already laid to rest the question on whether or
not there was fraud committed by petitioner, the last issue for Our
resolution is whether respondent's claim against petitioner has
already prescribed.
This Court rules in the affirmative.
There being no evidence to prove that petitioner committed
fraud in belatedly filing its Import Entry and Internal Revenue
Declaration within the 30-day period prescribed under Section 1301
of the TCCP, as amended, respondent's rights to question the
propriety thereof and to collect the amount of the alleged deficiency
customs duties, more so the entire value of the subject shipment,
have already prescribed. Simply put, in the absence of fraud, the
entry and corresponding payment of duties made by petitioner
becomes final and conclusive upon all parties after one (1) year
from the date of the payment of duties in accordance with Section
1603 of the TCCP, as amended:
Section 1603. Finality of Liquidation.
When articles have been entered and
passed free of duty or final adjustments of
duties made, with subsequent
delivery, such entry and passage free of
duty or settlements of duties as

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well, after the expiration of one (1)


year, from the date of the final
payment of duties, in the absence of
fraud or protest or compliance audit
pursuant to the provisions of this Code,
be final and conclusive upon all parties,
unless the liquidation of the import entry
was merely tentative. (Emphasis and
underscoring supplied)
The above provision speaks of entry and passage free of duty
or settlements of duties. Generally, in customs law, the term "entry"
has a triple meaning, to wit: (1) the documents filed at the customs
house; (2) the submission and acceptance of the documents and (3)
the procedure of passing goods through the customs house. 69 As
explained in the Chevron case, it specifically refers to the filing and
acceptance of the Import Entry and Internal Revenue Declaration of
the imported article. Simply put, the entry of imported goods at the
custom house consists in submitting them to the inspection of the
revenue officers, together with a statement or description of such
goods, and the original invoices of the same, for the purpose of
estimating the duties to be paid thereon. 70 The term "duty" used
therein denotes a tax or impost due to the government upon the
importation or exportation of goods. It means that the duties on
imports signify not merely a duty on the act of importation, but a
duty on the thing imported. It is not confined to a duty levied while
the article is entering the country, but extends to a duty levied after
it has entered the country. 71
Based on the foregoing definitions, it is commonsensical that
the finality of liquidation referred to under Section 1603 covers the
propriety of the submission and acceptance of the Import Entry and
Internal Revenue Declaration covering the imported articles being
brought in the country for the sole purpose of determining whether
it is subject to tax or not; and if it is, whether the computation of the
tax or impost to be paid to the government was properly made.
These shall include, among others, the declarations and statements
contained in the entry, made under oath and under the penalties of
falsification or perjury that such declarations and statements
contained therein are true and correct, which shall constitute prima
facie evidence of knowledge and consent of the importer of
violation against applicable provisions of the TCCP when the
importation is found to be unlawful. 72 CHTAIc
Indubitably, the matters which become final and conclusive
against all parties include the timeliness of filing the import entry
within the period prescribed by law, the declarations and
statements contained therein, and the payment or non-payment of

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customs duties covering the imported articles by the owner,


importer, consignee or interested party. Since the primordial issue
presented before us focuses on petitioner's non-compliance in filing
its Import Entry and Internal Revenue Declaration within a non-
extendible period of 30 days from the date of discharge of the last
package from the vessel, respondent may only look into it within a
limited period of one (1) year in accordance with the above-quoted
provision.
In the case at bench, it is undisputed that petitioner filed its
IEIRD and paid the remaining customs duties due on the subject
shipment only on 23 May 1996. Yet, it was only on l August 2000, or
more than four (4) years later, that petitioner received a demand
letter from the District Collector of Batangas for the alleged unpaid
duties covering the said shipment. Thereafter, on 29 October 2001,
or after more than five (5) years, petitioner received another
demand letter from respondent seeking to collect for the entire
dutiable value of the same shipment amounting to
P936,899,855.90.
Consequently, applying the foregoing provision and
considering that we have determined already that there is no
factual finding of fraud established herein, the liquidation of
petitioner's imported crude oil shipment became final and
conclusive on 24 May 1997, or exactly upon the lapse of the 1-year
prescriptive period from the date of payment of final duties. As
such, any action questioning the propriety of the entry and
settlement of duties pertaining to such shipment initiated beyond
said date is therefore barred by prescription.
Since time immemorial, this Court has consistently recognized
and applied the statute of limitations to preclude the Government
from exercising its power to assess and collect taxes beyond the
prescribed period, and we intend to abide by our rulings on
prescription and to strictly apply the same in the case of petitioner;
otherwise, both the procedural and substantive rights of petitioner
would be violated. After all, prescription is a substantive defense
that may be invoked to prevent stale claims from being resurrected
causing inconvenience and uncertainty to a person who has long
enjoyed the exercise. Thus, symptomatic of the magnitude of the
concept of prescription, this Court has elucidated that:
The law prescribing a limitation of
actions for the collection of the income tax
is beneficial both to the Government and to
its citizens; to the Government because tax
officers would be obliged to act promptly in
the making of assessment, and to citizens

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because after the lapse of the period of


prescription citizens would have a
feeling of security against
unscrupulous tax agents who will
always find an excuse to inspect the
books of taxpayers, not to determine
the latter's real liability, but to take
advantage of every opportunity to
molest peaceful, law-abiding citizens.
Without such legal defense taxpayers
would furthermore be under obligation
to always keep their books and keep
them open for inspection subject to
harassment by unscrupulous tax
agents. The law on prescription being a
remedial measure should be interpreted in a
way conducive to bringing about the
beneficient purpose of affording protection
to the taxpayer within the contemplation of
the Commission which recommend (sic) the
approval of the law. 73 (Emphasis supplied)
Basic is the rule that provisions of the law should be read in
relation to other provisions therein. A statute must be interpreted to
give it efficient operation and effect as a whole avoiding the
nullification of cognate provisions. Statutes are read in a manner
that makes it wholly operative and effective, consistent with the
legal maxim ut res magis valeat quam pereat. EATCcI
This maxim applied, we read Sections 1301, 1801, and 1802,
together with Section 1603 of the TCCP. Thus, should there be
failure on the part of the owner, importer, consignee or interested
party, after due notice of the arrival of its shipment (except in cases
of knowledgeable owners or importers), to file an entry within the
non-extendible period of 30 days from the date of discharge of the
last package (shipment) from the vessel, such owner, importer,
consignee or interested party is deemed to have abandoned said
shipment in favor of the government. As imperative, however, is the
strict compliance with Section 1603 of the TCCP, which should be
read as we have ruled. Any action or claim questioning the propriety
of the entry and settlement of duties pertaining to such shipment
made beyond the 1-year prescriptive period from the date of
payment of final duties, is barred by prescription. In the present
case, the failure on the part of respondent to timely question the
propriety of the entry and settlement of duties by petitioner
involving the subject shipment, renders such entry and settlement
of duties final and conclusive against both parties. Hence,

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respondent cannot any longer have any claim from petitioner.


Sections 1301, 1801, and 1802 of the TCCP have been rendered
inoperable by reason of the lapse of the period stated in Section
1603 of the same Code.
Indeed, if the prescriptive period of one year specified in
Section 1603 of the TCCP is not applied against the respondent, the
reality that the shipment has been unloaded from the carrying
vessels to petitioner's oil tanks and that import duty in the amount
of P11,231,081.00 has been paid would be obliterated by the
application of the principle of deemed abandonment four years after
the occurrence of the facts of possession and payment, as a
consequence of which application, the petitioner would be made to
pay the government the entire value of the shipment it had as
vendee of the shipper already paid.
WHEREFORE, the petition is GRANTED. Accordingly,
the Decision dated 13 May 2010 and Resolution dated 22 February
2011 of the Court of Tax Appeals Former En Banc in C.T.A. EB No.
472 are hereby REVERSED and SET ASIDE on the ground of
prescription.
No costs.
SO ORDERED.
Reyes, J., concurs.
Velasco, Jr., J., see concurring opinion.
Peralta, J., pls. see dissenting opinion.
Jardeleza, J., I join the dissent of J. Peralta

Separate Opinions
VELASCO, JR., J., concurring:
I register my concurrence with the ponencia.
The Latin maxim stare decisis et non quieta movere means
stand by the thing and do not disturb the calm a bar from any
attempt at relitigating the same issues. It requires that high courts
must follow, as a matter of sound policy, their own precedents, or
respect settled jurisprudence absent compelling reason to do
otherwise. 1 As a recognized exception, the salutary doctrine
cannot be invoked when the facts and circumstances in the
succeeding case have so changed as to have robbed the old rule of
significant application or justification.
There is truth to the claim that the instant case bears striking
resemblance to that of Chevron Philippines v. Commissioner of the

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Bureau of Customs (Chevron). 2 As observed by Associate Justice


Diosdado M. Peralta (Justice Peralta) in his dissent: 3
. . . As in Chevron, the imported crude
oil subject of the present case arrived in the
Philippines and was discharged from the
carrying vessels prior to the effectivity of RA
8180. The import entries in both cases were
filed beyond the 30-day period required
under Section 1301 of the [Tariff and
Customs Code of the Philippines]. In fact, it
is on the bases of the facts obtaining in
these importations of petitioner and
Chevron (then known as Caltex Phils., Inc.)
that only one civil suit for collection of the
dutiable value of the imported articles was
filed by the [Bureau of Customs] against
these two corporations as defendants. It is
from this factual backdrop and the ensuing
demand by the [Bureau of Customs] to
collect the dutiable value of the
importations that the case
of Chevron reached this Court and was
ultimately decided in favor of the [Bureau of
Customs]. . . .
Notwithstanding these glaring similarities, it cannot hastily be
concluded that Chevron is on all fours with the case at bar; the two
cases are diametrically opposed insofar as the issue of fraud
on the part of the importer is concerned. While the Court's
ruling in Chevron was that the existence of fraud therein was
sufficiently established, no clear and convincing evidence was
presented herein to justify arriving at the same conclusion.
Whether or not petitioner Pilipinas Shell Petroleum
Corporation (Pilipinas Shell) defrauded the Bureau of Customs (BOC)
becomes pivotal in this case because of Sec. 1603 of the Tariff and
Customs Code (TCC), to wit:
Section 1603. Finality of Liquidation.
When articles have been entered and
passed free of duty or final adjustments of
duties made, with subsequent delivery, such
entry and passage free of duty
or settlements of duties will, after the
expiration of one (1) year, from the
date of the final payment of duties, in
the absence of fraud or protest or

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compliance audit pursuant to the provisions


of this Code, be final and conclusive
upon all parties, unless the liquidation of
the import entry was merely tentative.
(emphasis added)
Pursuant to the above-quoted provision, the attendance of
fraud would remove the case from the ambit of the statute of
limitations, and would consequently allow the government to
exercise its power to assess and collect duties even beyond the one-
year prescriptive period, rendering it virtually imprescriptible.
Exhaustively discussed by the ponencia was that no scintilla
of proof was ever offered in evidence by respondent Commissioner
of Customs to reinforce the claim that Pilipinas Shell acted in bad
faith, then a fortiori, in a fraudulent manner, in its settlement of
duties on its imported crude oil. The February 2, 2001 Memorandum
on which the Court of Tax Appeals (CTA), both in division and en
banc, chiefly anchored the finding of fraudulent intent was never
formally offered, but was instead merely included in the records
of the proceedings before the Bureau of Customs. CAacTH
Respondent was remiss in presenting this crucial piece of
evidence in the de novo proceeding before the CTA. Much has
already been said by the ponencia about the adverse effect of the
procedural lapse on the admissibility of the Memorandum and on its
probative value. If I may inject: regardless of whether the document
adverted to was marked during pre-trial, or was otherwise identified
during trial proper, it cannot be accorded any evidentiary weight in
finally resolving the case. As held in Heirs of Pasag v. Sps.
Parocha: 4
. . . Documents which may have been
identified and marked as exhibits during
pre-trial or trial but which were not formally
offered in evidence cannot in any manner
be treated as evidence. Neither can
such unrecognized proof be assigned
any evidentiary weight and value. It
must be stressed that there is a significant
distinction between identification of
documentary evidence and its formal offer.
The former is done in the course of the pre-
trial, and trial is accompanied by the
marking of the evidence as an exhibit; while
the latter is done only when the party rests
its case. The mere fact that a particular
document is identified and marked as

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an exhibit does not mean that it has


already been offered as part of the
evidence. It must be emphasized that
any evidence which a party desires to
submit for the consideration of the
court must formally be offered by the
party; otherwise, it is excluded and
rejected. (emphasis added)
It is this lack of proof of fraud that substantially alters the
terrain of the case, thereby precluding the applicability of the
doctrine of stare decisis. Though the circumstance appears to be
merely tangential, it is nevertheless the critical element in resolving
the issue on prescription. Absent fraud, the government, through
the BOC, is under legal compulsion to assess and collect customs
duties within a strict one-year period. As brought to fore by
the ponencia, respondent was regrettably remiss in complying with
the statutory mandate of Sec. 1603 of the TCC: 5
It is undisputed that petitioner filed its
[Import Entry and Internal Revenue
Declaration] and paid the remaining
customs duties on the subject shipment only
on 23 May 1996. Yet, it was only on 1
August 2000, or more than four (4) years
later, that petitioner received a demand
letter from the District Collector of Batangas
for the alleged unpaid duties covering the
said shipment. Thereafter, on 29 October
2001, or after more than five (5) years,
petitioner received another demand letter
from respondent seeking to collect for the
entire dutiable value of the same shipment
amounting to P936,899,855.90. (emphasis
added)
Upon expiration of the prescriptive period, respondent was
barred from further collecting from petitioner the dutiable value of
its imported crude oil. The hands of the Court are then constrained.
There is no other course of action for us to take other than to grant
the instant petition.
Notably, Justice Peralta never questioned the finding of
the ponencia as regards respondent's procedural lapse. However, it
is his postulation that the presence or even the absence of fraud is
irrelevant since Sec. 1603 of the TCC does not find application in
cases wherein the government exercises its right over abandoned
imported articles, rather than its power to assess and collect taxes.

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Unfortunately, I cannot join the dissent. I am perplexed at the


contradiction of how the argument is raised in the same breath as
the invocation of stare decisis. The irony lies in the discussion
in Chevron of the very same issue of prescription and the coverage
of Sec. 1603.
Aside from the presence or absence of fraud, it is admitted
that there is significant identity as to the factual milieu
of Chevron and the case at bar. Both are concerned with the
treatment of abandoned imported articles, and the collection by the
Commissioner of Customs of the dutiable value pertaining thereto.
In Chevron, we have categorically ruled that "due to the presence of
fraud, the prescriptive period of the finality of liquidation under
Section 1603 was inapplicable." The converse should, therefore,
likewise hold true in the absence of fraud, the one-year
prescriptive period under Sec. 1603 shall find application. Hence,
even if stare decisis is then to be applied, it could only operate to
sustain the dismissal of the case on the ground of prescription. Only
then could the ruling of the ponencia not possibly be considered as
a deviation from a settled norm.
PERALTA, J., dissenting:
The doctrine of stare decisis is one of policy grounded on the
necessity for securing certainty and stability of judicial
decisions. 1 Under this doctrine, when the Supreme Court has once
laid down a principle of law as applicable to a certain state of facts,
it will adhere to that principle, and apply it to all future
cases. 2 With all due respect to my colleagues, it is on this settled
principle and in this context that I register my dissent from
the ponencia.
At the outset, a brief account of the undisputed factual and
procedural antecedents that transpired and led to the filing of this
case is in order.
Petitioner Pilipinas Shell Petroleum Corporation is a domestic
corporation engaged in the business of importing crude oil, of
processing it into different finished petroleum products and,
thereafter, distributing and marketing these finished products.
On April 7, 1996, petitioner's importation of 1,979,674.85 US
barrels of Arab Light Crude Oil arrived in the Philippines through
vessels which docked at a wharf it owns and operates.
On April 10, 1996, three days after the arrival of its
importation, the shipments were unloaded and brought to
petitioner's oil tanks in Batangas City.

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On May 23, 1996, forty-three (43) days from the date of


discharge of its importation, petitioner filed the required Import
Entry and Internal Revenue Declaration (IEIRD) and paid import duty
in the amount of P11,231,081.00.
In the meantime, on April 16, 1996, Republic Act No. 8180 (RA
8180), otherwise known as the Downstream Oil Industry
Deregulation Act of 1996, took effect, which, among others,
provided for the reduction of the tariff duty on imported crude oil
from ten percent (10%) to three percent (3%).
On August 1, 2000, petitioner received a demand letter from
the Bureau of Customs (BOC), coursed through the District Collector
of Batangas, assessing it the amount of P120,162,991.00,
representing deficiency customs duties resulting from the difference
between the customs duties due computed at the old rate of 10%
(prior to the effectivity of RA 8180) and the actual amount of duties
paid by petitioner at the rate of 3%. CTIEac
Petitioner protested the assessment but was denied by the
District Collector. Petitioner appealed the District Collector's
decision to herein respondent Commissioner of Customs.
Thereafter, on October 29, 2001, petitioner received from
respondent a demand letter for the payment of the amount of
P936,899,885.90, representing the dutiable value of the subject
crude oil importation which was held to be abandoned for
petitioner's failure to file the required import entry on time.
On November 7, 2001, petitioner filed a protest contending
that the demand letter has no factual and legal basis, and that such
demand has already prescribed.
Subsequently, on April 11, 2002 the BOC filed a civil action for
collection of a sum of money against petitioner and Caltex
Philippines, Inc., which also made crude oil importations like
petitioner, for their refusal to pay the dutiable value of their
importations which they have consumed. 3
On May 27, 2002, petitioner filed a petition for review with the
Court of Tax Appeals (CTA) questioning the BOC's demand letters
which required petitioner to pay deficiency customs duties as well
as the dutiable value of its 1996 crude oil importation. The case was
raffled to the CTA First Division.
On June 19, 2008, the CTA First Division promulgated its
Decision 4 dismissing petitioner's petition for review for lack of
merit. Petitioner's motion for reconsideration was denied in a
Resolution 5 issued by the CTA First Division on February 24, 2009.

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Petitioner then filed a petition for review with the CTA


Former En Banc.
On May 13, 2010, the CTA Former En Banc promulgated its
Decision 6 dismissing petitioner's petition for review and affirming
with modification the CTA First Division's assailed Decision and
Resolution by imposing 6% interest on the sum awarded from the
date of promulgation until finality of the decision and 12% interest
from finality of the decision until full satisfaction.
Aggrieved, petitioner filed a motion for reconsideration which
was, however, denied for lack of merit by the CTA Former En Banc in
its Resolution 7 dated February 22, 2011.
Hence, the present petition for review on certiorari.
The basic issue that needs to be resolved in the instant
petition is whether or not respondent may still recover from
petitioner the dutiable value of the latter's crude oil importation
which it has consumed despite its having been deemed abandoned
by operation of law.
The ponencia rules that "there being no evidence to prove
that petitioner committed fraud in belatedly filing its [Import Entry
and Internal Revenue Declaration] (IEIRD) within the 30-day period
prescribed under Section 1301 of the [Tariff and Customs Code of
the Philippines] (TCCP), as amended, respondent's right to question
the propriety thereof and to collect the amount of the alleged
deficiency customs duties, more so the entire value of the
subject shipment, have already prescribed." 8
I take exception to the above pronouncement as it is my
considered view that it runs counter to the pertinent provisions of
the TCCP and of this Court's ruling in the leading case of Chevron
Philippines, Inc. v. Commissioner of the Bureau of
Customs (Chevron). 9
It bears stressing that the basic facts of the present case and
those of Chevron, which the Court follows as precedent, are
practically the same. As in Chevron, the imported crude oil subject
of the present case arrived in the Philippines 10 and was discharged
from the carrying vessels prior to the effectivity of RA 8180. 11 The
import entries in both cases were filed beyond the 30-day period
required under Section 1301 of the TCCP. In fact, it is on the basis of
the facts obtaining in these importations of petitioner and Chevron
(then known as Caltex Phils., Inc.) that only one civil suit for
collection of the dutiable value of the imported articles was filed by
the BOC against these two corporations as defendants. It is from
this factual backdrop and the ensuing demand by the BOC to collect
the dutiable value of the importations that the case

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of Chevron reached this Court and was ultimately decided in favor


of the BOC. Thus, since the present case and the case
ofChevron basically arise from the same factual circumstances, it is
the Court's duty to apply the ruling in Chevron to the present case.
In Chinese Young Men's Christian Association of the Philippine
Islands v. Remington Steel Corporation, 12 this Court ruled as
follows: SaCIDT
Time and again, the Court has held
that it is a very desirable and necessary
judicial practice that when a court has laid
down a principle of law as applicable to a
certain state of facts, it will adhere to that
principle and apply it to all future cases in
which the facts are substantially the same.
Stare decisis et non quieta movere. Stand
by the decisions and disturb not what is
settled. Stare decisis simply means that for
the sake of certainty, a conclusion reached
in one case should be applied to those that
follow if the facts are substantially the
same, even though the parties may be
different. It proceeds from the first principle
of justice that, absent any powerful
countervailing considerations, like cases
ought to be decided alike. Thus, where the
same questions relating to the same event
have been put forward by the parties
similarly situated as in a previous case
litigated and decided by a competent court,
the rule of stare decisis is a bar to any
attempt to relitigate the same issue. 13
Nonetheless, petitioner contends that the ruling
in Chevron does not apply to the present case and relies on the
provisions of Section 1603 of the TCCP, which provides as follows:
Section 1603. Finality of Liquidation.
When articles have been entered and
passed free of duty or final adjustments of
duties made, with subsequent delivery, such
entry and passage free of duty or
settlements of duties will, after the
expiration of one (1) year, from the date of
the final payment of duties, in the absence
of fraud or protest or compliance audit
pursuant to the provisions of this Code, be
final and conclusive upon all parties, unless

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the liquidation of the import entry was


merely tentative.
On the other hand, Sections 1301, 1801 and 1802 of
the TCCP, as amended by Republic Act No. 7651 (RA 7651), 14 also
provide:
Section 1301. Persons Authorized to
Make Import Entry. Imported articles
must be entered in the customhouse at
the port of entry within thirty (30)
days, which shall not be extendible,
from date of discharge of the last
package from the vessel or
aircraft either (a) by the importer, being
holder of the bill of lading, (b) by a duly
licensed customs broker acting under
authority from a holder of the bill or (c) by a
person duly empowered to act as agent or
attorney-in-fact for each holder: Provided,
That where the entry is filed by a party
other than the importer, said importer shall
himself be required to declare under oath
and under the penalties of falsification or
perjury that the declarations and
statements contained in the entry are true
and correct: Provided, further, That such
statements under oath shall
constitute prima facie evidence of
knowledge and consent of the importer of
violation against applicable provisions of
this Code when the importation is found to
be unlawful.
Section 1801. Abandonment, Kinds
and Effect of. An imported article is
deemed abandoned under any of the
following circumstances:
a. When the owner, importer, consignee of the imported
article expressly signifies in writing to the Collector
of Customs his intention to abandon; or
b. When the owner, importer, consignee or
interested party after due notice, fails to file
an entry within thirty (30) days, which shall
not be extendible, from the date of discharge
of the last package from the vessel or
aircraft, or having filed such entry, fails to claim

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his importation within fifteen (15) days which shall


not likewise be extendible, from the date of posting
of the notice to claim such importation.
Any person who abandons an
article or who fails to claim his
importation as provided for in the
preceding paragraph shall be deemed
to have renounced all his interests and
property rights therein.
Section 1802. Abandonment of
Imported Articles. An abandoned
article shall ipso facto be deemed the
property of the Government and shall
be disposed of in accordance with the
provisions of this Code.
xxx xxx xxx 15
It is clear that, under the abovequoted provisions of Section
1301, in relation to Sections 1801 and 1802, when the importer fails
to file the entry within the required 30-day period, he shall be
deemed to have renounced all his interests and property rights to
the importations, and these shall be considered impliedly
abandoned in favor of the government.
From the wording of the above provisions of Section 1801, as
amended by RA 7651, it was held in Chevron that the law "no longer
requires that there be other acts or omissions where an intent to
abandon can be inferred. It is enough that the importer fails to file
the required import entries within the reglementary period. The
lawmakers could have easily retained the words used in the old law
(with respect to the intention to abandon) but opted to omit them. It
would be error on our part to continue applying the old law despite
the clear changes introduced by the amendment." 16 cHECAS
From these pronouncements, it is clear that abandonment
sets in once an importer fails to file the required import entry within
the 30-day period provided by law after due notice of the arrival of
its shipment (except in cases of knowledgeable owners or
importers), without regard to any other act which may or may not
have been committed by such importer with respect to the entry of
and payment of duties of the imported articles.
The necessary consequence of such abandonment is the
transfer of ownership of the imported articles in favor of the
government. Thus, as quoted above, Section 1802 of
the TCCPprovides as follows:

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Section 1802. Abandonment of


Imported Articles. An abandoned article
shall ipso facto be deemed the
property of the Government and shall be
disposed of in accordance with the
provisions of this Code. 17
Chevron ruled that, "[n]o doubt, by using the term ipso
facto in Section 1802 as amended by RA 7651, the legislature
removed the need for abandonment proceedings and for a
declaration that the imported articles have been abandoned
before ownership thereof can be transferred to the
government." 18
It was also held in the same case that "[p]etitioner's failure to
file the required entries within a non-extendible period of thirty days
from date of discharge of the last package from the carrying vessel
constituted implied abandonment of its oil importations. This means
that from the precise moment that the non-extendible thirty-day
period lapsed, the abandoned shipments were deemed, ipso facto,
(that is, they became) the property of the government." 19
The term ipso facto is defined as by the very act itself or by
mere act. Probably a closer translation of the Latin term would be
by the fact itself. Thus, there was no need for any affirmative
act on the part of the government with respect to the
abandoned imported articles since the law itself provides
that the abandoned articles shall ipso facto be deemed the
property of the government. Ownership over the abandoned
importation was transferred to the government by operation of law
under Section 1802 of the TCC[P], as amended by RA
7651. Therefore, when petitioner withdrew the oil shipments
for consumption, it appropriated for itself properties which
already belonged to the government. Accordingly, it became
liable for the total dutiable value of the shipments of [its]
imported crude oil. 20
It becomes apparent from the above discussions, that the
issue of whether or not an importer is guilty of fraud in the filing of
its import entry is immaterial insofar as its liability for the payment
of the dutiable value of its abandoned importation is concerned. As
applied to the present case, petitioner becomes liable to pay the
dutiable value of its importation, regardless of whether or not it is
guilty of fraud, especially since it consumed or used its imported
crude oil despite losing ownership thereof. Thus, the CTA Former En
Banc correctly held that:
As regards the issue on the existence
of fraud, it should be emphasized that fraud

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is not controlling in this case. Even in the


absence of fraud, petitioner Shell is still
liable for the payment of the dutiable value
by operation of law. The liability of petitioner
Shell for the payment of the dutiable value
of its imported crude oil arose from the
moment it appropriated for itself the said
importation, which were already a property
of the government by operation of law.
Absence of fraud in this case would not
exclude petitioner Shell from the coverage
of Sections 1810 and 1802 of the TCCP. 21
The ponencia sustains petitioner's contention and rules that
the provisions of Sections 1301, 1801 and 1802 of the TCCP should
be read in relation to Section 1603 to make the whole statute wholly
operative and effective. I agree that a statute must be read or
construed as a whole or in its entirety and that all parts, provisions,
or sections, must be read, considered or construed together, and
each must be considered with respect to all others, and in harmony
with the whole. 22 However, it would be error to rely on petitioner's
fallacious premise that, under Section 1603 of the TCCP, the
government's right to claim abandonment and recover the dutiable
value of the abandoned importation is dependent on whether or not
it (petitioner) is guilty of fraud, and its subsequent position that, if it
is not guilty of fraud, the government's right to claim abandonment
will lapse after a period of one (1) year. How can the government's
right to claim abandonment lapse if the government's ownership
over the abandoned articles is already transferred to it by operation
of law from the moment that petitioner failed to file its import entry
within the non-extendible 30-day period? In other words, after the
expiration of the 30-day period, the government, ipso facto,
becomes the owner of the abandoned articles and, being the
owner, the government's exercise of its rights of ownership
over the abandoned imported article, which includes the
right to recover the value of such abandoned article, which
was already consumed by the importer, is not conditioned
upon any prior act or proceeding nor is it subject to the
prescriptive period provided under Section 1603.
Contrary to what has been stated in the ponencia, the
government, in the present case, is not exercising its power to
assess and collect taxes. What it exercises is its right of ownership
over abandoned imported articles. AHDacC
Petitioner's strained and stretched interpretation of Section
1603, as maintained by the ponencia, to the effect that it would
preclude the government from exercising its right of ownership over

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the abandoned imported articles, would, in effect, render the


provisions of Section 1801 and 1802 nugatory. A careful reading of
the provisions of Sections 1801 and 1802, as well as the
Congressional deliberations on policy considerations 23 for the non-
extendible 30-day period for the filing of the import entry in Section
1301, do not make any mention of nor reference to the provisions of
Section 1603 as an exception to the application of the provisions of
Sections 1801 and 1802. Particularly, the law does not make the
absence of fraud on the part of the importer, nor questions or issues
regarding the propriety of the importer's entry and settlement of
duties, as factors which would prevent the government from
subsequently considering the imported article as abandoned and of
recovering its value in case the said article is consumed by the
importer despite losing ownership thereof.
If the Court were to follow petitioner's interpretation, it would,
in effect, impose an additional condition on the government's right
to exercise its ownership over the abandoned imported article, a
condition which is not provided by law.
Also, insofar as petitioner's liability for the payment of the
dutiable value of its imported crude oil is concerned, the provisions
of Section 1603 of the TCCP are not applicable. Aside from the
reasons discussed above, it is observed that Section 1603 falls
under Part V, Title IV of the TCCP which is entitled "Liquidation of
Duties." A cursory reading of the related Sections (1601, 1602 and
1604), which fall under this heading, would show that what
becomes final and conclusive after the expiration of one (1) year
from the final payment of duties is only the determination of the
total amount and settlement as well as adjustment of duties, taxes,
surcharges, wharfage, and/or other charges to be paid on entries.
Nothing in the provisions under this heading excuses an importer
from its liability to pay the dutiable value of the importation it
consumed despite having abandoned the same in the eyes of the
law.
Moreover, as discussed above, it would be grossly
disadvantageous to the government if the Court were to follow
petitioner's interpretation that, in the absence of fraud and after the
lapse of one (1) year from the date of its payment of duties, the
government is already precluded from recovering the dutiable value
of the subject imported crude oil which the government already
owns by operation of law but which was, nonetheless, appropriated
and consumed by petitioner.
To recapitulate, the ruling in Chevron is clear and simple.
There, it was held that the petitioner's failure to file the required
entries within a non-extendible period of thirty (30) days from date

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of discharge of the last package from the carrying vessel


constituted implied abandonment of its oil importations, which
means that from the precise moment that the non-extendible thirty-
day period lapsed, the abandoned shipments became the property
of the government. As a consequence, when the petitioner withdrew
the oil shipments for consumption, it appropriated for itself
properties which already belonged to the government and, thus,
became liable for the total dutiable value of the shipments of
imported crude oil, without regard to whether or not the importer
was guilty of fraud in filing its import entries and in the settlement
of its duties pertaining to such importation.
In addition, it is not amiss to point out that in Chevron, the
Court ruled that the importer's liability to pay the total dutiable
value of its shipments of imported crude oil should be reduced by
the total amount of duties it had paid thereon. I submit that the
same rule should be applied in the present case.
Finally, it is my opinion that this case should have been
referred to the Court en banc as the ruling in this case runs contrary
to the principle established in Chevron.
Accordingly, I vote to DENY the petition and AFFIRM the
Decision dated May 13, 2010 and Resolution dated February 22,
2011 of the CTA Former En Banc in C.T.A. EB No. 472, subject to the
modification that petitioner should be made to pay the total
dutiable value of its shipment of imported crude oil reduced by the
total amount of duties it had already paid to the government for
such importation.
||| (Pilipinas Shell Petroleum Corp. v. Commissioner of Customs, G.R.
No. 195876, [December 5, 2016])

THIRD DIVISION

[G.R. No. 204014. December 5, 2016.]

PHILIPPINE STOCK EXCHANGE,


INC., petitioner, vs. ANTONIO K. LITONJUA 1 AND
AURELIO K. LITONJUA, JR., respondents.

DECISION

PEREZ, J p:

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Before this Court is a Petition for Review on Certiorari filed by


the Philippine Stock Exchange, Inc. (PSE) seeking to annul the 23
May 2012 Decision 2 and 17 October 2012 Resolution 3 of the Court
of Appeals (CA) upholding the 22 February 2010 Decision 4 of the
Pasig City Regional Trial Court (RTC), Branch 154, granting the claim
for refund of Antonio K. Litonjua and Aurelio K. Litonjua, Jr. (Litonjua
Group). 5
Antecedent Facts
On 20 April 1999, the Litonjua Group wrote a letter-agreement
to Trendline Securities, Inc. (Trendline) through its President Priscilla
D. Zapanta (Zapanta), confirming a previous agreement for the
acquisition of the 85% majority equity of Trendline's membership
seat in PSE, a domestic stock corporation licensed by the Securities
and Exchange Commission (SEC) to engage in the business of
operating a market for the buying and selling of securities. 6 The
salient features of the agreement are as follow:
1. The sale of majority equity Membership/Seat equivalent to
eighty-five percent (85%) of the value, to Antonio and
Aurelio K. Litonjua, Jr., and/or assignees and immediate
members of their family (Litonjua Group). The balance
of the fifteen percent (15%) equity to be retained by you
and/or immediate members of your family;
2. The aggregate price for the Membership/Seat is Twenty-
three million Pesos (P23,000,000.00) broken down as
follows:

P19,555,000.
a. Litonjua Group - 85% equity
00
P3,445,000.0
b. Zapanta - 15% equity
0

P23,000,000.
Total Equity:
00
========
=====
3. Terms of Payment
1. On account of the outstanding claims of the
Philippine Stock Exchange (PSE), the Litonjua
Group is willing to pay in advance direct to
PSE the present claims of P18,547,643.81
with the following conditions:

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a. That the amount of P18,547,643.81 is the


entire obligation of Trendline Securities,
Inc., i.e., as full settlement of all claims
and outstanding obligations including
interest;

b. Upon acceptance of payment and approval


of PSE board, PSE will lift the
suspension and allow the Litonjua
Group to resume the normal trading
operation of the Membership/Seat;

c. That PSE will agree and accept nominations


of our assignee for the
Membership/Seat subject to PSE rules,
regulations and criteria for accepting a
new member or nominee;

d. That should the new membership be


organized, PSE will approve and register
the new member subject to rules,
regulations and criteria for accepting a
new member corporations.

2. The balance of P1,007,356.19 will be paid after


incorporation of the new company to which
the membership/seat will be
transferred. HSAcaE
The letter was conformed to by Zapanta for and on behalf of
Trendline. 7
In a letter-confirmation dated 21 April 1999, the Litonjua
Group undertook to pay the amount of P18,547,643.81 directly to
PSE within three working days upon confirmation that it will be for
the full settlement of all claims and outstanding obligations
including interest of Trendline to lift its membership suspension and
the resumption to normal trading operation. Further in the letter,
Trendline was obligated to secure the approval and written
confirmation of PSE for a new corporation to be incorporated that
will own a seat. 8
On 26 April 1999, Trendline, in compliance with the conditions
set forth in the 20 April 1999 letter-agreement, advised PSE of the
salient terms and conditions imposed upon it for the acquisition of
the membership/seat. 9

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On 29 April 1999, the PSE, through Atty. Ruben L. Almadro


(Atty. Almadro), Vice-President for Compliance and Surveillance
Department, sent a letter 10 to Trendline advising the latter that the
Business Conduct and Ethics Committee (BCEC) of PSE has resolved
to accept the amount of P19,000,000.00 as full and final settlement
of its outstanding obligations to be paid not later than 13 May 1999,
broken down as follows:
Unpaid PSE Advances to Clearing P15,918,744.
House 14
Compromise Fines/Penalties 3,081,255.86

P19,000,000.
00
========
====
Trendline was further advised that failure to pay the said
amount by 13 May 1999 will result to collection in full of imposable
fines/penalties and enforcement of payment by selling its seat at
public auction.
On 3 May 1999, Trendline sent a reply-letter to PSE
acknowledging its receipt of the 29 April 1999 letter and its
assurance that the Litonjua Group will comply with the terms of the
agreement. 11
In compliance, the Litonjua Group in a letter dated 12 May
1999, delivered to PSE through Atty. Almadro three check
payments, 12 all dated 13 May 1999 and payable to PSE, totaling to
an amount of P19,000,000.00 broken down as follow:

Bank Check No. Amount

1. Metro Bank 0127631 P1,700,000.00


2. Standard Chartered 0000062 P1,350,000.00
P15,950,000.0
3. Standard Chartered 0000064
0

P19,000,000.0
0
========
===

The letter, as conformed to by Trendline, indicated that the


above payment represents the advance payment of the Litonjua

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Group for the acquisition of the seat/membership with the PSE and
as full settlement of the outstanding obligation of Trendline. 13
The letter and checks were received by the PSE from Trendline
on 13 May 1999 as evidenced by Official Receipt Number 42264. It
bore an annotation that the checks were received as an advance
payment for full settlement of Trendline's outstanding obligation to
PSE. 14
Trendline, on its part, also sent a letter dated 13 May 1999
advising PSE of the payment of penalties and interest and
reactivation of its suspension to seat/membership. Further, PSE was
informed that Zapanta had already resigned as Trendline's nominee
and in lieu of the position, nominate Aurelio K. Litonjua, Jr. as the
new nominee to the seat/membership. 15
Despite several exchange of letters of conformity and delivery
of checks representing payment of full settlement of Trendline's
obligations, PSE failed to lift the suspension imposed on Trendline's
seat. 16 HESIcT
On 30 July 2006, the Litonjua Group, through a letter,
requested PSE to reimburse the P19,000,000.00 it had paid with
interest, upon knowledge that the specific performance by PSE of
transferring the membership seat under the agreement will no
longer be possible. 17
PSE, however, refused to refund the claimed amount as
without any legal basis. As a result, the Litonjua Group on 10
October 2006 filed a Complaint for Collection of Sum of Money with
Damages against PSE before the RTC of Pasig City. 18
PSE presented its version of the facts.
Prior to its re-organization in 2001, PSE was organized as a
non-stock corporation with 200 members, one of which was
Trendline. As a member, Trendline owns a trading seat with a right
to conduct trading activities in the PSE. 19
During the course of its trading activities, Trendline violated
some PSE rules in trading and failed to pay its cash settlement
payables to the Securities Clearing Corporation of the Philippines in
the amount of P113.7 Million. As a result, PSE was compelled to
assume Trendline's obligation. PSE, in turn, suspended Trendline's
trading privileges. 20
On 30 October 1998, Zapanta negotiated for an extension
period until 31 July 1999 to settle its obligations with PSE. In reply,
BCEC advised Trendline that it has until 31 March 1999 to settle its
obligations to the PSE. 21

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Prior to the expiration of the deadline, Trendline and the


Litonjua Group were already negotiating for the purchase of the
former's membership/seat. Accordingly, a letter-agreement dated
20 April 1999 was issued by the Group providing for the terms of
acquisition, without, however, securing the consent of PSE for
approval. This letter-agreement, was confirmed by Trendline through
the approval of Zapanta. 22
On 12 May 1999, PSE received three checks amounting to
P19,000,000.00 for the full settlement of Trendline's outstanding
obligation. Trendline, and not the Litonjua Group, was the one
indicated as the payor of the obligation. 23
On 26 August 1999, PSE's Compliance and Surveillance Group
(CSG) discovered during a follow-up audit that Trendline had a
considerable amount of shortfalls and outstanding obligations to its
clients, in addition to its unsettled and unliquidated accounts. 24
Despite the outstanding obligations due to PSE, Zapanta, on 1
March 2004, requested the PSE's Compliance and Surveillance
Group, for an audit of accounts preparatory to the issuance of
clearance to transfer their corporate membership seat to the
Litonjua Group. 25
Granting the request, the CSG on 8 March 2004 conducted a
special audit of Trendline's books and records. It was then confirmed
that Trendline was not financially liquid to settle all its outstanding
obligations to its clients. 26
On 3 January 2006, Atty. Sixto Jose C. Antonio (Atty. Antonio)
sent a letter to PSE informing the latter that Trendline has filed for a
petition for corporate rehabilitation before the Regional Trial Court of
Manila and that he has been appointed by the court as the
rehabilitation receiver. 27
In reply, PSE in a letter dated 6 February 2006 informed Atty.
Antonio that 85% of Trendline's membership seat is being claimed
by the Litonjua Group. Further, PSE enumerated the names of
individuals who have a pending claims against Trendline totaling to
P19,600,000. 28
On 30 July 2006, PSE received a demand letter from the
Litonjua Group requesting for a reimbursement of its paid
P19,000,000.00 with interest reckoned from 13 May 1999.
Declining reimbursement, PSE in its Answer Ad
Cautelam raised primarily that it received the amount not from the
Litonjua Group but from Trendline as a settlement of its obligation. It
insisted that the cause of action of the Litonjua Group is against

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Trendline and not the exchange, the latter being a non-party to the
letter agreement. 29
After conclusion of trial, the trial court rendered a decision
granting that the Litonjua Group is entitled to claim a refund from
PSE. The dispositive portions reads:
WHEREFORE, premises considered, decision is
rendered in favor of the plaintiffs and against the
defendant PSE ordering the defendant PSE to pay the
plaintiffs the amount of:
(1) [P]19,000,000.00 plus interest thereon at 12%
per annum from July 30, 2006;
(2) Exemplary damages in the amount of
[P]1,000,000.00;
(3) Attorney's fees in the amount of [P]100,000.00,
and
(4) Cost of suit. 30
The decision is anchored on the principle of solutio indebiti as
defined in Article No. 2154 of the New Civil Code. If something is
received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it
arises. 31 caITAC
The trial court clarified that Litonjua's cause of action is not
founded on the 20 April 1999 letter-agreement but on the mistake
on the part of the Litonjua Group when it delivered the
P19,000,000.00 to PSE on the notion that amount was for the
consideration of the trading seat of Trendline. PSE's insistence that
it was not a privy to the letter-agreement only bolstered the fact
that it was devoid of any right to receive the payment. 32
In addition to the refund, legal interest was likewise imposed
from the date of demand reckoned from 30 July 2006 at twelve
percent (12%) per annum. Also, exemplary damages were imposed
due to the continuous refusal of PSE to refund the P19,000,000.00
despite the fact that it received the amount without any right to
receive it. Such conduct of PSE was characterized by the trial court
as wanton, oppressive and malevolent in nature as defined under
Article 2232 33 of the New Civil Code justifying the award of
exemplary damages. Finally, attorney's fees were awarded in view
of the grant of exemplary damages and to the fact that the Litonjua
Group was forced to litigate in court to assert its right. 34
Aggrieved, PSE filed an appeal before the CA alleging errors
on the part of the trial court when it ruled that (1) the cause of
action of the Litonjua Group is based on quasi-contract; (2) in not

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finding that the party liable for refund is Trendline pursuant to


Article 1236 35 of the New Civil Code; and lastly, in granting the
award of exemplary damages.
On 23 May 2012, the CA affirmed, in the result, the challenged
decision of the trial court. The appellate court principally relied on
the principle of constructive trust instead of solutio indebitias an
appropriate remedy against the unjust enrichment of PSE. It was
held that:
We strongly believe that if we will not allow the
recovery of the amount of Nineteen Million Pesos
(P19,000,000.00), there will be unjust enrichment on
the part of the PSE. This We cannot tolerate[;] thus, the
application here of the principles of the law on trust. In
particular, constructive trust which is a class of implied
trust.

A constructive trust is substantially an appropriate


remedy against unjust enrichment. It is raised by equity
in respect of property, which has been acquired by
fraud, or where although acquired originally without
fraud, it is against equity that it should be retained by
the person holding it.
xxx xxx xxx
Certainly, constructive trust is the formula through
which the conscience of equity finds expression . . . .
Applying the same in the instant case, as the money
involved here which amounts to millions was
actually acquired under the circumstance where the
beneficial interest cannot be retained in good
conscience, the equity converts PSE into a trustee. . . .
The PSE, without a doubt, as the trustee of a
constructive trust, has the obligation to convey or
deliver back to the Litonjua Group the amount subject of
the dispute. The money rightfully belongs to the latter
there being no contract existing where PSE can base its
right to receive the amount. 36
As to the issue of the applicability of Article 1236, the CA
ruled in the negative. According to the law: 37
The Creditor is not bound to accept the payment or
performance by a third person who has no interest in
the fulfillment of the obligation unless there is a
stipulation to the contrary.

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Whoever pays for another may demand from the debtor what
he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial
to the debtor.
However, the provision must be read in relation to the
provision on novation of contract provided by Article 1293 which
states that, novation which consists in substituting a new debtor in
the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the
consent of the creditor. Payment of the new debtor gives him the
rights mentioned in Art. 1236 and 1237. (Emphasis ours)
It also ruled that the acts of PSE subsequent to the execution
of the 20 April 1999 letter-agreement were tantamount to consent,
only for it to retract later and claim that it never issued any Board
Resolution authorizing PSE to bind itself to the terms and obligations
of the letter-agreement. These acts, if not fraudulent, were made
with recklessness, hence, the justification of the exemplary
damages.
Before this Court, PSE posits the following issues: (1) The
contemporaneous and subsequent acts of the PSE are not
tantamount to rendering the PSE a party to the letter-agreement;
(2) the case of Smith, Bell and Co. is not applicable to the present
case; (3) the provision of Article 1236 should not be read together
with Article 1293; (4) Trendline should be considered as an
indispensable party; (5) PSE was not unjustly enriched by its receipt
of the amount of P19,000,000.00; (6) no constructive trust exists
between the PSE and the Litonjua Group; and finally (7) the Litonjua
Group is not entitled to exemplary damages.
In its Comment, the Litonjua Group countered that since PSE
insists that there is no contract to speak of due to absence of
consent, it is only equitable to return the money paid. The money
was conditionally delivered by the Litonjua Group based on its belief
that PSE had already approved of the transaction and the
obligations imposed upon it by the letter-agreement. In view of the
fact that the money was acquired through mistake, PSE, by force of
law, is now considered as a trustee of an implied trust for the
benefit of the Litonjua Group. 38
We deny the petition. ICHDca
After review of the records, we summarize the issues,
thus: First, is PSE considered a party to the letter-
agreement; Second, against whom should the Litonjua Group seek

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reimbursement;Third, is PSE liable to return the payment received;


and lastly, whether the PSE is liable to pay exemplary damages.
PSE asserts that it is not a party in the letter-agreement due
to the absence of any board resolution authorizing the corporation
to be bound by the terms of the contract between Trendline and the
Litonjua Group. In essence, it avers that no consent was given to be
bound by the terms of the letter-agreement. We agree.
According to Article 1305 of the Civil Code, "a contract is a
meeting of minds between two persons whereby one binds himself,
with respect to the other, to give something or render some
service." For a contract to be binding: there must be consent of the
contracting parties; the subject matter of the contract must be
certain; and the cause of the obligation must be
established. 39Consent, as a requisite to have a valid contract, is
manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The
offer must be certain and acceptance absolute. A qualified
acceptance constitutes a counter offer. 40
In corporations, consent is manifested through a board
resolution since powers are exercised through its board of directors.
The mandate of Section 23 of the Corporation Code is clear that
unless otherwise provided in the Code, "the corporate powers of all
corporations shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of
directors or trustees. . ."
Further, as a juridical entity, a corporation may act through its
board of directors, which exercises almost all corporate powers, lays
down all corporate business policies and is responsible for the
efficiency of management. As a general rule, in the absence of
authority from the board of directors, no person, not even its
officers, can validly bind a corporation. This is so because a
corporation is a juridical person, separate and distinct from its
stockholders and members, having powers, attributes and
properties expressly authorized by law or incident to its
existence. 41
Admittedly in this case, no board resolution was issued to
authorize PSE to become a party to the letter-agreement. This fact
was confirmed by PSE's Corporate Secretary Atty. Aissa V.
Encarnacion in her direct testimony by way of judicial
affidavit. 42 She testified that based on her review of the meetings
of the PSE Board of Directors from 1998 to July 2009, there was no
record of any board resolution authorizing PSE to bind itself to the
said obligations under the letter-agreement or to lift the suspension
over Trendline's PSE seat in accordance with the terms and

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conditions of the said letter-agreement. PSE was never authorized


by the Board to be bound by the obligations stated therein. This fact
was confirmed by Antonio K. Litonjua himself when he admitted
during cross-examination that he failed to ask from PSE for any
board resolution authorizing itself to be bound by the terms of the
letter-agreement. 43
From the foregoing, PSE is not considered as a party to the
letter-agreement.
Following this precept, PSE maintains that the proper recourse
of Litonjua Group is to demand reimbursement from Trendline
following the provision of Article 1236. We disagree.
Reiterating Article 1236, the Creditor is not bound to accept
the payment or performance by a third person who has no interest
in the fulfillment of the obligation unless there is a stipulation to the
contrary. Whoever pays for another may demand from the debtor
what he has paid, except that if he paid without the knowledge or
against the will of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor.
Contrary to the argument of PSE, we find inapplicable the
provision of Article 1236 allowing the demand by the payor from the
debtor of what was paid. It is correct that PSE is not bound to accept
the payment of a third person who has no interest in the fulfillment
of the obligation. 44 However, the Litonjua Group is not a
disinterested party. Since the inception of the initial meeting
between the Litonjua Group, PSE and Trendline, there was already a
clear understanding that the Litonjua Group has the intention to
settle the outstanding obligation of Trendline in consideration of its
acquisition of 85% seat ownership and PSE's lifting of suspension of
trading seat.
The next question now is, can PSE, though not a party to the
agreement, be still held liable to return the money it received? We
answer in the affirmative. This is pursuant to the principles of unjust
enrichment and estoppel; it is only but rightful to return the money
received since PSE has no intention from the beginning to be a
party to the agreement.
PSE insists that there is no unjust enrichment when it received
the P19,000,000.00 since it has every right to accept the amount
which was voluntarily and knowingly paid by the Litonjua Group to
discharge Trendline from its obligations to the corporation. Following
this premise, it is not obligated to return the money. Again, we
disagree.
The principle of unjust enrichment is embodied by the letter of
Article 22 of the Civil Code:

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Article 22. Every person who through an act of performance


by another, or any other means, acquires or comes into
possession of something at the expense of the latter
without just or legal ground, shall return the same to
him. TCAScE
There is unjust enrichment when a person unjustly retains a
benefit to the loss of another, or when a person retains money or
property of another against the fundamental principles of justice,
equity and good conscience. 45 The principle of unjust enrichment
requires two conditions: (1) that a person is benefited without a
valid basis or justification, and (2) that such benefit is derived at the
expense of another. 46
The main objective of the principle against unjust enrichment
is to prevent one from enriching himself at the expense of another
without just cause or consideration. 47
Applying law and jurisprudence, the principle of unjust
enrichment requires PSE to return the money it had received at the
expense of the Litonjua Group since it benefited from the use of it
without any valid justification.
In addition, principle of estoppel finds merit.
Estoppel has its roots in equity. It is a response to the
demands of moral right and natural justice. For estoppel to exist, it
is indispensable that there be a declaration, act or omission by the
party who is sought to be bound. It is equally a requisite that he,
who would claim the benefits of such a principle, must have altered
his position, having been so intentionally and deliberately led to
comport himself; thus, by what was declared or what was done or
failed to be done. 48
In Philippine National Bank v. The Honorable Intermediate
Appellate Court (First Civil Cases Division) and Romeo
Alcedo, 49 estoppel is further elucidated in this wise:
The doctrine of estoppel is based upon the
grounds of public policy, fair dealing, good faith and
justice, and its purpose is to forbid one to speak against
its own act, representations, or commitments to the
injury of one to whom they were directed and who
reasonably relied thereon. Said doctrine springs from
equitable principles and the equities in the case. It is
designed to aid the law in the administration of justice
where without its aid injustice might result. 50
In this case, the Litonjua Group was led to believe that the
payment of P19,000,000.00 will be the full settlement of all the

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obligations due, including the penalties and interests, in order to


effect the lifting of the suspension of the seat/membership. This is
apparent from the April 29, 1999 letter of Atty. Almadro to Trendline.
According to its terms, the Business Conduct and Ethics Committee
of PSE resolved to accept the amount of Nineteen Million Pesos
(P19,000,000.00) as full and final settlement of its outstanding
obligations to be paid not later than 13 May 1999. Trendline was
further advised that failure to pay the said amount by 13 May 1999
will result to collection in full of imposable fines/penalties and
enforcement of payment by selling its seat at public auction. In turn,
Trendline assured PSE that the Litonjua Group will pay the required
amount. The Litonjua Group, before the turnover of the checks,
even took a further step and sent a letter to Atty. Almadro indicating
that the payment will be the full satisfaction for the acquisition of
the seat/membership Trendline. Upon receipt of the checks, an
annotation was indicated by PSE that the checks were received as
advance payment for full settlement of Trendline's outstanding
obligation. PSE became an active participant in all the transactions
between the Litonjua Group and Trendline. By accepting Litonjua's
payment, PSE is now estopped from claims that Trendline still has a
penalty obligation that must be settled before the transfer of the
seat.
PSE cannot assert to be a non-party to the letter-agreement
and at the same time claim a right to receive the money for the
satisfaction of the obligation of Trendline. PSE must not be allowed
to contradict itself. A position must be made. PSE must either
consider itself a party to the letter agreement and assume the all
rights and obligations flowing from the transaction or disavow its
consent derivative from its participation. Since, it is already made
clear that it is not a party due to its lack of consent, it is now
estopped from claiming the right to be paid.
Finally, PSE insists that the appellate court erred when it
awarded exemplary damages to the Litonjua Group due to the
corporation's recklessness in its business dealings. When it
accepted the payment, PSE contends that it was merely exercising
its right to be paid. We again disagree. cTDaEH
In contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner. 51 Exemplary damages
cannot be recovered as a matter of right; the court will decide
whether or not they should be adjudicated. 52 While the amount of
the exemplary damages need not be proven, the plaintiff must show
that he is entitled to moral, temperate or compensatory damages
before the court may consider the question of whether or not
exemplary damages should be awarded. 53

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In Arco Pulp and Paper Co., Inc. v. Dan T. Lim, 54 the Court
reiterated the ratio behind the award:
Also known as 'punitive' or 'vindictive' damages,
exemplary or corrective damages are intended to serve
as a deterrent to serious wrong doings, and as a
vindication of undue sufferings and wanton invasion of
the rights of an injured or a punishment for those guilty
of outrageous conduct. These terms are generally, but
not always, used interchangeably. In common law, there
is preference in the use of exemplary damages when
the award is to account for injury to feelings and for the
sense of indignity and humiliation suffered by a person
as a result of an injury that has been maliciously and
wantonly inflicted, the theory being that there should be
compensation for the hurt caused by the highly
reprehensible conduct of the defendant associated
with such circumstances as willfulness, wantonness,
malice, gross negligence or recklessness, oppression,
insult or fraud or gross fraud that intensifies the
injury. The terms punitive or vindictive damages are
often used to refer to those species of damages that
may be awarded against a person to punish him for his
outrageous conduct. In either case, these damages are
intended in good measure to deter the wrongdoer and
others like him from similar conduct in the future. 55
PSE, despite demands by the Litonjua Group, continuously
refused to return the money received despite the fact that it
received it without any legal right to do so. This conduct, as found
by the trial court, falls within the purview of wanton, oppressive and
malevolent in nature. Further, we find the words of the appellate
court on its justification of the award meritorious:
We cannot blame the Litonjua Group for believing
that the actions of the PSE are as good as giving
consent to the subject agreement. And, it surely came
as a surprise on the part of the Litonjua Group to know
that none of the PSE's dealings can be considered as
approval of the agreement. It appears that these actions
of the PSE, if it cannot be considered fraudulent, were
definitely made with recklessness. As huge amount of
money (P19 Million) were involved, the PSE could have
been more cautious or wary in dealing with the Litonjua
Group. It should have avoided making actions that
would send wrong signal to the other party with which it
was transacting. Hence, we have no choice but to
conclude that PSE acted with recklessness that would

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warrant an award of exemplary damages in favor of the


Litonjua Group. 56
Thus, absent any other compelling reason to overturn the
findings, we uphold the award of exemplary damages.
Finally, a note on the legal interest.
Pursuant to Circular No. 799 of Monetary Board of the Bangko
Sentral ng Pilipinas dated 21 June 2013, the rate of interest for the
loan or forbearance of any money, goods or credits and the rate
allowed in judgments, in the absence of an express contract as to
such rate of interest, shall be six percent (6%) per annum.
Therefore, the rate of interest imposed the trial court in its
judgment, as affirmed by the ruling of the CA, will be at 12%
interest per annum from 30 July 2006 to 30 June 2013 and 6%
interest per annum 1 July 2013 until full satisfaction.
WHEREFORE, the petition is DENIED. Accordingly, the
Decision and Resolution of the Court of Appeals dated 23 May 2012
and 17 October 2012 respectively, upholding the 22 February 2010
Decision of the Regional Trial Court of Pasig City are
hereby AFFIRMED WITH MODIFICATION. Philippine Stock
Exchange is hereby ordered to pay the Litonjua Group the following
amounts:
1. As to the imposition of legal interest to be imposed to the
P19,000,000.00 from 12% to 6% per annum reckoned
from the date of demand on 30 July 2006;
2. Exemplary damages in the amount of P1,000,000.00;
3. Attorney's fees in the amount of P100,000.00; and
4. Cost of suit. cSaATC
SO ORDERED.
||| (Philippine Stock Exchange, Inc. v. Litonjua, G.R. No. 204014,
[December 5, 2016])

THIRD DIVISION

[G.R. No. 204719. December 5, 2016.]

POWER SECTOR ASSETS and LIABILITIES


MANAGEMENT CORPORATION, petitioner, vs. SEM-
CALACA POWER CORPORATION, respondent.

DECISION

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PERALTA, J p:
Before the Court is a petition for review on certiorari under
Rule 45 of the Rules of Court seeking to annul and set aside the
Court of Appeals Decision 1 dated September 4, 2012 and
Resolution 2 dated November 27, 2012 in CA-G.R. SP No. 123997,
which affirmed the rulings of the Energy Regulatory
Commission (ERC) specifying respondent's capacity allocation as a
power producer.
The facts of the case follow.
The Electric Power Industry Reform Act of 2001 (EPIRA), or
Republic Act (R.A.) No. 9136, which was signed into law by then
President Gloria Macapagal-Arroyo on June 8, 2001, was intended to
provide a framework for the restructuring of the electric power
industry, including the privatization of the assets of the National
Power Corporation (NPC), the transition to the desired competitive
structure and the definition of the responsibilities of the various
government agencies and private entities with respect to the reform
of the electric power industry. 3
The EPIRA also provided for the creation of petitioner Power
Sector Assets and Liabilities Management Corporation (PSALM), a
government-owned and controlled corporation which took over
ownership of the generation assets, liabilities, independent power
producer (IPP) contracts, real estate and other disposable assets of
the NPC. 4 PSALM's principal purpose under the law is to "manage
the orderly sale, disposition, and privatization of NPC generation
assets, real estate and other disposable assets, and IPP contracts
with the objective of liquidating all NPC financial obligations and
stranded contract costs in an optimal manner." 5
Among the assets put on sale by PSALM was the 600-MW
Batangas Coal-Fired Thermal Power Plant in Calaca,
Batangas (Calaca Power Plant). 6 In July 2009, DMCI Holdings,
Inc. (DMCI) was declared the highest bidder in the sale. 7 The sale
was effected through an Asset Purchase Agreement (APA) executed
by PSALM and DMCI on July 29, 2009, and became effective on
August 3, 2009. 8
On December 2, 2009, DMCI transferred all of its rights and
obligations under the APA and the Land Lease Agreement (also
called Final Transaction Documents) to herein respondent SEM-
Calaca Power Corporation (SCPC) by entering into an Amendment,
Accession and Assumption Agreement that was signed by PSALM,
DMCI and SCPC. 9 Under the agreement, SCPC took over all the
rights and obligations of DMCI under the said documents. SCPC also

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alleged that on that same date, it took over the physical possession,
operation and maintenance of the Calaca Power Plant. 10
Also on the same date, SCPC started providing electricity to
customers listed in Schedule W of the APA, among which is
MERALCO. 11
Schedule W is partially reproduced hereunder: cHDAIS
SCHEDULE W 12 POWER SUPPLY CONTRACTS
Part I: Description of the PSC

CUSTOMERS POWER SUPPLY CONTRACT REMAINING CONTRACT


VOLUME as of 26 June 2009

Contract Duration Monthly


Average

Effectivit Expiratio Energy Deman Energy Deman Average


y n (MWh) d (kW) (Mwh) d (kW) (MWh/mo)

Meralco 6 Nov 25 Nov 69,256 169,00 1,517,4 169,00 69,256


(10.841%) 2006 2011 0 14 0

PEZA-Cavite 26 June 25 June 34,038 55,420 623,320 80,800 24,933


Ecozone 2006 2011

BATELEC I 26 Dec 25 Dec. 16,450 42,000 334,586 42,000 17,610


2006 2010

Sunpower 18 Aug 17 Aug 5,500 8,955 676,500 8,970 5,500


Philippines 2004 2019

Steel Asia 26 Mar 25 Dec 5,263 8,000 57,770 10,000 8,253


2008 2009

SteelCorp 26 June 25 Dec 2,500 8,000 15,000 8,320 2,500


2009 2009

Puyat Steel Corp. 26 Nov 25 Nov 194 1,300 3,260 2,150 543
2008 2009

ECSCO, Inc. 26 Dec 25 Dec 206 450 4,445 440 234


2005 2010

Lipa Ice Plant 26 Jan. 25 Jan. 220 400 4,650 520 245
2005 2010

BCFTPP

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Contractor

SemiraraMining NA NA 291 1450 NA NA Actual


Consumpti
on

PozzoIanicIndustr NA NA 11 50 NA NA Actual
ies, Inc. Consumpti
on

TOTAL MWh 703,50 3,236,9 129,056


6 45

MW 295 322

Notes:
All figures mentioned above are only indicative
and will be based on the hourly/daily/monthly
nominated volume as per average monthly
contract level. A typical hourly customer's
load profile for Calaca is demonstrated in the
attached Figure 1 of this Schedule J (sic)
(Power Supply Contract).
The special conditions governing the assumption
by the Buyer of the assignment of a portion of
the Contract Energy under Meralco TSC are
contained in Part II of this Schedule J (sic)
(Power Supply Contract).
xxx xxx xxx
Furthermore, in the event that the Purchased
Assets (sic) is not able to supply the
contracted power under the aforesaid
contracts due to the unavailability of coal or
other causes, the Buyer may enter into a
back-to-back supply contract with other
generators or buy directly from the market for
the deficiency.
Part II: Special Conditions of the MERALCO TSC
The following conditions, unique to the MERALCO-NPC
contract, shall apply to the assigned portion of the Contract Energy
from the MERALCO TSC.
1. Neither the MERALCO TSC nor any portion
thereof shall be assigned to the Buyer. It is the Contract

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Energy specified in part I that is the subject of the


assignment.
xxx xxx xxx
SCPC contends that it is obliged to supply 10.841% of
MERALCO's total requirement but not to exceed 169,000 kW in any
hourly interval. 13 However, PSALM holds a different view and
contends that SCPC is bound to supply the entire 10.841% of what
MERALCO requires, without regard to any cap or limit. 14
Thus, during a period of high demand, specifically in the
summer of the year 2010, when SCPC fell short of supplying the
entire 10.841% of MERALCO's requirements, the deficiency was
filled by supply from the Wholesale Electricity Spot
Market (WESM). 15 SCPC contends that this was the consequence of
NPC's and PSALM's nominations in excess of what SCPC claims to be
the 169,000 kW cap or limit in its supply. 16 PSALM disputes that
there is such a cap or limit, noting that SCPC was obligated to
supply the entire 10.841% under Schedule W of the APA. 17 Thus,
NPC and PSALM, who contend that they were merely following the
Transition Supply Contract (TSC) with MERALCO, billed the latter for
the electricity delivered by SCPC and that supplied through
WESM. 18 SCPC claims, however, that PSALM withheld MERALCO's
payments even for the electricity that SCPC supplied without the
latter's knowledge nor consent. 19 NPC also allegedly replaced
SCPC Power Bills to MERALCO with PSALM Power Bills, with
instructions that payments be remitted directly to PSALM instead of
SCPC. 20 ISHCcT
On March 16, 2010, SCPC wrote a letter to PSALM insisting
that the 169,000 kW supplied to MERALCO "should be treated as the
maximum limit of the MERALCO allocation which SCPC is bound to
supply under the APA in accordance with Schedule W." 21 On April
20, 2010, SCPC wrote a demand letter formally asking both PSALM
and NPC to release MERALCO's payments for the period of January
26, 2010 to February 25, 2010 amounting to Php451,450,889.13
and to directly remit to SCPC all subsequent amounts due from
MERALCO. 22
On May 13, 2010, PSALM replied through a letter reiterating
that SCPC assumed the obligation to supply 10.841% of MERALCO's
TSC and that the latter's payments would be remitted to SCPC only
after deducting the cost of power supplied by WESM. 23
Thus, PSALM proceeded to deduct from its remittances to
SCPC the cost of the power that NPC allegedly purchased from
WESM. 24 SCPC claims that for the months of January 2010 to June
2010, the amounts due it was Php1,894,028,305.00. Instead, PSALM

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paid it the amount of only Php934,114,678.04, or short of


Php959,913,626.96, which allegedly represents the cost of
electricity that PSALM charged against SCPC representing the power
NPC supposedly obtained from WESM to fill the alleged deficiency in
SCPC's supply to MERALCO. 25
Eventually, following negotiations between the parties, PSALM
agreed, through a letter dated June 21, 2010, to cap MERALCO's
nominations from the Calaca Power Plant "in any hour up to
169MWh or 10.841% of each hourly energy nomination submitted
by MERALCO to NPC under the MERALCO TSC effective June 26,
2010." 26
However, as SCPC was insisting that the MERALCO cap should
have taken effect much earlier, or on December 2, 2009, i.e., the
date of effectivity of the APA, and as the parties failed to execute
the Implementation, Agreement and Protocol (Implementation
Agreement) covering the parties' responsibilities with regards to the
supply of power to MERALCO, SCPC made an offer to PSALM for the
issues to be brought to the ERC for arbitration. 27 The proposal,
however, was rejected by PSALM. 28
Hence, SCPC initiated the instant case by filing a Petition for
Dispute Resolution (with Prayer for Provisional Remedies) before the
Energy Regulatory Commission (ERC) against NPC and PSALM. 29
In its Decision 30 dated July 6, 2011, the ERC ruled in favor of
SCPC and against NPC and PSALM, with the following dispositive
portion:
WHEREFORE, the foregoing premises considered,
the Commission hereby resolves the issues raised in this
instant dispute as follows:
1. SCPC's obligation under Schedule W of the APA is
to deliver 10.841% of MERALCO's energy
requirements but not to exceed 169,000 kW
capacity allocation, at any given hour;
2. The obligation to deliver 10.841% of MERALCO's
energy requirements, but not to exceed
169,000 kW capacity, at any given hour, shall
commence from December 2, 2009 when the
physical possession, occupation and
operation of the Calaca Power Plant was
formally turned over to SCPC;
3. The NPC and PSALM have no basis, in fact and in
law, to charge against SCPC the nominations
beyond the 169,000 kW capacity which NPC
allegedly purchased for MERALCO from the

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WESM. There being no basis to charge SCPC,


PSALM must return all the payments of
MERALCO which were withheld by PSALM,
including the amount representing the cost of
electricity nominated and purchased by NPC
beyond the 169,000 kW from the WESM for
the period January 2010 to June 25, 2010;
4. The payment of interests on the amount to be
returned by PSALM to SCPC is in order.
However, in the absence of a stipulation, the
amount of interest shall be pegged at 6% per
annum; and CAacTH
5. NPC shall continue to nominate for MERALCO's
energy requirements, in accordance with the
TSC between them. However, in nominating
for MERALCO's contract energy under the
APA, NPC shall consider the 169,000 kW
capacity limit, in accordance with Schedule W
of the APA, considering the generating
capacity of the Calaca Power Plant. In the
absence of an Implementation Agreement
and Protocol, all nominations made for
MERALCO by SCPC in accordance with the
APA, shall henceforth be billed through NPC
and payment thereof shall be collected
directly from MERALCO by SCPC.
Accordingly, the NPC is hereby enjoined from
making nominations beyond the 169,000 kW of
MERALCO's allocation. On the other hand, PSALM is
hereby directed to (1) refrain from charging against
SCPC the cost of power beyond the 169,000 kW of
MERALCO's allocation and to (2) refrain from
withholding all MERALCO payments for electricity
supplied by SCPC.
The NPC, PSALM and SCPC are further directed to
account for and reconcile the amounts charged against
the SCPC by PSALM, on account of the NPC's
nominations and purchases from the WESM beyond the
169,000 kW capacity allocation during the period
January 2010 to June 25, 2010. Thereafter, the parties
are directed to submit to the Commission the reconciled
computation of the over-nominations and other
MERALCO payments withheld by PSALM for the said
period, within ten (10) days from receipt of this

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Decision. Further, PSALM is hereby directed to return to


SCPC, the amount as computed and reconciled,
including the interests thereon at the rate of 6% per
annum, within ten (10) days from the parties'
submission of the reconciled computation to the
Commission. Finally, the parties are directed to submit
their Compliance with the foregoing dispositions within
thirty (30) days from receipt of this Decision.
SO ORDERED. 31
PSALM filed a motion for reconsideration of the above decision.
However, in an Order 32 dated February 13, 2012, the ERC denied
the said motion.
Aggrieved, PSALM filed a Petition for Review of the ERC
decision to the Court of Appeals (CA). 33
In its assailed Decision 34 dated September 4, 2012, the CA
denied PSALM's petition and upheld the findings of the ERC. The
dispositive portion of the decision states:
WHEREFORE, premises considered, the petition is
DENIED. The Decision dated July 6, 2011 and the Order
dated February 13, 2012 of the Energy Regulatory
Commission in ERC Case No. 2010-058 are hereby
AFFIRMED.
SO ORDERED. 35
The CA sustained the ERC's interpretation of the APA that SCPC's
obligation was to supply 10.841% of MERALCO's energy
requirement, but not to exceed 169,000 kW at any given hour, as
such interpretation would reconcile the presence of the two figures
in Schedule W and harmonize the provisions of the said
contract. 36 Likewise, the appellate court upheld ERC in explaining
why a cap of 169,000 kW is placed on SCPC's obligation to supply
electricity to MERALCO, the explanation being: unlike before the
privatization when NPC, with all its generation assets, was the sole
supplier of MERALCO and, therefore, could obtain electricity from
any of those assets, in the current situation, SCPC is just one of
many suppliers and SCPC's asset is only the Calaca Power Plant,
which has a limited capacity. 37 The CA likewise stated that the
findings of administrative or regulatory agencies on matters within
their technical area of expertise are generally accorded not only
respect but finality if such findings are supported by substantial
evidence. 38

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PSALM filed a Motion for Reconsideration of the decision


above, but the same was likewise denied in a Resolution of the CA,
dated November 27, 2012. 39
Hence, PSALM goes to this Court via the present Petition for
Review on Certiorari.
PSALM contends that the CA erred in placing a cap of 169,000
kW on SCPC's obligation to supply 10.841% of MERALCO's
requirement. It insists that SCPC stepped into the shoes of NPC and
PSALM in terms of the fulfillment of the obligation of the latter to
supply 10.841% of MERALCO's nominated volume. 40 In PSALM's
view, SCPC is deemed to have assumed PSALM's rights and
obligations under the Power Supply Contracts (PSCs) subject to the
conditions specified in Schedule W. 41 IAETDc
Further, it adds that Schedule W is unambiguous and requires
no construction or interpretation. 42 Allegedly, the figure 169,000
kW is not meant to qualify the 10.841% of MERALCO's energy
requirement; instead, Schedule W's "Notes" portion supposedly
explains that 169,000 kW and all the other figures mentioned
therein are only "indicative" and the supply of MERALCO's energy
requirement "will still be based on the hourly/daily/monthly
nominated volume per average monthly contract level." 43 Thus,
for PSALM, it was error for the ERC and CA to conclude that a cap
exists as to the 10.841% energy requirement of MERALCO. 44
Petitioner PSALM additionally holds that the ERC erred in
harmonizing only two figures in Schedule W: the 10.841% and the
169,000 kW, since it claims that such figures are not the only
stipulations in the said Schedule, there being special conditions
such as the Notes which, had it been read together with the rest of
the conditions, should have led the ERC to a different
conclusion. 45 PSALM also cites additional stipulations such as the
so-called Special Conditions of the MERALCO TSC, the Calaca Typical
Hourly Customer's Load Profile and the Nomination Protocol
between MERALCO and NPC of TSC Contract Energy. 46 Then, there
is also a provision supposedly in Schedule W in which SCPC has the
option to enter into back-to-back supply contracts with other
generators or purchase directly from the market should it become
unable to supply the contracted power under the contracts in
Schedule W. 47 According to PSALM, these are clear indications that
a cap on SCPC's supply had not been intended by the parties. 48
PSALM also poses that even granting that Schedule W is
ambiguous, the CA's and ERC's interpretations were restrictive and
incorrect. 49 It also accuses the ERC of erroneously resorting to
extrinsic evidence in its interpretation, a method also erroneously
concurred in by the CA. 50 Allegedly, this was done when the ERC

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cited the testimony of a witness in interpreting Schedule W. 51From


the testimony, the ERC supposedly inferred that "prior to
privatization, NPC did not take into account the capacities of its
assets" in relation to its supply contract with MERALCO, meaning
that before, NPC was the sole supplier and could make its various
assets generate the supply needed, unlike at present, where SCPC
is just one of many suppliers with a single generating asset, with a
limited capacity. 52 Allegedly, this led the ERC and the CA to
erroneously conclude that a cap of 169,000 kW in SCPC's supply
obligations was indeed intended. 53
Thus, according to PSALM, given the allegedly erroneous
rulings, the CA should not have relied on the principle of upholding
the findings of fact of administrative agencies, like the ERC, and
instead, should have reversed the latter's findings. 54
In its Comment, SCPC writes that PSALM's own interpretation,
while also self-serving and inconsistent, would render the
implementation of Schedule W impossible and absurd. 55 For one,
SCPC posits that the figure 10.841%, when observed alone and
literally applied, provides no meaningful reference, because
Schedule W itself does not state that the figure refers to 10.841% of
the actual volume nominated for MERALCO. 56 It has no base value
and is an incomplete mathematical statement. 57 Further, SCPC
claims that observing the figure 10.841% alone disregards all the
other figures that appear in Schedule W, including the 169,000 kW
which in fact appears twice in the said schedule. 58 And finally, it
argues that mainly relying on the Notes and its statement that the
figures in the schedule are "indicative" would render all the figures
in Schedule W insignificant, as if concluding that SCPC's supply
obligations are unlimited. 59
SCPC maintains that such interpretation by PSALM has no
support from any principle of contract interpretation, while it was
the ERC and the CA that applied the correct rule of interpretation,
such as one found in the Civil Code, to wit: 60
Art. 1374. The various stipulations of a contract
shall be interpreted together, attributing to the doubtful
ones that sense which may result from all of them taken
jointly.
SCPC also touts the ERC's reason for not applying the Notes'
statement that the figures were "indicative," or mere estimates of
the true value. The reason is that such would lead to an absurdity as
it would allocate more than 169,000 kW for MERALCO despite the
limited actual generating capacity of the Calaca Power
Plant. 61 Instead, the ERC allegedly employed the principle of

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"reasonableness of results" in contract interpretation to avoid an


unreasonable or absurd outcome. 62
As for the other clause in the Notes which grants SCPC the
option to enter into back-to-back supply contracts with other
suppliers in order to fulfill its MERALCO obligations, SCPC again
quotes the ERC in stating that it is, in fact, NPC's responsibility to fill
any shortfall in supply to MERALCO, and that the back-to-back
supply contracts to be entered into by SCPC only refer to when the
latter is unable to supply MERALCO to the extent of 169,000 kW,
which is the cap in its obligation; shortages due to nominations by
NPC in excess of 169,000 kW are no longer the contractual
obligation of SCPC. 63 DcHSEa
Further, SCPC states that the ERC sufficiently explained the
implications of the Special Conditions of the MERALCO TSC,
clarifying that "NPC's and PSALM's obligation to supply the entire
energy contract to MERALCO, including the obligation to replace any
curtailed energy, was not passed on or assigned to SCPC," rather,
only such portion as defined in Part I of Schedule W was assigned to
SCPC, as clearly provided for under Part II of Schedule W. 64 As for
the Calaca Typical Hourly Customer's Load Profile and Nomination
Protocol, ERC explained that previously, when NPC was the sole
supplier and had other existing assets, even if a particular allocation
exceeded a plant's capacity, NPC could obtain supply from its other
generating assets. 65 ERC stated that such is no longer the
situation in the case at bar, where supply is supposed to come from
a specific plant the Calaca Power Plant which has a limited
capacity. 66
SCPC argues that the CA correctly considered the
circumstances surrounding the execution of the APA in interpreting
Schedule W, i.e., the poor condition of the Calaca Power Plant
which, at that time only had a dependable capacity of 330 MW out
of its 600 MW rated capacity. 67 SCPC narrates that the low
dependable capacity is the reason why the contracted demand
levels for various customers listed in Schedule W were pegged at
322 MW only and, with a reserve of only eight (8) MW, the plant is
well short of providing NPC's excess nominations which allegedly
went up to 25,531.93 kWh (25MW) during one billing
period. 68 SCPC asserts that DMCI, the original purchaser of the
Calaca Power Plant, then knew of the plant's dependable capacity,
which it saw as consistent with the total demand listed in Schedule
W, which was what prompted it to naturally assume only the
obligations spelled out in the said APA and Schedule W. 69 Thus,
SCPC states that PSALM's claim that the buyer also assumed "the
risk of supplying energy considering the diminishing capacity of the
other plants" is absurd and unreasonable, as these could not have

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been known despite the buyer's due diligence. 70 Besides, SCPC


argues that any ambiguity should be interpreted against PSALM, the
seller and the party who prepared the APA. 71
Lastly, SCPC contends that the witness, whose testimony was
considered by the ERC in ruling that the actual capacity of a power
plant is material in determining its allocation, was PSALM's own
witness, therefore, the latter party may not disavow her
testimony. 72
The singular issue now before the Court is: whether there was
error in the CA's affirmation of the ERC's interpretation of Schedule
W of the so-called Asset Purchase Agreement (APA), i.e., the
contract between the parties PSALM and SCPC, to mean that SCPC's
obligation thereunder is to deliver 10.841% of MERALCO's energy
requirements but not to exceed 169,000 kW capacity allocation, at
any given hour.
We resolve to deny the petition. No error attended the CA's
affirmation of the ruling of the ERC.
It is general practice among the courts that the rulings of
administrative agencies like the ERC are accorded great respect,
owing to a traditional deference given to such administrative
agencies equipped with the special knowledge, experience and
capability to hear and determine promptly disputes on technical
matters. 73 Factual findings of administrative agencies that are
affirmed by the Court of Appeals are generally conclusive on the
parties and not reviewable by this Court. 74 Although there are
instances when such a practice is not applied, such as when the
board or official has gone beyond its/his statutory authority,
exercised unconstitutional powers or clearly acted arbitrarily
without regard to its/his duty or with grave abuse of discretion, or
when the actuation of the administrative official or administrative
board or agency is tainted by a failure to abide by the command of
the law, 75 none of such instances obtain in the present case which
would prompt this Court to reverse the findings of the tribunal
below.
On the contrary, We find the ERC to have acted within its
statutory powers as defined in Section 43 (u), RA 9136, or the EPIRA
Law, which grants it original and exclusive jurisdiction "over all
cases involving disputes between and among participants or players
in the energy sector." 76 Jurisprudence also states that
administrative agencies like the ERC, which were created to address
the complexities of settling disputes in a modern and diverse
society and economy, count among their functions the
interpretation of contracts and the determination of the rights of
parties, which traditionally were the exclusive domain of the judicial

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branch. 77 Such broadened quasi-judicial powers of administrative


agencies are explained in the case of Antipolo Realty Corporation v.
NHA, 78 which states:
In this era of clogged court dockets, the need for
specialized administrative boards or commissions with
the special knowledge, experience and capability to
hear and determine promptly disputes on technical
matters or essentially factual matters, subject to judicial
review in case of grave abuse of discretion, has become
well nigh indispensable. Thus, in 1984, the Court noted
that "between the power lodged in an administrative
body and a court, the unmistakable trend has been to
refer it to the former. . . . ." SCaITA
xxx xxx xxx
In general, the quantum of judicial or quasi-
judicial powers which an administrative agency may
exercise is defined in the enabling act of such agency. In
other words, the extent to which an administrative
entity may exercise such powers depends largely, if not
wholly, on the provisions of the statute creating or
empowering such agency. In the exercise of such
powers, the agency concerned must commonly
interpret and apply contracts and determine the
rights of private parties under such contracts.
One thrust of the multiplication of administrative
agencies is that the interpretation of contracts
and the determination of private rights
thereunder is no longer a uniquely judicial
function, exercisable only by our regular courts.
As the foregoing imply, the ERC merely performed its statutory
function of resolving disputes among the parties who are players in
the industry, and exercised its quasi-judicial and administrative
powers as outlined in jurisprudence by interpreting the contract
between the parties in the present dispute, the so-called APA and
specifically its Schedule W.
As for the correctness of the ERC's interpretation and finding,
this Court examined the records and found no reason to depart from
the rule that especially when supported by substantial evidence and
affirmed by the Court of Appeals, the findings of a quasi-judicial
body like the ERC deserve the highest respect, if not finality. 79
The petitioner PSALM assails ERC's holding that SCPC's
obligation is "to deliver 10.841% of MERALCO's energy requirements
but not to exceed 169,000 kW capacity allocation, at any given

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hour," which the ERC based on its interpretation of the figures


169,000 kW and 10.841% found in three columns of Schedule W.
We affirm the ERC's interpretation, as upheld by the CA.
Among the key principles in the interpretation of contracts is
that espoused in Article 1370, paragraph 1, of the Civil Code,
quoted as follows: cHECAS
Art. 1370. If the terms of a contract are clear and
leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall
control.
The rule means that the contract's meaning should be determined
from its clear terms without reference to extrinsic facts or
aids. 80 The intention of the parties must be gathered from the
contract's language, and from that language alone. 81 Stated
differently, where the language of a written contract is clear and
unambiguous, the contract must be taken to mean that which, on
its face, it purports to mean, unless some good reason can be
assigned to show that the words should be understood in a different
sense. 82
Thus, conversely, when the terms of the contract are unclear
or are ambiguous, interpretation must proceed beyond the words'
literal meaning. Paragraph 2 of the same Article 1370 provides:
If the words appear to be contrary to the evident
intention of the parties, the latter shall prevail over the
former.
Discerning the parties' true intent requires the application of other
principles of contract interpretation. Jurisprudence dictates that
when the intention of the parties cannot be discerned from the plain
and literal language of the contract, or where there is more than
just one way of reading it for its meaning, the court must make a
preliminary inquiry of whether the contract before it is an
ambiguous one. 83 A contract provision is ambiguous if it is
susceptible of two reasonable alternative interpretations. 84 In such
case, its interpretation is left to the court, or another tribunal with
jurisdiction over it. 85 More simply, "interpretation" is defined as
the act of making intelligible what was before not understood,
ambiguous, or not obvious; it is a method by which the meaning of
language is ascertained. 86 The "interpretation" of a contract is the
determination of the meaning attached to the words written or
spoken which make the contract. 87
In the case at bar, the Court finds that ambiguity indeed
surrounds the figures 10.841% and 169,000 kW found in the

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contract, the former because it does not indicate a base value with
a specific quantity and a definite unit of measurement and the latter
because there is uncertainty as to whether it is a cap or limit on the
party's obligation or not. These were similarly the findings of both
the ERC and the appellate court. Even to the casual observer, it is
obvious that the plain language alone of Schedule W does not shed
light on these figures.
The ERC correctly explained and interpreted these provisions,
in this wise:
It is worthy to note that Schedule W of the APA
indicates the value "10.841%," which is enclosed in
parenthesis, under the name of MERALCO in the first
column, without any reference as to its base value. The
figure 10.841% simply written as it is (without reference
on the base value), is an incomplete mathematical
sentence and, therefore, is susceptible to several
interpretations. For instance, it can be construed as
10.841% of the entire SCPC capacity (10.841% of 322
MW) or it can also be taken to mean that 169,000 kW
represents 10.841% of MERALCO's contract energy. A
close scrutiny of Schedule W, however, indicates that
10.841% is not synonymous to 169,000 kW, i.e.,
169,000 kW does not represent 10.841% of MERALCO's
energy requirement. To complete its meaning, the figure
10.841% should have been followed by a reference
value and should have been written as "10.841% of . . ."
a specific base reference. Thus, to use 10.841% as the
reference value alone for MERALCO's contract energy at
any given hour would not be appropriate under the
circumstances because SCPC would not have an idea of
how much energy MERALCO would need at any given
time and the capacity that the power plant can
generate may not match with it.
On the other hand, to use the nominal figure
169,000 kW alone in reference to MERALCO's contract
energy would likewise not be appropriate under the
circumstances because the "10.841%" value written in
parenthesis underneath the name "MERALCO" in the
first column of Schedule W cannot just simply be
ignored.
To synthesize, the Commission believes that
neither of the figures (10.841% or 169,000 kW) taken
alone should be controlling in reference to MERALCO's
contract energy under the APA. The 10.841% value

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should be read and harmonized with the nominal figure


169,000 kW in order to give meaning to both, consistent
with and in relation to the APA. In giving meaning to the
words and intention of Schedule W, the Commission
abides by the law stipulated under Article 1374 of
the New Civil Code, which provides: AHDacC
ART. 1374. The various stipulations of
a contract shall be interpreted together,
attributing to the doubtful ones that sense
which may result from all of them taken
jointly. 88
The ambiguity in Schedule W partly lies in the figure
"10.841%," which lacks a base value and is bereft of any specific
quantity or number (in kilowatts or any other unit) to represent the
generated electricity that SCPC was obliged to deliver to MERALCO.
A mere percentage below MERALCO's name without indicating what
it is and what its base value is amounts to an incomplete numerical
statement. Then, on the right columns, specific quantities, including
the "160,000 kW," are laid down which seem to correspond or add
up to SCPC's generating capacity but which, in the "Notes" section
of the schedule, are confusingly referred to as merely
"indicative," i.e., estimates, which do not help reduce the
uncertainty.
Such a lack of clarity results in a perplexing situation wherein
the obligation to deliver could be interpreted as open-ended by one
party the obligee, but could be argued as "capped" or "limited"
by the other party the obligor. Obviously, such divergence
needed to be addressed by a disinterested third party like the ERC.
Although how such confusion came about despite the
presumed knowledge of both parties of both the high and low
ranges of MERALCO's projected requirements, at any given time, as
well as the limited generating capacity of the Calaca Power Plant,
the supplier's sole generating asset, is beyond the subject of this
review, what is certain is that there is an ambiguity that, if left to
stand or to remain unresolved, would inevitably lead to interminable
disputes. Thus, the Court sustains the ERC's decision to interpret the
contract as well as its resulting interpretation and explanation.
The ERC correctly cited another principle under the Civil
Code in contract interpretation which states,
Art. 1374. The various stipulations of a contract
shall be interpreted together, attributing to the doubtful
ones that sense which may result from all of them taken
jointly. 89

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Additionally, under the Rules on Evidence, it is required that:


RULE 130
xxx xxx xxx
Sec. 11. Instrument construed so as to give effect
to all provisions. In the construction of an instrument
where there are several provisions or particulars, such a
construction is, if possible, to be adopted as will give
effect to all.
Then, case law is also settled on the rule that contracts should be so
construed as to harmonize and give effect to its different
provisions. 90 The legal effect of a contract is not determined alone
by any particular provision disconnected from all others, but from
the whole read together. 91
Following the above rules and principles, the ERC correctly
interpreted the ambiguity in Schedule W in a way that would render
all of the contracts' provisions effectual. Although there was
ambiguity, as earlier stated, in the figures 10.841% and 169,000 kW
that appear on the said schedule, the ERC properly harmonized both
provisions. It did not just disregard or dispense with either of the
figures as such would have violated the principles that the "various
stipulations of the contract shall be interpreted together" and that
the "doubtful provisions shall be attributed with the sense which
may result from all of them taken jointly." Instead, it interpreted
both in a way that they would be preserved and work together. The
parties clearly intended for the figures to be in the contract and
bestowed such with meanings which the ERC had no power to just
ignore or remove.
As stated by the ERC, the 10.841% without any base
reference is mathematically incomplete and therefore opens itself
up to various interpretations; thus, it is ambiguous. On the other
hand, the 169,000 kW, which appears twice in Schedule W, if
treated as merely "indicative" or just an "estimate," as PSALM
alleges, would be rendered insignificant or as if it was not even
written in the contract, and the same could be said of all the other
figures in the schedule including the 10.841%. Clearly, this was not
the intention of the parties. The parties clearly assigned a common
meaning to the figures and they were not mere estimates nor
insignificant because, otherwise, the contract would be ineffectual
and without these figures, the contract would not have even been
signed in the first place.
It bears emphasis as well that the contract APA and its
Schedule W appear to have been prepared by PSALM, so that the
interpretation of any obscure or ambiguous words or stipulations

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therein should not favor it, as it is presumed to have caused such


obscurity or ambiguity. 92
Moreover, overturning the ERC's and the CA's interpretation
would result in the absurd scenario of requiring SCPC to supply
more than 169,000kW for MERALCO despite the fact that its
contracted demand levels for various customers listed in Schedule
W were pegged at 322 MW only and its dependable capacity is only
330 MW. As this Court has verified in the records, the ERC correctly
explained that the Calaca Power Plant only produces up to 322 MW
in electricity net of plant use; out of such produced, MERALCO
obtains the biggest allocation of 169,000 kW (169 MW), whereas the
rest of the customers share 153,000 kW (153MW). 93 It would be
highly unreasonable to require SCPC to allocate even a marginal
increase from 169,000 kW for MERALCO when such would cause it
to renege on its obligations to supply its other customers. Such an
interpretation that would lead to an unreasonableness which is
frowned upon, for another oft-cited rule in the interpretation of
contracts is that "the reasonableness of the result obtained, after
analysis and construction of the contract, must also be carefully
considered." 94
PSALM also contends that other stipulations in the contract
such as the Special Conditions of the MERALCO TSC, as well as
SCPC's option to enter into back-to-back supply contracts with other
generators (or to purchase directly from the market), should it
become unable to supply the contracted power under Schedule W,
clearly are indications that there is no cap in SCPC's supply
obligations. The contention, however, has no merit and, upon this
Court's own examination of the contracts, affirms as correct the
ERC's explanation in its Order 95 dated March 12, 2012 dismissing
PSALM's motion for reconsideration, to wit:
A. NPC/PSALM's OBLIGATION UNDER THE TSC
Under the TSC contracted between MERALCO and
NPC, the latter is obliged to deliver MERALCO's total
energy requirements. As such, NPC is required to
exhaust all means to find other sources of power to
replace any curtailed energy at no extra cost to
MERALCO. Simply put, NPC is directly responsible
to make up for any shortfall under the MERALCO
TSC. In fact, in its "Motion for Reconsideration," PSALM
mentioned that "Undeniably, Respondent PSALM under
the MERALCO TSC is obligated to deliver the entire
contracted energy as stated therein. . . ." and
that"Respondent PSALM's obligation is to keep
MERALCO whole."

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It must be emphasized that NPC and PSALM's


obligation to supply the entire energy contract to
MERALCO, including the obligation to replace any
curtailed energy, was not passed on or assigned
to SCPC. Only the portion of the contract energy as
defined in Part I of Schedule W was assigned to SCPC.
Such is clear under Part II of Schedule W, which
states: HCaDIS
"Part II. Special Conditions of the MERALCO TSC
The following conditions, unique to the MERALCO-
NPC contract, shall apply to the assigned portion of the
Contract Energy from the MERALCO TSC.
1. Neither the MERALCO TSC nor any portion
thereof shall be assigned to the Buyer. It is the Contract
Energy specified in part I that is the subject of the
assignment."
B. SCPC's OBLIGATION UNDER SCHEDULE W OF THE APA
On the other hand, under Schedule W of the APA,
SCPC is legally obligated to deliver 10.841% of
MERALCO's energy requirements but not to exceed
169,000 kW capacity allocation at any given hour.
Accordingly, SCPC is responsible for any shortfall and is
under obligation to provide and make up for curtailed
energy if it fails to produce up to 169,000 kW capacity,
at any given hour. 96
The above explanation by the ERC states, in simple terms,
that SCPC is not accountable for any shortfall once it had delivered
169,000 kW at any given hour, the same being the responsibility of
NPC. SCPC becomes liable only whenever it fails to deliver
whichever is lower of 169,000 kW or 10.841% of MERALCO's
requirements, at any given hour. The Court has exhaustively
examined the contract between the parties, including the so-called
Special Conditions of the MERALCO TSC, 97 the Calaca Typical
Hourly Customer's Load Profile 98 and the Nomination Protocol
between MERALCO and NPC of TSC Contract Energy, 99 as cited by
PSALM in its petition, and specifically the provisions thereof quoted
by the ERC, and found the same to be consistent with the above
conclusions of the said agency. As such, the Court will not interfere
with the same, mindful of the principle that actions of an
administrative agency may not be disturbed nor set aside by the
judicial department sans any error of law, grave abuse of power or
lack of jurisdiction, or grave abuse of discretion clearly conflicting
with either the letter or spirit of the law. 100

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WHEREFORE, the petition is DENIED. The Court of Appeals'


Decision dated September 4, 2012 and Resolution dated November
27, 2012 in CA-G.R. SP No. 123997 are AFFIRMED. Costs against
the petitioner.
SO ORDERED.
||| (Power Sector Assets and Liabilities Management Corp. v. Sem-
Calaca Power Corp., G.R. No. 204719, [December 5, 2016])

THIRD DIVISION

[G.R. No. 221513. December 5, 2016.]

SPOUSES LUISITO PONTIGON and LEODEGARIA


SANCHEZ-PONTIGON, petitioners, vs. HEIRS OF
MELITON SANCHEZ, namely: APOLONIA SANCHEZ,
ILUMINADA SANCHEZ (deceased), MA. LUZ
SANCHEZ, AGUSTINA SANCHEZ, AGUSTIN S.
MANALANSAN, PERLA S. MANALANSAN, ESTER S.
MANALANSAN, GODOFREDO S. MANALANSAN,
TERESITA S. MANALANSAN, ISRAELITA S.
MANALANSAN, ELOY S. MANALANSAN, GERTRUDES
S. MANALANSAN, represented by TERESITA
SANCHEZ MANALANSAN, respondents.

DECISION

PEREZ, J p:
Before us is a Petition for Review on Certiorari under Rule 45
of the Rules of Court seeking the reversal of the March 26, 2015
Decision 1 and September 14, 2015 Resolution 2 of the Court of
Appeals (CA) in CA-G.R. CV No. 100188. 3 The assailed rulings
affirmed the trial court judgment that declared Transfer Certificate
of Title (TCT) No. 162403-R, under the name of petitioners, null and
void because of the fraud and irregularities that allegedly attended
its issuance.

The Facts

Meliton Sanchez (Meliton) had been the owner of a 24-hectare


parcel of land situated in Gutad, Floridablanca, Pampanga. Said

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property was duly-registered in his name under Original Certificate


of Title (OCT) No. 207 issued on October 15, 1938. 4
On August 11, 1948, Meliton died intestate, leaving the
subject property to his surviving heirs, his three children, namely:
Apolonio, Flaviana, and Juan, all surnamed Sanchez. Petitioner
Leodegaria Sanchez-Pontigon (Leodegaria) is the daughter of Juan
and petitioner Luisito Pontigon (Luisito) is the husband of
Leodegaria. The respondents herein, who are all represented by
Teresita S. Manalansan (Teresita), are Meliton's grandchildren with
Flaviana.
On September 17, 2000, the respondents filed a Complaint for
Declaration of Nullity of Title and Real Estate Mortgage with
Damages 5 against petitioners, docketed as Civil Case No. G-06-
3792 before the Regional Trial Court (RTC), Branch 49 of Guagua,
Pampanga. 6 Respondents posited that the property in issue had
never been partitioned among the heirs of Meliton, but when
respondents verified with the Register of Deeds of Pampanga (RD)
the status of the parcels of land sometime in August 2000, they
discovered that OCT No. 207 was nowhere to be found what was
only with the RD's custody was the owner's copy of OCT No. 207,
fee of any annotation of cancellation or description of any document
that could have justified the transfer of the property covered.
Despite this fact, petitioners, even without any document of
conveyance, were able to transfer the title of the subject lot to their
names, resulting in the issuance of Transfer Certificate of Title (TCT)
No. 162403-R on May 21, 1980 covering the same parcel of land.
Hence, respondents, argued that the transfer of title to petitioners
was fraudulent and invalid, and that petitioners merely held title
over the subject property in trust for Meliton's heirs. 7
It was further averred that post-transfer, petitioners unlawfully
and fraudulently obtained a loan from, and mortgaged the subject
property to, Quedan and Rural Credit Guarantee Corporation
(Quedancor) an additional defendant in Civil Case No. G-06-3792.
Quedancor allegedly did not take the necessary steps to verify the
title over and the true ownership of the subject property. 8 CAIHTE
Deprived of their inheritance over the subject property, to
their damage and prejudice, respondents prayed that TCT No.
162403-R be declared null and void; that the real estate mortgage
in favor of Quedancor likewise be nullified; that OCT No. 207
registered under Meliton's name be reinstated; and that damages
be awarded in their favor. 9
In their Answer, petitioners denied the material allegations in
the Complaint. They countered that the conveyance in their favor is
evidenced by an Extra-judicial Settlement of Estate of Meliton

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Sanchez and Casimira Baluyut with Absolute Sale (Extrajudicial


Settlement) that was prepared and notarized by Atty. Emiliano Malit
on November 10, 1979. In fact, Apolonio, Juan, and Flaviana filed
before Branch 2 of the then Court of First Instance (CFI) of
Pampanga a Petition for Approval of the Extrajudicial Partition
(Petition for Approval). Petitioners further alleged that on December
29, 1979, a Decision was rendered granting the petition adverted
to, which ruling became final and executory based on a certification
dated February 15, 1980 issued by the then clerk of court. 10
Petitioners also raised the following affirmative defenses: that
respondents had no cause of action against petitioners, Quedancor,
and the RD; that respondent Teresita Sanchez Manalansan (Teresita)
had no authority to represent all the respondents in the case; and
that twenty (20) years had already passed from the issuance of TCT
No. 162403-R on May 21, 1980 before respondents lodged their
Complaint. Petitioners would file on October 10, 2002 a motion to
dismiss reiterating the defense that respondents' action is already
barred by prescription. 11
For its part, Quedancor explained that petitioners mortgaged
to it the parcel of land covered by TCT No. 162403-R as security for
a PhP6,617,000.00 loan extended in their favor. It claimed that the
mortgage was approved in good faith since it verified with the RD
the veracity of petitioners' title. Moreover, by way of affirmative
defense, Quedancor maintained that respondents have no cause of
action against it. It then prayed that respondents be ordered to pay
the corporation damages and attorney's fees. 12
With the issues joined, trial on the merits ensued.
During trial, respondent Teresita, attorney-in-fact of her co-
parties, testified that the subject property was merely held in trust
by her uncle Juan, Meliton's son and petitioner Leodegaria's father,
who had been paying the taxes on the property since he is the most
educated and successful of the three siblings; and, that she was the
one who verified with the RD and discovered that only the owner's
copy of OCT No. 207 was in the office's custody sans any annotation
of cancellation or encumbrance. 13 Myrna Guinto, a Record Officer
at the RD and witness for the respondents, testified that the
duplicate owner's copy adverted to indeed bears no indication that
it had been cancelled or otherwise encumbered. 14
On the other hand, petitioner Luisito testified that even
though he and his wife do not particularly like the location of the
lots in issue, they accepted Juan, Apolonio, and Flaviana's offer to
sell to them Meliton's erstwhile property due to sentimental
reasons. The Extrajudicial Settlement was then executed and the
Petition for Approval filed to effect the transfer in petitioners' name.

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The petition for approval, according to Luisito, was favorably acted


upon by the CFI of Pampanga on November 30, 1979, which ruling
allegedly became final and executory. 15
Leodegaria corroborated Luisito's testimony that they were
constrained to purchase the lot for its emotional attachment to
them. She revealed that it was her father Juan who hired a lawyer,
Atty. Malit, to effect the transfer, and that she was present when the
Extrajudicial Settlement was executed by the three siblings, with
Lucita Jalandoni and Agustin Manalansan as instrumental witnesses.
Atty. Malit deposited into Flaviana's account the payments of the
purchase price. And since then, petitioners occupied and developed
the disputed lot. 16
Atty. Lorna Salangsang-Dee (Atty. Dee), the Register of Deeds
for Pampanga, likewise took the witness stand to explain that all
documents relative to titles issued prior to October 1995 were
destroyed by the lahar and flash floods that inundated their office.
She further testified, on cross-examination, that she concluded that
the owner's duplicate certificate of OCT No. 207 appears in their
records because there was a transaction that warranted its
surrender to the Registry. 17
In rebuttal, respondent Teresita was recalled as witness. She
claimed that the first time she saw the Extrajudicial Settlement was
when it was presented in court. She brought to the court's attention
the fact that the document was allegedly executed on November
10, 1979, when her mother, Flaviana, was already 69 years of age.
It was Teresita's contention that Flaviana, in her advanced age, was
already senile during the date material and, thus, could not have
validly consented to the sale of her property. Teresita admitted,
though, that she has no document to prove the status of her
mother's then mental condition. 18
The second rebuttal witness, Thiogenes Manalansan Ragos, Jr.
(Thiogenes), son of respondent Perla Manalansan and grandson of
Flaviana, claimed that on November 7, 1979, between 2:00-3:00
p.m., Juan, Luisito, and Leodegaria arrived at the house of Flaviana
to coerce her into signing a document. Because Flaviana refused to
affix her signature, she was forcibly taken by the three. Thereafter,
Thiogenes accompanied his mother, Perla, to the police station to
report the incident. There, he allegedly saw Perla file a complaint
stating, among others, that Juan was persuading Flaviana to sign a
document of sale. 19

Ruling of the Regional Trial Court

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During the course of the trial, the RTC issued its Order dated
May 28, 2003 denying petitioners' motion to dismiss, ruling that
respondents' cause of action has not yet prescribed. The RTC
ratiocinated that by filing a motion to dismiss, petitioners
hypothetically admitted the allegations in the complaint that they
and respondents are co-owners of the subject property, being the
heirs of Meliton. Having fraudulently obtained title over the subject
property to the prejudice of respondents, a trust relation was
created by operation of law, whereby petitioners merely held the
subject property in trust for and in behalf of their co-owners. As
held, an action based on this trust relation could not be barred by
prescription. 20
Subsequently, on June 28, 2012, the RTC promulgated a
Decision 21 in favor of respondents. The dispositive portion of the
Decision states: 22
WHEREFORE, premises considered, judgment is
hereby rendered:
1. Declaring null and void Transfer Certificate of Title No.
162403-R registered in the name of defendants-spouses
Luisito Pontigon and Leodegaria Sanchez and declaring
herein plaintiffs represented by Teresita Sanchez
Manalansan as rightful co-owners to a one-third portion
of the property embraced in said title previously
registered in the name of Meliton Sanchez per Original
Certificate of Title No. 207; DETACa
2. Ordering the Register of Deeds of Pampanga to
cancel TCT No. 162403-R and issue a new title in favor
of the Heirs of Meliton Sanchez, upon payment of the
necessary taxes and lawful fees;
3. Upholding the validity of the real estate mortgage
constituted on TCT No. 162403-R and setting aside the
writ of preliminary injunction issued against defendant
Quedancor without prejudice to the rights of herein
plaintiffs as co-owners of the mortgaged property;
4. Denying plaintiff's claim for damages and attorney's
fees as well as defendant's counterclaims for lack of
merit.
SO ORDERED.
The RTC maintained that the transfer of title of the subject
property to petitioners was tainted with irregularities. While the trial
court took judicial notice of the floods and lahar that inundated the
Provincial Capitol, it found strange that the owner's duplicate

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certificate, but not the original copy, of OCT No. 207, would remain
with the RD, clean of any annotation or marking at that. 23
Anent the Petition for Approval, the RTC noted that the
pleading filed before the CFI was verified by Juan alone; that the
court order setting it for hearing was not signed by the then
presiding judge; and that the certification of the CFI judgment
granting the Petition for Approval was a mere photocopy and does
not satisfy the best evidence rule. Additionally, the RTC weighed
against petitioners the fact that the Petition for Approval was
prepared earlier than the Extrajudicial Settlement sought to be
approved. The Extrajudicial Settlement was dated November 10,
1979, while the Petition for Approval was dated November 9, 1979,
albeit filed on November 12, 1979. 24
Taking substantial consideration of the "damning rebuttal
evidence" of respondents, 25 the trial court deemed implausible
petitioners' postulation that they purchased the subject property for
sentimental reasons. It further held the petitioners did not
particularly dispute that respondents are heirs of Meliton. Thus,
upon Meliton's death, co-ownership existed among the siblings,
Juan, Apolonio and Flaviana. Finally, the RTC held that the subject
property should then be divided equally among the three (3)
heirs. 26
Petitioners filed a Motion for Reconsideration, 27 but their
contentions were rejected by the RTC anew. 28 Aggrieved, they
elevated the case to the CA via appeal.

Ruling of the Court of Appeals

Through its assailed Decision, the appellate court affirmed the


findings of the RTC and disposed of the case in the following
wise: 29
WHEREFORE, the instant appeal is DENIED. The
Decision dated June 29, 2012 of Branch 49, Regional
Trial Court of Guagua, Pampanga in Civil Case No. G-06-
3792 is hereby AFFIRMED.
SO ORDERED.
At the outset, the CA ruled that petitioners' appeal was
procedurally infirm. Citing Sec. 1 (f), Rule 50 30 of the Rules of
Court, the CA held that failure of petitioners to submit a subject
index is fatal to the appeal and warrants the outright denial of their
plea. 31

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Even if the absence of the subject index were to be excused,


the appellate court nevertheless found no cogent reason to disturb
the trial court's ruling. The CA explained that the Extrajudicial
Settlement cannot be considered a public document because it was
not properly notarized. It could not then bind third persons,
including respondents, according to the appellate
court. 32 Moreover, the CA ruled that the document adverted to is
bereft of any probative value for failure on the part of petitioners to
comply with the rules on the admissibility of private documents as
proof. 33 It also shared the RTC's observations as regards the
Petition for Approval. 34 Given the irregularities attending the
execution and approval of the Extrajudicial Settlement, the CA
concluded that it could not have conveyed title to petitioners, and
that TCT No. 162403-R, consequently, is a nullity. 35
From the date of their receipt of the adverse ruling,
petitioners had until May 9, 2015 within which to move for
reconsideration therefrom. It would be on May 4, 2015 when
petitioners would interpose their Motion for Reconsideration 36 and
Entry of Appearance 37 of Atty. Roniel Dizon Muoz (Atty. Muoz).
Atty. Juvy Mell Sanchez-Malit (Atty. Malit), the counsel who
previously represented the petitioners in the earlier proceedings,
never informed the court that she is withdrawing from the case.
On October 2, 2015, petitioners received a copy of the Notice
of Resolution 38 with Entry of Judgment 39 dated September 14,
2015, which provides thusly: 40
WHEREFORE, premises considered, the Court
resolves as follows:
1. The Entry of Appearance as Counsel for Defendants-
Appellants Spouses Pontigon filed by Atty. Roniel Dizon
Muoz is simply NOTED WITHOUT ACTION; and
2. The Motion for Reconsideration filed by Atty. Dizon
Muoz is hereby EXPUNGED from the rollo of this case,
being a mere scrap of paper with no remedial value for
having been filed by unauthorized counsel.
Accordingly, the Division Clerk of Court is
hereby DIRECTED to issue an Entry of Judgment in
consonance with Section 3 (b), Rule IV and Section 1,
Rule VII of the IRCA, as amended.
SO ORDERED.
In fine, the CA treated the Motion for Reconsideration as a
mere scrap of paper since it was allegedly not filed by petitioners'
counsel of record. Atty. Muoz was not vested with the authority to

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file the pleading in their behalf since the manner by which


petitioners substituted their counsel is not consistent with Sec. 26,
Rule 138 of the Rules of Court. 41 Citing Ramos v.
Potenciano, 42 the CA held that no substitution of attorneys will be
allowed unless the following requisites concur: there must be (1) a
written application for substitution; (2) written consent of the client
to the substitution; and (3) written consent of the attorney to be
substituted, if such consent can be obtained. . . . 43
Unless these formalities are complied with, no substitution
may be permitted and the attorney who appeared last in the case
before such application for substitution would be regarded as the
attorney of record and would be held responsible for the conduct of
the case. 44 aDSIHc
Unfazed, petitioners again filed a Motion for
Reconsideration, 45 this time from the September 14, 2015
Resolution. The said motion remains pending with the CA to date. In
the interim, the appellate court remanded the folders of this case to
the court of origin.
Hence, the instant recourse.

The Issues

The pivotal issues of the current controversy are as follows:


I. Whether or not the CA is correct in ruling that Atty.
Muoz did not have the authority to file the Motion for
Reconsideration in behalf of the petitioners, rendering it
a mere scrap of paper;
II. Whether or not respondents' cause of action is barred
by prescription;
III. Whether or not the appellate court correctly held that
the Extrajudicial Settlement does not bind the
respondents;
IV. Whether or not the Extrajudicial Settlement is
admissible as evidence;
V. Whether or not the CA erred in ruling that TCT No.
162403-R is a nullity because of the irregularities that
attended its issuance;
VI. Whether or not a relaxation of the procedural rules is
warranted in this case.

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The Court's Ruling

The Court finds merit in the petition. The resolution of the


issues raised herein shall be discussed seriatim, beginning with the
procedural aspect of the case.
The CA erred in denying the Motion
for Reconsideration for want of
authority of counsel
Oft cited, but rarely applied, is that technical rules may be
relaxed only for the furtherance of justice and to benefit the
deserving. 46 This controversy before us, however, is one of the
exceptional instances wherein the proverb can properly be invoked.
We entertain this petition notwithstanding the finality of the
judgment because fault here lies with the CA for its unjustified
denial of the first Motion for Reconsideration filed by Atty. Muoz,
and for its refusal to resolve the still pending second Motion for
Reconsideration in CA-G.R. CV No. 100188. It was plain error for the
appellate court to have treated the first Motion for Reconsideration
as a sham pleading for allegedly not having been filed by the
counsel of record.
The September 14, 2015 Resolution of the appellate court is
premised on the alleged failed substitution of counsel. Premised on
the immediate assumption that Atty. Muoz was intended as a
replacement for Atty. Sanchez-Malit, the CA concluded that non-
observance of Sec. 26, Rule 138 of the Rules of Court rendered Atty.
Muoz's filing of the first Motion for Reconsideration to be wanting
of authority.
The theory of the CA is flawed.
Apropos herein is the Court's teaching in Land Bank of the
Phils. v. Pamintuan Dev. Co., 47 to wit:
[A] substitution cannot be presumed from
the mere filing of a notice of appearance of a new
lawyer and that the representation of the first counsel
of record continuous until a formal notice to change
counsel is filed with the court. Thus, absent a formal
notice of substitution, all lawyers who appeared before
the court or filed pleadings in behalf of the client are
considered counsels of the latter. All acts performed by
them are deemed to be with the clients' consent.
(Emphasis supplied)
Applying the afore-quoted doctrine, it is imperative that the
intention of the petitioners to replace their original counsel, Atty.

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Sanchez-Malit, be evidently clear before substitution of counsel can


be presumed. The records readily evince, however, that herein
petitioners did not manifest even the slightest of such intention. No
inference of an intent to replace could be drawn from the tenor of
either the first Motion for Reconsideration or in Atty. Muoz's Entry
of Appearance.
To dispel any lingering doubt as to the true purpose of Atty.
Muoz's entry, worthy of note is that he indicated in his Entry of
Appearance that his office address is "Sanchez-Malit Building" in
Dinalupihan, Bataan. 48 More, both counsels signed the present
petition for review on certiorari, indicating only one address, the
very same building of Atty. Sanchez-Malit, for where court processes
shall be served. Indubitably, the Entry of Appearance by the new
lawyer, Atty. Muoz, ought then be construed as a collaboration of
counsels, rather than a substitution of the prior representation.
Consequently, the CA should have entertained and resolved the
Motions for Reconsideration filed by petitioners through Atty. Muoz,
despite Atty. Sanchez-Malit's non-withdrawal from the case.
Verily, it was wrong for the CA to have denied outright
petitioners' first Motion for Reconsideration, and to have directed
the post-haste issuance of the Entry of Judgment. These haphazard
actions resulted in the deprivation of petitioners of a guaranteed
remedy under the rules. But more than the need to rectify the CA's
procedural miscalculation, the liberal application of the rules is
justified under the circumstances in order to obviate the frustration
of substantive justice.
Respondents' action is already
barred by prescription
The May 28, 2003 Order of the RTC denying petitioners'
motion to dismiss on the ground of prescription cannot be
sustained. To recall, the RTC held that as co-owners of the subject
property, a trust relation was established between the parties when
petitioners fraudulently obtained title over the same. 49 An action
anchored on this relation of trust is imprescriptible, or so the RTC
ruled.
We find this ruling of the RTC not in accord with law and
jurisprudence.
Under the Torrens System as enshrined in P.D. No.
1529, 50 the decree of registration and the certificate of title issued
become incontrovertible upon the expiration of one (1) year from
the date of entry of the decree of registration, without prejudice to
an action for damages against the applicant or any person
responsible for the fraud. 51 However, actions for reconveyance

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based on implied trusts may be allowed beyond the one-year


period. As elucidated in Walstrom v. Mapa, Jr.: 52 ETHIDa
[N]otwithstanding the irrevocability of the Torrens
title already issued in the name of another person, he
can still be compelled under the law to reconvey the
subject property to the rightful owner. The property
registered is deemed to be held in trust for the real
owner by the person in whose name it is registered.
After all, the Torrens system was not designed to shield
and protect one who had committed fraud or
misrepresentation and thus holds title in bad faith.
In an action for reconveyance, the decree of
registration is respected as incontrovertible. What is
sought instead is the transfer of the property, in this
case the title thereof, which has been wrongfully or
erroneously registered in another person's name, to its
rightful and legal owner, or to one with a better right.
This is what reconveyance is all about. Yet, the right to
seek reconveyance based on an implied or
constructive trust is not absolute nor is it
imprescriptible. An action for reconveyance based on
an implied or constructive trust must perforce prescribe
in ten years from the issuance of the Torrens title over
the property. (Emphasis supplied)
Thus, an action for reconveyance of a parcel of land based on
implied or constructive trust prescribes in ten (10) years, the point
of reference being the date of registration of the deed or the date of
the issuance of the certificate of title over the property. 53
By way of additional exception, the Court, in a catena of
cases, 54 has permitted the filing of an action for reconveyance
despite the lapse of more than ten (10) years from the issuance of
title. The common denominator of these cases is that the plaintiffs
therein were in actual possession of the disputed land, converting
the action from reconveyance of property into one for quieting of
title. Imprescriptibility is accorded to cases for quieting of title since
the plaintiff has the right to wait until his possession is disturbed or
his title is questioned before initiating an action to vindicate his
right. 55
A perusal of respondents' Complaint, 56 though, reveals that
the allegations contained therein do not include possession of the
contested property as an ultimate fact. As such, the present case
could only be one for reconveyance of property, not for quieting of
title. Accordingly, respondents should have commenced the action
within ten (10) years reckoned from May 21, 1980, the date of

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issuance of TCT No. 162403-R, instead of on September 17, 2000 or


more than twenty (20) years thereafter.
The Extrajudicial Settlement is a
private document that is binding on
the respondents
The appellate court did not err in ruling that the Extrajudicial
Settlement was not properly notarized given the absence of
Flaviana's residence certificate number. As it appears, no
identification was ever presented by Flaviana when the document
was notarized. Be that as it may, the irregularity in the notarization
is not fatal to the validity of the Extrajudicial Settlement. For even
the absence of such formality would not necessarily invalidate the
transaction embodied in the document the defect merely renders
the written contract a private instrument rather than a public one.
While Art. 1358 of the New Civil Code seemingly requires that
contracts transmitting or extinguishing real rights over immovable
property should be in a public document, 57 hornbook doctrine is
that the embodiment of certain contracts in a public instrument is
only for convenience. 58 It is established in jurisprudence that non-
observance of the prescribed formalities does not necessarily
excuse the contracting parties from complying with their respective
obligations under their covenant, and merely grants them the right
to compel each other to execute the proper deed. 59 A contract of
sale has the force of law between the contracting parties and they
are expected to abide, in good faith, by their respective contractual
commitments 60 notwithstanding their failure to comply with Art.
1358.
As similarly observed by the appellate court, the Extrajudicial
Settlement is not a nullity, but a valid document, albeit a private
one. The CA never declared the document as void, but only that it
cannot be considered as binding on third parties. It added, however,
that respondents fall within the category of "third persons" against
whom the stipulations in the private document can never be
invoked. 61 On this point, we digress.
The principle of relativity of contracts dictates that contractual
agreements can only bind the parties who entered into them, and
cannot favor or prejudice third persons, even if he is aware of such
contract and has acted with knowledge thereof. 62 The doctrine
finds statutory basis under Art. 1311 of the New Civil Code, which
provides:
Article 1311. Contracts take effect only between the
parties, their assigns and heirs, except in case
where the rights and obligations arising from the

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contract are not transmissible by their nature, or by


stipulation or by provision of law. . . . (Emphasis
supplied)
The law is categorical in declaring that as a general rule,
the heirs of the contracting parties are precluded from denying the
binding effect of the valid agreement entered into by their
predecessors-in-interest. This is so because they are not deemed
"third persons" to the contract within the contemplation of law.
Additionally, neither the provision nor the doctrine makes a
distinction on whether the contract adverted to is oral or written,
and, even more so, whether it is embodied in a public or private
instrument. It is then immaterial that the Extrajudicial Settlement
executed by Flaviana was not properly notarized for the said
document to be binding on her heirs, herein respondents.
Reliance by the trial court on the so-called "damning rebuttal
evidence" is misplaced and cannot be countenanced. Said evidence
contradicts the very allegations in their Complaint. It effectively
modifies the respondents' theory of the case and transforms the
action so as to include a collateral attack on the deed of
conveyance. It cannot escape the attention of the court that despite
alleging in their Complaint and in their initial presentation of
evidence that there was no document of conveyance that justifies
the issuance of TCT No. 162403-R, respondents made a complete
turnabout and virtually admitted the existence of the Extrajudicial
Settlement on rebuttal, but nevertheless argued against its validity.
To review, Thiogenes, son of respondent Perla Manalansan,
testified that on November 7, 1979, Juan, Luisito, and Leodegaria
forcibly took Flaviana and coerced the latter to execute the sale in
favor of petitioners. If this version of the facts were to be believed,
this could only mean: (a) that the Extrajudicial Settlement existed,
(b) that Flaviana's heirs knew of its existence; and (c) that
Flaviana's consent was vitiated through force and intimidation.
Noteworthy, too, is that Agustin Manalansan, one of the
respondents in this case, even signed the deed as an instrumental
witness to the execution of the deed. Yet, he did not testify to
disavow the signature appearing above his name in the Extrajudicial
Settlement. cSEDTC
The above circumstances render the Extrajudicial Settlement
voidable, not void. 63 Under the law, a voidable contract retains the
binding effect of a valid one unless otherwise annulled. 64And as
prescribed, the action for annulment shall be brought within four (4)
years, in cases of intimidation, violence or undue influence, from the
time the defect of the consent ceases. 65Unfortunately for
respondents, the prescriptive period for annulment had long since

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expired before they filed their Complaint. They cannot be permitted


to circumvent the law by belatedly attacking, collaterally and as an
afterthought at that, the validity of the erstwhile voidable
instrument in the present action for declaration of nullity of title.
The validity of the Extrajudicial Settlement cannot then be
gainsaid. Ratified by their inaction, the document of conveyance, as
well as the consequences of its registration, would then bind the
respondents. This still holds true notwithstanding the glaring
irregularities in the Petition for Approval. Obvious to the eye and
intellect as the errors may be, they are of no moment since the
Extrajudicial Settlement, a private writing and unpublished as it
were, nevertheless remains to be binding upon any person who
participated thereon or had notice thereof. 66
Petitioners complied with the rules
on authentication of private
documents
Likewise, the CA erroneously ruled that the Extrajudicial
Settlement is bereft of probative value because of petitioners'
alleged failure to comply with the rules on the admissibility of
evidence set forth under Rule 132, Sec. 20 of the Rules of
Court, viz.:
Section 20. Proof of private document. Before
any private document offered as authentic is received in
evidence, its due execution and authenticity must be
proved either:
(a) By anyone who saw the document
executed or written; or
(b) By evidence of the genuineness of the
signature or handwriting of the maker.
Any other private document need only be
identified as that which it is claimed to be
Contrary to the CA's ruling, petitioners complied with the
foregoing authentication requirements. Pertinent hereto is petitioner
Leodegaria's testimony on January 13, 2009: 67
Atty. Malit
So what is the document they executed?
Witness
Then they executed a deed of sale, after that the lawyer
took over the required documents to this effect like
this extrajudicial settlement, that is one, and two,
that is to pay all the taxes for more than fifty (50)

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years, Ma'am. After that the deed of sale then the


extra-judicial settlement and after the [extra
judicial] settlement they signed in front of the
lawyer and after that publication in a newspaper of
general circulation.
Atty. Malit
Now you mentioned that a document entitled extra-
judicial settlement, if that copy will be shown to
you, would you be able to identify it?
Witness
Yes Ma'am
Atty. Malit
I am showing to you a document entitled extra-judicial
settlement of the estate of deceased spouses
Meliton Sanchez and Casimira Baluyot, will you
please go over this document.
Which consists of two (2) pages and tell us if this is the
one executed by Juan, Flaviana, and Apolonia?
Witness
Yes Ma'am
Atty. Malit
Above the names of Juan, Flaviana and Apolonio (sic) are
signatures, do you know whose signatures are
these?
Witness
These are the signatures of Juan, Flaviana and Apolonio,
Ma'am.
Atty. Malit
Why do you know that these are the signatures of
Juan, Flaviana, and Apolonio?
Witness
Because I was present with my lawyer, Ma'am.
Atty. Malit
On the second page of the document you are holding
[two] (2) witnesses whose signatures appear on
said document can you recall whose signatures are
these?

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Witness
The signatures of Lucita Jardinas and Agustin
Manalansan, Ma'am.
Atty. Malit
Who is this Lucita Jalandoni?
Witness
Lucita is the witness from the office of Atty. Malit,
Ma'am.
Atty. Malit
How about the other signature, Agustin Manalansan?
Witness
Agustin Manalansan is the son of Flaviana Sanchez,
Ma'am.
Atty. Malit SDAaTC
Is he the same person who is one of the plaintiffs in this
case?
Witness
Yes, sir (sic). (Emphasis supplied)
As can be gleaned from the transcripts, the contents of
petitioner Leodegaria's testimony satisfy the rules pertaining to the
admissibility of documentary evidence. Her claim that she was
present at the time the Extrajudicial Settlement was executed is
competent proof of the said document's authenticity and due
execution. To be sure, neither the RTC nor the CA held that the
credibility of petitioner Leodegaria was impeached; the adverse
findings against her and her husband were predicated mainly on the
erroneous perception that her evidence-in-chief is inadmissible.
Irregularities in the issuance of TCT
No. 162403-R would not necessarily
invalidate the same
Proceeding now to the issue on whether or not the nullification
of TCT No. 162403-R is warranted, it must be borne in mind that the
assailed document of title, as a government issuance, enjoys the
presumption of regularity. 68 It was then incumbent upon the
respondents to prove, by preponderant evidence, that the issuance
of TCT No. 162403-R on May 21, 1980 was attended by fraud as
they claim.
Respondents endeavored to overcome the burden of evidence
in proving their allegation of fraud by presenting as witness Myrna

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Guinto, an employee of the RD of Pampanga, who testified that the


original copy of OCT No. 207, the parent title of TCT No. 162403-R,
is not in their custody as it is missing in their vault, and that the
owner's duplicate certificate in its stead does not bear any
annotation of cancelation or encumbrance.
We are inclined, however, to give more credence to the
explanation given by the Registrar of Deeds, Lorna Salangsang-Dee,
that the presence of the owner's duplicate certificate in their vault
signifies that there was most likely a transaction registered with the
office concerning the same. Indeed, there could not be any other
plausible reason except that it was as a result of the transaction
that owner's duplicate certificate was surrendered to the RD.
In any event, even if we were to assume for the sake of
argument that the issuance of TCT No. 162403-R was marred by
irregularities, this would not necessarily impair petitioners' right of
ownership over the subject lot. As held in Rabaja Ranch
Development Corporation v. AFP Retirement and Separation
Benefits System: 69
. . . justice and equity demand that the
titleholder should not be made to bear the
unfavorable effect of the mistake or negligence of
the State's agents, in the absence of proof of his
complicity in a fraud or of manifest damage to
third persons. The real purpose of the Torrens system
is to quiet title to land and put a stop forever to any
question as to the legality of the title, except claims that
were noted in the certificate at the time of the
registration or that may arise subsequent thereto.
Otherwise, the integrity of the Torrens system shall
forever be sullied by the ineptitude and inefficiency of
land registration officials, who are ordinarily presumed
to have regularly performed their duties. (Emphasis
supplied)
Respondents, in the instant case, miserably failed to prove
that petitioners were parties to the perceived fraud. Basic are the
tenets that he who alleges must prove, and that mere allegation is
not evidence and is not equivalent to proof. Here, the allegations
relating to petitioners' participation to the fraud were nothing more
than general averments that were never fleshed out to more
specific fraudulent acts, let alone substantiated by the evidence on
record.
To clarify, what was only established was that there were
lapses in the observance of the standard operating procedure of the
RD in its issuance of titles, based on the loss of the original title and

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the absence of an annotation of cancellation even on the duplicate


owner's original. The performance or non-performance of these
acts, however, cannot be attributed to herein petitioners, as
registrants, for these are within the ambit of the duties and
responsibilities of the officers of the RD. 70 All the registrant was
required to do was to surrender the duplicate owner's
original, 71 which petitioners accomplished in the case at bar.
Worth recalling, too, is that contrary to respondents' claim,
there was a valid document of conveyance that could justify the
issuance of TCT No. 162403-R in petitioners' favor. In view of the
validity of the Extrajudicial Settlement, the Court hesitates to
conclude that the challenged TCT was fraudulently issued. At most,
there appears to be, in this case, lapses in the standard operating
procedure of the RD, which do not and could not automatically
impair petitioners' ownership rights and title, but merely expose the
negligent officers to possible liability.
Succinctly, we conclude from the foregoing disquisitions that:
respondents' action has already prescribed; the Extrajudicial
Settlement, though a private instrument, is nevertheless valid and
binding on the heirs of the contracting parties; the Extrajudicial
Settlement is admissible in evidence; and absent proof of complicity
in the alleged fraud that attended the issuance of TCT No. 162403-
R, petitioners' rights under the said document of title cannot be
impaired. These corrections in judgment, to our mind, are
considerations that severely outweigh and excuse petitioners'
procedural transgressions.
WHEREFORE, premises considered, the instant petition is
hereby GRANTED. The Entry of Judgment September 14, 2015 in
CA-G.R. CV No. 100188 is hereby LIFTED. The March 26, 2015
Decision and September 14, 2015 Resolution of the Court of
Appeals in CA-G.R. CV No. 100188, as well as the Decision dated
June 28, 2012 and the Order dated December 14, 2012 in Civil Case
No. G-06-3792 before the Regional Trial Court, Branch 49 of Guagua,
Pampanga, are hereby REVERSED and SET ASIDE. Let a new
judgment be issued:
1. Upholding the validity of Transfer Certificate of Title No.
162403-R registered in the name of petitioners Luisito
and Leodegaria Pontigon; and
2. Dismissing the Complaint for Declaration of Nullity of Title
and Real Estate Mortgage for lack of merit.
SO ORDERED.
Velasco, Jr., Reyes and Jardeleza, JJ., concur.

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Peralta, J., pls. see dissenting opinion.

Separate Opinions

PERALTA, J., dissenting:


With all due respect to my esteemed colleagues, I register my
dissent from the majority decision on the following grounds:
First, both the RTC and the CA found that the execution and
approval of the Extrajudicial Settlement with Sale and the
subsequent transfer of title of the subject property to petitioners
were tainted with irregularities, among which are the following:
1. Despite the loss of the original copy of the Original
Certificate of Title (OCT) in the custody of the Registrar of Deeds
(RD) for Pampanga, the latter still issued a TCT in the name of
petitioners merely on the basis of the owner's duplicate copy of the
OCT which does not contain any annotation of cancellation;
2. The TCT in petitioner's name was issued based only on the
Extrajudicial Settlement with Sale, which is a private document;
3. The Petition for Approval of the Extrajudicial Settlement
with Sale, dated November 9, 1979 was prepared earlier than the
Extra Judicial Settlement sought to be approved, which was dated
November 10, 1979;
4. Copies of the Petition for Approval of the Extrajudicial
Settlement with Sale as well as the Certification which attests to the
existence of a CFI Decision which supposedly granted the said
Petition were mere photocopies;
5. The alleged Order issued by the CFI which set the hearing
for and publication of the Petition for Approval of the Extrajudicial
Settlement with Sale was not signed by the Presiding Judge.
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. 1 This is especially true where the trial court's
factual findings are adopted and affirmed by the CA as in the
present case. 2 Factual findings of the trial court, affirmed by the
CA, are final and conclusive and may not be reviewed on
appeal. 3 Based on these irregularities, the RTC and the CA are
justified in concluding that the subject Extrajudicial Settlement with
Sale could not have validly conveyed title to petitioners and that the
TCT which was issued in their favor is null and void.

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Indeed, the irregularities attendant in the present case do not


indicate a mere lapse on the part of the RD in the issuance of the
disputed TCT. SDHTEC
Considering that the owner's duplicate copy of the OCT in the
custody of the RD does not contain any annotation of its
cancellation, it is a grievous error on the part of the RD to consider
such duplicate copy as basis in cancelling the OCT and issuing a
new TCT in petitioners' favor.
In the first place, there is no OCT to cancel as the original
copy which is in the custody of the RD has been destroyed. Thus,
the proper procedure that should have been followed was to
reconstitute first the lost or destroyed OCT, in accordance with
Section 110 4 of PD 1529. The reconstitution of a certificate of title
denotes restoration in the original form and condition of a lost or
destroyed instrument attesting the title of a person to a piece of
land. 5 The purpose of the reconstitution of title is to have, after
observing the procedures prescribed by law, the title reproduced in
exactly the same way it has been when the loss or destruction
occurred. 6 The lost or destroyed document referred to is the one
that is in the custody of the Register of Deeds. When reconstitution
is ordered, this document is replaced with a new one that basically
reproduces the original. 7 After the reconstitution, the owner is
issued a duplicate copy of thereconstituted title. 8 It is from this
reconstituted title that a new TCT may be derived. Thus, it is error
on the part of the RD to have issued the disputed TCT in favor of
petitioners in the absence of a duly reconstituted OCT.
The irregularity in the issuance of the contested TCT is also
highlighted by the fact that the supposed Order which set the
hearing for and publication of the Petition for Approval of the
Extrajudicial Settlement with Sale was not signed by the Presiding
Judge. In addition, copies of the Petition for Approval of the
Extrajudicial Settlement with Sale, as well as the Certification which
attests to the existence of a CFI Decision which supposedly granted
the said Petition, were mere photocopies. In this regard, the CA was
correct in ruling that mere photocopies of documents, being
secondary evidence, are inadmissible as evidence unless it is shown
that their originals are unavailable.
The ponencia also holds that respondents' action is already
barred by prescription by restating the rule that an action for
reconveyance of a parcel of land based on implied or constructive
trust prescribes in ten (10) years, reckoned from the date of
registration or the date of the issuance of the certificate of title over
the property; that, as an added exception, this Court has permitted
the filing of an action for reconveyance even beyond the 10-year

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period in cases where the plaintiffs therein were in actual


possession of the disputed land, thereby converting the action from
reconveyance of property into one for quieting of title. Applying the
above rule to the present case, the ponencia holds that since
respondents' complaint did not allege their possession of the
contested property as an ultimate fact, it follows that the case could
only be one for reconveyance of property, not for quieting of title.
Thus, respondents should have commenced their action within ten
(10) years from May 21, 1980, the date of the issuance of the
Transfer Certificate of Title (TCT) in petitioners' favor. However,
since respondents only filed their Complaint on September 17,
2000, or more than twenty (20) years thereafter, their action has
already prescribed.
I beg to disagree.
Whether an action for reconveyance prescribes or not is
determined by the nature of the action, that is, whether it is
founded on a claim of the existence of an implied or constructive
trust, or one based on the existence of a void or inexistent
contract. 9 It is true that an action for reconveyance based on an
implied trust ordinarily prescribes in ten (10) years, subject to the
exception mentioned above. However, in actions for reconveyance
of the property predicated on the fact that the conveyance
complained of was null and void ab initio, a claim of prescription of
action would be unavailing. 10 The action or defense for the
declaration of the inexistence of a contract does not prescribe. 11 In
the instant case, the action filed by respondents is essentially an
action for reconveyance based on their allegation that the title over
the subject property was transferred in petitioners' name without
any valid document of conveyance. Since respondents' complaint
was based on the allegation of the inexistence of a valid contract,
which would have lawfully transferred ownership of the subject
property in petitioners' favor, such complaint is, therefore,
imprescriptible.
Lastly, the ponencia rules that the Extrajudicial Settlement
with Sale was not properly notarized; thus, rendering the written
contract a private instrument which, nonetheless, binds
respondents. This notwithstanding, it is my considered opinion that
the above document, being a private instrument, is not a sufficient
basis to convey title over the disputed property in favor of
petitioners. In this regard, the case of Gallardo v. Intermediate
Appellate Court 12 is instructive, to wit:
xxx xxx xxx
Petitioners claim that the sale although not in a
public document, is nevertheless valid and binding

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citing this Court's rulings in the cases of Cauto v. Cortes,


8 Phil. 459, 460; Guerrero v. Miguel, 10 Phil. 52,
53; Bucton v. Gabar, 55 SCRA 499 wherein this Court
ruled that even a verbal contract of sale of real estate
produces legal effects between the parties.
The contention is unmeritorious.
As the respondent court aptly stated in its
decision:
True, as argued by appellants, a
private conveyance of registered property is
valid as between the parties. However, the
only right the vendee of registered property
in a private document is to compel through
court processes the vendor to execute a
deed of conveyance sufficient in law for
purposes of registration. Plaintiffs-
appellants' reliance on Article 1356 of
the Civil Code is unfortunate. The general
rule enunciated in said Art. 1356 is that
contracts are obligatory, in whatever form
they may have been entered, provided all
the essential requisites for their validity are
present. The next sentence provides the
exception, requiring a contract to be in
some form when the law so requires for
validity or enforceability. Said law is Section
127 of Act 496 which requires, among other
things, that the conveyance be executed
"before the judge of a court of record or
clerk of a court of record or a notary public
or a justice of the peace, who shall certify
such acknowledgment substantially in form
next hereinafter stated." AScHCD
Such law was violated in this case.
The action of the Register of Deeds of
Laguna in allowing the registration of the
private deed of sale was unauthorized and
did not lend a bit of validity to the defective
private document of sale.
With reference to the special law, Section 127 of
the Land Registration Act, Act 496 (now Sec. 112 of P.D.
No. 1529) provides:

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Sec. 127. Deeds of Conveyance, . . .


affecting lands, whether registered under
this act or unregistered shall be sufficient in
law when made substantially in accordance
with the following forms, and shall be as
effective to convey, encumber, . . . or bind
the lands as though made in accordance
with the more prolix forms heretofore in use:
Provided, That every such instrument shall
be signed by the person or persons
executing the same, in the presence of two
witnesses, who shall sign the instrument as
witnesses to the execution thereof,and shall
be acknowledged to be his or their free act
and deed by the person or persons
executing the same, before the judge of a
court of record or clerk of a court of record,
or a notary public, or a justice of the peace,
who shall certify to such acknowledgement
substantially in the form next hereinafter
stated. (Emphasis supplied).
It is therefore evident that Exhibit "E" in the case
at bar is definitely not registerable under the Land
Registration Act.
Likewise noteworthy is the case of Pornellosa
and Angels v. Land Tenure Administration and Guzman,
110 Phil. 986, where the Court ruled:
The deed of sale (Exhibit A), allegedly
executed by Vicente San Jose in favor of
Pornellosa is a mere private document and
does not conclusively establish their right to
the parcel of land. While it is valid and
binding upon the parties with respect to the
sale of the house erected thereon, yet it is
not sufficient to convey title or any right to
the residential lot in litigation. Acts and
contracts which have for their object the
creation, transmission, modification or
extinguishment of real rights over
immovable property must appear in a public
document.
xxx xxx xxx
Thus, Section 57 of Presidential Decree 1529 13 (PD 1529)
provides:

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Section 57. Procedure in registration of


conveyances. An owner desiring to convey his
registered land in fee simple shall execute and
register a deed of conveyance in a form sufficient
in law. The Register of Deeds shall thereafter make out
in the registration book a new certificate of title to the
grantee and shall prepare and deliver to him an owner's
duplicate certificate. The Register of Deeds shall note
upon the original and duplicate certificate the date of
transfer, the volume and page of the registration book
in which the new certificate is registered and a
reference by number to the last preceding certificate.
The original and the owner's duplicate of the grantor's
certificate shall be stamped "canceled.'' The deed of
conveyance shall be filled and indorsed with the number
and the place of registration of the certificate of title of
the land conveyed. 14
In relation to the above provision, Section 112 of the same
Decree provides for the "Forms Used in Land Registration and
Conveyancing," to wit:
Section 112. Forms in conveyancing. The
Commissioner of Land Registration shall prepare
convenient blank forms as may be necessary to help
facilitate the proceedings in land registration and shall
take charge of the printing of land title forms.
Deeds, conveyances, encumbrances, discharges,
powers of attorney and other voluntary
instruments, whether affecting registered or
unregistered land, executed in accordance with
law in the form of public instruments shall be
registrable: Provided, that, every such instrument
shall be signed by the person or persons
executing the same in the presence of at least
two witnesses who shall likewise sign thereon,
and shall acknowledged to be the free act and
deed of the person or persons executing the
same before a notary public or other public officer
authorized by law to take acknowledgment. Where
the instrument so acknowledged consists of two or more
pages including the page whereon acknowledgment is
written, each page of the copy which is to be registered
in the office of the Register of Deeds, or if registration is
not contemplated, each page of the copy to be kept by
the notary public, except the page where the signatures
already appear at the foot of the instrument, shall be

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signed on the left margin thereof by the person or


persons executing the instrument and their witnesses,
and all the ages sealed with the notarial seal, and this
fact as well as the number of pages shall be stated in
the acknowledgment. Where the instrument
acknowledged relates to a sale, transfer, mortgage or
encumbrance of two or more parcels of land, the
number thereof shall likewise be set forth in said
acknowledgment. 15
Based on the above discussions and provision of law, it is
clear that the subject Extrajudicial Settlement with Sale may not be
used as a valid basis for the issuance of the questioned TCT in the
name of petitioners.
Accordingly, I vote to DENY the petition and AFFIRM the
Decision dated March 26, 2015 and Resolution dated September 14,
2015 of the Court of Appeals in CA-G.R. CV No. 100188. AcICHD
||| (Spouses Pontigon v. Heirs of Sanchez, G.R. No. 221513, [December
5, 2016])

SECOND DIVISION

[G.R. No. 219638. December 7, 2016.]

MARCELINO REPUELA and CIPRIANO REPUELA,


substituted by CARMELA REPUELA, MERLINDA R.
VILLARUEL, WILLIAM REPUELA, ROSITA P. REPUELA,
CRISTINA R. RAMOS, ORLANDO REPUELA, JUNNE
REPUELA, and OSCAR
REPUELA, petitioners, vs. ESTATE OF THE SPOUSES
OTILLO LARAWAN and JULIANA BACUS, represented
by NANCY LARAWAN MANCAO, GALILEO LARAWAN
and SOCRATES LARAWAN, respondents.

DECISION

MENDOZA, J p:
This Petition for Review on Certiorari under Rule 45 of
the Rules of Court assails the May 29, 2014 Decision 1 and the June
10, 2015 Resolution 2 of the Court of Appeals (CA) in CA-G.R. CV No.
03976, which reversed and set aside the February 23, 2011
Decision 3 of the Regional Trial Court (RTC), Seventh Judicial Region,

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Branch 7, Cebu City, in Civil Case No. CEB-28524, a case for


Annulment of Documents, Quieting of Title, Redemption, Damages,
and Attorneys Fees. HTcADC
The Antecedents
Spouses Lorenzo and Magdalena Repuela owned Lot No.
3357 (subject property), situated in Lawaan III, Talisay City, Cebu,
and covered by Transfer Certificate of Title (TCT) No. 5154. After
they had passed away, their children Marcelino Repuela (Marcelino)
and Cipriano Repuela (Cipriano) succeeded them as owners of the
subject property. 4
Cipriano and Marcelino (Repuela brothers) claimed that
sometime in July 1963, after the death of their parents, they went to
the house of Otillo Larawan (Otillo) to borrow P200.00 for
Marcelino's fare to Iligan City; that to secure the loan, the spouses
Otillo and Juliana Larawan (Spouses Larawan) required them to turn
over the certificate of title for Lot No. 3357; that they were made to
sign a purported mortgage contract but they were not given a copy
of the said document; that Cipriano affixed his signature while
Marcelino, being illiterate, just placed his thumb mark on the
document; that they remained in possession of the land despite the
mortgage and had been planting bamboos, corn, bananas, and
papayas thereon and sharing the produce between them; and that
they also paid the taxes due on the property. 5
In October 2002, as recalled by Cipriano's daughter, Cristina
Repuela Ramos (Cristina), she went to the City Treasurer's Office of
Talisay City, upon the request of her father, to verify whether
Spouses Larawan were paying the realty taxes on the mortgaged
property. She learned that Spouses Larawan did not pay the taxes
and the tax declaration on the subject property was already in their
names as early as 1964; that in the Registry of Deeds of Cebu, TCT
No. 5154 was already cancelled and a new certificate of title, TCT
No. 10506, had been issued to Otillo; that Spouses Larawan were
able to transfer the certificate of title to their names by virtue of
the Extrajudicial Declaration of Heirs and Sale bearing the signature
of her father Cipriano and the thumb mark of her uncle Marcelino;
and that her father and uncle remembered that they were made to
sign a blank document.
On January 17, 2003, Cipriano and Marcelino, on account of
this predicament, were compelled to file a complaint before the RTC
for the annulment of the Extrajudicial Declaration of Heirs and Sale
and the cancellation of TCT No. 10506. During the trial, Catalina
Burlas (Burlas), who lived next to the subject property, and Alma
Abellanosa (Abellanosa), City Assessor of Talisay City, were also
presented as witnesses for the Repuela brothers. 6

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Burlas testified that the Repuela brothers confided in her


about Marcelino's desire to go to Iligan City but they had no money
for his fare; that another neighbor referred the Repuela brothers to
Otillo, who could lend them P200.00 but only upon the signing of a
deed of mortgage and the surrender of the certificate of title as
collateral; that Marcelino was able to leave for Iligan but he came
back after three months to help Cipriano in cultivating the land; that
she did not see any other person till the land except the Repuela
brothers; and that she could not recall a time when Otillo, whom she
personally knew, ever visited or cultivated the subject
property. 7 aScITE
Abellanosa, as City Assessor, stated that based on the records
of her office, Lot No. 3357 was declared for taxation purposes for
the first time in 1961 when Tax Declaration No. 12543 was issued in
the name of Lorenzo Repuela; that in 1964, Tax Declaration No.
24112 was issued in the name of Spouses Larawan on the basis of a
deed of sale; and that the subsequent tax declarations had Spouses
Larawan as the owners. 8
For the Estate of Spouses Larawan, on the other hand, the
transaction between the Repuela brothers and Otillo was a sale and
not a mortgage of a parcel of land. The Estate also invoked laches
on the part of the Repuela brothers for failing to file a complaint
during the lifetime of Spouses Larawan. Galileo Larawan (Galileo),
son of Spouses Larawan and the sole witness for the Estate,
testified that he knew of the transaction between his father and the
Repuela brothers because his father brought him along to the office
of Atty. Celestino Bacalso (Atty. Bacalso), where the document
entitled Extrajudicial Declaration of Heirs and Sale was prepared;
that the said document was signed by Cipriano and thumbmarked
by Marcelino which was witnessed by Hilario Bacalso and Fernando
Abellanosa; that he witnessed the Repuela brothers affix their
signature and thumbmark after Atty. Bacalso read and explained to
them the contents of the document in the Cebuano dialect; that
after the document was notarized, his father handed P2,000.00 to
the Repuela brothers as consideration for the sale; and that he was
only six (6) years old when these all happened. 9
Galileo also pointed out that the new certificate of title, TCT
No. 10506, in the name of Spouses Larawan, was issued by the
Register of Deeds on August 20, 1963; that his mother paid the real
estate taxes during her lifetime and, after her death, he himself
made the payments; that he secured the tax declaration for the
subject property from the office of the Talisay City Assessor; that
their family had been in possession of the subject property and they
had harvested and enjoyed the produce of the land such as
bamboos, jackfruit and 100 coconut trees; and that there were no

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other persons claiming ownership over the land, as the Repuela


brothers never offered to redeem the subject property from their
family. 10
The Ruling of the RTC
After the trial, the RTC decided in favor of the Repuela
brothers. It held that the transaction between the parties was not a
sale but an equitable mortgage. The testimony of Galileo for the
respondent, who was admittedly just six (6) years old then, was
"likely colored by the lens of adult perspective and self-interest." It
believed the claim of Cipriano, who only had the benefit of a Grade
One education, and the illiterate Marcelino, that they merely signed
a document without knowing its nature. The trial court gave more
credence to the claim of possession of the Repuela brothers
because the same was affirmed by a disinterested person, Burlas,
who had been living in the area since she was small and whose lot
adjoined the subject property. According to her, only Cipriano and
Marcelino cultivated the land and she never saw anyone, not even
Otillo, work on the land. 11 HEITAD
Moreover, it was the trial court's opinion that the evidence of
possession weighed more on the side of the Repuela brothers than
that of the Estate of Spouses Larawan. Their assertion of possession
was bolstered by the fact that they too paid taxes on the property,
an indication that they were still in possession of the subject
property. Considering that they still possessed the subject property
even after the execution of the sale, in the concept of an owner and
continued paying the land taxes thereon, the RTC was of the view
that the contract, entered into by the Repuela brothers and Otillo,
was an equitable mortgage under Article 1602 of the Civil
Code.12 Thus, the RTC disposed:
Hence, the Court:
1. Declares the sale in the document, "Extrajudicial
Declaration of Heirs and Sale," signed by Cipriano and
Marcelino Repuela in favor of Otillo Larawan and spouse
on July 1, 1963, as in effect an equitable mortgage;
2. Gives Cipriano and Marcelino Repuela thirty (30) days
from the finality of this decision to redeem the property
in the amount of Two Thousand Pesos (P2,000.00), with
interest at the legal rate computed from the date of the
filing of the Complaint; and
3. Directs defendants to pay plaintiffs:
a. P20,000.00, as attorney's fees, and
b. P20,000.00, as litigation expenses.
Costs are assessed against the defendants.
SO ORDERED. 13

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Not in conformity, the Estate of Spouses Larawan appealed


the case to the CA.
The Ruling of the CA
On May 29, 2014, the CA reversed and set aside the February
23, 2011 Decision of the RTC for the following reasons:
1. The Repuela brothers failed to present any direct and
positive proof to rebut the presumption of the
document's due execution. They failed to prove any
factual circumstance to point that the transaction
covered therein was one of mortgage, or at the least,
that such was their intention; ATICcS
2. The Repuela brothers had not proven continued
possession of the subject property which would have
given the impression that it was not sold but merely
mortgaged;
3. None of the enumerated circumstances in Article
1602 of the Civil Code was present in order for the
presumption of equitable mortgage to apply. Contrary to
the factual finding of the trial court, the evidence did
not show that they were still in possession of the
property even after the execution of the document and
that they continued paying the taxes on the property
immediately after the execution of the deed; and,
4. Granting arguendo that the transaction was a
mortgage, their cause of action was already barred by
laches as 39 years had already elapsed before they
asserted their rights over the subject property. 14
The decretal portion of the CA decision reads:
WHEREFORE, premises considered, the instant
appeal is GRANTED. The February 23, 2011 Decision of
the RTC Branch 7 of Cebu City in Civil Case No. CEB-
28524 is REVERSED and SET ASIDEand the complaint
for Annulment of Documents, Quieting of Title,
Redemption, Damages and Attorney's
Fees is DISMISSED.
SO ORDERED. 15
After their motion for reconsideration was denied by the CA in
its Resolution, dated June 10, 2015, the heirs of the Repuela
brothers (petitioners) filed the subject petition.

Issue

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Whether the Extrajudicial Declaration of Heirs


and Sale amounted to an equitable mortgage.

Petitioners explain that the Repuela brothers only filed the


case in 2003 because they found no urgency to file it as there were
no indications that their title and possession over the subject
property were threatened. They claim that their predecessors-in-
interest were in peaceful, open, continuous, and public possession
as owners of the subject property from the time of the transaction in
1963 until the time when they decided to partition their property
and learned, in the process, that the tax declaration and title of
their lot were already transferred in the name of Spouses Larawan.
They argue that considering that they, who were claiming to be the
owners thereof, were in actual possession of the property, their
right to seek reconveyance, which in effect sought to quiet the title
to the property, never prescribed. 16
Petitioners further argue that the existence of
the Extrajudicial Declaration of Heirs and Sale was not enough proof
that the Repuela brothers really intended to sell the property, and
that the stipulations in the contract should be construed together
with the parties' contemporaneous and subsequent acts as regards
the execution of the contract. The same was true with the issuance
of a new owner's TCT in favor of Spouses Larawan. It neither
imports conclusive evidence of ownership nor proves that the
agreement between the parties was one of sale. A conveyance by
registration in the name of the transferee and the issuance of a new
certificate is not secured from the operation of the equitable
doctrine, to the effect that any conveyance intended as security for
a debt would be held in effect to be a mortgage, than most informal
conveyance that could be devised. 17 TIADCc
The CA, according to petitioners, should have given more
credence to the testimonies of the Repuela brothers, as
corroborated and affirmed by the disinterested witness, Burlas, over
that of Galileo, the lone witness for the respondent. As correctly
observed by the trial court, Galileo was just six (6) years old when
he supposedly witnessed the alleged transaction in the office of
Atty. Bacalso, and so he could not have possibly known the nature
of the executed contract. Echoing the RTC, they pointed out that a
six-year-old boy's curiosity and concerns could not have extended to
things of this nature and that his recollection of events was likely
colored by the lens of adult perspective and self-interest, as Galileo
himself admitted that he did not read the document. 18
Finally, they stress that the Repuela brothers remained in
possession of the subject property even after the transaction and

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they also paid the taxes thereon for the years 1985 to 2002 on
December 18, 2002. These circumstances surrounding the
transaction entered into by and between the Repuela brothers and
Otillo would naturally lead anyone to infer that this instance was
espoused in Article 1602 of the Civil Code.This is in line with
jurisprudence consistently holding that the presence of one, and not
the confluence of several circumstances, is sufficient to prove that a
contract of sale is one of an equitable mortgage. 19
The Position of Respondent
In its Comment, 20 dated December 28, 2015, respondent
Estate of Spouses Larawan (respondent) averred that the
extrajudicial settlement and sale executed by the parties could not
be presumed as an equitable mortgage. First, the said contract was
"not a sale with right to repurchase" and the price of the sale was
not unusually inadequate. Second, there is no documentary
evidence that would support the claim of possession by the Repuela
brothers, as lessee or otherwise, continuously from the execution of
the document of sale until the filing of the case. Third, the third
situation (when upon or after the expiration of the right to
repurchase, another instrument extending the period of redemption
or granting a new period was executed) wherein a contract shall be
presumed to be an equitable mortgage is not applicable in the
instant case. The Extrajudicial Declaration of Heirs and Sale did not
provide for a right to repurchase. As such, there was no period of
redemption to be extended or a new period to be executed. Fourth,
there was no showing that Otillo, as purchaser, retained for himself
a part of the purchase price. He paid the amount of P2,000.00 as
sale consideration to the Repuela brothers. 21 Fifth, there was no
agreement in the contract of sale that the Repuela brothers, as
vendors, bound themselves to pay the taxes on the thing sold. And
finally, the Extrajudicial Declaration of Heirs and Sale was quite
clear and specific that what was involved was a sale of the subject
property. From the terms of the contract, no inference could be
made that the real intention of the parties was to secure the
payment of a debt or the performance of any other
obligation. AIDSTE

The Court's Ruling

The Court finds merit in the petition.


An equitable mortgage is one which, although lacking in some
formality, or form, or words, or other requisites demanded by a
statute, reveals the intention of the parties to charge real property

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as security for a debt, and contains nothing impossible or contrary


to law. 22
For a presumption of an equitable mortgage to arise, two
requisites must first be satisfied, namely: that the parties entered
into a contract denominated as a contract of sale and that their
intention was to secure an existing debt by way of
mortgage. 23 There is no single conclusive test to determine
whether a deed of sale, absolute on its face, is really a simple loan
accommodation secured by a mortgage. Article 1602, in relation to
Article 1604 of the Civil Code, however, enumerates several
instances when a contract, purporting to be, and in fact styled as,
an absolute sale, is presumed to be an equitable mortgage. Thus:
ART. 1602. The contract shall be presumed to be
an equitable mortgage, in any of the following
cases:
(1) When the price of a sale with right to
repurchase is unusually inadequate;
(2) When the vendor remains in possession as
lessee or otherwise;
(3) When upon or after the expiration of the right to
repurchase another instrument extending the
period of redemption or granting a new
period is executed;
(4) When the purchaser retains for himself a part of
the purchase price;
(5) When the vendor binds himself to pay the taxes
on the thing sold;
(6) In any other case where it may be fairly
inferred that the real intention of the
parties is that the transaction shall
secure the payment of a debt or the
performance of any other obligation.
In any of the foregoing case, any money, fruits, or
other benefit to be received by the vendee as rent or
otherwise shall be considered as interest which shall be
subject to the usury laws.
xxx xxx xxx
ART. 1604. The provisions of Article 1602
shall also apply to a contract purporting to be
an absolute sale. [Emphases and underscoring
supplied] AaCTcI
Evident from Article 1602, the presence of any of the
circumstances set forth therein suffices for a contract to be deemed

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an equitable mortgage. No concurrence or an overwhelming number


is needed. 24 In other words, the fact that some or most of the
circumstances mentioned are absent in a case will not negate the
existence of an equitable mortgage.
In this case, it appears that two (2) instances enumerated in
Article 1602 possession of the subject property and inference
that the transaction was in fact a mortgage attended the assailed
transaction.
Possession as Lessee or
otherwise
Article 1602 (2) of the Civil Code provides that when the
supposed vendor remains in possession of the property even after
the conclusion of the transaction, the purported contract of sale is
presumed to be an equitable mortgage. In general terms,
possession is the holding of a thing or the enjoyment of a right,
whether by material occupation or by the fact that the right is
subjected to the will of the claimant. The gathering of the products
of and the act of planting on the land constitute occupation,
possession and cultivation. 25
In this case, petitioners insist that the Repuela brothers
remained in possession of the subject property after the transaction,
as was corroborated by a disinterested person, Burlas, who lived in
the adjoining lot from the time she was a child. According to her, it
was only the Repuela brothers who tilled the land and planted corn,
bananas and camote. She never saw Otillo, whom she also knew, till
or work on the land.
The respondent's claim of possession, as supported by a
transfer certificate of title and tax declaration of the subject
property, both in the name of Spouses Larawan is, to the Court's
mind, not persuasive. These documents do not prove actual
possession. They do not rebut the overwhelming evidence of the
Repuela brothers that they were in actual possession. The fact of
registration in the name of Spouses Larawan does not change the
picture. A conveyance of land, accompanied by registration in the
name of the transferee and the issuance of a new certificate, is no
more secured from the operation of this equitable doctrine than the
most informal conveyance that could be devised. In an equitable
mortgage, title to the property in issue, which has been transferred
to the respondents actually remains or is transferred back to the
petitioner as owner-mortgagor, conformably to the well-established
doctrine that the mortgagee does not become the owner of the
mortgaged property because the ownership remains with the
mortgagor pursuant to Article 2088, of the Civil Code.26

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Inference can be made


that the transaction was
an equitable mortgage EcTCAD
From the attending circumstances of the case, it can be
inferred that the real intention of the Repuela brothers was to
secure their indebtedness from Spouses Larawan. They needed
money for Marcelino's fare so they went to the house of Otillo to
borrow P200.00. Considering that Spouses Larawan would only
agree to extend the loan if they would surrender their certificate of
title over the subject property, they obliged in the belief that its
purpose was only to secure their loan. In other words, they
surrendered the title to Spouses Larawan as security to obtain the
much needed loan. It was never their intention to sell the subject
property.
As held in Banga v. Sps. Bello, 27 in determining whether a
deed, absolute in form, is a mortgage, the court is not limited to the
written memorials of the transaction. "The decisive factor in
evaluating such agreement is the intention of the parties, as shown
not necessarily by the terminology used in the contract but by all
the surrounding circumstances, such as the relative situation of the
parties at that time, the attitude, acts, conduct, declarations of the
parties, the negotiations between them leading to the deed, and
generally, all pertinent facts having a tendency to fix and determine
the real nature of their design and understanding." 28
There is a presumption of
mistake
Granting that indeed Cipriano and Marcelino, signed and
thumbmarked, respectively, the Extrajudicial Declaration of Heirs
and Sale, there is still reason to believe that they did so without
understanding the real nature, effects and consequences of what
they did as they were never explained to them. Cipriano, who only
finished Grade One, and Marcelino, an illiterate, were in dire need of
money. As such, the possibility that they affixed their conformity to
the onerous contract to their detriment just to get the loan was not
remote. In dire need as they were, they signed a document despite
knowing that it did not express their real intention. "Necessitous
men are not, truly speaking, free men; but to answer a present
emergency, will submit to any terms that the crafty may impose
upon them." 29 For this reason, the Repuela brothers should be
given the protection afforded by the Civil Code provisions on
equitable mortgage.
As aptly explained in Cruz v. Court of Appeals, 30 the Court
held:

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Vendors covered by Art. 1602 usually find


themselves in an unequal position when bargaining with
the vendees, and will readily sign onerous contracts to
get the money they need. Necessitous men are not
really free men in the sense that to answer a pressing
emergency they will submit to any terms that the crafty
may impose on them. This is precisely the evil that Art.
1602 seeks to guard against. The evident intent of the
provision is to give the supposed vendor maximum
safeguards for the protection of his legal rights under
the true agreement of the parties. 31 HSAcaE
Besides, where a party is unable to read or when the contract
is in a language not understood by a party and mistake or fraud is
alleged, the obligation to show that the terms of the contract had
been fully explained to the said party who is unable to read or
understand the language of the contract devolves on the party
seeking to enforce it. Indeed, that burden to show that the other
party fully understood the contents of the document rests upon the
party who seeks to enforce the contract. If he fails to discharge this
burden, the presumption of mistake, if not, fraud, stands unrebutted
and controlling. 32 Respondent failed to overcome this burden.
In the case at bench, Galileo's testimony that he had
witnessed the Repuela brothers affix their conformity after Atty.
Bacalso read and explained to them the contents of the document
in the Cebuano dialect, fail to convince this Court. As keenly
observed by the RTC, Galileo was just six (6) years old when he
witnessed the transaction in the office of Atty. Bacalso. To the
Court's mind, Galileo could not have possibly known the nature of
the purported contract, much less, perceived with certainty if the
Repuela brothers were indeed apprised of the true nature of the
said contract before they were made to sign and thumbmark it. For
this reason, the presumption of mistake, if not fraud, shall remain.
Furthermore, it must be pointed out that the law accords the
equitable-mortgage presumption in situations when doubt exists as
to the true intent of the parties to the contract, 33 as in this case.
Courts are generally inclined to construe one purporting to be a sale
as an equitable mortgage, which involves a lesser transmission of
rights and interests over the property in controversy.34
There was no prescription
or laches
Contrary to the findings of the CA that petitioners' cause of
action was already barred by laches because of the 39 years that
had already lapsed before they asserted their rights over the

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property, the Court holds otherwise. In Inamarga v. Alano, 35 the


Court considered the deed of sale as equitable mortgage and wrote:
xxx Where there is no consent given by one party
in a purported contract, such contract was not
perfected; therefore, there is no contract to speak of.
The deed of sale relied upon by petitioner is deemed a
void contract. This being so, the action based on said
deed of sale shall not prescribe in accordance with
Article 1410 of the Civil Code.36 [Emphasis supplied]
Legal Interest
In the case of Muoz v. Ramirez, 37 the Court stated that
where it was established that the reciprocal obligations of the
parties were under an equitable mortgage, reconveyance of the
property should be ordered to the rightful owner therein upon the
payment of the loan within 90 days from the finality of that
decision. 38 HESIcT
In the case at bench, the RTC ordered the Repuela brothers to
pay their loan amounting to P2,000.00 with interest at the legal rate
computed from the date of the filing of the complaint in order for
them to repair the property.
In determining the legal rate applicable in this case, Circular
No. 799, series of 2013, issued by the Office of the Governor of the
Bangko Sentral ng Pilipinas on June 21, 2013, which was the basis of
the Court in Nacar v. Gallery Frames, 39 provides that effective July
1, 2013, the rate of interest for the loan or forbearance of any
money, goods or credits and the rate allowed in judgments, in the
absence of an express contract as to such rate of interest, shall be
six percent (6%) per annum. Applying the foregoing, the rate of
interest of 12% per annum on the obligation of the Repuela brothers
shall apply from the date of the filing of the complaint on January
17, 2003 until June 30, 2013 only. From July 1, 2013 until fully paid,
the legal rate of 6% per annum shall be applied to their unpaid
obligation.
WHEREFORE, the petition is GRANTED. The assailed May
29, 2014 Decision and the June 10, 2015 Resolution of the Court of
Appeals in CA-G.R. CV No. 03976 are SET ASIDE. The February 23,
2011 Decision of the Regional Trial Court, Cebu City, Seventh
Judicial Region, Branch 7 in Civil Case No. CEB-28524
is REINSTATED with MODIFICATION in that the 12% interest per
annum shall only apply from January 17, 2003 until June 30, 2013
only, after which date and until fully paid, the mortgage
indebtedness of Cipriano Repuela and Marcelino Repuela shall earn
interest at 6% per annum.

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SO ORDERED.
||| (Repuela v. Estate of Spouses Larawan, G.R. No. 219638, [December
7, 2016])

FIRST DIVISION

[G.R. No. 196403. December 7, 2016.]

ARSENIO TABASONDRA, FERNANDO TABASONDRA,


CORNELIO TABASONDRA, JR., MIRASOL
TABASONDRA-MARIANO, FAUSTA TABASONDRA-
TAPACIO, GUILLERMO TABASONDRA, MYRASOL
TABASONDRA-ROMERO, and MARLENE
TABASONDRA-MANIQUIL, petitioners, vs. SPOUSES
CONRADO CONSTANTINO and TARCILA
TABASONDRA-CONSTANTINO, * PACITA ARELLANO-
TABASONDRA and HEIRS OF SEBASTIAN
TABASONDRA, respondents.

DECISION

BERSAMIN, J p:
This case for partition and accounting concerns a property
owned in common, and focuses on the right of two of the co-owners
to alienate their shares before the actual division of the
property. HTcADC

The Case

Under appeal is the adverse decision promulgated on


November 30, 2010, 1 whereby the Court of Appeals (CA) modified
the judgment rendered on September 22, 2008 by the Regional Trial
Court (RTC), Branch 64, in Tarlac City ordering the partition of all the
three parcels of land owned in common among the parties. 2 The
modification by the CA, which expressly recognized the alienation
by the two co-owners of their shares, consisted in limiting the
partition of the property owned in common to only the unsold
portion with an area of 33,450.66 square meters.

Antecedents

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The parties herein were the children of the late Cornelio


Tabasondra from two marriages. The respondents Tarcila
Tabasondra-Constantino and the late Sebastian Tabasondra were
the children of Cornelio by his first wife, Severina; the petitioners,
namely: Arsenio Tabasondra, Fernando Tabasondra, Cornelio
Tabasondra, Jr., Mirasol Tabasondra-Mariano, Fausta Tabasondra-
Tapacio, Myrasol Tabasondra-Romero, Marlene Tabasondra-Maniquil,
and Guillermo Tabasondra, were children of Cornelio by his second
wife, Sotera.
The CA summarized the undisputed factual findings and
procedural antecedents as follows:
Cornelio, Valentina, and Valeriana, all surnamed
Tabasondra, were siblings. They were also the registered
owners of the three (3) parcels of land located at
Dalayap, Tarlac City, identified as Lot No. 2536,
containing an area of seventy-seven thousand one
hundred and forty-seven (77,147) sq. m.; Lot No. 3155,
with an area of thirteen thousand six hundred fifty-nine
(13,659) sq. m.; and, Lot No. 3159, with an area of nine
thousand five hundred forty-six (9,546) sq. m., covered
by Transfer Certificate of Title (TCT) No. 106012. aScITE
xxx xxx xxx
Cornelio died on March 15, 1991, while Valentina
and Valeriana both died single on August 19, 1990 and
August 4, 1998, respectively. They all died intestate and
without partitioning the property covered by TCT No.
106012. Thus, the Plaintiffs-Appellees and the
Defendants-Appellants, as descendants of Cornelio,
possessed and occupied the property.
The Controversy:
On August 22, 2002, the Plaintiffs-Appellees filed
the complaint below against the Defendants-Appellants.
In essence, they claimed that the parcels of land are
owned in common by them and the Defendants-
Appellants but the latter does not give them any share
in the fruits thereof. Hence, they asked for partition but
the Defendants-Appellants refused without valid
reasons. They maintained that they tried to amicably
settle the dispute before the Lupon, but to no avail.
Thus, their filing of the suit praying that the subject land
be partitioned, that new titles be issued in their
respective names, that the Defendants-Appellants be

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ordered to render an accounting on the fruits thereon,


and that such fruits also be partitioned.
In their Answer, the Defendants-Appellants
averred that they do not object to a partition provided
that the same should be made only with respect to
Cornelio's share. They contended that they already own
the shares of Valentina and Valeriana in the subject land
by virtue of the Deed of Absolute Sale that the said
sisters executed in their favor on August 18, 1982.
Moreover, they alleged that the Plaintiffs-Appellees are
the ones who should account for the profits of the
property because it is the latter who enjoy the fruits
thereof. By way of counterclaim, they, thus, prayed that
the Plaintiffs-Appellees be ordered to render an
accounting and to pay for damages.
After the issues were joined and the pre-trial
conference was conducted, a full blown trial followed in
view of the parties' failure to settle amicably. HEITAD
On September 22, 2008, the RTC rendered the
assailed disposition, the fallo of which reads:
WHEREFORE, on the basis of the
foregoing considerations, judgment is
hereby rendered in favor of the plaintiffs,
ordering [the] partition of the three (3)
parcels of land covered by TCT No. 16012
among the compulsory and legal heirs of
Cornelio, Valentia[,] and Valeriana, all
surnamed Tabasondra. Sotero Duenas
Tabasondra shall be entitled to 3,040
square meters while plaintiffs and
defendants shall be entitled to 6,690 square
meters each.
SO ORDERED. 3
Dissatisfied, the respondents appealed the judgment of the
RTC to the CA, assigning the following as the reversible errors, to
wit:
I.
THE HONORABLE COURT A-[sic] QUO GRAVELY
ERRED AND COMMITTED A REVERSIBLE ERROR IN NOT
CONSIDERING AND APPRECIATING THE FACT THAT THE
DEED OF ABSOLUTE SALE EXECUTED BY THE DECEASED
VALENTINA TABASONDRA AND VALERIANA

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TABASONDRA, IN FAVOR OF DEFENDANTS TARCILA


TABASONDRA AND SEBASTIAN TABASONDRA, WAS
VALID AND SUBSISTING AT THE TIME THE COURT
CONSIDERED IT TO HAVE NO VALID LEGAL FORCE AND
EFFECT[.]
II.
THE HONORABLE COURT A-[sic] QUO GRAVELY
ERRED AND COMMITTED A REVERSIBLE ERROR IN
ORDERING FOR THE PARTITION OF THE PROPERTY IN
QUESTION WITHOUT ANY LEGAL AND VALID
GROUNDS[.] 4
On November 30, 2010, the CA promulgated the decision
under review, 5 disposing:
WHEREFORE, the appeal is GRANTED. The
assailed disposition
is AFFIRMED with MODIFICATION in that the partition
and the accounting is ordered to be made only with
respect to a thirty-three thousand four hundred fifty
point sixty-six (33,450.66) sq.m. portion of the property.
With costs. ATICcS
SO ORDERED. 6
The petitioners moved for reconsideration, 7 but the CA
denied their motion on April 4, 2011. 8
Hence, this appeal.

Issues

The petitioners submit in support of their appeal:


1. THAT THE COURT OF APPEALS ACTED WITH GRAVE
ABUSE OF DISCRETION AMOUNTING TO EXCESS OR
LACK OF JURISDICTION IN SUMMARILY DISMISSING
THE NEW MATTERS OF SUBSTANCE RAISED IN
MOTION FOR RECONSIDERATION;
2. THAT THE COURT OF APPEALS IN SUMMARILY
DISMISSING MOTION FOR RECONSIDERATION OF
PLAINTIFFS-PETITIONERS RENEGED IN ITS DUTY TO
RESOLVE LEGAL AND FACTUAL ISSUES OF
SUBSTANCE IN A WAY NOT PROBABLY IN ACCORD
WITH LAW OR APPLICABLE DECISIONS OF THE
SUPREME COURT;

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3. THAT THE COURT OF APPEALS DECISION IN DECLARING


THE QUESTIONED DEED OF SALE VALID AND IN
SUMMARILY DISMISSING PLAINTIFFS-PETITIONERS[']
MOTION FOR RECONSIDERATION RAISING NEW
ARGUMENTS AND MATTERS OF SUBSTANCE NOT
RAISED IN THE APPEAL BY DEFENDANTS-
RESPONDENTS, ARE CONTRARY TO LAW,
JURISPRUDENCE, ADMISSIONS OF
FACTS/TESTIMONY OF TARCILA TABASONDRA, ONLY
WITNESS FOR DEFENDANTS-RESPONDENTS AND
EVIDENCE PRESENTED BY PLAINTIFFS-PETITIONERS
AT THE TRIAL; TIADCc
4. THAT SUCH COURSE OF ACTION TAKEN BY THE COURT
OF APPEALS OR DEPARTURE THEREFROM IN
EXERCISING OR FAILING TO EXERCISE ITS POWER
OF JUDICIAL REVIEW CERTAINLY CALLS FOR THE
EXERCISE BY THE SUPREME COURT OF ITS POWER
OF JUDICIAL REVIEW TO AFFORD COMPLETE RELIEF
TO PARTIES IN THIS CASE AND TO AVOID
MULTIPLICITY OF SUITS. 9
In other words, did the CA correctly order the partition and
accounting with respect to only 33,450.66 square meters of the
property registered under TCT No. 10612?

Ruling of the Court

The appeal lacks merit.


There is no question that the total area of the three lots
owned in common by Cornelio, Valentina and Valeriana was 100,352
square meters; and that each of the co-owners had the right to one-
third of such total area.
It was established that Valentina and Valeriana executed the
Deed of Absolute Sale, 10 whereby they specifically disposed of
their shares in the property registered under TCT No. 10612 in favor
of Sebastian Tabasondra and Tarcila Tabasondra as follows:
NOW, THEREFORE, for and in consideration of the
sum of TEN THOUSAND PESOS (P10,000.00), Philippine
Currency, to us in hand paid, receipt whereof is hereby
acknowledged in full to our entire satisfaction, by
SEBASTIAN TABASONDRA and TARCILA TABASONDRA,
married to Pacita Arellano and Conrado Constantino,
respectively, both of legal ages, Filipinos, and residents
of Dalayap, Tarlac, Tarlac, we do hereby SELL, CEDE,

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TRANSFER and CONVEY, by way of ABSOLUTE SALE,


unto the said Sebastian Tabasondra and Tarcila
Tabasondra, their heirs and assigns, all our shares,
rights, interests and participations in the above-
described parcel of land free from liens and
incumbrances. That we hereby certify that the herein
VENDEES are the actual tillers or tenants of the above-
described parcel of land subject matter of this deed of
absolute sale and, as such, have the prior right of pre-
emption and redemption, under the Land Reform Code.
(Bold underscoring supplied for emphasis)
We uphold the right of Valentina and Valeriana to thereby
alienate their pro indiviso shares to Sebastian and Tarcila even
without the knowledge or consent of their co-owner Cornelio
because the alienation covered the disposition of only their
respective interests in the common property. According to Article
493 of the Civil Code, each co-owner "shall have the full ownership
of his part and of the fruits and benefits pertaining thereto, and he
may therefore alienate, assign or mortgage it, and even substitute
another person in its enjoyment, except when personal rights are
involved," but "the effect of the alienation or the mortgage, with
respect to the co-owners, shall be limited to the portion which may
be allotted to him in the division upon the termination of the co-
ownership." Hence, the petitioners as the successors-in-interest of
Cornelio could not validly assail the alienation by Valentina and
Valeriana of their shares in favor of the respondents. 11
Accordingly, the Court declares the following disposition by
the CA to be correct and in full accord with law, to wit:
x x x [T]here is no dispute that the subject
property was owned in common by the siblings Cornelio,
Valentina, and Valeria. Corollarily, the records at bench
glaringly show that the genuineness and due execution
of the Deed of Absolute Sale executed by Valeriana and
Valentina in favor of the Defendants-Appellants was not
rebutted by the Plaintiffs-Appellees. A fortiori, such deed
is prima facie evidence that a contract of sale was,
indeed, entered into and consummated between
Valeriana and Valentina as sellers and the Defendants-
Appellants as vendors. AaCTcI
The foregoing facts, juxtaposed with the laws and
the jurisprudential precepts mentioned elsewhere
herein, lead to no other conclusion but that the sale by
Valeriana and Valentina of theirpro indiviso shares in
favor of the Defendants-Appellants is valid. As

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enunciated by the Supreme Court in Alejandrino v.


CA, et al.:
x x x Under a co-ownership, the
ownership of an undivided thing or
right belongs to diferent persons.
Each co-owner of property which is
held pro indiviso exercises his rights
over the whole property and may use
and enjoy the same with no other
limitation than that he shall not injure
the interests of his co-owners. The
underlying rationale is that until a division is
made, the respective share of each cannot
be determined and every co-owner
exercises, together with his co-participants,
joint ownership over the pro indiviso
property, in addition to his use and
enjoyment of the same.
Although the right of a heir over
the property of the decedent is
inchoate as long as the estate has not
been fully settled and partitioned, the
law allows a co-owner to exercise
rights of ownership over such inchoate
right. Thus, the Civil Code provides:
Art. 493. Each co-owner shall
have the full ownership of his
part and of the fruits and benefits
pertaining thereto, and he may
therefore alienate, assign or
mortgage it, and even substitute
another person in its enjoyment,
except when personal rights are
involved. But the efect of the
alienation or the mortgage, with
respect to the co-owners, shall be
limited to the portion which may
be allotted to him in the division
upon the termination of the co-
ownership. EcTCAD
With respect to properties shared in
common by virtue of inheritance, alienation
of a pro indiviso portion thereof is

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specifically governed by Article 1088 that


provides:
Art. 1088. Should any of the
heirs sell his hereditary rights to
a stranger before the partition,
any or all of the co-heirs may be
subrogated to the rights of the
purchaser by reimbursing him for
the price of the sale, provided
they do so within the period of
one month from the time they
were notified in writing of the
sale by the vendor.
In the instant case, Laurencia was
within her hereditary rights in selling her
pro indiviso share in Lot No. 2798. However,
because the property had not yet been
partitioned in accordance with the Rules of
Court, no particular portion of the property
could be identified as yet and delineated as
the object of the sale. Thus, interpreting
Article 493 of the Civil Code providing that
an alienation of a co-owned property "shall
be limited to the portion which may be
allotted to (the seller) in the division upon
the termination of the co-ownership, the
Court said":
. . . (p)ursuant to this law, a co-
owner has the right to alienate
his pro-indiviso share in the co-
owned property even without the
consent of the other co-owners. x
xx
Using the foregoing disquisitions as guidelines,
there is no denying that the RTC erred in granting the
complaint and ordering a partition without qualifying
that such should not include the shares previously
pertaining to Valeria and Valentina. Simply put, since
the aggregate area of the subject property is one
hundred thousand three hundred fifty-two (100,352)
sq.m., it follows that Cornelio, Valentina, and Valeriana
each has a share equivalent to thirty-three thousand
four hundred fifty point sixty-six (33,450.66) sq. m.
portion thereof. Accordingly, when Valentina and

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Valeriana sold their shares, the Defendants-Appellants


became co-owners with Cornelio. Perforce, upon
Cornelio's death, the only area that his heirs, that is, the
Plaintiffs-Appellees and the Defendants-Appellants, are
entitled to and which may be made subject of partition
is only a thirty-three thousand four hundred fifty point
sixty-six (33,450.66) sq.m. portion of the
property. AcICHD
All told, finding the RTC's conclusions to be not in
accord with the law and jurisprudence, necessarily, the
same cannot be sustained. 12
As a result of Valentina and Valeriana's alienation in favor of
Sebastian and Tarcila of their pro indiviso shares in the three lots,
Sebastian and Tarcila became co-owners of the 100,352-square
meter property with Cornelio (later on, with the petitioners who
were the successors-in-interest of Cornelio). In effect, Sebastian and
Tarcila were co-owners of two-thirds of the property, with each of
them having one-third pro indiviso share in the three lots, while the
remaining one-third was co-owned by the heirs of Cornelio, namely,
Sebastian, Tarcila and the petitioners.
Nonetheless, we underscore that this was a case for partition
and accounting. According to Vda. de Daffon v. Court of
Appeals, 13 an action for partition is at once an action for
declaration of co-ownership and for segregation and conveyance of
a determinate portion of the properties involved. If the trial court
should find after trial the existence of co-ownership among the
parties, it may and should order the partition of the properties in the
same action. 14
Although the CA correctly identified the co-owners of the
three lots, it did not segregate the 100,352-square meter property
into determinate portions among the several co-owners. To do so,
the CA should have followed the manner set in Section 11, Rule 69
of the Rules of Court, to wit:
Section 11. The judgment and its effect; copy to
be recorded in registry of deeds. If actual partition of
property is made, the judgment shall state definitely, by
metes and bounds and adequate description, the
particular portion of the real estate assigned to each
party, and the effect of the judgment shall be to vest in
each party to the action in severalty the portion of the
real estate assigned to him. xxxs (Bold emphasis
supplied.)

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Accordingly, there is a need to remand the case to the court


of origin for the purpose of identifying and segregating, by metes
and bounds, the specific portions of the three lots assigned to the
co-owners, and to effect the physical partition of the property in the
following proportions: Tarcila, one-third; the heirs of Sebastian, one-
third; and the petitioners (individually), along with Tarcila and the
heirs of Sebastian (collectively), one-third. That physical partition
was required, but the RTC and the CA uncharacteristically did not
require it. Upon remand, therefore, the RTC should comply with the
express terms of Section 2, Rule 69 of the Rules of Court, which
provides: TAIaHE
Section 2. Order for partition, and partition by
agreement thereunder. If after the trial the court finds
that the plaintiff has the right thereto, it shall order the
partition of the real estate among all the parties in
interest. Thereupon the parties may, if they are
able to agree, make the partition among
themselves by proper instruments of conveyance,
and the court shall confirm the partition so
agreed upon by all the parties, and such
partition, together with the order of the court
confirming the same, shall be recorded in the
registry of deeds of the place in which the
property is situated. (2a)
A final order decreeing partition and accounting
may be appealed by any party aggrieved thereby. (n)
Should the parties be unable to agree on the partition, the
next step for the RTC will be to appoint not more than three
competent and disinterested persons as commissioners to make the
partition, and to command such commissioners to set off to each
party in interest the part and proportion of the property as directed
in this decision. 15
Moreover, with the Court having determined that the
petitioners had no right in the two-thirds portion that had been
validly alienated to Sebastian and Tarcila, the accounting of the
fruits shall only involve the one-third portion of the property
inherited from Cornelio. For this purpose, the RTC shall apply the
pertinent provisions of the Civil Code, particularly Article 500 and
Article 1087 of the Civil Code, viz.:
Article 500. Upon partition, there shall be a
mutual accounting for benefits received and
reimbursements for expenses made. Likewise, each co-
owner shall pay for damages caused by reason of his
negligence or fraud. (n) cDHAES

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Article 1087. In the partition the co-heirs shall


reimburse one another for the income and fruits which
each one of them may have received from any property
of the estate, for any useful and necessary expenses
made upon such property, and for any damage thereto
through malice or neglect. (1063)
WHEREFORE, the Court AFFIRMS WITH
MODIFICATION the decision of the Court of Appeals promulgated
on November 30, 2010 in CA-G.R. CV No. 92920 in that the
accounting is to be made only with respect to the fruits of the one-
third portion of the property still under the co-ownership of all the
parties; REMANDS the case to the Regional Trial Court, Branch 64,
in Tarlac City for further proceedings in accordance with this
decision, and to determine the technical metes and bounds and
description of the proper share of each co-owner of the property
covered by Transfer Certificate of Title No. 10612, including the
improvements thereon, in accordance with the Civil Code and Rule
69 of the Rules of Court; and ORDERS the petitioners to pay the
costs of suit.
SO ORDERED.
||| (Tabasondra v. Spouses Constantino, G.R. No. 196403, [December 7,
2016])

THIRD DIVISION

[G.R. No. 186976. December 7, 2016.]

PRYCE PROPERTIES
CORPORATION, petitioner, vs. SPOUSES SOTERO
OCTOBRE, JR. and HENRISSA A. OCTOBRE, and
CHINA BANKING CORPORATION, respondents.

DECISION

JARDELEZA, J p:
The primary question is whether a breach of contract
automatically triggers the award of actual or compensatory
damages.
I
On July 22, 1997, respondent Spouses Sotero Octobre, Jr. and
Henrissa A. Octobre (Spouses Octobre) signed a Reservation

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Agreement with petitioner Pryce Properties Corporation (Pryce) for


the purchase of two lots with a total of 742 square meters located in
Puerto Heights Village, Puerto Heights, Cagayan de Oro City. 1 The
parties subsequently executed a Contract to Sell over the lot for the
price of P2,897,510.00 on January 7, 1998. 2
On February 4, 2004, Pryce issued a certification that Spouses
Octobre had fully paid the purchase price and amortization
interests, as well as the transfer fees and other charges in relation
to the property, amounting to a total of P4,292,297.92. 3 But Pryce
had yet to deliver the certificates of title, which prompted Spouses
Octobre to formally demand its delivery. Despite repeated demands,
Pryce failed to comply. 4 Thus, on May 18, 2004, Spouses Octobre
filed a complaint before the Housing and Land Use Regulatory Board
(HLURB), Regional Office No. 10 for specific performance, revocation
of certificate of registration, refund of payments, damages and
attorney's fees. 5
It appears that the reason why Pryce was unable to deliver
the titles to Spouses Octobre is because it had previously
transferred custody of the titles, along with others pertaining to the
same development project, to China Banking Corporation (China
Bank) as part of the Deed of Assignment 6 executed on June 27,
1996. 7 Under this deed, Pryce agreed to assign and transfer its
accounts receivables, in the form of contracts to sell, in the Puerto
Heights development project to China Bank as security for the P200
Million credit facility extended by the latter. Pryce obligated itself to
deliver to China Bank the "contracts to sell and the corresponding
owner's duplicate copies of the transfer certificates of title, tax
declaration, real estate tax receipts and all other documents and
papers" 8 relating to the assigned receivables until such receivables
are paid or repurchased by Pryce. The titles to the lots purchased by
Spouses Octobre were among those held in custody by China
Bank. 9 When Pryce defaulted in its loan obligations to China Bank
sometime in May 2002, China Bank refused to return the titles to
Pryce. 10 For this reason, China Bank was also impleaded in the
HLURB complaint.
The HLURB Arbiter rendered a Decision 11 dated March 31,
2005 finding that Spouses Octobre had no cause of action against
China Bank and rescinding the contract between Pryce and Spouses
Octobre. It ordered Pryce to refund the payments made by the
spouses with legal interest and to pay the latter compensatory
damages amounting to P30,000.00, attorney's fees and costs of
suit. 12
On appeal, the HLURB Board of Commissioners modified the
Decision by ordering Pryce to pay the redemption value to China

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Bank so that the latter may release the titles covering the lots
purchased by Spouses Octobre. In default thereof, Pryce shall refund
the payments with legal interest. The HLURB Board upheld the grant
of compensatory damages, attorney's fees and costs to Spouses
Octobre. 13 Pryce moved for reconsideration and to stay the
proceedings on account of Pryce's ongoing corporate
rehabilitation. 14 The HLURB Board, however, denied Pryce's motion
considering that the stay order of the rehabilitation court had
already been reversed by the Court of Appeals. 15
Thereafter, Pryce appealed the case to the Office of the
President, which affirmed 16 in full the HLURB Board's Decision.
Undeterred, Pryce elevated the case to the Court of Appeals which
denied the petition for review and affirmed the Office of the
President's Decision. The Court of Appeals found that Pryce acted in
bad faith because it "did not disclose [that the titles were in the
custody of China Bank] to respondents Spouses Octobre until the
latter demanded delivery of the titles." 17 The Court of Appeals
held that Pryce's contractual breach justified the award of
compensatory damages as well as the payment of attorney's fees
and costs of suit. 18 cSaATC
Pryce is now before this Court primarily arguing that the Court
of Appeals erred in upholding the award of compensatory damages
because Spouses Octobre failed to present competent proof of the
actual amount of loss. 19 It also questions the award of attorney's
fees and litigation costs because there was allegedly no finding of
bad faith. 20 Additionally, as side issues, Pryce questions the Court
of Appeals' finding that the stay order had been reversed and its
decision to uphold the finding by the HLURB Board and Office of the
President that the subject properties were mortgaged to China
Bank. 21
In response, Spouses Octobre maintain that the award of
compensatory damages, attorney's fees and costs were proper
because they were forced to litigate to enforce their contractual
right as a result of Pryce's breach. 22 With respect to the stay order,
Spouses Octobre cite this Court's February 4, 2008 Decision in G.R.
No. 172302 23 which affirmed the appellate court's reversal of the
stay order. Finally, Spouses Octobre note that the characterization
of the Deed of Assignment as a mortgage came from Pryce's own
appeal memorandum filed with the HLURB Board, and that, in any
event, whether it is an assignment or mortgage, the decisive fact is
that the titles were delivered by Pryce to China Bank. 24
In its comment, China Bank insists that Pryce only has itself to
blame for failing to comply with its obligation to remit the payments
received from the various contracts to sell, including its obligation

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to Spouses Octobre. Under the Deed of Assignment, China Bank is


entitled to hold custody of the titles surrendered by Pryce until the
assigned receivables are paid or repurchased by Pryce, which to
date the latter has failed to do. 25
II
Article 2199 of the Civil Code defines actual or compensatory
damages: 26
Art. 2199. Except as provided by law or by
stipulation, one is entitled to an adequate compensation
only for such pecuniary loss suffered by him as he has
duly proved. Such compensation is referred to as
actual or compensatory damages. (Emphasis supplied.)
To be entitled to compensatory damages, the amount of loss
must therefore be capable of proof and must be actually proven
with a reasonable degree of certainty, premised upon competent
proof or the best evidence obtainable. The burden of proof of the
damage suffered is imposed on the party claiming the same, who
should adduce the best evidence available in support thereof. 27 Its
award must be based on the evidence presented, not on the
personal knowledge of the court; and certainly not on flimsy,
remote, speculative and non-substantial proof. 28
It is clear that the amount paid by Spouses Octobre to Pryce
as purchase price for the lots has been adequately proved. There is
no dispute that Spouses Octobre are entitled to such amount with
legal interest. The issue being raised by Pryce is only with respect to
the P30,000.00 awarded as compensatory damages. 29
The records of this case are bereft of any evidentiary basis for
the award of P30,000.00 as compensatory damages. When the
HLURB Arbiter initially awarded the amount, it merely mentioned
that "[Spouses Octobre] are entitled to compensatory damages,
which is just and equitable in the circumstances, even against an
obligor in good faith since said damages are the natural and
probable consequences of the contractual breach
committed." 30 On the other hand, the Court of Appeals justified
the award of compensatory damages by stating that "it is
undisputed that petitioner Pryce committed breach of contract in
failing to deliver the titles to respondents [Spouses] Octobre which
necessitated the award of compensatory damages." 31 In their
comment, Spouses Octobre emphasized that they were "forced to
litigate and seek the intervention of the courts because of Pryce's
failure to comply with its contractual and legal
obligation" 32 without so much as mentioning any proof that would
tend to prove any pecuniary loss they suffered.

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In the absence of adequate proof, compensatory damages


should not have been awarded. Nonetheless, we find that nominal
damages, in lieu of compensatory damages, are proper in this case.
Under Article 2221, nominal damages may be awarded in order that
the plaintiff's right, which has been violated or invaded by the
defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered. Nominal
damages are "recoverable where a legal right is technically violated
and must be vindicated against an invasion that has produced no
actual present loss of any kind or where there has been a breach of
contract and no substantial injury or actual damages whatsoever
have been or can be shown." 33 So long as there is a violation of
the right of the plaintiff whether based on law, contract, or other
sources of obligations 34 an award of nominal damages is
proper. 35 Proof of bad faith is not required.36 The HLURB Arbiter
and the Court of Appeals appear to have confused nominal
damages with compensatory damages, since their justifications
more closely fit the former. cHDAIS
It is undisputed that Pryce failed to deliver the titles to the lots
subject of the Contract to Sell even as Spouses Octobre had already
fully settled the purchase price. Its inability to deliver the titles
despite repeated demands undoubtedly constitutes a violation of
Spouses Octobre's right under their contract. That Pryce had
transferred custody of the titles to China Bank pursuant to a Deed of
Assignment is irrelevant, considering that Spouses Octobre were not
privy to such agreement.
In fine, contractual breach is sufficient to justify an award for
nominal damages but not compensatory damages.
III
Pryce questions the award of attorney's fees and costs of suit
because no exemplary damages were awarded. This contention,
however, is clearly unmeritorious because under Article
2208,37 the award of exemplary damages is just one of 11
instances where attorney's fees and expenses of litigation are
recoverable.
Article 2208 (2) allows the award of attorney's fees when the
defendant's act or omission has compelled the plaintiff to litigate
with third persons or to incur expenses to protect his interest. The
Court has interpreted that this provision requires a showing of bad
faith and not mere erroneous conviction of the righteousness of a
defendant's cause. 38 In this case, the Court of Appeals found that
Pryce acted in bad faith when it did not disclose to Spouses Octobre
the fact that the certificates of title to the properties purchased
were in the custody of China Bank until Spouses Octobre had fully

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paid the price and had demanded delivery of the titles. We agree
with this finding and therefore sustain the award of attorney's fees
and costs of suit in favor of Spouses Octobre.
IV
The other side issues raised by Pryce shall be disposed of
swiftly since they have no substantial bearing on the merits of this
case. As admitted by Pryce itself; "it is not the entire Decision that is
being assailed" 39 but only the portion regarding the award of
compensatory damages, attorney's fees and costs of suit.

When the stay order being invoked by Pryce was reversed and
set aside at the first instance by the Court of Appeals in CA-G.R. SP
No. 88479, that stay order was automatically deemed
vacated. 40 By reversing the stay order of the rehabilitation court,
the Court of Appeals effectively enjoined the execution of such
order as allowed by the 2000 Interim Rules of Procedure on
Corporate Rehabilitation 41 (which was then in effect when Pryce
filed its petition for rehabilitation in 2004). We affirmed the Court of
Appeals' decision to set aside the stay order in the Decision dated
February 4, 2008 42 and Resolution dated June 16,
2008. 43 Although we later reconsidered the Decision on February
18, 2014, 44 the same does not affect the validity of the
proceedings already conducted before the HLURB, Office of the
President, and Court of Appeals during the intermediate period that
the stay order was vacated. Neither does it affect our resolution of
this petition for review because under the Financial Rehabilitation
and Insolvency Act of 2010 45 (FRIA), the stay order shall not apply
to cases already pending appeal in the Supreme Court. 46 Section
146 of the FRIA expressly allows the application of its provisions to
pending rehabilitation cases, except to the extent that their
application would not be feasible or would work injustice. 47
B
The characterization of the Deed of Assignment between
Pryce and China Bank as either an assignment of receivables or a
mortgage of real property is irrelevant to Pryce's obligation to
Spouses Octobre. The principal reason why Pryce raises this
argument is to elude the applicability of Section 18 of Presidential
Decree No. 957. 48 But Spouses Octobre's claim is precisely
premised on its contract with Pryce, not this specific provision of
law. Hence, even if the provision is inapplicable, Pryce's contractual
liability to deliver the titles to Spouses Octobre remains.

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WHEREFORE, the petition is DENIED. The assailed Decision


and Resolution of the Court of Appeals in CA-G.R. SP No. 103615
are MODIFIED in that nominal damages in the amount of
P30,000.00 are awarded in lieu of compensatory damages.
SO ORDERED. ISHCcT
||| (Pryce Properties Corp. v. Spouses Octobre, G.R. No. 186976,
[December 7, 2016])

THIRD DIVISION

[G.R. No. 192948. December 7, 2016.]

B.F. CORPORATION and HONORIO


PINEDA, petitioners, vs. FORM-EZE SYSTEMS,
INC., respondent.

DECISION

PEREZ, J p:
This petition for review assails the 15 January 2010
Decision 1 and 13 July 2010 Resolution 2 of the Court of Appeals in
CA-G.R. SP No. 102007 which affirmed the Final Award rendered by
the Construction Industry Arbitration Commission (CIAC) Arbitral
Tribunal on 7 December 2007.
FACTUAL ANTECEDENTS
Petitioner B.F. Corporation (BFC) is a corporation engaged in
general engineering and civil works construction. Petitioner Honorio
H. Pineda (Pineda) is the President of BFC. Respondent Form-Eze
Systems, Inc. (Form-Eze) is a corporation engaged in highway and
street construction.
On 29 August 2006, SM Prime Holdings, Inc. awarded the
contract for general construction of the SM City-Marikina mall (the
Project) to BFC whereby the latter undertook to supply materials,
labor, tools, equipment and supervision for the complete
construction of the Project. 3 In turn, BFC engaged Form-Eze for the
lease of formwork system and related equipment for and needed by
the Project. Accordingly, five (5) contracts and two (2) letter-
agreements were executed by the BFC, represented by its President
Pineda, and Form-Eze, represented by its President, James W.
Franklin. These contracts and their salient provisions are provided in
the following table:

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CONTRACT NO. 1: Contract for the Lease of the Equipment for the
Beam and Slab Hardware for the Formwork on SM Marikina Mall
Project dated 20 December 2006 4

Obligations of Form-Eze 1. Furnish all hardware required in the


formwork system for the poured in place beam
and slab concrete decks excluding the
scaffoldings and accessories required to support
the system; and
2. Provide consumable beam ties and steel
accessories needed to maintain the rigidity and
alignment of the plywood formed surfaces.

Obligations of BFC 1. Furnish all scaffoldings as required to support


the system at no cost to Form-Eze;
2. Furnish all plywood and lumber as required in
the formwork operation as no cost to Form-Eze;
3. Purchase materials for the formwork as
requested by Form-Eze. The direct cost of
materials shall be deducted from the contract
and the balance paid to Form-Eze; and
4. Responsible for the freight of the equipment
to and fro the Marikina jobsite and the Form-Eze
warehouse in Cainta, Rizal.

Work Specifications The amount of hardware to be furnished is


sufficient to provide 7,000 contact square
meters of formwork.

Contract Price Total contract amount for the equipment:


126,000 contact square meters (equipment to be
used) x P225.00/contact square meter (cost per
use of the hardware for forming the elevated
beam and slab) = P28,350,000.00.

Terms of Payment 1. 15% down payment or P4,252,500.00 paid to


Form-Eze on or before pick up of equipment;
2. When concrete is placed on the slab forms,
the equipment rental per contact square meter
is due and payable is Form-Eze and shall be paid
on the first day of the following month;
3. All equipment purchased by BFC as
requested by Form-Eze shall be prorated and
deducted equally in the first 4-month duration of
the equipment lease; and
4. Monthly progress payments for the

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equipment lease shall be made timely.

CONTRACT NO. 2: Contract for Stripping and Moving Form-Eze


Systems, Inc. Equipment from Location to Location on SM Marikina
Mail Project dated 20 December 2006 5

Obligations of Form-Eze 1. Furnish forklift for the movement of the deck


forms and related hardware of the forming
system from location to location;
2. Strip all formwork from under the poured
concrete slab and beam deck. Move all
equipment to the next location where it will be
reset by BFC; and
3. Assist BFC in setting the deck forms to the
proper grade and locations provided that BFC
has laid out the grid lines as needed for placing
the scaffoldings under the deck forms and
provided the scaffoldings is readily available for
placement under the deck forms.

Obligations of BFC 1. Furnish additional hoisting; and


2. Provide all labor requested by Form-Eze and
deducted from the contract at P60.00 per
carpenter man-hour.

Contract Price Total contract amount for moving equipment:


126,000 x P50.00/contact square meter (cost for
stripping and movement of the equipment,
excluding cost of resetting to grade, cleaning
plywood surfaces and applying release agent) =
P6,300,000.00.

Terms of Payment 1. 15% down payment or P945,000.00 paid to


Form-Eze on or before pick up of equipment; and
2. Monthly progress billing will coincide with the
contact square meters formed with the Form-Eze
equipment.

CONTRACT NO. 3: Contract for Column Formwork on the SM Marikina


Mall Project dated 20 December 2006 6

Obligations of Form-Eze 1. Furnish sufficient number of built up column


forms as required to complete 6 poured in place
full height concrete columns per day provided
the installation of the rebar and the placement of
the concrete can maintain that schedule of
performance;

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2. Provide supervision for the column formwork


operation;
3. Responsible for bracing the columns to
maintain them plumb when poured;
4. Correct any defects in the poured column
due to failure in the formwork. (Not responsible
for air entrapment or aggregate separation
caused by improper placement or improper
vibration of the concrete; and
5. Furnish chamfer and form release agent

Obligations of BFC 1. Furnish all hoisting and moving of the


columns;
2. Responsible for installation of the rebar and
placement of the concrete;
3. Furnish labor as required by Form-Eze for
forming columns and will deduct from Form-Eze
P60.00 per man-hour for each carpenters for the
column framework; and
4. Responsible for all column grid lay-out and
establishing elevations on the columns

Terms of Payment 1. Total Contract Amount: 9,100 contact square


meters of formwork x P355.00/contact square
meter = P3,230,500.00;
2. Downpayment of P484,575.00 (15%) on or
before pick up of equipment;
3. BFC agrees to purchase all materials for the
formwork as required by Form-Eze and the direct
cost of those materials will be deducted from
this contract and the balance paid to Form-Eze;
and
4. When columns are poured and stripped,
P355.00 per contact square meter is due and
payable at that time. Progress payments will be
made for the work completed in a particular
month and paid on the first day of the following
month. Any materials or equipment purchased
by BFC at the request of Form-Eze shall be
deducted from this contract and prorated equally
over a 4-month period.

CONTRACT NO. 4: Contract for the Lease of the Heavy Duty Galvanized
Scaffold Frames and Related Accessories on SM Marikina Mall Project
dated 29 January 2007 7

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Obligations of BFC 1. Manufacture heavy duty galvanized


scaffoldings and certain accessories for Form-
Eze. The scaffoldings and accessories will be
manufactured exactly as per the drawings and
samples given to BFC by Form-Eze, provided the
equipment produced is of excellent quality and
to the exact specification specified by Form-Eze;
2. The agreement is for 1,500 pieces of heavy
duty galvanized 6-ft frames and related
accessories (3,000 pcs of 14-inch adjustable u-
heads and 3,000 pcs heavy duty base plates);
and
3. BFC will deduct P6,352,500.00 from Form-
Eze equipment leased contract (all equipment
must be in good condition and turned over to
Form-Eze at the end of project). Form-Eze will
own the equipment.

Obligations of Form-Eze 1. Form-Eze will credit BFC with P4,235.00 per


frame and related accessories; and
2. Form-Eze will accept all frames in good
condition up to a maximum of 1,500 frames and
related accessories.

Agreement is contingent upon parties entering into an exclusive licensing


agreement with BFC for the manufacture of Form-Eze equipment.

CONTRACT NO. 5: Contract for the Purchase and Lease of the Heavy
Duty Galvanized X-Bracing on SM Marikina Mall Project dated 29
January 2007 8

Obligations of BFC Manufacture heavy duty galvanized x-bracing.

Obligations of Form-Eze Credit BFC with P400.00 per x-brace. If the x-


bracing is not manufactured exactly as specified
by Form-Eze, credit is P300.00 per x-brace.

Agreement is contingent upon parties entering into an exclusive licensing


agreement for the manufacturing of Form-Eze equipment.

MEMORANDUM OF AGREEMENT dated 5 January 2007 9

BFC will manufacture Form-Eze equipment and will sell exclusively to Form-Eze.

LETTER-AGREEMENT dated 5 January 2007 10

Changes to Contract No. 4

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1. The 18-inch adjustable u-head will be changed to a 14-inch adjustable u-


head.
2. The threading of the heavy duty screw will be accomplished in segments
and then machined.
3. Form-Eze will send to the jobsite all 18-inch and 24-inch adjustable u-heads
available in its current stock in order to start forming the project while BFC is
fabricating the 14-inch adjustable u-heads. When the 3.000 pieces 14-inch u-
heads are completed and are on the jobsite, Form-Eze will take back the 18-
inch and 24-inch adjustable u-heads that were temporarily in use at the jobsite.
4. The creditable amount for the purchase of the 6-foot heavy duty galvanized
scaffolding and related accessories is changed to P4,235.00 per 6-foot heavy
duty galvanized frames, adjustable u-heads and heavy duty base plate.

On 30 March 2007, Form-Eze filed a Request for


Arbitration 11 before the CIAC. In its Complaint, Form-Eze alleged
that BFC has an unpaid obligation amounting to P9,189,024.58; that
BFC wanted to re-negotiate the equipment leases; and that it was
not complying with the contractual and supplemental agreements in
effect. Form-Eze prayed for the following relief: CAIHTE
1. [For BFC] to pay the current monthly equipment
rentals;
2. Provisions made to guarantee the earned monthly
equipment leased amounts are paid timely;
3. To legislate provisions to ensure the lease contracts are
not breached during the construction of the SM
Marikina Mall;
4. Provisions made to guarantee the performance of
[BFC] for the manufacturing of the shoring
equipment purchased by Form-Eze from BFC;
5. Provisions made to guarantee the return of all Form-
Eze equipment when the concrete structure is
completed and all lost and damaged equipment has
been paid for by [BFC]; and
6. All cost related to Arbitration. 12
In its Amended Answer with Counterclaim, BFC sought for
reformation of Contract #1 to incorporate a provision that BFC shall
deduct from said billing the cost of labor supplied by it for the
fabrication and assembly of the forming system and for the
stripping, cleaning, resetting thereof at the rate of P60.00 per man-
hour. BFC also demanded the refund of P5,773,440.00 as expenses
for the manufacture of additional hardware to complete the 7,000
square meters of formwork required in Contract #1. BFC explained

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that Form-Eze had only furnished 4,682.4 square meters of


formwork. 13
The CIAC appointed a 3-member Arbitral Tribunal (CIAC
Arbitral Tribunal), composed of Atty. Custodio O. Parlade, Atty.
Alfredo F. Tadiar and Engineer Romeo C. David, to adjudicate Form-
Eze's claims.
Under the Terms of Reference, the parties made the following
admissions:
1. The existence of five contracts, a memorandum of
agreement and a supplemental contract.
2. BFC renegotiated Contract #1 but it did not result in a
separate written contract.
3. Under Contract #1, BFC is willing and ready to pay
Form-Eze the amount of P3,515,003.59, which
amount shall be deducted from the amount of the
latter's claim.
4. Under Contract #2, BFC is willing and ready to pay
Form-Eze the amount of P675,788.97, which
amount shall be deducted from the amount of the
latter's claim.
5. BFC admits that it has the obligation to return to Form-
Eze equipment furnished them under Contracts #1,
2, and 3, and all heavy duty galvanized scaffold
frames and related accessories, heavy duty
galvanized x-bracing and adjustable U-heads and
base plates fabricated and manufactured by BFC
under Contracts #4, 5 and letters dated 5 January
2007. 14
The claims 15 of the parties are summarized, as follow:
From 7/20/2007 to end
FORM-EZE's CLAIMS As of 7/19/2007
of
contract based on
agreed
minimum contact sq.m.
of
126,000
Arrears on Contract No. 1 P26,310,476.29 P11,489,523.71
- 3,515,003.59

22,795,472.70
Arrears on Contract No. 2 4,771.723.63 1,528,276.37

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-675,788.97

4,095,934.66
Arrears on Contract No. 3 2,099,825.00 1,130,675.00
Arrears on Letter dated 1/5/07 740,600.00 483,000.00
P29,731,832.36 P14,631,475.08
Attorney's Fees 300,000.00
TOTAL SUM IN DISPUTE: P44,663,307.44

BFC's COUNTERCLAIM

Cost of labor, helmet & expenses for x-


bracing for the assembly of the form P812,791.09
system under Contract #1
Cost of stripping, petroleum, oil, & helmet 1,391,086.02
under Contract #2
Attorney's Fees 300,000.00
Total Counterclaims P2,503,877.11
TOTAL SUM IN DISPUTE P46,867,184.55
The total arbitration fees amounted to P616,393.73.
CIAC Arbitral Tribunal was tasked to resolve the following
issues, to wit:
1. Is Claimant entitled to its total claim of P34,284,996.41
representing the alleged arrear on equipment rental
under Contract #1?
2. Is Claimant entitled to its claim of P5,624,211.03
representing the alleged arrears under Contract
#2?
3. Is Claimant entitled to its claim of P3,230,500.00
representing the alleged arrears under Contract
#3?
4. Is Claimant entitled to its claim of P1,374,408.00
representing the rental fees under Letter dated 5
January 2007?
5. Is Claimant entitled to its claim for the reformation of
the subject Contracts to include the following:
a. Contract #1 Provisions to guarantee the
earned monthly equipment leased amounts
are paid timely;

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b. Contract #1 Provision to ensure that the lease


contracts are not breached during the
construction of the SM Marikina Mall;
c. Contracts #4 and 5 Provision to guarantee the
performance of [BFC] for the manufacturing
of the shoring equipment purchased by Form-
Eze from BF Corp.;
d. Contracts #1, 2, 3, 4 and 5 Provision for [BFC]
to pay for the lost and damaged equipment
furnished them by the [Form-Eze]; and
e. Contract #1 Provision in the Contract to
include the P75 per contact sq.m. for labor
guarantee.
6. Is [BFC] #1 entitled to the reformation of Contract #1
to include a provision that [BFC] #1 shall deduct
from [Form-Eze's] billing the cost of labor, helmet
and expenses for x-bracing supplied by it for the
assembly of the form system amounting to
P812,791.09, to deduct from the billing under
Contract #2 the cost of labor for the stripping
thereof, the costs of petroleum, oil and lubricant
and helmet of the said laborers up to the end of the
contract in the sum of P1,391,086.02 and from the
billing under Contract #3, the cost of labor for the
installation and forming of the built up column
forms from June 19, 2007 up to the end of the
project in the sum of P273,240.00? 16
7. Is it proper to include Mr. Honorio Pineda as
Respondent No. 2?
8. Does the Arbitral Tribunal have the jurisdiction to
award claims that accrued after the filing of the
Request for Arbitration or does the Claimant have a
cause of action for claims that accrued during the
same period? DETACa
9. Who between the parties is entitled to attorney's fees?
10. Who between the parties should bear the arbitration
costs? 17
FINAL AWARD BY CIAC
On 7 December 2007, the CIAC Arbitral Tribunal rendered a
Final Award in favor of Form-Eze. The dispositive portion reads:

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WHEREFORE, award is hereby made in favor of


Claimant and against [BFC], ordering the latter to pay
the former the following amounts:
P28,350,000.
a) On Contracts No. 1
00
Less: Payments already made 7,700,000.00

P20,650,000.
TOTAL
00
P6,300,000.0
b) On Contract No. 2
0
Less: Payments already made 990,000.00
Less: Cost of labor 60,000.00

P5,250,000.0
TOTAL
0
P2,153,166.6
c) On Contract No. 3
7
Less: cost of labor 96,915.00

P2,056,751.6
TOTAL
7
On Letter Agreement of January 5, 2008 to December 8,
2007
P560,000.00
IN SUM THE FOLLOWING AWARDS ARE
MADE:
P20,650,000.
Contract No. 1
00
Contract No. 2 5,250,000.00
Contract No. 3 2,056,751.67
Letter Agreement of January 5, 2007 560,000.00

P28,517,251.
GRAND TOTAL
67
========
====

The Tribunal further awards in favor of [Form-Eze]


and against [BFC] and [Pineda] who are ordered, jointly
and severally to pay [Form-Eze] P300,000.00 as
attorney's fees, and to indemnify [Form-Eze's] cost of
arbitration paid to CIAC.

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The Tribunal likewise disposes of the remaining


issues as follows:
a) The claims under Issues No. 5 and 6 for
reformation of Contracts No. 1, 2, 3, 4 and 5
are denied for lack of merit.
b) The inclusion of Mr. Honorio Pineda in the
Complaint as additional respondent is proper.
c) The Tribunal has jurisdiction over the claims of
[Form-Eze] and finds that the Complaint
states a cause of action as to claims that
accrued after the filing of the Complaint.
d) All other claims and counterclaims submitted
pursuant to the definition of issues in the
Terms of Reference, not otherwise disposed of
or resolved above, are dismissed for lack of
merit. All claims and counterclaims
peripherally discussed in these proceedings
which are outside the scope of the definition
of issues in the Terms of Reference are
likewise outside the scope of this Final Award.
e) The net award in favor of [Form-Eze] amounting
to P28,517,251.67 shall earn interest at the
rate of 6% per annum from the date of this
Final Award, and 12% from the date the Final
Award becomes final and executory until the
same is fully paid. 18
BFC filed a Motion for Correction of the Final Award. Form-Eze
asserted that the calculations made on the total quantity of
deckforms supplied to be used under Contract No. 1 is erroneous
because the quantity of the accessories that were delivered
together with the loose truss chords and assembled trusses that
were backloaded were ignored in the computation. BFC explained
that the hardware supplied must be assembled first into deckforms
since what is actually rented under Contract No. 1 are the
deckforms, and not the hardware, thus:
Evidently, in the computation thereof, the total
quantity of the accessories that were delivered together
with the said loose truss chords and assembled trusses,
both of which are shown in the same delivery receipts,
and the total length of the loose truss chords and
assembled trusses that were backloaded, were not
considered and totally ignored.

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Needless to state, these accessories, such as joist


and beam hanger, just like the chords and the trusses,
are component and indispensable parts of a deckform
without which it can not be completely assembled to be
used for the purpose intended. In the case of a
deckform 44 ft. in length, it will need, for it to be
completely assembled, 34 pieces of joists and 68 pieces
of beam hangers, as shown in the herewith attached
Annex "A" hereof.
Therefore, to form 87 completely assembled
deckforms of 44 ft. in length out of/from the delivered
chords and trusses, it will require 2,958 pieces of joist
and 5,916 pieces of beam hangers.
However, as show in Exhibits "C-9(5)", "C-9(11)",
"C-9(15)", "C-9(18)", "C-9(21)" "C-9(25)", "C-9(27)", "C-
9(30)", and "C-9(31)", only 2,512 pieces of joists and in
Exhibits "C-9(8)", "C-9(15)", "C-9(16)", "C-9(18)", "C-
9(21)", "C-9(27)", "C-9(32)", "C-9(34)", "C-9(35)", "C-
9(37)" "C-9(38)", "C-9(41)", "C-9(35)", "C-9(38)", "C-
9(40)", and "C-9(41)", only 3,626 pieces of beam
hangers, the very documents on which this
Commission/Tribunal anchored its finding now sought to
be corrected, were actually delivered by the Claimant.
Accordingly, 87 deckforms of 44 ft. in length can
not be completely assembled from the delivered chords
and trusses because the quantity of the delivered
accessories is insufficient for the purpose. To be precise,
only 53 deckforms of 44 ft. in length can be completely
assembled out of the total length of the chords and
trusses with the use of 1,802 pieces of joists and 3,604
pieces of beam hangers (with an excess of 22 pieces of
beam hangers, 710 pieces of joists and 2,720 ft of
chords and trusses) which are sufficient to provide only
4,441.73 contact sq.m. of formworks.
To therefore conclude that 87 deckforms of 44 ft.
in length can be completely assembled with the use
of/out of 2,512 pieces of joists and 3,626 pieces of beam
hangers, is an evident miscalculation.
xxx xxx xxx
In as much as only 3,626 pieces of beam hangers
were actually delivered, which, when used with the
delivered quantity of joists and length of the delivered
chords and trusses in completely assembling 53

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deckforms of 44 ft. in length, is sufficient to provide only


4,441.73 contact sq.m. of formworks, the minimum
rental amount stipulated under Contract No. 1 should
correspondingly be reduced to only Php17,989,006.50,
less payment of Php7,700,000.00 = Php10,829,006.50
as the net amount of rent due the Claimant thereunder,
as shown in the herewith attached Annex "B"
hereof. aDSIHc
On the same ground, the minimum contact
amount stipulated under Contract No. 2 should also be
proportionately reduced to Php3,997,557.00, less
payment of Php990,000.00 + cost of labor of
Php60,000.00 = Php2,947,557.00 as the net amount
due the Claimant thereunder. 19
The CIAC Arbitral Tribunal denied the motion prompting BFC to
file a petition for review before the Court of Appeals.
While the case was pending before the Court of Appeals,
Form-Eze filed a Motion with Leave to Direct BFC to return pieces of
equipment on 14 July 2009.
On 15 January 2010, the Court of Appeals dismissed the
petition for lack of merit. The Court of Appeals heavily relied on
factual findings of the CIAC Arbitral Tribunal.
THE PETITION
BFC filed a motion for reconsideration but it was denied by the
Court of Appeals in a Resolution dated 13 July 2010. Hence, the
present petition. BFC, in its Memorandum, raised the following
issues for our resolution:
I.
Whether or not the Court of Appeals committed a
reversible error in affirming the CIAC's ruling that BFC is
liable to pay rent to the [Form-Eze] under Contract Nos.
1, 2, and 3 even for portions where the latter's supplied
formwork system were not used.
II.
Whether or not the Court of Appeals committed a
reversible error in affirming the CIAC's conclusion that
[Form-Eze] was able to supply BFC with such quantity of
deckforms sufficient to provide the stipulated 7,000
contact square meter of formworks as to entitle said
[Form-Eze] to the stipulated minimum contract rental
price of Php28,350,000.00 under Contract No. 1 and
consequently to Php6,300,000.00 under Contract No. 2,

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when, based on the quantity of the delivered


accessories, which are component parts of deckform
system, but which the CIAC totally ignored, [Form-Eze]
can only provide 4,441.73 contact square meters of
formworks that will entitle it to only Php17,989,006.05
and Php3,997,557.00, respectively thereunder.
III.
Whether or not the Court of Appeals committed
reversible error in affirming the CIAC's ruling that [Form-
Eze] is entitled to two/thirds of the stipulated minimum
contract amount of Php3,230,500.00 or
Php2,153,666.67 under Contract No. 3, considering that
CIAC did not state the factual and legal basis of said
ruling and despite its contrary factual finding that
[Form-Eze] failed to supply the minimum required
columnforms.
IV.
Whether or not the Court of Appeals committed a
reversible error in affirming the CIAC's ruling against the
reformation of Contract No. 1 to include a provision that
BFC shall furnish the labor needed by [Form-Eze] in
assembling the deckforms and that it shall deduct
therefrom the agreed cost of labor at Php60.00 per man
hour, since it has been the true intention and real
agreement of the parties thereto.
V.
Whether or not the Court of Appeals committed a
reversible error in affirming the CIAC when it did not
deduct the following costs incurred by BFC from the
minimum contract amounts due:
(1) under Contract No. 1 for the cost of labor in
assembling the deckforms, the cost of
helmets of said laborers, and the expenses
for x-bracing supplied by BFC for the
assembly of said forms in the total amount of
Php812,791.09;
(2) under Contract No. 2 for the cost of labor in the
stripping of said deckforms, the cost of
petroleum, oil and lubricant and helmet up to
the end of the contract in the sum total of
Php1,391,086.02; and

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(3) under Contract No. 3 for the cost of labor in


installing and forming the built up
columnforms from 25 June 2007 up to the end
of the contract in the sum total of
Php273,240.00, when BFC is legally entitled
thereto.
VI.
Whether or not the Court of Appeals committed a
reversible error in affirming the CIAC in ordering BFC to
pay rental fees under letter dated 5 January 2007,
covering the period from 25 June 2007 to 17 December
2007 in the sum total of Php560,000.00 at
Php96,000.00 a month, when the acquisition cost of the
pieces of u-heads and plates referred to therein is
allegedly only Php96,000.00, and there is evidence
presented to show that these items were purchased at
Php96,000.00 and there is no evidence to show the
prevailing rate of rent for the same items.
VII.
Whether or not the Court of Appeals committed a
reversible error in affirming the CIAC in ruling that
Respondent Pineda can be held as co-respondent (in the
arbitration case) when he is not a party to the contracts
and agreements involved in this case, as well as the
arbitration agreement, and he did not voluntarily submit
himself to arbitration in this case.
VIII.
Whether or not the Court of Appeals committed a
reversible error when it ruled that the attorney's fees
and cost of arbitration shall be for the account of
Petitioners, considering that [Form-Eze] failed to supply
the minimum required equipment under the contracts
and when the root cause of the dispute is the
imprecision of the language and the incompleteness of
the contracts and agreements, which were prepared by
the Respondents. 20
BFC prays for a modification of the Final Award to read:
a. On Contract No. 1 Php17,989,006.50
Less:
Php7,700,000.0
Payments already made
0
Payment made on Billing 487,828.05

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No. 1
Cost of labor in assembling
Deckforms, expenses for x-
Bracings and cost of helmet 812,791.90 9,000,619.95
SUBTOTAL Php8,988,386.55
b. On Contract No. 2 Php3,997,557.50
Less:
Payments already made Php990,000.00
Costs of labor in stripping
And moving of the same
Deckforms, petroleum, oil
And lubricant and helmet 1,304,036.82 Php2,294,036.82
SUBTOTAL Php1,702,520.68
c. On Contract No. 3 Php538,417.87
Less:
Cost of labor in the installation
and removal of the
Columnforms 96,915.00
SUBTOTAL Php441,502.87
d. On Letter Agreement dated Php70,000.00
5 January 2007
e. The award of attorney's fees be deleted; and
The award for cost of arbitration fees be
f.
deleted.21
THE COURT'S RULING
The Final Award of CIAC is subject
to review by the Court of Appeals.
BFC first asserts that the Court of Appeals has the power and
the duty to review the factual findings made by CIAC and that the
Court of Appeals should not be bound by the factual findings of the
construction arbitrators.
The case of Asian Construction and Dev't. Corp. v. Sumimoto
Corporation 22 summarized the development of the principle that
the final award of CIAC may be still be subject to judicial review,
thus:
To begin, Executive Order No. (EO) 1008, which
vests upon the CIAC original and exclusive jurisdiction
over disputes arising from, or connected with, contracts
entered into by parties involved in construction in the
Philippines, plainly states that the arbitral award "shall
be final and inappealable except on questions of law
which shall be appealable to the Court." Later, however,
the Court, in Revised Administrative Circular (RAC) No.

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1-95, modified this rule, directing that the appeals from


the arbitral award of the CIAC be first brought to the CA
on "questions of fact, law or mixed questions of fact and
law." This amendment was eventually transposed into
the present CIAC Revised Rules which direct that "a
petition for review from a final award may be taken by
any of the parties within fifteen (15) days from receipt
thereof in accordance with the provisions of Rule 43 of
the Rules of Court." Notably, the current provision is in
harmony with the Court's pronouncement that "despite
statutory provisions making the decisions of certain
administrative agencies 'final,' the Court still takes
cognizance of petitions showing want of jurisdiction,
grave abuse of discretion, violation of due process,
denial of substantial justice or erroneous interpretation
of the law" and that, in particular, "voluntary arbitrators,
by the nature of their functions, act in a quasi-judicial
capacity, such that their decisions are within the scope
of judicial review." 23
Factual findings of construction arbitrators may be reviewed
by the Court in cases where: (1) the award was procured by
corruption, fraud or other undue means; (2) there was evident
partiality or corruption of the arbitrators or any of them; (3) the
arbitrators were guilty of misconduct in refusing to hear evidence
pertinent and material to the controversy; (4) one or more of the
arbitrators were disqualified to act as such under Section nine
of Republic Act (R.A.) No. 876 and willfully refrained from disclosing
such disqualifications or of any other misbehavior by which the
rights of any party have been materially prejudiced; (5) the
arbitrators exceeded their powers, or so imperfectly executed there,
that a mutual, final and definite award upon the subject matter
submitted to them was not made; (6) when there is a very clear
showing of grave abuse of discretion resulting in lack or loss of
jurisdiction as when a party was deprived of a fair opportunity to
present its position before the Arbitral Tribunal or when an award is
obtained through fraud or the corruption of arbitrators; (7) when the
findings of the Court of Appeals are contrary to those of the CIAC,
and (8) when a party is deprived of administrative due
process. 24 ETHIDa
While this rule, which limits the scope of the review of CIAC
findings, applies only to the Supreme Court, the Court of Appeals
nonetheless is not precluded from reviewing findings of facts, it
being a reviewer of facts. By conveniently adopting the CIAC's
decision as its own and refusing to delve into its factual findings, the
Court of Appeals had effectively turned a blind eye to the

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evidentiary facts which should have been the basis for an equitable
and just award.
While factual findings are not within the purview of a petition
for review before this Court, we take exception in this case on the
ground of the appellate court's refusal to delve into the findings of
facts of the CIAC Arbitral Tribunal.
Under Contract No. 1, Form-Eze
was not able to supply BFC with
deckforms sufficient to provide
7,000 contact square meter of
formworks.
The CIAC Arbitral Tribunal conducted its own study and came
up with the following findings:
The receipted hardware deliveries made by [Form-
Eze] show that the total length of loose truss chords
delivered was 11,912 lineal feet and the length of the
truss chords from the assembled trusses delivered was
2,052 lineal feet or a total available length of trusses of
13,964 lineal feet. By an iterative process of selection
and elimination, 175 units of 44' long trusses could be
assembled, equivalent to 87 deckforms of 44 feet in
length. The assembled 87-44' deckforms can provide
7,268.58 square meters of contact area, broken down as
follows:
Contact Area (%)

Interior & Near Column 4,156.89 sq.m.


=
Slabs (57.19%)
740.37 sq.m.
Grid Beams (B-1) =
(10.19%)
1,663.20 sq.m.
Interior Beams (B-2) =
(22.88%)
Grid Girders (G-2) = 708.12 sq.m. (9.74%)
7,268.58 sq.m.
Total =
(100%)
The resulting contact area of 7,628.58 sq.m. is
3.94% over the 7,000 sq.m. requirement of the contract.
But the former figure includes the contact area of
girders which according to [petitioners] should not be
included. As shown in ANNEX "A", sheets 5 & 6 of 6, the
contact area contributed by the girders is only 708.12
sq.m., and if this is deducted from the computed total
contact area, the remaining available contact area

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would be 6,560.46 sq.m. or 93.72%. The fact, however,


is that the non-inclusion of the contact area provided by
the girders would be a violation of the letter-contract
dated 8 February 2007, paragraph 9 of which provides
that: "[Form-Eze] offered to install beam hangers and
ledger angles in order to support the moment beam
from column to column and thereby save BFC
considerable labor and eliminate the use of BFC's light
duty scaffolding underneath and beam. By doing that it
will also speed up the forming operation and save BFC
labor. The only light duty scaffolding that BFC will be
installing is that under the girder which supports
tremendous loading during the stressing of the beams
prior to it being stressed. By forming the girder in this
manner, [Form-Eze] is not involved in the tripping or
resetting of the girder formwork. However, [Form-Eze] is
has purchased and furnished considerable forming
hardware and consumables (tie rods, pvc sleeves, pvc
cones, whaler clips and brackets and wing-nuts) which
are being used on girders and the beams. [Form-Eze]
will give the ownership of this equipment to BFC and
BFC will buy all additional consumables and hardware
(as needed) directly from Comer. In return, [Form-Eze]
will include the contact square meters of formwork in
the girders in its billing for both the equipment lease
and for the moving contract." This letter-contract,
Exhibit C-12, binds [BFC] to pay Claimant for the girder
formworks contact area for both Contract No. 1 and
Contract No. 2.
Petitioners argued that the formwork of the girder
(or large beam) is independent of the deck form system
and so should not be counted in favor of [Form-Eze].
The Tribunal does not agree. How could the girder
formwork be considered independent from the deckform
system when both sides of the girder formworks are
held stiff together by "tie rods, pvc sleeves (to make the
tie rods reusable), pvc cones, whaler clips and brackets
and wing-nuts" supplied by the [Form-Eze] and pressed
between deckforms preparatory to concrete pouring?
The girder cannot be considered structurally
independent of the deck slabs because it is the
requirement of design and the National Building Code
and its reference code the American Concrete Institute
Code (ACI Code) that the girders are to be poured
monolithically with the slabs and beams up to L/3 or 1/3

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of the floor span (the point of infection and location of


the construction joint where the bending moment is the
least or zero), as is clearly shown on the floor concrete
pouring schedule plans.
Conclusion of Tribunal
In view of the above, it is the finding of the
Arbitral Tribunal that [Form-Eze] had been able to
furnish the amount of hardware that was sufficient to
provide 7,000 contact square meters of formwork, all in
accordance to Contract No. 1. Thus, the remaining
question to resolve is the area of the project covered by
the formwork equipment in contact square meters. 25
BFC accuses the CIAC of coming up with its own biased
computation of the contact area of the hardware supplied by Form-
Eze under Contract No. 1. According to BFC, Form-Eze had furnished
only 53 completely assembled deckforms of 44 ft. in length which
correspond to only 4,441.73 contact square meters of formworks,
while CIAC found that Form-Eze had delivered truss chords
equivalent to 87 deckforms which can provide 7,268.58 contact
square meters. BFC maintains that Contract No. 1 is clear that the
object is the supply of the complete deckform system and not
unassembled hardware such as loose truss chords. BFC adds that
Form-Eze judicially admitted that it is only claiming equipment
rentals for the areas that its equipment are being used. BFC
reiterates that based on the provisions of Contract No. 1 on the
contemporaneous and subsequent acts of the parties, as well as
application of principles of contract interpretation, the inclusion of
loose truss chords in the computation of the quantity of hardware
supplied by Form-Eze is an erroneous interpretation by CIAC. BFC
also claims that the CIAC wrongfully included the contact area of
girders in the computation of the sufficiency of equipment supplied
by Form-Eze. BFC contends that the girders are not part of the
deckforms contemplated in Contract No. 1. BFC offers to
compensate Form-Eze to the extent that its supplied deckforms
were used under the principle of quantum meruit. BFC submits that
4,441.73 contact square meters or 63.45% of the 7,000 minimum
contact area required under Contract No. 1 is a reasonable
computation.
We reverse the finding of the CIAC on this point as it is
contrary to the evidence on record.
We agree with BFC that the CIAC should not have included the
unassembled truss chords in theoretically forming deckforms. We
subscribe to BFC's submission that the object of Contract No. 1 is
the deckforms and not just the hardware that make up the

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formwork. Contract No. 1, in itself, is clear that "F-E has agreed to


furnish all hardware required in the formwork system for the poured
in place beam and slab concrete decks . . . ." In fact, the equipment
rental is only due and payable to Form-Eze when the concrete is
placed on the slab forms, which provision is based on the premise
that the hardware had already been assembled into deckforms
ready for concrete pouring. Moreover, the Proposed SM Marikina
Mall Project Elevated Beam and Slab Formwork dated 7 December
2006, which document has been admitted by the parties in the Term
of Reference, provides that Form-Eze will furnish sufficient
deckforms to produce 1/2 floor each month on the project. cSEDTC
BFC had also explained to our satisfaction that loose truss
chords alone could not be assembled into deckforms, to wit:
To try to assemble truss chords alone into a
deckform is like taking three two-foot round pegs, trying
to stand them upright, then balancing twelve-inch round
wooden slab on top, and expect it to be a stool capable
of supporting a person. Joist, beam hangers and other
component parts fix the truss chords into place for the
structural integrity of a deckform. In the case of a
deckform 44 ft. in length, it will need, for it to be
completely assembled, 34 pieces of joists and 68 pieces
of beam hangers as illustrated in the Petitioner's Motion
for Correction of Final Award.
Thus, assembling 87 deckforms of 44 ft. in length
would require 2,958 pieces of joist and 5,916 pieces of
beam hangers to assemble such 87 44-foot deckforms.
However, as show in the same documents that CIAC
anchored its theoretical findings, only 2,512 pieces of
joists and only 3,626 pieces of beam hangers were
actually delivered by [Form-Eze]. 26
BFC's computation of the total contact area covered by the
deckforms furnished by Form-Eze is backed by delivery receipts of
the joists and beam hangers while CIAC's computation is more
theoretical than it is actual.
The inclusion of the additional contact area of the grid girders
in the calculation of the total contact area of the equipment
supplied by Form-Eze under Contract No. 1, however, should be
upheld. Paragraph 9 of the Letter dated 8 February 2007, which was
also admitted by the parties, clearly provides:
[Form-Eze] offered to install beam hangers and
ledger angles in order to support the moment beam
from column to column and thereby save BFC

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considerable labor and eliminate the use of BFC's light


duty scaffolding underneath that beam. By doing that it
will also speed up the forming operation and save BFC
labor. The only light duty scaffolding that BFC will be
installing is under the girder which supports tremendous
loading during the stressing for the beams prior to it
being stressed. By forming the girder in this manner F-E
is not involved in the stripping or re-setting of the girder
formwork. However, [Form-Eze] has purchased and
furnished considerable forming hardware and
consumables (tie rods, pvc sleeves, pvc cones, whaler
clips and brackets and wing-nuts) which are being used
on the girders and the beams. [Form-Eze] will give
ownership to this equipment to BFC and BFC will buy all
additional consumables and hardware (as needed)
directly from Comer. In return [Form-Eze] will include the
contact square meters of formwork in the girders in its
billing for both the equipment lease and for the moving
contract. 27
BFC cannot claim that this provision does not refer to Contract
No. 1. Said provision mentions beam hangers and ledger angles
which are used to support the beams forming the deckform and to
eliminate the use of light duty scaffolding on the part of BFC which
it had initially obligated to provide under Contract No. 1. More
pertinently, the inclusion of the contact square meters of formwork
in the girders is a mere application of one of the provisions in
Contract No. 1, i.e., "BFC agrees to purchase materials for the
formwork as requested by F-E and the direct cost of those materials
will be deducted from this contract and the balance paid to [Form-
Eze]." Form-Eze is giving ownership of the forming hardware and
consumables which are used on the girders and beams to BFC.
Instead of deducting the cost of these materials from the contract,
Form-Eze will instead include the contact square meters of
formwork in the girder in its billing for the lease of the deckforms.
As agreed upon by the parties, the 708.12 sq.m. contact area
covered by the grid girders should be included in the billing. Taking
into account this contact area corresponding the grid girders and
the 4,441.73 contact square meter assembled deckforms, the total
contact area is only 5,149.85, which still falls short of the 7,000
contact area requirement.
To award the full contract price to Form-Eze in Contract No. 1
is tantamount to unjust enrichment. There is unjust enrichment
under Article 22 of the Civil Code when (1) a person is unjustly
benefited, and (2) such benefit is derived at the expense of or with
damages to another. The principle of unjust enrichment essentially

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contemplates payment when there is no duty to pay, and the


person who receives the payment has no right to receive it. 28 By
requiring BFC to pay the full contract price when it only supplied
deckforms which covered only 5,149.85 contact square meters of
formworks, the CIAC Arbitral Tribunal is essentially unjustly giving
unwarranted benefit to Form-Eze by allowing it to earn more than it
legally and contractually deserved. It is also worth mentioning that
Form-Eze had in fact only been claiming for the contact area where
its equipment was used.
Therefore, using the computation of BFC, the amount of
contact square meters that the delivered hardware and deckforms
can handle is:
92,696.40 contact
126,000 sq. m. x Y =
sq.m.

7,000 sq. m. 5,149.85 sq.m.
deckforms
delivered

Contract No. 1 be reformed to include


a labor guarantee provision.
An action for reform a contract is grounded on Article 1359 of
the New Civil Code which provides:
ARTICLE 1359. When, there having been a meeting of
the minds of the parties to a contract, their true
intention is not expressed in the instrument purporting
to embody the agreement, by reason of mistake, fraud,
inequitable conduct or accident, one of the parties may
ask for the reformation of the instrument to the end that
such true intention may be expressed.
xxx xxx xxx
Reformation is a remedy in equity, whereby a written
instrument is made or construed so as to express or conform to the
real intention of the parties, where some error or mistake has been
committed. In granting reformation, the remedy in equity is not
making a new contract for the parties, but establishing and
perpetuating the real contract between the parties which, under the
technical rules of law, could not be enforced but for such
reformation. 29
In order that an action for reformation of instrument may
prosper, the following requisites must concur: (1) there must have
been a meeting of the minds of the parties to the contract; (2) the

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instrument does not express the true intention of the parties; and
(3) the failure of the instrument to express the true intention of the
parties is due to mistake, fraud, inequitable conduct or accident. 30
In the instant case, the question to be resolved is whether the
contract expressed their true intention; and, if not, whether it was
due to mistake, fraud, inequitable conduct or accident. While
intentions involve a state of mind which may sometimes be difficult
to decipher, subsequent and contemporaneous acts of the parties
as well as the evidentiary facts as proved and admitted can be
reflective of one's intentional. 31
BFC relies on the Form-Eze Proposed SM Marikina Mall Project
Elevated Beam and Slab Formwork dated 7 December 2006 32 to
support its contention that Contract No. 1 should have a provision
on the cost of labor. Indeed, in the aforementioned proposal, BFC
has agreed "to furnish the labor required for fabrication and
assembly of the forming equipment" and that "BFC will deduct from
the total contract amount P50.00 per man-hour each carpenter or
laborer supplied to Form-Eze. Notably, Contracts No. 2 and 3 contain
labor-guarantee provisions considering that BFC has committed to
provide the necessary labor for both contracts. SDAaTC
As initially agreed upon, BFC hired workers for the assembly
of the deckforms since Form-Eze only undertook to supervise the
installation of the deckforms. This was evident during the cross-
examination of Mr. Romano Clemente (Mr. Clemente) who admitted
that no workers of Form-Eze were employed for the installation of
the deckforms, thus:
ATTY. D. MORGA, JR. (COUNSEL-RESPONDENT):
Since it is the obligation of the Claimant to assemble the
hardware into deckform, how many workers were
employed for the purpose.
MR. R.V. CLEMENTE (CLAIMANT):
We are only supplier sir. We supervise the guys in the
jobsite for tem to install all these deckforms.
ATTY. D. MORGA, JR. (COUNSEL-RESPONDENT):
Ano?
MR. R.V. CLEMENTE (CLAIMANT):
To install the guys in the jobsite like for example your
laborers carpenters to install this deckforms. We
just only supply one supervisor in the jobsite for
him to supervise the installation of this form.
ATTY. D. MORGA, JR. (COUNSEL-RESPONDENT):

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You mean BF Corporation has the expertise to assemble


this.
MR. R.V. CLEMENTE (CLAIMANT):
No, we will supervise your guys for them to assemble
this.
ATTY. D. MORGA, JR. (COUNSEL-RESPONDENT):
Do you know if BF has the expertise to assemble this?
MR. R.V. CLEMENTE (CLAIMANT):
That is why we were there in your jobsite. If they don't
have really the expertise we are the one who
supervise them to install the deckforms. Supervise
them to install the deckforms
ATTY. D. MORGA, JR. (COUNSEL-RESPONDENT):
You mean no former workers of the Claimant were
employed for the purpose.
MR. R.V. CLEMENTE (CLAIMANT):
No. 33
Obviously, BFC would want to be compensated for the labor it
provided to Form-Eze as shown in Contracts No. 2 and 3.
As a matter of fact, Mr. James Franklin, the President of Form-
Eze conceded that Contract No. 1 should be modified to include a
labor-guarantee provision, to wit:
Q: Mr. Witness, respondent [BFC], in their counterclaims,
would like this Commission to reform Contract No. 1
to include a provision that it should deduct from
your billing the cost of labor, helmet and expense
for x-bracing supplied by it for the assembly of the
form system, what can you say?
A: [BFC] is allowed to deduct the cost of the x-bracing
purchase from Comer that was used in the FORM-
EZE deck assemblies. [BFC] is allowed to deduct
the cost of the assembly labor for the deck forms
which is included in the Labor Guarantee. These
deductions have been reflected in all our billings
where the P75.00 Labor Guarantee has been
applied. The cost of helmet is not included and
should not be included. Contract No. 1 is only a
lease contract but it was modified to include a
Labor Guarantee. For the [BFC] to deduct from our
billing the cost of labor, etc. which allegedly they

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supplied for the use of our said equipment for the


assembly thereof is included in the Labor
Guarantee. They should be allowed to do so in
conformance with the Labor Guarantee but
definitely the cost of helmet and their other claims
of deductions would not have any basis at all since
these have not been agreed upon both in the
original contract and in the subsequent agreement
as contain (sic) in the February 8, 2007 signed
letter. 34
This admission by Form-Eze bolsters the conclusion that the
parties intended to include a labor-guarantee provision in Contract
No. 1. Both Contracts No. 2 and 3 set the labor rate at P60.00 per
carpenter man-hour. BFC fixed the cost of labor at P453,294.50.
Considering that both parties admitted that there should be a
labor-guarantee clause in Contract No. 1, it can be reasonably
inferred that the failure to include said provision was due to
mistake. A reformation is in order to include a cost of labor provision
in Contract No. 1.
Expenses for x-bracing and the
cost of labor should be deducted
under Contracts No. 2 and 3.
Except for the expenses for x-bracing used in deck assemblies
which had been admitted by Form-Eze President James Franklin, BFC
is not entitled to be reimbursed for the cost of helmets, petroleum,
and oil lubricants in the absence of any stipulations in the contracts.
The cost of labor, on the other hand, should be deducted pursuant
to the labor-guarantee provisions in Contracts No. 2 and 3.
The cost for x-bracing amounts to P358,250.00 as evidenced
by the receipt issued by Comer. 35
The costs of labor are as follow:
Contract No. 1 = P453,294.50
Contract No. 2 = P1,373,634.60
Contract No. 3 = P273,240.00
Obligation of BFC under Contract No. 1:
92,696.40 contact square meters x P20,856,690.
P225.00 = 00
Less: Amount paid 7,700,000.00
Payment for billing for Pour 1 487,828.05
Cost of labor 453,294.50
Cost of X-bracing 358,250.00

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P11,857,317
.45
========
====

The Memorandum of Agreement


dated 5 January 2007 is an exclusive
licensing agreement.
BFC avers that CIAC erred when it stated the BFC was given
the exclusive license to manufacture Form-Eze's equipment
consisting of scaffoldings and accessories and they became part of
that provided by Form-Eze to BFC.
At the outset, we agree that the subsequent Memorandum of
Agreement executed by the parties on 5 January 2007 is an
exclusive licensing agreement. It was signed by both parties
wherein BFC has agreed to sell the scaffolding frames and
accessories it manufactured to Form-Eze at the end of the project.
This Agreement was incorporated in Contract No. 4 wherein BFC will
be allowed to deduct P6,352,500.00 from the equipment lease
contract, which is presumably Contract No. 1. At this point, Contract
No. 4 is deemed to have novated the obligation of BFC with respect
to furnishing all scaffoldings. Contract No. 1 states that BFC shall
furnish the scaffoldings at no cost to Form-Eze. On the other hand,
Contract No. 4 requires BFC to sell the scaffoldings to Form-Eze at
the end of the project and deduct the cost of the same from the
contract price of Contract No. 1. This setup cannot in any way be
interpreted as part of the deckform supplied by Form-Eze. As
pointed out by BFC, the scaffoldings and accessories were the
responsibility of BFC under Contract No. 1. Thus, the manufactured
hardware under Contract No. 4 could not have added to the
deckform system because they are not the equipment of Form-Eze
had obligated itself to supply under Contract No. 1.
Obligation of BFC under Contract
No. 2
BFC maintains that since Form-Eze failed to meet the
minimum conditions under Contract No. 1 where the minimum
126,000 contact square meters were not reached, then the forklifts
under Contract No. 2 were also not used for a minimum of 126,000
contact square meters.
We agree. BFC is liable only to pay the amount proportionate
to 92,696.40 contact square meters at P50.00 per contact square
meter, the rental rate for the forklifts. Thus:

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92,696.40 contact square meters x P4,634,820.0


P50.00 = 0
Less: Payments made 990,000.00
Cost of Labor 1,286,377.50

P2,358,442.5
SUBTOTAL
0
========
===
Obligation of BFC under Contract
No. 3.
The CIAC had correctly noted the ambiguity in Contract No. 3,
particularly the "sufficient number of column forms as required to
complete six (6) poured in place columns per day." For BFC, the
sufficient number of column forms is 12 sets a day while Form-Eze
considered its supply of six (6) full height built up column forms as
sufficient. The CIAC found that Form-Eze failed to comply with the
requirements under Contract No. 3, hence it merely awarded Form-
Eze 2/3 of the minimum contract amount at P2,153,666.67. EcTCAD
We find that the CIAC's award lacked bases. It gave credence
to the methodology used by Form-Eze and noted that the latter had
supplied six (6) full height built-up columnforms, albeitinsufficient.
We hold the contrary. The methodology used by BFC, which involves
"columnforms with window openings and that from its installation,
alignment, bracing, inspection, approval of alignment, verticality
and rigidity of the erected columnforms, pouring, drying and
removal of the forms, it will require twelve (12) column forms a day,
should have been considered. The CIAC itself had already ruled that
the ambiguity in Contract No. 3 should not favor Form-Eze, the party
who prepared the contract. Thus, it is only logical that the
methodology employed by BFC should be credited.
Using 12 column forms as the minimum requisite and Form-
Eze having supplied only four (4) usable column forms, it can be
established that the delivered column forms can only be used for
1/3 portion of the 9,100 contact square meters or 3,033.33 contact
square meters. It was further proven by BFC that about 50% of the
column form requirements of the project were already completed
with the use of their own equipment. Thus, it is but equitable that
the 3,033.33 contact square meters be further reduced by 50% or
1,516.67 contact square meters. BFC is then liable to pay
P441,502.87 broken down as follows:
1,516.67 x P355.00
P538,417.85
=

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Less: Cost of Labor 96,915.00



P441,502.8
SUBTOTAL:
7
========
==
BFC is obliged to pay rental for
u-heads under Letter-Agreement
dated 5 January 2007.
Under the letter dated 8 February 2007, "BFC has completed
fabrication on a sufficient quantity of u-heads with screw assemblies
and heavy duty bases so that BFC can immediately start returning
the 24 inch and 18 inch u-head assemblies (561 pcs) and heavy
duty bases (483 pcs) which were on temporary loan to BFC by
[Form-Eze] until BFC could manufacture their own equipment. The
temporary loan was expected to be approximately [two] (2) weeks
and the equipment was picked-up January 9th, 2007 and still in
used today." 36 It is understood that upon expiration of the two-
week temporary loan and upon failure by BFC to return the
equipment, it is then liable to pay for rent. We find that the monthly
rental amount of P96,600.00 was substantiated by Form-Eze. 483
pieces of 24 inch and 18 inch galvanized adjustable heads and 483
pieces of galvanized heavy duty plates were indeed delivered to
BFC as evidenced by the delivery receipts. 37 According to Mr.
Clemente, Form-Eze's Sales Engineer, the rental amount for
adjustable u-heads are fixed at P160.00 per unit, while the
galvanized heavy duty plates are at P40.00 per unit. 38 By agreeing
to the terms of the 8 February 2007 Letter, BFC is deemed to have
acquiesced to the rental fee in case it failed to return the u-heads
and plates on time. Therefore, we affirm the CIAC's ruling that BFC
is liable to pay rental of the equipment in the amount of P96,000.00
per month until the equipment leased is fully returned to Form-Eze.
BFC President should not be included
as party to this case?
Section 4 of Executive Order No. 1008 vests jurisdiction on
CIAC over disputes disputes arising from, or connected with,
contracts entered into by parties involved in construction in the
Philippines, whether the dispute arises before or after the
completion of the contract, or after the abandonment or breach
thereof. Moreover, the party involved must agree to submit to
voluntary arbitration. In other words, anyone who is not a party to
the contract in his personal capacity is not subject to the jurisdiction
of the CIAC. In this case, Pineda signed the challenged contracts in
his capacity as President of BFC. There is no indication that he

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voluntarily submitted himself as a party to the arbitration case. In


fact, he has been consistently contesting his inclusion as a
respondent in the CIAC proceedings. CIAC however considered
Pineda as a joint tortfeasor, thus justifying his joinder as a co-
defendant.
We do not consider the imputed acts of Pineda as an indicia of
bad faith to classify him as a joint tortfeasor. First, it was proven
that Form-Eze is not entitled to all its monetary claims under the
contract. Second, we have also subscribed to BFC's position that
Contract No. 1 should have included a labor guarantee provision
and that it was by mistake that said clause was excluded. Third,
BFC's alleged refusal to return the u-head assemblies and heavy
duty bases was meted with a heavy penalty in the form of a huge
rental fee. BFC had, as a matter of fact, admitted to owing Form-Eze
rental payment. Fourth, the claim of threat against Form-Eze's
President is unsubstantiated and uncorroborated.
Attorney's Fees and Costs of Arbitration.
The controversy essentially boils down to the interpretation
and factual application of the existing contracts. Neither party was
able to prove bad faith in their dealing with each other. Under
Article 2208 of the Civil Code, attorney's fees may, among others,
be recovered where defendant acted in gross and evident bad faith
in refusing to satisfy the plaintiff's plainly valid, just and
demandable claim. We observe that in filing the complaint against
BFC, Form-Eze was merely seeking payment for its service under
the contract. BFC had admitted to its obligation. The problem lies
only on the amount to be paid. This is not tantamount to bad faith.
Finally, both parties should equally share the costs of
arbitration since their prayers were only partially granted. 39
WHEREFORE, the petition is PARTIALLY GRANTED. The
Decision dated 15 January 2010 and Resolution dated 13 July 2010
are MODIFIED. Petitioner B.F. Corporation is ordered to pay
respondent Form-Eze Systems, Inc. the following amounts: HSAcaE
Under Contract No. P11,857,317.
1: 45
Under Contract No.
2,358,442.50
2:
Under Contract No.
441,502.87
3:
Under Letter-
Agreement
dated 7 January
560,000.00
2007:

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P15,217,262
GRAND TOTAL:
.82
========
====
and 50% of the Cost of Arbitration.
SO ORDERED.
Velasco, Jr., Del Castillo, * Reyes and Jardeleza, JJ., concur.
||| (B.F. Corp. v. Form-Eze Systems, Inc., G.R. No. 192948, [December
7, 2016])

THIRD DIVISION

[G.R. No. 208672. December 7, 2016.]

PHILIPPINE NATIONAL BANK, petitioner, vs. PABLO V.


RAYMUNDO, respondent.

DECISION

PERALTA, J p:
This is a petition for review on certiorari under Rule 45 of
the Rules of Court, seeking to reverse and set aside the
Decision 1 dated May 31, 2013 and the Resolution dated August 14,
2013 of the Court of Appeals (CA) in CA-G.R. CV No. 96760. The CA
denied the appeal of Philippine National Bank (PNB) 2 from the civil
aspect of the Decision dated December 4, 2009 3 of the Regional
Trial Court (RTC) of San Pedro Laguna, Branch 93, which acquitted
Pablo V. Raymundo of the charge of violation of Section 3 (e) of
Republic Act (RA) No. 3019, otherwise known as the Anti-Graft and
Corrupt Practices Act, in Criminal Case No. 0414-SPL.
The CA summarized the facts as follows. 4
On July 30, 1993, accused-appellee Pablo V. Raymundo
(Raymundo), then Department Manager of PNB San Pedro Branch,
approved for deposit a foreign draft check dated June 23, 1993, in
the amount of $172,549.00 issued by Solomon Guggenheim
Foundation, drawn against Morgan Guaranty Company of New York,
payable to Merry May Juan (Ms. Juan) in the opening of the latter's
checking account with PNB San Pedro Branch. Consequent to the
approval for deposit of the foreign draft check, Checking Account

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No. 447-810168-1 and a check booklet were issued to Ms. Juan. On


even date, Ms. Juan drew six (6) PNB Checks, five (5) of which were
made payable to C&T Global Futures and one (1) payable to "CASH",
all in the aggregate amount of FOUR MILLION PESOS
(P4,000,000.00). The six (6) checks were negotiated by Ms. Juan
and were approved for payment on the same day by Raymundo,
without waiting for the foreign draft check, intended to fund the
issued check, to be cleared by the PNB Foreign Currency Clearing
Unit.
On August 2, 1993, the PNB Foreign Checks Unit and Clearing
Services received the foreign draft check for negotiation with
Morgan Trust Company of New York, through PNB's correspondent
bank in New York, the Banker's Trust Co. of New York (BTCNY_for
brevity).
On August 6, 1993 and within the clearing period of twenty-
one (21) days for foreign draft checks, the PNB received a telex
message from BTCNY that the foreign draft check was dishonored
for being fraudulent. Subsequent to the said telex message, a letter
dated August 20, 1993 was sent by BTCNY to the PNB Corporate
Auditor stating the same reason for such dishonor.
On September 9, 1993, Mr. Emerito Sapinoso, Department
Manager II of the PNB Foreign Currency Clearing Unit, sent a
memorandum to Raymundo, as then Manager of PNB San Pedro,
and informed the latter of the return and dishonor of the foreign
currency draft and the corresponding debit of the PNB's account to
collect the proceeds of the erroneously paid foreign draft check.
For irregularly approving the payment of the six (6) checks
issued by Ms. Juan, without waiting for the foreign draft check to be
cleared, Raymundo, as then Department Manager of PNB San Pedro
Branch, was administratively charged by PNB for Conduct Prejudicial
to the Interest of the Service and/or Gross Violation of Bank's Rules
and Regulations.
Accused Pablo V. Raymundo denied the allegations that he
committed acts which defrauded the PNB of the sum of
P4,000,000.00. Outlining the procedure from the time the check was
presented to the PNB San Pedro Laguna Branch where he worked as
Branch Manager up to the time it is paid or dishonored, he noted
that the check will pass through the bookkeeper, Ms. Leonida
Moredo, who would determine if the check is funded or not. If the
check is not funded, the bookkeeper will accomplish a check return
slip and will stamp the back and front of the check that it has no
funds and thereafter give it to the accountant, Rodrigo Camello, to
verify if indeed the check is not funded. After the receipt of the
check, the accountant will check the ledger and the circumstances

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of the return and thereafter forward the same to the branch


manager, or in his absence, the cashier. Upon receipt of the check
deposit slip, the branch manager, if there is no return slip, would
automatically sign the check because the absence of a return slip is
his guide that the check is good. He noted that it is the duty of the
bookkeeper to go over the records of the account of each particular
client. When he came to know that withdrawals had been made on
a deposited check which had no funds, he immediately instructed
bookkeeper Leonila Moredo and accountant Rodrigo Camello to hold
further withdrawals on the account. He likewise filed criminal
charges against Merry May Juan. The case was decided in his favor
and the accused therein was made to pay him and the bank the
amount of the check. There was no actual payment made however.
In an Information dated September 27, 1996, the Office of the
Ombudsman charged Raymundo with violation of Section 3 (e) of RA
No. 3019, to wit:
That on or about August 3, 1993, or subsequent
thereto, in San Pedro, Laguna, Philippines and within the
jurisdiction of this Honorable Court, accused Pablo V.
Raymundo, then the Assistant Department Manager of
PNB, San Pedro Branch, Laguna, and a public officer,
while in the performance and taking advantage of his
official function as manager, with evident bad faith,
manifest partiality, and gross inexcusable negligence,
did then and there willfully and unlawfully approve/allow
the encashment of a total of six (6) checks drawn
against an uncleared foreign checks in complete
disregard of existing banking regulations, that was
subsequently returned by the drawee bank as a
fraudulent foreign check, thus causing undue injury to
complainant PNB in the total sum of P4,000,000.00.
CONTRARY TO LAW.
Upon arraignment, Raymundo entered a plea of not guilty to
the charge. He waived his right to a pre-trial, and trial on the merits
ensued.
After trial, the RTC rendered the Decision dated December 4,
2009, the dispositive portion of which reads:
In light of the foregoing, it is very clear that the
prosecution failed to establish the guilt of accused Pablo
V. Raymundo beyond reasonable doubt for the crime
charged.

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Consequently, accused Pablo V. Raymundo is


hereby acquitted of the charge of Violation of Sec.
3(e), R.A. 3019.
No costs.
SO ORDERED.
The RTC held that it would be too harsh and inequitable to
impose criminal liability upon Raymundo, who approved the
withdrawal because of his belief that the checks were funded, due
to the absence of the stamp mark "Returned Check" on the checks,
and check return slips. Considering that Raymundo's duties as
Branch Manager entailed a lot of responsibility, the RTC found it
almost unreasonable to expect him to directly and personally check
the books of accounts of each particular client every time a check is
presented to the bank for payment and for his approval. The RTC
stressed that it has been established that the responsibility to go
over the account records of clients falls on the bookkeeper, and
Raymundo's act of relying upon the bookkeeper's verification that
the checks were good cannot be deemed gross and inexcusable
negligence.
Aggrieved, the PNB appealed from the civil aspect of the RTC
Decision which acquitted Raymundo of the charge of violation of
Section 3 (e) of R.A. No. 3019.
In a Decision dated May 31, 2013, the CA denied the PNB's
appeal for lack of merit. In a Resolution dated August 14, 2013, it
also denied the PNB's motion for reconsideration for lack of merit. It
ruled that Raymundo acted in good faith in relying upon his
subordinates, i.e., the bookkeeper and accountant, who were
primarily assigned with the task of clearing the checks and ensuring
that they are sufficiently funded. It held that he has no duty to go
beyond the verification of the documents submitted by the
bookkeeper and the accountant, and to personally authenticate the
procedures taken. It added that considering that his duties as
Branch Manager entails a lot of responsibility, it is unreasonable to
require him to accomplish and direct a personal examination of the
records of the account of each particular client before affixing his
signature on the documents as approving authority.
Dissatisfied, the PNB filed this petition for review
on certiorari, arguing that the CA committed serious errors, namely:
(1) when it ruled that the trial court aptly concluded that there was
lack of malice or bad faith, nor negligence on the part of Raymundo
in approving the payment of the checks; (2) when it failed to
consider Raymundo's negligence and entirely disregarded the
testimonial and documentary evidence of the PNB before the trial

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court; and (3) when it ruled that Raymundo is not civilly liable for
the offense charged. 5
The petition is meritorious.
The Court explains the two kinds of acquittal recognized by
law, as well their effects on the civil liability of the accused, thus:
Our law recognizes two kinds of acquittal, with
different effects on the civil liability of the accused. First
is an acquittal on the ground that the accused is not the
author of the act or omission complained of. This
instance closes the door to civil liability, for a person
who has been found to be not the perpetrator of any act
or omission cannot and can never be held liable for such
act or omission. There being no delict, civil
liability ex delicto is out of the question, and the civil
action, if any, which may be instituted must be based
on grounds other than the delict complained of. This is
the situation contemplated in Rule 111 of the Rules of
Court. The second instance is an acquittal based on
reasonable doubt on the guilt of the accused. In this
case, even if the guilt of the accused has not been
satisfactorily established, he is not exempt from civil
liability which may be proved by preponderance of
evidence only.
The Rules of Court requires that in case of an
acquittal, the judgment shall state "whether the
evidence of the prosecution absolutely failed to prove
the guilt of the accused or merely failed to prove his
guilt beyond reasonable doubt. In either case, the
judgment shall determine if the act or omission from
which the civil liability might arise did not exist." 6
In light of the foregoing, Raymundo can still be held civilly
liable for the charge of violation of Section 3 (e) of R.A. No.
3019 because he was only acquitted for failure of the prosecution to
establish his guilt beyond reasonable doubt, and the RTC and the CA
erroneously determined that no civil liability might arise from his act
of relying on the bookkeeper's verification that the six (6) checks
amounting to P4,000,000.00 were all good, but later turned out to
be drawn against uncollected deposit, i.e., the account has, on its
face, sufficient funds but not yet available to the drawer because
the deposit, usually a check, had not yet been cleared. 7
Factual findings of the appellate court generally are
conclusive, and carry even more weight when said court affirms the
findings of the trial court, absent any showing that the findings are

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totally devoid of support in the records, or that they are so glaringly


erroneous as to constitute grave abuse of discretion. 8 In this case,
however, both the RTC and the CA totally ignored the testimonial
and documentary evidence of the PNB, showing Raymundo's gross
negligence in approving the payment of six (6) checks negotiated
by Ms. Juan on August 3, 1993 and August 5, 1993, without waiting
for the foreign draft check intended to fund the peso checking
account she opened on July 30, 1993, to be cleared by the PNB
Foreign Currency Clearing Unit.
Despite their having been identified 9 and formally
offered 10 by PNB, and admitted in evidence 11 by the trial court,
the RTC and the CA failed to give due credence to Raymundo's
affidavits, complaints and testimonies before the other trial courts
in San Pedro, Laguna, where he had filed separate criminal and civil
cases against Ms. Juan and her cohorts in order to recover the value
of the six (6) checks which were encashed despite having been
drawn against uncollected deposit. Contrary to Raymundo's claim,
such extra-judicial admissions do not violate his right against self-
incrimination, which simply proscribes the legal process of
extracting from the lips of the accused an admission of guilt. Suffice
it to state that Raymundo's Complaints 12 and Affidavits 13 in the
civil and criminal cases he filed against Ms. Juan contain his
voluntary statements, which were subscribed and sworn to either
before the Assistant Provincial Prosecutor and the Judge or the
Notary Public, whereas his testimonies 14 were given during
hearings in the said cases. Clearly, Raymundo is not being
compelled to testify against himself. In the same vein, PNB cannot
be faulted for merely using the documentary and testimonial
evidence he willingly proffered in the cases he had filed to recover
the losses incurred by the bank due to his unauthorized approval for
payment of the six (6) checks drawn against the uncollected
deposit.
The circumstances showing Raymundo's gross negligence can
be gathered in the Complaint for sure of money he had filed against
Ms. Juan and her cohorts, to wit:
3. That on July 30, 1993, a group of persons
composed of the above-named defendants [including
Ms. Juan] who, for some time, have been known to the
plaintiff [Raymundo] as ranking and top executives of
the herein defendant corporation [payee C&T Global
Futures, Inc.] engaged in the foreign currency trading
business, came to the Office of herein plaintiff. They
intimated their plan of opening a current account with
the said San Pedro Branch of the Philippine National
Bank. They let it appear that this was in line with C&T

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Global Futures, Inc.'s on-going contest which the said


group wanted to win the first prize which was
purportedly a round-trip ticket to Hong Kong. For this
purpose, they wanted the checking account to be
opened immediately in the name of defendant Mary
May M. Juan with the amount of $172,549.00
(P4,778,744.55) embodied in a Morgan Guaranty and
Trust Company of New York Check No. 069748 as initial
deposit. They further assured the herein plaintiff that
some more dollars are coming in the near future if this
transaction would prosper;
4. That at first, plaintiff herein [Raymundo]
was a bit hesitant to immediately accommodate
the seemingly hasty manner of opening a current
account not only on the fact that the amount
involved was quite big but also on account that
he was dealing with a foreign check. But when
the group, particularly defendant "Cleo" Tan,
showed to him the record of a just-concluded
overseas call confirming that the said Morgan
Guaranty Company check was good, plaintiff
allowed the issuance of six (6) checks bearing
different dates in the total amount of
P4,000,000.00 all payable to herein defendant
corporation upon the undertaking of the group
that the same would not be "traded" or
negotiated until the said Morgan Guaranty Trust
Co. check has been finally cleared;
5. That in utter violation of the trust and
confidence reposed in them by the herein plaintiff,
defendants went on negotiating all those six (6) checks
until it was discovered that the said Morgan Guaranty
Trust Company Check No. 069748 was "FRAUDULENT"
and from all indications, herein defendants are parts of
the criminal syndicate; 15
Raymundo's gross negligence is likewise underscored in the
Affidavit dated October 25, 1993 he had executed to support his
complaint for estafa against Ms. Juan and her cohorts, thus:
2. That on July 30, 1993, while I was at the office
of PNB San Pedro, Laguna, Cleopatra Tan alias "Cleo",
Josefina Resari, and Merry May M. Juan, representing
themselves as department manager, Vice President and
employee, respectively of the C&T Global Futures, Inc.,
and some persons whose identities are not yet known,

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by false pretenses and fraudulent acts, intimated to me


their plan of opening a current account with the
Philippine National Bank San Pedro Branch;
3. That, they told me of their plan of opening a
current account in line with the C&T Global Futures,
Inc.'s on-going contest with the end in view of winning
its hefty first prize trip to Hong Kong and for that
purpose they are ready to make an initial deposit of
US$172,549.00, embodied in a Morgan Guaranty Trust
Company of New York [check];
4. That, because what was shown to me was
a foreign check and involving as it does a huge
amount of money, I was hesitant to accommodate
them and made further inquiries from them until
Cleopatra Tan gave me a very strong and
convincing assurance that the Morgan Guaranty
Check was good by way of telling me of a just-
concluded overseas call confirming that said
check was good, which facts she further buttressed
later by giving a copy of the bill of the detailed
transaction . . . ; IAETDc
5. That, not knowing their dirty scheme and
desirous to generate bigger bank deposits, I allowed
them to make an initial deposit of US$172,549.00
embodied as earlier stated in a Morgan Guaranty Trust
Company of New York [check] dated June 29, 1993
bearing No. 069748 with Merry May M. Juan as payee, . .
.;
6. That, having been fully assured that the
Morgan check is good and trusting on their
respective representations that they are top
executives of the C&T Global Futures, Inc., I
allowed the issuance of six (6) checks, as follows:
PAYEE AMOUNT CHECK DATE
NO.

C&T Global Futures, Inc. P1,090,000.00 004801 July 30, 1993


C&T Global Futures, Inc. 350,000.00 004802 July 30, 1993
C&T Global Futures, Inc. 350,000.00 004803 July 30, 1993
C&T Global Futures, Inc. 1,000,000.00 004804 July 30, 1993
C&T Global Futures, Inc. 1,000,000.00 004805 July 30, 1993
Cash 300,000.00 004806 August 5, 1993

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with a total amount of P4,000,000.00, Philippine


Currency . . . ;
7. That I allowed the aforecited checks to be
issued on the strong and collective undertaking
of all the accused, that the same would not be
traded until after the Morgan Guaranty Check
shall have been cleared;
8. That, in utter disregard of the trust and
confidence I reposed on all of them, in violation of their
undertaking, accused negotiated all the six (6) checks
until it was discovered that the Morgan Guaranty Check
was fraudulent . . . as per memorandum of the Assistant
Department Manager II Clearing Services Group,
Philippine National Bank dated September 9,
1993, . . . ; 16
While his prompt filing of criminal and civil cases against Ms.
Juan and her cohorts for the recovery of the money negates bad
faith in causing undue injury to the PNB, it incidentally revealed
Raymundo's gross negligence (1) in allowing the peso conversion of
the foreign check to be credited to her newly-opened peso checking
account, 17 even before the lapse of the 21-day clearing period,
and (2) in issuing her a check booklet, all on the very same day the
said account was opened on July 30, 1993. In his desire to secure
bigger bank deposits, Raymundo disregarded the bank's foreign
check clearing policy, and risked his trust and confidence on Ms.
Juan's and her cohorts' assurance that the foreign check was good
and that they would not negotiate any check until the former check
is cleared. DcHSEa

Since their business and industry are imbued with public interest,
banks are required to exercise extraordinary diligence, which is
more than that of a Roman pater familias or a good father of a
family, in handling their transactions. 18 Banks are also expected to
exercise the highest degree of diligence in the selection and
supervision of their employees. 19 By the very nature of their work
in handling millions of pesos in daily transactions, the degree of
responsibility, care and trustworthiness expected of bank
employees and officials is far greater than those of ordinary clerks
and employees. 20 SaCIDT
A bank's disregard of its own banking policy amounts to gross
negligence, which is described as "negligence characterized by the
want of even slight care, acting or omitting to act in a situation
where there is duty to act, not inadvertently but willfully and
unintentionally with a conscious indifference to consequences

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insofar as other persons may be affected." 21 Payment of the


amounts of checks without previously clearing them with the
drawee bank, especially so where the drawee bank is a foreign bank
and the amounts involved were large, is contrary to normal or
ordinary banking practice. 22 Before the check shall have been
cleared for deposit, the collecting bank can only assume at its own
risk that the check would be cleared and paid out. 23 As a bank
Branch Manager, Raymundo is expected to be an expert in banking
procedures, and he has the necessary means to ascertain whether a
check, local or foreign, is sufficiently funded.
Raymundo's act of approving the deposit to Ms. Juan's newly-
opened peso checking account of the peso conversion
[P4,752,689.65] 24 of the foreign check prior to the lapse of the 21-
day clearing period is the proximate cause why the six (6) checks
worth P4,000,000.00 were later encashed, thereby causing the PNB
undue injury. Defined as that cause which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces
injury and without which the result would not have occurred, the
proximate cause can be determined by asking a simple question: "If
the event did not happen, would the injury have resulted? If the
answer is no, then the event is the proximate cause." 25 If
Raymundo did not disregard the bank's foreign check clearing policy
when he approved crediting of the peso conversion of Ms. Juan's
foreign check in her newly-opened peso checking account, the PNB
would not have suffered losses due to the irregular encashment of
the six (6) checks.
It is well settled that actual damages, to be recoverable, must
not only be capable of proof, but must actually be proved with a
reasonable degree of certainty. To justify an award of actual
damages, there must be competent proof of the actual amount of
loss, credence can be given only to claims which are duly supported
by receipts, and courts cannot simply rely on speculation,
conjecture or guesswork in determining the fact and amount of
damages. 26 While the PNB claims having suffered damages to the
extent of P4,000,000.00 due to the encashment of checks drawn
against uncollected deposit, the testimonial and documentary
evidence on record show that it only incurred losses in the total sum
of P2,100,882.87. Based on the accounts receivable ledger 27 and
the PNB's letter 28 dated December 5, 1995, Raymundo's account
receivable was reduced to P2,100,882.87 after the application of six
(6) check payments aggregating P1,725,172.03 on October 1,
1993. cHECAS
Confirming the two documentary evidence, Jose Rodrigo
Cabello, PNB's own witness and former accountant of its San Pedro
Laguna Branch, has testified that the bank's losses out of

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Raymundo's approval of the checks per its accounts receivable


ledger, is around P2,100,000.00:
[Atty. Reyes Geromo, counsel for PNB and for the
prosecution]
Q. Mr. Witness, as of today do you know how much is still
the bank loss out of the said approval of withdrawal
by the accused?

xxx xxx xxx

[PNB Witness Jose Rodrigo Cabello]


A. Around P2,100,000.00, Sir. I think.
Q. And what was your basis Mr. Witness? Do you have
evidence to show that amount Mr. Witness?
A. Yes, Sir.
Q. What particular document, Mr. Witness?
A. The Accounts receivable ledger, Sir.
Q. When you said accounts receivable ledger, is this the
document previously marked as Exhibit "P", Mr.
Witness?
A. Yes, Sir. 29
Cabello's testimony is corroborated by Victor Arapan, PNB's
witness and accountant of its San Pedro Branch as of August 14,
2001, who testified that per its books of account, the amount of
P2,100,882.87 remained unpaid or uncollected by the bank, and is
still lodged as account receivable of "Merry May Juan c/o Pablo
Raymundo," and that as of said date, the damages sustained due to
the fraudulent encashment of the foreign check is
P5,524,023.57. 30 However, considering that it failed to formally
offer in evidence or at least attach to the record the statement of
account in order to prove such higher amount of damages, PNB can
only be awarded actual damages in the amount of
P2,100,882.87. AHDacC
Since PNB was unduly deprived of its use of the
P2,100,882.87 due to Raymundo's gross negligence, the Court also
finds it proper to impose on such forbearance of money the
following legal interests on the damages awarded, sans an express
contract as to such interest rate, in line with current
jurisprudence: 31 (1) twelve percent (12%) per annum reckoned
from the filing of the criminal information on May 19, 1997 which

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is the making of judicial demand for his liability until June 30,
2013; 32 (2) the reduced interest of six percent (6%) per
annum from July 1, 2013 33until finality of this Decision; and (3) the
interest rate of 6% per annum from such finality until fully paid.
WHEREFORE, premises considered, the petition
is GRANTED, and the Decision dated May 31, 2013 and the
Resolution dated August 14, 2013 of the Court of Appeals in CA-G.R.
CV No. 96760 are REVERSED and SET ASIDE. Accordingly,
petitioner Pablo V. Raymundo is ordered to pay the Philippine
National Bank actual damages in the amount of P2,100,882.87 with
the following legal interest rates, in line with current
jurisprudence: 34 (1) twelve percent (12%) per annum, reckoned
from the filing of the criminal information on May 19, 1997 until June
30, 2013; and (2) six percent (6%) per annum from July 1, 2013 until
finality of this Decision; and (3) six percent (6%) per annum from
such finality until fully paid.
SO ORDERED.
Velasco, Jr., Perez, Reyes and Jardeleza, JJ., concur.
||| (Philippine National Bank v. Raymundo, G.R. No. 208672, [December
7, 2016])

SPECIAL FIRST DIVISION

[G.R. No. 189563. December 7, 2016.]

GILAT SATELLITE NETWORKS,


LTD., petitioner, vs. UNITED COCONUT PLANTERS
BANK GENERAL INSURANCE CO., INC., respondent.

RESOLUTION

SERENO, C.J p:
Before this Court is petitioner's Motion for Partial
Reconsideration and/or for Clarification 1 and respondent's Motion
for Reconsideration 2 of this Court's Decision dated 7 April
2014. 3 The Court reversed the Decision 4 and Resolution 5 of the
Court of Appeals (CA) in CA-G.R. CV No. 89263, ordering petitioner
and One Virtual, Inc., to proceed to arbitration, the outcome of
which shall bind the parties herein.

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In Our Decision dated 7 April 2014, We held that as a surety to


the principal contract between petitioner (seller) and One Virtual
(buyer), respondent was liable to petitioner for the failure of One
Virtual to pay for the equipment delivered to the latter as buyer
under the Purchase Agreement. 6
We stressed that respondent cannot invoke as a defense the
arbitration clause in the Purchase Agreement, because the
existence of a suretyship agreement does not give the surety
(herein respondent) the right to intervene in the principal contract.
The liability of the surety is direct, primary and absolute, and it may
in fact be sued separately or together with the principal debtor. 7
Consequently, We found respondent liable to petitioner for
payment of the debt under the Surety Bond in the amount of one
million two hundred thousand dollars (USD 1.2 million), and interest
at the rate of 6% per annum from 5 June 2000 until satisfaction of
the obligation under the Suretyship Contract and Purchase
Agreement. 8
In its Motion for Reconsideration, respondent argues that
while the liability of a surety is principal and direct, such liability
presupposes the existence of a valid principal obligation. 9 In this
case, there is a principal contract, but the obligations stated therein
have not been complied with. There is allegedly no sufficient
evidence on record to prove that petitioner was able to install and
commission the equipment and deliver the software under the
Purchase Agreement. 10 The fulfilment of petitioner's obligation
under the Purchase Agreement would have given rise to the
concomitant obligation of the debtor or surety to pay. 11 Petitioner,
therefore, cannot demand payment if it has not complied with its
obligations. 12
Respondent also believes that the surety agreement must be
applied and interpreted together with the principal contract,
because the surety is bound by the terms and conditions thereof.
Necessarily therefore, the surety herein respondent can invoke
the arbitration clause found in the principal contract. 13
Anent the awarded interest, respondent avers that the Court
erred, because there is no evidence to prove that the delay caused
by respondent in the payment of the supposed obligation to
petitioner is inexcusable. Had the latter completed the delivery,
installation and commissioning of the equipment and software, One
Virtual would have made the proper payments, and respondent
would not have incurred any delay. 14
Likewise, respondent contests the award of attorney's fees, in
that the "mere fact that a party was compelled to litigate to protect

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its rights will not justify an award of attorney's fees under Article
2208 of the Civil Code when no sufficient showing of bad faith would
be reflected in the other party's persistence in a case other than an
erroneous conviction of righteousness of his cause." 15 Here,
petitioner allegedly failed to present even "a shred of evidence to
prove that respondent acted in gross and evident bad faith in
denying the claim of petitioner under the Surety Agreement." 16 In
fact, the lower court ruled that the delay incurred by respondent
was excusable, because the latter received advice from One Virtual
that petitioner had breached its obligation under the Purchase
Agreement and should therefore not be paid. 17 CAacTH
On the other hand, in its Motion for Partial
Reconsideration and/or for Clarification, petitioner prays for
the "reconsideration and/or clarification of the Decision with respect
to: (i) the rate of legal interest due on the principal debt of US$1.2
Million; (ii) legal interest due on the accrued interest on the principal
debt as of the filing of the Complaint; and (iii) the legal interest due
on the total award (i.e., principal, interest, interest on interest, and
the attorney's fees and litigation expenses) from finality of the
Decision until full payment thereof." 18
In particular, petitioner insists that while the Court correctly
held that respondent's obligation started to run from 5 June 2000
(the date of the extrajudicial demand), the imposed legal interest of
6%, by virtue of Bangko Sentral Circular No. 799 (effective 30 June
2013, series of 2013), must be imposed prospectively. Accordingly,
the legal interest of 12% per annum must be applied from 5 June
2000 up to 30 June 2013, and 6% per annum from 1 July 2013 until
full payment. 19
Petitioner also points out that whatever interest is due shall
itself earn legal interest from the time it is judicially demanded, in
accordance with Article 2210 of the Civil Code.20 It then claims
"interest on the accrued interest on the principal debt as of the
filing of the Complaint on [23 April 2002] when Gilat judicially
demanded payment of interest due on the principal debt," 21 as
follows: cEaSHC
13. As of [23 April 2002], the accrued interest on
the principal debt of US$1.2 Million (computed from 5
June 2000) is US$270,270. This is computed as follows:
US$1.2 Million x 12% x 1.88 years = US$270,270.
xxx xxx xxx
(a) 12% per annum from [23 April 2002] up to 30
June 2013 (i.e., US$270,270 x 12% x 11.19 years =
US$363,522.82); and

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(b) 6% per annum on US$270,270 from 1 July


2013 until finality of judgment. 22
Moreover, petitioner insists that when a monetary judgment
becomes final and executory, it shall earn legal interest from the
date of its finality until its satisfaction. Gilat prays that the "Decision
expressly state the legal interest of 6% shall be due from finality
until satisfaction, not only on the principal debt but also on the
accrued interest, interest on interests, and on the award of
attorney's fees and litigation expenses." 23
Overall, the Court is being asked to modify the Decision by
ordering respondent to pay petitioner the following amounts:
(a) US$1.2 Million representing the principal debt
under the Surety Bond;
(b) US$1,882,080 representing legal interest on
the principal debt of US$1.2 Million computed at 12%
per annum from June 5, 2000 up to June 30, 2013;
(c) Legal interest on the principal debt of US$1.2
Million computed at 6% per annum from July 1, 2013
until finality of judgment;
(d) US$363,522.82 representing legal interest on
the accrued interest of US$270,270 (i.e., the accrued
interest on the principal debt as of the date of the filing
of the Complaint on April 23, 2002) computed at 12%
per annum from April 12, 2002 up to June 30, 2013;
(e) Legal interest on US$270,270 (i.e., the accrued
interest on the principal debt as of the date of the filing
of the Complaint on April 23, 2002) computed at 6% per
annum from July 1, 2014 until finality of judgment;
(f) US$44,004.04 representing attorney's fees and
litigation expenses; and
(g) Legal interest on the total amount due (i.e.,
the sum of all the foregoing) as of the date of finality of
judgment computed at 6% per annum from the date of
finality until full satisfaction of the total amount due. 24
We agree with petitioner on all points.
First, We reiterate our ruling that although the contract of a
surety is in essence secondary only to a valid principal obligation,
the surety's liability to the creditor or the "promise" of the principal
is direct, primary and absolute. 25 The surety becomes liable for
the debt and duty of the principal obligor, even without possessing

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a direct or personal interest in the obligations constituted by the


latter. 26
It bears stressing that petitioner did in fact deliver the
equipment and licensing, but that the commissioning was not
completed because One Virtual was already in default at that
time. 27Had the latter paid its obligation on time, then petitioner
would not have been forced to stop the
commissioning. 28 Unfortunately, respondent miserably failed to
debunk this argument when it presented witnesses who had no
personal knowledge of petitioner's alleged breach of
contract. 29 The trial court rightly treated these testimonies as
hearsay. 30
Accordingly, respondent cannot invoke the arbitration clause,
because it is not a party to the principal contract: the Purchase
Agreement. 31 An arbitration agreement, being contractual in
nature, is binding only on the parties thereto, as well as their
assigns and heirs. 32 We have explained this exhaustively in Our
Decision dated 7 April 2014, but we deem it necessary to reiterate
the relevant portions, to wit:
First, we have held in Stronghold Insurance Co.,
Inc. v. Tokyu Construction Co. Ltd., that "[the]
acceptance [of a surety agreement], however, does not
change in any material way the creditor's relationship
with the principal debtor nor does it make the surety an
active party to the principal creditor-debtor relationship.
In other words, the acceptance does not give the surety
the right to intervene in the principal contract. The
surety's role arises only upon the debtor's default, at
which time, it can be directly held liable by the creditor
for payment as a solidary obligor." Hence, the surety
remains a stranger to the Purchase Agreement. We
agree with petitioner that respondent cannot invoke in
its favor the arbitration clause in the Purchase
Agreement, because it is not a party to that contract. An
arbitration agreement being contractual in nature, it is
binding only on the parties thereto, as well as their
assigns and heirs. CTIEac
Second, Section 24 of Republic Act No. 9285 is
clear in stating that a referral to arbitration may only
take place "if at least one party so requests not later
than the pre-trial conference, or upon the request of
both parties thereafter." Respondent has not presented
even an iota of evidence to show that either petitioner
or One Virtual submitted its contesting claim for

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[DECEMBER 2016 CASES] 192

arbitration. In no way can respondent be allowed to hide


behind the cloak of the arbitration agreement, because
it is not a party thereto, and there is no referral to
arbitrate.
Third, sureties do not insure the solvency of the
debtor, but rather the debt itself. They are contracted
precisely to mitigate risks of non-performance on the
part of the obligor. This responsibility necessarily places
a surety on the same level as that of the principal
debtor. The effect is that the creditor is given the right
to directly proceed to either principal debtor or surety.
This is the reason why excussion cannot be invoked. To
require the creditor to proceed to arbitration would
render the very essence of suretyship nugatory and
diminish its value in commerce. At any rate, as we have
held in Palmares v. Court of Appeals, "if the surety is
dissatisfied with the degree of activity displayed by the
creditor in the pursuit of his principal, he may pay the
debt himself and become subrogated to all the rights
and remedies of the creditor." 33 [Emphasis and citation
omitted]
Second, on the issue of whether or not there is inexcusable
delay, We have already pointed out that petitioner presented
sufficient evidence to prove that it had complied with the terms and
conditions under the Purchase Agreement. 34 The deposition of Mr.
Erez Antebi, vice president of Gilat, repeatedly stated that petitioner
had delivered all the equipment, including the licensed software;
and that the equipment had been installed and, in fact, gone into
operation. Notwithstanding these compliances, respondent still
failed to pay. 35 Assuming arguendo that the commissioning work
was not completed, respondent has no one to blame but its
principal, One Virtual; if only the latter had paid its obligation on
time, petitioner would not have been forced to stop operations. 36
It may not be amiss to point out that mere advice from buyer
One Virtual, Inc. that petitioner did not complete the installation,
testing and commissioning of the ordered equipment, cannot
constitute a solid defense without any effort on the part of
respondent to verify the claim. It would be the height of injustice to
excuse the latter from its liability simply because it received
unverified advice from One Virtual, Inc. advice that is, at best,
self-serving evidence. To accept respondent's defense would run
counter to the purpose of sureties, whose liability is direct, primary
and absolute.

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[DECEMBER 2016 CASES] 193

Third, on the interest to be imposed, we agree with petitioner


that interest on legal interest is due and demandable, pursuant to
Article 2212 of the Civil Code.37 We have emphasized this rule
in PCI Leasing and Finance, Inc. v. Trojan Metal Industries,
Inc., 38 when we said that Article 2212 had in fact been
"incorporated in the comprehensive summary of existing rules on
the computation of legal interest laid down by the Court in Eastern
Shipping Lines, Inc. v. Court of Appeals," 39 as follows:
In accordance with the rules laid down in Eastern
Shipping Lines, Inc. v. Court of Appeals [citation
omitted], we derive the following formula for the RTC's
guidance:
TOTAL AMOUNT DUE = [principal - partial
payments made] + [interest + interest on interest],
where
Interest = remaining balance x 12% per annum x
no. of years from due date (8 December 1998 when
demand was made) until date of sale to a third party
Interest on interest = interest computed as of the
filing of the complaint on 7 May 1999 x 12% x no. of
years until date of sale to a third party. 40
While Bangko Sentral-Monetary Board Circular No. 799 (Series
of 2013) modified the legal interest rate from 12% to 6% per
annum, the interest must be applied prospectively in accordance
with the Court's pronouncements in Nacar v. Gallery Frames. 41
Applying the ruling above, We recompute the interests due
petitioner, as follows:

1. the amount of USD 1.2 million representing the principal


debt under the Surety Bond;

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[DECEMBER 2016 CASES] 194

2. legal interest of 12% per annum of the principal amount of


USD 1.2 million reckoned from 5 June 2000 until 30 June
2013;
3. legal interest of 6% per annum on the principal amount of
USD 1.2 million from 1 July 2013 to date when this
Decision becomes final and executory;
4. 12% per annum applied to the sum of the interests stated
in paragraphs 2 and 3 from 23 April 2002, the date of
judicial demand, to 30 June 2013, as interest due
earning legal interest;
5. 6% per annum applied to the sum of the interests stated in
paragraphs 2 and 3 from 1 July 2013 to date, when this
Decision becomes final and executory, as interest due
earning legal interest; and
6. interest of 6% per annum on the total of the monetary
awards in paragraphs 1 to 5, from the finality of this
Decision until full payment thereof. SaCIDT
We do not deem it necessary to discuss in detail the award of
attorney's fees and litigation expenses awarded to petitioner, this
matter having been sufficiently threshed out by the trial court as
follows:
The court grants the claim of attorney's fees and
expenses in the total amount of Forty Four Thousand
Four Dollars and Four Cents (US$44,004.04) as having
been sufficiently established by the plaintiff (Exhibits
"I" to "SS" "SS-2," and as testified to by Mr.
Rizalino Castillo). 42 [Emphasis theirs]
WHEREFORE, in view of the foregoing,
we DENY respondent's Motion for
Reconsideration, GRANT petitioner's Motion for Partial
Reconsideration and/or for Clarification, and AFFIRM WITH
MODIFICATION our Decision dated 7 April 2014. Respondent
United Coconut Planters Bank General Insurance Co., Inc. is ordered
to pay petitioner Gilat Satellite Networks, Ltd. the following:
1. The amount of USD 1.2 million representing the principal
debt under the Surety Bond;
2. Legal interest of 12% per annum of the principal amount of
USD 1.2 million reckoned from 5 June 2000 until 30 June
2013;
3. Legal interest of 6% per annum of the principal amount of
USD 1.2 million from 1 July 2013 to date, when this
Decision becomes final and executory;

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[DECEMBER 2016 CASES] 195

4. 12% per annum applied to the sum of the interests stated


in paragraphs 2 and 3 from 23 April 2002, the date of
judicial demand, to 30 June 2013, as interest due
earning legal interest;
5. 6% per annum applied to the sum of the interests stated in
paragraphs 2 and 3 from 1 July 2013 to date, when this
Decision becomes final and executory, as interest due
earning legal interest;
6. Interest of 6% per annum on the total of the monetary
awards in paragraphs 1 to 5, from the finality of this
Decision until full payment thereof; and
7. The amount of forty-four thousand four dollars and four
cents (USD44,004.04) representing attorney's fees and
litigation expenses.
SO ORDERED.
Leonardo-de Castro, Bersamin, Reyes and Caguioa, * JJ.,
concur.
||| (Gilat Satellite Networks, Ltd. v. United Coconut Planters Bank
General Insurance Co., Inc., G.R. No. 189563 (Resolution), [December
7, 2016])

SECOND DIVISION

[G.R. No. 218014. December 7, 2016.]

EDDIE CORTEL y CARNA and YELLOW BUS


LINE, INC., petitioners, vs. CECILE GEPAYA-
LIM, respondent.

DECISION

CARPIO, J p:
The Case
Petitioners Eddie Cortel y Carna (Cortel) and Yellow Bus Line,
Inc. (Yellow Bus Line) assail the 16 October 2014 Decision 1 and 21
April 2015 Resolution 2 of the Court of Appeals Cagayan de Oro City
in CA-G.R. CV No. 02980. The Court of Appeals affirmed with
modification the Judgment, 3 dated 27 April 2012, of the Regional
Trial Court of Midsayap, Cotabato, Branch 18 (trial court), finding

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petitioners jointly and severally liable to the heirs of SPO3 Robert C.


Lim (Lim) for the latter's death. AaCTcI

The Antecedent Facts

The Court of Appeals narrated the facts as follows:


On 29 October 2004, Cortel was driving a bus, operated by
Yellow Bus Line, which was on its way from Marbel, Koronadal to
Davao City. At around 9:45 in the evening, as the bus was traversing
Crossing Rubber in the Municipality of Tupi, South Cotabato, Cortel
noticed two trucks with glaring headlights coming from the opposite
direction. Cortel stated that he was driving at a speed of 40 to 50
kilometers per hour. He claimed that upon noticing the trucks, he
reduced his speed to 20 kilometers per hour. However, the bus hit a
black motorcycle which allegedly had no tail light reflectors. The
impact dragged the motorcycle at a distance of three meters before
it came to a full stop. Lim, who was riding the motorcycle, was
thrown upward and then slammed into the bus, hitting the base of
its right windshield wiper. The motorcycle got entangled with the
broken bumper of the bus. According to Cortel, Lim was wearing a
black jacket and was riding without a helmet at the time of the
accident.
Felix Larang (Larang), the bus conductor, alighted from the
bus to aid Lim. Larang gave instructions to Cortel to move back to
release Lim and the motorcycle from the front bumper of the bus.
Two bystanders proceeded to the scene to assist Lim. After
reversing the bus and freeing Lim and the motorcycle, Cortel drove
the bus away and went to a nearby bus station where he
surrendered to authorities. Cortel claimed that he left the scene of
the incident because he feared for his life. EcTCAD
Respondent Cecile Gepaya-Lim, Lim's widow, filed a complaint
for damages against petitioners. The case was docketed as Civil
Case No. 05-010.
During trial, SPO4 Eddie S. Orencio (SPO4 Orencio), the officer
who investigated the incident, testified that Lim was driving a DT
Yamaha 125 black motorcycle when the accident took place.
Cortel's bus and the motorcycle were going in the same direction.
SPO4 Orencio testified that that the bus bumped the motorcycle
from behind. The motorcycle's engine and chassis were severely
damaged, while its rear rim was totally damaged by the accident.
Yellow Bus Line presented and offered in evidence
photographs showing that the bus' right front windshield and wiper
were damaged. The bus' lower right side bumper was also

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perforated. During the preliminary conference, Yellow Bus Line also


presented Cortel's certificates showing that he attended the
following seminars; (1) Basic Tire Care Seminar; (2) Basic Tire
Knowledge and Understanding Retreading; and (3) Traffic Rules and
Regulations, Defensive Driving and Road Courtesy Seminar.
However, the certificates were not offered in evidence during trial.

The Decision of the Trial Court

In its 27 April 2012 Judgment, the trial court established that


Cortel was at fault. The trial court found that the bus was running
fast when it bumped the motorcycle ridden by Lim. The trial court
ruled that the accident is the proximate cause of Lim's death. The
trial court also ruled that Yellow Bus Line failed to present sufficient
evidence to prove that it exercised due diligence in the selection
and supervision of Cortel.
The dispositive portion of the trial court's decision reads:
WHEREFORE, premises considered, the Court
hereby renders judgment against Defendants Eddie
Cortel y Carna and likewise against the owners of the
Yellow Bus Line, Inc., numbered bus with Body No. A-96,
and bearing Plate No. LWE-614, with PDL No. L05-30-
002730; thus pursuant to [A]rticles 2176 and 2180 of
the Civil Code of the Philippines[,] said Defendants are
ordered to pay jointly and severally to the plaintiffs the
following amount:
In favor of the heirs of Robert C. Lim represented
by Cecil[]e Gepaya Lim as the surviving spouse, and
with [a] living child, the death compensation of One
Hundred Fifty Thousand Pesos (P150,000.00), plus . . .
[:]
a) Funeral and burial expenses of Fifty Thousand
Pesos (P50,000.00); HSAcaE
b) [C]ompensation for loss of earning capacity in
the amount of P100,000.00;
(c) . . . Damages [to] the motorcycle in the
amount of [Fifteen Thousand Pesos] (P15,000.00);
d) Attorney's fees of Fifteen Thousand Pesos
(P15,000.00);
e) Costs of suit.
SO ORDERED. 4

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Petitioners appealed from the trial court's decision.

The Decision of the Court of Appeals

In its 16 October 2014 Decision, the Court of Appeals applied


the doctrine of res ipsa loquitor.
The Court of Appeals ruled that Lim died because of the
collision between the bus driven by Cortel and the motorcycle Lim
was riding. The Court of Appeals ruled that both vehicles were
driving in the same lane and were headed towards the same
direction. The Court of Appeals noted that vehicles running on
highways do not normally collide unless one of the drivers is
negligent. The Court of Appeals further ruled that Cortel had
exclusive control and management of the bus he was driving. The
Court of Appeals found no evidence that Lim had any contributory
negligence in the accident that resulted to his death. The Court of
Appeals ruled that petitioners failed to prove that the motorcycle
had no headlights or that Lim was not wearing a helmet. The Court
of Appeals stated that even if the motorcycle was black and Lim was
wearing a black jacket, these were not prohibited by traffic rules
and regulations. The Court of Appeals noted that upon impact, Lim's
body was thrown upward, indicating that Cortel was driving at high
speed. The damages to the motorcycle and the bus also disproved
Cortel's allegation that he was only driving at the speed of 20
kilometers per hour.
The Court of Appeals ruled that Yellow Bus Line failed to
exercise the care and diligence of a good father of a family in its
selection and supervision of its employees. The Court of Appeals
ruled that the certificates presented by Yellow Bus Line were not
admissible in evidence because the police officer who allegedly
signed them was not presented before the trial court. In addition,
Yellow Bus Line did not offer the certificates as evidence during trial.
The Court of Appeals modified the amount of damages
awarded to the heirs of Lim. Using the formula set by this Court
in The Heirs of Poe v. Malayan Insurance Company, Inc. 5 and Villa
Rey Transit, Inc. v. Court of Appeals, 6 the Court of Appeals
recomputed Lim's lost earning capacity, as follows:
Life expectancy = 2/3 x [80 - age of deceased at the time of
death]
2/3 x [80-41]
2/3 x [39]
FORMULA NET EARNING CAPACITY (NEC)

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If:
Age at time of death of Robert Lim = 41
Monthly Income at time of death = P13,715.00
Gross Annual Income (GAI) = [(P13,715.00) (12)] =
P164,580.00
Reasonable/Necessary Living Expenses (R/NLE) - 50% of GAI =
P82,290
NEC = [2/3 (80-41)] [164,580-82,290]
= [2/3 (39)] [82,290]
= [26] [82,290]
= P2,139,540.00 7
Thus, the Court of Appeals found that the award of P100,000
as death compensation given by the trial court to the heirs of Lim
was inadequate. However, the Court of Appeals reduced the amount
of death indemnity from P150,000 to P50,000. The Court of Appeals
deleted the P15,000 awarded by the trial court for the damages to
the motorcycle for absence of proof but awarded P25,000 for
funeral and burial expenses. In addition, the Court of Appeals
awarded P100,000 as moral damages to the heirs of Lim. The
dispositive portion of the Court of Appeals' decision reads:HESIcT
WHEREFORE, the Judgment dated 27 April 2012 of
the Regional Trial Court (Branch 18), 12th Judicial
Region, Midsayap, Cotabato, is AFFIRMED with
MODIFICATION. Defendant[]-appellants Eddie Cortel and
Yellow Bus Line, Inc. are hereby ordered to pay jointly
and severally plaintiff-appellee Cecile Gepaya-Lim the
following:
(1) Funeral and burial expenses of P25,000.00;
(2) Actual damages for loss of earning capacity of
P2,139,540.00;
(3) Moral damages amounting to P100,000.00;
(4) Death indemnity of P50,000.00; and
(5) Attorney's fees of P15,000.00
After this decision becomes final and executory,
interest at 12% per annum shall additionally be imposed
on the total obligation until full payment.
No costs.
SO ORDERED. 8

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[DECEMBER 2016 CASES] 200

Petitioners filed a motion for reconsideration. The Court of


Appeals denied the motion in its 21 April 2015 Resolution.
Hence, the recourse before this Court. caITAC

The Issue

Whether the Court of Appeals committed a reversible error in


affirming with modifications the decision of the trial court.

The Ruling of this Court

We deny the petition.


Petitioners want this Court to review the factual findings of
both the trial court and the Court of Appeals. Petitioners allege that
the trial court and the Court of Appeals erred in concluding that the
bus driven by Cortel was running fast when the accident occurred
and in applying the doctrine of res ipsa loquitur in this case.
The rule is that the factual findings of the trial court, when
affirmed by the Court of Appeals, are binding and conclusive upon
this Court. 9 It is also settled that questions regarding the cause of
vehicular accident and the persons responsible for it are factual
questions which this Court cannot pass upon, particularly when the
findings of the trial court and the Court of Appeals are completely in
accord. 10 While there are exceptions to this rule, the Court finds no
justification that would make the present case fall under the
exceptions.
As pointed out by the Court of Appeals, the result of the
collision speaks for itself. If, indeed, the speed of the bus was only
20 kilometers per hour as Cortel claimed, it would not bump the
motorcycle traveling in the same direction with such impact that it
threw its rider upward before hitting the base of its right windshield
wiper. If Cortel was driving at 20 kilometers per hour, the bus would
not drag the motorcycle for three meters after the impact. The
Court of Appeals likewise considered the damages sustained by
both the motorcycle and the bus which indicated that Cortel was
driving fast at the time of the accident. As regards petitioners'
allegation that Lim was equally negligent because he was riding
without a helmet and the motorcycle had no tail lights, the Court of
Appeals correctly found that it was self-serving because petitioner
did not present any evidence to prove this allegation.
We agree that res ipsa loquitur applies in this case. The Court
explained this doctrine as follows:

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While negligence is not ordinarily inferred or


presumed, and while the mere happening of an accident
or injury will not generally give rise to an inference or
presumption that it was due to negligence on
defendant's part, under the doctrine of res ipsa
loquitur, which means, literally, the thing or transaction
speaks for itself, or in one jurisdiction, that the thing or
instrumentality speaks for itself, the facts or
circumstances accompanying an injury may be such as
to raise a presumption, or at least permit an inference of
negligence on the part of the defendant, or some other
person who is charged with negligence.
. . . [W]here it is shown that the thing or
instrumentality which caused the injury complained of
was under the control or management of the defendant,
and that the occurrence resulting in the injury was such
as in the ordinary course of things would not happen if
those who had its control or management used proper
care, there is sufficient evidence, or, as sometimes
stated, reasonable evidence, in the absence of
explanation by the defendant, that the injury arose from
or was caused by the defendant's want of care.

xxx xxx xxx

The res ipsa loquitur doctrine is based in part upon the theory
that the defendant in charge of the instrumentality which causes
the injury either knows the cause of the accident or has the best
opportunity of ascertaining it and that the plaintiff has no such
knowledge, and therefore is compelled to allege negligence in
general terms and to rely upon the proof of the happening of the
accident in order to establish negligence. The inference which the
doctrine permits is grounded upon the fact that the chief evidence
of the true cause, whether culpable or innocent, is practically
accessible to the defendant but inaccessible to the injured
person. 11
The elements of res ipsa loquitur are: (1) the accident is of
such character as to warrant an inference that it would not have
happened except for the defendant's negligence; (2) the accident
must have been caused by an agency or instrumentality within the
exclusive management or control of the person charged with the
negligence complained of; and (3) the accident must not have been
due to any voluntary action or contribution on the part of the person
injured. 12

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In this case, Cortel had the exclusive control of the bus,


including its speed. The bus and the motorcycle were running in the
same traffic direction and as such, the collision would not have
happened without negligence on the part of Cortel. It was
established that the collision between the bus and the motorcycle
caused Lim's death. Aside from bare allegations that petitioners
failed to prove, there was nothing to show that Lim had contributory
negligence to the accident. cDHAES
The rule is when an employee causes damage due to his own
negligence while performing his own duties, there arises a
presumption that his employer is negligent. 13 This presumption
can be rebutted only by proof of observance by the employer of the
diligence of a good father of a family in the selection and
supervision of its employees. In this case, we agree with the trial
court and the Court of Appeals that Yellow Bus Line failed to prove
that it exercised due diligence of a good father of a family in the
selection and supervision of its employees. Cortel's certificates of
attendance to seminars, which Yellow Bus Line did not even present
as evidence in the trial court, are not enough to prove otherwise.
We sustain the Court of Appeals in its award of loss of earning
capacity and damages to respondent. The increase in the award for
loss of earning capacity is proper due to the computation of the
award in accordance with the following formula:
Net earning capacity = Life Expectancy x [Gross Annual
Income - Living Expenses (50% of gross annual
income)], where life expectancy = 2/3 (80 - the age of
the deceased). 14
We note that the Court of Appeals clearly intended to award
to respondent temperate damages amounting to P25,000 for burial
and funeral expenses, instead of the P15,000 representing the
actual damage to the motorcycle awarded by the trial court,
because no evidence was presented to prove the same. However,
the term "temperate damages" was inadvertently omitted in the
dispositive portion of the Court of Appeals' decision although it was
stated that the amount was for funeral and burial expenses. We
reduce the interest rate to 6% per annum on all damages awarded
from the date of finality of this Decision until fully paid. ASEcHI
WHEREFORE, we DENY the petition.
We AFFIRM with MODIFICATION the 16 October 2014 Decision
and 21 April 2015 Resolution of the Court of Appeals Cagayan de
Oro City in CA-G.R. CV No. 02980. We ORDER petitioners Eddie
Cortel y Carna and Yellow Bus Line, Inc. to pay jointly and severally
respondent Cecile Gepaya-Lim the following:

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(1) Award for loss of earning capacity amounting to


P2,139,540;
(2) Temperate damages amounting to P25,000;
(3) Death indemnity amounting to P50,000;
(4) Moral damages amounting to P100,000; and
(5) Attorney's fees amounting to P15,000
We impose an interest rate of 6% per annum on all damages
awarded from the date of finality of this Decision until fully paid.
SO ORDERED.
||| (Cortel y Carna v. Gepaya-Lim, G.R. No. 218014, [December 7,
2016])

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